-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FAOrqTOHfA8Uo/ySXBHcLIKsl0NUAtLE3cVrApBBsrSjB9nSpMkXgXjh6NCrXCJ2 XXl/yD7wlSETtWZ6um3fww== 0000889812-98-001691.txt : 19980708 0000889812-98-001691.hdr.sgml : 19980708 ACCESSION NUMBER: 0000889812-98-001691 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 23 FILED AS OF DATE: 19980707 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GIGA INFORMATION GROUP INC CENTRAL INDEX KEY: 0000948263 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 061422860 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-52899 FILM NUMBER: 98660930 BUSINESS ADDRESS: STREET 1: 1 LONG WATER CIRCLE STREET 2: BLDG 1400 W CITY: NORWELL STATE: MA ZIP: 02061 BUSINESS PHONE: 7819829500 MAIL ADDRESS: STREET 1: ONE LONGWATER CIRCLE CITY: NORWELL STATE: MA ZIP: 02061 S-1/A 1 AMENDMENT NO. 1 TO REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1998 REGISTRATION NO. 333-52899 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ GIGA INFORMATION GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 8732 06-1422860 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATED OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ ONE LONGWATER CIRCLE, NORWELL, MASSACHUSETTS 02061 (781) 982-9500 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ GIDEON I. GARTNER CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER GIGA INFORMATION GROUP, INC. ONE LONGWATER CIRCLE NORWELL, MASSACHUSETTS 02061 (781) 982-9500 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copies to: GERALD S. BACKMAN, P.C. ALEXANDER D. LYNCH, ESQ. WEIL, GOTSHAL & MANGES LLP LUCI STALLER ALTMAN, ESQ. 767 FIFTH AVENUE BROBECK, PHLEGER & HARRISON LLP NEW YORK, NEW YORK 10153-0119 1633 BROADWAY, 47TH FLOOR (212) 310-8000 NEW YORK, NEW YORK 10019 (212) 581-1600
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED JULY 7, 1998 3,000,000 SHARES [LOGO] COMMON STOCK ------------------------ All of the 3,000,000 shares of Common Stock, par value $0.001 per share (the 'Common Stock'), offered hereby are being sold by Giga Information Group, Inc., a Delaware corporation (together with its subsidiaries, 'Giga' or the 'Company'). Prior to this offering (the 'Offering'), there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $12.00 and $14.00 per share. See 'Underwriting' for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied for inclusion of the Common Stock on the Nasdaq National Market under the symbol 'GIGX.' ------------------------ SEE 'RISK FACTORS' ON PAGES 7 THROUGH 14 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. [CAPTION] PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PUBLIC AND COMMISSIONS(1) COMPANY(2) Per Share....................... $ $ $ Total(3)........................ $ $ $
(1) See 'Underwriting' for information relating to indemnification of the Underwriters. (2) Before deducting expenses payable by the Company estimated at $ . (3) The Company has granted the Underwriters an option exercisable within 30 days of the date hereof, to purchase up to an aggregate of 450,000 additional shares of Common Stock, solely to cover over-allotments, if any. If the Underwriters exercise such option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See 'Underwriting.' ------------------------ The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made against payment therefor at the offices of Friedman, Billings, Ramsey & Co., Inc., Arlington, Virginia, or in book entry form through the book entry facilities of the Depositary Trust Company, on or about , 1998. FRIEDMAN, BILLINGS, RAMSEY & CO., INC. PRUDENTIAL SECURITIES INCORPORATED The date of this Prospectus is , 1998 [PHOTO DEPICTING THE COMPANY'S GIGAWEB USER INTERFACE] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.' 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the Company's Consolidated Financial Statements (the 'Consolidated Financial Statements') and notes thereto appearing elsewhere in this Prospectus. Unless the context otherwise requires, references in this Prospectus to 'Giga' or the 'Company' are to Giga Information Group, Inc., a Delaware corporation, and its direct and indirect subsidiaries. Unless otherwise indicated, the information contained in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, (ii) reflects the automatic conversion of all outstanding shares of the Company's Series A, Series B, Series C and Series D Preferred Stock (the 'Convertible Preferred Stock') into an aggregate of 4,686,784 shares of Common Stock upon the closing of the Offering (the 'Preferred Conversion'), (iii) reflects the repayment (the 'Bridge Repayment') of convertible promissory notes in the aggregate principal amount of $10.0 million (the 'Bridge Notes') issued in April 1998, (iv) reflects the filing by the Company, upon the closing of the Offering, of an amended and restated certificate of incorporation (the 'Restated Certificate'), (v) reflects a one-for-three reverse stock split of the Common Stock (the 'Reverse Stock Split') to be effected prior to the closing of this Offering and (vi) has been adjusted to reflect a four-for-one stock split of the Common Stock effected as a stock dividend in November 1995 (the 'Stock Split'). THE COMPANY The Company provides objective analyses and advice relating to developments and trends in the computing, telecommunications and related industries (collectively, the 'Information Technology' or 'IT' industries) to assist its customers in making technology-related decisions. IT is critical to the competitiveness and long-term viability of a wide range of organizations. The Company believes information overload, confusion and anxiety exists among IT decision-makers. As a result, an increasing number of organizations are turning to Continuous Information Service ('CIS') providers to monitor and analyze IT developments and to identify trends to support such organization's IT decision-making needs. Giga was founded by Gideon I. Gartner, who in 1979 founded Gartner Group, Inc., a CIS provider. Building on his extensive experience and success in the CIS industry, Mr. Gartner formed Giga with the objective of creating a new approach toward addressing the CIS needs of users and vendors of IT products and services. Giga has developed a range of innovative Continuous Information Services, as well as an effective, electronic information delivery mechanism, designed to provide integrated IT analyses and advice. Foremost among these innovations is the Company's unified advisory service ('Advisory Service') through which IT research and analysis are offered to customers as a single service intended to encompass the variety of IT coverage offered by other CIS providers through multiple and fragmented services. This original research and advice is provided by a staff of experienced industry analysts. To complement Giga's analysts, the Company provides its Advisory Service customers with access to an extensive network of external IT practitioners ('ExperNet'). These practitioners have current experience in diversified segments of the IT industry, which the Company believes cannot be efficiently covered by the traditional CIS approach. The Company also provides 'Continuous Advisory Consulting' services, a valuable complement to Giga's Advisory Service inquiry process, which enable customers to request more in-depth analysis targeted at the application of technology to their specific situation. Continuous Advisory Consulting services, which are provided on an on-going basis, may include assessments of strategic technology planning, implementation issues surrounding a major technology migration, or a vendor's marketing plan. The Company has also introduced its 'IT Practice Services,' which integrate the results of documented surveys of the successful operating practices and techniques of IT professionals ('best practices') with strategic consulting, to allow customers to leverage the proven practices of their peers. Each IT Practice Service is designed to address issues faced by an executive in a specific job function within an organization. For example, the Company's 'Year 2000 Practices' is designed for the executive in charge of an organization's year 2000 activities. The Company organizes and sponsors a range of events on significant IT industry issues and trends, and produces publications based on conference topics or current IT issues (collectively, 'Events and Publications'). For example, the Company hosts its flagship annual conference, GigaWorld IT Forum, at which Giga's analysts present and update their most important research findings and recommendations and meet one-on-one in advisory sessions with clients. 3 Giga has designed its innovative Advisory Service model to capitalize on the capabilities of the Internet. Advisory Service research is accessed and customized through the Company's intelligent, Internet-based information delivery interface ('GigaWeb'). GigaWeb is designed to make it easy and efficient for a customer to navigate through the full spectrum of Giga's original research and third party content, together with access to human expertise. In addition, the Company maintains an authoring environment and advanced client interface designed for electronic delivery and encourages collaboration among analysts and clients, which is facilitated through the Internet. Giga's objective is to become the leading third generation CIS provider, offering a significant price/performance advantage over its competitors. Key elements of the Company's strategy are to (i) utilize and enhance its price/performance advantage to increase the range of companies which can afford CIS products, (ii) leverage its existing customer base by providing non-advisory additional services such as IT Practice Services and Continuous Advisory Consulting, (iii) increase the number of Advisory Service subscribers within an organization and (iv) expand its worldwide distribution both domestically and internationally. The Company's executive offices are located at One Longwater Circle, Norwell, Massachusetts 02061 and its telephone number is (781) 982-9500. RISK FACTORS An investment in the Common Stock offered hereby involves a high degree of risk. These risk factors include, but are not limited to, the following: the Company's prior losses and anticipation of future losses; the Company's need to attract and retain qualified personnel; the Company's dependence on sales and renewals of subscription-based services; the Company's ability to manage growth; the Company's future capital needs and the risks of working capital deficiency; the Company's dependence on key personnel; competition; the risks associated with the development of new services and products; the potential for significant fluctuations in quarterly operating results; uncertainties relating to proprietary rights; the Company's dependence on the Internet infrastructure; the risk of system failure; the risks related to content; and the risks associated with international operations. For a discussion of these and other risks, see 'Risk Factors' beginning on page 7. THE OFFERING Common Stock offered hereby........................ 3,000,000 shares Common Stock to be outstanding after the Offering......................................... 9,871,338 shares(1) Use of Proceeds.................................... To repay indebtedness, and for capital expenditures, working capital and other general corporate purposes. See 'Use of Proceeds.' Proposed Nasdaq National Market symbol............. GIGX
- ------------------ (1) Based on shares outstanding as of June 30, 1998. Excludes (i) 1,278,977 shares of Common Stock issuable upon exercise of options outstanding as of June 30, 1998, with a weighted average exercise price of $2.91 per share; (ii) 856,755 shares of Common Stock reserved for issuance, as of June 30, 1998, under the Company's stock plans and (iii) 166,666, 35,959, 551,574 and 102,857 shares of Common Stock issuable upon exercise of warrants outstanding as of June 30, 1998, with exercise prices of $3.00, $13.875, $13.50 and $13.50 per share, respectively. See 'Management--Executive Compensation' and 'Description of Capital Stock.' ------------------------ GigaTel(Registered) is a registered trademark of the Company. The Company has several trademarks including, the GiGa Giga Information Group (and design)(Trademark), Giga Advisory Service(Trademark), GigaWeb(Trademark), Gigabots(Trademark), GigaNotes(Trademark), GigaWorld IT Forum(Trademark), IntraGiga(Trademark), IdeaBytes(Trademark) and ExperNet(Trademark). All other trademarks or trade names referred to in this Prospectus are the property of their respective owners. This Prospectus contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Words such as 'expects,' 'anticipates,' 'intends,' 'plans,' 'believes,' 'seeks,' 'estimates' and variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on current expectations, estimates and projections about the Company's business, and beliefs and assumptions made by management, all of which involve risks and uncertainties. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth under the caption 'Risk Factors,' which could cause actual results to differ materially from those indicated by such forward-looking statements. 4 SUMMARY CONSOLIDATED FINANCIAL DATA
PREDECESSOR COMPANIES(1) COMPANY ------------------------ ----------------------------------------------------------------------- YEAR JANUARY 1 MARCH 17 YEAR ENDED THREE MONTHS ENDED ENDED TO TO DECEMBER 31, MARCH 31, DECEMBER 31, APRIL 5, DECEMBER 31, -------------------------- --------------------------- 1994 1995 1995 1996 1997 1997 1998 ------------ --------- ------------ ------------ ----------- ---------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Continuous information services.................... $ -- $ -- $ -- $ 3,149 $ 14,600 $ 2,570 $ 6,804 Other services................ 7,366 1,833 5,517 6,043 4,715 1,276 1,693 Publications.................. 800 283 1,442 946 344 180 55 ------------ --------- ------------ ------------ ----------- ---------- -------------- Total revenues.............. 8,166 2,116 6,959 10,138 19,659 4,026 8,552 Costs and expenses: Cost of services.............. 5,143 1,182 4,707 12,336 12,477 3,202 4,391 Cost of publications.......... 446 240 346 790 174 75 71 Sales and marketing........... 1,438 167 1,016 6,706 19,617 4,158 5,781 Research and development...... -- -- 348 1,789 1,975 659 339 General and administrative.... 4,027 1,047 5,760 9,739 6,419 1,061 1,339 Depreciation and amortization................ 2,943 215 1,387 2,391 2,810 634 385 ------------ --------- ------------ ------------ ----------- ---------- -------------- Total costs and expenses.... 13,997 2,851 13,564 33,751 43,472 9,789 12,306 ------------ --------- ------------ ------------ ----------- ---------- -------------- Loss from continuing operations, net of taxes.................. (4,663) (503) (5,366) (22,702) (23,130) (5,689) (3,807) Income (loss) from discontinued operations, net of taxes...... (1,870) 651 1,644 (2,688) 1,313 -- -- ------------ --------- ------------ ------------ ----------- ---------- -------------- Net income (loss)............... (6,533) 148 (3,722) (25,390) (21,817) (5,689) (3,807) ------------ --------- ------------ ------------ ----------- ---------- -------------- ------------ --------- ------------ ------------ ----------- ---------- -------------- Historical results per common share-basic and diluted: Loss from continuing operations.................. (11.16) (1.80) Income from discontinued operations.................. -- -- Income from disposal of discontinued operations..... 0.63 -- ----------- -------------- Net loss...................... (10.53) (1.80) ----------- -------------- ----------- -------------- Historical weighted average number of common shares outstanding:.................. 2,072,837 2,115,837 Pro forma results per common share-basic and diluted(4): Loss from continuing operations.................. (3.42) (0.56) Income from discontinued operations.................. -- -- Income from disposal of discontinued operations..... 0.19 -- ----------- -------------- Net loss...................... (3.23) (0.56) ----------- -------------- ----------- -------------- Pro forma weighted average number of common shares outstanding(4):............... 6,759,621 6,802,621 MARCH 31, 1998 ----------------------------------------- PRO PRO FORMA AS ACTUAL FORMA(2) ADJUSTED(2)(3) ----------- ---------- -------------- CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents............................................................... $ 1,753 $ 3,753 $ 29,148 Working capital (deficit)............................................................... (13,821) (11,821) 13,574 Total assets............................................................................ 15,673 17,673 43,068 Deferred revenues....................................................................... 19,458 19,458 19,458 Long-term debt, less current portion.................................................... 848 848 848 Total stockholders' equity (deficit).................................................... (12,750) (10,750) 24,645
(Footnotes on next page) 5 - ------------------ (1) Financial data included herein contains results of certain predecessor companies acquired by the Company in 1995. For a description of the predecessor companies and an explanation of the comparative periods presented herein, see 'Management's Discussion and Analysis of Financial Condition and Results of Operations--Organization of the Company and Financial Statement Presentation.' (2) Presented on a pro forma basis to give effect to the Series D Financing (as defined herein) and the Preferred Conversion. See 'Certain Transactions' and Note 20 to the Consolidated Financial Statements. (3) Adjusted to give effect to the sale by the Company of 3,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $13.00 per share and the application of the estimated net proceeds therefrom. See 'Use of Proceeds' and 'Capitalization.' (4) The pro forma results per common share and pro forma weighted average common shares outstanding reflect the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock upon the closing of the Offering. 6 RISK FACTORS The following risk factors should be considered carefully in addition to the other information contained in this Prospectus before purchasing the Common Stock offered hereby. This Prospectus contains certain statements of a forward-looking nature all of which involve risks and uncertainties and actual events or results may differ materially from the results discussed in such forward-looking statements. PRIOR LOSSES AND ANTICIPATION OF FUTURE LOSSES Since its inception, the Company has incurred substantial costs to develop its Continuous Information Services, establish its GigaWeb system, build a management team and recruit, employ and train research analysts, sales personnel and support staff for its business. As a consequence, the Company has incurred substantial operating losses since its inception and, at March 31, 1998, had an accumulated deficit of $54.7 million. The Company expects to incur significant losses through at least fiscal 1998 as the Company expands and develops its services and products. The magnitude and duration of the Company's losses will depend on a number of factors both within and outside of the Company's control, principally the risk factors described below. In addition, the Company has significantly increased its operating expenses and expects to continue such increases in the future, primarily to expand its staff of research analysts and sales and support personnel and to further develop and enhance its services and its GigaWeb system. As a result, the Company may not be readily able to reduce or adjust expenses in the event that it does not generate planned revenues or if its revenues decrease. There can be no assurance when or if the Company will begin to generate revenue that is sufficient to achieve profitability, to maintain profitability on a quarterly or annual basis or to sustain or increase its revenue growth in future periods. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL The Company's success will depend, in part, upon its ability to hire, train, motivate and retain a significant number of highly-skilled and experienced employees, particularly management, research analysts and sales personnel. The Company has experienced in the past, and may experience in the future, high levels of turnover of its personnel, particularly sales and marketing personnel. The Company has also experienced, and expects to continue to experience, intense competition for professional personnel with, among others, producers of IT services and products, management consulting firms and systems integrators. Many of these firms have substantially greater financial resources than the Company to attract and compensate qualified personnel. In addition, some of the Company's competitors require that their employees enter into non-competition agreements, the terms of which could prohibit such individuals for a period of time from working for the Company. There can be no assurance that the Company will be successful in attracting a sufficient number of highly-skilled employees in the future, or that it will be successful in training, motivating and retaining the employees it is able to hire, and any inability to do so would have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON SALES AND RENEWALS OF SUBSCRIPTION-BASED SERVICES; NEED TO ANTICIPATE CHANGING MARKET NEEDS The Company offers its Continuous Information Services on a subscription basis from which the Company derived 74% and 80% of total revenues for the year ended December 31, 1997 and the three months ended March 31, 1998, respectively. Accordingly, the Company's prospects will depend on its ability to enter into a significant number of contracts for subscriptions to its services and to achieve and sustain high renewal rates, and no assurance can be given that it will be successful in doing so. The Company's ability to secure subscriptions and subscription renewals is dependent upon, among other things, its ability to deliver, through its Continuous Information Services, consistently high quality and timely analysis and advice with respect to issues, developments and trends in the IT industry that clients view as important. To deliver valuable analysis and advice on a sustained basis, the Company must, among other things, recruit and retain a large and growing number of highly talented professionals in a very competitive job market, understand and anticipate market trends so as to keep its analysis focused on the changing needs of its customers, and deliver services and products of sufficiently high quality on a timely basis to withstand competition. There can be no assurance that the Company will be able 7 to achieve and sustain high subscription renewal rates or that the Company's employees will be able to achieve desired sales productivity levels. Any material decline in subscriptions and subscription renewal rates or the inability of the Company's employees to achieve desired sales productivity levels would have a material adverse effect on the Company's business, financial condition and results of operations. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' ABILITY TO MANAGE GROWTH The Company's planned expansion is expected to place a significant strain on the Company's financial, operational and managerial resources. To manage its expansion, the Company must continue to implement and improve its operations and financial systems and increase, train and manage its personnel. There can be no assurance that the Company's systems, procedures or controls currently in place will be adequate to support the Company's operations or that the Company will be able to implement additional systems successfully and in a timely manner if required. If the Company continues to grow, it will be required to expand its research staff, expand its sales and marketing force, recruit additional key management personnel, improve its operational and financial systems and train, motivate and manage additional employees. There can be no assurance that the Company will be able to manage these changes successfully. Any inability of the Company to manage its growth successfully could have a material adverse effect on the Company's business, financial condition and results of operations. SUBSTANTIAL FUTURE CAPITAL NEEDS; RISKS OF WORKING CAPITAL DEFICIENCY The Company's business has significant fixed costs, primarily attributable to the costs associated with producing research to implement its single-service strategy, which provides for coverage of many of the IT sectors and contemplates broad direct distribution worldwide. The Company has spent substantial amounts to date on capital and operating expenditures which have contributed to an accumulated deficit of $54.7 million as of March 31, 1998. Furthermore, the Company expects capital and operating expenditures to increase due to numerous factors, including the Company's plans to increase marketing efforts for its Continuous Information Services, the expected costs to attract and retain qualified employees, including research and sales personnel, on a timely basis and the related costs of such efforts, the response of competitors to the Company's services, the Company's plans to develop and market new services and products, the further enhancement of the GigaWeb system and the Company's expansion of its international operations, and the continued acceptance by customers of annual membership agreements providing for advance payments rather than equal monthly installments or some other payment model. The Company anticipates funding its ongoing working capital needs principally through the net proceeds to the Company from the Offering. The Company believes that the net proceeds from the Offering (after repayment of the Bridge Notes described herein), together with the Company's existing cash and cash equivalents and cash generated from operations, after the repayment of other debt as it becomes due, will be sufficient to fund the Company's cash needs until at least the end of 1999. However, in the event that the Company encounters difficulties in collecting accounts receivable, experiences low or reduced subscription renewal rates or otherwise has revenues that are lower than planned, the Company might require additional working capital. As of May 31, 1998, the Company had, excluding the Bridge Notes, approximately $1.2 million of equipment financing debt and had access to an invoice factoring arrangement with a commercial bank under which the Company could borrow up to $3,000,000 or 80% of eligible accounts receivable, whichever is less. If necessary, the Company would consider various other sources of financing, including, but not limited to, private placements, the sale of assets and strategic alliances, but there can be no assurance that such financing would be available to the Company on terms that are acceptable, if at all. If adequate funds are not available, the Company may be required to reduce its fixed costs and delay, scale back or eliminate certain of its services or products, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' DEPENDENCE ON KEY PERSONNEL The extent of the Company's success will depend in large part upon the continued services of its executive officers and key employees, including its founder, Chairman of the Board of Directors and Chief Executive Officer, Gideon I. Gartner. Mr. Gartner, in particular, is well known in the IT community and his reputation in 8 the Continuous Information Services industry and his network of contacts have been instrumental in establishing and building the Company's business and in obtaining financing for the Company. The loss of the services of either Mr. Gartner or one or more of the Company's other key personnel would have a material adverse effect on the Company. There are no employment contracts currently in force with key employees. The Company does not maintain key person insurance for any of its key employees. SIGNIFICANT COMPETITION The Company competes in the market for IT services and products directly with other independent providers of Continuous Information Services, including Gartner Group, Inc., META Group, Inc. and Forrester Research Inc., and the internal planning, research and marketing staffs of corporations and IT vendors. Gartner Group, Inc., one of the Company's competitors, was founded by Gideon I. Gartner, the Company's Chairman, President and Chief Executive Officer. Mr. Gartner has no current relationship with Gartner Group, Inc. The Company also competes with other information providers, including market research firms, 'Big Five' accounting firms, consulting firms and systems integrators. Many of the Company's direct and indirect competitors have substantially greater financial, information gathering and marketing resources than the Company. Some of the Company's direct and indirect competitors also have established research organizations with greater market recognition and experience in the IT industry. There can be no assurance that the Company will be successful in establishing a competitive research organization. Delays, difficulty in developing and achieving market acceptance of Giga's Continuous Information Services, or customer dissatisfaction would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, new competitors could seek to compete in one or more market segments addressed by the Company's services and products. There can be no assurance that the Company's current or potential competitors will not develop services and products comparable or superior to those developed by the Company or respond more quickly to new or emerging industry trends or changing customer requirements. There can be no assurance that the Company will be able to continue to compete successfully against existing or new competitors. In addition, any pricing pressures, reduced margins or loss of market share resulting from increased competition could have a material adverse effect on the Company's business, financial condition and results of operations. See 'Business--Competition.' RISKS ASSOCIATED WITH THE DEVELOPMENT OF NEW SERVICES AND PRODUCTS The Company's future success will depend in part on its ability to anticipate emerging market trends and to develop or acquire new services, features and products that address the changing information, analysis, and advice needs of IT users, vendors and investors. The process of internally researching, developing, launching and gaining client acceptance of a new service or product, or assimilating and marketing an acquired service or product, is inherently risky and costly. Delays or failures during development or implementation, or lack of market acceptance of these services and products, could have a material adverse effect on the Company's business, financial condition and results of operations. The future success of the Company's Continuous Information Services will depend in part on the Company's ability to expand the breadth and depth of its services through the addition of internal analysts and consultants, content from third party sources and external practitioners. The Company's continued ability to differentiate itself through its Internet-based GigaWeb system will depend on its ability to continue to add features and functionality to GigaWeb. In addition, the Company has limited internal resources dedicated to its Web site development and relies on third parties, including consultants and software developers, for the design, development and testing of its GigaWeb system and other delivery mechanisms. Any technical or other related problems or deficiencies in GigaWeb in the areas of reliability, performance and scalability could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has had limited experience introducing new services and products and there can be no assurance that its efforts to introduce new, or to assimilate acquired, services or products, will be successful. If the Company is unable, for technical or other reasons, to develop and introduce new services or products or to make enhancements to existing services and products in a timely manner in response to changing market conditions or customer requirements, or if its Continuous Information Services or other service offerings do not achieve market acceptance, the Company's business, financial condition and results of operations would be materially adversely affected. See 'Business--Products and Services.' 