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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
COMMISSION FILE NUMBER 0-15325
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INFORMIX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-3011736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 BOHANNON DRIVE, MENLO PARK, CA 94025
(Address of principal executive office)
650-926-6300
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01
PAR VALUE
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
the 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K/A. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of January 31, 2000 based on the closing sales price of the
Company's Common Stock, as reported on The Nasdaq Stock Market, was
approximately $2,590,699,250. Shares of Common Stock held by each officer and
director have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
As of January 31, 2000, Registrant had 207,255,940 shares of Common Stock
issued and outstanding.
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INFORMIX CORPORATION
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I........................................................................ 1
ITEM 1. BUSINESS.................................................... 1
ITEM 2. PROPERTIES.................................................. 14
ITEM 3. LEGAL PROCEEDINGS........................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
PART II....................................................................... 16
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 16
ITEM 6. SELECTED FINANCIAL DATA..................................... 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 49
PART III...................................................................... 51
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.............. 51
ITEM 11. EXECUTIVE COMPENSATION...................................... 51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 51
PART IV....................................................................... 52
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K....................................................... 52
SIGNATURES.................................................................... 57
PART I
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
"FACTORS THAT MAY AFFECT FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN, OR
INCORPORATED BY REFERENCE INTO, THIS REPORT.
ITEM 1. BUSINESS
Informix Corporation is a leading supplier of information management
software and solutions to governments and enterprises worldwide. We design,
develop, manufacture, market and support
- Object-relational and relational database management systems
- Connectivity interfaces and gateways
- Graphical and character-based application development tools for building
database applications that allow customers to access, retrieve and
manipulate business data
Our software solutions include high performance online transaction
processing applications, data warehouse applications, and dynamic web/content
management applications. We offer complete database solutions by building
strategic relationships with application, hardware, and systems integration
providers.
Our solutions are used in many industries, including retail,
telecommunications, financial services, healthcare, pharmaceutical/biochemistry,
manufacturing, and media and publishing.
On November 30, 1999, we reached a definitive agreement to acquire Ardent
Software, Inc. ("Ardent"), a leading provider of data integration solutions in
the business intelligence and Internet markets. Under terms of the agreement,
3.5 shares of Informix common stock will be exchanged for each outstanding
Ardent share and Informix will assume all outstanding Ardent options and
warrants. We expect to close the transaction in the first quarter of 2000. The
acquisition of Ardent will enhance our ability to deliver complete, integrated
software solutions for data processing, data movement and analysis in electronic
commerce.
On October 8, 1999, we expanded our ability to deliver distributed eBusiness
applications by acquiring Cloudscape, Inc. ("Cloudscape"), a privately-held
provider of synchronized database solutions for the remote and occasionally
connected workforce. We issued approximately 10 million shares of Informix
common stock in exchange for all of Cloudscape's outstanding stock and options.
Cloudscape's small footprint, sophisticated application and data synchronization
technology is now offered as part of our database server products. See
"Products--Solutions" below.
BACKGROUND
Today's organizations generate and store ever-increasing amounts of
information. Databases and database management systems were developed to
electronically store, manage, retrieve and analyze information (data) in the
most efficient way possible. In general, databases represent large aggregations
of data records, such as sales transactions, inventories, and customer profiles.
Database management systems ("DBMS") control the organization, storage,
retrieval, security and integrity of data in a database. By managing user
read/write authorizations, the DBMS also allows concurrent access to the stored
data by multiple users without corrupting the underlying data.
Relational databases, developed in 1970, address the issues of data
redundancy and data dependence common in pre-relational or hierarchical
databases. By organizing the data into pre-defined and related tables,
relational database management systems ("RDBMS") protect the integrity of the
data and improve the efficiency of the database. A relational database also has
the important advantage of being easy to extend with new data categories.
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Organizations commonly employ RDBMS software for use in storing, managing
and retrieving the large amounts of data necessary to support four types of
systems:
- Internal management information systems, such as accounting, human
resources and manufacturing
- Mission-critical online transaction processing ("OLTP") systems that
process business information from a large number of locations or users
- Data warehousing/data mart systems that aggregate data from multiple OLTP
systems and perform sophisticated analyses to support business decisions
- Internet applications, including dynamic site publishing, information
retrieval and electronic commerce.
We believe that technological advances, including the development and
commercialization of the Internet, will continue to lead to increasingly
sophisticated customer requirements for data storage and management beyond the
functionality offered by conventional RDBMS products. In recent years, the types
and quantities of data required to be stored and managed has grown increasingly
complex and includes audio, video, text and three dimensional graphics in
addition to conventional character data. Since 1996, we have devoted substantial
resources to the development of object-relational database management systems,
which provide RDBMS functionality for complex data such as images, video, audio
and spatial data, and tools for applications in multimedia and entertainment,
digital media publishing, retail and financial services.
We market our products to end-users on a worldwide basis directly through
our sales force and indirectly through application resellers, original equipment
manufacturers ("OEMs") and distributors. The principal geographic markets for
our products are North America, Europe, the Asia/Pacific region, and Latin
America. In recent years, approximately half of our total revenues have been
generated outside North America. Our customers include businesses ranging from
small corporations to Fortune 1000 companies. We also market our products to
state, local and national governments.
PRODUCTS
Our products can be divided into three main categories:
- SOLUTIONS, which combine both software and services into business
solutions for data warehousing, web-based enterprise repositories and
electronic commerce.
- SOFTWARE PRODUCTS, which include our database management systems,
integration products and tools.
- SERVICES, including maintenance, consulting, education and training and
customer support.
SOLUTIONS
In 1999, we continued to develop complete solutions, including our database
engines, related application software and consulting services, for data
warehousing, Web-based enterprise repositories and electronic commerce.
INFORMIX DECISION FRONTIER-TM- SOLUTION SUITE is our integrated suite of
products for deploying data warehouses and data marts. Informix Decision
Frontier Solution Suite consists of:
- INFORMIX DYNAMIC SERVER.2000 with Advanced Decision Support and Extended
Parallel Options--our core database system with features designed to
support large general purpose data warehouses.
- INFORMIX RED BRICK DECISION SERVER--our database designed specifically for
single-purpose data marts.
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- INFORMIX METACUBE--our relational online analytical processing (ROLAP)
business analysis environment for Informix and Oracle databases. Metacube
provides a multidimensional view of warehouse data so it can be compared
and analyzed over various combinations of business dimensions, such as
time and geography.
- INFORMIX DATASTAGE--an extract, transfer and load tool for extracting data
from multiple sources and loading it into the data warehouse.
- SEAGATE CRYSTAL INFO--a distributed report creation system that presents
data analysis results flexibly and attractively.
- INFORMIX DECISION FASTSTART--a consulting and service package that helps
customers reduce the timetable for designing and implementing data
warehouses.
In addition, we also developed two Informix Decision Solution Suites for
specific industry markets: Informix Decision Solution for Telecommunications and
Informix Decision Solution for Financial Services.
INFORMIX INTERNET FOUNDATION.2000 is an application development platform
for the Internet which provides the tools and features to publish
business-critical data to the Internet and enable sophisticated Internet
applications and electronic commerce. Informix Internet Foundation.2000 consists
of:
- INFORMIX DYNAMIC SERVER.2000--designed for the most demanding OLTP,
e-commerce, and Web applications. Informix Dynamic Server.2000 is fully
integrated with Informix's unique extensibility technology, including
support for DataBlade modules.
- INFORMIX J/FOUNDATION--an open, flexible, embedded Java Virtual Machine
(JVM) environment that delivers scalable and highly performant Java
applications by executing them directly in the server.
- INFORMIX WEB DATABLADE MODULE--a collection of tools, functions, and
examples that ease development of "intelligent," interactive, Web-enabled
database applications.
- EXCALIBUR TEXT DATABLADE MODULE--provides full-text searching of any type
of text, directly inside of the Database engine.
- INFORMIX OFFICE CONNECT--allows extraction of data from an Informix
database regardless of the data type and then transfer to a customized
Microsoft Excel document.
INFORMIX MEDIA360 provides a complete environment to collect, index,
retrieve, and distribute content and media assets. It is tightly integrated with
object-relational technology, leading content creation tools, Web publishing,
electronic commerce, and analytic solutions.
INFORMIX I.REACH is our Web-based enterprise repository solution that
allows organizations to manage enterprise information across intranet, extranet
and Internet environments. Informix i.Reach allows content authors to publish
and distribute their own content, reducing the time and cost associated with
managing and maintaining corporate information.
INFORMIX I.SELL is our electronic storefront solution that integrates our
database technology with application server technology and application software
to provide a complete, rapidly deployable electronic commerce solution.
Electronic commerce Web sites built with Informix i.Sell are capable of
dynamically merchandising products tailored to each shopper, handling large
numbers of transactions, and collecting and analyzing customer data to improve
profitability.
SOFTWARE PRODUCTS
DATABASE MANAGEMENT SYSTEMS
INFORMIX INTERNET FOUNDATION.2000 provides the tools and features to publish
business-critical data to the Internet and enable sophisticated Internet
applications and electronic commerce.
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Informix Internet Foundation.2000 has the following major components:
- INFORMIX DYNAMIC SERVER.2000 is the database server for Informix Internet
Foundation.2000 and is the next generation of our flagship database
server. Informix Dynamic Server.2000 delivers an industry-proven
transaction engine for mission-critical applications while providing an
upgrade path to the Internet. Capable of supporting thousands of
concurrent users, Informix Dynamic Server.2000 delivers reliability,
availability, and scalability to power the largest transaction processing
systems.
- INFORMIX J/FOUNDATION has integrated Java, the programming language of the
Internet, into J/Foundation--an open, flexible, embedded Java Virtual
Machine (JVM) environment that delivers scalable Java applications by
executing them directly in the server.
- INFORMIX WEB DATABLADE MODULE VERSION 4.0, the new release of the Web
DataBlade module, extends the functionality of both Informix Dynamic
Server.2000 and Informix Internet Foundation.2000 with features that ease
the development, management, and deployment of database applications for
the Web.
- INFORMIX EXCALIBUR TEXT DATABLADE MODULE VERSION 1.30 module provides full
text searching of documents and text fields directly inside the database
engine in virtually any format that contains ASCII and ISO characters.
Fuzzy search capabilities allow users to find results regardless of errors
in data entry that would otherwise cause them to be overlooked in standard
text searches. Boolean, phrase, and synonym searching allow users a wide
range of capabilities in customizing their queries. This DataBlade module
supports any language, word, or phrase that can be expressed in an 8-bit,
single-byte character set. Formatted documents such as PDF, Microsoft
Word, and HTML can be filtered prior to indexing.
- INFORMIX OFFICE CONNECT VERSION 1.0 is a new product that simplifies the
task of retrieving data (time series, opaque, or SQL2) and visualizing it
in Microsoft Excel worksheets--regardless of the data types behind the
data. Informix Office Connect's sophisticated connection and model-view
controller architecture provides power and ease of use. This design
utilizes database schema images (model views of the database structure) to
generate optimized SQL commands that populate Excel worksheets and manage
all interactions between the client and the database server.
- INFORMIX DATABLADE DEVELOPERS KIT VERSION 4.0 allows customers to create
DataBlade modules using the DataBlade Developers Kit when a DataBlade
module does not currently exist to fit the customer's particular need.
This allows the database server to accommodate new business requirements
as they evolve.
- INFORMIX CONNECT 2.30 (I-CONNECT) is a runtime connectivity product that
includes the runtime libraries of our application programming interfaces
that comprise Informix Client SDK. These libraries are required by
applications running on client machines to access Informix servers.
I-Connect is needed when finished applications are ready to be deployed.
- INFORMIX SERVER ADMINISTRATOR 1.0, the first in a new generation of Web
browser-based and cross-platform administrative tools, is a tool that
provides access to every Informix Dynamic Server command line function and
presents the output in an easy-to-read format.
CLOUDSCAPE product family provides a 100% Pure Java SQL DBMS and
synchronization to address the stringent demands of eBusiness. Our Cloudscape
product family allows companies to create synchronized applications that can be
deployed outside the firewall to partners, customers and mobile workers. The
Cloudscape product family is designed to support three fundamental needs:
- The creation of sophisticated, cost-effective deployed eBusiness
applications, typically eCatalogs and deployed portals.
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- The local data management needs of Java applications, particularly those
meant for resale, where platform independence is a critical requirement.
- The database-enabling of Java-supported devices of all kinds, including
telecommunication switches, non-traditional computing devices, and future
light-weight devices.
INFORMIX DYNAMIC SERVER.2000. The core of our product offering is Informix
Dynamic Server.2000-TM- ("IDS.2000"), our powerful, multithreaded enterprise
database server designed for scalability, manageability, and performance.
IDS.2000 offers full RDBMS functionality across various hardware architectures
(uniprocessor, symmetric multiprocessor, symmetric multiprocessor clusters, and
massively parallel processing architectures) and database models (relational and
object-relational) to enable seamless migration of applications, data and
skills. As an open system built to support industry standards, IDS.2000 uses a
single architecture for the Windows NT, UNIX and Linux operating systems. We
also provide workgroup, personal and developer versions of IDS.2000, which have
been adapted for workgroup, single-user and development environments. Based on
our Dynamic Scalable Architecture, IDS.2000 features parallel data processing
capability, replication and connectivity options built into its core. IDS.2000
supports extensibility, as well as SQL3 and DataBlades modules. Extensibility
includes the ability to add new objects and data types, such as images, audio,
video and spatial data, business specific procedures and logic, and new indexing
search methods to the server. DataBlade modules encapsulate specific datatypes
and logic for integration with IDS.2000 so that organizations can extend the
functionality of the database to support datatypes unique to an organization.
RED BRICK DECISION SERVER. Unlike traditional OLTP databases, Informix Red
Brick Decision Server is a specialized database technology designed to meet the
requirements of data marts and single-subject data warehouse without the
complexity and overhead that OLTP technology imposes.
EXTENDED PARALLEL SERVER is designed for the largest, most demanding, and
complex data warehouse applications, using a sophisticated shared-nothing
underlying architecture. Informix Extended Parallel Server provides:
- No ceilings scalability across every available hardware resource.
- Query performance in complex, ad hoc environments.
- Fully parallel load functionality so that data can be loaded within a
narrow batch window.
- Data access performance through advanced, patented indexing methods.
- Data skew management tools so that system resources are efficiently
utilized.
- Query management tools to help control the impact of intensive, concurrent
query processing.
METACUBE is our on-line analytical processing (OLAP) product. MetaCube is a
fully extensible business intelligence solution, optimized for smarter data
access, analysis, and reporting. As an integral component of Informix Decision
Frontier-TM-, MetaCube delivers the most complete, flexible, and customizable
decision-support environment for data warehouses and data marts.
TOOLS
INFORMIX DATASTAGE is an integrated set of tools designed to simplify and
automate the extraction, transformation, and maintenance of data from multiple
operational sources into Informix data mart targets. Informix DataStage's visual
design tool enhances productivity by enabling users to design the data movement
process using a direct visual model.
INFORMIX VISIONARY is a no-code, enabling technology that brings powerful
visual information and exploration capabilities. Informix Visionary provides a
window, or portal, into all corporate data through
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the creation of "worlds" or applications. Users can explore each of these worlds
or applications to see ever-increasing levels of detail. The full product suite
includes Visionary Studio, a no-code authoring environment, and a runtime viewer
that can be embedded as an ActiveX control, providing seamless integration with
other best-of-breed development tools.
INFORMIX DATA DIRECTOR product suite is an advanced solution for building
Web-ready, dynamic content management applications. Data Director greatly
reduces the amount of application code developers need to write for
client/server solutions by automating all of the data access operations of the
client application. Informix Data Director for Visual Basic is a powerful,
model-driven data access and data management platform that enables Visual Basic
developers to create scalable database-aware forms. Informix Data Director for
Web is a robust and visually intuitive development environment that enables
developers to quickly prototype, build, and deploy dynamic Web applications.
INFORMIX 4GL product family includes Informix 4GL Rapid Development System,
Informix 4GL Interactive Debugger and Informix 4GL Compiler. Together they
form a comprehensive fourth-generation application development and production
environment that provides abundant power and flexibility without the need for
third-generation languages like C or COBOL.
INFORMIX DYNAMIC 4GL is the latest addition to the Informix 4GL product
family and enables transformation of character-based 4GL programs into Windows
and Motif Graphical User Interface database applications, with a simple
recompile. Informix Dynamic 4GL offers customers a choice of deployment options
from character, Windows 3.11, Windows 95, Windows NT and X11 Window System (UNIX
and Macintosh) clients, to NT and UNIX servers. Informix Dynamic 4GL's "thin
client" three-tier architecture, combined with these flexible deployment
options, allows customers to deploy new, state-of-the-art Graphical User
Interface applications within existing desktop and network infrastructures.
INTEGRATION PRODUCTS
Where companies once stored their data on mainframes, today their
applications may be spread across divergent computing platforms, operating
systems, and databases, including proprietary and open, relational and
non-relational. These disparate applications present a major challenge for IS
departments, which need to ensure that end users have easy access to the data
they need--regardless of where the data is located. To address this challenge,
Informix offers a variety of connectivity and gateway products that make
enterprisewide data access a reality.
CONNECTIVITY PRODUCTS
INFORMIX CLIENT SDK offers customers a single packaging of several
application programming interfaces (APIs) needed to develop for Informix
servers. These interfaces allow developers to write applications in the language
they are familiar with, whether it be Java, C++, C, or ESQL.
INFORMIX ESQL/C provides the convenience of entering SQL statements directly
into the C language source code. Developers can use SQL to issue commands to the
Informix server and to manage the result sets of data from queries. Informix
ESQL/C provides low level control over the application for session management
and error handling and gives the developer direct access to all database
functions.
INFORMIX CLI is the Informix implementation of the Open Database
Connectivity (ODBC) 2.5 standard for developers and end users wanting to deploy
applications that require access across heterogeneous databases. Informix CLI
allows any ODBC compliant application to connect to any Informix server.
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INFORMIX OBJECT INTERFACE FOR C++ allows developers using C++ to work with
the Informix server product line through a single object oriented application
programming interface. It delivers the scalability and extensibility of Informix
servers to application software developers in a programming model familiar to
C++ and Microsoft Component Object Model (COM) programmers. Informix Object
Interface for C++ supports datatype extensibility and user defined function
extensibility.
INFORMIX CONNECT is a runtime connectivity product which includes the
runtime libraries of the Informix application programming interfaces. Informix
Connect is the runtime component of ClientSDK.
INFORMIX JDBC DRIVER is a native Java driver that connects platform
independent client side Java applications to any currently shipping and
supported Informix database. The Informix JDBC Driver is based on the JDBC 1.22
specification from Sun Microsystems, and provides a standard database
connectivity API to use for all current and future Java applications built on
Informix.
INFORMIX DCE/NET is a DCE based connectivity product that allows customers
to access Informix databases transparently through Microsoft's Open Database
Connectivity (ODBC) interface while taking advantage of such DCE features as
security and naming services.
INFORMIX OPEN is a set of libraries that allows Informix ODBC compliant
applications to connect to and interact with an Informix, Oracle, or Sybase
database server.
GATEWAY PRODUCTS
INFORMIX ENTERPRISE GATEWAY MANAGER is a member of the Informix Enterprise
Gateway family, a complete set of standards based gateways. Enterprise Gateway
Manager is a high performance gateway solution that allows Informix application
users and developers to transparently access Oracle, Sybase, DB2, and other
non-Informix databases.
INFORMIX ENTERPRISE GATEWAY FOR EDA/SQL allows tools and applications
running on UNIX and Microsoft Windows to access data located anywhere in your
enterprise. It provides both SQL and remote procedure call access to over 60
relational and nonrelational data sources on 35 different hardware platforms and
operating systems.
INFORMIX ENTERPRISE GATEWAY WITH DRDA integrates IBM relational databases
(i.e., DB2, DB2/400, and DB2/VM) with Informix applications on open systems
without the need for host resident software.
DATABLADES
Informix DataBlade modules extend Informix Dynamic Server.2000 to manage
rich, diverse data. DataBlade modules integrate traditional alphanumeric data
types with rich content, without sacrificing the reliability and scalability of
the traditional relational DBMS. We offer DataBlade modules for text, rich
content, unicode, video, geodetic, spatial and time series data. Additional
DataBlade modules are available from third parties, including DataBlade modules
for local languages, advanced search and retrieval capabilities, digital media,
spatial and geo-spatial applications, messaging, data warehousing (data
cleansing, qualification and queries), bio-informatics and medical imaging and
security.
TEXT DATABLADE allows full-text search of data in the database. The Text
DataBlade is designed to provide advanced search and retrieval functionalities
not available in the base DBMS product, such as clustering, summarization and
support for over 100 different file formats.
DIGITAL MEDIA DATABLADE enables intelligent and contextual search of
captions to improve the retrieval of multimedia content. It provides image
retrieval and feature management for digital images, and allows for support
analysis and visual retrieval of video sequences.
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GEOSPATIAL DATABLADE provides for the manipulation, query, analysis, and
display of geographic data. It adds spatial data management functionality to the
server in conformance with the OpenGIS Consortium's standard, and enables
developers to deliver sophisticated spatially enabled applications. It also
allows for the storage and manipulation of objects in four dimensions--latitude,
longitude, altitude, and time. It is specifically designed to manage
spatio-temporal data with global content, such as satellite image metadata.
DATA WAREHOUSE DATABLADE provides native support within the database for
near-online optical storage.
WEB/ECOM DATABLADE is a complete set of tools, functions, and examples for
developing complex database driven web sites. It extends the server with
transactional publish and subscribe capability.
FINANCIAL DATABLADE provides support for the management and analysis of
time-series and temporal data.
HEALTHCARE DATABLADE allows non-M databases to access and update information
stored in M-based databases.
SECURITY DATABLADE transparently adds high granular database security by
providing role-based access and encryption to the item or object level.
UNICODE DATABLADE allows customers to store, access and manipulate native
Unicode data in the same way in which variable character data is manipulated.
SERVICES
We maintain field-based and centralized corporate technical staffs to
provide a comprehensive range of assistance to our customers. These services
include pre-sales and post-sales technical assistance, consulting, product and
sales training and technical support services. Consultants and trainers provide
services to customers to assist them in the use of our products and the design
and development of applications that utilize our products.
We provide post-sales support to our customers on an optional basis for
annual fees which generally range from 16% to 24% of the license fees paid by
the customer. These support services usually include product updates.
MARKETING AND CUSTOMERS
We distribute our products through the channels of direct end-user
licensing, OEMs, application vendors addressing specific markets, and
distributors. We have chosen a multiple channel distribution strategy to
maintain broad market coverage and product availability. We have generally
avoided exclusive relationships with our licensees and other resellers of our
products. Discount policies and reseller licensing programs are intended to
support each distribution channel with a minimum of channel conflict. For 1999,
sales of licenses directly to end users accounted for 65% of our total license
revenues and sales to OEMs and sales through distributors and resellers
accounted for 35% of our total license revenues.
At December 31, 1999, our sales, marketing and support staff totaled 1,002
employees in the North America region; 153 employees in the Latin America
region; 625 employees in Europe, the Middle East and Africa; and 356 employees
in the Asia/Pacific region.
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LICENSING
END-USER LICENSING
We license our products to organizations worldwide through our direct sales
force, value-added resellers and telemarketing. We believe that the common core
technology of our database management system products, based on standard
operating systems and the SQL database language, helps us sell into major
corporations and government agencies that wish to standardize their diverse
computing environments. As a result, certain of these end-user organizations
have entered into general purchasing agreements with us which offer volume
discounts.
APPLICATION VENDOR AND OEM LICENSING
Since our inception, we have licensed application vendors to distribute our
products. A typical application vendor develops an application (e.g., an
insurance agency management system) using one of our products. The application
vendor purchases a license for the use of our product to develop the application
program. Depending on the application developed, the vendor may purchase a
run-only license, a full version license or multiple product licenses. In
addition, the application vendor may resell our products to end users for use in
conjunction with its own applications.
Application vendors develop applications using a wide array of application
development tools, including products offered by third parties. Applications
developed using our products are generally portable across various brands of
computers and different operating systems.
We have specialized programs to support the application vendor distribution
channel. Under these programs, we provide to selected application vendors a
combination of marketing development services, consulting and technical
marketing support and discounts.
Our products are also distributed by hardware manufacturers under OEM
licenses as an embedded part of their product.
DISTRIBUTOR LICENSING
We have established a network of full service international distributors who
provide local service and support, as well as our products, to their respective
national markets. We use distributors to supplement our direct sales force,
which enables us to increase our worldwide market coverage.
PRODUCT DEVELOPMENT
The computer software industry is highly competitive and rapidly changing.
Consequently, we dedicate considerable resources to research and development
efforts to enhance our existing product lines and to develop new products to
meet new market opportunities. Most of our current software products have been
developed internally; however, we have acquired certain software products from
others and plan to do so again in the future.
Major product releases resulting from research and development projects in
1999 included Informix Internet Foundation.2000, Informix Dynamic Server.2000,
Informix Client SDK 2.3, Excalibur Text DataBlade Module 1.2 EPA, Informix
Dynamic 4GL 3.0, Informix MetaCube ROLAP Option 4.2, Informix Visionary 1.1,
Informix JDBC Driver 2.00.JC1, DataBlade Developer's Kit (DBDK) Version 3.7,
Informix I-Spy, Informix i.Sell, Informix Dynamic Server 7.31, Informix Client
SDK 2.20, Informix JDBC Driver 1.40.JC1, Informix i.Reach, Informix
Visionary 1.0.
Our current product development efforts are focused on:
- Improving and enhancing current products and developing new products, with
particular emphasis on parallel computer architecture, user-defined
database extensions, Web technology integration,
9
graphical desk top and system administration, analytical templates, and
support for industry standard and emerging development tools.
- Improving our products to provide greater speed and support for larger
numbers of concurrent users.
- Adapting new products to the broad range of computer brands and operating
systems that we currently support, and adapting current products to new
brands of computers and operating systems that represent attractive market
opportunities for our products.
As of December 31, 1999, we had 993 regular employees engaged in research
and development. The market for qualified development engineers remains highly
competitive.
Our research and development expenditures for 1999, 1998 and 1997 were
$163.3 million, $149.6 million, and $141.5 million, respectively, representing
approximately 19%, 20% and 21% of net revenues for these periods. In addition,
during 1999, 1998 and 1997, we capitalized product development costs of
$22.7 million, $18.6 million, and $20.8 million, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Costs
and Expenses."
COMPETITION
Competitors in the RDBMS market compete primarily on the basis of product
price and performance characteristics, name recognition, technical product
support, product training and services. With respect to product performance, we
believe that the principal competitive factors include:
- Application development productivity (I.E., the speed with which
applications can be built).
- Database performance (I.E., the speed at which database storage and
retrieval functions are executed).
- Product function and features.
- The ability to support large warehouses of information.
- Reliability, availability and serviceability.
- The distribution of software applications and data across networks of
computers from multiple suppliers.
- The ability to manage complex data and solve more complex business
problems based on such data.
The RDBMS software market is extremely competitive and subject to rapid
technological change and frequent new product introductions and enhancements.
Our competitors in the market include several large vendors that develop and
market databases, applications, development tools or decision support products.
Our principal competitors include Computer Associates International, Inc.; IBM;
Microsoft; NCR/Teradata; Oracle and Sybase. Additionally, as we expand our
business into the data warehousing and Web/electronic commerce markets, we
expect to compete with companies offering highly specialized products in each of
these market segments.
INTELLECTUAL PROPERTY
Our success depends on proprietary technology. To protect our proprietary
rights, we rely primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures, contractual provisions
contained in our license agreements and technical measures. We seek to protect
our software, documentation and other written materials under trade secret and
copyright laws, which provide only limited protection. We hold seven United
States patents and several pending applications.
10
Our products are generally licensed to end-users on a "right-to-use" basis
pursuant to a license that restricts the use of the products for the customer's
internal business purposes. We also rely on "shrink wrap" and "click wrap"
licenses, which include a notice informing the end-user that, by opening the
product packaging or, in the case of an online transaction, by downloading the
product, the end-user agrees to be bound by our license agreement printed on the
package or displayed on the customer's computer screen. Despite such
precautions, it may be possible for unauthorized third parties to copy aspects
of our current or future products or to obtain and use information that we
regard as proprietary. In particular, we have licensed the source code of our
products to certain customers under certain circumstances and for restricted
uses. We have also entered into source code escrow agreements with a number of
our customers that generally require release of source code to the customer in
the event of our bankruptcy, liquidation or otherwise ceasing to conduct
business.
EMPLOYEES
As of December 31, 1999, Informix and its subsidiaries employed 3,672
regular employees worldwide, including 2,136 in sales, marketing and support,
993 in research and development, 58 in operations and 485 in administration and
finance. Of our total employees at December 31, 1999, approximately 1,392 were
located outside North America. None of our employees located in the United
States are represented by a labor union. A small number of employees located
outside the United States are represented by labor unions, and the degree and
scope of representation varies from country to country. We have not experienced
any work stoppages either domestically or internationally.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning our executive
officers as of February 1, 2000.
NAME AGE POSITION
- ---- -------- ---------------------------------------------------
Robert J. Finocchio, Jr................... 48 Chairman of the Board of Directors
Jean-Yves F. Dexmier...................... 48 President, Chief Executive Officer and Director
Howard A. Bain, III....................... 53 Executive Vice President and Chief Financial
Officer
Karen Blasing............................. 43 Vice President, Business Development Finance
Charles W. Chang.......................... 50 Senior Vice President and Group Executive,
i.Intelligence
James F. Hendrickson, Jr.................. 60 Senior Vice President and Group Executive,
i.Informix
Gary Lloyd................................ 52 Vice President, Legal, General Counsel and
Secretary
Wayne E. Page............................. 51 Vice President, Human Resources
William F. O'Kelly........................ 45 Vice President and Treasurer
Michael R. Stonebraker.................... 56 Vice President and Chief Technology Officer
F. Steven Weick........................... 54 Senior Vice President and Group Executive,
i.Foundation
ROBERT J. FINOCCHIO, JR. has served as our Chairman since July 1997. From
July 1997 until July 1999, Mr. Finocchio served as our President and Chief
Executive Officer. From December 1988 until May 1997, Mr. Finocchio was employed
with 3Com Corporation ("3Com"), a global data networking company, where he held
various positions, most recently serving as President, 3Com Systems. Prior to
his employment with 3Com, Mr. Finocchio held various executive positions in
sales and service with Rolm Communications, a
11
telecommunications and networking company, most recently as Vice President of
Rolm Systems Marketing. Mr. Finocchio also serves as a director of Latitude
Communications, UpShot.com, Turnstone Systems, Inc., Echelon Corporation and
Resonate Inc. Mr. Finocchio is also a Regent of Santa Clara University.
Mr. Finocchio holds a B.S. in economics from Santa Clara University and an
M.B.A. from the Harvard Business School.
JEAN-YVES F. DEXMIER has served as our President and Chief Executive Officer
since July 1999. Previously, Mr. Dexmier served as our Executive Vice President,
Field Operations from January 1999 until July 1999. He served as our Executive
Vice President and Chief Financial Officer from October 1997 to January 1999 and
as our Secretary from October 1997 to February 1998. Mr. Dexmier served as a
strategy consultant to high technology companies from February 1997 to
September 1997. From November 1995 until February 1997, Mr. Dexmier served as
Senior Vice President and Chief Financial Officer of Octel Communications
Corporation, a provider of voice messaging systems ("Octel"). From April 1995 to
October 1995, Mr. Dexmier served as Chief Financial Officer for Kenetech
Corporation, a wind energy company. From May 1994 to March 1995, Mr. Dexmier
served as Chief Financial Officer for Air Liquide America Corporation, a U.S.
subsidiary of the French-based group Air Liquide, a worldwide producer of
industrial gases. From January 1991 to January 1994, Mr. Dexmier served as Chief
Financial Officer for Thomson Consumer Electronics, Inc., a subsidiary of
Thomson SA, a worldwide electronics manufacturer. Mr. Dexmier holds a B.S. in
mathematics from Lycee Pasteur, a Ph.D. in electronics from the Ecole Nationale
Superieure de l'Aeronautique et de l'Espace and an M.B.A. in economics and
finance from the Ecole Polytechnique. In addition, he attended the executive
management program at the University of Michigan School of Business
Administration.
HOWARD A. BAIN, III resigned effective March 20, 2000 after serving as our
Executive Vice President and Chief Financial Officer since January 1999. Prior
to joining us, Mr. Bain held various positions at Symantec Corporation, a
software management and security technology company, since October 1991. Most
recently Mr. Bain was Vice President, Worldwide Operations and CFO at Symantec
Corporation. Mr. Bain graduated from California Polytechnic University in 1971
with a B.S. in business and is a Certified Public Accountant.
KAREN BLASING has served as our Vice President, Business Development Finance
since May 1998. Prior to that time, Ms. Blasing served as our Corporate
Controller since June 1996 and as a Vice President of Informix since
August 1997 before resigning from such positions in April 1998. Ms. Blasing
joined Informix in November 1992 as its Director of Financial Reporting and
Analysis. From January 1989 to October 1992, Ms. Blasing was a Senior Financial
Manager at Oracle Corporation, a provider of information management software and
services. Ms. Blasing holds a B.S. in both economics and business from the
University of Montana and an M.B.A. from the University of Washington.