9 POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company's operating results may fluctuate significantly in the future due to various factors, including the level and timing of new subscriptions and renewals of subscriptions to Continuous Information Services, the timing and amount of new business generated by the Company, the mix of domestic versus international business, the timing of the development, introduction and marketing of new services and products, the timing of the hiring of research analysts and sales people, changes in the spending patterns of the Company's target clients, the Company's accounts receivable collection experience, changes in market demand for IT research and analysis, foreign currency exchange rate fluctuations, competitive conditions in the industry and general economic conditions. A high percentage of the Company's operating expenses is based primarily on sales forecasts and the Company may be unable to adjust spending in a timely manner to compensate for any unexpected shortfalls in revenues. Any significant shortfall in revenues in relation to the Company's expectations would have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, a significant portion of the Company's renewals and subscriptions are placed during the fourth quarter, particularly the last month of such quarter, due primarily to customers' purchasing patterns and the timing of certain sales performance quota cutoffs. Due to the Company's limited operating history, and as a result of its revenue growth, seasonal trends in the Company's results of operations have not clearly emerged. However, the Company believes that its future operating results may follow a pattern of seasonal fluctuation. Accordingly, the Company believes that period to period comparisons of results of operations are not necessarily meaningful and should not be relied upon as an indication of future results of operations. Due to the foregoing factors, it is likely that in future quarters the Company's operating results will be below the expectations of public market analysts and investors. Such an event could have a material adverse effect on the price of the Company's Common Stock. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations.' UNCERTAINTIES RELATING TO PROPRIETARY RIGHTS The Company's success and its ability to compete effectively is dependent in part upon its proprietary rights. The Company relies on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and contractual provisions and other methods to protect its proprietary rights. There can be no assurance that the measures taken by the Company to protect its proprietary rights will be adequate to enforce its proprietary rights, or prevent misappropriation or that others will not obtain similar or superior proprietary rights. The Company believes that its trademarks are important to its success and its competitive position. The Company has certain common law trademarks, a U.S. federal trademark registration and several U.S. federal trademark applications pending, some of which involve a derivation of the first two letters of the name Gideon Gartner (e.g. GiGa). The word 'Giga' is commonly used in the IT field to denote 109 power or a very large amount, and the Company may be unable to obtain registrations for its trademarks in the U.S. or in other countries for that or other reasons, and its rights to its trademarks may be narrow in scope. Registrations for trademarks in the U.S. provide no protection for such trademarks in other countries. The Company has received initial Office Actions from the United States Patent and Trademark Office (the 'PTO') indicating that certain of its applications for U.S. federal trademark registrations for the GiGa Giga Information Group (and design)(Trademark) trademark have been refused based on the PTO's citation of other Giga-formative trademarks covered by pending Federal applications and a registration held by third parties. The Company plans to respond to this initial refusal, but there can be no assurance that it will obtain a favorable decision from the PTO Examiner or that one of these third parties will not successfully oppose registration or use. The Company is aware of a Benelux trademark registration for the trademark GIGA MEDIA, the application for which was filed in the Benelux in advance of the Company's application to register the GiGa Giga Information Group (and design)(Trademark) trademark with the PTO and the equivalent office in the Benelux. The Company is also aware that the owner of the Benelux trademark has filed a lawsuit in the Netherlands against the Company alleging tradename infringement, and requesting a court order requiring the Company to use an alternative tradename to Giga Information Group. There can be no assurance that the tradename infringement lawsuit pending against the Company will result in a decision that is favorable to the Company. In addition, there can be no assurance that other parties (i) do not have superior rights to certain of the Company's trademarks, (ii) will not oppose the Company's applications for registrations, 10 (iii) will not seek and obtain cancellation of any of the Company's trademark registrations and (iv) will not allege that the Company's use of its trademarks infringes such third parties trademarks. Failure by the Company to establish its rights to use its trademarks, to overcome the PTO or other country's trademark office's refusal of certain of its applications, or any loss of its rights to use its trademarks, could result in damages payable to third parties, the loss of its rights to prohibit others from using confusingly similar trademarks, the need to invest substantial resources in building brand identity for a new trademark, and the loss of market awareness and revenues to the Company. DEPENDENCE ON THE INTERNET INFRASTRUCTURE The Company's success will depend, in large part, upon the continued operation of the Internet infrastructure, such as a reliable network backbone with the necessary speed, data capacity and security, for providing reliable GigaWeb access. To the extent that the Internet continues to experience increased numbers of users, frequency of use or increased bandwidth requirements of users, there can be no assurance that the Internet infrastructure will continue to be able to support the demands placed on it or that the performance or reliability of the Internet will not be adversely affected. Furthermore, the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and such outages and delays could adversely affect the customer's ability to access GigaWeb. Moreover, critical issues concerning the commercial use and government regulation of the Internet (including security, taxation cost, ease of use and access, intellectual property ownership, data privacy and other legal liability issues) remain unresolved and could materially and adversely impact both the growth of the Internet and the Company's business, financial condition and results of operations. RISK OF SYSTEM FAILURE The Company's Internet-based, information delivery interface, GigaWeb, resides on a computer system located at the Company's headquarters. The continuing and uninterrupted performance of GigaWeb is critical to the success of the Company's business. Any system failure or capacity constraint that causes interruptions in the Company's ability to service its customers could reduce customer satisfaction and, if sustained or repeated, would reduce the attractiveness of the Company's products and could have a material adverse effect on the Company's business, results of operations and financial condition. The Company maintains business interruption insurance. There is no assurance, however, that this coverage would be sufficient in the event of a major system failure. RISKS RELATED TO CONTENT As a publisher and distributor of original analyses and licensed third-party content, the Company faces potential liability for defamation, negligence, copyright and trademark infringement. Third party content includes information created or provided by information service organizations, ExperNet practitioners, and consultants retained by the Company and may be delivered in writing, via the Internet or in print, or verbally to clients. There can be no assurance that the Company will not be involved in litigation, which can be expensive and time consuming, as a result of the creation and/or dissemination of such content. Any such litigation, whether or not resulting in a judgment requiring the payment of monetary damages, could have a material adverse affect on the Company's business, financial condition, and results of operations. IMPACT OF THE YEAR 2000 ISSUE The Company has commenced efforts to ensure that the computer systems and applications upon which it relies for internal operations and external communications with clients and others will function properly beyond 1999. The Company presently believes that the computer systems and programs upon which it relies for its internal operations and external communications, and which the Company presently expects to use following December 31, 1999, are, or will be, Year 2000 compliant. There can be no assurance, however, that further assessment of the Company's internal systems and applications will not reveal that additional efforts to assure Year 2000 compliance are necessary, and such efforts may be costly and may divert the Company's resources from product development or infrastructure improvement programs. In addition, there can be no assurance that the systems operated by other companies upon which the Company relies will be Year 2000 compliant on a 11 timely basis. For example, the Company is dependent on the Internet infrastructure for providing reliable GigaWeb access. GigaWeb is an Internet based information delivery interface and the primary delivery medium for the Company's Continuous Information Services. Year 2000 issues could affect the power grid and communications networks that provide the Internet's infrastructure. The occurrence of such problems would be out of the Company's control and could have a material adverse impact on the Company's ability to deliver its Continuous Information Services. The Company's business, financial condition or results of operations could be materially adversely affected by the failure of either the Company's internal systems and applications or other systems upon which the Company relies to properly operate or manage data beyond 1999. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS Essentially all of the Company's current international operations are located in the European Union and Canada. The Company operates in the European Union primarily through wholly-owned subsidiaries in the United Kingdom, France and Germany. These subsidiaries manage direct sales personnel and distributors in other countries in the European Union as well. In Canada, the Company utilizes a full-scale field sales force and provides business support to these salespersons through its operations in the United States. While the Company anticipates expanding its operations in the European Union in the future, it has no current plans to do so. The Company believes there are certain risks inherent in these international operations, including changes in demand resulting from fluctuations in exchange rates, changes in trade policies, regulatory requirements, difficulties in staffing and managing foreign sales operations and higher levels of taxation on foreign income than domestic income. Any expansion in Europe could require considerable management and financial resources and may negatively impact the Company's near-term results of operations. Essentially all of the Company's international revenues from the European Union are expected to continue to be denominated in foreign currencies, particularly the British pound, while international revenues from Canada are expected to continue to be denominated in U.S. dollars. Consequently, a decrease in the value of a relevant foreign currency in relation to the United States dollar, or an adverse development in any one of the foregoing factors, could have a material adverse effect on the Company's business, financial condition or results of operations. The Company does not currently hedge its exposure to foreign currency fluctuations. The Company had revenues from international operations of $3.2 million in 1996, $2.4 million in 1997 and $700,000 in the quarter ended March 31, 1998. The Company also has begun marketing in Israel and Korea through representatives. Revenues from these distributors have been and are expected to continue to be denominated in U.S. dollars. To date, such revenues have been insignificant. CONTROL BY MANAGEMENT Upon the closing of the Offering, Mr. Gartner will beneficially own approximately 22.9% of the outstanding Common Stock (21.9% assuming the exercise of the Underwriters' over-allotment option) and Mr. Gartner, together with the Company's other executive officers, directors and director nominees, including entities affiliated with them, will beneficially own approximately 35.8% of the outstanding Common Stock (34.2% assuming the exercise of the Underwriters' over-allotment option). As a result, these stockholders will be able to exercise control over matters requiring stockholder approval, including the election of directors and the approval of significant corporate matters such as transactions which may lead to a change of control of the Company. The effects of such control could be to delay or prevent a change of control of the Company unless the terms are approved by such stockholders, which could adversely affect the market price of the Company's Common Stock. See 'Management' and 'Principal Stockholders.' ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Company's Common Stock. There can be no assurance that, following the Offering, an active trading market for the Common Stock will develop or be sustained or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined through negotiations between the Company and the Representatives of the Underwriters and will not necessarily reflect the market price of the Common Stock after the Offering. See 'Underwriting' for a discussion of the factors to be considered in determining the initial public offering price. The stock market in recent years has experienced extreme price and volume fluctuations that have particularly affected market prices of many growth-oriented companies in industries similar or related 12 to that of the Company and that have often been unrelated or disproportionate to the operating performance of such companies. The market price of the Common Stock could also be subject to significant fluctuations in response to, and may be adversely affected by, variations in quarterly results, changes in earnings estimates or other actions by analysts and earnings or other announcements of the Company's customers or competitors as well as other factors. IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of shares of Common Stock offered hereby will experience immediate and substantial dilution in the net tangible book value of the Common Stock. Additional dilution will occur upon exercise or conversion of outstanding stock options or warrants. See 'Dilution' and 'Shares Eligible for Future Sale.' SHARES ELIGIBLE FOR FUTURE SALE The 3,000,000 shares offered hereby will be eligible for sale in the public market immediately following the effective date of the Registration Statement. There will be an additional approximate 355,292 shares eligible for sale in the public market immediately following the effective date of the Registration Statement, approximately 59,246 shares eligible for resale in the public market 90 days after the effective date of the Registration Statement, approximately 5,870,301 shares eligible for resale upon expiration of lock-up agreements 180 days after the effective date of the Registration Statement; and approximately 586,499 shares eligible for sale upon expiration of their respective one-year holding periods, subject to certain limitations on sale pursuant to Rule 144 under the Securities Act ('Rule 144'). Holders of 6,261,451 shares (including shares issuable upon exercise of warrants) have contractual rights to request to have their shares registered with the Securities and Exchange Commission (the 'Commission') for resale to the public beginning June 30, 1998. In addition, promptly following the effective date of the Registration Statement, the Company intends to file a registration statement covering the shares of Common Stock issued or reserved for issuance under the Company's 1995 Stock Option/Stock Issuance Plan, as amended (the '1995 Stock Plan'), 1996 Stock Option Plan (the '1996 Option Plan') and 1997 Director Option Plan (the 'Director Plan'), and upon such filing any shares subsequently issued under such plans will be eligible for sale in the public market, subject to Rule 144 compliance in the case of affiliates of the Company. See 'Shares Eligible for Future Sale' and 'Description of Capital Stock.' The Company and its executive officers, directors and certain stockholders have agreed that, subject to certain limited exceptions, for a period ending 180 days after the consummation of the Offering, without the prior written consent of Friedman, Billings, Ramsey & Co., Inc., they will not, directly or indirectly, offer, pledge, sell, offer to sell, contract to sell, grant any option to purchase or otherwise sell, dispose of, make any short sale of, loan or grant any rights with respect to any shares of Common Stock or any options or warrants to purchase any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, shares of Common Stock. The stockholders who have agreed to these restrictions will hold in the aggregate 6,183,517 shares of Common Stock after the consummation of the Offering. See 'Underwriting' and 'Shares Eligible for Future Sale.' The sale of a substantial number of shares held by existing stockholders, whether pursuant to a subsequent public offering or otherwise, or the perception that such sales could occur, could adversely affect the market price of the Common Stock and could materially impair the Company's future ability to raise capital through an offering of equity securities. See 'Shares Eligible for Future Sale' and 'Underwriting.' EFFECT OF ANTI-TAKEOVER PROVISIONS The Restated Certificate will be filed upon the closing of the Offering, pursuant to which the Company's Board of Directors (the 'Board of Directors') will have the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, conversion ratios, preferences and privileges of those shares without any further vote or action by the Company's stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of such Preferred Stock. Any such issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company and could negatively impact the voting power or other rights of the holders of Common Stock. In 13 addition, such Preferred Stock may have other rights, including economic rights senior to the Common Stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the Common Stock. The Restated Certificate will provide for a classified Board of Directors and will permit a member of the Board of Directors to be removed for cause only upon the affirmative vote of at least two-thirds of the shares of capital stock of the Company entitled to vote. Furthermore, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law that prohibit the Company from engaging in a 'business combination' with an 'interested stockholder' for a period of three years after the date of the transaction in which the person first becomes an 'interested stockholder,' unless the business combination is approved in a prescribed manner. The application of Section 203 could also have the effect of delaying or preventing a change of control of the Company. Certain other provisions of the Restated Certificate may have the effect of delaying or preventing changes of control or management of the Company, which could adversely affect the market price of the Company's Common Stock. See 'Description of Capital Stock--Delaware Law and Certain Charter and By-Law Provisions.' USE OF PROCEEDS The net proceeds to Giga from the sale of the 3,000,000 shares of Common Stock offered hereby are estimated to be $35,395,000 ($40,835,500 if the Underwriters' over-allotment option is exercised in full) after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company and assuming an initial public offering price of $13.00 per share. A portion of the net proceeds of the Offering will be used to repay in full (the 'Bridge Repayment') the Bridge Notes in the aggregate principal amount of $10.0 millon issued in April 1998, which notes accrue interest at the rate of 12% per annum. The proceeds of the issuance of the Bridge Notes were used for general corporate purposes, including the repayment in full of the remaining $1.2 million aggregate principal amount of convertible notes, which notes accrued interest at a weighted average rate of 5.2% per annum, of which a note in the principal amount of $200,000 was held by a director and former officer. See 'Underwriting' and Notes 11 and 20 to the Consolidated Financial Statements. The balance of the proceeds will be used for general corporate purposes, including capital expenditures and working capital. Pending such use, the net proceeds will be invested in short-term, investment-grade, interest-bearing obligations. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain earnings, if any, to support its growth strategy and does not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Board of Directors after taking into account various factors including the Company's financial condition, operating results, current and anticipated cash needs and plans for expansion. 14 CAPITALIZATION The following table sets forth as of March 31, 1998 (i) the actual capitalization of the Company, (ii) the pro forma capitalization of the Company to give effect to the Series D Financing and the Preferred Conversion and (iii) the pro forma capitalization of the Company as adjusted to give effect to (A) the sale of 3,000,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share after deducting the underwriting discount and estimated offering expenses payable by the Company and (B) the Bridge Repayment. This information should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
MARCH 31, 1998 ------------------------------------------ PRO FORMA AS ACTUAL PRO FORMA(1) ADJUSTED(1) -------- ------------ -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Long term debt, less current portion.................................... $ 848 $ 848 $ 848 -------- ------------ -------------- Stockholders' Equity: Convertible Preferred Stock........................................... 12 -- -- Preferred Stock, $.001 par value; 0 shares authorized (actual); 0 shares authorized (pro forma); 5,000,000 shares authorized (pro forma as adjusted); none issued or outstanding on an actual, pro forma or pro forma as adjusted basis............................... -- -- -- Common Stock, $.001 par value, 50,000,000 shares authorized (actual); 60,000,000 shares authorized (pro forma and pro forma as adjusted); 2,124,142 shares issued and outstanding (actual); 6,810,926 shares issued and outstanding (pro forma); 9,810,926 shares issued and outstanding (pro forma as adjusted).... 2 7 10 Additional paid-in capital............................................ 42,588 44,595 79,987 Deferred Compensation................................................. (1,229) (1,229) (1,229) Accumulated deficit................................................... (54,736) (54,736) (54,736) Cumulative translation adjustments.................................... 613 613 613 -------- ------------ -------------- Total stockholders' equity (deficit)............................... (12,750) (10,750) 24,645 -------- ------------ -------------- Total capitalization (deficit)..................................... $(11,902) $ (9,902) $ 25,493 -------- ------------ -------------- -------- ------------ --------------