CHARLES W. CHANG has served as our Senior Vice President and Group Executive
of the i.Intelligence group since October 1999. Previously, from August 1999
until October 1999, Mr. Chang was our Vice President and General Manager, Data
Warehouse. Mr. Chang joined Informix after a tenure as senior vice president and
general manager of Business Objects Corporation, a provider of integrated
enterprise decision support tools. Mr. Chang also has more than 20 years
experience with IBM in sales and general management positions. Prior to his
departure, he was director of worldwide sales for IBM's data management
products, a $1.7 billion operation. Prior to this position, Mr. Chang led IBM's
Internet Division in Asia Pacific, managing the sales and marketing for IBM's
e-business initiative in the region. Mr. Chang holds a bachelor's degree in math
from UCLA, as well as a master's degree in management from the University of
Southern California. Chang is also a graduate of the executive program at UCLA's
Anderson School.
JAMES F. HENDRICKSON, JR. has served as our Senior Vice President and Group
Executive, i.Informix group, since October 1999. He has also served as our Vice
President, Customer Services, since July 1992 until October 1999 and as our
Lenexa (Kansas) Site General Manager from February 1995 until
12
October 1999. From 1991 until the time he joined us, Mr. Hendrickson was Senior
Vice President of Sales and Support at Image Business Systems, a developer of
document image management software for client/ server systems. Mr. Hendrickson
holds a B.S. in mechanical engineering from Stanford University and an M.B.A. in
business and administration from the University of California, Los Angeles.
GARY LLOYD has served as our Vice President, Legal and General Counsel since
January 1998 and as our Secretary since February 1998. From November 1997 until
January 1998, Mr. Lloyd served as our interim General Counsel. From March 1994
until October 1997, Mr. Lloyd was with the law firm of Farella Braun & Martel
L.L.P. From 1984 until February 1994, Mr. Lloyd served in a variety of positions
at the Securities and Exchange Commission, most recently as its Assistant
Director, Division of Enforcement. Mr. Lloyd holds a B.A. in political science
and English from Kent State University and a J.D. from Case Western Reserve
University.
WAYNE E. PAGE joined the Company in October 1999 as Vice President, Human
Resources. Mr. Page spent the previous two years as a senior consultant for The
Hay Group. From 1996 to 1997, Mr. Page was a client manager and human resources
consultant with Alexander & Alexander (Aon), a human resources consulting firm.
From 1991 to 1996, he served as health and welfare practice leader and senior
manager for KPMG LLP, an accounting firm. From 1989 to 1991, he held a similar
position with Ernst & Young, an accounting firm. Prior to these eight years of
human resources consulting with KPMG LLP and Ernst & Young, Mr. Page had
17 years of corporate human resources experience with the Central Companies and
Transamerica Corporation. Mr. Page holds a BS in Human Resources from The Ohio
State University and attended the Ohio State University College of Law.
WILLIAM F. O'KELLY joined the Company in August 1999 as the Company's Vice
President, Treasurer. Mr. O'Kelly also served as a financial consultant to the
Company from May 1998 until August 1999. Previously, Mr. O'Kelly was Chief
Financial Officer at Chemical Supplier Technology Inc. and Corporate Controller
at Air Liquide America Corporation, an industrial and medical gases company,
from August 1993 until December 1995. Mr. O'Kelly holds at B.S. in accounting
from the University of Florida.
MICHAEL A. STONEBRAKER has served as our Vice President and Chief Technology
Officer since February 1996. Dr. Stonebraker co-founded Illustra, a database
management software company acquired by Informix in February 1996, and served in
a consulting capacity with Illustra as its Chief Technology Officer until
February 1996. Dr. Stonebraker is a professor emeritus of Electrical Engineering
and Computer Sciences at the University of California, Berkeley, where he joined
the faculty in 1971. Dr. Stonebraker holds a B.S. in electrical engineering from
Princeton University and an M.S. and Ph.D. in computer information and control
engineering from the University of Michigan.
F. STEVEN WEICK has served as the Company's Senior Vice President and Group
Executive, i.Foundation group since October 1999. Previously, from October 1998
until October 1999, Mr. Weick served as the Company's Vice President, Research
and Development. Mr. Weick joined us in 1997 as Vice President of Server
Development. Prior to joining us, Mr. Weick was Vice President of Engineering
for MapInfo Inc., a business mapping solutions company from 1995 to
August 1997. Mr. Weick led development activities for five years at Tandem
Computers, the last three as Vice President of Communications Hardware and
Software Products, and earlier led the Non-Stop SQL server, compiler and tools
development groups. Mr. Weick began his career at IBM in 1965 as a development
engineer; he held numerous positions at IBM, including: chief architect for
database products, consultant to the corporate technical committee, development
manager responsible for DB2, and program manager for compilers. Mr. Weick holds
a B.S. in mathematics from Purdue University and an M.B.A. from Pepperdine
University.
13
ITEM 2. PROPERTIES
Our headquarters and principal marketing, finance, sales, administration,
customer service and research and development operations are located in five
buildings throughout a corporate office park in Menlo Park, California. We
currently lease approximately 206,000 square feet of space in these buildings.
The lease agreements for two of the buildings expire in September 2001. The
lease agreements for the remaining three buildings expire in March 2003. We
lease an additional 33,000 square feet in two nearby buildings. The lease
agreements for these buildings expire in October 2000 and May 2003.
We also occupy approximately 135,000 square feet in Lenexa, Kansas. This
facility incorporates a portion of the research and development, customer
service and telemarketing organizations and serves as the principal domestic
manufacturing facility. These buildings are leased to us under two separate
lease agreements, both of which expire in April 2003, subject to our renewal
rights of two additional five-year terms.
Some of the research and development operations for our products as well as
a portion of our customer service and sales training operations are located in
Oakland, California. We lease approximately 130,000 square feet at this site
which is scheduled to expire in May 2003. We also lease approximately 47,000
square feet on two separate floors in Portland, Oregon which is primarily
utilized for research and development. The lease for one floor of this facility
expires on March 15, 2000. To replace this space, we have leased 60,000 square
feet in another downtown Portland building for a term of five years. The lease
for the remaining floor of the original building, which expires on October 31,
2003, is being marketed for sub-lease. The entire Portland operation will be
relocated to the newly acquired office space.
In October 1999, through the acquisition of Cloudscape, we assumed the lease
obligations for a number of facilities in North America, of which only the
Oakland, California location is significant. The current plans are to relocate
the Oakland Cloudscape employees to our existing Oakland office in the second
quarter of 2000 and dispose of the existing Oakland Cloudscape lease.
We also lease office space, principally for sales and support offices, in a
number of facilities in the United States, Canada and outside North America. We
believe that our current facilities are adequate to meet our needs through the
next twelve months.
ITEM 3. LEGAL PROCEEDINGS
On May 26, 1999, we entered into a memorandum of understanding regarding the
settlement of pending private securities and related litigation against us,
including a federal class action, a derivative action, and a state class action.
In November 1999, the settlement was approved by the applicable Federal and
state courts. The settlement resolves all material litigation arising out of the
restatement of our financial statements that was publicly announced in November
1997. In accordance with the terms of the memorandum of understanding, we paid
approximately $3.2 million in cash during the second quarter of 1999 and an
additional amount of approximately $13.8 million of insurance proceeds was
contributed directly by certain of our insurance carriers on behalf of certain
of our current and former officers and directors. We will also issue a minimum
of nine million shares of our common stock, which will have a guaranteed value
of $91 million for a maximum term of one year from the date of final approval of
the settlement by the courts. Our former independent auditors, Ernst & Young
LLP, will pay $34 million in cash. The total amount of the settlement will be
$142 million. As of December 31, 1999, we had issued 2.9 million of the minimum
amount of 9 million shares issuable pursuant to the memorandum of understanding.
In July 1997, the Securities and Exchange Commission ("SEC") issued a formal
order of private investigation of the Company and certain unidentified other
entities and persons with respect to non-specified accounting matters, public
disclosures and trading activity in the Company's securities. During the course
of the investigation, the Company learned that the investigation concerned the
events
14
leading to the restatement of the Company's financial statements, including
fiscal years 1994, 1995 and 1996, that was publicly announced in November 1997.
The Company and the SEC have entered into a settlement of the investigation as
to the Company. Pursuant to the settlement, the Company consented to the entry
by the SEC of an Order Instituting Public Administrative Proceedings Pursuant to
Section 8A of the Securities Act of 1933 and Section 21C of the Securities
Exchange Act of 1934, Making Findings, and Imposing a Cease and Desist Order
(the "Order"). The Order was issued by the SEC on January 11, 2000. Pursuant to
the Order, the Company neither admitted nor denied the findings, except as to
jurisdiction, contained in the Order. The Order directs the Company to cease and
desist from committing or causing any violation, and any future violation, of
Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections
10(b), 13(a) and 13(b) of the Securities Exchange Act of 1934 ("Exchange Act"),
and Rules 10b-5, 12b-20 13a-1, 13a-13 and 13b2-1 under the Exchange Act.
Pursuant to the Order, the Company also is required to cooperate in the SEC's
continuing investigation of other entities and persons. As a consequence of the
issuance of the Order, the Company is statutorily disqualified, pursuant to
Section 27A(G)(1)(A)(ii) of the Securities Act and Section 21E(b)(1)(A)(ii) of
the Exchange Act, for a period of three years from the date of the issuance of
the Order, from relying on the protections of the "safe harbor" for
forward-looking statements set forth in Section 27(A)(c) of the Securities Act
and Section 21(E)(c) of the Exchange Act.
EXPO 2000 filed an action against Informix Software GmbH (the Company's
German subsidiary) in the Hanover (Germany) district court in September 1998
seeking recovery of approximately $6.0 million, plus interest, for breach of a
sponsorship contract signed in 1997. Informix filed a counterclaim for breach of
contract and seeks recovery of approximately $3.1 million. During settlement
negotiations prior to the filing of the action, EXPO 2000 stated that it would
accept approximately $2.5 million to settle. In March 1999, a panel of three
judges appointed by the court recommended a settlement pursuant to which EXPO
2000 and Informix would release the other from all claims. EXPO 2000 declined to
accept the recommendation. In August 1999, the court entered a judgment against
Informix in the amount of approximately $6.0 million, although approximately
$2.1 million of judgment is conditioned upon the return to Informix by EXPO 2000
of certain software. Informix has filed an appeal. The Company has reserved
$2.5 million for the expected outcome of the appeal.
PATENT INFRINGEMENT LAWSUIT
On February 3, 2000, International Business Machines Corporation ("IBM")
filed an action against us in the United States District Court for the District
of Delaware alleging infringement of six United States patents owned by IBM. The
Informix products that IBM alleges infringe its patents are Informix Online
Dynamic Server versions 5, 6 and 7, Informix SE version 6, Informix NewEra
version 1, Informix NET, Informix STAR, Illustra Visual Information Retrieval,
and Illustra Visual Intelligence Viewer. In its complaint, IBM seeks a permanent
injunction against further alleged infringement, unspecified compensatory
damages, unspecified treble damages, and interest, costs and attorneys' fees. We
strongly believe that the allegations in the complaint are without merit and
intend to defend the action vigorously and to assert such counterclaims against
IBM as may be appropriate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of security holders during the
fourth quarter of fiscal 1999.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our Common Stock is traded on the National Market of The Nasdaq Stock Market
under the symbol "IFMX." The following table lists the high and low sales prices
of our Common Stock for the periods indicated.
HIGH LOW
-------- --------
FISCAL YEAR ENDING DECEMBER 31, 1999:
Fourth Quarter............................................ $13.31 $6.38
Third Quarter............................................. 9.75 6.75
Second Quarter............................................ 9.81 6.03
First Quarter............................................. 14.00 7.00
FISCAL YEAR ENDING DECEMBER 31, 1998:
Fourth Quarter............................................ $ 9.88 $3.75
Third Quarter............................................. 7.91 3.50
Second Quarter............................................ 10.44 6.00
First Quarter............................................. 9.88 4.81
At December 31, 1999, there were approximately 3,902 stockholders of record
of our Common Stock, as shown in the records of our transfer agent.
DIVIDEND POLICY
We have never declared or paid cash dividends on our Common Stock. We expect
to retain future earnings, if any, for use in the operation of our business and
do not anticipate paying any cash dividends on our Common Stock in the
foreseeable future. The holders of our Series B Convertible Preferred Stock (the
"Series B Preferred") are entitled to receive a cumulative dividend at an annual
rate of 5% of the face value of each share of Series B Preferred, resulting in
an aggregate annual dividend accrual of $0.4 million, based on the 7,000 shares
of Series B Preferred outstanding at December 31, 1999. The dividend is
generally payable upon the conversion or redemption of the Series B Preferred
and may be paid in cash or, at our election and subject to certain conditions,
in shares of Common Stock. In addition, the Certificate of Designation of the
Series B Preferred prohibits us from paying any dividend or other distribution
on any security ranking junior to the Series B Preferred.
In the first quarter of 1999, we paid $1.3 million to the Series B Preferred
stockholders as a result of certain contractual provisions under our
Registration Rights Agreement with the Series B Preferred stockholders. This
amount was recognized in fiscal 1998 as an additional dividend to the Series B
Preferred stockholders.
The Series B Preferred is convertible at the election of the holders into
shares of Common Stock. The currently outstanding Series B Preferred was
originally issued on November 19, 1997. The Series B Preferred will
automatically convert into Common Stock three years following the date of its
issuance. Each share of Series B Preferred, which has a face value of $1,000, is
convertible into (i) shares of Common Stock at a per share price equal to the
lowest of (A) $7.84--the average of the closing bid prices for the Common Stock
for the 22 trading days immediately prior to the 180th day following the initial
issuance date of the Series B Preferred, (B) 101% of the average of the closing
bid prices for the Common Stock for the 22 trading days ending five trading days
prior to the date of actual conversion or (C) 101% of the lowest closing bid
price for the Common Stock during the five trading days immediately prior to the
date of actual conversion and (ii) warrants to acquire that number of shares of
Common Stock equal to 20% of the shares determined pursuant to item (i). The
exercise price for these warrants is $7.84 per share.
16
The conversion price of the Series B Preferred is subject to modification and
adjustment upon the occurrence of specified events.
In October 1999, in connection with our acquisition of Cloudscape, Inc.
("Cloudscape") pursuant to an agreement and plan of reorganization dated
September 15, 1999, we issued to the shareholders of Cloudscape an aggregate of
9,583,000 shares of our common stock (the "Shares") on October 15, 1999 in
exchange for all of the outstanding common stock of Cloudscape. The issuance of
the Shares was exempt from registration under the Securities Act of 1933, as
amended, by virtue of Section 4(2) thereof. The issuance did not involve any
underwriters, underwriting discounts or commissions, or any public offering.
Each of the Cloudscape shareholders represented its intention to acquire the
Shares for investment only and not with a view to, or for sale in connection
with any, distribution thereof. Appropriate legends were affixed to the share
certificates issued to Cloudscape shareholders. Cloudscape shareholders had
adequate access to information about Informix. Subsequent to the issuance, the
Shares were registered on a registration statement on Form S-3.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL OVERVIEW
FIVE-YEAR SUMMARY
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1999(1) 1998(2) 1997(3) 1996 1995
--------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues............................ $ 871,536 $ 735,506 $ 663,892 $734,540 $636,547
Net income (loss)....................... (11,164) 50,184 (360,388) (74,019) 38,600
Preferred stock dividend................ (995) (3,478) (301) -- --
Value assigned to warrants.............. -- (1,982) (1,601) -- --
Net income (loss) applicable to common
stockholders.......................... (12,159) 44,724 (362,290) (74,109) 38,600
Net income (loss) per common share:
Basic................................. (0.06) 0.26 (2.37) (0.49) 0.27
Diluted............................... (0.06) 0.25 (2.37) (0.49) 0.26
Total assets............................ 646,212 622,065 566,021 883,259 682,445
Long-term obligations................... 1,420 3,759 6,544 2,394 2,846
Retained earnings (accumulated
deficit).............................. (241,078) (231,934) (282,118) 78,269 154,098
- ------------------------------
(1) In 1999, we recorded restructuring-related adjustments that increased
operating income by $0.6 million and, in connection with our acquisition of
Cloudscape in October 1999, recorded a charge to operations of $2.8 million
for merger related expenses. In addition, we recorded a charge of $97.0
million related to the settlement of private securities and related
litigation against us.
(2) In 1998, we recorded restructuring-related adjustments that increased
operating income by $10.3 million and, in connection with our acquisition of
Red Brick in December 1998, recorded a charge to operations of $2.6 million
for in-process research and development which had not yet reached
technological feasibility and had no alternative future uses.
(3) In 1997, we recorded a restructuring charge of $108.2 million, a write-down
of certain assets in Japan of $30.5 million and a write-down of capitalized
software of $14.7 million.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF INFORMIX, WHICH INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS," "BUSINESS" AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K.
OVERVIEW
Informix Corporation is a leading supplier of information management
software and solutions to governments and enterprises worldwide. We design,
develop, manufacture, market and support
- Object-relational and relational database management systems
- Connectivity interfaces and gateways
- Graphical and character-based application development tools for building
database applications that allow customers to access, retrieve and
manipulate business data
We also offer complete solutions, which include our database management
software, our own and third-party software, and our consulting services, to help
customers design and deploy data warehouses, Web-based enterprise repositories
and electronic commerce applications.
On November 30, 1999, we reached a definitive agreement (the "Ardent
Agreement") to acquire Ardent Software, Inc. ("Ardent"), a leading provider of
data integration infrastructure software for data warehouse, business
intelligence, and e-business applications. In accordance with the Ardent
Agreement, 3.5 shares of our common stock will be exchanged for each outstanding
Ardent share. The transaction is expected to be accounted for as a
pooling-of-interests and completion of the transaction, which is subject to the
approval of stockholders of both companies, is expected to occur in the first
quarter of 2000.
On October 8, 1999, we completed our acquisition of Cloudscape, Inc.
("Cloudscape"), a privately-held provider of synchronized database solutions for
the remote and occasionally connected workforce. In the acquisition, the former
shareholders of Cloudscape received shares of our common stock in exchange for
their shares of Cloudscape at the rate of approximately 0.56 shares of our
common stock for each share of Cloudscape common stock (the "Cloudscape
Merger"). The Cloudscape Merger was accounted for as a pooling-of-interests. An
aggregate of 9,583,000 shares of our common stock were issued pursuant to the
Merger, and an aggregate of 417,000 options and warrants to purchase Cloudscape
common stock were assumed by us.
On October 1, 1999, the Company reorganized its operating business divisions
into four new business groups: the TransAct Business Group, which is responsible
for delivering on-line transaction processing products; the i.Foundation
Business Group, which is responsible for delivering products that provide the
technological foundation for Internet-based electronic commerce solutions; the
i.Informix Business Group, which is responsible for delivering Internet-based
solutions for electronic commerce; and the i.Intelligence Business Group, which
is responsible for delivering Internet-based data warehouse products and
solutions.
On May 26, 1999, we entered into a memorandum of understanding regarding the
settlement of pending private securities and related litigation against us,
including a federal class action, a derivative action, and a state class action.
In November 1999, the settlement was approved by the applicable Federal and
state courts. The settlement resolves all material litigation arising out of the
restatement of our financial statements that was publicly announced in November
1997. In accordance with the terms of the memorandum of understanding, we paid
approximately $3.2 million in cash during the second quarter of 1999 and an
additional amount of approximately $13.8 million of insurance proceeds was
contributed directly by certain of our insurance carriers on behalf of certain
of our current and former officers and directors. We will also issue a minimum
of nine million shares of our common stock, which will have a guaranteed value
of $91 million for a maximum term of one year from the date of final approval of
the
18
settlement by the courts. Our former independent auditors, Ernst & Young LLP,
will pay $34 million in cash. The total amount of the settlement will be
$142 million. As of December 31, 1999, we had issued 2.9 million of the minimum
amount of 9 million shares issuable pursuant to the memorandum of understanding.
In July 1997, the Securities and Exchange Commission ("SEC") issued a formal
order of private investigation of the Company and certain unidentified other
entities and persons with respect to non-specified accounting matters, public
disclosures and trading activity in the Company's securities. During the course
of the investigation, the Company learned that the investigation concerned the
events leading to the restatement of the Company's financial statements,
including fiscal years 1994, 1995 and 1996, that was publicly announced in
November 1997. The Company and the SEC have entered into a settlement of the
investigation as to the Company. Pursuant to the settlement, the Company
consented to the entry by the SEC of an Order Instituting Public Administrative
Proceedings Pursuant to Section 8A of the Securities Act of 1933 and
Section 21C of the Securities Exchange Act of 1934, Making Findings, and
Imposing a Cease and Desist Order (the "Order"). The Order was issued by the SEC
on January 11, 2000. Pursuant to the Order, the Company neither admitted nor
denied the findings, except as to jurisdiction, contained in the Order. See
"Factors Affecting Operating Results--Settlement of SEC investigation could harm
our business."
RESULTS OF OPERATIONS
The following table and discussion compares the results of operations for
the years ended December 31, 1999, 1998 and 1997.
YEARS ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
PERCENT OF NET
REVENUES
Net revenues:
Licenses.................................................. 51% 52% 57%
Services.................................................. 49 48 43
Total net revenues...................................... 100 100 100
Cost and expenses:
Cost of software distribution............................. 5 5 9
Cost of services.......................................... 20 21 25
Sales and marketing....................................... 36 37 63
Research and development.................................. 19 20 21
General and administrative................................ 9 10 13
Write-off of goodwill and long-term assets................ -- -- 5
Write-off of acquired research and development............ -- -- 1
Merger and restructuring charges.......................... -- (1) 16
Total expenses.......................................... 89 93 154
Operating income (loss)..................................... 11 7 (54)
Net income (loss)........................................... (1)% 7% (54)%
Our operating results for 1999 improved over the prior year due to revenue
growth of 18% while costs and expenses increased by only 13% when compared to
1998. Growth in consolidated revenues was experienced by all regions during
fiscal 1999 as sales increased by 20%, 19%, 18% and 18% in Latin America, North
America, Europe and Asia/Pacific, respectively. As a percentage of net revenues,
all operating expense categories for 1999 either decreased or remained
consistent when compared to 1998 as we continued our effort to keep operating
expenses in line with revenues. Revenue growth combined with lower operating
costs resulted in an increase of $45.2 million, or 85%, in operating income to
$98.5 million for 1999 from $53.3 million in 1998.
19
REVENUES
We derive revenues from licensing software and providing post-license
technical product support and updates to customers and from consulting and
training services.
LICENSE REVENUES. License revenues may involve the shipment of product by
us or the granting of a license to a customer to manufacture products. Our
products are sold directly to end-user customers or through resellers, including
OEMs, distributors and value added resellers (VAR's). License revenues for 1999
increased 15% to $442.8 million from $383.9 million in 1998. The higher license
revenue growth rate experienced in 1999 was due to continued demand for our
established products and the introduction and market positioning of new products
and versions including our Red Brick and Cloudscape product offerings. Each of
our regions reported increased license revenues for fiscal 1999 when compared to
fiscal 1998, as follows:
- Europe, Middle-East and Africa ("EMEA") license revenues increased to
$148.4 million as compared to $125.2 million, an increase of 19%
- North America license revenues increased to $200.4 million as compared to
$170.2 million, an increase of 18%
- Latin America license revenues increased to $36.3 million as compared to
$33.9 million, an increase of 7%
- Asia/Pacific license revenues increased to $57.7 million as compared to
$54.6 million, an increase of 6%
License revenues for 1998 increased slightly to $383.9 million from
$378.2 million in 1997. This modest increase in license revenues reflected a
number of factors which affected us during 1998, including an overall decrease
in revenue growth rates in the RDBMS industry worldwide, continued uncertainty
in the Asia/Pacific economies and financial markets as well as changes to our
European management.
Our increased focus on reseller channels in 1996 resulted in a significant
build-up of licenses that had not been resold or utilized by the resellers. As
discussed in Note 1 to our Consolidated Financial Statements, revenue from
license agreements with resellers is recognized as earned by us when the
licenses are resold or utilized by the reseller and all of our related
obligations have been satisfied. Accordingly, amounts received from customers
and financial institutions in advance of revenue being recognized are recorded
as a liability in "advances from customers and financial institutions" in our
Consolidated Financial Statements. Advances in the amount of $34.3 million and
$121.1 million had not been recognized as earned revenue as of December 31, 1999
and 1998, respectively. During the year ended December 31, 1999, we received
$6.5 million in customer advances and recognized revenue from previously
recorded customer advances of $82.0 million. Included in the $82.0 million
recognized were $69.1 million of licenses which were resold or utilized by the
reseller, $11.4 million related to contractual reductions in customer advances
and $1.5 million related to previously-deferred revenue for solution sales which
has now been recognized.
Contractual reductions result from settlements between us and resellers in
which the customer advance contractually expires or a settlement is structured
wherein the rights to resell our products terminate without sell through or
deployment of the software. As of December 31, 1999, we had reached structured
settlements with three resellers with remaining rights to resell a total of
$1.0 million of our products, which will be utilized by December 31, 2000
pursuant to the minimum future reduction terms of the settlement.
Management believes that the level of licenses sold through these resellers
is likely to continue; however, revenue may not be sustained following full
utilization of the "advances from customers and financial institutions" because
there may be less incentive for resellers to sell our products.
In order to properly recognize revenue on arrangements where the reseller
has duplication rights, we rely on accurate and timely reports from resellers of
the quantity of licenses that have been resold or
20
utilized. In instances where a reseller does not submit a timely report, we
accrue royalty revenue through the end of the reporting period provided we have
vendor specific historical information. From time to time, late or inaccurate
reports are identified or corrected for a variety of reasons, including
resellers updating their reports or as a result of our proactive activities such
as audits of the resellers' royalty reports. As a result, audits form these late
or updated reports, which was not previously accrued, is recognized in the
period during which the reports are received. Such revenue amounted to
approximately $6.0 million for 1998 and was not significant for 1999. We expect
that the late or inaccurate reporting of resale or utilization of licenses by
resellers and the resulting fluctuations will continue for the foreseeable
future.
Our license transactions can be relatively large in size and difficult to
forecast both in timing and dollar value. As a result, license transactions have
caused fluctuations in net revenues and net income (loss) because of the
relatively high gross margin on such revenues. As is common in the industry, a
disproportionate amount of our license revenue is derived from transactions that
close in the last weeks or days of a quarter. The timing of closing large
license agreements also increases the risk of quarter-to-quarter fluctuations.
We expect that these types of transactions and the resulting fluctuations in
revenue will continue.
SERVICE REVENUES. Service revenues are comprised of maintenance, consulting
and training revenues. Service revenues increased 22% to $428.7 million in 1999
and 23% to $351.6 million in 1998 from $285.7 million in 1997. Service revenues
accounted for 49%, 48%, and 43% of total revenues in 1999, 1998 and 1997,
respectively. The increase in service revenues, both in absolute dollars and as
a percentage of total revenues, was attributable primarily to the renewal of
maintenance contracts in connection with our growing installed customer base. As
our products continue to grow in complexity, more support services are expected
to be required. We intend to satisfy this requirement through internal support,
third-party services and OEM support. Maintenance revenues increased 28% to
$325.6 million for 1999 and 35% to $253.6 million for 1998 from $188.1 million
for 1997. Consulting and training revenues increased 5% to $103.1 million for
1999 and remained flat at $97.9 million for 1998 as compared to $97.6 million in
1997.
COSTS AND EXPENSES
COST OF SOFTWARE DISTRIBUTION. Cost of software distribution consists
primarily of: (1) manufacturing and related costs such as media, documentation,
product assembly and purchasing costs, freight, customs and third party
royalties; and (2) amortization of previously capitalized software development
costs and any write-offs of previously capitalized software. Cost of software
distribution increased $7.7 million, or 22%, to $43.1 million for 1999 compared
to $35.4 million for 1998. This increase was primarily due to an increase in
royalties related to new products and the write-off of capitalized software
costs. During the third quarter of 1999, approximately $2.4 million of
previously capitalized software costs were written down to the estimated net
realizable value after it was determined that the projected sales of certain
tools products and system management programs were not sufficient to realize the
capitalized product development costs. Amortization of capitalized software
remained relatively flat at $19.3 million in 1999 compared to $20.7 million and
$21.4 million in 1998 and 1997, respectively. The amortization of capitalized
software will vary from period to period as new products are released and other
products become fully amortized. Cost of software distribution decreased to
$35.4 million in 1998 from $63.0 million in 1997. This decrease was primarily
caused by a write-down in 1997 of $14.7 million to net realizable value of
certain of our database tool products related to our acquisition of CenterView
Software, Inc. in the first quarter of 1997, a decrease in third party software
royalties, the write-off of certain unused application software in the second
quarter of 1997 and a reduction in labor, materials and shipping costs.
COST OF SERVICES. Cost of services consists primarily of maintenance,
consulting and training expenses. Cost of services for 1999 increased 11% to
$173.7 million from $155.9 million in 1998 due primarily to a 10% increase in
average headcount during 1999, a portion of which resulted from the addition of
the Red Brick consulting team subsequent to the completion of the acquisition in
December 1998. Cost of services
21
decreased as a percentage of net service revenues to 41% for 1999 compared to
44% for 1998. The increase in gross service margins from 56% in 1998 to 59%
during 1999 was due to a higher percentage of customer maintenance support
revenue in 1999 which typically has a higher profit margin than consulting and
training services revenue. Maintenance represented approximately 76% of service
revenues in 1999 compared to 72% in 1998. Cost of services for 1998 decreased by
7% to $155.9 million as compared to $166.9 million in 1997 and decreased as a
percentage of net service revenues to 44% for 1998 compared to 58% for 1997.
These decreases were primarily attributable to decreases of 11% in average
headcount for 1998 over the same period in 1997 as well as improved efficiency
and better control of outsourced expenses.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of salaries, commissions, marketing and communications programs and
related overhead costs. Sales and marketing expenses increased 15% to
$312.1 million for 1999 from $271.9 million for 1998 due primarily to increased
advertising and marketing efforts during 1999 in connection with the
introduction of several new products and our new corporate logo and identity in
order to increase brand awareness. This increase was in line with net revenue
growth rates as sales and marketing expenses as a percentage of net revenues
were 36% and 37% for 1999 and 1998, respectively. Sales and marketing expenses
decreased 35% to $271.9 million for 1998 from $418.1 million for 1997. The
decrease in sales and marketing expenses in 1998 as compared to 1997 was
primarily the result of a significant reduction in average sales and marketing
headcount worldwide. We intend to invest more resources in marketing and
communications programs during 2000 than we have in recent years in order to
attempt to create greater market awareness and visibility.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
consist primarily of salaries, project consulting and related overhead costs for
product development. Research and development expenses increased 9% to
$163.3 million for 1999 from $149.6 million for 1998 and $141.5 million for
1997. The increase in research and development expenses during 1999 was
attributable primarily to increased amortization of intangible assets resulting
from the acquisition of Red Brick and a slight increase in average headcount
during 1999, offset by an increase of $4.0 million in the amount of product
development expenditures capitalized in 1999 compared to 1998. The increase for
1998 was primarily due to increased salary and benefits and a 10% decrease in
the amount of product development expenditures capitalized in 1998 compared to
1997. This decrease in capitalized expenditures was attributable to the fact
that, during the first half of 1997, a large portion of expenditures incurred
were on products that had reached technological feasibility but had not yet been
commercially released. As a percentage of net revenues, research and development
expenses have decreased slightly to 19% for 1999, from 20% and 21% for 1998 and
1997, respectively, which is the level that we believe is consistent with our
long-term objectives for research and development spending.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of finance, legal, information systems, human resources, bad
debt expense and related overhead costs. General and administrative expenses
were $78.6 million in 1999 as compared with $77.0 million in 1998, an increase
of 2%. During 1999, general and administrative expenses decreased as a
percentage of net revenues to 9% from 10% in 1998. During 1998, general and
administrative expenses decreased 13% to $77.0 million from $88.1 million for
1997. The decrease in 1998 in absolute dollars and as a percentage of net
revenues was primarily the result of a reduction in bad debt expense due to our
efforts to better manage both the amount and credit risk of our accounts
receivable balances, offset by increases in legal and other professional service
fees, consulting fees and average headcount.
WRITE-OFF OF GOODWILL AND OTHER LONG-TERM ASSETS. During the first quarter
of 1997, our Japanese subsidiary experienced a significant sales shortfall and
operating losses. Accordingly, we evaluated the ongoing value of the
subsidiary's long-lived assets (primarily computer and other equipment) and
goodwill. Based on this evaluation, we determined that the subsidiary's assets
had been impaired and wrote them down by $30.5 million to their estimated fair
values. Fair value was determined by using estimated future discounted cash
flows and/or resale market quotes as appropriate.
22
WRITE-OFF OF ACQUIRED RESEARCH AND DEVELOPMENT. In connection with our
acquisition of Red Brick in December 1998, and our acquisition of Centerview
Software, Inc. ("Centerview") in February 1997, we recorded charges of
$2.6 million and $7.0 million in 1998 and 1997, respectively.
Our December 1998, acquisition of Red Brick has been accounted for as a
purchase. We issued approximately 7.6 million shares of our Common Stock to
acquire all of the outstanding shares of Red Brick common stock. We also
reserved an additional 2.5 million shares of our Common Stock for issuance in
connection with the assumption of Red Brick's outstanding stock options and
warrants.
The purchase price was allocated to the fair value of the acquired assets
and assumed liabilities based on their fair values at the date of acquisition.
The total purchase price of $55.8 million included the issuance of stock and the
assumption of stock options (together $35.9 million, net of issuance costs),
direct acquisition costs of $1.0 million, accrued merger and integration costs
of $7.9 million and liabilities assumed of $11.0 million. Of the total purchase
price, $2.6 million was allocated to in-process research and development expense
that had not yet reached technological feasibility and had no alternative future
uses, $7.8 million was allocated to cash and short-term investments,
approximately $10.2 million was allocated to other tangible assets,
$7.4 million was allocated to capitalized software, $4.7 million was allocated
to the acquired workforce and $23.1 million was allocated to goodwill. Goodwill,
capitalized software and the acquired workforce are intangible assets which are
being amortized over their estimated lives, which average five years.