- ------------------ (1) Based on shares outstanding as of March 31, 1998. Excludes (i) 1,295,781 shares of Common Stock issuable upon exercise of options outstanding as of March 31, 1998, with a weighted average exercise price of $2.42 per share; (ii) 893,691 shares of Common Stock reserved for issuance, as of March 31, 1998, under the Company's stock plans; (iii) 166,666, 35,959 and 551,574 shares of Common Stock issuable upon exercise of warrants outstanding as of March 31, 1998, with exercise prices of $3.00, $13.875 and $13.50 per share, respectively; (iv) 102,857 shares of Common Stock issuable upon exercise of warrants issued by the Company between March 31, 1998 and June 30, 1998; and (v) 60,407 shares of Common Stock issued by the Company to employees between March 31, 1998 and June 30, 1998. See 'Management--Executive Compensation' and 'Description of Capital Stock.' 15 DILUTION The pro forma deficit in net tangible book value of the Company at March 31, 1998, was $10,750,000 or $(1.58) per share. Pro forma net tangible book value per share represents the amount of total assets, excluding intangibles, less total liabilities as of March 31, 1998, divided by the number of shares of Common Stock outstanding on a pro forma basis after giving effect to the Series D Financing and the Preferred Conversion. After giving effect to the receipt of the net proceeds from the sale of the 3,000,000 shares of Common Stock offered by the Company hereby and after deducting the estimated underwriting discount and offering expenses to be paid by the Company, the pro forma net tangible book value of the Company at March 31, 1998 would have been $24,645,000 or $2.51 per share. This represents an immediate increase in net tangible book value of $4.09 per share of Common Stock to existing stockholders and an immediate dilution of approximately $10.49 per share to new investors purchasing shares in the Offering. The following table illustrates the per share dilution: Proposed initial public offering price per share........................ $ 13.00 Pro forma net tangible book deficit per share before the Offering..... $(1.58) Increase per share attributable to new investors...................... 4.09 ------- Pro forma net tangible book value per share after the Offering.......... 2.51 ---------- Dilution per share to new investors..................................... $ 10.49 ---------- ----------
The following table sets forth on a pro forma basis as of June 30,1998, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price paid per share by the existing stockholders and by the investors purchasing shares of Common Stock offered hereby (at an assumed initial public offering price of $13.00 per share):
SHARES PURCHASED TOTAL CONSIDERATION -------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- ------------- Existing stockholders............................... 6,871,338 70.0% $42,478,000 52.2% $ 6.18 New investors....................................... 3,000,000 30.0% $39,000,000 47.8% $ 13.00 --------- ------- ----------- ------- Total.......................................... 9,871,338 100.0% $81,478,000 100.0% --------- ------- ----------- ------- --------- ------- ----------- -------
The foregoing assumes no exercise of any outstanding stock options or warrants to purchase shares of Common Stock. As of June 30, 1998, there were outstanding (i) 1,278,977 shares of Common Stock issuable upon exercise of options at a weighted average exercise price of $2.91 per share, (ii) 166,666, 35,959, 551,574 and 102,857 shares of Common Stock issuable upon exercise of warrants with exercise prices of $3.00, $13.875, $13.50 and $13.50 per share, respectively. In addition, as of June 30, 1998, 856,755 shares of Common Stock were reserved for future issuance pursuant to the Company's stock plans. To the extent that the outstanding options and warrants are exercised at prices lower than the initial public offering price, there will be further dilution to new investors. See 'Management-- Executive Compensation,' 'Certain Transactions' and 'Description of Capital Stock.' 16 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data are derived from the Consolidated Financial Statements of the Company and the combined financial statements of BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively, 'BIS' or the 'Predecessor Companies'). For the period January 1 to December 15, 1993, the operations comprising BIS were those of wholly-owned subsidiaries of NYNEX Corporation ('NYNEX'). For the period December 16 to December 31, 1993, the year ended December 31, 1994 and the period January 1 to April 5, 1995, the operations of BIS were those of wholly-owned subsidiaries of Friday Holdings, L.P. ('Friday Holdings'). Because of the impact to the statements of operations of the revaluation of the assets and liabilities in connection with the acquisitions and the application of different accounting methods, the results of operations of BIS for the periods under NYNEX and Friday Holdings ownership are not comparable with each other or with those reported by the Company. The Consolidated Financial Statements of the Company as of December 31, 1996 and 1997 and for the period from March 17, 1995 to December 31, 1995 and the years ended December 31, 1996 and 1997 included elsewhere in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent accountants. The consolidated financial statements of the Company as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 included elsewhere in this Prospectus are unaudited; however, in the opinion of management, such unaudited data include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information included therein. The results of operations for the period March 17, 1995 to December 31, 1995 and the three months ended March 31, 1997 and 1998 are not necessarily indicative of the results for an entire fiscal year or any other interim period. The combined financial statements of the Predecessor Companies for the period January 1, 1995 to April 5, 1995 included elsewhere in this Prospectus have been audited by Coopers & Lybrand L.L.P. The combined financial statements of BIS as of December 31, 1993 and 1994 and for the periods January 1, 1993 to December 15, 1993 and December 16, 1993 to December 31, 1993 and for the year ended December 31, 1994 are derived from unaudited combined financial statements not included in this Prospectus; however, in the opinion of management, such unaudited data include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information included therein. The selected historical financial data should be read in conjunction with 'Management's Discussion and Analysis of Financial Condition and Results of Operations' and the Consolidated Financial Statements and notes thereto appearing elsewhere in this Prospectus. 17
COMPANY ---------------------- PREDECESSOR COMPANIES YEAR ---------------------------------------------------- PRO FORMA ENDED JANUARY 1 DECEMBER 16 YEAR JANUARY 1 YEAR MARCH 17 DECEMBER TO TO ENDED TO ENDED TO 31, DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, DECEMBER 31, DECEMBER 31, -------- 1993 1993 1994 1995 1995(1) 1995 1996 ------------ ------------ ------------ ---------- ------------ ------------ -------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Continuous information services...................... $ -- $ -- $ -- $ -- $ -- $ -- $ 3,149 Other services.................. 5,815 91 7,366 1,833 8,543 5,517 6,043 Publications.................... 1,311 51 800 283 1,725 1,442 946 ------------ ------------ ------------ ---------- ------------ ------------ -------- Total revenues................ 7,126 142 8,166 2,116 10,268 6,959 10,138 ------------ ------------ ------------ ---------- ------------ ------------ -------- Costs and expenses: Cost of services................ 4,268 267 5,143 1,182 7,172 4,707 12,336 Cost of publications............ 726 64 446 240 586 346 790 Sales and marketing............. 1,448 92 1,438 167 972 1,016 6,706 Research and development........ -- -- -- -- 348 348 1,789 General and administrative...... 3,431 140 4,027 1,047 6,934 5,760 9,739 Depreciation and amortization... 613 32 2,943 215 1,964 1,387 2,391 ------------ ------------ ------------ ---------- ------------ ------------ -------- Total costs and expenses...... 10,486 595 13,997 2,851 17,976 13,564 33,751 ------------ ------------ ------------ ---------- ------------ ------------ -------- Operating loss.................. (3,360) (453) (5,831) (735) (7,708) (6,605) (23,613) Interest income................... 100 7 96 23 274 246 515 Interest expense.................. (38) (4) (26) (4) (134) (100) (95) ------------ ------------ ------------ ---------- ------------ ------------ -------- Loss from continuing operations before income taxes (benefit)..................... (3,298) (450) (5,761) (716) (7,568) (6,459) (23,193) Income tax benefit (charge)....... (1,035) -- (1,098) (213) (1,311) (1,093) (491) ------------ ------------ ------------ ---------- ------------ ------------ -------- Loss from continuing operations.................... (2,263) (450) (4,663) (503) (6,257) (5,366) (22,702) ------------ ------------ ------------ ---------- ------------ ------------ -------- Discontinued operations: Income (loss) from the discontinued BIS market research business (net of tax effect)....................... 2,972 44 (1,469) 597 2,097 1,490 (79) Income (loss) from the discontinued Shrapnel business (net of tax effect)........... 70 (12) (401) 54 154 154 (134) Income (loss) on disposal of discontinued BIS market research business (net of tax effect)....................... -- -- -- -- -- -- (2,315) Income (loss) on disposal of discontinued Shrapnel business (net of tax effect)........... -- -- -- -- -- -- (160) ------------ ------------ ------------ ---------- ------------ ------------ -------- Income (loss) from discontinued operations.................... 3,042 32 (1,870) 651 2,251 1,644 (2,688) ------------ ------------ ------------ ---------- ------------ ------------ -------- Net income (loss)............... $ 779 $ (418) $ (6,533) $ 148 $ (4,006) $ (3,722) $(25,390) ------------ ------------ ------------ ---------- ------------ ------------ -------- ------------ ------------ ------------ ---------- ------------ ------------ -------- Historical results per common and common equivalent share: Loss from continuing operations.................. Income (loss) from discontinued operations..... Income (loss) from disposal of discontinued operations..... Net income (loss)............. Historical weighted average common and common equivalent shares outstanding..................... Pro forma results per common share(2): Loss from continuing operations.................. Income (loss) from discontinued operations..... Income (loss) from disposal of discontinued operations..... Net income (loss)............. Pro forma weighted average common shares outstanding(2)........... COMPANY ---------------------------------- YEAR ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ------------ ---------------------- 1997 1997 1998 ---------- ---------- ---------- STATEMENT OF OPERATIONS DATA: Revenues: Continuous information services...................... $ 14,600 $ 2,570 $ 6,804 Other services.................. 4,715 1,276 1,693 Publications.................... 344 180 55 ---------- ---------- ---------- Total revenues................ 19,659 4,026 8,552 ---------- ---------- ---------- Costs and expenses: Cost of services................ 12,477 3,202 4,391 Cost of publications............ 174 75 71 Sales and marketing............. 19,617 4,158 5,781 Research and development........ 1,975 659 339 General and administrative...... 6,419 1,061 1,339 Depreciation and amortization... 2,810 634 385 ---------- ---------- ---------- Total costs and expenses...... 43,472 9,789 12,306 ---------- ---------- ---------- Operating loss.................. (23,813) (5,763) (3,754) Interest income................... 277 98 37 Interest expense.................. (235) (17) (86) ---------- ---------- ---------- Loss from continuing operations before income taxes (benefit)..................... (23,771) (5,682) (3,803) Income tax benefit (charge)....... (641) 7 4 ---------- ---------- ---------- Loss from continuing operations.................... (23,130) (5,689) (3,807) ---------- ---------- ---------- Discontinued operations: Income (loss) from the discontinued BIS market research business (net of tax effect)....................... -- -- -- Income (loss) from the discontinued Shrapnel business (net of tax effect)........... -- -- -- Income (loss) on disposal of discontinued BIS market research business (net of tax effect)....................... 1,101 -- -- Income (loss) on disposal of discontinued Shrapnel business (net of tax effect)........... 212 -- ---------- ---------- ---------- Income (loss) from discontinued operations.................... 1,313 -- -- ---------- ---------- ---------- Net income (loss)............... $ (21,817) $ (5,689) $ (3,807) ---------- ---------- ---------- ---------- ---------- ---------- Historical results per common and common equivalent share: Loss from continuing operations.................. (11.16) (1.80) Income (loss) from discontinued operations..... -- -- Income (loss) from disposal of discontinued operations..... 0.63 -- ---------- ---------- Net income (loss)............. (10.53) (1.80) ---------- ---------- ---------- ---------- Historical weighted average common and common equivalent shares outstanding..................... 2,072,837 2,115,837 Pro forma results per common share(2): Loss from continuing operations.................. (3.42) (0.56) Income (loss) from discontinued operations..... -- -- Income (loss) from disposal of discontinued operations..... 0.19 -- ---------- ---------- Net income (loss)............. (3.23) (0.56) ---------- ---------- ---------- ---------- Pro forma weighted average common shares outstanding(2)........... 6,759,621 6,802,621
18
PREDECESSOR COMPANIES COMPANY -------------------------- ------------------------ DECEMBER 31, DECEMBER 31, -------------------------- ------------------------ 1993 1994 1995 1996 ------------ ------------ ------------ ---------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents.............................................. $ 2,639 $ 1,693 $ 16,876 $8,286 Working capital (deficit).............................................. 1,905 (1,503) 11,549 113 Total assets........................................................... 10,181 7,509 24,833 19,679 Deferred revenues...................................................... 762 1,232 2,201 6,832 Long term debt, less current portion................................... -- -- 1,437 1,511 Total stockholders' equity (deficit)................................... 6,942 2,017 14,972 1,659 COMPANY -------------------------- DECEMBER 31, ------------ MARCH 31, 1997 1998 ------------ ------------ BALANCE SHEET DATA: Cash and cash equivalents.............................................. $ 3,539 $ 1,753 Working capital (deficit).............................................. (10,196) (13,821) Total assets........................................................... 23,023 15,673 Deferred revenues...................................................... 20,604 19,458 Long term debt, less current portion................................... 937 848 Total stockholders' equity (deficit)................................... (9,090) (12,750)
- ------------------ (1) The pro forma results reflect the results of operations as if the acquisitions of BIS and ExperNet had occurred on January 1, 1995. See Note 3 to the Consolidated Financial Statements. (2) The pro forma results per common share and pro forma weighted average common shares outstanding reflect the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock upon the closing of the Offering. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ORGANIZATION OF THE COMPANY AND FINANCIAL STATEMENT PRESENTATION The Company was organized on March 17, 1995. In April 1995, the Company acquired BIS as part of its strategic plan to accelerate the development of its Continuous Information Services business and to obtain the marketing, sales and other corporate infrastructures and certain personnel of BIS. In July 1995, the Company acquired a majority equity interest in ExperNet Corporation ('ExperNet Corporation'), which was owned by Gideon I. Gartner and David L. Gilmour, each at the time a director and officer of the Company, and, in December 1995, acquired the remaining equity interest. This Prospectus includes the financial statements of BIS, as the predecessor to the Company, through the period ended April 5, 1995, the date of acquisition by the Company. The period January 1, 1993 to December 15, 1993 is shown separately for the Predecessor Companies because of a prior acquisition by an unrelated entity on December 16, 1993. The periods covered by the financial statements of the Company commence on March 17, 1995, the date of its incorporation, and include the results of operations of BIS from April 5, 1995 and the results of operations of ExperNet Corporation from July 6, 1995, their respective dates of acquisition. Results of operations of ExperNet Corporation are not included in results of Predecessor Companies, which are solely the results of BIS. The acquisition of BIS was accounted for under the purchase method; accordingly, acquired assets were recorded at their estimated fair values and related goodwill of approximately $3.1 million was also recorded and was amortized over two years. The acquisition of ExperNet Corporation was also accounted for as a purchase with the related goodwill of approximately $1.4 million amortized over five years. During 1997, the unamortized portion of the goodwill relating to the ExperNet acquisition was written off, resulting in a charge to amortization expense of $1.0 million. In June 1996, the Company discontinued the BIS market research business. Results of operations from the discontinued BIS market research business are reflected as discontinued operations in the Company's financial statements. The Company continues to generate revenues from the events businesses acquired as part of the acquisition of BIS, which are reflected in the statements of operations as Other Services. As a result of the discontinuance of the BIS market research business, Giga recorded a charge, net of taxes, of approximately $2.3 million in the year ended December 31, 1996. The Company entered into agreements with two unrelated parties which have assumed responsibility for fulfillment of the Company's obligations to former BIS customers in exchange for a share of the deferred revenues recorded by Giga with respect to such customers. In 1997, the Company recorded a gain of approximately $1.1 million comprised mainly of a reversal of the provision for future lease commitments and related expenses for two facilities in England and the provision which was established for refunds to potentially dissatisfied customers. The Company does not consider the historical results of BIS operations which have been discontinued to be meaningful or indicative of the Company's future results of operations. In December 1996, the Company discontinued its econometric forecasting business based in Australia, BIS Shrapnel, in anticipation of selling the business to local management. The Company recorded a provision of $160,000 in 1996 for anticipated operating losses prior to the completion of the sale by the Company. In July 1997, the operations were sold to local management for approximately $293,000 in cash, and a gain of approximately $212,000, net of taxes, was recorded and is reflected in disposal of discontinued operations. All liabilities and business risks were transferred to the local management of BIS Shrapnel. Results of operations from the discontinued BIS Shrapnel business are included among Discontinued Operations in the Company's financial statements. OVERVIEW Giga provides objective analyses and advice relating to developments and trends in the IT industries to assist its customers in making technology-related decisions. The Company's four principal products and services are (i) Advisory Service, (ii) IT Practice Services, (iii) Continuous Advisory Consulting and (iv) Events and Publications. The Company provides its services primarily through GigaWeb, its intelligent Internet-based information delivery interface. 20 The Company introduced its Advisory Service and GigaWeb in April 1996. In July 1996, the Company introduced its IT Practice Services. Advisory Consulting was introduced in September 1997. The Company's Events and Publications product line was acquired with the acquisition of BIS in April 1995. For financial reporting purposes, revenues from (i) Advisory Service, IT Practice Services and Continuous Advisory Consulting are aggregated into Continuous Information Services, (ii) Events and other services, principally consulting, are aggregated into Other Services and (iii) Publications are listed separately. The Company expects that revenues from its Continuous Information Services will continue to increase as a percentage of its total revenues. The Company's Continuous Information Services are typically sold through annual contracts that generally provide for payment at the commencement of the contract period. A small number of CIS contracts, however, are billed quarterly. Amounts received in advance of services provided are reflected in the Company's financial statements as deferred revenues and are recognized monthly on a pro rata basis over the term of the contract. Revenues from Other Services are recognized as follows: events as they occur and consulting as such services are performed. Revenues from Publications are recognized when publications are delivered. Unbilled receivables are primarily generated as a result of contractual quarterly billing terms offered in connection with the Company's Continuous Information Services. The Company also records the related commission obligation upon acceptance of a CIS contract and amortizes the corresponding deferred commission over the contract period in which the related CIS revenues are earned. Due to these accounting policies, trade accounts receivable, deferred revenues, unbilled accounts receivable and deferred commissions are expected to increase as the Company's CIS business grows. Essentially all of the Company's current international operations are located in the European Union and Canada. The Company operates in the European Union primarily through wholly-owned subsidiaries in the United Kingdom, France and Germany. These subsidiaries manage direct sales personnel and distributors in other countries in the European Union as well. In Canada, the Company utilizes a full-scale field sales force and provides business support to these salespersons through its operations in the United States. Substantially all of the Company's revenues from the European Union are denominated in foreign currencies, particularly the British pound, while essentially all of the Company's revenues from Canada are denominated in U.S. dollars. The Company has begun marketing in Israel and Korea through representatives. Revenues from these representatives have been and are expected to continue to be denominated in U.S. dollars. To date, however, such revenues have been insignificant. As a result of fluctuations in exchange rates, transactions denominated in foreign currencies inherently have financial risk. To date, however, the Company's cumulative translation adjustments have been slightly favorable, although there can be no assurance that this trend will continue in the future. The Company does not currently hedge its exposure to foreign currency adjustments. The Company believes that a leading measure of the volume of its CIS business is the annualized value ('Annualized Value') of its Continuous Information Services agreements in effect at a given point in time. The Company calculates Annualized Value each month as the cumulative annualized subscription value payable under the agreements without regard to commencement date, duration or risk of cancellation. The Company also measures its performance on the basis of Net Annualized Value Increase ('NAVI') which is calculated on the basis of new agreements plus upgrades, net of downgrades and cancellations. The sum of all past NAVI equals Annualized Value. Historically, a substantial portion of NAVI for a given year is generated by the Company in the last two calendar quarters, and particularly in the last month of the last quarter. The following table sets forth the Annualized Value and NAVI for the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998.
UNAUDITED --------------------------------------- YEARS ENDED THREE MONTHS ENDED DECEMBER 31, MARCH 31, ----------------- ------------------ 1996 1997 1997 1998 ------ ------- ------- ------- (IN THOUSANDS) Beginning Annualized Value............................................. $ -- $ 9,339 $ 9,339 $26,619 Net Annualized Value Increase.......................................... 9,339 17,280 2,384 2,878 ------ ------- ------- ------- Ending Annualized Value................................................ $9,339 $26,619 $11,723 $29,497 ------ ------- ------- ------- ------ ------- ------- -------
21 A majority of the Company's annual contracts renew automatically unless the customer cancels the subscription. The Company's experience is that a substantial portion of customers renew expiring contracts for an equal or greater level of total CIS fees each year. As of March 31, 1998, approximately 66% of Giga's customers had renewed one or more contracts for Giga's services in the past twelve months. The Company believes that a direct comparison of its renewal rates and the renewal rates of its major competitors may not be meaningful due in part to the Company's limited operating history and its Advisory Service model (the focus of which is a unified, integrated approach with fewer contracts/services per customer), in contrast to the multiple-service model of the Company's major competitors. The Company anticipates that Annualized Value, at a point in time, will be a reliable indicator of the minimum next twelve months' CIS revenues. However, the Company's current renewal rate is not necessarily indicative of the rate of retention of the Company's revenue base, and Annualized Value at any given time may not be indicative of future revenues or cash flows, especially if the rate of renewal of existing agreements or the timing of new agreements were to significantly change during the following 12 months compared to historical experience. There can be no assurance that the Company will be able to sustain or increase its current renewal rate or that Annualized Value will continue to grow. The Company's operating expenses consist of cost of services, cost of publications, selling and marketing, research and development, general and administrative, and depreciation and amortization. Cost of services consists primarily of the direct costs associated with the delivery of the Company's \Continuous Information Services and other services including personnel expenses for analysts and other personnel, direct expenses for events and conferences, and royalties to third party information providers. Cost of publications consists of expenses to create, print and distribute publications. Sales and marketing expenses include personnel expenses, promotional expenses, and sales commissions. Sales commissions are typically deferred when paid and expensed as the related revenue is recognized. Research and development expenses consist of personnel, consulting and other expenses to develop, enhance and operate GigaWeb. General and administrative expenses are primarily personnel costs and fees for professional services supporting the administrative functions of the Company. Since its inception, the Company has incurred substantial costs to develop its Continuous Information Services, establish its GigaWeb system, build a management team and recruit, employ and train research analysts, sales personnel and support staff for its business. The Company expects to incur significant losses through at least fiscal 1998 as the Company expands and develops its services and products. The Company has incurred substantial tax loss carryforwards since inception, and acquired tax loss carryforwards with its acquisition of BIS, all of which totalled approximately $51.8 million in the aggregate at March 31, 1998. Due to the magnitude of these existing tax loss carryforwards, the continuing anticipated losses through at least 1998 and the substantial uncertainties associated with its business, the Company is unable to conclude that it is more likely than not that the deferred tax associated with these tax loss carryforwards will be realized. Accordingly, this deferred tax asset has been fully reserved. This valuation allowance will be reduced and the deferred tax asset will be recognized when and if it becomes more likely than not that the deferred tax asset will be realized. 22 RESULTS OF OPERATIONS The following table sets forth certain financial data as a percentage of total revenues for the periods indicated.
PRO FORMA THREE MONTHS ------------ YEAR ENDED ENDED MARCH YEAR ENDED DECEMBER 31, 31, DECEMBER 31, -------------- ------------- 1995 1996 1997 1997 1998 ------------ ----- ----- ----- ---- Revenues: Continuous information services .............................. 31% 74% 64% 79% Other services................................................ 83% 60 24 32 20 Publications.................................................. 17 9 2 4 1 ------ ----- ----- ----- ---- Total revenues.............................................. 100 100 100 100 100 ------ ----- ----- ----- ---- Costs and expenses: Cost of services.............................................. 70 122 63 80 51 Cost of publications.......................................... 6 8 1 2 1 Sales and marketing........................................... 9 66 100 103 68 Research and development...................................... 3 18 10 16 4 General and administrative.................................... 68 96 33 26 16 Depreciation and amortization................................. 19 24 14 16 5 ------ ----- ----- ----- ---- Total costs and expenses.................................... 175 333 221 243 144 ------ ----- ----- ----- ---- Loss from operations.......................................... (75) (233) (121) (143) (44) Interest income (expense), net.................................. 1 4 0 2 (1) ------ ----- ----- ----- ---- Loss from continuing operations before income taxes........... (74) (229) (121) (141) (45) Income tax (benefit) charge..................................... (13) (5) (3) 0 0 ------ ----- ----- ----- ---- Loss from continuing operations............................... (61) (224) (118) (141) (45) Income (loss) from discontinued operations.................... 22 (27) 7 -- -- ------ ----- ----- ----- ---- Net loss...................................................... (39)% (250)% (111)% (141)% (45)% ------ ----- ----- ----- ---- ------ ----- ----- ----- ----
In general, the decreases in the various operating expenses as a percentage of total revenues are primarily due to leveraging those expenses over increased revenues derived from a growing customer base. FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Revenues. Total revenues increased 112% to $8.6 million for the three months ended March 31,1998 from $4.0 million for the same period in 1997. The increase in total revenues was primarily due to the increase in revenues from Continuous Information Services. Revenues from Continuous Information Services increased 165% to $6.8 million for the three months ended March 31, 1998 from $2.6 million for the same period in 1997. This increase in revenues was primarily due to growing market acceptance of Giga's services and continued expansion of the Company's sales force. Revenues from Other Services increased 33% to $1.7 million for the three months ended March 31, 1998 from $1.3 million for the same period in 1997. The increase was primarily due to higher revenues from the planned expansion of the Company's events and conferences activities net of a decrease in consulting revenues associated with the phase-out of certain consulting activities. Revenues from Publications decreased 69% to $55,000 for the three months ended March 31, 1998 from $180,000 for the same period in 1997. The decrease was due to a de-emphasis on this business activity. Cost of services. Cost of services increased 37% to $4.4 million for the three months ended March 31, 1998 from $3.2 million for the same period in 1997. The increase in costs was primarily due to the expansion of the analyst staff and other expenses associated with providing Continuous Information Services. Cost of publications. Cost of publications decreased 5% to $71,000 for the three months ended March 31, 1998 from $75,000 for the same period in 1997. The decrease was primarily attributable to a continued reduction in the number of publications produced. Sales and marketing. Sales and marketing expenses increased 39% to $5.8 million for the three months ended March 31, 1998 from $4.2 million for the same period in 1997. The increase was principally due to the 23 continued expansion of the Company's direct sales organization and higher sales commission expense from increased revenues. Research and development. Research and development expenses decreased 49% to $339,000 for the three months ended March 31, 1998 from $659,000 for the same three-month period in 1997. The decrease was primarily due to the completion of the development of the basic functionality of GigaWeb in 1997. General and administrative. General and administrative expenses increased 26% to $1.3 million for the three months ended March 31, 1998 from $1.1 million for the same period in 1997. The increase in expense was primarily due to enhancements to infrastructure such as internal systems, additional personnel and other items to support the Company's growth. Depreciation and amortization. Depreciation and amortization expense decreased 39% to $385,000 for the three months ended March 31, 1998 from $634,000 for the same period in 1997. The decrease was primarily due to the Company's practice in 1997 to rent, instead of purchase, computer equipment. Interest income and expense. Interest income decreased to $37,000 for the three months ended March 31, 1998 from $98,000 for the same period in 1997 due to lower cash balances available for investment. Interest expense increased to $86,000 from $17,000 for the same period in 1997 due to a long-term equipment financing loan agreement entered into by the Company in June 1997. FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND 1995 (PRO FORMA) For purposes of the following discussion, the results for the year ended December 31, 1995 are presented on a pro forma basis to reflect (i) the operations of the Predecessor Companies from January 1, 1995 to April 5, 1995, (ii) the operations of the Company from March 17, 1995 to December 31, 1995 and (iii) the operations of ExperNet and the amortization of goodwill incurred in connection with the acquisition of the Predecessor Companies as though such acquisitions occurred on January 1, 1995. The results of the BIS market research business and the Australian econometric forecasting operation have been shown as discontinued operations. The Company's activities from March 17, 1995 to April 5, 1995 were principally devoted to the acquisition of the Predecessor Companies. Revenues. Total revenues increased 94% to $19.7 million in 1997 from $10.1 million in 1996 and were essentially unchanged in 1996 from $10.3 million in 1995. These changes in total revenues were primarily due to increased revenues from Continuous Information Services, offset by decreased revenues from Other Services. Revenues from Continuous Information Services increased 364% to $14.6 million in 1997 from $3.1 million in 1996. The Company began marketing its Continuous Information Services in April 1996. The increase in revenues was primarily due to growing market acceptance of Giga's services and continued expansion of the Company's sales force. Revenues from Other Services decreased 22% to $4.7 million in 1997 from $6.0 million in 1996 and 29% in 1996 from $8.5 million in 1995. The decrease in such revenues in 1997 was principally due to a planned phase-out of BIS's consulting business offset by increased revenues from the Company's events and conferences. The decrease in revenues in 1996 compared to 1995 was primarily due to the decrease in certain consulting activities. Revenues from Publications decreased 64% to $344,000 in 1997 from $946,000 in 1996 and 45% in 1996 from $1.7 million in 1995. The decreases were primarily due to a de-emphasis on this business activity. Cost of services. Cost of services decreased 1% to $12.5 million in 1997 from $12.3 million in 1996 and increased 72% in 1996 from $7.2 million in 1995. The cost decrease in 1997 was primarily due to decreased expenses for the legacy BIS consulting business being phased-out, offset by increased expenses to provide Continuous Information Services to the Company's growing customer base. The cost increase in 1996 was due to the Company's substantial investment to build its research organization and retain consultants for the Company's Continuous Information Services. Cost of publications. Cost of publications decreased 78% to $174,000 from $790,000 in 1996 and increased 35% in 1996 from $586,000 in 1995. The decrease in 1997 was principally due to a planned decrease in the number of publications. The increase in 1996 was primarily due to a change in the mix of publications sold. Sales and marketing. Sales and marketing expenses increased 193% to $19.6 million in 1997 from $6.7 million in 1996 and 590% in 1996 from $972,000 in 1995. The increase in 1997 was primarily due to the 24 expansion of the Company's sales organization to sell its Continuous Information Services and higher sales commission expense from increased revenues. The increase in 1996 was principally attributable to the increased investment in marketing programs and expansion of the Company's sales force in connection with the introduction of its Continuous Information Services in April 1996. Research and development. Research and development increased 10% to $2.0 million in 1997 from $1.8 million in 1996 and 414% in 1996 from $348,000 in 1995. The increase in 1997 was primarily due to the continued enhancement of GigaWeb to meet evolving market needs. The increase in 1996 was due to the investment required for the development of GigaWeb and ExperNet. General and administrative. General and administrative expenses decreased 34% to $6.4 million in 1997 from $9.7 million in 1996 and increased 40% in 1996 from $6.9 million in 1995. The decrease in 1997 from 1996, and the increase in 1996 over 1995, was primarily due to one-time expenses in 1996 for internal systems, facilities, personnel, and other items to build the infrastructure to support the expansion of the Company's operations. Depreciation and amortization. Depreciation and amortization expenses increased 18% to $2.8 million in 1997 from $2.4 million in 1996 and 22% in 1996 from 2.0 million in 1995. The increase in 1997 was due primarily to the write-off of the remaining amount of unamortized goodwill associated with the ExperNet acquisition offset by the Company's practice in 1997 to rent rather than purchase computer equipment. Interest income and expense. Interest income was earned on cash balances, in excess of then current operating needs, from the Company's equity financing during 1996 and 1997. Interest expense is primarily from long-term debt for equipment financing and acquisitions and varies with the outstanding balance. Discontinued operations. In June 1996, the Company discontinued its BIS market research business and, as a result, recorded a charge of approximately $2.3 million, net of taxes, in the year ended December 31, 1996. In 1997, the Company recorded income, net of taxes, of $1.1 million from the settlement of a liability relating to a long-term, foreign lease and the reversal of a provision established for refunds to potentially dissatisfied customers that had been part of the aforementioned charge. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has funded its operations primarily through the private placement of equity securities and borrowings under promissory notes. The Company has received aggregate net proceeds of $42.5 million from the private placement of equity securities and recently borrowed $10.0 million under the Bridge Notes. At March 31, 1998, the Company had cash and cash equivalents of $1.8 million. See Notes 11, 13 and 20 to the Consolidated Financial Statements. During 1997 and the three months ended March 31, 1998, the Company's capital expenditures totaled approximately $559,000 and $261,000, respectively, primarily for computer equipment. The Company expects that additional purchases of computer equipment will be made as the Company's employee base and customer base grow. As of March 31, 1998, the Company had no material commitments for capital expenditures, and the Company does not currently expect the rate of capital spending to vary significantly through the end of 1999. Net cash used by continuing operations was approximately $17.7 million and $14.5 million for the years ended December 31, 1996 and 1997, respectively, and approximately $1.3 million for the three months ended March 31, 1998. Net cash used by investing activities of approximately $206,000 for the year ended December 31, 1997 and approximately $251,000 for the three months ended March 31, 1998 were primarily due to purchases of computer equipment. Cash provided from financing activities of approximately $17.7 million for the period March 17, 1995 to December 31, 1995 and approximately $11.6 million and $11.7 million for the years ended December 31, 1996 and 1997, respectively, were primarily generated by the issuance of the Common Stock and Preferred Stock as previously described. Cash used by financing activities for the three months ended March 31, 1998 of $231,000 was principally used to repay long-term debt. In April 1998, the Company issued the Bridge Notes in the aggregate principal amount of $10.0 million and warrants to purchase an aggregate of 166,666 shares of Common Stock at an exercise price of $3.00 per share. The Bridge Notes accrue interest at the rate of 12% per annum. The obligations under the Bridge Notes are collateralized by substantially all of the assets of the Company. The outstanding principal amount of, and any unpaid accrued interest on, the Bridge Notes is due and payable upon the consummation of the Offering and may 25 be prepaid in whole or in part at any time without penalty. In April 1998 and May 1998, the Company issued an aggregate of $2.0 million of Series D Preferred Stock. All outstanding shares of the Company's Series D Preferred Stock will automatically convert into Common Stock upon the consummation of the Offering. See 'Certain Transactions' and Note 20 to the Consolidated Financial Statements for additional information concerning these transactions. The Company believes that the net proceeds from the Offering (after repayment of the Bridge Notes described herein), together with its existing cash and cash equivalents and cash generated from operations, after the repayment of the Bridge Notes and the repayment of other debt as it becomes due, will be sufficient to fund the Company's cash needs until at least the end of 1999. The Company has spent substantial amounts to date on capital and operating expenditures which have contributed to an accumulated deficit of $54.7 million as of March 31, 1998. Furthermore, the Company expects capital and operating expenditures to increase due to numerous factors, including the Company's plans to increase marketing efforts for its Continuous Information Services, the expected costs to attract and retain qualified employees, including research and sales personnel, on a timely basis and the related costs of such efforts, the response of competitors to the Company's services, the Company's plans to develop and market new services and products, the further enhancement of the GigaWeb system and the Company's expansion of its international operations, and the continued acceptance by customers of annual membership agreements providing for advance payments rather than equal monthly installments or some other payment model. The Company anticipates funding its ongoing working capital needs principally through the net proceeds to the Company from the Offering. The Company believes that the net proceeds from the Offering (after repayment of the Bridge Notes described herein), together with the Company's existing cash and cash equivalents and cash generated from operations, after the repayment of other debt as it becomes due, will be sufficient to fund the Company's cash needs until at least the end of 1999. However, in the event that the Company encounters difficulties in collecting accounts receivable, experiences low or reduced subscription renewal rates or otherwise has revenues that are lower than planned, the Company might require additional working capital. As of May 31, 1998, the Company had, excluding the Bridge Notes, approximately $1.2 million of equipment financing debt and had access to an invoice factoring arrangement with a commercial bank under which the Company could borrow up to $3,000,000 or 80% of eligible accounts receivable, whichever is less. If necessary, the Company would consider various other sources of financing, including, but not limited to, private placements, the sale of assets and strategic alliances, but there can be no assurance that such financing would be available to the Company on terms that are acceptable, if at all. If adequate funds are not available, the Company may be required to reduce its fixed costs and delay, scale back or eliminate certain of its services, any of which could have a material adverse effect in the Company's business, financial condition and results of operations. See 'Risk Factors--Substantial Future Capital Needs; Risks of Working Capital Deficiency.' OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. Beginning in the year 2000, these date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. The Company has commenced efforts to ensure that the computer systems and applications upon which it relies for internal operations and external communications, and presently expects to use following December 31, 1999, are or will be year 2000 compliant. While uncertainty exists concerning the potential effects associated with such compliance, the Company does not believe that year 2000 compliance will result in a material adverse effect on its business, financial condition or results of operations. 26 BUSINESS GENERAL The Company provides objective analyses and advice relating to developments and trends in the computing, telecommunications, and related industries (collectively, the 'Information Technology' or 'IT' industries) to assist its customers in making technology-related decisions. IT is critical to the competitiveness and long-term viability of a wide range of organizations. The Company believes information overload, confusion, and anxiety exists among IT decision-makers. As a result, an increasing number of organizations are turning to Continuous Information Service ('CIS') providers to monitor and analyze IT developments and to identify trends to support such organizations' IT decision-making needs. The Company's Continuous Information Services are available to customers for an annual subcription fee billed and payable in advance, which entitles members to (i) access all the Company's advisory service information and analyses, (ii) inquiry privileges and (iii) participate in briefings, a conference and teleconferences. CIS MARKET The CIS industry emerged in the 1960's in response to the complexity and growth in the IT market. In the early stages of the CIS industry's development, CIS providers primarily produced quantitative analyses of IT industry trends to assist vendors with product planning and formulation of marketing and business strategies. The IT industry continued to rapidly evolve and increasingly became characterized by short product life cycles, highly complex, distributed computing and telecommunications architectures and IT systems made up of hardware and software from a wide variety of vendors. As a result, decision-making by users of IT products and services became increasingly complicated, straining the analytic resources within organizations. In response to this opportunity, a second generation of CIS providers emerged by the 1980's, offering analytical and decision-support information to users, in addition to the quantitative information offered to vendors. These second generation providers continued to be characterized by multiple information service offerings, each of which focused on a specific aspect of the IT industry, such as mainframes, personal computers, operating systems, application development tools or relational databases. Over time, as IT became more complex, the number of such services proliferated. In the 1990's, the continuous expansion of technological choices has made IT operations even more complex and diverse, particularly with the migration from legacy mainframe systems to distributed client-server and other architectures and the emergence of the Internet, together with advanced telecommunications offerings. As a result, organizations are increasingly turning to outside consultants for support. In addition to users and vendors, an emerging segment of the CIS market includes business managers, who require increased awareness of IT issues to heighten sensitivity to systems opportunities, and small businesses, which are becoming more reliant on technology. The Company believes that the multiple-service model is not well positioned to effectively address the critical and evolving IT needs of modern organizations. Due to the complexity and interrelationships among the various aspects of IT, the Company believes organizations require integrated advice that is not limited to the boundaries of the second generation model. In addition, since IT solutions also often require practical, hands-on experience, CIS providers must complement the strategy-oriented consultative skills of many of today's industry analysts with pragmatic real-world advice. Due to increasing time and budget pressures, customers must also be able to quickly and efficiently search through the voluminous resources and published content of CIS providers to locate the particular analyses and expertise they require. THE GIGA SOLUTION Giga was founded by Gideon I. Gartner, who in 1979 founded Gartner Group, Inc. Building on his extensive experience and success in the CIS industry, Mr. Gartner formed Giga with the objective of creating a new approach toward addressing the CIS needs of IT users and vendors. Giga has developed a range of innovative Continuous Information Services, as well as an effective, electronic information delivery mechanism, designed to provide integrated IT analyses and advice. 27 Foremost among these innovations is the Company's unified Advisory Service, in which IT research and analysis is offered to customers as a single service intended to encompass the variety of IT coverage offered by other CIS providers through multiple and fragmented services. The Company believes that its Advisory Service (i) delivers the comprehensive viewpoint required by customers, (ii) offers a price/performance advantage over the second generation model since the payment of one subscription fee provides access to all advisory research and (iii) becomes increasingly cost effective over time as new advisory research is added without increased subscription fees. Giga's service approach was developed in response to the needs of the CIS market. The Company's unified Advisory Service produces internal benefits which the Company believes allows it to better service its customers, including (i) flexibility of resource allocation, (ii) an orientation toward internal collaboration and (iii) the development of experienced generalists, who are able to diagnose broad client challenges and communicate effectively with clients. Flexibility of resource allocation allows the Company to allocate its research resources to address subjects of the greatest significance to its customers at any particular time. The Company's orientation toward internal collaboration eliminates the competition among different advisory areas that the Company believes is customary at other IT providers. Instead, the Company encourages its analysts to work together in a multi-disciplinary approach and present a unified view to its customers. The process is also designed to be objective, by virtue of several features built into Giga's methodologies, such as a requirement that analysts articulate balanced opinions. In addition, research is available to clients on a timely basis through GigaWeb's sophisticated authoring technology. The customization features permitted by GigaWeb also make Giga's research more relevant to specific client environments. As part of its Continuous Advisory Consulting services, the Company also enters into on-going retainer-based consulting arrangements with its customers to assess various IT issues, including an organization's strategic technology plan, a vendor's marketing plan, or the implementation issues surrounding a major technology migration. Advisory Consulting is a valuable extension of the Company's client inquiry process, enabling customers to request more in-depth analysis targeted at the application of technology to their specific situation. The Company also offers customers its innovative IT Practice Services to complement its Advisory Service. Giga employs former IT operating executives to survey leading IT organizations, document the techniques and methods ('best practices') used by IT managers within these organizations, and deliver the results to customers, which can be combined with consulting servies. Each of these services focuses on a distinct job function within an IT organization, permitting customers to benchmark their IT practices against those of peers and to obtain new ideas. The Company's Continuous Information Services are typically sold under annual contracts that renew automatically unless the customer cancels the subscription. The Company's experience has been that a substantial portion of customers renew expiring contracts for an equal or greater level of total CIS fees each year. See 'Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview.' The Company prices its services in a manner designed to be competitive in the marketplace. A typical Advisory Service contract currently has an Annualized Value of approximately $36,000 and a typical IT Practice Services contract currently has an Annualized Value of approximately $45,000. GigaWeb, the Company's Internet-based information delivery interface allows customers to easily and efficiently navigate through the full spectrum of original research and third-party content available through the Advisory Service. Through the use of intelligent software agents, the Company is able to provide customized information to each customer and to allow customers to search for and select the information that is most relevant to their particular needs. GigaWeb also enables collaboration with Giga's clients and maintains rich features which improve the usability of Giga research. In addition, to complement the Company's research and inquiry access, Advisory Service customers are provided access to ExperNet, the Company's network of external IT practitioners who have practical experience in solving real-world IT problems. 28 GIGA STRATEGY Giga's objective is to become the leading third generation CIS provider, offering a significant price/performance advantage over its competitors. The key elements of Giga's strategy include: o Utilizing and Enhancing its Price/Performance Advantage. The Company intends to use its price/performance advantage to increase the range of companies which can afford CIS products and services and to allow customers to offer Giga's content for a wider group of employees than has been affordable with competitors' products. o Leveraging Existing Customer Base. The Company's services are used by over 835 customers worldwide. Giga intends to expand its customer relationships by providing additional non-advisory services, such as IT Practice Services and Continuous Advisory Consulting. In addition, the Company is focused on increasing the number of Advisory Service subscribers within each customer's organization. o Expanding and Capitalizing on Worldwide Distribution. Giga has expanded its worldwide sales force from 49 on December 31, 1996 to 123 on June 30, 1998. The Company plans to continue to expand its sales and marketing organization both domestically and internationally. The Company has entered into agreements with distributors located in Spain, Israel and Korea and intends to develop additional international distribution arrangements. PRODUCTS AND SERVICES The Company's four principal product and service lines are (i) Advisory Service, which includes ExperNet, (ii) IT Practice Services, (iii) Advisory Consulting and (iv) Events and Publications. The Company's services are designed to be accessed through GigaWeb, as well as through published reports and consultation with the Company's analysts and consultants. Set forth below is a schematic of Giga's principal product and service lines: ------------------------------------ | Giga Information Group | ------------------------------------ | | ___________________________________________|____________________________________________________ | | | | | | | | - ---------------------------------------------------------------------------------------------------------------------------------- | IT Practice Services || Advisory Service || Continuous Advisory || Events and Publications | | || || Consulting || | | Integration of best practice || Continuous subscription- || || Conferences on IT industry | | surveys with consulting || based decision-support service || In-depth analysis and advice ||issues and trends, stand-alone| | || ExpertNet network || provided on an on-going basis || reports and newsletters | - ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- | GigaWeb | | Internet-based information delivery interface | - ---------------------------------------------------------------------------------------------------------------------------------