The following two in-process research and development projects were acquired
in the acquisition of Red Brick:
RED BRICK WAREHOUSE ("WAREHOUSE")--a high-performance, client/server
RDBMS software product specifically designed for data warehousing, data
mart, data mining, and OLAP applications. Warehouse has been Red Brick's
core product and, as of December 31, 1998 (the "Valuation Date"), was being
sold as version 5.1, which was released in January 1998. We released
Informix Red Brick Warehouse version 5.1.7 on schedule during May 1999.
RED BRICK FORMATION ("FORMATION")--an ETML (Extract, Transfer, Move,
Load) product which was originally released as version 1.3 in
September 1998 (the current version as of the Valuation Date). Formation is
considered to be in the early stages of its product life cycle. New features
and functionality are currently under development and will be added in
subsequent releases. We released Red Brick version 1.4 on schedule during
May 1999 and we are currently in the process of evaluating the future use of
Formation version 2.0 due to the acquisition of similar technology as a
result of the pending merger with Ardent.
The fair value of the in-process technology was based on a discounted cash
flow model, similar to the traditional Income Approach. The Income Approach
involves five steps: (1) the annual after-tax cash flows the asset will generate
over its remaining useful life are estimated; (2) these cash flows are converted
to their present value equivalents using a required rate of return which
accounts for the relative risk of not realizing the annual cash flows and for
the time value of money; (3) the residual value, if any, of the asset at the end
of its remaining useful life is estimated; (4) the estimated residual value is
converted to its present value equivalent; and (5) the present value of the
estimated annual after-tax cash flows is added to the present value of the
residual value to obtain an estimate of the asset's fair value. The discount
rate used in discounting the estimated cash flows is based on the risks
associated with achieving such estimated cash flows upon successful completion
of the acquired projects. Associated risks include the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility, and risks related to the impact of potential changes in market
conditions and technology.
In developing cash flow estimates, revenues were forecasted based on
relevant factors, including aggregate revenue growth rates for the business as a
whole, characteristics of the potential market for the technology and the
anticipated life of the underlying technology. Projected annual revenues for the
Warehouse and Formation projects were assumed to increase from product release
through 2000, decline slightly in 2001 and decline significantly in 2002 which
is estimated to be the end of the in-process
23
technology's economic life. Cost of software distribution and services, sales
and marketing expense, research and development expense and general and
administrative expense were estimated as a percentage of revenues throughout the
forecast period. Gross profit was assumed to be between 74% and 80% for both the
Warehouse project and the Formation project.
As certain other assets contribute to the cash flow attributable to the two
projects, returns to these other assets or capital charges were calculated and
deducted from the after-tax operating income to isolate the cash flow solely
attributable to the two projects. Accordingly, returns were deducted for working
capital, fixed assets (i.e. property and equipment) and the workforce in place.
Informix then discounted the estimated cash flows attributable to Warehouse and
Formation using a 18.0% discount rate.
The fair value of the in-process research and development was allocated as
approximately $2.0 million and $0.6 million to the Warehouse and Formation
projects, respectively.
The acquisition of Red Brick was a tax-free reorganization under the
Internal Revenue Code. Therefore, the charge for in-process research and
development and amortization of acquired intangible assets is not deductible for
income tax purposes.
In February 1997, we acquired all of the outstanding capital stock of
CenterView, a privately-owned company which developed and sold software
application development tools. The aggregate purchase price paid was
approximately $8.7 million, which included cash and direct acquisition costs.
The transaction was accounted for as a purchase and, based on an independent
appraisal of the assets acquired and liabilities assumed, the purchase price was
allocated to the net tangible and intangible assets acquired including developed
software technology, acquired workforce, in-process technology, and goodwill.
The in-process technology, which, based on the independent appraisal, was valued
at $7 million, had not reached technological feasibility at the date of
acquisition and had no alternative future uses in other research and development
projects. Consequently, its value was charged to operations in the first quarter
of fiscal 1997, the period in which the acquisition was consummated. The
remaining identifiable intangible assets are being amortized over three to five
years.
The in-process research and development project acquired in the acquisition
of CenterView consisted of the client/server software, "Data Director," that
combines the functionality of high-end client/server tools with the price and
openness of visual programming environments. Data Director is an integrated
development extension for Microsoft Visual Basic that enables companies to build
corporate Intranet and client/server applications in a single environment. As of
the date of acquisition, Data Director Version 2.1 was considered developed
technology while Data Director Versions 3.0 and 4.0 were considered in-process
technology which had not reached technological feasibility and did not have any
alternative future uses. Data Director Version 3.0 was scheduled for first
customer release in July 1997 while Version 4.0 was anticipated to reach first
customer release in April 1998, with commercial release to occur approximately
two to three months after first customer introduction of the product. The
expected aggregate costs to complete both Data Director Versions 3.0 and 4.0
were approximately $12.6 million.
The fair value of the in-process technology was based on projected cash
flows which were discounted based on the risks associated with achieving such
projected cash flows upon successful completion of the acquired projects.
Associated risks include the inherent difficulties and uncertainties in
completing each project and thereby achieving technological feasibility, and
risks related to the impact of potential changes in market conditions and
technology. In developing cash flow projections, revenues were forecasted based
on relevant factors, including aggregate revenue growth rates for the business
as a whole and for the database application development market, product family
revenues, the aggregate size of the database application development market,
anticipated product development and product introduction schedules, product
sales cycles, and the estimated life of the underlying technology.
Projected annual revenues for the Data Director in-process development
projects were assumed to increase from product release through 1999, decline
slightly in 2000 and decline significantly in 2001, which was estimated to be
the end of the in-process technology's economic life. Gross profit was assumed
to be 90% throughout the technology life cycle based on percentages estimated in
Informix's aggregate business model. Estimated operating expenses, income taxes
and capital charges to provide a return on other acquired assets were deducted
from gross profit to arrive at net operating income. Operating expenses were
estimated as a percentage of revenue and included general and administrative
expenses, sales and marketing expenses and development costs to maintain the
technology once it achieved technological feasibility.
24
The net cash flows of the in-process research and development projects were
discounted to their present values using a discount rate of 20%. This discount
rate approximated the overall rate of return for the acquisition of CenterView
as a whole and reflected the inherent uncertainties surrounding the successful
development of the in-process research and development projects and the
uncertainty of technological advances.
We are currently selling two versions of Data Director, one for Visual Basic
applications and the other for Web applications.
MERGER AND RESTRUCTURING CHARGES. During the quarter ended December 31,
1999, we recorded a charge of $2.8 million associated with the merger with
Cloudscape. This amount included $1.2 million for financial advisor, legal and
accounting fees related to the merger and $1.6 million for costs associated with
combining the operations of the two companies; including expenditures of
$0.7 million for severance and related costs, $0.4 million for closure of
facilities and $0.5 million for the write-off of redundant assets. Accrued
merger costs totaling $1.3 million remained as a liability in our Consolidated
Financial Statements as of December 31, 1999. (See Note 11 to our Consolidated
Financial Statements.)
In June and September 1997, we approved plans to restructure our operations
to bring expenses in line with forecasted revenues and substantially reduced our
worldwide headcount and modified operations to improve efficiency. Accordingly,
we recorded restructuring charges totaling $108.2 million for 1997. The
significant components of these restructuring changes were severance and
benefits, write-off of assets, and facility charges. Severance and benefits
represented the reduction of approximately 670 employees, primarily sales and
marketing personnel, on a worldwide basis. Temporary employees and contractors
were also reduced. Write-off of assets included the write-off or write-down in
carrying value of equipment as a result of our decision to reduce the number of
Information Superstores throughout the world, as well as the write-off of
equipment associated with headcount reductions. The equipment subject to the
write-offs and write-downs consisted primarily of computer servers,
workstations, and personal computers that were no longer utilized in our
operations. Facility charges included early termination costs associated with
the closing of certain domestic and international sales offices.
During 1999 and 1998, adjustments of $0.6 million and $10.3 million,
respectively, were recorded to the results of operations. These adjustments,
which appear as a credit to restructuring charges in our Consolidated Statement
of Operations for the years ended December 31, 1999 and 1998, were due primarily
to adjusting the estimated severance and facility components of the 1997
restructuring charge to actual costs incurred. We have substantially completed
actions associated with our restructuring except for subleasing or settling our
remaining long-term operating leases related to vacated properties. The terms of
these operating leases expire at various dates through 2003. Accrued
restructuring costs totaling $1.8 million remained as a liability in our
Consolidated Financial Statements as of December 31, 1999, all of which related
to facility charges. (See Note 13 to our Consolidated Financial Statements.)
OTHER INCOME (EXPENSE)
INTEREST INCOME. Interest income for 1999 was $11.1 million as compared to
$11.7 million and $5.8 million for 1998 and 1997, respectively. Excluding
approximately $2.4 million of interest income related to income tax refunds
received in fiscal 1998, interest income earned during 1999 on cash and
short-term investments actually increased by 19% over 1998. This increase is
consistent with the increase in the average interest-bearing cash and short-term
investment balances during 1999 when compared to the same period in 1998. The
increase in 1998 when compared to 1997 also resulted from an increase in the
average interest-bearing cash and short-term investment balances in 1998 due to
increased sales and operating income as well as approximately $2.4 million in
interest income related to income tax refunds received during 1998.
INTEREST EXPENSE. Interest expense decreased to $4.3 million for 1999 from
$5.8 million and $9.4 million for 1998 and 1997, respectively. These decreases
are due primarily to a decline in the amortization of
25
interest charges incurred in connection with the financing of customer accounts
receivable prior to 1998, in addition to a decline in interest charges related
to payments on capital leases. We did not enter into any accounts receivable
financing transactions in 1999 and 1998.
LITIGATION SETTLEMENT EXPENSE. During 1999, we incurred a charge of
$97.0 million in connection with our entering into a memorandum of understanding
regarding the settlement of the private securities and related litigation
against us. The charge consists of $3.2 million in cash, $91.0 million in common
stock and approximately $2.8 million in legal fees required to obtain and
complete the settlement. The charge excludes approximately $13.8 million of
insurance proceeds which, according to the terms of the memorandum of
understanding, were contributed directly by our insurance carriers.
OTHER INCOME (EXPENSE), NET. Other income (expense), net, increased to net
other income of $2.5 million for 1999 from a net other expense of $4.6 million
for 1998. For 1999, other income included approximately $3.7 million of net
realized gains on the sale of long-term investments, offset by a downward
adjustment of $0.5 million to the carrying value of certain investments and
approximately $0.3 million of net foreign currency transaction losses. During
1998, other income (expense), net, decreased to a net other expense of
$4.6 million from net other income of $10.5 million for 1997. Other income
(expense), included $4.8 million of foreign currency transaction losses and
$8.0 million of foreign currency transaction gains in 1998 and 1997,
respectively. Approximately $7.5 million of the $8.0 million of foreign currency
transaction gains recognized in 1997 resulted primarily from a change in our
foreign currency denominated intercompany accounts payable and accounts
receivable balances arising from the restatement of our 1996, 1995 and 1994
financial statements. Other components of other income (expense) for 1997
included $8.1 million of net realized gains on the sale of long-term investments
offset by a downward adjustment of $4.5 million to the carrying value of certain
investments.
INCOME TAXES
In 1999, income tax expense of $21.9 million resulted primarily from foreign
withholding taxes and taxable earnings in certain foreign jurisdictions. We have
provided a valuation allowance for the net deferred tax assets that are
dependent on taxable income beyond 2000 in foreign jurisdictions, and domestic
taxable income. The expected tax expense of $3.8 million, computed by applying
the federal statutory rate of 35% to the income before income taxes, was offset
primarily by a $12.7 million decrease in the valuation allowance and a
$19.4 million net foreign tax expense.
In 1998, income tax expense resulted primarily from foreign withholding
taxes and taxable earnings in certain foreign jurisdictions. We have provided a
valuation allowance for the net deferred tax assets that are dependent on future
taxable income. The expected tax expense of $19.1 million, computed by applying
the federal statutory rate of 35% to the income before income taxes, was offset
primarily by a $11.2 million decrease in the valuation allowance and a
$4.4 million net foreign tax benefit.
In 1997, income tax expense resulted primarily from foreign withholding
taxes and taxable earnings in certain foreign jurisdictions. The expected tax
benefit computed by applying the federal statutory rate to the loss before
income taxes was substantially offset by a corresponding increase in the
valuation allowance for net deferred tax assets. We have provided a valuation
allowance for the net deferred tax assets in excess of amounts recoverable
through carryback of net operating losses. Accordingly, the net deferred tax
asset at December 31, 1997 of $34 million was provided for anticipated IRS tax
refunds, which were received during 1998.
26
QUARTERLY OPERATING RESULTS
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Year ended December 31, 1999
Net revenues........................... $ 196,944 $ 207,208 $ 216,272 $251,112
Gross profit........................... 141,857 154,146 161,483 197,289
Net income (loss)...................... $ 5,526 $ (81,453) $ 21,993 $ 42,770
Preferred stock dividend............... (303) (279) (247) (166)
--------- --------- --------- --------
Net income (loss) applicable to common
stockholders......................... $ 5,223 $ (81,732) $ 21,746 $ 42,604
========= ========= ========= ========
Net income (loss) per common share:
Basic................................ $ 0.03 $ (0.42) $ 0.11 $ 0.20
========= ========= ========= ========
Diluted.............................. $ 0.03 $ (0.42) $ 0.10 $ 0.20
========= ========= ========= ========
Year ended December 31, 1998
Net revenues........................... $ 161,019 $ 174,284 $ 185,284 $214,919
Gross profit........................... 113,586 128,355 138,080 164,092
Net income (loss)...................... $ 118 $ 10,593 $ 16,919 $ 22,554
Preferred stock dividend............... (603) (624) (589) (1,662)
Value assigned to warrants............. (1,594) (388) -- --
--------- --------- --------- --------
Net income (loss) applicable to common
stockholders......................... $ (2,079) $ 9,581 $ 16,330 $ 20,892
========= ========= ========= ========
Net income (loss) per common share:
Basic................................ $ (0.01) $ 0.06 $ 0.10 $ 0.12
========= ========= ========= ========
Diluted.............................. $ (0.01) $ 0.05 $ 0.09 $ 0.11
========= ========= ========= ========
Year ended December 31, 1997
Net revenues........................... $ 149,902 $ 182,527 $ 150,184 $181,279
Gross profit........................... 79,616 124,042 97,898 132,393
Net income (loss)...................... $(144,610) $(111,931) $(111,479) $ 7,632
Preferred stock dividend............... -- -- -- (301)
Value assigned to warrants............. -- -- -- (1,601)
--------- --------- --------- --------
Net income (loss) applicable to common
stockholders......................... $(144,610) $(111,931) $(111,479) $ 5,730
========= ========= ========= ========
Net income (loss) per common share:
Basic................................ $ (0.96) $ (0.74) $ (0.73) $ 0.04
========= ========= ========= ========
Diluted.............................. $ (0.96) $ (0.74) $ (0.73) $ 0.03
========= ========= ========= ========
In the first quarter of 1997, we experienced a substantial shortfall in
license revenues compared to forecasts, resulting in a substantial loss for the
quarter. The shortfall in revenue was due to slow growth in demand for RDBMS
products as well as our inability to close a number of sales transactions that
management anticipated would close by the end of the quarter, especially in
Europe. As a result of the shortfall in license revenues for this quarter, we,
in the second and third quarters of 1997, initiated two internal restructurings
of our operations intended to reduce operating expenses and improve our
financial condition. These restructurings included reductions in headcount and
leased facilities and the downsizing,
27
elimination or conversion into solutions labs of our planned Information
Superstores. Costs associated with the restructurings totaled approximately
$108.2 million and had a material adverse impact on our results of operations
for 1997 "See Restructuring Charges." Additionally, during 1997, we had a major
restatement for all of the periods included in the three years ended
December 31, 1996, as well as for the quarter ended March 31, 1997. At that
time, our administrative processes were weak which contributed to the existence
of significant weaknesses in our internal controls. Following these events,
customers were concerned about Informix's viability and, accordingly, our
management was concerned about whether customers would honor their financial
obligations to us.
The restructuring activities and the restatement of financial results
impacted the environment in which we operated, and, accordingly, impacted the
estimates and assumptions used by management in the preparation of our financial
statements. As of December 31, 1997, we made certain estimates including
allowances for uncollectable accounts receivable based on the probability of
collections, estimates for product returns associated with ongoing customer
uncertainty about our financial condition and contingencies associated with
continuing issues related to 1997. These estimates, in the ordinary course of
business, change as a result of management actions and environmental changes.
During the last quarter of 1997 and the first two quarters of 1998, we took
a number of actions to help restore customer confidence regarding the ongoing
viability of Informix. These actions included: (i) generating a total of
$63.3 million proceeds from an offering of Series B Preferred Stock and the
exercise of warrants related to outstanding Series A-1 Preferred Stock and
increasing the balance of cash, cash equivalents and short term investments;
(ii) visits to key customers by senior management to reinforce our customers'
confidence in us, (iii) signing significant new contracts with existing
customers and winning new customers in a variety of application areas including
data warehousing and Web/content management; (iv) demonstrating continued
ability to generate a meaningful revenue stream; (v) decreasing employee
turnover and increasing the ability to attract new employees and senior
management talent; and (vi) introducing significant new products and increasing
research and development funding. All of these factors contributed to customers
honoring their financial obligations to Informix, while reducing the probability
of product return and collections problems.
Additionally, during the first two quarters of 1998, the following actions
were taken and improvements made in the quality of our accounts receivable
balances. The actions taken included: (i) centralizing European credit and
collections for most countries and outsourcing this function to a professional
credit and collections firm; (ii) improving our Europe region's accounts
receivable aging from a balance of $8.5 million outstanding greater than
90 days as of December 31, 1997 to a balance of $3.9 million outstanding greater
than 90 days as of June 30, 1998; and (iii) refining our methodology for
estimating general uncollectible accounts receivable over and above specific
accounts receivable reserves.
The improvement in both our financial condition and the credit and
collections processes which resulted from our actions led to a decrease of risk
such that reserves for product return and bad debts were reduced by
$1.7 million and $5.0 million in the first and second quarters of 1998,
respectively.
We believe the actions taken by management improved our operating
environment and helped restore customer confidence in our company and its
products.
As of December 31, 1997, our accrued liabilities included accruals for
certain claims against us. During the first quarter of 1998, our lawyers
determined that there was no merit to a specific claim for which we had recorded
a liability of $1.9 million. Accordingly, we reversed this $1.9 million accrual
during the first quarter of 1998. In addition, we reduced an accrued liability
related to another specific claim by $2.0 million and $0.8 million during the
second and third quarters of 1998, respectively, based on a legal opinion and a
settlement offer.
We recorded restructuring charges of $59.6 million and $49.7 million in the
second and third quarters of 1997, respectively. The total restructuring expense
decreased by $1.2 million during the fourth quarter of
28
1997 primarily due to adjusting the original estimate of the loss incurred on
the sale of land to the actual loss. We recorded restructuring-related
adjustments to decrease restructuring expense by $3.3 million, $1.4 million,
$2.6 million and $3.0 million in the first, second, third, and fourth quarters
of 1998, respectively, and $0.6 million during the first quarter of 1999
primarily due to adjusting the estimated severance and facility charges to
actual costs incurred.
In the first quarter of 1997, we recorded a charge of $30.5 million to write
down the carrying values of certain of our Japanese subsidiary's long-lived
assets to their fair values. During the same quarter, we also recorded a charge
of $14.7 million to write down the carrying value of capitalized software
development costs for certain products to their net realizable values. In
connection with our acquisition of Red Brick in December 1998, we recorded a
charge to operations in the fourth quarter of 1998 of $2.6 million for
in-process research and development which had not yet reached technological
feasibility and had no alternative future uses. In connection with our
acquisition of Cloudscape in October 1999, we recorded a charge of $2.8 million
to operations in the fourth quarter of 1999 for merger costs.
During the second quarter of 1999, we incurred a charge of $97.0 million in
connection with our entering into a memorandum of understanding regarding the
settlement of the private securities and related litigation against us.
LIQUIDITY AND CAPITAL RESOURCES
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
Cash, cash equivalents and short-term investments........... $229.1 $226.6 $157.6
Working capital (deficit)................................... 158.8 31.3 (138.8)
Cash and cash equivalents provided by (used in)
operations................................................ 18.6 21.4 (147.7)
Cash and cash equivalents used for investment activities.... (81.3) (60.2) (63.5)
Cash and cash equivalents provided by financing
activities................................................ 21.1 66.6 119.7
OPERATING CASH FLOWS. We generated positive cash flows from operations
totaling $18.6 million for 1999 primarily from improved operating profitability
and a reduction in cash outflows for accounts payable and accrued liabilities
offset by an increase in the amount of license revenue recognized from customer
advances and an increase in the effect of changes in current assets and deferred
maintenance revenue on operating cash flows.
INVESTING CASH FLOWS. Net cash and cash equivalents used for investing
activities increased by approximately $21.1 million for 1999 when compared to
1998. This increase was due primarily to a net increase of approximately
$21.2 million in our investment in available-for-sale securities of excess cash
generated from operating income during 1999. Other significant changes in
investing activities during 1999 when compared to 1998 include a $7.0 million
decrease in purchases of strategic investments, an increase in proceeds from the
sale of strategic investments of $4.3 million, an increase in capital
expenditures of $4.0 million and an increase in the capitalization of software
development costs of $4.0 million.
FINANCING CASH FLOWS. Net cash and cash equivalents provided by financing
activities during 1999 consisted primarily of proceeds from the sale of our
common stock and advances from customers and financial institutions offset by
principal payments on capital leases and payments for structured settlements
with resellers. The $45.5 million decrease in cash and cash equivalents provided
by financing activities during 1999 when compared to 1998 was due primarily to
net proceeds of $32.9 million received by us during 1998 from the issuance of
140,000 additional shares of our series A-1 preferred stock at $250 per share
and net proceeds of approximately $10.0 million received during 1998 from the
issuance of
29
convertible preferred stock by Cloudscape, which was subsequently converted into
common stock prior to the Cloudscape Merger.
SUMMARY. We believe that our current cash, cash equivalents and short-term
investments balances and cash flows from operations will be sufficient to meet
our working capital requirements for at least the next 12 months.
DISCLOSURES ABOUT MARKET RATE RISK
MARKET RATE RISK. The following discussion about our market rate risk
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates, foreign currency exchange rates and equity
security price risk. We do not use derivative financial instruments for
speculative or trading purposes.
INTEREST RATE RISK. Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We maintain a
short-term investment portfolio consisting mainly of debt securities with an
average maturity of less than two years. We do not use derivative financial
instruments in our investment portfolio and we place our investments with high
quality issuers and, by policy, limit the amount of credit exposure to any one
issuer. We are averse to principal loss and ensure the safety and preservation
of our invested funds by limiting default, market and reinvestment risk. These
available-for-sale securities are subject to interest rate risk and will fall in
value if market interest rates increase. If market interest rates were to
increase immediately and uniformly by 10 percent from levels at December 31,
1999 and 1998, the fair value of the portfolio would decline by an immaterial
amount. We have the ability to hold our fixed income investments until maturity
and believe that the effect, if any, of reasonably possible near-term changes in
interest rates on our financial position, results of operations and cash flows
would not be material.
EQUITY SECURITY PRICE RISK. We hold a small portfolio of marketable-equity
traded securities that are subject to market price volatility. Equity price
fluctuations of plus or minus 10% would have had a $1.3 million and
$1.0 million impact on the value of these securities in 1999 and 1998,
respectively.
FOREIGN CURRENCY EXCHANGE RATE RISK. We enter into foreign currency forward
exchange contracts to reduce our exposure to foreign currency risk due to
fluctuations in exchange rates underlying the value of intercompany accounts
receivable and payable denominated in foreign currencies (primarily European and
Asian currencies) until such receivables are collected and payables are
disbursed. A foreign currency forward exchange contract obligates us to exchange
predetermined amounts of specified foreign currencies at specified exchange
rates on specified dates or to make an equivalent U.S. dollar payment equal to
the value of such exchange. These foreign exchange forward contracts are
denominated in the same currency in which the underlying foreign receivables or
payables are denominated and bear a contract value and maturity date which
approximate the value and expected settlement date of the underlying
transactions. For contracts that are designated and effective as hedges,
discounts or premiums (the difference between the spot exchange rate and the
forward exchange rate at inception of the contract) are accreted or amortized to
other expenses over the contract lives using the straight-line method while
unrealized gains and losses on open contracts at the end of each accounting
period resulting from changes in the spot exchange rate are recognized in
earnings in the same period as gains and losses on the underlying foreign
currency denominated receivables or payables are recognized, and generally
offset. We operate in certain countries in Latin America, Eastern Europe, and
Asia/Pacific where there are limited forward foreign currency exchange markets
and thus we have unhedged exposures in these currencies.
Most of our international revenue and expenses are denominated in local
currencies. Due to the substantial volatility of currency exchange rates, among
other factors, we cannot predict the effect of
30
exchange rate fluctuations on our future operating results. Although we take
into account changes in exchange rates over time in our pricing strategy, we do
so only on an annual basis, resulting in substantial pricing exposure as a
result of foreign exchange volatility during the period between annual pricing
reviews. In addition, the sales cycle for our products is relatively long,
depending on a number of factors including the level of competition and the size
of the transaction. We periodically assess market conditions and occasionally
reduce this exposure by entering into foreign currency forward exchange
contracts to hedge up to 80% of the forecasted net income of our foreign
subsidiaries of up to one year in the future. These forward foreign currency
exchange contracts do not qualify as hedges for financial reporting purposes
and, therefore, are marked to market. Notwithstanding our efforts to manage
foreign exchange risk, there can be no assurances that our hedging activities
will adequately protect us against the risks associated with foreign currency
fluctuations.
The table below provides information about our foreign currency forward
exchange contracts. The information is provided in U.S. dollar equivalents and
presents the notional amount (contract amount), the weighted average contractual
foreign currency exchange rates and fair value. Fair value represents the
difference in value of the contracts at the spot rate at December 31, 1999 and
the forward rate, plus the unamortized premium or discount. All contracts mature
within twelve months.
FORWARD CONTRACTS
WEIGHTED AVERAGE
AT DECEMBER 31, 1999 CONTRACT AMOUNT CONTRACT RATE FAIR VALUE
- -------------------- --------------- ---------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
Forward currency to be sold under contract:
Euro............................................ $33,352 1.0125 $198
Korean Won...................................... 5,314 1148 (23)
Czech Koruna.................................... 2,620 36.83 1
Singapore Dollar................................ 1,814 1.654 13
Thai Bhat....................................... 1,852 37.80 (12)
Australian Dollar............................... 1,615 1.5477 (1)
Other (individually less than $1 million)....... 3,548 * (35)
------- ----
Total......................................... $50,115 $141
======= ====
Forward currency to be purchased under contract:
British Pound................................... $33,623 1.6175 $(37)
Japanese Yen.................................... 2,484 100.64 (36)
Other (individually less than $1 million)....... 814 * (5)
------- ----
Total......................................... $36,921 $(78)
======= ====
Grand Total................................... $87,036 $ 63
======= ====
- ------------------------------
* Not meaningful
YEAR 2000 COMPLIANCE
GENERAL
Many computer systems and software products were originally coded to accept
only two-digit entries in the date code field. These date code fields need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, computer systems and/or software used by many companies
needed to be upgraded to comply with Year 2000 requirements prior to January 1,
2000. Prior to January 1, 2000, significant uncertainties existed in the
software industry concerning the potential effects associated with such
compliance. Now that January 1, 2000 has come and gone with very few significant
reported Year 2000-related incidents, the level of uncertainty surrounding such
incidents has diminished.
31
Our original Year 2000 compliance efforts included:
- Reviewing and updating the Year 2000 compliance status of the software and
systems used in our internal business processes
- Obtaining appropriate assurances of compliance from the manufacturers of
these products and agreements, as necessary, to modify or replace all
non-compliant products
This program was substantially completed by December 31, 1999.
In addition, we converted certain of our software and systems to commercial
products from third parties that were known to be Year 2000 compliant. This
conversion required:
- The dedication of substantial time from our administrative and management
information personnel
- The assistance of consulting personnel from third party software vendors
- The training of our personnel using such systems
Based on the information available to date, we believe that we were able to
complete our Year 2000 compliance review and make necessary modifications prior
to the end of 1999. To the extent that we will continue to rely on the products
of other vendors to resolve Year 2000 issues, there can be no guarantee that we
will not experience delays in implementing such products. We could incur
substantial costs and disruption of our business if key systems, or a
significant number of systems, were to fail as a result of Year 2000 problems or
if we were to experience delays in implementing Year 2000 compliant software
products.
STATE OF READINESS
Our Year 2000 project was divided into four major sections:
- Product Readiness
- Information Systems Operations & Applications Software (IS Systems)
- Third-party Suppliers
- Global Business Processes (includes Facilities, Legal, Manufacturing,
Technical Support, Sales, Product Management and Development, Marketing
and Finance)
There were five general phases of our Year 2000 Project applicable to each
of the four sections:
- Awareness Phase. Increasing employee awareness through various forms of
communication
- Mission Critical Inventory Phase. Taking an inventory of mission critical
items relevant to Year 2000 (including computer hardware, software,
telecommunications equipment, embedded controllers within our facilities,
and other non-computer related equipment), assigning priorities to
identified items for assessment and possible renovation, and assessing the
status of Year 2000 compliance of items which we have determined to be
material to our business
- Repair or Replace Phase. Repairing or replacing material items that are
not Year 2000 compliant. Material items are those items that we believe
have a significant negative impact on customer service, involve a risk to
the safety of individuals, may cause damage to property or the
environment, or may significantly affect revenue
- Update Testing Phase. Testing of updates given by third party suppliers
- Business Contingency Phase. Designing and implementing contingency plans
for each internal organization and critical location during the Year 2000
rollover period
As of December 31, 1999 we had substantially completed all of the phases for
each of the four sections of the project.
32
PRODUCT READINESS. All of our currently supported products are Year 2000
compliant, meaning that the use or occurrence of dates on or after January 1,
2000 will not adversely affect the performance or functionality of our products
with respect to four-digit year dates or the ability of our products to
correctly create, store, process, and output information related to such date
data, including Leap Year calculations. However, Year 2000 compliance of our
products may be affected by other parts of the system in which they are being
used, as discussed below.
Our products often depend on data from other parts of the system in which
they are being used. Year 2000 compliance is not effective unless all of the
hardware, operating system, other software, and firmware being used along with
our products correctly interpret and/or translate date data into a four-digit
year date and properly exchange date data with our products.
We have tested our currently supported products under different Year 2000
test scenarios. We will continue to improve our testing efforts with each new
release of our software products. From time to time, our Year 2000 Program
Office has updated the history table of each product family when a Year 2000 or
DBCENTURY-related product deficiency was found and fixed in a certain interim or
maintenance release. We have made Year 2000 testing scenarios part of our
standard test suite.
Our Year 2000 Program Office finished incorporating the Red Brick product
compliance information and plans into our Year 2000 Program Plan during the
first quarter of 1999. Informix did not experience any Year 2000 related issues
with Cloudscape products or facilities.
IS SYSTEMS.
- IS Operations Systems. Our IS operations systems consist of all computer
hardware, systems software and telecommunications. Our current hardware
inventory includes PC Desktops, PC Laptops, UNIX servers, UNIX
workstations, and NT workgroup servers. Our current software inventory
includes Windows 95 operating system and MS Office products, Product
Development environment tools for UNIX, and various management systems.
Our telecommunications equipment includes both voice and data services,
including PBX systems, voicemail, ACD, video conferencing, local area
networks, wide area networks, and remote access equipment. We completed
remediation of all mission critical IS Operations components by the end of
December 1999. Non-critical systems were also made Year 2000 compliant by
November 1999. Testing was ongoing as hardware or system software was
renovated or replaced, although, the level of testing was significantly
limited by our technical ability to emulate our complex systems and
networks and cost/ benefit considerations. We began contingency planning
in December 1998, completed draft contingency plans by September 1999 and
continued to refine and rehearse through the end of December 1999.
- IS Applications Systems. Our IS applications systems consist of all
enterprise-wide applications either supplied by third-party vendors or
internally-developed. We completed our remediation efforts of all mission
critical IS applications by the end of March 1999. We made all important
and non-important IS applications systems Year 2000 compliant by the end
of December 1999. None of our other information technology projects have
been delayed due to the implementation of the Year 2000 project.
THIRD-PARTY SUPPLIERS. We identified and prioritized critical suppliers and
communicated with them about our plans and progress in addressing the Year 2000
problem and how their individual compliance could impact our success. We
completed detailed evaluations of most critical suppliers. These evaluations
were followed by the development and implementation of contingency plans where
appropriate, which began, in certain departments, in the fourth quarter of 1998
and drafted by the end of September 1999. Follow-up reviews with each of our
critical suppliers were completed by the end of December 1999 in order to
ascertain alternative communication channels and emergency procedures in the
event of widespread outages.
33
GLOBAL BUSINESS PROCESSES. We have completed the assessment of the
hardware, software and associated embedded computer chips that are used in the
operation of all of our critical facilities. All repair and testing of embedded
systems within our critical facilities was completed by the end of December
1999. We have also completed the preparation in our key business areas,
including Finance, Product Development and Legal. Customer Service completed
their Support Plans for the Year 2000 Rollover Weekend, and documented their
offerings on the Informix Year 2000 Web Site. We began contingency planning for
these organizations and their respective critical business processes in the
first quarter of 1999, and were completed with such planning, testing and
training by December 1999.