Advisory Service Advisory Service, the principal CIS offering of the Company, is available to customers for an annual subscription fee billed and payable in advance, which entitles members to (i) access all of the Company's advisory service information and analyses, (ii) inquiry privileges and (iii) participate in briefings, one conference and teleconferences. 29 Research Giga employs a structured and consistent research methodology. The goal of Giga research is to form original judgments and recommendations to support client decision-making. Research topics are determined in part by examination of customers' needs, which are identified by analysts through direct discussions with clients. The Company's methodology enables it to rapidly analyze IT markets, technologies, vendors, products and user issues. Analysts conduct informal research by surveying the Company's client base and interviewing vendors, consultants and other sources. These activities are supplemented with searches of numerous trade, financial and other third-party source materials compiled by the Company's research center. The Company believes its analysts form original judgments and recommendations by applying their professional experiences to their review of these combined materials. To ensure research quality and consistency, all research is reviewed on an ongoing basis by the Company's research management team, in conjunction with several senior analysts who are designated research leaders. The Company seeks to convey relevant and actionable information and analyses, as well as practical advice, to its customers through a spectrum of delivery mechanisms, including: o IdeaBytes. IdeaBytes are one-page, published analyses that are intended to provide customers with quick, up-to-date findings and opinions on current issues that are authored by the Company's analysts. o Planning Assumptions. Planning Assumptions are multi-page and highly formatted reports that provide customers with in-depth analyses of IT topics and recommendations for action. Planning Assumptions are designed to be responsive to the current needs of the market. o Inquiry Support. The Company maintains a 'Knowledge Center,' which consists of experienced research support associates who track customer inquiries and direct customers to the appropriate analyst or source of information. Customers also have direct access to the Company's analysts or ExperNet practitioners on-line through GigaWeb. o GigaTels. GigaTels are audio teleconferences run by the Company's analysts on selected topics and provide an open forum for questions, exchanges and debate. There were 3,000 participants in the 91 hour-long GigaTels held in 1997. o Third-Party Content. The Company provides customers with access through GigaWeb to publications from information partners such as Dow Jones and Information Access Corporation. Examples of Giga research topics include 'Network-Centric Enterprise Architectures,' 'Platforms for Enterprise Computing: The Emerging Role of NT in the Enterprise' and 'Participating in Electronic Commerce.' Since these topics are typically interdisciplinary, they are supported by research from multiple analysts that cover different areas of IT. For example, the topic covering enterprise platforms requires research contributions from analysts who cover the mainframe, client-server, wide-area networks, database management systems and operating systems areas, necessitating the active participation of five or more analysts. The Company's research culture is designed to encourage collaboration among analysts. The Company currently employs approximately 60 research professionals and plans to hire additional research professionals, as needed. The Company's principal research offices are located in Cambridge, MA, Westport, CT and Santa Clara, CA. Giga's analysts average 10 years of experience with backgrounds ranging from consulting to vendor and user professional positions. ExperNet To complement the Company's research and inquiry access, customers have access through GigaWeb to ExperNet, a network of over 1,000 external IT practitioners. These practitioners have current experience in diversified segments of the IT industry, which the Company believes cannot be efficiently covered by the traditional CIS approach, and are available to assist clients in solving real-world IT problems. Each practitioner responds to customer inquiries at no additional charge in return for access to Giga information. 30 GigaWeb and Other Delivery Mechanisms Advisory Service research is customized in a personalized manner through GigaWeb, the Company's proprietary, Internet-based information delivery interface which provides on-line access to the Company's research reports, third-party content, analysts and ExperNet. GigaWeb makes it possible for members to obtain both a unified and complete view across all of Giga's advisory content while matching customers' specific needs as determined by self-administered profiles and prior inquiries. GigaWeb is designed to make it easy and efficient for a customer to navigate through the full spectrum of Giga's original research and third-party content, together with access to human expertise. Subscribers to Advisory Service are provided with a personalized home page (the 'Virtual Office') which is accessed through Giga's password-protected Internet site using a Web browser. GigaWeb enables customers to search for relevant information using word searches. Based on the individualized customer profile, GigaWeb automatically selects the particular subset of Giga research and third-party content most relevant to the customer and delivers it to the customer's Virtual Office or via e-mail. In addition, customers who have shared objectives or interests can interact with each other, as well as with Giga analysts and ExperNet practitioners, through on-line discussion groups. Advisory Service clients may provide GigaWeb access to large numbers of their IT professionals via content-only seats and various site license practices. The Company also has installed its content as an additional deliverable on several corporate intranets, and expects the volume of such installations to increase substantially. This service is called IntraGiga. For those companies utilizing Lotus Notes, Giga offers access to its research via GigaNotes. Customers can also request that Giga's research be provided via hard copy. Continuous Advisory Consulting The Company's Continuous Advisory Consulting services provide Giga customers with support such as assessments of an organization's strategic technology plan, the implementation issues surrounding a major technology migration or a vendor's marketing plan. Advisory Consulting is a valuable extension of the Company's client inquiry process, enabling customers to request more in-depth analysis targeted at the application of technology to their specific situation. When a customer inquiry requires on-going or periodic assessments and updates, Giga analysts may construct a scheduled advisory program. IT Practice Services The Company believes that its IT Practice Services enable Giga customers to be more effective in solving IT problems by leveraging the best practices of their peers. Senior Giga advisors with strong IT and management expertise document the successful operating practices and techniques of IT managers in a concise reference book. The insights gained from these best practices are interpreted by the advisors and tailored to fit in the context of the customer's organization. IT Practice Services are designed for specific job functions found within the IT organization and address the issues that such individuals must solve. Currently, the Company offers IT Practice Services in three areas: CIO Practices, Year 2000 Practices and Security Practices. Each IT Practice Service is available for an annual subscription fee. Each customer receives (i) three in-depth studies documenting best practices, (ii) on-site consultations to guide the client in applying the best practices that are most pertinent to the customer and (iii) inquiry access to IT Practice Service advisors. Events and Publications The Company organizes and sponsors a range of events on significant IT industry issues and trends. At GigaWorld IT Forum, the Company's flagship annual conference, Giga analysts present and update their most important research findings and recommendations and meet one-on-one in advisory sessions with clients. Other conferences include the 'Business OnLine Symposia' and the 'Business and Process Workflow' conference series, both held in the United States and Europe annually. In 1997, the Company organized and hosted 11 three- day conferences, and sponsored an additional 9 conferences (hosted by partner organizations). 31 The Company produces a series of off-the-shelf publications based on conference topics or current IT issues which are identified through the Advisory Service and marketed to IT professionals. The Company produced six publications and one newsletter in 1997. SALES AND MARKETING Since inception, the Company has made substantial investments in sales and marketing to sell its services, address additional markets and support its growing customer base. The Company sells its services through a direct sales force located in the United States, Canada, United Kingdom, France, Germany, the Netherlands and Denmark. As of June 30, 1998, the Company's North American direct sales force consisted of 104 field sales personnel, an increase from 42 personnel at December 31, 1996. The Company also had 19 international direct sales personnel serving Europe, an increase from 7 personnel at December 31, 1996. The Company also sells its services through independent representatives in Spain, Israel and Korea. These repesentatives are compensated based on the contract value of the contracts generated by them. The representatives are involved in other activities related to IT technology, mainly consulting, but they do not represent any products or perform any services that conflict with the Company's services. To date, revenues from these representatives have been insignificant. The Company's internal marketing organization, primarily located in the Company's Norwell, Massachusetts facility, provides public relations, lead generation, direct mail support and other related services. All Giga sales representatives participate in the Company's annual sales compensation plan. Commissions are paid monthly based upon NAVI attainment versus established quotas. Additional bonuses and other incentives are paid for meeting and/or exceeding certain established targets and for special promotions. The Company has over 835 customers. No single customer accounted for over 3% of the Company's revenues for the year ended December 31, 1997. The Company serves customers across a broad array of industries, which include: Allstate Harley Davidson AT&T Wireless Services Heartland Health Systems Barclays Bank Plc Hewlett-Packard Co. BASF AG IBM Blue Cross Blue Shield of Nebraska Microsoft City of Cincinnati Netherlands Car BV Deloitte & Touche Netscape FedEx Corporation Pirelli Informatica S.p.A. Ford Motor Company SAS Institute, Inc. The Gillette Company State of North Carolina Girl Scouts of the USA Taco Bell Gouvernment du Quebec Conseil du Tresor United Nations International Computing Centre
COMPETITION The Company competes in the IT market directly with other independent providers of Continuous Information Services, including Gartner Group, META Group, Inc. and Forrester Research Inc., and the internal planning, research and marketing staffs of corporations and IT vendors. The Company also competes with other information providers, including market research firms, 'Big Five' accounting firms, consulting firms and systems integrators. Many of the Company's direct and indirect competitors have substantially greater financial, information gathering and marketing resources than the Company. Some of the Company's direct and indirect competitors also have established research organizations with greater market recognition and experience in the IT industry. See 'Risk Factors--Significant Competition.' EMPLOYEES As of June 30, 1998, the Company employed 341 persons, including 76 in research and research support, 29 in events and publications, 180 in sales and marketing, 10 in research and development and 46 in administration. Of such employees, 99 are located in the Company's Norwell facility, 73 are located in the Company's other domestic facilities, 61 are located internationally and 108 work from their homes. None of the Company's 32 employees are represented by a collective bargaining arrangement and the Company believes its relationship with its employees is good. FACILITIES The Company's headquarters are located in Norwell, Massachusetts and consist of approximately 27,000 square feet. This facility and the Company's approximately 8,000 square feet in its Cambridge, Massachusetts facility together accommodate corporate administration, research and analysis, marketing and sales and customer support. The lease on the Cambridge facility expires in November 2000 and the lease on the Norwell facility was recently renewed and expires in June 2001. The Company also leases office space for its research, and sales and marketing efforts in three other U.S. and three primary international locations. The Company believes that additional facilities will be available in the future on commercially reasonable terms to meet future needs. See Note 7 to the Consolidated Financial Statements for information regarding the Company's annual rental costs. LEGAL PROCEEDINGS Giga Media BV, the owner of a Benelux trademark registration for the trademark GIGA MEDIA, filed a lawsuit (docket number 81567 AL/98-509HH) on March 12, 1998 against the Company alleging tradename infringement, and requesting a court order requiring the Company to use an alternative tradename to Giga Information Group in the Netherlands. The matter is pending before the Cantonal Judge at Haarlem, the Netherlands. Although the Company is contesting this lawsuit, there can be no assurance that it will result in a decision that is favorable to the Company. See 'Risk Factors--Uncertainties Relating to Proprietary Rights.' In addition to the proceeding described above, the Company from time to time is involved in certain other litigation arising in the normal course of its business. The Company does not believe that any such litigation, alone or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations. 33 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company, and their ages as of March 31, 1998, are as follows:
NAME AGE POSITION - ------------------------------------------------ --- ------------------------------------------------ Gideon I. Gartner............................... 63 Chairman, President and Chief Executive Officer James C. R. Graham.............................. 47 Executive Vice President Daniel M. Clarke................................ 51 Senior Vice President, Chief Financial Officer, Treasurer and Secretary Keith R. Belton................................. 37 Senior Vice President, Research Michael R. Mooradian............................ 40 Senior Vice President, Worldwide Sales Neill H. Brownstein (1)(2)...................... 54 Director David L. Gilmour................................ 40 Director Richard L. Crandall (2)......................... 54 Director Bernard Goldstein (2)........................... 67 Director Irwin Lieber (1)................................ 58 Director Josh S. Weston (3).............................. 69 Director Nominee
- ------------------ (1) Member of the Compensation Committee (2) Member of the Audit Committee (3) To be appointed a director upon closing of the Offering Mr. Gartner has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since its inception in March 1995. In October 1997, he was also elected President. From 1993 to 1994, he was a private investor. From 1991 to 1992, he served as Chairman, and from 1979 to 1991 he served as President, Chairman and Chief Executive Officer of Gartner Group, Inc., an information technology company which he founded. From 1972 to 1979, he served as a technology analyst and subsequently as a partner at Oppenheimer & Co., an entity engaged in the financial services business. Mr. Gartner received his B.S. in engineering from Massachusetts Institute of Technology ('MIT') and received an M.S. in management from MIT's Sloan School of Management. Mr. Graham has served as Executive Vice President of the Company since October 1997. Prior to joining Giga, he was Vice President, Information Systems of United States Fidelity & Guaranty Corporation, an insurance company, from 1994 to October 1997. From 1990 to 1994, he was Vice President, Marketing and Product Management at Seer Technologies, a software company. From 1987 to 1990, Mr. Graham was Vice President, Software Engineering Strategies at Gartner Group, Inc. From 1982 to 1986, he was Executive Vice President of VenturCom, a software company that he founded. Prior to that he was an Economic Advisor at The Business Roundtable from 1977 to 1980. From 1976 to 1977, Mr. Graham was the Special Assistant to the U.S. Secretary of Commerce and, from 1974 to 1976, he was the Vice President and Executive Secretary of Industrial Energy Users Forum. Mr. Graham received a B.A. in logic from Georgetown University and an M.S. in finance and economics from MIT's Sloan School of Management. Mr. Clarke has served as Senior Vice President, Chief Financial Officer, Treasurer and Secretary since September 1997. From July 1996 to August 1997, Mr. Clarke served as Vice President, Finance and Administration and Chief Financial Officer for Dataware Technologies, Inc., a provider of software for professional electronic publishing and knowledge management. From January 1995 to June 1996, Mr. Clarke was an independent financial consultant. From 1990 to December 1995, Mr. Clarke was an executive officer of Xyvision, Inc., a software and services company that develops and markets advanced software for document management, publishing and prepress. He served as Vice President, Chief Financial Officer and Secretary of 34 Xyvision until January 1994, and as President and Chief Operating Officer from February 1994. From 1981 to 1989, Mr. Clarke served in a variety of senior management positions with BBN Corporation, a diversified high technology company. Mr. Clarke holds a B.S. Degree from Rensselaer Polytechnic Institute and an M.B.A. from Harvard Business School. Mr. Belton joined the Company in October 1997 as Vice President, Research and was named Senior Vice President, Research in December 1997. From October 1996 to September 1997, Mr. Belton was Vice President, Marketing for Datamedic Corp., a software company. From July 1994 to September 1996, he was a partner at Benchmark Partners, a consulting company. From 1990 to 1994, he held various positions with Kurzweil Applied Intelligence Inc., a software company, including Director of Product Marketing from 1993 to 1994. From 1985 to 1989, he was the Director, Manufacturing Automation Planning Service for the Yankee Group, a consulting company. Mr. Belton holds a B.A. in Economics from Haverford College. Mr. Mooradian has served as Senior Vice President, Worldwide Sales of the Company since August 1997. From August 1996 to August 1997, Mr. Mooradian served as Regional Vice President of Giga's central region. From January 1996 to July 1996, he served as Vice President of Sales, North America for Timeline, Inc., a developer of client/server, financial management and reporting systems. From 1991 to January 1996, he held several management positions at Comshare, a decision support software company. From 1989 to 1991, he served as a sales representative for Ross Systems, Inc., a financial systems integrator. From 1987 to 1989, he served as a sales representative for Corporate Class Software, Inc., a software company. From 1985 to 1986, he served as a sales representative for Information Resources, Inc., a software company, and, from 1984 to 1985, as a sales representative for Hewlett-Packard. Mr. Mooradian received a B.S. in Business Administration from DePaul University. Mr. Brownstein has served as a director of the Company since July 1995. Since January 1995, he has been a private investor. From 1970 to January 1995, Mr. Brownstein was associated with Bessemer Securities Corporation and was a founder and General Partner of three affiliated venture capital funds: Bessemer Venture Partners L.P., Bessemer Venture Partners III L.P. and Bessemer Venture Partners II L.P., for which he currently serves as a Special General Partner. Since 1970, he has been president of Neill H. Brownstein Corporation, an investment management counseling enterprise. He serves as a director of DSP Communications, Inc. Mr. Brownstein received a B.A. from Columbia College and an M.B.A. from the Kellogg School of Management at Northwestern University. Between 1979 and 1988, Mr. Brownstein also served as a director of Gartner Group, Inc. Mr. Gilmour is a co-founder of the Company with Mr. Gartner. He served as Senior Vice President and Chief Research Officer of the Company from April 1996 to February 1998 and has served as a director of the Company since July 1995. Mr. Gilmour continues to be a special advisor to Giga on Research and Technology and devotes approximately 25% of his time to the Company. From July 1995 to April 1996, he served as Senior Vice President of Technology of the Company. From July 1993 to July 1995, he served as Chief Executive Officer and a director of ExperNet Corporation, an information technology company which he founded with Mr. Gartner. From October 1992 to April 1993, Mr. Gilmour served as acting President and Chief Executive Officer, and from April 1991 to October 1992 and from April 1993 to July 1993, he served as Executive Vice President, Marketing, of Versant Object Technology Corporation, a computer software company. From 1989 to 1991, he served as Vice President--Database Systems Division, from 1986 to 1989, he served as General Manager--Advanced Products Division, and from 1984 to 1986, he served as Director Product Planning at Lotus Development Corporation, a software company. Mr. Gilmour received a B.A. in Applied Physics, an M.S. in engineering, both from Harvard University, and an M.B.A., with distinction, from Harvard Business School. Mr. Crandall has served as a director of and consultant to the Company since August 1995. He was founder of Comshare, Inc., a decision support software company, serving as its Chief Executive Officer from 1970 until 1994 and Chairman until April 1997. Mr. Crandall chairs the Enterprise Software Roundtable, consisting of the CEO's and COO's of the twenty-five largest enterprise software companies. He currently serves on the Board of Directors of Comshare, Computer Task Group and Diebold and several privately held technology companies. He serves on the National Advisory Board to the College of Engineering of the University of Michigan. Mr. Crandall received a B.S. in electrical engineering, a B.S. in mathematics and an M.S.E. in industrial engineering from the University of Michigan. 35 Mr. Goldstein has served as a director of the Company since April 1997. He is a Director of Broadview Associates, LLC, which he joined in 1979. He is a past President of the Information Technology Association of America, the industry trade association of the computer service industry, and past Chairman of the Information Technology Foundation. Mr. Goldstein was a director of Apple Computer Inc. until August 1997, and is currently a Director of Franklin Electronic Publishers, Inc., Sungard Data Systems, Inc., SPSS, Inc. and several privately held companies. Mr. Goldstein received a B.S. from the Wharton School of the University of Pennsylvania and an M.B.A. from Columbia University. Mr. Lieber has served as a director of the Company since November 1995. Since 1979, he has served as Chairman and Chief Executive Officer of Geo Capital Corporation, an investment advisory firm which he founded. Additionally, Mr. Lieber has served as a corporate officer of InfoMedia Associates Ltd., a general partner of 21st Century Communications Partners, L.P., an investment fund. In addition, he is a general partner of Applewood L.P. and Wheatley L.P. LLC., investment funds. From 1970 to 1979, Mr. Lieber was a General Partner of First Manhattan Co., an investment management, brokerage and investment banking firm. Mr. Lieber is a director of LeaRonal Inc. He received a B.S. degree in electrical engineering from City College of New York and an M.S. degree in electrical engineering from Syracuse University. Mr. Weston is Honorary Chairman of the Board of Automatic Data Processing, Inc. ('ADP') and served as chairman from 1986 to April 1998. He was Chief Executive Officer of ADP from 1982 to 1996. Mr. Weston is a director of J. Crew Group Inc, Olsten Corporation, Public Service Enterprise Group Company, Shared Medical Systems, Inc. and Vanstar Corporation. Mr. Weston received a B.S. from City College of New York and an M.S. from the University of New Zealand where he was a Fulbright Scholar. Certain of the current directors of the Company were nominated and elected in accordance with a stockholders voting agreement which will terminate upon the consummation of the Offering. Each officer serves at the discretion of the Board of Directors. There are no family relationships among or between any of the directors and executive officers of the Company. BOARD COMPENSATION Each Non-Employee Director of the Company is reimbursed for expenses incurred in connection with attendance at the meetings of the Board of Directors and committees thereof and is entitled to receive stock options under the Company's 1997 Director Option Plan. Directors who are employees of the Company currently receive no compensation for serving as directors. 1997 Director Option Plan. The Director Plan, adopted in June 1997, provides for the grant of stock options to directors of the Company who are not full-time employees of the Company or any subsidiary ('Non-Employee Directors'). Only non-statutory options may be granted under the Director Plan. The maximum number of shares of Common Stock as to which options may be granted under the Plan is 50,000. Options are automatically granted to Non-Employee Directors as follows: (i) on July 1st of each year, commencing July 1, 1997, options to purchase 2,000 shares of Common Stock and (ii) unless such director was elected pursuant to a certain stockholder voting agreement (which agreement terminates upon consummation of the Offering), additional options to purchase 2,000 shares of Common Stock upon such directors' initial election as a director after adoption of the Plan. As of June 30, 1998, options to purchase 12,000 shares of Common Stock at a weighted average price of $3.00 per share were outstanding under the Director Plan (of which none were then exercisable). As of June 30, 1998, 38,000 shares of Common Stock were available for future grants under the Director Plan. The Director Plan is administered by the Board of Directors. The option exercise price for each option granted under the Director Plan is the fair market value of the Common Stock as of the date of grant. Options vest in four equal annual installments beginning on the first anniversary of the date of grant (subject to acceleration upon a 'change in control' as defined in the Director Plan), provided the optionee continues to serve as a director. Payment of the option exercise price is to be made in cash for the full exercise price of the options. Options are not assignable or transferrable except by will or the laws of descent and distribution and terminate on the earlier of ten years after the date of grant or sixty days after the optionee ceases to serve as a director, except in the event of death or disability. 36 For a discussion of transactions between the Company and certain directors of the Company, see 'Certain Transactions.' EXECUTIVE COMPENSATION The following table sets forth the compensation for the fiscal year ended December 31, 1997 of the Company's Chief Executive Officer and the Company's other most highly compensated executive officers whose annual salary and bonus compensation exceeded $100,000 (the Chief Executive Officer and such other executive officers are hereinafter referred to as the 'Named Executive Officers'): SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS --------------- ANNUAL COMPENSATION SECURITIES ------------------------ UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY($)(1) BONUS($) OPTIONS COMPENSATION($)(2) - ----------------------------------------- ------------ -------- --------------- ------------------ Gideon Gartner; Chairman, CEO and President............ 160,000 30,000 -- -- David Gilmour; Senior Vice President, Research; Director(3)............................ 160,000 24,000(4) -- -- Henry Givray; President and COO(5)................... 144,730(6) 30,000(7) 33,333 shares 125,097(8) Jacques Bouvard; Senior Vice President, Technology(9)... 104,167 30,000(10) 20,000 shares 47,668(11)
- ------------------ (1) Includes amounts payable in 1997 and/or 1998 for services rendered by the Named Executive Officers in 1997. (2) Other compensation in the form of perquisites and other personal benefits have been omitted because it constitutes the lesser of $50,000 or ten percent of the total annual salary and bonus of each of the Named Executive Officers in 1997. (3) Mr. Gilmour became a non-employee consultant effective February 1, 1998 pursuant to a consulting agreement. See 'Employment-Related Agreements.' (4) The amount shown does not include $24,000 paid in 1997 for 1996 compensation. (5) Mr. Givray resigned from the Company on November 5, 1997 pursuant to the Separation Agreement dated January 7, 1998 (the 'Givray Separation Agreement'). See 'Employment-Related Agreements.' (6) The amount shown reflects salary and $9,205 for unused vacation but does not reflect $77,808 of salary continuation paid for the period of November 6, 1997 to April 30, 1998. (7) The amount shown does not reflect $30,000 paid in 1997 for 1996 bonus compensation. The amount reflects $30,000 paid in 1998 for bonus pursuant to the Givray Separation Agreement. (8) This amount reflects $77,808 for salary continuation for the period of November 6, 1997 to April 30, 1998, $5,000 for an additional bonus awarded for signing the Givray Separation Agreement, $30,000 paid in 1997 for relocation allowance and $12,289 reflecting certain travel and computer expenses. See 'Employment-Related Agreements.' (9) Mr. Bouvard's employment with the Company ceased on October 16, 1997 pursuant to the Bouvard Agreement (as defined herein). See 'Employment-Related Agreements.' (10) The amount reflects $30,000 for bonus paid in 1998 pursuant to the Bouvard Separation Agreement. (11) This amount reflects $47,668 for salary continuation for the period of October 16, 1997 to March 15, 1998.
37 The following table sets forth certain information regarding options granted by the Company to each of the Named Executive Officers during the fiscal year ended December 31, 1997: OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ---------------------------------------------------------- NUMBER OF SECURITIES PERCENT OF TOTAL UNDERLYING OPTIONS GRANTED EXERCISE OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION GRANTED FISCAL YEAR(%)(1) SHARE($) DATE ---------- ----------------- ------------ ---------- Gideon I. Gartner............. -- -- -- -- David L. Gilmour.............. -- -- -- -- Henry Givray.................. 33,333 6.44 3.00 2/11/2007 Jacques Bouvard............... 20,000 3.86 3.00 2/11/2007 POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM($)(2) ------------------ 5% 10% --------- ------- Gideon I. Gartner............. -- -- David L. Gilmour.............. -- -- Henry Givray.................. 62,999 159,332 Jacques Bouvard............... 37,800 95,600
- ------------------ (1) Based on an aggregate of 517,597 options granted to employees in fiscal 1997, including options granted to the Named Executive Officers. (2) The amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10%, computed annually from the date the respective options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of the Common Stock, the optionholders' continued employment through the option period and the date on which the options are exercised. The following table sets forth certain information concerning stock options held as of December 31, 1997 by each of the Named Executive Officers: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES UNDERLYING UNEXERCISED OPTIONS NUMBER OF AT FISCAL YEAR-END SHARES ACQUIRED VALUE ---------------------------- NAME ON EXERCISE REALIZED($) EXERCISABLE/ UNEXERCISABLE - ------------------------- --------------- ----------- ------------ ------------- Gideon I. Gartner........ -- -- 220,000 -- David L. Gilmour......... -- -- 24,167 15,833 Henry Givray............. 6,250 1,875 -- 47,083 Jacques Bouvard.......... -- -- 6,667 13,333 VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR END(1) --------------------------- NAME EXERCISABLE/ UNEXERCISABLE - ------------------------------------- ------------- Gideon I. Gartner........ $ 2,530,000 $ -- David L. Gilmour......... $ 277,921 $ 182,080 Henry Givray............. $ -- $ 474,955 Jacques Bouvard.......... $ 66,670 $ 133,330
- ------------------ (1) Represents the total gain which would be realized if all in-the-money options held at December 31, 1997 were exercised, determined by multiplying the number of shares underlying the options by the difference between the assumed initial public offering price of $13.00 per share and the per share option exercise price. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise price of the option. 38 Employment-Related Agreements Gideon I. Gartner. The Company has entered into a non-competition agreement with Mr. Gartner, dated November 13, 1995, pursuant to which Mr. Gartner has agreed not to compete with the Company, solicit any employee or take away any customer of the Company either during his employment with the Company or for so long thereafter as the Company continues to pay Mr. Gartner annual compensation of at least $120,000 (whether as an employee, consultant or in the form of severance or post-employment benefits). Henry Givray. The Company entered into a Separation Agreement with Mr. Givray, dated January 7, 1998 (the 'Givray Agreement'), under the terms of which Mr. Givray ceased working for the Company on November 5, 1997 and received continuation of base salary (at an annualized rate of $160,000) and certain other benefits through April 30, 1998. Mr. Givray also received $30,000 for 1997 bonus, a $5,000 bonus for signing the Givray Agreement and reimbursement of certain other items. The Company agreed to allow Mr. Givray to retain 6,250 options shares which were vested as of November 5, 1997. In addition, the Givray Agreement contains confidentiality and non-competition provisions which terminate October 31, 1998. Jacques Bouvard. The Company entered into a Separation Agreement with Mr. Bouvard, dated October 2, 1997 (the 'Bouvard Agreement'), under the terms of which Mr. Bouvard ceased working for the Company on October 15, 1997 and received (i) continuation of base salary (at an annualized rate of $125,000) and certain other benefits through March 15, 1998 and (ii) an annualized bonus of $30,000. The Company agreed not to exercise its right to repurchase any shares of Common Stock acquired by Mr. Bouvard under the 1996 Option Plan. As of March 15, 1998, Mr. Bouvard held 6,667 vested options under the 1996 Plan at an exercise price of $3.00. In addition, the Bouvard Agreement contains confidentiality and non-competition provisions which terminate February 15, 1999. For a discussion of certain current and past consulting arrangements between the Company and Messrs. Crandall, Brownstein and Gilmour, see 'Certain Transactions--Consulting Agreements.' Stock Plans 1995 Stock Option/Stock Issuance Plan. The Company's 1995 Stock Plan was adopted by the Board of Directors in September 1995 and was approved by the stockholders in February 1996. Under the terms of the 1995 Stock Plan, the Company is authorized to make awards of restricted stock and to grant incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the 'Code') ('incentive stock options'), and stock options not intended to qualify as incentive stock options ('non-statutory stock options'), to employees, officers and directors of, and consultants and advisors to, the Company and its subsidiaries. As of June 30, 1998, options to purchase a total of 343,561 shares of Common Stock at a weighted average exercise price of $2.17 per share were outstanding under the 1995 Stock Plan (of which options to purchase 156,601 shares were then exercisable). As of June 30, 1998, 490,628 shares of Common Stock were available for future grant under the 1995 Stock Plan. The Board of Directors is authorized to select the option recipients and to determine the kind and terms of each option, including (i) the number of shares of Common Stock subject to each option, (ii) the option exercise price, (iii) the vesting schedule of the option, and (iv) the duration of the option. Options are generally not assignable or transferable except by will or the laws of descent and distribution. Restricted stock awards under the 1995 Stock Plan entitle the recipient to purchase Common Stock from the Company under terms which provide for vesting over a period of time and a right of repurchase of unvested stock by the Company when the recipient's relationship with the Company terminates. The Board of Directors is authorized to select the recipients of restricted stock awards and to determine the terms of each award, including (i) the dates on which restricted stock awards are made, (ii) the number of shares of Common Stock subject to the award, (iii) the purchase price (which can be less than the fair market value of the Common Stock) of the award, and (iv) the vesting schedule of the award. The recipients may not sell, transfer or otherwise dispose of shares subject to a restricted stock award until such shares are vested. Upon termination of the recipient's relationship with the Company will be entitled to repurchase those shares which are not vested on the termination date at a price equal to their original purchase price. 39 1996 Stock Option Plan. The Company's 1996 Option Plan was adopted by the Board of Directors in August 1996 and was approved by the stockholders in September 1996. The 1996 Option Plan provides for the grant of stock options to employees, officers and directors of, and consultants or advisors to, the Company and its subsidiaries. Under the 1996 Option Plan, the Company may grant incentive stock options or non-statutory stock options. Incentive stock options may only be granted to employees of the Company. The maximum number of shares with respect to which options may be granted to any employee under the 1996 Option Plan shall not exceed 33,333 shares of Common Stock during any calendar year. As of June 30, 1998, options to purchase a total of 663,416 shares of Common Stock at a weighted average exercise price of $3.84 per share were outstanding under the 1996 Option Plan (of which options to purchase 55,091 shares were then exercisable). As of March 31, 1998, 328,127 shares of Common Stock were available for future grant under the 1996 Option Plan. The 1996 Option Plan is administered by the Compensation Committee of the Board of Directors. Subject to the provisions of the 1996 Option Plan, the Compensation Committee has the authority to select option recipients and to determine the kind and terms of each option, including (i) the number of shares of Common Stock subject to the option, (ii) the option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case of incentive stock options granted to a stockholder owning in excess of 10% of the Company's Common Stock) of the fair market value of the Common Stock as of the date of grant, (iii) the vesting schedule of the option, and (iv) the duration of the option (which, in the case of incentive stock options, may not exceed ten years). Payment of the option exercise price may be made in cash, shares of Common Stock, a combination of cash and Common Stock or by any other method (including delivery of a promissory note payable on terms specified by the Compensation Committee) approved by the Compensation Committee consistent with Section 422 of the Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Options are not assignable or transferable except by will or the laws of descent and distribution and, in the case of non-statutory options, pursuant to a 'qualified domestic relations order' (as defined in the Code). 401(k) Profit Sharing Plan. The Company maintains a 401(k) Profit Sharing Plan (the '401(k) Plan'), a tax-qualified plan covering all of its employees who are at least 21 years of age. Each employee may elect to reduce his or her current compensation by up to 15% (on a pre-tax basis). All employee and Company contributions to the 401(k) Plan are fully vested at all times. Upon termination of employment, an employee may elect a lump sum distribution of all amounts contributed by him or her under the 401(k) Plan. Early withdrawals from amounts contributed under the 401(k) Plan are allowed under certain circumstances, such as disability. In addition, subject to certain restrictions, employees may take a loan drawn on contributions made by the employee under the 401(k) plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee are Neill H. Brownstein and Irwin Lieber, neither of whom is or has been an officer or employee of the Company. For information concerning certain transactions between the Company and certain directors and concerning the former consulting relationship between the Company and certain directors, including Mr. Brownstein, see 'Certain Transactions.' 40 CERTAIN TRANSACTIONS EARLY STAGES In 1995, Mr. Gartner contributed approximately $1.0 million to the capital of the Company. In consideration for such capital contribution, the Company issued to Mr. Gartner (i) in March 1995, 1,400,000 shares of Common Stock at a purchase price of $0.07125 per share, (ii) in July 1995, 60,000 shares of Series A Preferred Stock (80,000 shares of Common Stock on an as-converted basis) at a purchase price of $5.00 per share (or $3.75 per share of Common Stock), and (iii) in October 1995, 400,000 shares of Common Stock at a purchase price of $1.50 per share. Also during 1995, Mr. Gartner incurred $186,000 of disbursements on behalf of the Company in connection with operating expenses prior to the incorporation of the Company, and for items related to the acquisition of BIS. The Company reimbursed Mr. Gartner for these expenses, without interest, in August 1995. In addition, Mr. Gartner made loans totalling $221,000, bearing interest at the rate of 10% per annum, to ExperNet (a subsidiary of the Company). These loans were repaid, together with unpaid interest thereon, in December 1995. EXPERNET ACQUISITION In July 1995, the Company acquired (the 'ExperNet Acquisition') all of the ExperNet Corporation shares owned by Mr. Gartner and a majority of the ExperNet Corporation shares owned by Mr. Gilmour, aggregating 77.8% of ExperNet Corporation's outstanding common stock, in exchange for (i) 160,000 shares of Series A Preferred Stock (213,333 shares of Common Stock on an as-converted basis) of the Company, 80,000 shares (106,667 shares on an as-converted basis) of which were issued to Mr. Gartner and 80,000 shares (106,667 shares on an as-converted basis) of which were issued to Mr. Gilmour, and (ii) the issuance to Mr. Gartner of a fully-vested option to purchase 53,333 shares of Common Stock at an exercise price of $1.50 per share. In December 1995, the Company acquired Mr. Gilmour's remaining 22.2% interest in ExperNet Corporation in exchange for a $400,000 6% Convertible Note due December 31, 2005 (the 'Gilmour Note'). The Gilmour Note was repaid in full, together with interest thereon, by the Company; one-half in February 1998 and the remainder in April 1998. See '--Consulting Agreement--Gilmour Agreement.' In addition, Mr. Gilmour made loans totalling $101,000 to ExperNet Corporation, which loans were repaid in full, together with interest thereon, by ExperNet Corporation in December 1995. FINANCINGS Series A Preferred Stock Financing In July 1995 and October 1995, the Company issued and sold (the 'Series A Financing') an aggregate of 570,000 shares of Series A Preferred Stock (760,001 shares of Common Stock on an as-converted basis) at a purchase price of $5.00 per share (or $3.75 per share of Common Stock) to a limited number of investors, including 60,000 shares (80,000 shares on an as-converted basis) to Mr. Brownstein, 15,000 shares (20,000 shares on an as-converted basis) to Mr. Crandall and 10,000 shares (13,333 shares on an as-converted basis) to James D. Robinson III, a former director of the Company. Series B Preferred Stock Financing In August 1995, the Company entered into a Convertible Promissory Note and Warrant Purchase Agreement with RRE Giga Investors, L.P. ('RRE Giga'), pursuant to which the Company borrowed $2.0 million from RRE Giga and issued RRE Giga a convertible promissory note (the 'RRE Note') in the principal amount of $2.0 million and a warrant (the 'RRE Warrant') to purchase 285,714 shares of Series B Preferred Stock (95,238 shares of Common Stock on an as-converted basis) at an exercise price of $2.345 per share (or $7.035 per share of Common Stock). In November 1995, the RRE Note was converted into 571,428 shares of Series B Preferred Stock (190,476 shares on an as-converted basis). In September 1996, RRE Giga made a cashless exercise of the RRE Warrant and received 218,714 shares of Series B Preferred Stock (72,905 shares on an as-converted basis). Mr. Robinson, a former director of the Company, is Chairman and Chief Executive Officer of RRE Investors, L.L.C., the General Partner of RRE Giga. 41 In November 1995, February 1996 and December 1996, the Company issued and sold (the 'Series B Financing') an aggregate of 7,354,500 shares of Series B Preferred Stock (2,451,497 shares of Common Stock on an as-converted basis), at a purchase price of $3.50 per share (or $10.50 per share of Common Stock), to a limited number of investors, including 40,000 shares of Series B Preferred Stock to Mr. Brownstein and certain members of his family for aggregate consideration of $140,000. The following entities which are affiliates of directors and/or principal stockholders of the Company also purchased Series B Preferred Stock:
ENTITIES AFFILIATED WITH: NO. OF SHARES AGGREGATE CONSIDERATION PAID - -------------------------------------------------------------- ------------- ---------------------------- 21st Century Communications Partners, L.P..................... 1,714,286 $6,000,000 S(squared) Technology Corporation............................. 1,116,398 3,907,393 RRE Giga Investors, L.P....................................... 1,078,713 3,775,495 Montgomery Small Cap Partners, L.P............................ 1,029,714 3,604,000 Wanger Asset Management, L.P.................................. 885,714 3,100,000
Mr. Lieber, a director of the Company, is a corporate officer of InfoMedia Associates, Ltd., which is a General Partner of 21st Century Communications Partners, L.P. ('21-CCP'), 21st Century Communications T-E Partners, L.P. ('21-CCTEP') and 21st Century Communications Foreign Partners, L.P. ('21-CCFP'). Mr. Robinson, a former director of the Company, is Chairman and Chief Executive Officer of RRE Investors, L.L.C., the General Partner of RRE Giga and RRE Giga Investors II, L.P. ('RRE Giga II'). Series C Preferred Stock Financing In May and December 1997, the Company issued and sold (the 'Series C Financing') an aggregate of 2,609,491 shares of Series C Preferred Stock (1,021,429 shares of Common Stock on an as-converted basis) at a purchase price of $4.11 per share (or $10.50 per share of Common Stock). The Series C Preferred Stock entitled investors to receive warrants to purchase up to 54% additional shares of Series C Preferred Stock based upon the Company's NAVI for fiscal 1997. In January 1998, the Company issued warrants to purchase an aggregate of an additional 1,409,127 shares of Series C Preferred Stock (551,574 shares of Common Stock on an as-converted basis) at an exercise price of $5.28 per share (or $13.50 per share of Common Stock). The following persons and entities who are executive officers, directors, affiliates of directors and/or principal stockholders of the Company invested in Series C Preferred Stock:
SHARES OF AGGREGATE SERIES C SERIES C CONSIDERATION NAME STOCK WARRANTS PAID - --------------------------------------------------------------- --------- --------- ------------- Entities affiliated with Dawson-Samberg Capital Management, Inc.......................................................... 1,946,473 1,051,095 $ 8,000,000 Gideon I. Gartner.............................................. 60,827 32,847 250,000 Richard Crandall Trust......................................... 30,414 16,424 125,000 Bernard Goldstein.............................................. 24,331 13,139 100,000 Neill H. Brownstein............................................ 60,827 32,847 250,000 Wheatley Partners, L.P......................................... 111,923 60,438 391,731 Wheatley Foreign Partners, L.P................................. 9,732 5,255 34,062
Series D Preferred Stock Financing In April and May 1998, the Company issued and sold (the 'Series D Financing') an aggregate of 285,715 shares of Series D Preferred Stock (190,476 shares of Common Stock on an as-converted basis), at a purchase price of $7.00 per share (or $10.50 per share of Common Stock), and warrants to purchase an additional 154,285 shares of Series D Preferred Stock (102,857 shares of Common Stock on an as-converted basis), at an exercise price of $9.00 per share (or $13.50 per share of Common Stock). Acorn Fund, a series of Acorn Investment Trust, which is managed by Wanger Asset Management, L.P., purchased 71,429 shares of Series D Preferred Stock and received warrants to purchase an additional 38,571 shares of Series D Preferred Stock for an aggregate consideration of approximately $500,000. 42 CONSULTING AGREEMENTS Crandall Consulting Agreement In August 1995, the Company entered into a consulting arrangement with Mr. Crandall. The arrangement provided for payment to Mr. Crandall of $50,000 per annum in 1995 and $60,000 per annum in 1996. In lieu of certain payments due to Mr. Crandall, the Company issued to Mr. Crandall 40,000 shares of Common Stock at a purchase price of $1.50 per share. The shares are subject to vesting and certain restrictions on transfer. In July 1996, as compensation for the consulting services to be rendered by Mr. Crandall to the Company for the twelve-month period ended June 30, 1997, the Company granted to Mr. Crandall an option to purchase 6,667 shares of Common Stock at an exercise price of $1.80 per share. Twenty-five percent of the shares subject to the option vested one year from the date of grant and one forty-eighth of the shares have vested monthly thereafter. In February 1997, as compensation for the extension of Mr. Crandall's consulting services through June 1998, and the devotion of one-third of his time to such matters, the Company granted to Mr. Crandall, effective January 1, 1997, 16,667 shares of Common Stock and an option to purchase 8,333 shares of Common Stock at an exercise price of $3.00 per share. One sixth of such shares of Common Stock have vested quarterly since the effective date of grant. Twenty-five percent of the shares subject to the option vested one year from the effective date of grant and one thirty-sixth have vested monthly thereafter. Brownstein Financing and Consulting Agreement In October 1995, the Company sold to Mr. Brownstein, a director of the Company, 26,667 shares of Common Stock at a purchase price of $1.50 per share. In January 1996, the Company entered into a one-year consulting agreement with the Neill H. Brownstein Corporation (the 'Brownstein Corporation'), of which the sole shareholder is Mr. Brownstein, a director of the Company. Pursuant to the consulting agreement, the Brownstein Corporation received a consulting fee of $60,000, plus reasonable expenses, payable quarterly. The Brownstein Corporation agreed that during the term of the agreement and for a period of one year thereafter, the Brownstein Corporation would not use any of the Company's proprietary or confidential information or disclose such proprietary and confidential information to any third party. Gilmour Agreement In February 1998, the Company entered into an agreement (the 'Gilmour Agreement') with Mr. Gilmour, a director and co-founder of the Company, relating to Mr. Gilmour's continuing relationship with the Company in light of Mr. Gilmour's desire to establish Tacit Knowledge Systems ('Tacit'), a company to be engaged in the development and commercialization of various forms of software related to the automatic capture of knowledge through messaging systems (the 'Software'). The Gilmour Agreement superseded Mr. Gilmour's employment agreement, dated July 6, 1995, pursuant to which Mr. Gilmour served as Senior Vice President, Research, was elected a director and received a salary at the rate of $160,000 per annum commencing September 1, 1995. The Gilmour Agreement provides that Mr. Gilmour will remain a director of the Company and, for at least six months, will serve as a consultant to the Company, acting as chief research officer and devoting approximately 25% of his time to such duties. Mr. Gilmour will be compensated at the rate of $50,000 per annum for such services. The Gilmour Agreement also provides that the Company will receive a 7.5% equity interest in Tacit, will be entitled to participate in future Tacit financings and will be granted an irrevocable, royalty-free, worldwide license to use any and all software, products and technologies that Tacit develops through January 2001. The Company has the option of extending the license for two additional one-year periods for a fee of $50,000 per annum. The Company also agreed that the Software shall not constitute 'Development' or 'Proprietary Information' as such terms are defined in the Invention and Non-Disclosure Agreement, dated July 6, 1995, between the Company and Mr. Gilmour. In addition, the Gilmour Agreement contained non-competition and no-raid provisions, which are to survive for one year following a voluntary termination by Mr. Gilmour of his consulting relationship with the Company. The Gilmour Agreement also resolved the status of certain of the Company's securities held by Mr. Gilmour. The Company agreed not to exercise its rights to repurchase the Series A Preferred Stock that was 43 issued to Mr. Gilmour in connection with the ExperNet Acquisition. As of the date of the Gilmour Agreement, of the options that had been granted to Mr. Gilmour to purchase 40,000 shares of Common Stock at an exercise price of $1.50 per share, options to purchase 15,000 shares remained unvested. It was agreed that these unvested options would vest at a revised rate of one ninety-sixth of such options per month thereafter. Furthermore, the Company agreed to redeem the Gilmour Note, including accrued interest thereon, one-half in February 1998 and the remainder in April 1998. CERTAIN STOCKHOLDER RIGHTS For a description of certain other registration rights of, and stock transfer restrictions imposed on, certain executive officers, directors, affiliates of directors and/or principal stockholders of the Company, see 'Description of Capital Stock--Registration Rights Agreement' and '--Co-Sale Agreement.' CERTAIN EMPLOYMENT-RELATED ARRANGEMENTS In March 1998, the Company granted options to purchase 100,000, 8,000, 8,000, and 8,000 shares of Common Stock to Messrs. Gartner, Graham, Clarke and Crandall, respectively. The options were all granted at an exercise price of $3.00 per share, except for the options granted to Mr. Gartner which were granted at an exercise price of $3.30 per share. As a result of these option grants, the Company will recognize compensation expense of $345,000, $30,000, $30,000 and $30,000, respectively. See Note 15 to the Consolidated Financial Statements. For a description of certain other employment-related arrangements between the Company and certain executive officers and directors of the Company, see 'Management--Executive Compensation' and 'Management--Employment-Related Agreements.' ------------------------ The Company believes that the securities issued in the transactions involving the Company described above (other than compensatory arrangements) were sold by the Company at their then fair market value and that the terms of the transactions described above were no less favorable than the Company could have obtained from unaffiliated third parties. The Company has adopted a policy, effective following the consummation of the Offering, that all material transactions between the Company and its officers, directors and other affiliates must (i) be approved by a majority of the members of the Company's Board of Directors and by a majority of the disinterested members of the Company's Board of Directors and (ii) other than compensatory arrangements, be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. In addition, this policy will require that any loans by the Company to its officers, directors or other affiliates be for bona fide business purposes only. 44 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of June 30, 1998 (assuming the conversion of all outstanding shares of Convertible Preferred Stock into Common Stock after giving effect to the Reverse Stock Split), and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by (i) each person or entity known to the Company to beneficially own more than 5% of the Company's Common Stock, (ii) each of the Company's directors and director nominees, (iii) each of the Named Executive Officers and (iv) all directors, director nominees and executive officers as a group.