COSTS
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to our financial position. The
estimated total cost of the Year 2000 project is approximately $3.0 million. The
total amount expended on the project through December 31, 1999 was approximately
$2.5 million. The estimated future cost of completing the Year 2000 project is
estimated to be approximately $0.5 million.
Our Year 2000 Project is expected to significantly reduce our level of
uncertainty about the Year 2000 problem and, in particular, about the Year 2000
compliance and readiness of our material third-party suppliers. We believe that
the possibility of significant interruptions of normal operations has been
reduced with the implementation of new business systems and the completion of
the project as scheduled. However, although the rollover from 1999 to 2000 has
passed, many software industry experts believe that there is still reason to
expect the occurrence of the Year 2000-related incidents of some kind or the
other.
To date, we have not experienced any disruption of our business or key
systems as a result of year 2000 problems. Similarly, we have not been informed
of any year 2000 problems encountered by our customers relating to their use of
our software products. It is possible, however, that Informix or its customers
may encounter year 2000 problems at a later time. If such problems were to
arise, we could incur substantial costs or the interruption in or a failure of
certain normal business activities or operations, which could hurt our business.
If our customers experience year 2000 related problems as a result of their use
of our software products, then those customers could assert claims for damages
which, if successful, could result in significant costs, damage our operations
or adversely affect our ability to sell our products.
EUROPEAN MONETARY CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Economic Community entered into a three-year transition phase during which a
common currency, the "Euro," was introduced. Between January 1, 1999 and
January 1, 2002, governments, companies and individuals may conduct business in
these countries in both the Euro and existing national currencies. On
January 1, 2002, the Euro will become the sole currency in these countries.
During the transition phase, we will continue to evaluate the impact of
conversion to the Euro on our business. In particular, we are reviewing:
- Whether our internal software systems can process transactions denominated
either in current national currencies or in the Euro, including converting
currencies using computation methods specified by the European Economic
Community
- The cost to us if we must modify or replace any of our internal software
systems
- Whether we will have to change the terms of any financial instruments in
connection with our hedging activities
Based on current information and our initial evaluation, we do not expect
the cost of any necessary corrective action to have a material adverse effect on
our business. We have reviewed the effect of the
34
conversion to the Euro on the prices of our products in the affected countries.
As a result, we have made some adjustments to our prices to attempt to eliminate
differentials that were identified. However, we will continue to evaluate the
impact of these and other possible effects of the conversion to the Euro on our
business. We cannot guarantee that the costs associated with conversion to the
Euro or price adjustments will not in the future have a material adverse effect
on our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," which establishes standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. Earlier application of SFAS 133 is encouraged but should
not be applied retroactively to financial statements of prior periods. The
adoption of this statement is not expected to have a material impact on our
operating results, financial position or cash flows.
In December 1998, the AICPA issued Statement of Position 98-9 ("SOP 98-9"),
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions." This amendment clarified the specification of what was considered
vendor specific objective evidence of fair value for the various elements in a
multiple element arrangement. SOP 98-9 is effective for all transactions entered
into by us beginning in fiscal year 2000. The adoption of this statement is not
expected to have a material impact on our operating results, financial position
or cash flows.
RECENT DEVELOPMENTS
On February 3, 2000, International Business Machines Corporation ("IBM")
filed an action against us in the United States District Court for the District
of Delaware alleging infringement of six United States patents owned by IBM. The
Informix products that IBM alleges infringe its patents are Informix Online
Dynamic Server versions 5, 6 and 7, Informix SE version 6, Informix NewEra
version 1, Informix NET, Informix STAR, Illustra Visual Information Retrieval,
and Illustra Visual Intelligence Viewer. In its complaint, IBM seeks a permanent
injunction against further alleged infringement, unspecified compensatory
damages, unspecified treble damages, and interest, costs and attorneys' fees. We
strongly believe that the allegations in the complaint are without merit and
intend to defend the action vigorously and to assert such counterclaims against
IBM as may be appropriate.
35
FACTORS THAT MAY AFFECT FUTURE RESULTS
CURRENT AND POTENTIAL STOCKHOLDERS SHOULD CONSIDER CAREFULLY EACH OF THE
FOLLOWING FACTORS IN MAKING THEIR INVESTMENT DECISIONS. THESE FACTORS SHOULD BE
CONSIDERED TOGETHER WITH THE OTHER INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K.
RISK FACTORS
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS CAUSED BY MANY
FACTORS, WHICH COULD RESULT IN OUR FAILING TO ACHIEVE REVENUE OR PROFITABILITY
EXPECTATIONS.
Our quarterly and annual results of operations have varied significantly in
the past and are likely to continue to vary in the future due to a number of
factors described below and elsewhere in this "Managements' Discussion and
Analysis of Financial Conditions and Results of Operations" section, many of
which are beyond our control. Any one or more of the factors listed below or
other factors could cause us to fail to achieve our revenue or profitability
expectations. In particular, the failure to meet market expectations could cause
a sharp drop in our stock price. These factors include:
- Changes in demand for our products and services, including changes in
industry growth rates,
- The size, timing and contractual terms of large orders for our software
products,
- Adjustments of delivery schedules to accommodate customer or regulatory
requirements,
- The budgeting cycles of our customers and potential customers,
- Any downturn in our customers' businesses, in the domestic economy or in
international economies where our customers do substantial business,
- Changes in our pricing policies resulting from competitive pressures, such
as aggressive price discounting by our competitors or other factors,
- Our ability to develop and introduce on a timely basis new or enhanced
versions of our products and solutions,
- Changes in the mix of revenues attributable to domestic and international
sales, and
- Seasonal buying patterns which tend to peak in the fourth quarter.
INTENSE COMPETITION COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS OR
GROW OUR BUSINESS.
We may not be able to compete successfully against current and/or future
competitors and such inability could impair our ability to sell our products.
The market for our products is highly competitive, diverse and is subject to
rapid change. Moreover, we expect that the technology for database products
generally, and, in particular, the technology underlying database solutions and
products for the Internet and datawarehousing products, will continue to change
rapidly. For example, as customers embrace the Internet, we need to develop and
enhance our software solutions to support Internet applications. It is possible
that our products will be rendered obsolete by technological advances.
We currently face competition from a number of sources, including several
large vendors that develop and market databases, applications, development
tools, decision support products, consulting services and/or complete
database-driven solutions for the Internet. Our principal competitors include
Computer Associates, IBM, Microsoft, NCR/Teradata, Oracle and Sybase.
Additionally, as we expand our business in the markets of datawarehousing and
Web/e-commerce, we expect to compete with a different group of companies,
including small, highly-focused companies offering single products or services
that we include as part of an overall solution. A number of our competitors have
significantly greater financial, technical, marketing and other resources than
we have. As a result, these competitors may be able to respond more
36
quickly to new or emerging technologies, evolving markets and changes in
customer requirements or to devote greater resources to the development,
promotion and sale of their products than we can.
COMPETITION MAY AFFECT THE PRICING OF OUR PRODUCTS OR SERVICES, AND CHANGES IN
PRODUCT MIX MAY OCCUR, EITHER OF WHICH MAY REDUCE OUR MARGINS.
Existing and future competition or changes in our product or service pricing
structure or product or service offerings could result in an immediate reduction
in the prices of our products or services. Also, a significant change in the mix
of software products and services that we sell, including the mix between higher
margin software and maintenance products and lower margin consulting and
training, could materially adversely affect our operating results for future
quarters. Additionally, if significant price reductions in our products or
services were to occur and not be offset by increases in sales volume, our
operating margins would be adversely affected. For example, several of our
competitors have announced the development of enhanced versions of their
principal database products that are intended to improve the performance or
expand the capabilities of their existing products. New or enhanced products by
existing competitors or new competitors could result in greater price pressure
on both our products.
In addition, the following factors could affect the pricing of relational
database management solutions products and related products:
- The industry movement to new operating systems, like Windows NT, Linux and
other low-cost operating systems available through other appliances,
- Access to relational database management solutions products through
low-end desktop computers,
- Access to database-driven solutions, including object-relational database
management systems products, through the Internet,
- The bundling of software products for promotional purposes or as a
long-term pricing strategy by competitors, and
- Our own practice of bundling our software products for enterprise licenses
or for promotional purposes with our partners.
In particular, the pricing strategies of competitors in the software
database industry have historically been characterized by aggressive price
discounting to encourage volume purchasing by customers. We may not be able to
compete effectively against competitors who continue to aggressively discount
the prices of their products.
OUR PROPOSED ACQUISITION OF ARDENT MAY NOT BE APPROVED BY BOTH COMPANIES'
STOCKHOLDERS OR, IF THE ACQUISITION IS APPROVED, DIFFICULTIES INTEGRATING ARDENT
MAY PREVENT US FROM REALIZING THE BENEFITS OF THE MERGER.
The completion of our proposed acquisition of Ardent is subject to approval
by both companies' stockholders. If the stockholders of either company do not
approve the proposed acquisition, it would disrupt our operational plans and
could harm our future operating results. Even if we complete the proposed
acquisition, we could encounter difficulties integrating Ardent's operations and
personnel. Integration difficulties may disrupt the combined company's business
and could prevent the achievement of the anticipated benefits of the merger. The
difficulties, costs and delays involved in integrating the companies, which may
be substantial, may include:
- Distracting management and other key personnel, particularly sales and
marketing personnel and senior engineers involved in product development
and product definition, from the business of the combined company,
- Inability to effectively market and distribute Ardent's products or
develop Ardent technology so as to produce new or enhanced products that
will be accepted in the marketplace,
37
- Perceived and potential adverse changes in business focus or product
offerings,
- Failure to generate significant revenue from the sale of newly developed
Ardent products,
- Failure to integrate complex software technology, product lines and
software development plans,
- Potential incompatibility of business cultures,
- Costs and delays in implementing common systems and procedures,
particularly integrating different information systems,
- Inability to retain and integrate key management, technical, sales and
customer support personnel,
- Inability to maintain Ardent's existing relationships with its partners,
- Inability to maintain Ardent's existing customers base or replace the
Ardent products used by those customers with Informix products, and
- Disruption in our sales force may result in a loss of current customers or
the inability to close sales with potential customers.
In addition, if we complete the acquisition, we will incur substantial
transactional and integration expenses of approximately $30 to $40 million
associated with combining the operations of the two companies and the fees of
financial advisors, attorneys and accountants. These expenses will prevent us
from spending those amounts on other possibly more productive uses. Although we
believe that the costs will not exceed this estimate, the estimate may be
incorrect or unanticipated contingencies may occur that substantially increase
the costs of combining Ardent's operations with our own.
IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS
OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS, SALES OF
OUR PRODUCTS MAY DECLINE.
Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers by supporting existing and emerging
hardware, software, database and networking platforms. We will have to develop
and introduce commercially viable enhancements to our existing products and
solutions on a timely basis to keep pace with technological developments,
evolving industry standards and changing customer requirements. If we do not
enhance our products to meet these evolving needs, we will not sell as many
products. Our position in existing, emerging or potential markets could be
eroded rapidly by product advances.
Our product development efforts will continue to require substantial
financial and operational investment. We may not have sufficient resources to
make the necessary investment or to attract and retain qualified software
development engineers. In addition, we may not be able to internally develop new
products or solutions quickly enough to respond to market forces. As a result,
we may have to acquire technology or access to products or solutions through
mergers and acquisitions, investments and partnering arrangements. We may not
have sufficient cash, access to funding, or available equity to engage in such
transactions. Moreover, we may not be able to forge partnering arrangements or
strategic alliances on satisfactory terms, or at all, with the companies of our
choice.
WE HAVE EXPERIENCED, AND ANTICIPATE THAT WE WILL CONTINUE TO EXPERIENCE,
TURNOVER AT OUR SENIOR MANAGEMENT LEVELS, WHICH COULD HARM OUR BUSINESS AND
OPERATIONS.
In July 1999, we announced the appointment of Jean-Yves F. Dexmier as a
member of the board of directors and president and chief executive officer,
while Robert J. Finocchio resigned his position as president and chief executive
officer. Mr. Finocchio continues to be actively involved in our management in
his capacity as the chairman of the board. During the past nine months, several
of our senior executive officers have resigned, including our (i) vice president
and treasurer, (ii) vice president, human resources and (iii) vice president,
web and e-commerce division, all three of whom have since been replaced, as well
38
as the vice president, corporate controller, who resigned when we replaced the
corporate controller position with two controller positions, both of which
report directly to our chief financial officer. Also, our vice president,
corporate marketing, resigned effective December 31, 1999 and our executive vice
president and chief financial officer, Howard A. Bain III, resigned effective
March 20, 2000. It is possible that this high turnover at our senior management
levels will continue and that other senior executive officers could also resign.
Of our senior executive officers and key employees, only Robert J.
Finocchio, chairman of the board, and the former president and chief executive
officer, is bound by an employment agreement, the terms of which are nonetheless
at-will. In addition, we do not maintain key man life insurance on our employees
and have no plans to do so. The loss of the services of one or more of our
current senior executive officers or key employees could harm our business and
could affect our ability to successfully implement our business objectives. Our
future success will depend to a significant extent on the continued service of
our current senior executives. If we were to lose the services of one or more of
our current senior executives or key employees, this could adversely affect our
ability to grow our business and achieve our business objectives, particularly
if one or more of those executives or key employees decided to join a competitor
or otherwise compete directly or indirectly with Informix.
OUR EXECUTIVE TEAM MAY NOT BE ABLE TO SUCCESSFULLY WORK TOGETHER TO MEET ITS
BUSINESS OBJECTIVES.
Since the beginning of 1998, we have expanded our ability to deliver
products and solutions for the Internet, including e-commerce solutions, and
business intelligence solutions driven by our datawarehouse technology. Our
management team has not worked together for a significant length of time and may
not be able to successfully implement this strategy. If the management team is
unable to accomplish our business objectives, it could materially adversely
affect our ability to grow our business. As noted above, Mr. Dexmier was
appointed as the president and chief executive officer in July 1999. In
addition, two new executive officers, the vice president and treasurer and the
vice president, i.Intelligence Business Group, joined Informix in July 1999 and
the vice president, human resources, joined Informix in October 1999. Almost all
of Informix's other executive officers have joined the company since the
beginning of fiscal 1998.
WE MAY NOT BE ABLE TO RETAIN OUR KEY PERSONNEL OR, IF WE COMPLETE THE
ACQUISITION OF ARDENT, TO INTEGRATE AND RETAIN ARDENT'S KEY PERSONNEL, WHICH MAY
PREVENT US FROM MEETING OUR BUSINESS OBJECTIVES.
We may not be able to retain our key personnel, including certain sales,
consulting, technical and marketing personnel, or attract other qualified
personnel in the future. In addition, if we complete the acquisition of Ardent
we may not be able to retain Ardent's key personnel, including its current
management. Our success depends upon the continued service of key qualified
personnel. The competition to attract, retain and motivate these personnel is
intense. We have at times experienced, and continue to experience, difficulty
recruiting qualified software, customer support and other personnel. The loss of
such key personnel could result in our inability to effectively develop, market
and sell our products thereby harming our financial results.
ANY CANCELLATIONS OR DELAYS IN PLANNED CUSTOMER PURCHASES OF OUR PRODUCTS OR
SERVICES COULD MATERIALLY ADVERSELY AFFECT OUR NET INCOME AND COULD
SUBSTANTIALLY REDUCE QUARTERLY REVENUES.
Because we do not know when, or if, potential customers will place orders
and finalize contracts, we cannot accurately predict revenue and operating
results for future quarters. If there is a downturn in potential customers'
businesses, the domestic economy in general, or in international economies where
we derive substantial revenue, potential customers may defer or cancel planned
purchases of our products. Because we base operating expenses on anticipated
revenue levels and because a high percentage of our expenses are relatively
fixed, delays in the recognition of revenues from even a limited number of
product
39
license transactions could cause significant variations in operating results
from quarter to quarter, which could cause net income to fall significantly
short of anticipated levels.
IF A LARGE NUMBER OF THE ORDERS THAT ARE TYPICALLY BOOKED AT THE END OF A
QUARTER ARE NOT BOOKED, OUR NET INCOME FOR THAT QUARTER COULD BE SUBSTANTIALLY
REDUCED.
Our software license revenue in any quarter often depends on orders booked
and shipped in the last month, weeks or days of that quarter. At the end of each
quarter, we typically have either minimal or no backlog of orders for the
subsequent quarter. If a large number of orders or several large orders do not
occur or are deferred, revenue in that quarter could be substantially reduced.
SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS COULD ADVERSELY AFFECT OUR
QUARTERLY OPERATING RESULTS.
Our sales of software products have been affected by seasonal purchasing
trends that materially affect our quarter-to-quarter operating results. We
expect these seasonal trends to continue in the future. Revenue and operating
results in our quarter ending December 31 are typically higher relative to other
quarters because many customers make purchase decisions based on their calendar
year-end budgeting requirements and because we measure our sales incentive plans
for sales personnel on a calendar year basis. As a result, we have historically
experienced a substantial decline in revenue in the first quarter of each fiscal
year relative to the preceding quarter.
THE LENGTHY SALES CYCLE FOR PRODUCTS MAKES REVENUES SUSCEPTIBLE TO FLUCTUATIONS.
Any delay in the sales cycle of a large transaction or a number of smaller
transactions could result in significant fluctuations in our quarterly operating
results. Our sales cycles typically take many months to complete and vary
depending on the product, service or solution that is being sold. The length of
the sales cycle may vary depending on a number of factors over which we have
little or no control, including the size of a potential transaction and the
level of competition that we encounter in our selling activities. The sales
cycle can be further extended for sales made through third party distributors.
OUR FUTURE REVENUE AND OUR ABILITY TO MAKE INVESTMENTS IN DEVELOPING OUR
PRODUCTS IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMER BASE CONTINUING
TO LICENSE OUR PRODUCTS AND RENEW OUR SERVICE AGREEMENTS.
We depend on our installed customer base for future revenue from services
and licenses of additional products. If our customers fail to renew their
maintenance agreements, our revenue will be harmed. The maintenance agreements
are generally renewable annually at the option of the customers and there are no
minimum payment obligations or obligations to license additional software.
Therefore, current customers may not necessarily generate significant
maintenance revenue in future periods. In addition, customers may not
necessarily purchase additional products or services. Our services revenue and
maintenance revenue also depend upon the continued use of these services by our
installed customer base. Any downturn in software license revenue could result
in lower services revenue in future quarters. Moreover, if either license
revenue or revenue from services declines, we may not have sufficient cash to
finance investments or acquire technology.
THE SUCCESS OF OUR INTERNATIONAL OPERATIONS IS DEPENDENT UPON MANY FACTORS WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS INTERNATIONALLY AND
COULD AFFECT OUR PROFITABILITY.
International sales represented approximately 51% of our total revenue
during the year ended December 31, 1999. The international operations are, and
any expanded international operations will be,
40
subject to a variety of risks associated with conducting business
internationally that could adversely affect our ability to sell our products
internationally, and therefore, our profitability, including the following:
- Difficulties in staffing and managing international operations,
- Problems in collecting accounts receivable,
- Longer payment cycles,
- Fluctuations in currency exchange rates,
- Seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world,
- Uncertainties relative to regional, political and economic circumstances,
- Recessionary environments in foreign economies, and
- Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries.
In particular, instability in the Asian/Pacific and Latin American economies
and financial markets, which together accounted for approximately 19% of our
total net revenues during the year ended December 31, 1999, could adversely
affect our ability to sell our products internationally.
FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
TRANSACTION LOSSES.
Despite efforts to manage foreign exchange risk, our hedging activities may
not adequately protect us against the risks associated with foreign currency
fluctuations. As a consequence, we may incur losses in connection with
fluctuations in foreign currency exchange rates. Most of our international
revenue and expenses are denominated in local currencies. Due to the substantial
volatility of currency exchange rates, among other factors, it is not possible
to predict the effect of exchange rate fluctuations on our future operating
results. Although we take into account changes in exchange rates over time in
our pricing strategy, we do so only on an annual basis, resulting in substantial
pricing exposure as a result of foreign exchange volatility during the period
between annual pricing reviews. In addition, as noted previously, the sales
cycles for our products is relatively long. Foreign currency fluctuations could,
therefore, result in substantial changes in the financial impact of a specific
transaction between the time of initial customer contact and revenue
recognition. In addition to the hedging program, we have implemented a foreign
exchange hedging program consisting principally of the purchase of forward
foreign exchange contracts in the primary European and Asian currencies. This
program is intended to hedge the value of intercompany accounts receivable or
intercompany accounts payable denominated in foreign currencies against
fluctuations in exchange rates until such receivables are collected or payables
are disbursed. Additionally, uncertainties related to the Euro conversion could
adversely affect our hedging activities.
IF THE INTERNET DOES NOT CONTINUE TO DEVELOP AS WE ANTICIPATE, OR IF OUR PRODUCT
OFFERINGS ARE NOT ACCEPTED IN THIS MARKET, WE MAY NOT BE ABLE TO GROW OUR
BUSINESS.
The Internet is a rapidly evolving market. We are unable to predict whether
and to what extent Internet computing and electronic commerce will be embraced
by consumers and traditional businesses. Our successful introduction of
database-driven products and solutions for the Internet market will depend in
large measure on:
- The commitment by hardware and software vendors to manufacture, promote
and distribute Internet access appliances,
- The lower cost of ownership of Internet computing relative to
client/server architecture, and
- The ease of use and administration relative to client/server architecture.
41
In addition, if a sufficient number of vendors do not undertake a commitment
to the market, the market may not accept Internet computing or Internet
computing may not generate significant revenues for our business. Also,
standards for network protocols, as well as other industry-adopted and de facto
standards for the Internet, are evolving rapidly. There can be no assurance that
standards we have chosen will position our products to compete effectively for
business opportunities as they arise on the Internet. The widespread acceptance
and adoption of the Internet by traditional businesses for conducting business
and exchanging information is likely only if the Internet provides these
businesses with greater efficiencies and improvements. The failure of the
Internet to continue to develop as a commercial or business medium could
materially adversely affect our business. Even if the Internet and electronic
commerce are widely accepted and adopted by consumers and businesses, our
database products and database-driven solutions for the Internet may not
succeed. We recently announced our intention to focus a substantial part of our
product development and sales efforts on developing and selling technology and
services for the Internet market. This market is new to our product development,
marketing and sales organizations. We may not be able to market and sell
products and solutions in this market successfully. In addition, our database
products and database-driven solutions for the Internet may not compete
effectively with our competitors' products and solutions. Further, we may not
generate significant revenue and/or margin in this market. Any of these events
could materially, adversely affect our business, operating results and financial
condition.
IF THE DATA WAREHOUSE MARKET DOES NOT CONTINUE TO GROW, OR IF OUR PRODUCT
OFFERINGS IN THIS MARKET ARE NOT ACCEPTED, WE MAY NOT BE ABLE TO SELL OUR
PRODUCTS OR GROW OUR BUSINESS.
The data warehouse market may not continue to grow, or may not grow rapidly,
and our customers may not expand their use of data warehouse products. In
addition, we may not be able to market and sell our products and solutions in
this market or otherwise compete effectively and generate significant revenue.
Although demand for data warehouse software has grown in recent years, the
market is still emerging. Our future financial performance in this area will
depend to a large extent on:
- Continued growth in the number of organizations adopting data warehouses,
- Our success in developing partnering arrangements with developers of
software tools and applications for the data warehouse market, and
- Existing customers expanding their use of data warehouses.
RECENT ORGANIZATIONAL CHANGES COULD DISRUPT OUR BUSINESS OPERATIONS AND COULD
ADVERSELY AFFECT THE SALES OF OUR PRODUCTS.
On October 1, 1999, we reorganized our operating business divisions into
four new business groups: the TransAct Business Group, which is responsible for
delivering on-line transaction processing products; the i.Foundation Business
Group, which is responsible for delivering products that provide the
technological foundation for Internet-based electronic commerce solutions; the
i.Informix Business Group, which is responsible for delivering Internet-based
solutions for electronic commerce; and the i.Intelligence Business Group, which
is responsible for delivering Internet-based data warehouse products and
solutions. We may not achieve the anticipated benefits of this reorganization.
In addition, the reorganization could disrupt our current business operations,
including our product development and sales efforts. Further, any such
disruption or other operational difficulty encountered while implementing the
organization could distract our management team and cause uncertainty and
confusion among our customers.
IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS WOULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS.
Our success will continue to be heavily dependent upon proprietary
technology. We rely primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and
42
contractual provisions to protect our proprietary rights. These means of
protecting proprietary rights may not be adequate, and the inability to protect
intellectual property rights may adversely affect our business and/or financial
condition. We currently hold eight United States patents and several pending
applications. There can be no assurance that any other patents covering our
inventions will be issued or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringers. Our ability to sell our products and prevent competitors
from misappropriating our proprietary technology and trade names is dependent
upon protecting our intellectual property. Our products are generally licensed
to end-users on a "right-to-use" basis under a license that restricts the use of
the products for the customer's internal business purposes. We also rely on
"shrink-wrap" and "click-wrap" licenses, which include a notice informing the
end-user that by opening the product packaging, or in the case of a click-on
license by clicking on an acceptance icon and downloading the product, the
end-user agrees to be bound by the license agreement. Despite such precautions,
it may be possible for unauthorized third parties to copy aspects of our current
or future products or to obtain and use information that is regarded as
proprietary. In addition, we have licensed the source code of our products to
certain customers under certain circumstances and for restricted uses. In
addition, we have also entered into source code escrow agreements with a number
of our customers that generally require release of source code to the customer
in the event the company enters bankruptcy or liquidation proceedings or
otherwise ceases to conduct business. We may also be unable to protect our
technology because:
- Competitors may independently develop similar or superior technology,
- Policing unauthorized use of software is difficult,
- The laws of some foreign countries do not protect proprietary rights in
software to the same extent as do the laws of the United States,
- "Shrink-wrap" and/or "click-wrap" licenses may be wholly or partially
unenforceable under the laws of certain jurisdictions, and
- Litigation to enforce intellectual property rights, to protect trade
secrets, or to determine the validity and scope of the proprietary rights
of others could result in substantial costs and diversion of resources.
IN THE FUTURE, THIRD PARTIES COULD, FOR COMPETITIVE OR OTHER REASONS, ASSERT
THAT OUR PRODUCTS INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS.
As discussed above under "Recent Developments," IBM recently filed a lawsuit
against us claiming that some of our products infringe certain of IBM's patents
("IBM claim"). Other third parties may claim that our current or future products
infringe their proprietary rights. These claims, with or without merit, could
harm our business by increasing costs and by adversely affecting our ability to
sell our products. Any claim of this type, including the IBM claim, could affect
our relationships with our existing customers and prevent future customers from
licensing our products. Any such claim, including the IBM claim, with or without
merit, could be time consuming to defend, result in costly litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Royalty or license agreements may not be available on acceptable
terms or at all. It is expected that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in the software industry segment grows and the functionality of
products in different industry segments overlaps.
ERRORS IN OUR PRODUCTS OR THE FAILURE OF PRODUCTS TO CONFORM TO CUSTOMER
SPECIFICATIONS OR EXPECTATIONS COULD RESULT IN OUR CUSTOMERS DEMANDING REFUNDS
FROM US, ASSERTING CLAIMS FOR DAMAGES OR LIMITING SALES OF PRODUCTS.
Because our software products are complex, they often contain errors or
"bugs" that can be detected at any point in a product's life cycle. While we
continually test our products for errors and work with
43
customers through our customer support services to identify and correct bugs in
our software, it is expected that product errors will continue to be found in
the future. Although many of these errors may prove to be immaterial, some could
be significant. Detection of any significant errors may result in, among other
things, loss of, or delay in, market acceptance and sales of our products,
diversion of development resources, injury to our reputation, or increased
service and warranty costs.
THE FAILURE OF OUR PRODUCTS TO CONFORM TO CUSTOMER SPECIFICATIONS OR
EXPECTATIONS COULD RESULT IN DECREASED SALES OF OUR PRODUCTS.
A key determinative factor in future success will continue to be the ability
of our products to operate and perform well with existing and future leading,
industry-standard application software products intended to be used in
connection with relational and object-relational database management system
products. Failure to meet in a timely manner existing or future interoperability
and performance requirements of certain independent vendors could adversely
affect the market for our products. Commercial acceptance of our products and
services could also be adversely affected by critical or negative statements or
reports by brokerage firms, industry and financial analysts and industry
periodicals about Informix, its products or business, or by the advertising or
marketing efforts of competitors, or by other factors that could adversely
affect consumer perception.
POTENTIAL YEAR 2000 PROBLEMS MAY OCCUR WHICH COULD RESULT IN SIGNIFICANT COSTS
TO INFORMIX.
To date, we have not experienced any disruption of our business or key
systems as a result of year 2000 problems. Similarly, we have not been informed
of any year 2000 problems encountered by our customers relating to their use of
our software products. It is possible, however, that Informix or its customers
may encounter year 2000 problems at a later time. If such problems were to
arise, we could incur substantial costs or the interruption in or a failure of
certain normal business activities or operations, which could hurt our business.
If our customers experience year 2000 related problems as a result of their use
of our software products, then those customers could assert claims for damages
which, if successful, could result in significant costs, damage our operations
or adversely affect our ability to sell our products.
IF THE RDBMS AND ORDBMS MARKETS DO NOT GROW AS QUICKLY AS WE ANTICIPATE, WE MAY
SELL FEWER PRODUCTS.
If the growth rates for the relational and object-relational database
management systems, or RDBMS or ORDBMS, respectively, decline for any reason,
there will be less demand for our products, which would have a negative impact
on our business and financial results. The future growth rate of the RDBMS
market cannot be predicted.
Delays in market acceptance of our ORDBMS products could result in fewer
product sales. In recent years, the types and quantities of data required to be
stored and managed has grown increasingly complex and includes, in addition to
conventional character data, audio, video, text and three-dimensional graphics
in a high-performance scalable environment. Since 1996, we have invested
substantial resources in developing our ORDBMS product line. The market for
ORDBMS products is new and evolving, and its growth depends upon a growing need
to store and manage complex data and upon broader market acceptance of our
products as a solution for this need. Organizations may not choose to make the
transition from conventional RDBMS products to ORDBMS products.
OUR INABILITY TO RELY ON THE STATUTORY "SAFE HARBOR" AS A RESULT OF THE
SETTLEMENT OF THE SEC INVESTIGATION COULD HARM OUR BUSINESS.
In July 1997, the SEC issued a formal order of private investigation of
Informix and certain unidentified other entities and persons with respect to
accounting matters, public disclosures and trading activity in our securities
that were not described in the formal order. During the course of the
investigation,
44
we learned that the investigation concerned the events leading to the
restatement of its financial statements, including fiscal years 1994, 1995 and
1996, that was publicly announced in November 1997.
Effective January 11, 2000, Informix and the SEC have entered into a
settlement of the investigation as to Informix. Pursuant to the settlement, we
consented to the entry by the SEC of an Order Instituting Public Administrative
Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C
of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease
and Desist Order. Pursuant to the order, we neither admitted nor denied the
findings, except as to jurisdiction, contained in the order.
The order prohibits us from violating and causing any violation of the
anti-fraud provisions of the federal securities laws, for example by making
materially false and misleading statements concerning its financial performance.
The order also prohibits us from violating or causing any violation of the
provisions of the federal securities laws requiring Informix to: (1) file
accurate quarterly and annual reports with the SEC; (2) maintain accurate
accounting books and records; and (3) maintain adequate internal accounting
controls. Pursuant to the order, we are also required to cooperate in the SEC's
continuing investigation of other entities and persons. In the event that we
violate the order, we could be subject to substantial monetary penalties.
As a consequence of the issuance of the order, we will not, for a period of
three years from the date of the issuance of the order, be able to rely on the
"safe harbor" for forward-looking statements contained in the federal securities
laws. The "safe harbor," among other things, limits potential legal actions
against us in the event a forward-looking statement concerning our anticipated
performance turns out to be inaccurate, unless it can be proved that, at the
time the statement was made, we actually knew that the statement was false. If
we become a defendant in any private securities litigation brought under the
federal securities laws, our legal position in the litigation could be
materially adversely affected by our inability to rely on the "safe harbor"
provisions for forward-looking statements.
FAILURE TO CONTINUE TO STRENGTHEN OUR INTERNAL ACCOUNTING CONTROLS COULD
ADVERSELY AFFECT OUR BUSINESS.
Although we have made significant progress in our efforts to strengthen our
accounting controls and processes, we may not be able to hire and retain enough
finance personnel to continue to do so. If we are unable to continue to
strengthen our accounting controls and processes, that inability could adversely
affect our ability to accurately forecast and report our financial results. In
addition, any customer uncertainty about our internal accounting controls could
have an adverse effect on our ability to sell our products.
WE MAY NOT BE ABLE TO REALIZE THE POTENTIAL FINANCIAL OR STRATEGIC BENEFITS OF
FUTURE BUSINESS ACQUISITIONS WHICH COULD HURT OUR ABILITY TO GROW ITS BUSINESS
AND SELL ITS PRODUCTS.
In the future we may acquire or invest in other businesses that offer
products, services and technologies that we believe would help expand or enhance
our products and services or help expand our distribution channels. If we were
to make such an acquisition or investment, the following risks could impair our
ability to grow our business and develop new products and ultimately could
impair our ability to sell our products:
- Difficulty in combining the technology, operations or work force of the
acquired business,
- Disruption of our on-going businesses,
- Difficulty in realizing the potential financial or strategic benefits of
the transaction,
- Difficulty in maintaining uniform standards, controls, procedures and
policies, and
- Possible impairment of relationships with employees and customers as a
result of any integration of new businesses and management personnel.
45
In addition, the consideration for any future acquisition could be paid in
cash, shares of our common stock, or a combination of cash and common stock. If
the consideration is paid in the our common stock, existing stockholders would
be further diluted. Any amortization of goodwill or other assets resulting from
any acquisition could materially adversely affect our operating results and
financial condition.
THE RIGHTS OF OUR SERIES B PREFERRED STOCKHOLDERS MAY ADVERSELY AFFECT THE
RIGHTS OF OUR COMMON STOCKHOLDERS.
Holders of our series B preferred shares have certain rights that may
adversely affect holders of our common stock. At December 31, 1999, 7,000 shares
of our series B preferred stock remained outstanding.
RIGHTS TO CONSENT TO CORPORATE TRANSACTIONS.
Our agreements with the purchasers of our series B preferred stock contain
covenants that could impair our ability to engage in various corporate
transactions in the future, including financing transactions and certain
transactions involving a change-in-control or acquisition of our assets or
equity, or that could otherwise be disadvantageous to Informix and the holders
of our common stock. In particular, an acquisition of our assets or equity may
not be effected without the consent of the holders of the outstanding series B
preferred stock or without requiring the acquiring entity to assume the
series B preferred stock or cause the series B preferred stock to be redeemed.
These provisions are likely to make an acquisition more difficult and expensive
and could discourage potential acquirors. We made certain covenants in
connection with the issuance of the series B preferred stock which could limit
our ability to obtain additional financing by, for example, providing the
holders of the series B preferred stock certain rights of first offer and
prohibiting Informix from issuing additional preferred stock without the consent
of the series B preferred stockholders.
CONVERSION RIGHTS.
The shares of our series B preferred stock are convertible into shares of
our common stock based on the trading prices of our common stock during future
periods. Any conversion of series B preferred stock into our common stock will
dilute the existing common stockholders. We are also obligated to issue upon
conversion of the series B preferred stock additional warrants to acquire shares
of our common stock equal to 20% of the total number of shares of common stock
into which the series B preferred stock converts. The exercise of these warrants
will have further dilutive effect to the holders of our common stock. As of
December 31, 1999, 7,000 shares of series B preferred stock remained outstanding
and, assuming a $4.00 per share conversion price, were convertible into
1,750,000 shares of our common stock, and warrants to purchase an aggregate of
350,000 additional shares of our common stock would become issuable upon such
conversion. If the conversion price of the series B preferred stock is
determined during a period when the trading price of our common stock is low,
the resulting number of shares of common stock issuable upon conversion of the
series B preferred stock could result in greater dilution to the holders of our
common stock. As of December 31, 1999, series B preferred stockholders had
converted an aggregate of 43,000 shares of series B preferred stock into
8,694,804 shares of our common stock and warrants to purchase an aggregate of
1,938,947 shares of our common stock.
PENALTY PROVISION.
The terms of our series B preferred financing agreements also include
certain penalty provisions that are triggered if we fail to satisfy certain
obligations. For instance, we must keep a registration statement in effect for
the resale of shares of our common stock issued or issuable upon conversion of
the series B preferred shares and upon exercise of the warrants.
46
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT
COSTS.
We may be subject to claims for damages related to product errors in the
future. A material product liability claim could materially adversely affect our
business because of the costs of defending against these types of lawsuits,
diversion of key employees' time and attention from the business and potential
damage to our reputation. Although we have not experienced any product liability
claims to date, the sale and support of our products entail the risk of such
claims. While we carry insurance policies covering this type of liability, these
policies may not provide sufficient protection should a claim be asserted. Our
license agreements with our customers typically contain provisions designed to
limit exposure to potential product liability claims. Such limitation of
liability provisions may not be effective under the laws of certain
jurisdictions to the extent local laws treat certain warranty exclusions as
unenforceable.
PROVISIONS IN OUR CHARTER DOCUMENTS WITH RESPECT TO UNDESIGNATED PREFERRED STOCK
MAY DISCOURAGE POTENTIAL ACQUISITION BIDS FOR INFORMIX.
Our board of directors is authorized to issue up to 5,000,000 shares of
undesignated preferred stock in one or more series. Of the 5,000,000 shares of
preferred stock, 440,000 shares have been designated series A preferred, none of
which is outstanding; 440,000 shares have been designated series A-1 preferred,
none of which is outstanding; and 50,000 shares have been designated series B
preferred, of which 7,000 shares remained outstanding as of December 31, 1999.
Subject to the prior consent of the holders of the series B preferred stock, our
board of directors can fix the price, rights, preferences, privileges and
restrictions of such preferred stock without any further vote or action by its
stockholders. However, the issuance of shares of preferred stock may delay or
prevent a change in control transaction without further action by our
stockholders. As a result, the market price of our common stock and the voting
and other rights of the holders of our common stock may be adversely affected.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of our common stock, including the loss
of voting control to others.
OTHER PROVISIONS IN OUR CHARTER DOCUMENTS WITH RESPECT TO UNDESIGNATED PREFERRED
STOCK MAY DISCOURAGE POTENTIAL ACQUISITION BIDS FOR INFORMIX AND PREVENT CHANGES
IN OUR MANAGEMENT WHICH ITS STOCKHOLDERS MAY FAVOR.
Other provisions in our charter documents could discourage potential
acquisition proposals and could delay or prevent a change in control transaction
that our stockholders may favor. The provisions include:
- Elimination of the right of stockholders to act without holding a meeting,
- Certain procedures for nominating directors and submitting proposals for
consideration at stockholder meetings, and
- A board of directors divided into three classes, with each class standing
for election once every three years.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage certain types of
transactions involving an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal and, accordingly, could discourage potential acquisition
proposals and could delay or prevent a change in control. Such provisions are
also intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for shares of our common stock, and consequently, may also inhibit fluctuations
in the market price of our common stock that could result from actual or rumored
takeover attempts. These provisions may also have the effect of preventing
changes in our management.
In addition, we have adopted a rights agreement, commonly referred to as a
"poison pill," that grants holders of our common stock preferential rights in
the event of an unsolicited takeover attempt. These
47
rights are denied to any stockholder involved in the takeover attempt and this
has the effect of requiring cooperation with our board of directors. This may
also prevent an increase in the market price of our common stock resulting from
actual or rumored takeover attempts. The rights agreement could also discourage
potential acquirors from making unsolicited acquisition bids.
DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS WHICH MAY ADVERSELY AFFECT
THE MARKET PRICE FOR INFORMIX COMMON STOCK AND PREVENT CHANGES IN ITS MANAGEMENT
THAT ITS STOCKHOLDERS MAY FAVOR.
Informix is incorporated in Delaware and is subject to the antitakeover
provisions of the Delaware General Corporation Law, which regulates corporate
acquisitions. Delaware law prevents certain Delaware corporations, including
those corporations, such as Informix, whose securities are listed for trading on
the Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" with any "interested stockholder" for three years
following the date that the stockholder became an interested stockholder. For
purposes of Delaware law, a "business combination" would include, among other
things, a merger or consolidation involving Informix and an interested
stockholder and the sale of more than 10% of Informix's assets. In general,
Delaware law defines an "interested stockholder" as any entity or person
beneficially owning 15% or more of the outstanding voting stock of a corporation
and any entity or person affiliated with or controlling or controlled by such
entity or person. Under Delaware law, a Delaware corporation may "opt out" of
the antitakeover provisions. Informix does not intend to "opt out" of these
antitakeover provisions of Delaware Law.
OUR COMMON STOCK LIKELY WILL BE SUBJECT TO SUBSTANTIAL PRICE AND VOLUME
FLUCTUATIONS WHICH MAY PREVENT STOCKHOLDERS FROM RESELLING THEIR SHARES AT OR
ABOVE THE PRICE AT WHICH THEY PURCHASED THEIR SHARES.
Fluctuations in the price and trading volume of our common stock may prevent
stockholders from reselling their shares above the price at which they purchased
their shares. Stock prices and trading volumes for many software companies
fluctuate widely for a number of reasons, including some reasons which may be
unrelated to their businesses or results of operations. This market volatility,
as well as general domestic or international economic, market and political
conditions, could materially adversely affect the market price of our common
stock without regard to our operating performance. In addition, our operating
results may be below the expectations of public market analysts and investors.
If this were to occur, the market price of our common stock would likely
decrease significantly. The market price of our common stock has fluctuated
significantly in the past and may continue to fluctuate significantly because
of:
- Market uncertainty about the company's business prospects or the prospects
for the RDBMS ORDBMS markets in general,
- Revenues or results of operations that do not match analysts'
expectations,
- The introduction of new products or product enhancements by Informix or
its competitors,
- General business conditions in the software industry,
- Changes in the mix of revenues attributable to domestic and international
sales, and
- Seasonal trends in technology purchases and other general economic
conditions.
48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is set forth in the section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations Captioned "Disclosures about Market Rate Risk."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth in our Financial
Statements and Notes thereto beginning at page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On May 20, 1998, we filed a current report on Form 8-K (the "Form 8-K")
regarding our dismissal of Ernst & Young LLP as our independent accountants and
the engagement of KPMG LLP as our independent accountants. The contents of that
report are as follows:
FORM 8-K FILED ON MAY 20, 1998
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On May 12, 1998, the Company's Board of Directors approved a resolution
(i) to dismiss Ernst & Young LLP ("E&Y") as the Company's independent auditors,
effective upon management's notification of E&Y of the dismissal; and
(ii) concurrent with such notification, to engage KPMG LLP ("KPMG") as
Informix's independent accountants upon such terms as may be negotiated by
management.
On May 13, 1998, the Company's management notified E&Y of the dismissal. On
May 19, 1998, the Company engaged KPMG as the Company's independent accountants.
E&Y's reports with respect to the Company's financial statements for the
fiscal years ended December 31, 1996 and 1997 did not contain an adverse opinion
or a disclaimer of opinion and were not qualified as to uncertainty, audit scope
or accounting principles.
In connection with the audits of the Company's financial statements for each
of the two fiscal years ended December 31, 1996 and 1997 and in the subsequent
interim period, except as described in the next paragraph, there were no
disagreements with E&Y on any matter of accounting principles or practices,
financial statement disclosure or auditing scope and procedures which, if not
resolved to the satisfaction of E&Y would have caused E&Y to make reference to
the matter in their report.
E&Y advised the Company that it disagreed with the Company's recognition of
revenue resulting from software license transactions with industrial
manufacturers which occurred during the first quarter ended March 31, 1998. The
disagreement was resolved to the satisfaction of E&Y with the result that
approximately $6.2 million in revenue has been deferred and will be recognized
over a period which Informix expects to be approximately two years. The Company
immediately filed an amendment to its quarterly report on Form 10-Q for the
quarter ended March 31, 1998 to restate its financial results for the period.
The Audit Committee has discussed the accounting for these transactions with
management and E&Y.
The Company authorized E&Y to respond fully to the inquiries of KPMG as the
successor independent accountants of the Company. Prior to accepting its
engagement as the Company's successor independent accountants, KPMG had the
opportunity to discuss with E&Y the subject matter of the disagreement described
above and other matters relevant to Informix. KPMG did not offer any report or
advice to Informix concerning such disagreement that was important to the
Company's decision in reaching a resolution.
49
RESPONSE OF ERNST & YOUNG LLP
On May 29, 1998 Ernst & Young furnished us with the following response
letter concerning the information contained in the Form 8-K which response
letter we filed with the Commission on Form 8-K/A on June 2, 1998 (the
"Form 8-K/A").
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have read Item 4 of Form 8-K dated May 20, 1998, of Informix Corporation
and believe it is not complete as to reportable events as described in
Item 304(a)(1)(v) of Regulation S-K. We believe the ninth paragraph of Item 4
included on page 3 therein should be replaced by the following two sentences. On
April 29, 1998, E&Y informed the Audit Committee of the Board that, in
connection with the audit of Informix's fiscal 1997 consolidated financial
statements, the lack of appropriate resources, analyses, and process structure
in the accounting and financial reporting departments of Informix resulted in
delays in closing the books, numerous and material amounts of post-closing
entries and audit adjustments required to be recorded by Informix, and
difficulty in accumulating accurate information necessary for financial
statement disclosure in a timely manner. E&Y considers this condition to be a
material weakness.
We are in agreement with the statements contained in the first sentence of
the second paragraph, the third paragraph, the fourth paragraph, the first
sentence of the fifth paragraph, the first part of the second sentence of the
fifth paragraph through and including the words "has been deferred", the fourth
sentence of the fifth paragraph as it relates to our Firm, the first sentence of
the sixth paragraph, the seventh paragraph, the first and second sentence of the
eighth paragraph, and the first sentence of the tenth paragraph on pages 2 and 3
therein. In addition, we have no basis to agree or disagree with other
statements of the registrant contained therein.
Regarding the registrant's statements concerning the lack of internal
controls to prepare financial statements, included in the eighth and ninth
paragraphs of Item 4 on page 2 and 3 therein, we had considered such matters in
determining the nature, timing and extent of procedures performed in our audit
of the registrant's consolidated financial statements for the years ended
December 31, 1997, 1996, 1995, and 1994.
/s/ Ernst & Young LLP
50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors required by Item 10 is incorporated by
reference from our definitive proxy statement for our annual stockholders'
meeting to be held on June 6, 2000.
The information regarding executive officers required by Item 10 is provided
in Item 1--Business.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from our
definitive proxy statement for our annual stockholders' meeting to be held on
June 6, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from our
definitive proxy statement for our annual stockholders' meeting to be held on
June 6, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from our
definitive proxy statement for our annual stockholders' meeting to be held on
June 6, 2000.
51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following are filed as a part of this Annual Report and included in Item
8:
(A) 1. FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Auditors--KPMG LLP.................... F-2
Report of Independent Auditors--Ernst & Young LLP........... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statements of Stockholders' Equity............. F-7
Notes to Consolidated Financial Statements.................. F-8
(A) 2. FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts
(A) 3. EXHIBITS
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
3.1 (3) Certificate of Incorporation of the Registrant, as amended
3.2 (a)(3) Bylaws of the Registrant, as amended
3.2 (b)(25) Amendment to Bylaws, dated April 24, 1998
3.2 (c)(2) Amendment to Bylaws, dated June 19, 1998
3.2 (d)(2) Amendment to Bylaws, dated July 15, 1998
3.3 (5) Certificate of Designation of Series B Convertible Preferred
Stock
4.1 (6) First Amended and Restated Rights Agreement, dated as of
August 12, 1997, between the Registrant and BankBoston N.A.,
including the form of Rights Certificate attached thereto as
Exhibit A
4.2 (7) Amendment, dated as of November 17, 1997, to the First
Amended and Restated Rights Agreement between the Registrant
and BankBoston, N.A.
10.1 (2) Form of Change of Control Agreement
10.2 (9) Form of Amended Indemnity Agreement
10.3 (10) 1989 Outside Directors Stock Option Plan
10.4 (25) Amendment to the 1989 Outside Directors Stock Option Plan
10.5 (2) Form of Nonqualified Stock Option Agreement under the
Registrant's 1989 Outside Director's Stock Option Plan
10.6 (12) 1986 Stock Option Plan, as amended
10.7 (13) 1994 Stock Option and Award Plan
10.8 (25) Form of Stock Option Agreement and Performance Award
Agreement under the Registrant's 1994 Stock Option and Award
Plan
10.9 (13) Form of Nonqualified Stock Option Agreement under the
Registrant's 1994 Stock Option Plan
10.10(14) 1997 Employee Stock Purchase Plan
52
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
10.11(2) Enrollment/Change Form under the Registrant's 1997 Employee
Stock Purchase Plan
10.12(15) Employment Agreement, dated July 18, 1997, between the
Registrant and Robert J. Finocchio, Jr.
10.14(15) Offer of Employment Letter, dated September 24, 1997, from
the Registrant to Jean-Yves Dexmier
10.23(5) Securities Purchase Agreement, dated as of November 17,
1997, between the Company and the purchasers listed therein
10.24(5) Registration Rights Agreement, dated as of November 17,
1997, between the Company and the purchasers listed therein
10.25(8) Menlo Oaks Corporate Center Standard Business Lease, dated
May 16, 1985, between the Registrant and Amarok Bredero
Partners for office space at 4100 Bohannon Drive, Menlo
Park, California
10.26(8) Lease Amendment #1, dated July 2, 1986, between the
Registrant and Amarok Bredero Partners for office space at
4100 Bohannon Drive, Menlo Park, California
10.27(18) Second Amendment to Lease, dated November 7, 1986 between
the Registrant and Amarok Bredero Partners for office space
at 4100 Bohannon Drive, Menlo Park, California
10.28(19) Third Amendment to Lease, dated June 18, 1991, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4100 Bohannon Drive, Menlo Park, California
10.29(2) Fourth Amendment to Lease, dated June 30, 1997, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4100 Bohannon Drive, Menlo Park, California
10.30(9) Menlo Oaks Corporate Center Standard Business Lease, dated
September 4, 1987 between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive,
Menlo Park, California
10.31(2) Side Letter Agreement, dated August 31, 1987, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.32(2) Side Letter Agreement, dated October 27, 1987, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.33(19) First Amendment to Lease, dated June 18, 1991, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.34(20) Second Amendment to Lease, dated July 17, 1992, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.35(2) Third Amendment to Lease, dated June 8, 1993 between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.36(21) Fourth Amendment to Lease, dated February 10, 1994, between
the Registrant and Menlo Oaks Partners, L.P. for office
space at 4300/4400 Bohannon Drive, Menlo Park, California
10.37(2) Fifth Amendment to Lease, dated June 30, 1997 between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.38(21) Menlo Oaks Corporate Center Standard Business Lease, dated
February 10, 1994 between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive,
Menlo Park, California
53
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
10.39(21) First Amendment to Lease, dated March 17, 1994, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4600/4700 Bohannon Drive, Menlo Park, California
10.40(2) Second Amendment to Lease, dated September 22, 1994, between
the Registrant and Menlo Oaks Partners, L.P. for office
space at 4600/4700 Bohannon Drive, Menlo Park, California
10.41(2) Third Amendment to Lease, dated December 28, 1994, between
the Registrant and Menlo Oaks Partners, L.P. for office
space at 4600/4700 Bohannon Drive, Menlo Park, California
10.42(9) Office Lease, dated August 15, 1987, between the Registrant
and Southlake Partners #1 for office space at 15961 College
Blvd. and 11170 Lakeview Avenue, Lenexa, Kansas
10.43(2) First Amendment to Office Lease, dated April 15, 1988,
between the Registrant and Southlake Partners #1 for office
space at 15901 College Blvd., Lenexa, Kansas
10.44(2) Amendment to Office Lease, dated October 20, 1997, between
the Registrant and Southlake Partners #1 for office space at
15901 College Blvd. (now 16011 College Blvd) Lenexa, Kansas
10.45(2) Office Lease, dated October 20, 1997, between the Registrant
and Southlake Partners #1 for office space at 11170 Lakeview
Avenue, Lenexa, Kansas
10.46(2) Senior Secured Credit Agreement, dated December 31, 1997,
among Informix Software, Inc., certain banks and other
financial institutions that either now or in the future are
parties to the agreement, BankBoston, N.A. and Canadian
Imperial Bank of Commerce
10.47(2) Pledge Agreement, dated December 31, 1997, by and between
the Registrant and BankBoston, N.A.
10.48(2) Pledge and Security Agreement, dated as of December 31,
1997, between Informix Software, Inc. and BankBoston, N.A.
10.49(2) Continuing Guaranty, dated as of December 31, 1997, by the
Registrant
10.50(25) 1997 Non-Statutory Stock Option Plan and form of Stock
Option Agreement thereunder
10.52(25) Offer of Employment Letter, dated January 19, 1998, from the
Registrant to Gary Lloyd
10.54(26) Offer of Employment Letter, dated December 16, 1998, from
the Registrant to Howard A. Bain, III
10.55(25) Office Lease, dated November 10, 1994, between WVP Income
Plus III and Siebel Systems, L.P. (assigned to Informix
Corporation) for office space at 4005 Bohannon Drive,
including addenda and amendments thereto.
10.56(25) Office Lease, dated April 10, 1995, between the Registrant
and 3905 Bohannon Partners for office space at 3905 Bohannon
Drive, including addenda thereto.
10.57(24) 1998 Non-Statutory Stock Option Plan
10.58(1) Informix Corporation Change of Control and Severance
Agreement, dated December 17, 1999, between the Registrant
and F. Steven Weick
10.59(1) Informix Corporation Change of Control and Severance
Agreement, dated December 15, 1999, between the Registrant
and Wayne E. Page
10.60(1) Informix Corporation Change of Control and Severance
Agreement, dated December 16, 1999, between the Registrant
and Jean-Yves F. Dexmier
10.61(1) Informix Corporation Change of Control and Severance
Agreement, dated December 15, 1999, between the Registrant
and Gary Lloyd
10.62(1) Informix Corporation Change of Control and Severance
Agreement, dated December 12, 1999, between the Registrant
and James F. Hendrickson
54
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
10.63(1) Informix Corporation Change of Control and Severance
Agreement, dated December 15, 1999, between the Registrant
and Charles W. Chang
10.64(1) Informix Corporation/Robert J. Finocchio, Jr. Employment
Transition Agreement, dated July 16, 1999, between the
Registrant and Robert J. Finocchio, Jr.
10.65(1) Separation Agreement and Release of Claims, dated
November 23, 1999, between the Registrant and Stephanie P.
Schwartz
10.66(1) Separation Agreement and Release of Claims, dated
December 23, 1999, between the Registrant and Diane L.
Fraiman
21.1 (1) Subsidiaries of the Registrant
23.1 (1) Consent of KPMG LLP, Independent Auditors
23.2 (1) Consent of Ernst & Young LLP, Independent Auditors
24.1 (2) Power of Attorney (set forth on signature page)
27.1 (1) Financial Data Schedule
- ------------------------------
(1) Filed herewith
(2) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (333-43991)
(3) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended July 2, 1995
(4) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on August 25, 1997
(5) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on December 4, 1997
(6) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on September 3, 1997
(7) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on December 3, 1997
(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-8006)
(9) Incorporated by reference to exhibit filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1988
(10) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-31116)
(11) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-50608)
(12) Incorporated by reference to exhibits filed with Registrant's Registration
Statements on Form S-8 (File Nos: 33-22862, 33-31117 and 33-506-10)
(13) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31369) filed with the
Commission on July 16, 1997
(14) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31371) filed with the
Commission on July 16, 1997
(15) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended September 28, 1997
(16) Incorporated by reference to exhibits filed with Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1989
(17) Incorporated by reference to exhibits filed with Registrant's report on
Form 8-K filed with the Commission on December 2, 1997
(18) Incorporated by reference to exhibits filed with Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1986
55
(19) Incorporated by reference to exhibits filed with Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1991
(20) Incorporated by reference to exhibits filed with Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1992
(21) Incorporated by reference to exhibits filed with Registrant's annual report
on Form 10-K for the fiscal year ended December 31, 1993
(22) Incorporated by reference to exhibits filed with the Registrant's amendment
to its annual report on Form 10-K/A for the fiscal year ended December 31,
1996 filed with the Commission on November 18, 1997
(23) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1996
(24) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File no. 333-61843) filed with the
Commission on August 19, 1998.
(25) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1997.
(26) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1998.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable.
(b) Reports on Form 8-K
On October 15, 1999 and November 10, 1999, the Registrant filed
current reports on Form 8-K in connection with the acquisition of
Cloudscape, Inc.
On December 6, 1999, the Registrant filed a current report on
Form 8-K in connection with the signing of an Agreement and Plan of
Reorganization dated November 30, 1999, by and among the Registrant,
Ardent Software, Inc. and Iroquois Acquisition Corporation.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Menlo Park, State of California, on the 25(th) day of
February, 2000.
INFORMIX CORPORATION
By: /s/ JEAN-YVES F. DEXMIER
--------------------------------------------
Jean-Yves F. Dexmier
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY CONSTITUTES AND APPOINTS JEAN-YVES F. DEXMIER AND GARY LLOYD AND
EACH ONE OF THEM, ACTING INDIVIDUALLY AND WITHOUT THE OTHER, AS HIS
ATTORNEY-IN-FACT, EACH WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REPORT ON FORM 10-K AND TO
FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND
CONFIRMING ALL THAT EACH OF SAID ATTORNEYS-IN-FACT, OR HIS SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT ON FORM 10-K HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT J. FINOCCHIO, JR.
------------------------------------ Chairman of the Board of Directors February 25, 2000
(Robert J. Finocchio, Jr.)
/s/ JEAN-YVES F. DEXMIER
------------------------------------ President, Chief Executive Officer and February 25, 2000
(Jean-Yves F. Dexmier) Director
/s/ HOWARD A. BAIN III Executive Vice President and Chief
------------------------------------ Financial Officer (Principal February 25, 2000
(Howard A. Bain III) Financial Officer)
/s/ LESLIE G. DENEND
------------------------------------ Director February 25, 2000
(Leslie G. Denend)
/s/ ALBERT F. KNORP, JR.
------------------------------------ Director February 25, 2000
(Albert F. Knorp, Jr.)
/s/ JAMES L. KOCH
------------------------------------ Director February 25, 2000
(James L. Koch)
/s/ THOMAS A. MCDONNELL
------------------------------------ Director February 25, 2000
(Thomas A. McDonnell)
/s/ GEORGE REYES
------------------------------------ Director February 25, 2000
(George Reyes)
/s/ CYRIL J. YANSOUNI
------------------------------------ Director February 25, 2000
(Cyril J. Yansouni)
57
INFORMIX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Auditors--KPMG LLP.................... F-2
Report of Independent Auditors--Ernst & Young LLP........... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Operations....................... F-5
Consolidated Statements of Cash Flows....................... F-6
Consolidated Statements of Stockholders' Equity............. F-7
Notes to Consolidated Financial Statements.................. F-8
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders--
Informix Corporation
We have audited the accompanying consolidated balance sheets of Informix
Corporation and subsidiaries as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. Our audits also included the financial statement schedule
as listed in the Index at Item 14(a) as of and for the years ended December 31,
1999 and 1998. The consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Informix
Corporation and subsidiaries at December 31, 1999 and 1998 and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule as of and for the years ended December 31, 1999 and
1998, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ KPMG LLP
Mountain View, California
January 26, 2000
F-2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders--
Informix Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Informix Corporation for the year ended
December 31, 1997. Our audit also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of Informix Corporation's
operations and its cash flows for the year ended December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
San Jose, California
March 2, 1998
F-3
INFORMIX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
---------------------
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 140,371 $ 185,459
Short-term investments.................................... 88,746 41,093
Accounts receivable, net.................................. 232,178 187,342
Recoverable income taxes.................................. -- 3,255
Deferred taxes............................................ 5,544 --
Other current assets...................................... 24,267 20,373
--------- ---------
Total current assets........................................ 491,106 437,522
--------- ---------
PROPERTY AND EQUIPMENT, net................................. 60,586 75,845
SOFTWARE COSTS, net......................................... 39,011 38,006
LONG-TERM INVESTMENTS....................................... 17,272 22,191
INTANGIBLE ASSETS, net...................................... 27,991 41,482
OTHER ASSETS................................................ 10,246 7,019
--------- ---------
Total Assets................................................ $ 646,212 $ 622,065
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 23,625 $ 29,900
Accrued expenses.......................................... 50,913 59,558
Accrued employee compensation............................. 64,731 50,649
Income taxes payable...................................... 16,861 --
Deferred revenue.......................................... 136,172 132,390
Advances from customers and financial institutions........ 34,302 121,077
Accrued restructuring costs............................... 1,804 5,813
Other current liabilities................................. 3,878 6,875
--------- ---------
Total current liabilities................................... 332,286 406,262
--------- ---------
OTHER NON-CURRENT LIABILITIES............................... 1,420 3,759
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share--5,000,000
shares authorized
Series A-1 convertible preferred stock, 300,000 shares
issued; none outstanding in 1999 and 1998............. -- --
Series B convertible preferred stock--50,000 shares
issued; 7,000 and 23,300 outstanding in 1999 and 1998,
respectively; aggregate liquidation preference of
$7,740................................................ -- --
Convertible preferred stock of Cloudscape,
Inc.--6,343,000 shares issued and outstanding in 1998;
none outstanding in 1999.............................. -- 63
Common stock, par value $.01 per share--500,000,000 shares
authorized; 207,133,000 and 191,244,000 shares issued
and outstanding in 1999 and 1998, respectively.......... 2,073 1,913
Shares to be issued for litigation settlement............. 61,228 --
Additional paid-in capital................................ 496,574 445,352
Accumulated deficit....................................... (241,078) (231,934)
Accumulated other comprehensive loss...................... (6,291) (3,350)
--------- ---------
Total stockholders' equity.................................. 312,506 212,044
--------- ---------
Total Liabilities and Stockholders' Equity.................. $ 646,212 $ 622,065
========= =========
See Notes to Consolidated Financial Statements.
F-4
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- ----------
NET REVENUES
Licenses.................................................. $442,829 $383,947 $ 378,164
Services.................................................. 428,707 351,559 285,728
-------- -------- ----------
871,536 735,506 663,892
COSTS AND EXPENSES
Cost of software distribution............................. 43,097 35,446 63,027
Cost of services.......................................... 173,664 155,947 166,916
Sales and marketing....................................... 312,139 271,881 418,139
Research and development.................................. 163,298 149,591 141,455
General and administrative................................ 78,627 77,010 88,087
Write-off of goodwill and other long-term assets.......... -- -- 30,473
Write-off of acquired research and development............ -- 2,600 7,000
Merger and restructuring charges.......................... 2,198 (10,255) 108,248
-------- -------- ----------
773,023 682,220 1,023,345
-------- -------- ----------
Operating income (loss)..................................... 98,513 53,286 (359,453)
OTHER INCOME (EXPENSE)
Interest income........................................... 11,084 11,728 5,813
Interest expense.......................................... (4,316) (5,849) (9,405)
Littigation settlement expense............................ (97,016) -- --
Other, net................................................ 2,452 (4,581) 10,474
-------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 10,717 54,584 (352,571)
Income taxes.............................................. 21,881 4,400 7,817
-------- -------- ----------
NET INCOME (LOSS)........................................... (11,164) 50,184 (360,388)
Preferred stock dividend.................................... (995) (3,478) (301)
Value assigned to warrants.................................. -- (1,982) (1,601)
-------- -------- ----------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS......... $(12,159) $ 44,724 $ (362,290)
======== ======== ==========
NET INCOME (LOSS) PER COMMON SHARE
Basic..................................................... $ (0.06) $ 0.26 $ (2.37)
======== ======== ==========
Diluted................................................... $ (0.06) $ 0.25 $ (2.37)
======== ======== ==========
SHARES USED IN PER SHARE CALCULATIONS
Basic..................................................... 199,543 169,581 152,543
======== ======== ==========
Diluted................................................... 199,543 182,400 152,543
======== ======== ==========
See Notes to Consolidated Financial Statements.
F-5
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ (11,164) $ 50,184 $(360,388)
Adjustments to reconcile net income (loss) to cash and cash
equivalents provided by (used in) operating activities:
License fees received in advance.......................... (81,984) (66,069) (64,797)
Depreciation and amortization............................. 46,823 46,813 65,694
Amortization of capitalized software...................... 19,289 20,699 21,437
Write-off of capitalized software......................... 2,371 771 14,749
Write-off of long term assets............................. -- -- 6,799
Write-off of intangible assets............................ -- -- 20,033
Write-off of acquired research and development............ -- 2,600 7,000
Litigation settlement..................................... 91,000 -- --
Foreign currency transaction losses (gains)............... (1,900) 2,641 3,243
(Gain) loss on sales of strategic investments and
marketable securities................................... (2,953) 500 (5,007)
Loss on disposal of property and equipment................ (144) 1,921 10,815
Deferred tax expense...................................... (5,544) -- (328)
Provisions for losses on accounts receivable.............. 1,017 (4,793) 19,929
Restructuring charges..................................... (578) (10,255) 77,196
Stock-based employee compensation......................... (124) 941 7,509
Changes in operating assets and liabilities:
Accounts receivable..................................... (48,815) (38,399) 42,596
Other current assets.................................... (7,625) 52,798 40,516
Accounts payable and accrued expenses................... 17,117 (62,642) (58,315)
Deferred maintenance revenue............................ 1,854 23,648 3,618
--------- -------- ---------
Net cash and cash equivalents provided by (used in)
operating activities...................................... 18,640 21,358 (147,701)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments of excess cash:
Purchases of available-for-sale securities................ (106,547) (53,054) (35,255)
Maturities of available-for-sale securities............... 34,437 9,725 14,468
Sales of available-for-sale securities.................... 31,930 24,300 45,957
Purchases of strategic investments.......................... -- (7,009) (3,250)
Proceeds from sales of strategic investments and marketable
securities................................................ 5,792 1,500 10,454
Purchases of land, property and equipment................... (24,833) (20,811) (94,211)
Proceeds from disposal of land, property and equipment...... 1,248 864 62,371
Additions to software costs................................. (22,665) (18,620) (20,776)
Business combinations, net of cash acquired................. -- 1,834 (9,749)
Other....................................................... (650) 1,111 (33,511)
--------- -------- ---------
Net cash and cash equivalents used in investing
activities................................................ (81,288) (60,160) (63,502)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from customers and financial institutions.......... 6,539 11,402 21,787
Proceeds from issuance of common stock, net................. 22,549 16,254 8,250
Proceeds from issuance of preferred stock, net.............. -- 42,919 92,755
Payments for structured settlements with resellers.......... (4,135) -- --
Principal payments on capital leases........................ (4,810) (4,409) (3,388)
Net borrowings under line of credit......................... 935 436 298
--------- -------- ---------
Net cash and cash equivalents provided by financing
activities................................................ 21,078 66,602 119,702
--------- -------- ---------
ADJUSTMENT TO CONFORM FISCAL YEAR OF POOLED COMPANY......... (733) -- --
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (2,785) 16,100 5,497
--------- -------- ---------
Increase (decrease) in cash and cash equivalents............ (45,088) 43,900 (86,004)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 185,459 141,559 227,563
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 140,371 $185,459 $ 141,559
========= ======== =========
See Notes to Consolidated Financial Statements.
F-6
INFORMIX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SHARES TO BE
ISSUED FOR
PREFERRED STOCK
----------------------------------------- LITIGATION
SERIES A-1 SERIES B CLOUDSCAPE COMMON STOCK SETTLEMENT
------------- ------------- ------------- --------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
(In thousands) ------ ------ ------ ------ ------ ------ -------- ------ --------- --------
Balances at December 31, 1996...... -- $ -- -- $ -- 654 $ 7 152,500 $1,525 -- $ --
Comprehensive loss
Net loss.........................
Other comprehensive loss
Unrealized loss on
available-for-sale
securities, net of
reclassification
adjustments(1)...............
Foreign currency translation
adjustments..................
Other comprehensive loss.........
Comprehensive loss.................
Issuance of preferred stock of
Cloudscape....................... 2,881 28
Exercise of stock options.......... 1,279 12
Sale of stock to employees under
employee stock purchase plan..... 573 6
Stock-based compensation expense
resulting from stock options.....
Issuance of Series A-1 convertible
preferred stock and warrants,
net.............................. 160 2
Issuance of Series B convertible
preferred stock and warrants,
net.............................. 50 1
Common stock issued for services
rendered......................... 144 2
Accrual of 5% cumulative preferred
dividends on Series B convertible
preferred stock..................
---- ---- --- ---- ------ ---- -------- ------ --------- --------
Balance at December 31, 1997....... 160 $ 2 50 $ 1 3,535 $ 35 154,496 $1,545 -- $ --
---- ---- --- ---- ------ ---- -------- ------ --------- --------
Comprehensive income
Net income.......................
Other comprehensive income
Unrealized gain on
available-for-sale
securities, net of
reclassification
adjustments(1)...............
Foreign currency translation
adjustments..................
Other comprehensive income.......
Comprehensive income...............
Issuance of preferred stock of
Cloudscape....................... 2,808 28
Exercise of stock options.......... 3,614 36
Common stock issued for services
rendered......................... 46 1
Sale of stock to employees under
employee stock purchase plan..... 1,613 16
Stock-based compensation expense
resulting from stock options.....
Exercise of Series A-1 convertible
preferred stock warrants, net.... 140 1
Conversion of Series A-1 to common
stock............................ (300) (3) 17,413 174
Conversion of Series B to common
stock............................ (27) (1) 6,471 65
Accrual of 5% cumulative preferred
dividends on Series B convertible
preferred stock..................
Additional Series B dividend.......
Acquisition of Red Brick........... 7,591 76
---- ---- --- ---- ------ ---- -------- ------ --------- --------
Balance at December 31, 1998....... -- $ -- 23 $ -- 6,343 $ 63 191,244 $1,913 -- $ --
---- ---- --- ---- ------ ---- -------- ------ --------- --------
Comprehensive income
Net loss.........................
Other comprehensive income.......
Unrealized gain on
available-for-sale
securities, net of
reclassification
adjustments(1)...............
Foreign currency translation
adjustments..................
Other comprehensive income.......
Comprehensive income...............
Converstion of Cloudscape Preferred
to common stock.................. (6,343) (63) 6,343 63
Exercise of stock options.......... 3,350 34
Sale of stock to employees under
employee stock purchase plan..... 1,187 12
Repurchase of unvested Cloudscape
options and founder's stock...... (157) --
Stock based compensation expense
resulting from stock options..... -- --
Conversion of Series B to common
stock............................ (16) -- 2,223 22
Accrual of 5% cumulative preferred
dividends on Series B convertible
preferred stock..................
Repayment of Cloudscape shareholder
loans............................
Value of stock to be issued in
Litigation Settlement............ 91,000
Shares issued in Litigation
Settlement....................... 2,943 29 (29,772)
Adjustment to conform fiscal year
of pooled company................
---- ---- --- ---- ------ ---- -------- ------ --------- --------
Balances at December 31, 1999...... -- $ -- 7 $ -- -- $ -- 207,133 $2,073 -- $ 61,228
==== ==== === ==== ====== ==== ======== ====== ========= ========
ACCUMULATED
ADDITIONAL OTHER
PAID-IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
CAPITAL DEFICIT INCOME (LOSS) INCOME (LOSS) TOTALS
(In thousands) ---------- ----------- ------------- ------------- ---------
Balances at December 31, 1996...... $244,027 $ 78,270 $ 1,509 $ 325,338
Comprehensive loss
Net loss......................... (360,388) $(360,388) (360,388)
Other comprehensive loss
Unrealized loss on
available-for-sale
securities, net of
reclassification
adjustments(1)............... (12,457) (12,457)
Foreign currency translation
adjustments.................. (955) (955)
---------
Other comprehensive loss......... (13,412) (13,412)
---------
Comprehensive loss................. $(373,800)
=========
Issuance of preferred stock of
Cloudscape....................... 5,127 5,155
Exercise of stock options.......... 3,585 3,597
Sale of stock to employees under
employee stock purchase plan..... 5,659 5,665
Stock-based compensation expense
resulting from stock options..... 7,501 7,501
Issuance of Series A-1 convertible
preferred stock and warrants,
net.............................. 37,598 37,600
Issuance of Series B convertible
preferred stock and warrants,
net.............................. 49,196 49,197
Common stock issued for services
rendered......................... 808 810
Accrual of 5% cumulative preferred
dividends on Series B convertible
preferred stock.................. (301) (301)
-------- --------- -------- ---------
Balance at December 31, 1997....... $353,200 $(282,118) $(11,903) $ 60,762
-------- --------- -------- ---------
Comprehensive income
Net income....................... 50,184 $ 50,184 50,184
Other comprehensive income
Unrealized gain on
available-for-sale
securities, net of
reclassification
adjustments(1)............... 5,202 5,202
Foreign currency translation
adjustments.................. 3,351 3,351
---------
Other comprehensive income....... 8,553 8,553
---------
Comprehensive income............... $ 58,737
=========
Issuance of preferred stock of
Cloudscape....................... 9,991 10,019
Exercise of stock options.......... 8,455 8,491
Common stock issued for services
rendered......................... 14 15
Sale of stock to employees under
employee stock purchase plan..... 7,754 7,770
Stock-based compensation expense
resulting from stock options..... 915 915
Exercise of Series A-1 convertible
preferred stock warrants, net.... 32,899 32,900
Conversion of Series A-1 to common
stock............................ (171) --
Conversion of Series B to common
stock............................ (65) (1)
Accrual of 5% cumulative preferred
dividends on Series B convertible
preferred stock.................. (2,178) (2,178)
Additional Series B dividend....... (1,300) (1,300)
Acquisition of Red Brick........... 35,838 35,914
-------- --------- -------- ---------
Balance at December 31, 1998....... $445,352 $(231,934) $ (3,350) $ 212,044
-------- --------- -------- ---------
Comprehensive income
Net loss......................... (11,164) $ (11,164) (11,164)
Other comprehensive income.......
Unrealized gain on
available-for-sale
securities, net of
reclassification
adjustments(1)............... 133 133
Foreign currency translation
adjustments.................. (3,074) (3,074)
---------
Other comprehensive income....... (2,941) (2,941)
---------
Comprehensive income............... $ (14,105)
=========
Converstion of Cloudscape Preferred
to common stock.................. --
Exercise of stock options.......... 14,311 14,345
Sale of stock to employees under
employee stock purchase plan..... 7,618 7,630
Repurchase of unvested Cloudscape
options and founder's stock...... (28) (28)
Stock based compensation expense
resulting from stock options..... 491 491
Conversion of Series B to common
stock............................ (22) --
Accrual of 5% cumulative preferred
dividends on Series B convertible
preferred stock.................. (995) (995)
Repayment of Cloudscape shareholder
loans............................ 104 104
Value of stock to be issued in
Litigation Settlement............ 91,000
Shares issued in Litigation
Settlement....................... 29,743 --
Adjustment to conform fiscal year
of pooled company................ 2,020 2,020
-------- --------- -------- ---------
Balances at December 31, 1999...... $496,574 $(241,078) $ (6,291) $ 312,506
======== ========= ======== =========
- ----------------------------------------
(1) Disclosure of reclassification amount for the years ended:
1999 1998 1997
-------- -------- --------
Net unrealized gain (loss) on available-for-sale securities
arising during period..................................... $ 3,814 $5,202 $ (3,599)
Less: reclassification adjustment for net gains included in
net income (loss)......................................... (3,681) -- (8,858)
------- ------ --------
Net unrealized gain (loss) on available-for-sale
securities................................................ $ 133 $5,202 $(12,457)
======= ====== ========
See Notes to Supplemental Consolidated Financial Statements.
F-7
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS. The Company is a leading multinational
supplier of information management software and solutions to governments and
enterprises worldwide. The Company designs, develops, manufactures, markets and
supports relational and object-relational database management systems,
connectivity interfaces and gateways and graphical and character-based
application development tools for building database applications that allow
customers to access, retrieve and manipulate business data. The Company also
offers complete solutions, which include its database management software, its
own and third party software and consulting services to help customers design
and rapidly deploy data warehousing (decision support), web-based enterprise
repository and electronic commerce applications.
The principal geographic markets for the Company's products are North
America, Europe, Asia/ Pacific, and Latin America. Customers include businesses
ranging from small corporations to Fortune 1000 companies, principally in the
manufacturing, financial services, telecommunications, media, retail/wholesale,
hospitality, and government services sectors.
BASIS OF PRESENTATION. The consolidated financial statements have been
prepared to give retroactive effect to the merger with Cloudscape, Inc.
("Cloudscape") on October 8, 1999. The consolidated financial statements have
been restated for all periods presented as if Cloudscape and the Company had
always been combined.
Prior to the combination, Cloudscape's fiscal year ended March 31. In
recording the pooling-of-interests combination, Informix's statements of
operations for the years ended December 31, 1998 and 1997 have been combined
with the Cloudscape statements of operations for the years ended March 31, 1999
and 1998, respectively. As a consequence, the results of Cloudscape for the
three-month period ended March 31, 1999 are included in the results of
operations for both the year ended December 31, 1998 and the year ended
December 31, 1999. Cloudscape revenues and net loss for the three-month period
ended March 31, 1999 were $347,000 and $2,020,000, respectively. The
consolidated balance sheet of Informix at December 31, 1998 has been combined
with the balance sheet of Cloudscape as of March 31, 1999.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Informix Corporation and its wholly owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.
FOREIGN CURRENCY TRANSLATION. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of operations are translated at the
exchange rates during the year. Exchange gains or losses arising from
translation of such foreign entity financial statements are included as a
component of other comprehensive income (loss).
For foreign operations with the U.S. dollar as the functional currency,
monetary assets and liabilities are remeasured at the year-end exchange rates as
appropriate and non-monetary assets and liabilities are remeasured at historical
exchange rates. Statements of operations are remeasured at the exchange rates
during the year. Foreign currency transaction gains and losses are included in
other income (expense), net.
F-8
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recorded net foreign currency transaction gains (losses) of $(0.3)
million, $(4.8) million and $8.0 million for the years ended December 31, 1999,
1998 and 1997, respectively.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company enters into foreign currency
forward exchange contracts to reduce its exposure to foreign currency risk due
to fluctuations in exchange rates underlying the value of intercompany accounts
receivable and payable denominated in foreign currencies (primarily European and
Asian currencies) until such receivables are collected and payables are
disbursed. A foreign currency forward exchange contract obligates the Company to
exchange predetermined amounts of specified foreign currencies at specified
exchange rates on specified dates or to make an equivalent U.S. dollar payment
equal to the value of such exchange. These foreign currency forward exchange
contracts are denominated in the same currency in which the underlying foreign
currency receivables or payables are denominated and bear a contract value and
maturity date which approximate the value and expected settlement date of the
underlying transactions. For contracts that are designated and effective as
hedges, discounts or premiums (the difference between the spot exchange rate and
the forward exchange rate at inception of the contract) are accreted or
amortized to other expenses over the contract lives using the straight-line
method while unrealized gains and losses on open contracts at the end of each
accounting period resulting from changes in the spot exchange rate are
recognized in earnings in the same period as gains and losses on the underlying
foreign denominated receivables or payables are recognized and generally offset.
Contract amounts in excess of the carrying value of the Company's foreign
currency denominated accounts receivable or payable balances are marked to
market, with changes in market value recorded in earnings as foreign exchange
gains or losses. The Company operates in certain countries in Latin America,
Eastern Europe, and Asia/Pacific where there are limited forward currency
exchange markets and thus the Company has unhedged exposures in these
currencies.
Most of the Company's international revenue and expenses are denominated in
local currencies. Due to the substantial volatility of currency exchange rates,
among other factors, the Company cannot predict the effect of exchange rate
fluctuations on the Company's future operating results. Although the Company
takes into account changes in exchange rates over time in its pricing strategy,
it does so only on an annual basis, resulting in substantial pricing exposure as
a result of foreign exchange volatility during the period between annual pricing
reviews. In addition, the sales cycles for the Company's products is relatively
long, depending on a number of factors including the level of competition and
the size of the transaction. The Company periodically assesses market conditions
and occasionally attempts to reduce this exposure by entering into foreign
currency forward exchange contracts to hedge up to 80% of the forecasted net
income of its foreign subsidiaries of up to one year in the future. These
foreign currency forward exchange contracts do not qualify as hedges and,
therefore are marked to market. Notwithstanding the Company's efforts to manage
foreign exchange risk, there can be no assurances that the Company's hedging
activities will adequately protect the Company against the risks associated with
foreign currency fluctuations.
REVENUE RECOGNITION POLICY. In October 1997, the American Institute of
Certified Public Accountants issued Statement of Position 97-2 (SOP 97-2),
"Software Revenue Recognition" which superseded SOP 91-1 and provides guidance
on generally accepted accounting principles for recognizing revenue on software
transactions. SOP 97-2 requires that revenue recognized from software
arrangements be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation, or training. Under
SOP 97-2, the determination of fair value is based on objective evidence which
is specific to the vendor. If such evidence of fair value for each element of
the arrangement does not exist, all revenue from the arrangement is deferred
until such time that evidence of fair value does exist or until all elements of
the
F-9
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
arrangement are delivered. SOP 97-2 was amended in February 1998 by Statement of
Position 98-4 (SOP 98-4) "Deferral of the Effective Date of a Provision of SOP
97-2" and was amended again in December 1998 by Statement of Position 98-9
(SOP 98-9) "Modification of SOP 97-2, Software Revenue Recognition with Respect
to Certain Transactions." Those amendments deferred and then clarified,
respectively, the specification of what was considered vendor specific objective
evidence of fair value for the various elements in a multiple element
arrangement. The Company adopted the provisions of SOP 97-2 and SOP 98-4 as of
January 1, 1998 and as a result, changed certain business practices. The
adoption has, in certain circumstances, resulted in the deferral of software
license revenues that would have been recognized upon delivery of the related
software under prior accounting standards.
SOP 98-9 is effective for all transactions entered into by the Company in
fiscal year 2000. The adoption of this statement is not expected to have a
material impact on the Company's operating results, financial position or cash
flows.
The Company's revenue recognition policy is as follows:
LICENSE REVENUE. The Company recognizes revenue from sales of software
licenses to end users upon persuasive evidence of an arrangement, delivery of
the software to a customer and determination that collection of a fixed or
determinable license fee is considered probable. Revenue for transactions with
application vendors, OEMs and distributors is currently recognized as earned
when the licenses are resold or utilized by the reseller and all related
obligations of the Company have been satisfied. The Company provides for sales
allowances on an estimated basis. The Company accrues royalty revenue through
the end of the reporting period based on reseller royalty reports or other forms
of customer-specific historical information. In the absence of customer-specific
historical information, royalty revenue is recognized when the customer-specific
objective information becomes available. Any subsequent changes to previously
recognized royalty revenues are reflected in the period when the updated
information is received from the reseller.
SERVICE REVENUE. Maintenance contracts generally call for the Company to
provide technical support and software updates and upgrades to customers.
Maintenance revenue is recognized ratably over the term of the maintenance
contract, generally on a straight-line basis. Other service revenue, primarily
training and consulting, is generally recognized at the time the service is
performed and it is determined that the Company has fulfilled its obligations
resulting from the services contract, or on a contract accounting basis. When
the fee for maintenance and service is bundled with the license fee, it is
unbundled from the license fee using the Company's objective evidence of the
fair value of the maintenance and/or services represented by the Company's
customary pricing for such maintenance and/or services.
ADVANCES FROM CUSTOMERS AND FINANCIAL INSTITUTIONS. Amounts received in
advance of revenue being recognized are recorded as a liability on the
accompanying financial statements. These amounts may be received either from the
customer or from a financing entity to whom the customer payment streams are
sold.
The Company's license arrangements with some of its customers provide
contractually for a non-refundable fee payable by the customer in single or
multiple installment(s) at the initiation or over the term of the license
arrangement. If the Company fails to comply with certain contractual terms of a
specific license agreement, the Company could be required to refund the
amount(s) received to the customer or the financial institution in the event of
an assignment of receivables.
F-10
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior to fiscal 1998, the Company's arrangements for financing of license
contracts with customers frequently took the form of a non-recourse sale of the
future payment streams. When such customer contracts were sold to a third-party
financing entity, they were typically sold at a discount which represented the
financing cost. Such discounts offset revenues in cases where the license was
recorded as a sale. For transactions where the financing was received prior to
the recognition of revenue, the financing discount has been charged ratably to
interest expense over the financing period, which approximates the "interest
method."
SALES OF RECEIVABLES. Prior to January 1, 1998, the Company financed
amounts due from customers with financial institutions on a non-recourse basis.
The Company accounted for these transactions in accordance with Statement of
Financial Accounting Standards No. 77 (SFAS 77), "Reporting by Transferors for
Transfers of Receivables with Recourse." Effective January 1, 1998 any such
transactions would be accounted for by the Company in accordance with Statement
of Financial Accounting Standards No. 125 (SFAS 125), "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities." If at the
time of the transfer the amounts due from the customer have been recognized as
revenue and a receivable, the transfer is accounted for as the sale of a
receivable and the receivable is removed from the books and the financing fees
are charged to operations immediately as interest expense. The Company did not
enter into any such transactions during fiscal 1999 and 1998.
SALES OF FUTURE REVENUE STREAMS. If at the time of transfer the amounts due
from the customers have not been recognized as revenue or a receivable, the
transfer is accounted for as the sale of a future revenue stream in accordance
with EITF 88-18. Accordingly, the receipt of cash is treated as a borrowing and
recorded as "advances from customers and financial institutions" and the
financing fees are amortized to interest expense over the term of the financing
arrangement. The Company has not financed, and does not expect to finance,
amounts due from customers subsequent to December 31, 1997.
CONCURRENT TRANSACTIONS. During fiscal 1997, the Company entered into
software license agreements with certain computer and service vendors where the
Company concurrently committed to acquire goods and services. If the agreement
is with a reseller, revenue is recognized as earned on these transactions as the
licenses are resold by the customer. If the agreement is with an end user,
revenue is generally recognized as earned upon delivery of software. The
computer equipment and services are recorded at their fair value. These
concurrent transactions for 1997 included software license agreements of
approximately $21 million and commitments by the Company to acquire goods and
services in the aggregate of approximately $50 million. The Company did not
enter into any concurrent transactions in fiscal 1999 and 1998.
SOFTWARE COSTS. The Company accounts for its software development expenses
in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed." This statement requires that, once technological feasibility of a
developing product has been established, all subsequent costs incurred in
developing that product to a commercially acceptable level be capitalized and
amortized ratably over the revenue life of the product. The Company uses a
detail program design approach in determining technological feasibility.
Software costs also include amounts paid for purchased software and outside
development on products which have reached technological feasibility. All
software costs are amortized as a cost of software distribution either on a
straight-line basis, or on the basis of each product's projected revenues,
whichever results in greater amortization, over the remaining estimated economic
life of the product, which is generally estimated to be
F-11
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
three years. The Company recorded amortization of $19.3 million, $20.7 million,
and $21.4 million of software costs in 1999, 1998 and 1997, respectively, in
cost of software distribution.
The Company accounts for the costs of computer software developed or
obtained for internal use in accordance with Statement of Position 98-1
(SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use," which was effective for fiscal years beginning after
December 15, 1998. This statement requires that certain costs incurred during a
software development project be capitalized. These costs generally include
external direct costs of materials and services consumed in the project, and
internal costs such as payroll and benefits of those employees directly
associated with the development of the software. During the year ended
December 31, 1999, the Company capitalized approximately $2.8 million under
SOP 98-1, which will be amortized over the estimated useful life of the software
developed, which is generally three years.
PROPERTY AND EQUIPMENT. Depreciation of property and equipment is
calculated using the straight-line method over its estimated useful life,
generally the shorter of the applicable lease term or three-to-seven years for
financial reporting purposes. The Company reviews property and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of
property and equipment to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Property and equipment to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell.
BUSINESSES ACQUIRED. The purchase price of businesses acquired, accounted
for as purchase business combinations, is allocated to the tangible and
identifiable intangible assets acquired based on their estimated fair values
with any amount in excess of such allocations being designated as goodwill.
Intangible assets are amortized over their estimated useful lives, which to date
range from three to seven years. As of December 31, 1999, 1998 and 1997, the
Company had $44.9 million, $48.3 million and $19.2 million of intangible assets,
with accumulated amortization of $16.9 million, $6.8 million and $10.9 million,
respectively, as a result of these acquisitions. The carrying value of goodwill
is reviewed if the facts and circumstances suggest that it may be impaired. If
this review indicates that the goodwill will not be recoverable, as determined
based on the undiscounted cash flows of the acquired business over the remaining
amortization period, the Company's carrying value is reduced to net realizable
value. The carrying values of identifiable intangible assets are reviewed in a
manner consistent with the policy for reviewing impairment of property and
equipment, as described above. During 1997, the Company wrote down
$30.5 million of impaired long-term assets related to the shortfall in business
activity of its Japanese subsidiary (see Note 13).
STOCK-BASED COMPENSATION. As permitted under Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," the Company has elected to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" in
accounting for stock-based awards to employees (see Note 7).
CONCENTRATION OF CREDIT RISK. The Company designs, develops, manufactures,
markets, and supports computer software systems to customers in diversified
industries and in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral.
F-12
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No single customer accounted for 10% or more of the consolidated net
revenues of the Company in 1999, 1998 or 1997.
CASH, CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, AND LONG-TERM
INVESTMENTS. The Company considers liquid investments purchased with a
remaining maturity of three months or less to be cash equivalents. The Company
considers investments with a maturity of more than three months but less than
one year to be short-term investments. Investments with a remaining original
maturity of more than one year are considered long-term investments. Short-term
and long-term investments are classified as available-for-sale and are carried
at fair value.
The Company invests its excess cash in accordance with its short-term and
long-term investments policy, which is approved by the Board of Directors. The
policy authorizes the investment of excess cash in government securities,
municipal bonds, time deposits, certificates of deposit with approved financial
institutions, commercial paper rated A-1/P-1, and other specific money market
instruments of similar liquidity and credit quality. The Company has not
experienced any significant losses related to these investments.
The Company invests in equity instruments of privately-held, information
technology companies for business and strategic purposes. These investments are
included in long-term investments and are accounted for under the cost method
when ownership is less than 20%. For these non-quoted investments, the Company's
policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. When the
Company determines that a decline in fair value below the cost basis is other
than temporary, the related investment is written down to fair value.
SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE. Management determines
the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date. Debt securities are
classified as held-to-maturity when the Company has the positive intent and the
ability to hold the securities until maturity. Held-to-maturity securities are
stated at amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization, as well as any interest on the
securities, is included in interest income.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported as a component of other comprehensive income (loss). The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in interest income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in other income (expense), net. The cost of securities sold is based on the
specific identification method. Interest on securities classified as
available-for-sale is included in interest income. The Company realized gross
gains of approximately $3.7 million and $8.5 million on the sale of
available-for-sale marketable securities during 1999 and 1997, respectively.
During 1997 the Company realized gross losses of approximately $1.2 million on
the sale of available-for-sale equity securities. Realized losses during 1999
were not significant. Realized gains and losses were not significant in 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Fair values of cash, cash equivalents,
short and long term investments and foreign currency forward contracts are based
on quoted market prices.
F-13
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform to the current period presentation.
NOTE 2--BALANCE SHEET COMPONENTS
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
Accounts receivable, net:
Receivables............................................... $245,456 $202,431
Less: allowance for doubtful accounts..................... (13,278) (15,089)
-------- --------
$232,178 $187,342
======== ========
Property and equipment, net:
Computer equipment........................................ $176,467 $182,545
Furniture and fixtures.................................... 41,071 35,804
Leasehold improvements.................................... 27,389 33,297
Buildings and other....................................... 2,837 2,511
-------- --------
247,764 254,157
Less: accumulated depreciation and amortization........... (187,178) (178,312)
-------- --------
$ 60,586 $ 75,845
======== ========
Software costs, net:
Capitalized software development costs.................... $ 64,075 $ 70,225
Less: accumulated amortization............................ (25,064) (32,219)
-------- --------
$ 39,011 $ 38,006
======== ========
Long-term investments:
Marketable equity securities (Note 3)..................... $ 12,466 $ 10,308
Investments in privately-held companies................... 4,806 5,874
Corporate bonds........................................... -- 6,009
-------- --------
$ 17,272 $ 22,191
======== ========
F-14
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--FINANCIAL INSTRUMENTS
The following is a summary of available-for-sale debt and marketable equity
securities:
AVAILABLE-FOR-SALE
SECURITIES
-----------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE
- ----------------- -------- ---------- ---------- ----------
(IN THOUSANDS)
U.S. treasury securities............................ $ 25,618 $ 4 $ (159) $ 25,464
Commercial paper, corporate bonds and medium-term
notes............................................. 94,942 336 (400) 94,877
Municipal bonds..................................... 11,733 -- (20) 11,713
-------- ------ ------- --------
Total debt securities............................. $132,293 $ 340 $ (580) $132,053
U.S. marketable equity securities................... 4,448 8,018 -- 12,466
-------- ------ ------- --------
$136,741 $8,358 $ (580) $144,520
======== ====== ======= ========
Amounts included in cash and cash equivalents....... 43,275 33 -- $ 43,308
Amounts included in short-term investments.......... 89,018 307 (579) 88,746
Amounts included in long-term investments........... 4,448 8,018 -- 12,466
-------- ------ ------- --------
$136,741 $8,358 $ (580) $144,520
======== ====== ======= ========
DECEMBER 31, 1998
U.S. treasury securities............................ $ 8,363 -- -- $ 8,363
Commercial paper, corporate bonds and medium-term
notes............................................. 99,522 211 (28) 99,705
Municipal bonds..................................... 28,866 23 (1) 28,888
International bonds................................. 3,004 -- -- 3,004
-------- ------ ------- --------
Total debt securities............................. 139,755 234 (29) 139,960
U.S. marketable equity securities................... 6,046 4,717 (455) 10,308
-------- ------ ------- --------
$145,801 $4,951 $ (484) $150,268
======== ====== ======= ========
Amounts included in cash and cash equivalents....... $ 92,690 $ 168 -- $ 92,858
Amounts included in short-term investments.......... 41,032 63 (2) 41,093
Amounts included in long-term investments........... 12,079 4,720 (482) 16,317
-------- ------ ------- --------
$145,801 $4,951 $ (484) $150,268
======== ====== ======= ========
Maturities of debt securities at market value at December 31, 1999 are as
follows (in thousands):
Mature in one year or less.................................. $ 80,357
Mature after one year through five years.................... 48,274
Mature after five years..................................... 3,422
--------
$132,053
========
F-15
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into foreign currency forward exchange contracts
primarily to hedge the value of intercompany accounts receivable or accounts
payable denominated in foreign currencies against fluctuations in exchange rates
until such receivables are collected or payables are disbursed. The Company
periodically assesses market conditions and occasionally attempts to reduce this
exposure by entering into foreign currency forward exchange contracts to hedge
up to 80% of anticipated net income of foreign subsidiaries of up to a maximum
of one year in the future. From an accounting perspective, these hedges are
considered to be speculative. The Company's outstanding foreign currency forward
exchange contracts used to hedge anticipated net income are marked to market
with unrealized gains and losses recognized as incurred in results of
operations. The purpose of the Company's foreign exchange exposure management
policy and practices is to attempt to minimize the impact of exchange rate
fluctuations on the value of the foreign currency denominated assets and
liabilities being hedged. Substantially all forward foreign exchange contracts
entered into by the Company have maturities of 360 days or less. There are no
significant unrealized gains or losses on these contracts at December 31, 1999
and 1998. At December 31, 1999 and 1998, the Company had approximately
$87.0 million and $93.9 million of foreign currency forward exchange contracts
outstanding, respectively.
The table below summarizes by currency the contractual amounts of the
Company's foreign currency forward exchange contracts at December 31, 1999 and
December 31, 1998. The information is provided in U.S. dollar equivalents and
presents the notional amount (contract amount), the unrealized gain (loss) and
fair value. Fair value represents the difference in value of the contracts at
the spot rate at December 31, 1999 and the forward rate, plus the unamortized
premium or discount. All contracts mature within twelve months.
FORWARD CONTRACTS
UNREALIZED
AT DECEMBER 31, 1999 CONTRACT AMOUNT GAIN/(LOSS) FAIR VALUE
- -------------------- --------------- ----------- ----------
(IN THOUSANDS)
Forward currency to be sold under contract:
Euro................................................... $33,352 $(12) $198
Korean Won............................................. 5,314 26 (23)
Czech Koruna........................................... 2,620 -- 1
Singapore Dollar....................................... 1,814 1 13
Thai Bhat.............................................. 1,852 (5) (12)
Australian Dollar...................................... 1,615 (3) (1)
Other (individually less than $1 million).............. 3,548 (34) (35)
------- ---- ----
Total.................................................... $50,115 $(27) $141
======= ==== ====
Forward currency to be purchased under contract:
British Pound.......................................... $33,623 $ (5) $(37)
Japanese Yen........................................... 2,484 -- (36)
Other (individually less than $1 million).............. 814 1 (5)
------- ---- ----
Total.................................................... $36,921 $ (4) $(78)
======= ==== ====
Grand Total.............................................. $87,036 $(31) $(63)
======= ==== ====
F-16
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
UNREALIZED
AT DECEMBER 31, 1998 CONTRACT AMOUNT GAIN/(LOSS) FAIR VALUE
- -------------------- --------------- ----------- ----------
(IN THOUSANDS)
Forward currency to be sold under contract:
Japanese Yen........................................... $11,719 $ 13 $(262)
Deutsche Mark.......................................... 8,092 (1) 39
Korean Won............................................. 5,250 5 (119)
Singapore Dollar....................................... 4,264 17 45
British Pound.......................................... 3,322 -- (30)
Australian Dollar...................................... 2,756 (4) (2)
Netherland Guilder..................................... 2,087 (3) 7
Swiss Franc............................................ 2,010 3 21
Brazilian Real......................................... 1,382 -- (273)
Other (individually less than $1 million).............. 2,926 (6) (36)
------- ---- -----
Total.................................................... $43,808 $ 24 $(610)
======= ==== =====
Forward currency to be purchased under contract:
British Pound.......................................... $42,576 $ (8) $ 81
French Franc........................................... 3,046 (1) (17)
Swedish Krona.......................................... 1,493 (16) (23)
Danish Krone........................................... 1,316 1 (3)
Other (individually less than $1 million).............. 1,692 9 24
------- ---- -----
Total.................................................... $50,123 $(15) $ 62
======= ==== =====
Grand Total.............................................. $93,931 $ 9 $(548)
======= ==== =====
While the contract amounts provide one measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The amount of the Company's credit risk exposure (arising from the
possible inabilities of counterparties to meet the terms of their contracts) is
generally limited to the amounts, if any, by which the counterparties'
obligations exceed the obligations of the Company as these contracts can be
settled on a net basis at the option of the Company. The Company controls credit
risk through credit approvals, limits and monitoring procedures.
As of December 31, 1999 and 1998, other than foreign currency forward
exchange contracts discussed immediately above, the Company does not currently
invest in or hold any other derivative financial instruments.
NOTE 5--PREFERRED STOCK
In August 1997, the Company sold 160,000 shares of newly authorized
Series A Convertible Preferred Stock, face value $250 per share, which shares
are generally not entitled to vote on corporate matters, to a private investor
for aggregate net proceeds of $37.6 million and issued a warrant to the same
investor to purchase up to an additional 140,000 shares of Series A Convertible
Preferred Stock at an aggregate purchase price of up to $35 million. In
November 1997, the Company canceled the Series A Convertible Preferred Stock in
exchange for the same number of shares of a substantially identical Series A-1
F-17
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PREFERRED STOCK (CONTINUED)
Convertible Stock (the "Series A-1 Preferred") issued to the same investor, with
a corresponding change to the warrant shares. The mandatory redemption
provisions of the new Series A-1 Preferred differ from the Series A Convertible
Preferred Stock. The redemption provisions in the Series A-1 Preferred
effectively preclude the Company from having to redeem the preferred stock
except by actions solely within its control. Accordingly, the Consolidated
Balance Sheet reflects the Series A-1 Preferred under stockholder's equity.
The Series A-1 Preferred shares are convertible into common shares at any
time, at the holder's option, at a per share price equal to 101% of the average
price of the Company's common stock for the 30 days ending five trading days
prior to conversion, but not greater than the lesser of (i) 105% of the common
stock's average price of the first five trading days of such thirty day period,
or (ii) $12 per share. If not converted prior, the Series A-1 Preferred will
automatically convert into common shares eighteen months after their issuance,
subject to extension of the automatic conversion date in certain defined
circumstances of default. However, if at the time of conversion, the aggregate
number of shares of common stock already issued and to be issued as a result of
the conversion of the shares of the Series A-1 Convertible Preferred Stock were
to exceed 19.9% of the total number of shares of then outstanding common stock,
then such excess does not convert unless or until stockholder approval is
obtained.
On February 13, 1998, the holders of the Series A-1 Preferred Stock
exercised warrants to purchase 60,000 additional shares of Series A-1 Preferred
at $250 per share resulting in net proceeds to the Company of $14.1 million. In
addition, pursuant to the Series A-1 Subscription Agreement, the Series A-1
Preferred stockholders converted 220,000 shares of Series A-1 Preferred into
12,769,908 shares of the Company's Common Stock.
On November 25, 1998, the holders of the Series A-1 Preferred Stock
exercised their remaining warrants to purchase 80,000 additional shares of
Series A-1 Preferred at $250 per share resulting in net proceeds to the Company
of $18.8 million. In addition, pursuant to the Series A-1 Subscription
Agreement, the Series A-1 Preferred stockholders converted the remaining 80,000
shares of Series A-1 Preferred into 4,642,525 shares of the Company's Common
Stock. As a result of these conversions, no Series A-1 Preferred Stock or
Series A-1 Preferred warrants were outstanding at December 31, 1998.
In November 1997, the Company sold 50,000 shares of newly authorized
Series B Convertible Preferred Stock ("Series B Preferred"), face value $1,000
per share, which shares are generally not entitled to vote on corporate matters,
to private investors for aggregate proceeds of $50.0 million (excluding a
$1.0 million fee paid to a financial advisor of the Company). In connection with
the sale, the Company also agreed to issue a warrant to such investors upon
conversion of such Series B Preferred to purchase 20% of the shares of Common
Stock into which the Series B Preferred is convertible, but no less than
1,500,000 shares at a per share exercise price which is presently indeterminable
and will depend on the trading price of the Common Stock of the Company in the
period prior to the conversion of the Series B Preferred. The Company also
agreed to issue additional warrants to purchase up to an aggregate of 200,000
shares at a per share exercise price which is presently indeterminable and will
depend on the trading price of the Common Stock of the Company in the period
prior to the conversion of the Series B Preferred. The Series B Preferred is
convertible at the election of the holder into shares of Common Stock beginning
six months after issuance, and upon the occurrence of certain events, including
a merger. The Series B Preferred will automatically convert into Common Stock
three years following the date of its issuance. Each Series B Preferred share is
convertible into the number of shares of Common Stock at a per share price equal
to the lowest of (i) the average of the closing prices for the Common Stock for
the 22 days immediately prior to
F-18
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PREFERRED STOCK (CONTINUED)
the 180th day following the initial issuance date, (ii) 101% of the average
closing price for the 22 trading days prior to the date of actual conversions,
or (iii) 101% of the lowest closing price for the Common Stock during the five
trading days immediately prior to the date of actual conversion. The conversion
price of the Series B Preferred is subject to modification and adjustment upon
the occurrence of certain events. The Company reserved 22.8 million shares of
Common Stock for issuance upon conversion of the Series B Preferred and upon the
exercise of the Series B Warrants. The Series B Preferred accrues cumulative
dividends at an annual rate of 5% of per share face value. The dividend is
generally payable upon the conversion or redemption of the Series B Preferred,
and may be paid in cash or, at the holder's election, in shares of Common Stock.
On June 10, 1998, a holder of the Series B Preferred Stock converted 500
shares of Series B Preferred into 80,008 shares of the Company's Common Stock.
In connection with such conversion, the Company also issued such Series B
Preferred Stockholder a warrant to purchase up to 66,000 shares of Common Stock
at a purchase price of $7.84 per share. Also, during the quarter ended June 30,
1998, the Company issued a warrant pursuant to the provisions of the Series B
Preferred to purchase up to an additional 50,000 shares of Common Stock at a
purchase price of $7.84 per share to a financial advisor of the Company because,
as of May 15, 1998, the closing sales price of the Company's Common Stock was
less than $12.50. Such warrant was issued in connection with services provided
by such financial advisor related to the sale of shares of the Series B
Preferred in November 1997.
During the third and fourth quarters of fiscal 1998, holders of the
Series B Preferred Stock converted a total of 26,200 shares of Series B
Preferred into 6,391,639 shares of the Company's Common Stock. In connection
with such conversions, the Company also issued such Series B Preferred
Stockholders warrants to purchase up to 1,428,319 shares of Common Stock at a
purchase price of $7.84 per share and paid cash dividends in the amount of
$1,170,068 to such stockholders. The Company reserved 22.8 million shares of
Common Stock for issuance upon conversion of the Series B Preferred and upon
exercise of the Series B Warrants.
During fiscal 1999, holders of the Series B Preferred Stock converted a
total of 16,300 shares of Series B Preferred into 2,223,156 shares of the
Company's Common Stock. In connection with such conversions, the Company also
issued such Series B Preferred Stockholders warrants to purchase up to 444,628
shares of Common Stock at a purchase price of $7.84 per share and paid cash
dividends in the amount of $1,528,699 to such stockholders.
The fair value of the warrants issued in connection with the Series A-1
Preferred and Series B Preferred are deemed to be a discount to the conversion
price of the respective equity instruments available to the preferred
stockholders. The discounts were recognized as a return to the preferred
stockholders (similar to a dividend) over the minimum period during which the
preferred stockholders could realize this return, immediate for the Series A-1
Preferred and six months for the Series B Preferred. The discount has been
accreted to additional paid in capital (accumulated deficit) in the Company's
balance sheet and has been disclosed as a decrease in the amount available to
common stockholders on the face of the Company's statements of operations and
for purposes of computing net income (loss) per share. The fair value assigned
to the warrants is based on an independent appraisal performed by a nationally
recognized investment banking firm. The appraisal was completed utilizing the
Black-Scholes valuation model. This model requires assumptions related to the
remaining life of the warrant, the risk free
F-19
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PREFERRED STOCK (CONTINUED)
interest rate at the time of issuance, stock volatility, and an illiquidity
factor associated with the security. These assumptions and the values assigned
to the Series A-1 and Series B warrants were as follows:
SERIES A-1 SERIES B
------------- -------------
Volatility...................................... 0.4 0.6
Expected life................................... 18 months 24 months
Risk free interest rate......................... 5.6% 5.6%
Dividend yield.................................. 0% 0%
Illiquidity discount............................ 33% 33%
Exercise price.................................. $ 7.59 $ 9.73
Assigned value.................................. $ 0.9 million $ 2.7 million
In connection with the issuance of the Series B Convertible Preferred Stock
in November 1997, the Company paid a fee of $1,000,000 for financial advisory
services provided in connection with such financing. In addition, the Company
issued 100,000 shares of its Common Stock, and also agreed to issue a warrant to
purchase an additional 50,000 shares of the Company's Common Stock to the
service provider in the event that, as of May 17, 1998, the trading price of the
Company's Common Stock is less than $12.50 per share. Such warrant will be
exercisable according to the same terms as the warrants issued in connection
with the issuance of the Series B Convertible Preferred Stock.
On June 9, 1998, the Company filed a Post-Effective Amendment to its
Registration Statement on Form S-1 pertaining to the Company's sale of its
Series B Preferred. The Securities and Exchange Commission ("SEC") reviewed the
Post-Effective Amendment and declared it effective on August 13, 1998. The
Series B Preferred stockholders claimed that during August 1998 they were
prevented from selling shares of Series B Preferred stock until the SEC
completed its review of the Post-Effective Amendment and, as a result, the
Company had failed to comply with certain terms of a Registration Rights
Agreement between the Series B Preferred stockholders and the Company. As a
result, the Company recorded a $1.3 million dividend as of December 31, 1998,
which was paid in cash to the Series B Preferred stockholders in the first
quarter of 1999.
As of December 31, 1998, 6,343,000 shares of preferred stock were
outstanding that related to Series A, B, and C preferred stock issuances by
Cloudscape, Inc. ("Cloudscape Preferred Stock") in fiscal 1996, 1997, and 1998,
respectively. Each series of Cloudscape Preferred Stock maintained noncumulative
dividend rights and liquidation preferences to any proceeds received in the
event of a liquidation of Cloudscape. Additionally, the Cloudscape Preferred
Stock was convertible into Cloudscape Common Stock on a one-for-one basis and
the holders of the Cloudscape Preferred Stock were entitled to the number of
votes based on an as-if converted basis. Immediately prior to the merger between
Informix and Cloudscape on October 8, 1999, all the Cloudscape preferred
shareholders converted their Cloudscape Preferred Stock into an equal number of
shares of Cloudscape Common Stock.
F-20
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per common share:
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Numerator:
Net income (loss)......................................... $ (11,164) $ 50,184 $(360,388)
Preferred stock dividends................................. (995) (3,478) (301)
Value assigned to warrants................................ -- (1,982) (1,601)
--------- --------- ---------
Numerator for basic and diluted net income (loss) per
common share............................................ $ (12,159) $ 44,724 $(362,290)
========= ========= =========
Denominator:
Denominator for basic net income (loss) per common share--
weighted-average shares outstanding..................... 194,118 169,581 152,543
weighted-average shares to be issued for litigation
settlement............................................ 5,425 -- --
Effect of dilutive securities:
Employee stock options and restricted common stock...... -- 4,277 --
Series A-1 convertible preferred stock.................. -- 2,748 --
Cloudscape convertible preferred stock.................. -- 5,794 --
--------- --------- ---------
Denominator for diluted net income (loss) per common
share--adjusted weighted-average shares and assumed
conversions............................................. 199,543 182,400 152,543
========= ========= =========
Basic net income (loss) per common share.................... $ (0.06) $ 0.26 $ (2.37)
========= ========= =========
Diluted net income (loss) per common share.................. $ (0.06) $ 0.25 $ (2.37)
========= ========= =========
The Company excluded potentially dilutive securities for each period
presented from its diluted EPS computation because either the exercise price of
the securities exceeded the average fair value of the Company's common stock or
the Company had net losses, and, therefore, these securities were anti-dilutive.
A summary of the excluded potentially dilutive securities and the related
exercise/conversion features follows:
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
Potentially dilutive securities:
Stock options............................................... 23,176 10,018 20,293
Stock warrants
Common Stock (Series B Warrants).......................... 176 1,750 1,750
Series A-1 Warrants....................................... -- -- 140
Series A-1 Convertible Preferred Stock
Preferred Shares.......................................... -- -- 160
Equivalent common shares upon assumed conversion.......... -- -- 4,955
Series B Convertible Preferred Stock
Preferred Shares.......................................... 7 23 50
Equivalent common shares upon assumed conversion.......... 2,568 7,901 3,387
Cloudscape Convertible Preferred Stock...................... -- -- 3,409
Cloudscape Restricted Common Stock.......................... 212 -- 992
F-21
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--NET INCOME (LOSS) PER COMMON SHARE (CONTINUED)
The stock options have per share exercise prices ranging from $0.08 to
$33.25, $6.75 to $42.09, and $0.08 to $34.25, at December 31, 1999, 1998 and
1997, respectively.
The warrants to purchase shares of Common Stock of the Company (the
"Series B Warrants") were issued in connection with the conversion of certain
shares of the Company's Series B Preferred into shares of Common Stock of the
Company. Upon conversion of the Series B Preferred, the holders are eligible to
receive Series B Warrants to purchase that number of shares of the Company's
Common Stock equal to 20% of the shares of the Company's Common Stock into which
the Series B Preferred is convertible. As of December 31, 1999, approximately
1,939,000 Series B Warrants have been issued at a per share exercise price of
$7.84. The Series B Warrants are exercisable through November 2002.
Warrants to purchase shares of the Company's Series A-1 Preferred (the
"Series A-1 Warrants") were exercised into shares of Series A-1 Preferred at a
per share price of $250 and converted into 8,125,000 shares of Common Stock
during 1998. No Series A-1 Warrants were outstanding as of December 31, 1998 and
1999.
Certain of the outstanding shares of Cloudscape Common Stock held by
employees are subject to repurchase upon termination of employment. The number
of shares subject to this repurchase right decreases as the shares vest over
time, generally for four years. As of December 31, 1999, 1998 and 1997, 212,000,
1,407,000, and 992,000 shares, respectively, were subject to repurchase at a
weighted-average exercise price of $0.24, $0.13, and $0.02, respectively.
NOTE 7--EMPLOYEE BENEFIT PLANS
OPTION PLANS
Under the Company's 1986 Employee Stock Option Plan, options are granted at
fair market value on the date of the grant. Options are generally exercisable in
cumulative annual installments over three to five years. Payment for shares
purchased upon exercise of options may be by cash or, with Board approval, by
full recourse promissory note or by exchange of shares of the Company's common
stock at fair market value on the exercise date. Unissued options under the 1986
Plan expired on July 29, 1996, which was 10 years after adoption of the plan.
Additionally, 1,600,000 shares were authorized for issuance under the 1989
Outside Directors Stock Option Plan, whereby non-employee directors are
automatically granted non-qualified stock options upon election or re-election
to the Board of Directors. At December 31, 1999, 635,000 shares were available
for grant under this Plan.
In April 1994, the Company adopted the 1994 Stock Option and Award Plan;
8,000,000 shares were authorized for grant under this Plan. Options can be
granted to employees on terms substantially equivalent to those described above.
The 1994 Stock Option and Award Plan also allows the Company to award
performance shares of the Company's common stock to be paid to recipients on the
achievement of certain performance goals set with respect to each recipient. In
May 1997, the Company's stockholders approved an additional 8,000,000 shares to
be reserved for issuance under the Company's 1994 Stock Option and Award Plan.
At December 31, 1999, 2,531,662 shares were available for grant under this Plan.
In July 1997, the Company's Board of Directors approved a resolution
authorizing the grant of a maximum of 500,000 non-statutory stock options to
executives and other employees, as determined by the Board, under the newly
created 1997 Non-Statutory Stock Option Plan ("the 1997 Stock Plan"). The
F-22
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
authorization of such shares for grant under the 1997 Stock Plan is not subject
to stockholder approval. Terms of each option are determined by the Board or
committee delegated such duties by the Board. Concurrent with the authorization
of the 1997 Stock Plan, the Board granted the Company's current Chairman of the
Board and former chief executive officer 500,000 options to purchase the
Company's common stock thereunder. Such options vest ratably over five years
beginning with the first anniversary of the date of grant.
In September 1997, the Company's Board of Directors authorized the repricing
of outstanding options to purchase Common Stock under the Company's stock option
plans. Employees were eligible to participate only if they remained actively
employed at the effective date of the repricing and were only permitted to
exchange options granted and outstanding prior to May 1, 1997. The
repricing/option exchange was effective November 21, 1997 (the "Repricing
Effective Date"). The repricing program offered eligible employees the
opportunity to exchange eligible outstanding options with exercise prices in
excess of the closing sales price of the Company's Common Stock on the Repricing
Effective Date for a new option with an exercise price equal to such price.
Other than the exercise price, each new option issued upon exchange has terms
substantially equivalent to the surrendered option, including the number of
shares, vesting terms and expiration except that options issued in connection
with the exchange may not be exercised for a period of one year from the
Repricing Effective Date. In addition, officers of the Company participating in
the option exchange were required to forfeit 20% of the shares subject to each
option being surrendered. The exercise price for repriced options was $7.1563,
the closing sales price of the Company's Common Stock on the Repricing Effective
Date.
In December 1997, the Company's Board of Directors authorized the repricing
of outstanding options to purchase Common Stock under the Company's stock option
plans. Employees were eligible to participate only if they remained actively
employed at the effective date of the repricing and were only permitted to
exchange options granted and outstanding prior to May 1, 1997. The
repricing/option exchange was effective January 9, 1998 (the "Repricing
Effective Date"). The repricing program offered eligible employees the
opportunity to exchange eligible outstanding options with exercise prices in
excess of the closing sales price of the Company's Common Stock on the Repricing
Effective Date for a new option with an exercise price equal to such price.
Other than the exercise price, each new option issued upon exchange has terms
substantially equivalent to the surrendered option, including the number of
shares, vesting terms and expiration except that options issued in connection
with the exchange may not be exercised for a period of one year from the
Repricing Effective Date. In addition, Officers and Directors of the Company
were not eligible to have their shares repriced. The exercise price for repriced
options was $5.0938, the closing sales price of the Company's Common Stock on
the Repricing Effective Date.
In July 1998, the Company adopted the 1998 Non-Statutory Stock Option Plan
("the 1998 Stock Option Plan"); 5,500,000 shares were originally authorized for
grant under this Plan. During 1999, the Company's Board of Directors authorized
an additional 5,000,000 shares for grant under the 1998 Stock Option Plan.
Options can be granted to employees on terms substantially equivalent to those
described above. At December 31, 1999, 2,272,878 shares were available for grant
under this Plan.
As a result of its acquisition of Red Brick Systems, Inc. ("Red Brick") in
December 1998, the Company assumed all outstanding Red Brick stock options which
had been issued under Red Brick's 1995 Stock Option Plan (including options
granted under the predecessor 1991 Stock Option Plan) and Supplemental Stock
Option Plan. Each Red Brick stock option so assumed is subject to the same terms
and conditions as the original grant, except that each option was adjusted at a
ratio of 0.6 shares of
F-23
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
Informix Common Stock for each one share of Red Brick Common Stock, and the
exercise price was adjusted by dividing the exercise price by 0.6.
As a result of its acquisition of Cloudscape, Inc. ("Cloudscape") in
October 1999, the Company assumed all outstanding Cloudscape stock options which
had been issued under Cloudscape's 1996 Equity Incentive Plan. Each Cloudscape
stock option so assumed is subject to the same terms and conditions as the
original grant, except that each option was adjusted at a ratio of approximately
0.56 shares of Informix Common Stock for each one share of Cloudscape Common
Stock, and the exercise price was adjusted by dividing the exercise price by
approximately 0.56.
Following is a summary of activity for all stock option plans for the three
years ended December 31, 1999:
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
----------- ----------------
Outstanding at December 31, 1996............................ 17,133,416 $13.4345
Options granted and assumed................................. 14,490,877 7.8068
Options exercised........................................... (1,323,543) 2.5278
Options canceled............................................ (10,008,150) 18.6873
----------- --------
Outstanding at December 31, 1997............................ 20,292,600 7.5365
Options granted............................................. 10,436,982 5.3548
Options assumed............................................. 2,466,727 5.4012
Options exercised........................................... (3,671,072) 2.3459
Options canceled............................................ (8,866,872) 9.1573
----------- --------
Outstanding at December 31, 1998............................ 20,658,366 6.4061
Options granted............................................. 10,905,977 8.5185
Options exercised........................................... (3,350,263) 4.2810
Options canceled............................................ (5,038,551) 7.3150
----------- --------
Outstanding at December 31, 1999............................ 23,175,529 $ 7.4628
=========== ========
The following table summarizes information about options outstanding at
December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
- ------------------------ ------------- ----------- -------- ------------- --------
$0.080 to $5.094....................... 4,364,637 6.19 $ 3.967 2,998,020 $ 3.927
$5.156 to $6.750....................... 3,377,429 8.43 5.607 996,183 5.764
$6.781 to $9.031....................... 10,708,872 8.81 7.802 2,009,274 8.251
$9.063 to $13.340...................... 4,630,297 8.68 11.018 990,260 10.837
$16.880 to $33.250..................... 94,294 5.61 22.366 88,565 22.246
---------- ---------
$0.080 to $33.250...................... 23,175,529 8.22 7.463 7,082,302 6.608
========== =========
F-24
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
In connection with all stock option plans, 30,089,289 shares of Common Stock
were reserved for issuance as of December 31, 1999, and 7,082,302 options were
exercisable. At December 31, 1998, 31,869,993 shares of Common Stock were
reserved for issuance, and 6,143,986 options were exercisable.
EMPLOYEE STOCK PURCHASE PLAN
The Company had a qualified Employee Stock Purchase Plan (the Plan) under
which 7,600,000 shares of common stock, in the aggregate, were authorized for
issuance. Under the terms of the Plan, employees could contribute, through
payroll deductions, up to 10 percent of their base pay and purchase up to 20,000
shares per quarter (with the limitation of purchases of $25,000 annually in fair
market value of the shares). Employees could elect to withdraw from the Plan
during any quarter and have their contributions for the period returned to them.
Also, employees could elect to reduce the rate of contribution one time in each
quarter. The price at which employees could purchase shares was 85 percent of
the lower of the fair market value of the stock at the beginning or end of the
quarter. The Plan was qualified under Section 423 of the Internal Revenue Code
of 1986, as amended. During 1997, the Company issued 573,343 shares under this
Plan. The Plan was terminated on July 1, 1997, which was 10 years after the
offering date for the Plan's first offering period.
In May 1997, the Company's stockholders approved the 1997 Employee Stock
Purchase Plan (the "1997 ESPP"). The Company has reserved 4,000,000 shares of
Common Stock for issuance under the 1997 ESPP. The 1997 ESPP permits
participants to purchase Common Stock through payroll deductions of up to
15 percent of an employee's compensation, including commissions, overtime,
bonuses and other incentive compensation. The price of Common Stock purchased
under the 1997 ESPP is equal to 85 percent of the lower of the fair market value
of the Common Stock at the beginning or at the end of each calendar quarter in
which an eligible employee participates. The Plan qualifies as an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as
amended. During 1999 and 1998, the Company issued approximately 1,187,000 shares
and 1,613,000 shares, respectively, under the 1997 ESPP. No shares of Common
Stock were issued under this plan during fiscal 1997.
STOCK-BASED COMPENSATION
As permitted under Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," the Company has elected
to continue to follow Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees" in accounting for stock-based awards
to employees. Under APB 25, the Company generally recognizes no compensation
expense with respect to such awards.
Pro forma information regarding the net income (loss) and net income (loss)
per share is required by SFAS 123 for awards granted or modified after
December 31, 1994 as if the Company had accounted for its stock based awards to
employees under the fair value method of SFAS 123. The fair value of the
Company's stock-based awards to employees was estimated using a Black-Scholes
option pricing model.
F-25
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--EMPLOYEE BENEFIT PLANS (CONTINUED)
The fair value of the Company's stock-based awards was estimated assuming no
expected dividends and the following weighted-average assumptions:
OPTIONS ESPP
-------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
Expected life (years).................. 4.5 4.5 4.5 .25 .25 .25
Expected volatility.................... 73% 73% 79% 73% 56-95% 51-90%
Risk-free interest rate................ 5.7% 4.7% 5.7% 4.6-5.1% 4.7-5.3% 5.2-5.4%
For pro forma purposes, the estimated fair value of the Company's stock
based awards is amortized over the award's vesting period (for options) and the
three month purchase period (for stock purchases under the ESPP). The Company's
pro forma information follows:
1999 1998 1997
--------- --------- ----------
(IN THOUSANDS EXCEPT FOR PER SHARE
INFORMATION)
Net income (loss) applicable to common As reported
stockholders................................... $(12,159) $44,724 $(362,290)
Pro forma (45,582) 9,745 (391,115)
Net income (loss) per common share:
Basic.......................................... As reported $ (0.06) $ 0.26 $ (2.37)
Pro forma (0.23) 0.06 (2.56)
Diluted........................................ As reported (0.06) 0.25 (2.37)
Pro forma (0.23) 0.05 (2.56)
Calculated under SFAS 123, the weighted-average fair value of the options
granted during 1999, 1998 and 1997 was $5.24, $3.58 and $5.26 per share,
respectively. The weighted average fair value of employee stock purchase rights
granted under the ESPP during 1999, 1998 and 1997 were $2.83, $1.91 and $3.83
per share, respectively.
401(k) PLAN
The Company has a 401(k) plan covering substantially all of its U.S.
employees. Under this plan, participating employees may defer up to 15 percent
of their pre-tax earnings, subject to the Internal Revenue Service annual
contribution limits. The Company matches 50 percent of each employee's
contribution up to a maximum of $2,000. The Company's matching contributions to
this 401(k) plan for 1999, 1998 and 1997 were $4.2 million, $3.5 million and
$4.2 million, respectively.
F-26
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES
The Company leases certain computer and office equipment under capital
leases having terms of three-to-five years. Amounts capitalized for such leases
are included on the consolidated balance sheets as follows:
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
Computer and office equipment............................... $8,797 $10,023
Less: accumulated amortization.............................. 7,037 5,147
------ -------
$1,760 $ 4,876
====== =======
During 1998 and 1997, the Company financed approximately $1.9 million and
$10.5 million, respectively, of equipment purchases under capital lease
arrangements. The Company did not finance a significant amount of equipment
purchases under capital lease arrangements during 1999. Amortization of the cost
of leased equipment is included in depreciation expense.
The Company leases certain of its office facilities and equipment under
non-cancelable operating leases and total rent expense was $35.7 million,
$30.7 million and $34.8 million in 1999, 1998 and 1997, respectively.
In November 1996, the Company leased approximately 200,000 square feet of
office space in Santa Clara, California. The lease term is for fifteen years and
minimum lease payments amount to $96.0 million over the term. The minimum lease
payments increase within a contractual range based on changes in the Consumer
Price Index. In the fourth quarter of 1997, the Company assigned the lease to an
unrelated third party. The Company remains contingently liable for minimum lease
payments under this assignment.
Future minimum payments, by year and in the aggregate, under the capital and
non-cancelable operating leases as of December 31, 1999, are as follows:
NON-CANCELABLE
YEAR ENDING DECEMBER 31 CAPITAL LEASES OPERATING LEASES
- ----------------------- -------------- ----------------
(IN THOUSANDS)
2000........................................................ $1,955 $ 32,542
2001........................................................ 73 26,787
2002........................................................ -- 20,047
2003........................................................ -- 13,087
2004........................................................ -- 7,696
Thereafter.................................................. -- 6,313
--------
Total payments.............................................. 2,028 $106,472
========
Less: amount representing interest.......................... 101
------
Present value of minimum lease payments..................... 1,927
Less current portion........................................ 1,862
------
$ 65
======
F-27
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has several active software development and service provider
contracts with third-party technology providers. These agreements contain
financial commitments by the Company of $8.7 million, $7.8 million and
$4.7 million in fiscal 2000, 2001 and 2002, respectively. In addition, the
Company makes annual payments of approximately $1.9 million to third-party
technology providers, and will continue to do so for such period as the Company
utilizes the related technology in its products.
NOTE 9--BUSINESS SEGMENTS
In recent years, the Company has operated under four reportable operating
segments which report to the Company's president and chief executive officer,
(the "Chief Operating Decision Maker"). These reportable operating segments,
North America, Europe, Asia/Pacific and Latin America, are organized, managed
and analyzed geographically and operate in one industry segment: the development
and marketing of information management software and related services. The
Company has evaluated operating segment performance based primarily on net
revenues and certain operating expenses. The Company's products are marketed
internationally through the Company's subsidiaries and through application
resellers, OEMs and distributors.
Financial information for the Company's North America, Europe, Asia/Pacific
and Latin America operating segments is summarized below by year:
NORTH LATIN
AMERICA EUROPE ASIA/PACIFIC AMERICA OTHER(3) TOTAL
--------- -------- ------------ -------- --------- ---------
(IN THOUSANDS)
1999:
Net revenues from unaffiliated customers..... $ 457,235 $263,868 $ 88,424 $ 62,009 $ -- $ 871,536
Transfers between segments(1)................ (34,259) 19,738 7,776 6,745 -- --
Total net revenues........................... 422,976 283,606 96,200 68,754 -- 871,536
Operating income(2).......................... 50,926 11,861 30,963 3,700 1,063 98,513
Identifiable assets at December 31........... 724,199 43,131 9,609 15,167 (145,894) 646,212
Depreciation and amortization expense........ 35,916 6,291 3,092 1,524 -- 46,823
Capital expenditures......................... 18,767 4,116 903 1,047 -- 24,833
1998:
Net revenues from unaffiliated customers..... $ 367,373 $240,964 $ 77,191 $ 49,978 $ -- $ 735,506
Transfers between segments(1)................ (11,256) (52) 4,093 7,215 -- --
Total net revenues........................... 356,117 240,912 81,284 57,193 -- 735,506
Operating income (loss)(2)................... (1,281) 59,306 1,733 (7,173) 701 53,286
Identifiable assets at December 31........... 694,652 138,470 76,918 40,328 (328,303) 622,065
Depreciation and amortization expense........ 31,839 9,771 3,718 1,485 -- 46,813
Capital expenditures......................... 15,065 4,099 853 794 -- 20,811
1997:
Net revenues from unaffiliated customers..... $ 307,870 $224,829 $ 81,130 $ 50,063 $ -- $ 663,892
Transfers between segments(1)................ (7,147) 3,242 333 3,572 -- --
Total net revenues........................... 300,723 228,071 81,463 53,635 -- 663,892
Operating income (loss)(2)................... (231,542) (77,871) (48,814) 4,210 (5,436) (359,453)
Identifiable assets at December 31........... 558,253 130,174 61,875 38,948 (223,229) 566,021
Depreciation and amortization expense........ 34,325 23,238 7,023 1,108 -- 65,694
Capital expenditures......................... 71,087 15,102 6,534 1,489 -- 94,211
- ------------------------------
(1) The Company makes allocations of revenue to operating segments depending on
the location of the country where the order is placed, the location of the
country where the license is installed or service is delivered, the type of
revenue (license or service) and whether the sale was through a reseller or
to an end user.
The accounting policies of the segments are the same as those described in
Note 1--Summary of Significant Accounting Policies.
(2) Operating income/(loss) excludes the effect of transfers between segments.
(3) Represents consolidating adjustments such as elimination of intercompany
balances.
F-28
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--BUSINESS SEGMENTS (CONTINUED)
The reconciliation of the operating income (loss) of the Company's
reportable operating segments to the Company's income (loss) before income taxes
is as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- ---------
(IN THOUSANDS)
Operating income (loss) of reportable operating segments.... $ 97,450 $52,585 $(354,017)
Consolidating adjustments................................... 1,063 701 (5,436)
Other income (expense)...................................... (87,796) 1,298 6,882
-------- ------- ---------
Income (loss) before income taxes........................... $ 10,717 $54,584 $(352,571)
======== ======= =========
On October 1, 1999, the Company created four new business groups which began
reporting to the Company's Chief Operating Decision Maker: the TransAct Business
Group, which is responsible for delivering on-line transaction processing
products; the i.Foundation Business Group, which is responsible for delivering
products that provide the technological foundation for Internet-based electronic
commerce solutions; the i.Informix Business Group, which is responsible for
delivering Internet-based solutions for electronic commerce; and the
i.Intelligence Business Group, which is responsible for delivering Internet-
based data warehouse products and solutions. Financial information for the
Company's TransAct, i.Foundation, i.Informix and i.Intelligence business groups
for 1999 is summarized below (due to the creation of these business groups in
the fourth quarter of 1999, certain information was not practicable to obtain
for current and prior years):
TRANSACT I.INTELLIGENCE I.FOUNDATION I.INFORMIX TOTAL
-------- -------------- ------------ ---------- --------
Total net revenues (in thousands)....... $693,207 $85,999 $76,210 $16,120 $871,536
The Company's revenues are derived from licensing its database servers and
related tools and connectivity/gateway software, and performing services, which
include maintenance and consulting/training. Information as to the Company's
revenues from external customers for all reportable segments is as follows:
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
License revenues(1)......................................... $442.8 $383.9 $378.2
------ ------ ------
Service revenues
Maintenance............................................... 325.6 253.7 188.0
Consulting and training................................... 103.1 97.9 97.7
------ ------ ------
428.7 351.6 285.7
------ ------ ------
$871.5 $735.5 $663.9
====== ====== ======
- ------------------------
(1) Financial data for the Company's license revenues by product is not
practicable to obtain due to the bundling of software products and services
into the Company's solutions offerings.
F-29
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--BUSINESS SEGMENTS (CONTINUED)
Information as to the Company's operations in different geographical areas
is as follows:
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
Revenues, net of transfers between segments:
United States............................................. $423.0 $356.1 $300.7
------ ------ ------
Total North America....................................... 423.0 356.1 300.7
------ ------ ------
United Kingdom............................................ 74.7 63.8 61.0
Germany................................................... 72.5 69.2 63.8
France.................................................... 27.1 19.5 26.2
Spain..................................................... 14.3 10.8 7.0
Italy..................................................... 13.6 10.9 18.0
Other countries........................................... 81.4 66.7 52.1
------ ------ ------
Total Europe.............................................. 283.6 240.9 228.1
------ ------ ------
Japan..................................................... 31.5 26.2 18.7
China..................................................... 15.7 9.7 3.4
Australia................................................. 8.9 6.6 6.9
Korea..................................................... 8.6 5.6 12.4
Hong Kong................................................. 6.6 10.8 16.1
Other countries........................................... 24.9 22.4 24.0
------ ------ ------
Total Asia/Pacific........................................ 96.2 81.3 81.5
------ ------ ------
Mexico.................................................... 31.4 21.6 18.8
Brazil.................................................... 9.6 11.3 9.2
Argentina................................................. 9.0 7.5 7.9
Other countries........................................... 18.7 16.8 17.7
------ ------ ------
Total Latin America....................................... 68.7 57.2 53.6
------ ------ ------
$871.5 $735.5 $663.9
====== ====== ======
F-30
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--BUSINESS SEGMENTS (CONTINUED)
1999 1998
-------- --------
(IN MILLIONS)
Property and equipment, net
United States............................................. $ 46.9 $ 57.8
Other..................................................... 0.2 0.2
------ ------
Total North America....................................... 47.1 58.0
------ ------
United Kingdom............................................ 1.5 2.0
Germany................................................... 1.8 3.9
France.................................................... 1.0 1.3
Ireland................................................... 1.7 1.1
Other countries........................................... 2.4 3.6
------ ------
Total Europe.............................................. 8.4 11.9
------ ------
Asia/Pacific.............................................. 2.5 3.0
Latin America............................................. 2.6 2.9
------ ------
Total Asia/Pacific and Latin America...................... 5.1 5.9
------ ------
$ 60.6 $ 75.8
====== ======
No single customer accounted for 10% or more of the consolidated revenues of
the Company in fiscal 1999, 1998 or 1997.
NOTE 10--INCOME TAXES
The provision for income taxes applicable to income (loss) before income
taxes consists of the following:
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
Currently payable:
Federal................................................... $ 3,896 $ 2,690 $(2,264)
State..................................................... 56 90 --
Foreign................................................... 8,926 (1,357) 10,415
------- ------- -------
12,878 1,423 8,151
Deferred:
Federal................................................... 5,544 (4,071) (3,857)
State..................................................... (957) (1,461) (189)
Foreign................................................... 4,417 8,509 3,712
------- ------- -------
9,004 2,977 (334)
------- ------- -------
$21,881 $ 4,400 $ 7,817
======= ======= =======
F-31
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
Income (loss) before income taxes consists of the following:
1999 1998 1997
-------- -------- ---------
(IN THOUSANDS)
Domestic.................................................... $(26,868) $ 2,704 $(230,787)
Foreign..................................................... 37,585 51,880 (121,784)
-------- ------- ---------
$ 10,717 $54,584 $(352,571)
======== ======= =========
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income (loss) before income taxes. The
sources and tax effects of the differences are as follows:
1999 1998 1997
------------------- ------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- --------- --------
(IN THOUSANDS)
Computed tax (benefit) at federal
statutory rate........................ $ 3,751 35.0% $ 19,104 35.0% $(123,400) (35.0)%
Valuation allowance..................... (12,689) (118.4) (11,194) (20.5) 118,211 33.5
State income taxes, net of federal tax
benefit............................... 89 0.8 (1,372) (2.5) -- 0.0
Foreign withholding taxes not currently
creditable............................ 8,957 83.6 2,690 4.9 -- 0.0
Foreign taxes, net...................... 19,426 181.3 (4,395) (8.0) 10,415 3.0
Other, net.............................. 2,348 21.9 (433) (0.8) 2,591 0.7
------- ------ -------- ----- --------- -----
$21,881 204.2% $ 4,400 8.1% $ 7,817 2.2%
======= ====== ======== ===== ========= =====
F-32
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 and
1998 are as follows:
1999 1998
--------- ---------
(IN THOUSANDS)
Deferred Tax Assets:
Reserves and accrued expenses............................... $ 6,737 $ 7,981
Deferred revenue............................................ 3,098 3,381
Foreign net operating loss carryforwards.................... 18,526 43,490
Domestic net operating loss carryforwards................... 81,752 83,132
Domestic net operating loss carryback....................... 23,085 --
Foreign taxes credit........................................ 10,077 7,247
R&D credit carryforwards.................................... 25,552 22,218
Other....................................................... 5,199 11,146
--------- ---------
Total deferred tax assets................................... 174,026 178,595
Valuation allowance for deferred tax assets................. (149,798) (162,487)
--------- ---------
Deferred tax assets, net of valuation allowance............. 24,228 16,108
========= =========
Deferred Tax Liabilities:
Capitalized software........................................ 15,473 14,130
Valuation of investment portfolio FAS 115................... 3,211 1,978
--------- ---------
Total deferred tax liabilities.............................. 18,684 16,108
--------- ---------
Net deferred tax assets..................................... $ 5,544 $ --
========= =========
At December 31, 1999, the Company had approximately $66.5 million,
$209.1 million and $209.1 million of foreign, federal and state net operating
loss carryforwards, respectively. The foreign and state net operating loss
carryforwards expire at various dates beginning in 1999. The federal net
operating loss carryforwards expire at various dates beginning in 2007. Income
taxes paid amounted to $10.0 million, $4.7 million and $11.3 million in 1999,
1998 and 1997, respectively. The valuation allowance for deferred tax assets
decreased by $12.7 million in 1999 and $17.4 million in 1998 and increased by
$133.4 million in 1997. The net deferred tax asset of $5.5 million at
December 31, 1999 represents the tax effect of net operating loss carryforwards
existing in certain foreign jurisdictions that the Company believes are more
likely than not to be realized, based on the earnings in those jurisdictions.
Subsequently recognized tax benefits relating to the valuation allowance for
deferred tax assets at December 31, 1999 will be as follows:
Income tax benefit from continuing operations............... $127,008
Goodwill and other noncurrent intangible assets............. 14,127
Additional paid-in capital.................................. 8,663
--------
Total....................................................... $149,798
========
F-33
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--BUSINESS COMBINATIONS
On November 30, 1999, the Company reached a definitive agreement (the
"Ardent Agreement") to acquire Ardent Software, Inc. ("Ardent"), the leading
provider of data integration infrastructure software for data warehouse,
business intelligence, and e-business applications. In accordance with the
Ardent Agreement, 3.5 shares of the Company's common stock will be exchanged for
each outstanding Ardent share and the Company will assume all outstanding Ardent
options. The transaction is expected to be accounted for as a pooling of
interests and completion of the transaction, which is subject to the approval of
stockholders of both companies, is expected to occur in the first quarter of
2000.
On October 8, 1999, the Company completed its acquisition of Cloudscape, a
privately-held provider of synchronized database solutions for the remote and
occasionally connected workforce. In the acquisition, the former shareholders of
Cloudscape received shares of the Company's Common Stock in exchange for their
shares of Cloudscape at the rate of approximately 0.56 shares of Informix Common
Stock for each share of Cloudscape Common Stock (the "Merger"). An aggregate of
9,583,000 shares of Informix Common Stock were issued pursuant to the Merger,
and an aggregate of 417,000 options and warrants to purchase Cloudscape Common
Stock were assumed by Informix.
The Company recorded a charge of $2.8 million for accrued merger and
integration costs. This amount included $1.2 million for financial advisor,
legal and accounting fees related to the merger and $1.6 million for costs
associated with combining the operations of the two companies including
expenditures of $0.7 million for severance and related costs, $0.4 million for
closure of facilities and $0.5 million for the write-off of redundant assets and
other costs. As of December 31, 1999, $1.1 million had been paid for financial
advisor, legal and accounting fees, $0.2 million had been paid for severance and
related costs and $0.2 million had been charged for the write-off of redundant
assets.
The Merger was accounted for as a pooling-of-interests combination and,
accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of Cloudscape. The results of operations previously reported by the separate
enterprises and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
------------------- ------------------------
SEPTEMBER 30, 1999 1998 1997
------------------- -------- ---------
Net revenues:
Informix.......................................... $619,207 $734,983 $ 663,892
Cloudscape........................................ 1,217 523 --
-------- -------- ---------
Combined.......................................... $620,424 $735,506 $ 663,892
======== ======== =========
Net income (loss):
Informix.......................................... $(47,605) $ 57,718 $(356,867)
Cloudscape........................................ (6,329) (7,534) (3,521)
-------- -------- ---------
Combined.......................................... $(53,934) $ 50,184 $(360,388)
======== ======== =========
No adjustments were necessary to conform accounting policies of the combined
entities.
On December 31, 1998, the Company acquired Red Brick Systems, Inc. ("Red
Brick"), a provider of scalable decision support solutions for data warehousing,
data marts, OLAP and data mining. Under terms
F-34
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--BUSINESS COMBINATIONS (CONTINUED)
of the acquisition, the Company issued approximately 7.6 million shares of its
Common Stock in exchange for all outstanding shares of Red Brick Common Stock.
In addition, the Company issued options to purchase approximately 2.5 million
shares of the Company's Common Stock in exchange for outstanding unvested
options to purchase Red Brick common stock. The acquisition was accounted for
using the purchase method of accounting, and a summary of the purchase price for
the acquisition is as follows (in thousands):
Stock and stock options, net of issuance costs.............. $35,914
Direct acquisition costs.................................... 1,042
Other liabilities assumed................................... 5,892
Accrued merger and integration costs........................ 7,850
Deferred revenue............................................ 5,149
-------
Total....................................................... $55,847
=======
The purchase price was allocated as follows:
Cash and short-term investments acquired.................... $ 7,763
Other tangible assets acquired.............................. 10,281
Intangible assets
Capitalized software...................................... 7,400
Workforce................................................. 4,700
Goodwill.................................................. 23,103
-------
35,203
In-process research and development......................... 2,600
-------
Total....................................................... $55,847
=======
In-process research and development represents the fair value of
technologies acquired for use in the Company's own development efforts. The
Company determined the amount of the purchase price to be allocated to
in-process research and development based on an independent appraisal of certain
intangible assets which indicated that approximately $2.6 million of the
acquired intangible assets consisted of in-process research and development that
had not yet reached technological feasibility and had no alternative future
uses. Accordingly, the Company recorded a charge to operations of $2.6 million
in the fourth quarter of fiscal 1998. The remaining intangible assets acquired,
with an assigned value of approximately $35.2 million, were included in
"Intangible Assets" in the accompanying consolidated balance sheets, and are
being amortized over three to five years.
Accrued merger and integration costs recorded in connection with the
acquisition of Red Brick included approximately $1.6 million for severance and
other acquisition-related costs, $4.7 million for costs associated with the
shutdown and consolidation of the Red Brick facilities and $1.6 million for
costs associated with settling acquired royalty commitments for abandoned
technology. As of December 31, 1999, $0.9 million had been paid for severance
and other acquisition-related costs, $1.5 million had been paid for costs
associated with the shutdown and consolidation of Red Brick facilities and
$1.0 million had been paid to settle acquired royalty commitments for abandoned
technology. During 1999, accrued merger and integration costs were reduced by
$3.1 million, which resulted in a corresponding $3.1 million decrease
F-35
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--BUSINESS COMBINATIONS (CONTINUED)
in goodwill. These adjustments were the result of a decrease of approximately
$2.3 million in the estimated costs associated with various former Red Brick
facilities due to a change in the amount of sublease income to be received for
such facilities, a decrease of approximately $0.7 million in severance-related
costs and a decrease of $0.1 million in royalty commitments.
The following pro forma finanacial information presents the combined results
of operations of Informix and Red Brick as if the acquisition had occurred as of
the beginning of 1998 and 1997, after giving effect to certain adjustments,
including amortization of goodwill and excluding the write-off of acquired
in-process research and development. The pro forma financial information does
not necessarily reflect the results of operations that would have occurred had
the two companies constituted a single entity during such periods.
YEAR ENDED
DECEMBER 31,
---------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
FOR PER SHARE DATA)
Net revenues................................................ $769,989 $707,207
Net income (loss)........................................... 21,866 (385,452)
Net income (loss) per share................................. 0.09 (2.38)
In February 1997, the Company acquired all of the outstanding capital stock
of CenterView Software, Inc. ("CenterView"), a privately-owned company which
develops and sells software application development tools. The aggregate
purchase price paid was approximately $8.7 million, which included cash and
direct acquisition costs. The transaction has been accounted for as a purchase
and, based on an independent appraisal of the assets acquired and liabilities
assumed, the purchase price has been allocated to the net tangible and
intangible assets acquired, including developed software technology, acquired
workforce, in-process technology, and goodwill. The in-process technology, which
based on the independent appraisal has been valued at $7 million, had not, at
the date of acquisition, reached technological feasibility and had no
alternative future uses in other research and development projects.
Consequently, its value was charged to operations in the first quarter of fiscal
1997, the period the acquisition was consummated. The remaining identifiable
intangible assets are being amortized over three to five years.
NOTE 12--LITIGATION
Commencing in April 1997, a series of class action lawsuits purportedly by
or on behalf of stockholders and a separate but related stockholder action were
filed in the United States District Court for the Northern District of
California. These actions name as defendants the Company, certain of its present
and former officers and directors and, in some cases, its former independent
auditors. The complaints allege various violations of the federal securities
laws and seek unspecified but potentially significant damages. Similar actions
were also filed in California state court and in Newfoundland, Canada.
Stockholder derivative actions, purportedly on behalf of the Company and
naming virtually the same individual defendants and the Company's former
independent auditors, were also filed, commencing in August 1997, in California
state court. While these actions allege various violations of state law, any
monetary judgments in these derivative actions would accrue to the benefit of
the Company.
F-36
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--LITIGATION (CONTINUED)
Pursuant to Delaware law and certain indemnification agreements between the
Company and each of its current and former officers and directors, the Company
is obligated to indemnify its current and former officers and directors for
certain liabilities arising from their employment with or service to the
Company. This includes the costs of defending against the claims asserted in the
above-referenced actions and any amounts paid in settlement or other disposition
of such actions on behalf of these individuals. The Company's obligations do not
permit or require it to provide such indemnification to any such individual who
is adjudicated to be liable for fraudulent or criminal conduct. Although the
Company has purchased directors' and officers' liability insurance to reimburse
it for the costs of indemnification for its directors and officers, the coverage
under its policies is limited. Moreover, although the directors' and officers'
insurance coverage presumes that 100 percent of the costs incurred in defending
claims asserted jointly against the Company and its current and former directors
and officers are allocable to the individuals' defense, the Company does not
have insurance to cover the costs of its own defense or to cover any liability
for any claims asserted against it. The Company has not set aside any financial
reserves relating to any of the above-referenced actions.
On May 26, 1999, the Company entered into a memorandum of understanding
regarding the settlement of pending private securities and related litigation
against the Company. The settlement will resolve all material litigation arising
out of the restatement of the Company's financial statements that was publicly
announced in November, 1997. In accordance with the terms of the memorandum of
understanding, the Company paid approximately $3.2 million in cash during the
second quarter of 1999 and an additional amount of approximately $13.8 million
of insurance proceeds was contributed directly by certain insurance carriers on
behalf of certain of the Company's current and former officers and directors.
The Company will also contribute a minimum of 9 million shares of the Company's
common stock, which will have a guaranteed value of $91 million for a maximum
term of one year from the date of the final approval of the settlement by the
courts. The Company's former independent auditors, Ernst & Young LLP, will pay
$34 million in cash. The total amount of the settlement, which has received
final approval from both the federal and state courts will be $142 million.
In July 1997, the Securities and Exchange Commission ("SEC") issued a formal
order of private investigation of the Company and certain unidentified other
entities and persons with respect to non-specified accounting matters, public
disclosures and trading activity in the Company's securities. During the course
of the investigation, the Company learned that the investigation concerned the
events leading to the restatement of the Company's financial statements,
including fiscal years 1994, 1995 and 1996, that was publicly announced in
November 1997. The Company and the SEC have entered into a settlement of the
investigation as to the Company. Pursuant to the settlement, the Company
consented to the entry by the SEC of an Order Instituting Public Administrative
Proceedings Pursuant to Section 8A of the Securities Act of 1933 and
Section 21C of the Securities Exchange Act of 1934, Making Findings, and
Imposing a Cease and Desist Order (the "Order"). The Order was issued by the SEC
on January 11, 2000. Pursuant to the Order, the Company neither admitted nor
denied the findings, except as to jurisdiction, contained in the Order. The
Order directs the Company to cease and desist from committing or causing any
violation, and any future violation, of Section 17(a) of the Securities Act of
1933 ("Securities Act"), and Sections 10(b), 13(a) and 13(b) of the Securities
Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20 13a-1, 13a-13 and
13b2-1 under the Exchange Act. Pursuant to the Order, the Company also is
required to cooperate in the SEC's continuing investigation of other entities
and persons. As a consequence of the issuance of the Order, the Company is
statutorily disqualified, pursuant to Section 27A(G)(1)(A)(ii) of the Securities
Act and Section 21E(b)(1)(A)(ii) of the Exchange Act, for a
F-37
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--LITIGATION (CONTINUED)
period of three years from the date of the issuance of the Order, from relying
on the protections of the "safe harbor" for forward-looking statements set forth
in Section 27(A)(c) of the Securities Act and Section 21(E)(c) of the Exchange
Act.
EXPO 2000 filed an action against Informix Software GmbH (the Company's
German subsidiary) in the Hanover (Germany) district court in September 1998
seeking recovery of approximately $6.0 million, plus interest, for breach of a
sponsorship contract signed in 1997. Informix filed a counterclaim for breach of
contract and seeks recovery of approximately $3.1 million. During settlement
negotiations prior to the filing of the action, EXPO 2000 stated that it would
accept approximately $2.5 million to settle. In March 1999, a panel of three
judges appointed by the court recommended a settlement pursuant to which EXPO
2000 and Informix would release the other from all claims. EXPO 2000 declined to
accept the recommendation. In August 1999, the court entered a judgment against
Informix in the amount of approximately $6.0 million, although approximately
$2.1 million of judgment is conditioned upon the return to Informix by EXPO 2000
of certain software. Informix has filed an appeal. The Company has reserved
$2.5 million for the expected outcome of the appeal.
On February 3, 2000, International Business Machines Corporation ("IBM")
filed an action against us in the United States District Court for the District
of Delaware alleging infringement of six United States patents owned by IBM. The
Informix products that IBM alleges infringe its patents are Informix Online
Dynamic Server versions 5, 6 and 7, Informix SE version 6, Informix NewEra
version 1, Informix NET, Informix STAR, Illustra Visual Information Retrieval,
and Illustra Visual Intelligence Viewer. In its complaint, IBM seeks a permanent
injunction against further alleged infringement, unspecified compensatory
damages, unspecified treble damages, and interest, costs and attorneys' fees. We
strongly believe that the allegations in the complaint are without merit and
intend to defend the action vigorously and to assert such counterclaims against
IBM as may be appropriate.
From time to time, in the ordinary course of business, the Company is
involved in various legal proceedings and claims. The Company does not believe
that any of these proceedings and claims will have a material adverse effect on
the Company's business or financial condition.
NOTE 13--NONRECURRING CHARGES
In accordance with Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," the Company records impairment losses on
long-lived assets used in its operations when events and circumstances indicate
that the assets might be impaired and the estimated future undiscounted cash
flows to be generated by those assets are less than the assets' carrying
amounts. During the first quarter of 1997, the Company's Japanese subsidiary
experienced a significant shortfall in business activity compared to historical
levels. Accordingly, the Company evaluated the ongoing value of the subsidiary's
long-lived assets (primarily computer and other equipment) and goodwill. Based
on this evaluation, the Company determined that the subsidiary's assets had been
impaired and wrote them down by $30.5 million to their estimated fair values.
Fair value was determined using estimated future discounted cash flows and/or
estimated resale values as appropriate.
In February 1997, the Company acquired CenterView Software (see Note 11)
and, as a direct result, revised its database application tool business strategy
to incorporate CenterView's developed technology and "Data Director" product.
This revision to the tools business strategy significantly altered the Company's
current and future marketing plans for its own NewEra family of application
tools, including
F-38
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--NONRECURRING CHARGES (CONTINUED)
projected future NewEra product revenues. As a result, the Company reevaluated
the net realizable value of its NewEra products and found it to be significantly
below the net balance of related capitalized software development costs.
Accordingly, the Company recorded a charge during the first quarter 1997 of
$14.7 million to reduce the carrying value of these capitalized product
development costs to the revised estimated net realizable value of the NewEra
products.
In June 1997 and again in September 1997, the Company approved plans to
restructure its operations in order to bring expenses in line with forecasted
revenues. In connection with these restructurings, the Company substantially
reduced its worldwide headcount and consolidated facilities and operations to
improve efficiency. The following analysis sets forth the significant components
of the restructuring expense charge and adjustments to restructuring expense
included in the Company's consolidated statements of operations for the years
ended December 31, 1999, 1998 and 1997 as well as the significant components of
the restructuring reserve at December 31, 1999 (in millions):
SEVERANCE & FACILITY
BENEFITS CHARGES OTHER TOTAL
----------- -------- -------- --------
Restructuring Expense..................................... $21.9 $34.7 $ 3.4 $108.2
Cash payments............................................. 19.5 3.8 0.2 23.5
Non-cash costs............................................ -- 7.7 2.2 58.1
----- ----- ----- ------
Accrual balances, December 31, 1997....................... $ 2.4 $23.2 $ 1.0 $ 26.6
----- ----- ----- ------
Cash payments............................................. 0.1 8.8 0.5 9.4
Non-cash costs............................................ -- 1.1 -- 1.1
Adjustments............................................... 2.2 8.1 -- 10.3
----- ----- ----- ------
Accrual balances, December 31, 1998....................... $ 0.1 $ 5.2 $ 0.5 $ 5.8
----- ----- ----- ------
Cash payments............................................. -- 1.4 0.2 1.6
Non-cash costs............................................ -- 1.2 0.6 1.8
Adjustments............................................... 0.1 0.8 (0.3) 0.6
----- ----- ----- ------
Accrual balances, December 31, 1999....................... $ -- $ 1.8 $ -- $ 1.8
===== ===== ===== ======
Severance and benefits represent the reduction of approximately 670
employees, primarily sales and marketing personnel, on a worldwide basis.
Temporary employees and contractors were also reduced. Write-off of assets
include the write-off or write-down in carrying value of equipment as a result
of the Company's decision to reduce the number of Information Superstores
throughout the world, as well as the write-off of equipment associated with
headcount reductions. The equipment subject to the write-offs and write-downs
consisted primarily of computer servers, workstations, and personal computers
that are no longer utilized in the Company's operations. Facility charges
include early termination costs associated with the closing of certain domestic
and international sales offices.
For the years ended December 31, 1999 and 1998, the Company recorded
restructuring-related adjustments to decrease restructuring expense by
$0.6 million and $10.3 million, respectively, primarily due to adjusting the
estimated severance and facility charges to actual costs incurred. The Company
has substantially completed actions associated with its restructuring except for
subleasing or settling its remaining long-term operating leases related to
vacated properties. The terms of such operating leases expire at various dates
through 2003.
F-39
INFORMIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14--COMPREHENSIVE INCOME (LOSS)
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which
establishes standards for displaying comprehensive income and its components.
The components of accumulated other comprehensive income (loss) consist of
the following items:
UNREALIZED
GAINS/(LOSSES) ON ACCUMULATED OTHER
FOREIGN SECURITIES COMPREHENSIVE
CURRENCY (IN THOUSANDS) INCOME/(LOSS)
-------- ----------------- -----------------
December 31, 1996.................................. $(10,181) $ 11,690 $ 1,509
Current-period change.............................. (955) (12,457) (13,412)
-------- -------- --------
December 31, 1997.................................. (11,136) (767) (11,903)
Current-period change.............................. 3,351 5,202 8,553
-------- -------- --------
December 31, 1998.................................. (7,785) 4,435 (3,350)
Current-period change.............................. (3,074) 133 (2,941)
-------- -------- --------
December 31, 1999.................................. $(10,859) $ 4,568 $ (6,291)
======== ======== ========
The tax effect on components of comprehensive income (loss) is not
significant.
NOTE 15--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging
Activities," which establishes standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. Earlier application of SFAS 133 is encouraged but should
not be applied retroactively to financial statements of prior periods. The
Company is currently evaluating the requirements and impact of SFAS 133.
F-40
INFORMIX CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-----------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
PERIOD EXPENSES REVENUES DEDUCTIONS(1) OTHER(2) END OF YEAR
------------ ---------- ---------- ------------- -------- -----------
(IN THOUSANDS)
Allowance for Doubtful Accounts
Year ended December 31, 1999...... $15,089 $ 1,269 $ 4,868 $ 8,011 $ 63 $13,278
Year ended December 31, 1998...... 27,104 (209) (4,529) 8,754 1,477 15,089
Year ended December 31, 1997...... 21,429 13,226 -- 7,551 -- 27,104
- ------------------------
(1) Uncollectible accounts written off, net of recoveries
(2) Allowance for doubtful accounts acquired from Cloudscape in 1999 and Red
Brick in 1998 (Note 11)
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
3.1(3) Certificate of Incorporation of the Registrant, as amended
3.2(a)(3) Bylaws of the Registrant, as amended
3.2(b)(25) Amendment to Bylaws, dated April 24, 1998
3.2(c)(2) Amendment to Bylaws, dated June 19, 1998
3.2(d)(2) Amendment to Bylaws, dated July 15, 1998
3.3(5) Certificate of Designation of Series B Convertible Preferred
Stock
4.1(6) First Amended and Restated Rights Agreement, dated as of
August 12, 1997, between the Registrant and BankBoston N.A.,
including the form of Rights Certificate attached thereto as
Exhibit A
4.2(7) Amendment, dated as of November 17, 1997, to the First
Amended and Restated Rights Agreement between the Registrant
and BankBoston, N.A.
10.1(2) Form of Change of Control Agreement
10.2(9) Form of Amended Indemnity Agreement
10.3(10) 1989 Outside Directors Stock Option Plan
10.4(25) Amendment to the 1989 Outside Directors Stock Option Plan
10.5(2) Form of Nonqualified Stock Option Agreement under the
Registrant's 1989 Outside Director's Stock Option Plan
10.6(12) 1986 Stock Option Plan, as amended
10.7(13) 1994 Stock Option and Award Plan
10.8(25) Form of Stock Option Agreement and Performance Award
Agreement under the Registrant's 1994 Stock Option and Award
Plan
10.9(13) Form of Nonqualified Stock Option Agreement under the
Registrant's 1994 Stock Option Plan
10.10(14) 1997 Employee Stock Purchase Plan
10.11(2) Enrollment/Change Form under the Registrant's 1997 Employee
Stock Purchase Plan
10.12(15) Employment Agreement, dated July 18, 1997, between the
Registrant and Robert J. Finocchio, Jr.
10.14(15) Offer of Employment Letter, dated September 24, 1997, from
the Registrant to
Jean-Yves Dexmier
10.23(5) Securities Purchase Agreement, dated as of November 17,
1997, between the Company and the purchasers listed therein
10.24(5) Registration Rights Agreement, dated as of November 17,
1997, between the Company and the purchasers listed therein
10.25(8) Menlo Oaks Corporate Center Standard Business Lease, dated
May 16, 1985, between the Registrant and Amarok Bredero
Partners for office space at 4100 Bohannon Drive, Menlo
Park, California
10.26(8) Lease Amendment #1, dated July 2, 1986, between the
Registrant and Amarok Bredero Partners for office space at
4100 Bohannon Drive, Menlo Park, California
10.27(18) Second Amendment to Lease, dated November 7, 1986 between
the Registrant and Amarok Bredero Partners for office space
at 4100 Bohannon Drive, Menlo Park, California
10.28(19) Third Amendment to Lease, dated June 18, 1991, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4100 Bohannon Drive, Menlo Park, California
10.29(2) Fourth Amendment to Lease, dated June 30, 1997, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4100 Bohannon Drive, Menlo Park, California
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
10.30(9) Menlo Oaks Corporate Center Standard Business Lease, dated
September 4, 1987 between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4300/4400 Bohannon Drive,
Menlo Park, California
10.31(2) Side Letter Agreement, dated August 31, 1987, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.32(2) Side Letter Agreement, dated October 27, 1987, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.33(19) First Amendment to Lease, dated June 18, 1991, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.34(20) Second Amendment to Lease, dated July 17, 1992, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.35(2) Third Amendment to Lease, dated June 8, 1993 between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.36(21) Fourth Amendment to Lease, dated February 10, 1994, between
the Registrant and Menlo Oaks Partners, L.P. for office
space at 4300/4400 Bohannon Drive, Menlo Park, California
10.37(2) Fifth Amendment to Lease, dated June 30, 1997 between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4300/4400 Bohannon Drive, Menlo Park, California
10.38(21) Menlo Oaks Corporate Center Standard Business Lease, dated
February 10, 1994 between the Registrant and Menlo Oaks
Partners, L.P. for office space at 4600/4700 Bohannon Drive,
Menlo Park, California
10.39(21) First Amendment to Lease, dated March 17, 1994, between the
Registrant and Menlo Oaks Partners, L.P. for office space at
4600/4700 Bohannon Drive, Menlo Park, California
10.40(2) Second Amendment to Lease, dated September 22, 1994, between
the Registrant and Menlo Oaks Partners, L.P. for office
space at 4600/4700 Bohannon Drive, Menlo Park, California
10.41(2) Third Amendment to Lease, dated December 28, 1994, between
the Registrant and Menlo Oaks Partners, L.P. for office
space at 4600/4700 Bohannon Drive, Menlo Park, California
10.42(9) Office Lease, dated August 15, 1987, between the Registrant
and Southlake Partners #1 for office space at 15961 College
Blvd. and 11170 Lakeview Avenue, Lenexa, Kansas
10.43(2) First Amendment to Office Lease, dated April 15, 1988,
between the Registrant and Southlake Partners #1 for office
space at 15901 College Blvd., Lenexa, Kansas
10.44(2) Amendment to Office Lease, dated October 20, 1997, between
the Registrant and Southlake Partners #1 for office space at
15901 College Blvd. (now 16011 College Blvd) Lenexa, Kansas
10.45(2) Office Lease, dated October 20, 1997, between the Registrant
and Southlake Partners #1 for office space at 11170 Lakeview
Avenue, Lenexa, Kansas
10.46(2) Senior Secured Credit Agreement, dated December 31, 1997,
among Informix Software, Inc., certain banks and other
financial institutions that either now or in the future are
parties to the agreement, BankBoston, N.A. and Canadian
Imperial Bank of Commerce
10.47(2) Pledge Agreement, dated December 31, 1997, by and between
the Registrant and BankBoston, N.A.
10.48(2) Pledge and Security Agreement, dated as of December 31,
1997, between Informix Software, Inc. and BankBoston, N.A.
EXHIBIT NO. EXHIBIT TITLE
- ----------- ------------------------------------------------------------
10.49(2) Continuing Guaranty, dated as of December 31, 1997, by the
Registrant
10.50(25) 1997 Non-Statutory Stock Option Plan and form of Stock
Option Agreement thereunder
10.52(25) Offer of Employment Letter, dated January 19, 1998, from the
Registrant to Gary Lloyd
10.54(26) Offer of Employment Letter, dated December 16, 1998, from
the Registrant to Howard A. Bain, III
10.55(25) Office Lease, dated November 10, 1994, between WVP Income
Plus III and Siebel Systems, L.P. (assigned to Informix
Corporation) for office space at 4005 Bohannon Drive,
including addenda and amendments thereto.
10.56(25) Office Lease, dated April 10, 1995, between the Registrant
and 3905 Bohannon Partners for office space at 3905 Bohannon
Drive, including addenda thereto.
10.57(24) 1998 Non-Statutory Stock Option Plan
10.58(1) Informix Corporation Change of Control and Severance
Agreement, dated December 17, 1999, between the Registrant
and F. Steven Weick
10.59(1) Informix Corporation Change of Control and Severance
Agreement, dated December 15, 1999, between the Registrant
and Wayne E. Page
10.60(1) Informix Corporation Change of Control and Severance
Agreement, dated December 16, 1999, between the Registrant
and Jean-Yves F. Dexmier
10.61(1) Informix Corporation Change of Control and Severance
Agreement, dated December 15, 1999, between the Registrant
and Gary Lloyd
10.62(1) Informix Corporation Change of Control and Severance
Agreement, dated December 12, 1999, between the Registrant
and James F. Hendrickson
10.63(1) Informix Corporation Change of Control and Severance
Agreement, dated December 15, 1999, between the Registrant
and Charles W. Chang
10.64(1) Informix Corporation/Robert J. Finocchio, Jr. Employment
Transition Agreement, dated July 16, 1999, between the
Registrant and Robert J. Finocchio, Jr.
10.65(1) Separation Agreement and Release of Claims, dated
November 23, 1999, between the Registrant and Stephanie P.
Schwartz
10.66(1) Separation Agreement and Release of Claims, dated
December 23, 1999, between the Registrant and Diane L.
Fraiman
21.1(1) Subsidiaries of the Registrant
23.1(1) Consent of KPMG LLP, Independent Auditors
23.2(1) Consent of Ernst & Young LLP, Independent Auditors
24.1(2) Power of Attorney (set forth on signature page)
27.1(1) Financial Data Schedule
- ------------------------
(1) Filed herewith
(2) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (333-43991)
(3) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended July 2, 1995
(4) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on August 25, 1997
(5) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on December 4, 1997
(6) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on September 3, 1997
(7) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on December 3, 1997
(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (File No. 33-8006)
(9) Incorporated by reference to exhibit filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1988
(10) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-31116)
(11) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-50608)
(12) Incorporated by reference to exhibits filed with Registrant's Registration
Statements on Form S-8 (File Nos: 33-22862, 33-31117 and 33-506-10)
(13) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31369) filed with the
Commission on July 16, 1997
(14) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31371) filed with the
Commission on July 16, 1997
(15) Incorporated by reference to exhibits filed with the Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended September 28,
1997
(16) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1989
(17) Incorporated by reference to exhibits filed with Registrant's report on
Form 8-K filed with the Commission on December 2, 1997
(18) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1986
(19) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1991
(20) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1992
(21) Incorporated by reference to exhibits filed with Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1993
(22) Incorporated by reference to exhibits filed with the Registrant's
amendment to its annual report on Form 10-K/A for the fiscal year ended
December 31, 1996 filed with the Commission on November 18, 1997
(23) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1996
(24) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File no. 333-61843) filed with the
Commission on August 19, 1998.
(25) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1997.
(26) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1998.