PERCENTAGE OF SHARES BENEFICIALLY OWNED (2) NUMBER OF SHARES ----------------------- NAME AND ADDRESS OF BENEFICIALLY OWNED BEFORE AFTER BENEFICIAL OWNER PRIOR TO OFFERING(1) OFFERING OFFERING - ------------------------------------------------------------------ -------------------- -------- -------- 21st Century Communications Partners, L.P......................... 571,429(3) 8.3% 5.8% 767 Fifth Avenue, 45th floor New York, NY 10153 Entities affiliated with S(squared) Technology Corporation......... 443,897(4) 6.5% 4.5% 515 Madison Avenue, Suite 4200 New York, NY 10022 RRE Giga Investors, L.P........................................... 359,571(5) 5.2% 3.6% 126 East 56th Street, 22nd floor New York, NY 10022 Funds managed by Wanger Asset Management, L.P..................... 368,570(6) 5.4% 3.7% 227 West Monroe Street, Suite 3000 Chicago, IL 60606 Pequot Private Equity Fund, L.P................................... 1,173,337(7) 17.1% 11.4% 354 Pequot Avenue Southport, CT 06490-0760 Gideon I. Gartner................................................. 2,256,113(8) 32.8% 22.8% c/o Giga Information Group, Inc. One Longwater Circle Norwell, MA 02061 Neill H. Brownstein............................................... 157,166(9) 2.3% 1.6% Richard L. Crandall............................................... 103,310(10) 1.5% 1.0% David L. Gilmour.................................................. 132,761(11) 1.9% 1.3% Bernard Goldstein................................................. 42,334(12) * * Irwin Lieber...................................................... 835,738(13) 12.2% 8.5% Josh S. Weston.................................................... 0 -- -- Henry Givray...................................................... 6,250 * * Jacques Bouvard................................................... 6,667 -- * All directors, director nominees and executive officers as a group (11 persons).................................................... 3,533,430(14) 51.4% 35.7%
- ------------------ * Less than 1% (1) Each stockholder possesses sole voting and investment power with respect to the shares listed, except as otherwise noted. Amounts shown include shares issuable within the 60-day period following June 30, 1998 pursuant to the exercise of options or warrants. (2) On June 30, 1998, there were 6,871,338 shares of Common Stock outstanding, assuming the conversion of all outstanding shares of all series of Preferred Stock into Common Stock. (Footnotes continued on next page) 45 (Footnotes continued from previous page) (3) Includes 387,443 shares of Common Stock held by 21-CCP, 131,853 shares of Common Stock held by 21-CCTEP and 52,133 shares of Common Stock held by 21-CCFP. (4) S Squared Technology Corporation ('S Squared'), an investment manager, is the General Partner of (i) Sci-Tech Investment Partners L.P., which holds 32,686 shares of Common Stock, (ii) S.G. Partners, L.P., which holds 53,165 shares of Common Stock, and (iii) Executive Technology, L.P., which holds 22,027 shares of Common Stock. Seymour L. Goldblatt, the President of S Squared, is the Managing Director of both The Matrix Technology Group N.V., which holds 13,249 shares of Common Stock, and Core Technology Fund, Inc., which holds 87,650 shares of Common Stock. S Squared serves as an investment advisor to each of the foregoing funds and exercises by agreement investment and voting power on behalf of each fund. Mr. Goldblatt, as president of S Squared, also exercises by agreement investment and voting power for the following funds: (i) Yale University, which holds 174,860 shares of Common Stock, (ii) Yale University Retirement Plan for Staff Employees, which holds 8,584 shares of Common Stock, (iii) Montsol Investments N.V., which holds 8,820 shares of Common Stock, (iv) Alfred University, which holds 6,883 shares of Common Stock, (v) Foundation Partners, which holds 6,772 shares of Common Stock, (vi) Tampsco II Partnership, which holds 3,772 shares of Common Stock and (vii) Hare & Co., which holds 25,429 shares of Common Stock. (5) Includes 263,381 shares held by RRE Giga Investors, L.P. ('RRE Giga') and 96,190 shares of Common Stock held by RRE Giga Investors II, L.P. ('RRE Giga II'). James D. Robinson III, a former director of the Company, is the record owner of 13,333 shares of Common Stock. Mr. Robinson is a General Partner of RRE Investors, L.L.C., the General Partner of RRE Giga and RRE Giga II. Mr. Robinson disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. Mr. Robinson shares dispositive and voting power of such shares with the General Parters of RRE Investors, L.L.C. (6) Includes 199,998 shares of Common Stock held by Akkad and 168,572 shares of Common Stock held by Acorn Fund, a series of Acorn Investment Trust (25,715 shares of which are subject to the exercise of warrants). Wanger Asset Management, L.P. serves as the investment manager to each of these entities and possesses investment and voting power with respect to each such entity but disclaims beneficial ownership. The natural person exercising investment and voting power over the shares is Ralph Wanger, Chairman of the Board of Wanger Asset Management, Ltd., the general partner of Wanger Asset Management, L.P. Mr. Wanger disclaims beneficial ownership of the shares. (7) Includes 1,041,474 shares of Common Stock held by Pequot Private Equity Fund, L.P. (365,193 shares of which are subject to the exercise of warrants) and 131,863 shares of Common Stock held by Pequot Offshore Private Equity Fund, L.P. (46,238 shares of which are subject to the exercise of warrants). Dawson-Samberg Capital Management, Inc. serves as the investment manager to each of these entities and possesses investment and voting power with respect to each such entity but disclaims beneficial ownership. The natural person exercising investment and voting power over the shares is Arthur J. Samberg of Dawson-Samberg Capital Management, Inc. Mr. Samberg disclaims beneficial ownership of the shares. (8) Includes options to purchase 220,000 shares of Common Stock and warrants to purchase 12,857 shares of Common Stock. Also includes 220,335 shares of Common Stock which are held of record by members of Mr. Gartner's family. Mr. Gartner disclaims beneficial ownership of shares held by members of his family. (9) Includes 8,000 shares of Common Stock held by Mr. Brownstein's children and 5,333 shares of Common Stock held by Mr. Brownstein and his spouse jointly. Mr. Brownstein disclaims beneficial ownership of the 6,000 shares of Common Stock held by his adult children, Adam J. and Todd D. Brownstein, and Will Gordon, the adult child of his spouse. Mr. Brownstein disclaims beneficial ownership of the 2,000 shares of Common Stock held by his minor child, Emily Hamilton; however, Mr. Brownstein exercises investment and voting power over these shares. (Footnotes continued on next page) 46 (Footnotes continued from previous page) (10) Includes 38,334 shares of Common Stock held by R. Crandall Trust, of which Mr. Crandall serves as trustee (6,429 shares of which are subject to the exercise of warrants). Also includes options to purchase 8,312 shares of Common Stock. (11) Includes options to purchase 26,094 shares of Common Stock. (12) Includes warrants to purchase 5,143 shares of Common Stock. (13) Includes 286,840 shares of Common Stock held by 21-CCP, 131,853 shares of Common Stock held by 21-CCTEP, 52,133 shares of Common Stock held by 21-CCFP, 246,646 shares of Common Stock held by Wheatley Partners, L.P. ('Wheatley') and 17,163 shares of Common Stock held by Wheatley Foreign Partners, L.P. ('Wheatley Foreign'). Mr. Lieber, a director of the Company, is a corporate officer of InfoMedia Associates Ltd., a General Partner of 21-CCP, 21-CCTEP, 21-CCFP and a General Partner of Wheatley LLC, a General Partner of Wheatley and Wheatley Foreign. Mr. Lieber disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. Mr. Lieber shares dispositive and voting power of such shares with the General Partners of the General Partner of Wheatley and Wheatley Foreign and with the other officers of the General Partner of 21-CCP, 21-CCTEP and 21-CCFP. (14) Includes 264,015 shares of Common Stock issuable upon exercise of options and shares of Common Stock issuable upon exercise of warrants held by all directors, director nominees and executive officers as a group. 47 DESCRIPTION OF CAPITAL STOCK At June 30, 1998, there were outstanding an aggregate of 2,184,554 shares of Common Stock, 570,000 shares of Series A Preferred Stock, 8,144,642 shares of Series B Preferred Stock, 2,609,491 shares of Series C Preferred Stock and 285,715 shares of Series D Preferred Stock of the Company. Upon the closing of the Offering, all of such shares of Convertible Preferred Stock will automatically be converted into an aggregate of 4,686,784 shares of Common Stock, resulting in an aggregate of 6,871,338 shares of Common Stock outstanding. All of the shares of Convertible Preferred Stock that have been converted will cease to be outstanding and may not be reissued. See 'Capitalization.' COMMON STOCK The Restated Certificate, which will become effective upon the closing of the Offering, will authorize the issuance of up to 60,000,000 shares of Common Stock, $.001 par value per share. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered by the Company in the Offering will be, when issued and paid for, fully paid and nonassessable. PREFERRED STOCK Upon the consummation of the Offering, the Restated Certificate will authorize the issuance of up to 5,000,000 shares of Preferred Stock, $.001 par value per share. Under the terms of the Restated Certificate, the Board of Directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue such shares of Preferred Stock in one or more series. Each such series of Preferred Stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Board of Directors. The purpose of authorizing the Board of Directors to issue Preferred Stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. WARRANTS At June 30, 1998, there were outstanding warrants to purchase (i) 500,000 shares of Common Stock at an exercise price of $1.00 per share (166,666 shares of Common Stock at an exercise price of $3.00 per share on a post-split basis), (ii) 107,876 shares of Series B Preferred Stock at an exercise price of $4.625 per share (35,959 shares of Common Stock at an exercise price of $13.875 per share on a post-split, as-converted basis), (iii) 1,654,724 shares of Series C Preferred Stock at an exercise price of $5.28 per share (551,574 shares of Common Stock at an exercise price of $13.50 per share on a post-split, as-converted basis) and (iv) 308,570 shares of Series D Preferred Stock at an exercise price of $9.00 per share (102,857 shares of Common Stock at an exercise price of $13.50 per share on a post-split, as-converted basis). The holders of such warrants have no rights as stockholders until the exercise thereof. REGISTRATION RIGHTS AGREEMENT In connection with its preferred stock financings, the Company entered into a Registration Rights Agreement, dated November 13, 1995, as amended (the 'Registration Rights Agreement'), with its preferred stockholders (the 'Investors') and Messrs. Gartner and Gilmour (the 'Management Persons'). The Registration 48 Rights Agreement provides that, following June 30, 1998, the holders of at least 30% of the Registrable Securities (as defined therein) then outstanding, excluding shares held by Management Persons, shall have two demand registration requests (no more than one within a twelve-month period). At such time as the Company becomes eligible to file a registration statement under the Securities Act on Form S-3, the holders of at least 20% of the Registrable Securities then outstanding may make six additional demand registration requests (no more than one within a six-month period). The Registration Rights Agreement also provides the holders of Registrable Securities with unlimited piggyback registration rights in the event the Company proposes to register its Common Stock under the Securities Act in connection with a public offering. The Company has obtained a waiver from the holders of Registrable Securities of their piggyback registration rights in connection with the Offering. Pursuant to the Registration Rights Agreement, the Company will pay all expenses (other than underwriting discounts and commissions) incurred in connection with demand registrations and piggyback registrations. In addition, the Company has agreed to indemnify each holder of Registrable Securities and any underwriter for such holder against certain liabilities, including liabilities under federal or state securities laws. The Registration Rights Agreement terminates with respect to each holder of Registrable Securities upon the later of (i) three years following the consummation of a Qualified Public Offering (as defined therein to include this Offering) or (ii) such time following an initial public offering of the Company as such holder is entitled under Rule 144 to dispose of all the Registrable Securities held by such holder during any 90-day period. CO-SALE AGREEMENT In connection with its preferred stock financings, the Company also entered into a Co-Sale and Stock Restriction Agreement, dated November 13, 1995, as amended (the 'Co-Sale Agreement') with Mr. Gartner (the 'Founder') and the holders of the Company's Series B and Series C Preferred Stock (collectively, the 'Stockholders'). The holders of Series B Preferred Stock include, but are not limited to, Neill H. Brownstein, Linda Brownstein, Adam J. Brownstein, Todd D. Brownstein, Will P. Gordon, Emily G. Hamilton, S Squared, Wanger Asset Management, L.P., RRE Giga, RRE Giga II, 21st Century Communications Partners, L.P. and Montgomery Small Cap Partners, L.P. The holders of Series C Preferred Stock include Neill H. Brownstein, R. Crandall Trust, Gideon I. Gartner, Bernard Goldstein, Pequot Private Equity Fund L.P., Wheatley Partners, L.P., Wheatley Foreign Partners L.P. and Allen & Company. The Co-Sale Agreement provides that, except for certain limited sales and sales to the Company, if the Founder proposes to sell or transfer shares of Common Stock (including shares of Common Stock issuable upon conversion or exercise of any warrants, options or preferred stock held by the Founder) ('Stock') in one or more transactions, the Founder shall promptly give written notice to the Company and the Stockholders and each Stockholder shall have the right to participate pro-rata in such sale on the same terms and conditions. In addition, the Co-Sale Agreement provides that each Stockholder has the right of first offer to purchase such Stockholder's pro-rata share of all (or any part) of any Stock that the Founder may from time to time propose to sell. Notwithstanding the foregoing provisions, the Co-Sale Agreement provides that the Founder may not sell or transfer more than an aggregate of 266,667 shares of Stock during the three-year period ending November 1, 1998, subject to limited exceptions, including sales to the Company. The Co-Sale Agreement terminates upon the earlier of (i) two years following the closing of a qualified public offering (as described therein to include this Offering) or (ii) the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of merger or consolidation resulting in the exchange of the outstanding shares of the Company's capital stock for securities or consideration issued by the acquiring entity or its subsidiary. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS The Company is subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware corporation from engaging in a 'business combination' with an 'interested stockholder' for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A 'business combination' includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an 'interested stockholder' is a person who, together with affiliates and associates, owns, or within the past three years did own, 15% or more of a corporation's voting stock. 49 The Restated Certificate provides for the division of the Board of Directors into three classes as nearly equal in size as possible with staggered three-year terms. See 'Management.' In addition, the Restated Certificate provides that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of the shares of capital stock of the Company entitled to vote. Under the Restated Certificate, any vacancy on the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may only be filled by vote of a majority of the directors then in office. The classification of the Board of Directors and the limitations on the removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. The Restated Certificate also provides that, after the consummation of the Offering, any action required or permitted to be taken by the stockholders of the Company at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be undertaken by written action in lieu of a meeting. The Restated Certificate further provides that special meetings of the stockholders may only be called by the Chairman of the Board of Directors, the Chief Executive Officer or, if none, the President of the Company or by the Board of Directors. Under the Company's Amended and Restated By-Laws (the 'By-Laws'), which will become effective upon the closing of the Offering, in order for any matter to be considered 'properly brought' before a meeting, a stockholder must comply with certain requirements regarding advance notice to the Company. The foregoing provisions could have the effect of delaying until the next stockholders' meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of the Company. These provisions may also discourage another person or entity from making a tender offer for the Company's Common Stock, because such person or entity, even if it acquired a majority of the outstanding voting securities of the Company, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders meeting, and not by written consent. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. The Restated Certificate and the By-Laws require the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Company issued and outstanding and entitled to vote to amend or repeal any of the provisions described in the prior two paragraphs. The Restated Certificate contains certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, the Restated Certificate contains provisions to indemnify the Company's directors and officers to the fullest extent permitted by the General Corporation Law of Delaware. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock will be American Stock Transfer & Trust Company. 50 SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, based on the number of shares outstanding at June 30, 1998, there will be approximately 9,871,338 shares of Common Stock outstanding. Of these shares, the 3,000,000 shares of Common Stock sold in the Offering will be freely transferable without restriction under the Securities Act, except that any shares purchased by 'affiliates' of the Company, as that term is defined in Rule 144, generally must be sold in compliance with the limitations of Rule 144 described below. The remaining approximately 6,871,338 shares of Common Stock outstanding will be 'restricted securities' as that term is defined in Rule 144 (the 'Restricted Shares'). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market (subject in the case of shares held by affiliates to compliance with certain volume restrictions) as follows: (i) approximately 355,292 shares will be available for immediate sale in the public market immediately following the effective date of the Registration Statement; (ii) approximately 59,246 shares will be eligible for resale 90 days after the effective date of the Registration Statement; (iii) approximately 5,870,301 shares will be eligible for resale upon expiration of lock-up agreements 180 days after the effective date of the Registration Statement; and thereafter (iv) the remaining approximately 586,499 shares will be eligible for sale upon expiration of their respective one-year holding periods. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least one year, including persons who may be deemed affiliates of the Company, would be entitled to sell within any three-month period, subject to meeting certain manner of sale and notice requirements, a number of shares that does not exceed the greater of (i) one percent of the number of shares of Common Stock then issued and outstanding (approximately 98,713 shares upon consummation of the Offering) and (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of a Form 144 notice of sale with the Securities and Exchange Commission. A person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares under Rule 144(k) without regard to the volume limitations described above. Affiliates whose shares are not Restricted Shares must nonetheless comply with the same Rule 144 restrictions applicable to Restricted Shares with the exception of the one year holding period requirement. Rule 701 promulgated under the Securities Act provides that shares of Common Stock acquired on the exercise of outstanding options may be resold by persons, other than affiliates, beginning 90 days after the date of this Prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days after the date of this Prospectus, subject to all provisions of Rule 144 except its one-year minimum holding period. The Company and its executive officers, directors and stockholders (who in the aggregate will beneficially own approximately 6,183,517 Restricted Shares, have agreed that, subject to certain limited exceptions, for a period ending 180 days after the consummation of the Offering, without the prior written consent of Friedman, Billings, Ramsey & Co., Inc., they will not, directly or indirectly, offer, pledge, sell, offer to sell, contract to sell, grant any option to purchase or otherwise sell, dispose of, make any short sale of, loan or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, shares of Common Stock. See 'Underwriting.' The Company intends to file registration statements on Form S-8 under the Securities Act to register all shares of Common Stock issuable under the 1995 Stock Plan and the 1996 Option Plan. These registration statements are expected to be filed promptly after the effective date of the Registration Statement of which this Prospectus is a part and will be effective upon filing. Shares issued upon the exercise of stock options after the effective date of the Form S-8 registration statements will be eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements noted above. 51 As of June 30, 1998, the holders of 6,261,451 shares of Common Stock and warrants to purchase 857,056 shares of Common Stock are entitled to certain demand and/or piggyback registration rights with respect to such shares (the 'Registrable Shares'). See 'Description of Capital Stock--Registration Rights Agreement.' Prior to the Offering, there has been no public market for the Common Stock of the Company, and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of the Common Stock in the public market could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. 52 UNDERWRITING Subject to the terms and conditions of the underwriting agreement among the Company and the Underwriters (the 'Underwriting Agreement'), the Underwriters named below, through their Representatives, Friedman, Billings, Ramsey & Co., Inc. ('FBR') and Prudential Securities Incorporated ('Prudential Securities') (which is acting as the 'qualified independent underwriter' pursuant to the National Association of Securities Dealers, Inc. (the 'NASD') Conduct Rules with respect to the Offering), have severally agreed to purchase from the Company the following respective numbers of shares of Common Stock:
NUMBER OF UNDERWRITERS SHARES - --------------------------------------------------------------------------------- --------- Friedman, Billings, Ramsey & Co., Inc............................................ Prudential Securities Incorporated............................................... --------- Total.......................................................................... 3,000,000 --------- ---------
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company and its counsel and independent auditors. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The offering of Common Stock is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the Offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. The Underwriters propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may re-allow a concession not in excess of $ per share to certain other dealers. The Underwriters have informed the Company that they do not intend to confirm sales to any accounts over which they exercise discretionary authority. After the initial public offering of Common Stock, the offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company has granted to the Underwriters the over-allotment option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock at the initial public offering price, less the underwriting discount, set forth on the cover page of this Prospectus. To the extent the Underwriters exercise such over-allotment option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the table above bears to the total number of shares of Common Stock offered hereby. The Company will be obligated, pursuant to the over-allotment option, to sell shares to the Underwriters to the extent the over-allotment option is exercised. The Underwriters may exercise the over-allotment option only to cover over-allotments made in connection with the sale of Common Stock offered hereby. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. The Company will reimburse the Underwriters for their reasonable out-of-pocket expenses, including legal fees and expenses, not to exceed $100,000 including FBR's expenses in connection with the Bridge Financing (as described below). Prior to the Offering, there has been no public market for Common Stock. The initial public offering price for Common Stock will be determined by negotiation among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price are prevailing market conditions, revenues and earnings of the Company, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, the Company's management and other factors deemed relevant. The estimated initial public offering price range set forth on the cover of this Prospectus is subject to change as a result of market conditions and other factors. There can, 53 however, be no assurance that the price at which the shares of Common Stock will sell in the public market after the Offering will not be lower than the price at which they are sold by the Underwriters. Until the distribution of the Common Stock is completed, the rules of the SEC may limit the ability of the Underwriters and certain selling group members to bid for or purchase Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of shares of Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of shares Common Stock. If the Underwriters create a short position in shares of Common Stock in connection with the Offering, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the Representatives may reduce that short position by purchasing shares of Common Stock in the open market. The Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of shares of Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold such shares of Common Stock as part of the Offering. In general, purchases of securities for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of shares of Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. The Company, its directors, officers and certain securityholders have each agreed that it or they will not, without the prior written consent of FBR, directly or indirectly, offer, pledge, sell, offer to sell, contract to sell, grant any option to purchase or otherwise sell, dispose of, make any short sale of, loan or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for, shares of Common Stock for the period ending 180 days after the consummation of the Offering, except that the Company may grant additional options and issue additional stock under its stock plans and repurchase shares thereunder. Up to 5% of the shares of Common Stock offered hereby may be reserved for sale to certain employees and directors of the Company and their family members, at a price equal to the initial public offering price per share. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same terms as the other shares offered hereby. In April 1998, the Company engaged FBR to act as its financial advisor and lead underwriter in connection with the Offering and to provide certain other investment banking services to the Company for customary fees. In April 1998, the Company entered into a Loan and Warrant Purchase Agreement (the 'Loan Agreement') with certain affiliates of FBR (the 'Lenders'), pursuant to which the Company borrowed $10.0 million from the Lenders (the 'Bridge Financing') (on which the Lenders received a $200,000 origination fee) and issued the Lenders the Bridge Notes in the aggregate principal amount of $10.0 million and warrants (the 'Bridge Warrants') to purchase an aggregate of 166,666 shares of Common Stock at an exercise price of $3.00 per share. The Bridge Notes accrue interest at the rate of 12% per annum on the principal amount thereof outstanding during the period beginning on the date of issuance and ending on the Maturity Date (as defined below). The obligations under the Bridge Notes are collateralized by substantially all of the assets of the Company. The outstanding principal amount of, and any unpaid accrued interest on, the Bridge Notes is due and payable on the consummation of the Offering (the 'Maturity Date') and may be prepaid in whole or in part at any time without penalty. 54 In July 1998, Prudential Securities became a customer of the Company. Under the Conduct Rules of the NASD, due to the ownership interest in the Company of FBR, the Company may be deemed to be an affiliate of FBR. Accordingly, the public offering price can be no higher than that recommended by a 'qualified independent underwriter' meeting certain standards. In accordance with the requirement, Prudential Securities has agreed to serve in such role and to recommend a price in compliance with the requirements of the Conduct Rules. Prudential Securities, in its role as qualified independent underwriter, has performed a due diligence investigation and has reviewed and participated in the preparation of this Prospectus and the registration statement of which this Prospectus forms a part. In accordance with the NASD Conduct Rules, no NASD member participating in the distribution is permitted to confirm sales to accounts over which it exercises discretionary authority without prior specific written consent. LEGAL MATTERS The validity of the shares of Common Stock offered by the Company hereby will be passed upon for the Company by Weil, Gotshal & Manges LLP, New York, New York. Certain legal matters in connection with this Offering will be passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York. EXPERTS The consolidated balance sheets of the Company as of December 31, 1997 and 1996 and the consolidated statements of operations, changes in stockholders' equity and cash flows for the period March 17, 1995 (the date of inception) to December 31, 1995 and each of the years ended December 31, 1996 and 1997 and the combined statements of operations and cash flows of BIS Strategic Decisions for the period January 1, 1995 to April 5, 1995 included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the 'Commission'), Washington, D.C. 20549, a Registration Statement (which term shall include all amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, to which Registration Statement reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 55 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S) ---------------- GIGA INFORMATION GROUP, INC.: Report of Independent Accountants.................................................................. F-2 Consolidated Balance Sheets at December 31, 1996 and 1997 and March 31, 1998 (unaudited)........... F-3 Consolidated Statements of Operations for the period March 17, 1995 (date of inception) to December 31, 1995; the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998 (unaudited)............................................................................. F-4 Consolidated Statements of Changes in Stockholders' Equity for the period March 17, 1995 (date of inception) to December 31, 1995; the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998 (unaudited)........................................................ F-5 Consolidated Statements of Cash Flows for the period March 17, 1995 (date of inception) to December 31, 1995; the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998 (unaudited)............................................................................. F-6 Notes to Consolidated Financial Statements......................................................... F-7 - F-25 BIS STRATEGIC DECISIONS: Report of Independent Accountants.................................................................. F-26 Combined Statement of Operations for the period January 1, 1995 to April 5, 1995................... F-27 Combined Statement of Cash Flows for the period January 1, 1995 to April 5, 1995................... F-28 Notes to Combined Financial Statements............................................................. F-29 - F-32
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Giga Information Group, Inc.: We have audited the accompanying consolidated balance sheets of Giga Information Group, Inc. as of December 31, 1996 and 1997 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the period March 17, 1995 (date of inception) to December 31, 1995 and the years ended December 31, 1996 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Giga Information Group, Inc. as of December 31, 1996 and 1997 and the results of its operations and its cash flows for the period March 17, 1995 (date of inception) to December 31, 1995 and the years ended December 31, 1996 and 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts April 17, 1998, except for the information in the final two paragraphs of Note 20, as to which the date is May 11, 1998. F-2 GIGA INFORMATION GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, ------------------ MARCH 31, 1996 1997 1998 ------- ------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents...................................................... $ 8,286 $ 3,539 $ 1,753 Trade accounts receivable, net of allowance for uncollectible accounts of $536, $483 and $405 at December 31, 1996 and 1997 and March 31, 1998, respectively................................................................. 3,391 8,961 5,684 Unbilled accounts receivable................................................... 1,885 4,727 2,652 Prepaid expenses and other current assets...................................... 1,753 3,753 3,665 ------- ------- ----------- Total current assets........................................................... 15,315 20,980 13,754 Property and equipment, net...................................................... 2,397 1,695 1,678 Leasehold intangible (Note 3).................................................... 603 177 71 Goodwill, net of accumulated amortization of $1,507, $2,692 and $2,692 at December 31, 1996 and 1997 and March 31, 1998, respectively.................... 1,186 -- -- Note receivable.................................................................. 159 -- -- Other assets..................................................................... 19 171 170 ------- ------- ----------- Total assets................................................................. $19,679 $23,023 $15,673 ------- ------- ----------- ------- ------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable............................................................... $ 1,319 $ 2,213 $ 1,304 Deferred revenues.............................................................. 6,832 20,604 19,458 Accrued expenses and other current liabilities................................. 5,557 6,385 5,033 Debt--other, current portion................................................... -- 1,526 1,556 Debt--related party, current portion........................................... -- 448 224 Net liabilities of discontinued operations, current portion.................... 1,494 -- -- ------- ------- ----------- Total current liabilities...................................................... 15,202 31,176 27,575 Long-term debt--related party.................................................... 424 -- -- Long-term debt--other............................................................ 1,087 937 848 Net liabilities of discontinued operations, less current portion................. 1,307 -- -- ------- ------- ----------- Total liabilities............................................................ 18,020 32,113 28,423 Commitments and other contingent liabilities (Note 12) Stockholders' equity (deficit): Preferred Stock, $.001 par value; 12,000,000, 16,500,000 and 16,500,000 shares authorized at December 31, 1996 and 1997 and March 31, 1998, respectively: 650,000 shares designated as Series A Convertible Preferred Stock, 570,000 shares issued and outstanding (liquidation preference of $2,850,000)....... 1 1 1 9,000,000 shares designated as Series B Convertible Preferred Stock, 8,144,642 shares issued and outstanding (liquidation preference of $28,506,000)............................................................... 8 8 8 4,500,000 shares designated as Series C Convertible Preferred Stock, 0, 2,609,491 and 2,609,491 shares issued and outstanding at December 31, 1996 and 1997 and March 31, 1998, respectively (liquidation preference of $10,725,000)............................................................... -- 3 3 Common Stock, $.001 par value; 50,000,000 shares authorized, 2,026,738, 2,093,107 and 2,124,142 shares issued and outstanding at December 31, 1996 and 1997 and March 31, 1998, respectively.................................... 2 2 2 Additional paid-in capital....................................................... 30,642 41,286 42,588 Stock subscriptions receivable................................................... (25) -- -- Deferred Compensation............................................................ -- -- (1,229) Accumulated deficit.............................................................. (29,112) (50,929) (54,736) Cumulative translation adjustments............................................... 143 539 613 ------- ------- ----------- Total stockholders' equity (deficit)............................................. 1,659 (9,090) (12,750) ------- ------- ----------- Total liabilities and stockholders' equity (deficit)......................... $19,679 $23,023 $15,673 ------- ------- ----------- ------- ------- -----------
The accompanying notes are an integral part of the consolidated financial statements. F-3 GIGA INFORMATION GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED DECEMBER MARCH 17 TO 31, MARCH 31, DECEMBER 31, ---------------------- -------------------- 1995 1996 1997 1997 1998 ------------ -------- -------- ------- ------- (UNAUDITED) Revenues: Continuous information services................... $ 3,149 $ 14,600 $ 2,570 $ 6,804 Other services.................................... $ 5,517 6,043 4,715 1,276 1,693 Publications...................................... 1,442 946 344 180 55 ------------ -------- -------- ------- ------- Total revenues.................................... 6,959 10,138 19,659 4,026 8,552 Costs and expenses: Cost of services.................................. 4,707 12,336 12,477 3,202 4,391 Cost of publications.............................. 346 790 174 75 71 Sales and marketing............................... 1,016 6,706 19,617 4,158 5,781 Research and development.......................... 348 1,789 1,975 659 339 General and administrative........................ 5,760 9,739 6,419 1,061 1,339 Depreciation and amortization..................... 1,387 2,391 2,810 634 385 ------------ -------- -------- ------- ------- Total costs and expenses.......................... 13,564 33,751 43,472 9,789 12,306 ------------ -------- -------- ------- ------- Loss from operations................................ (6,605) (23,613) (23,813) (5,763) (3,754) ------------ -------- -------- ------- ------- Interest income..................................... 246 515 277 98 37 Interest expense.................................... (100) (95) (235) (17) (86) ------------ -------- -------- ------- ------- Loss from continuing operations before income taxes........................................... (6,459) (23,193) (23,771) (5,682) (3,803) Income tax (benefit) charge......................... (1,093) (491) (641) 7 4 ------------ -------- -------- ------- ------- Loss from continuing operations................... (5,366) (22,702) (23,130) (5,689) (3,807) ------------ -------- -------- ------- ------- Discontinued operations: Income (loss) from the discontinued BIS market research business, less applicable income taxes of $1,497 and $114 for the period March 17 to December 31, 1995 and the year ended December 31, 1996........................................ 1,490 (79) -- -- -- Income (loss) from the discontinued BIS Shrapnel business, less applicable income taxes of $0.... 154 (134) -- -- -- Income (loss) on disposal of discontinued BIS market research business, less applicable income taxes of $158 and $568 for the years ended December 31, 1996 and 1997, respectively........ -- (2,315) 1,101 -- -- Income (loss) on disposal of discontinued BIS Shrapnel business, less applicable income taxes of $0 and $109 for the years ended December 31, 1996 and 1997, respectively..................... -- (160) 212 -- -- ------------ -------- -------- ------- ------- Income (loss) from discontinued operations........ 1,644 (2,688) 1,313 -- -- ------------ -------- -------- ------- ------- Net loss............................................ $ (3,722) $(25,390) $(21,817) $(5,689) $(3,807) ------------ -------- -------- ------- ------- ------------ -------- -------- ------- ------- Results per common share (Note 2): Historical--basic and diluted: Loss from continuing operations................. $ (11.16) $ (1.80) -------- ------- -------- ------- Net loss........................................ $ (10.53) $ (1.80) -------- ------- -------- ------- Weighted average number of shares............... 2,072,837 2,115,837 -------- ------- -------- ------- Pro forma--basic and diluted (unaudited): Loss from continuing operations................. $ (3.42) $ (0.56) -------- ------- -------- ------- Net loss........................................ $ (3.23) $ (0.56) -------- ------- -------- ------- Weighted average number of shares .............. 6,759,621 6,802,621 -------- ------- -------- -------
The accompanying notes are an integral part of the consolidated financial statements. F-4 GIGA INFORMATION GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD MARCH 17, 1995 (DATE OF INCEPTION) TO DECEMBER 31, 1995, THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A SERIES B SERIES C CONVERTIBLE CONVERTIBLE CONVERTIBLE ADDITIONAL STOCK PREFERRED PREFERRED PREFERRED COMMON PAID-IN SUBSCRIPTION STOCK STOCK STOCK STOCK CAPITAL RECEIVABLE ----------- ----------- ----------- ------ ---------- ------------ Issuance of 2,036,002 shares of Common Stock...................................... $ 2 $ 1,058 $ (350) Issuance of 160,000 shares of Series A Convertible Preferred Stock and convertible note for acquisition of ExperNet Corporation................................ 800 Issuance of 410,000 shares of Series A Convertible Preferred Stock, net of expenses................................... $ 1 2,049 (25) Issuance of 4,026,772 shares of Series B Convertible Preferred stock, net of expenses................................... $ 4 13,212 Conversion of bridge financing to 571,428 shares of Series B Convertible Preferred Stock...................................... 1,980 Net loss.................................... Translation adjustments..................... ----------- ----------- ----------- ------ ---------- ----- Balance at December 31, 1995................ 1 4 2 19,099 (375) ----------- ----------- ----------- ------ ---------- ----- Payment of stock subscription receivable.... 300 Issuance of 3,327,728 shares of Series B Convertible Preferred Stock, net of expenses................................... 4 11,546 Issuance of 36,458 shares of Common Stock... 70 Repurchase of 12,389 shares of Common Stock...................................... (23) Cancellation of 33,333 shares of Common Stock issued............................... (50) 50 Exercise of warrant for 218,714 shares of Series B Convertible Preferred Stock....... Net loss.................................... Translation adjustments..................... ----------- ----------- ----------- ------ ---------- ----- Balance at December 31, 1996................ 1 8 2 30,642 (25) ----------- ----------- ----------- ------ ---------- ----- Issuance of 72,479 shares of Common Stock... 148 Repurchase of 6,110 shares of Common Stock...................................... (38) Issuance of 2,609,491 shares of Series C Convertible Preferred Stock, net of expenses................................... $ 3 10,534 Payment of stock subscription receivable.... 25 Net loss.................................... Translation adjustments..................... ----------- ----------- ----------- ------ ---------- ----- Balance at December 31, 1997................ 1 8 3 2 41,286 -- ----------- ----------- ----------- ------ ---------- ----- Issuance of 31,035 shares of Common Stock... 73 Deferred Compensation....................... 1,229 Net loss.................................... Translation adjustments..................... ----------- ----------- ----------- ------ ---------- ----- Balance at March 31, 1998 (unaudited)....... $ 1 $ 8 $ 3 $ 2 $ 42,588 -- ----------- ----------- ----------- ------ ---------- ----- ----------- ----------- ----------- ------ ---------- ----- CUMULATIVE TOTAL DEFERRED TRANSLATION ACCUMULATED STOCKHOLDERS' COMPENSATION ADJUSTMENTS DEFICIT EQUITY ------------ ----------- ----------- ------------- Issuance of 2,036,002 shares of Common Stock...................................... $ 710 Issuance of 160,000 shares of Series A Convertible Preferred Stock and convertible note for acquisition of ExperNet Corporation................................ 800 Issuance of 410,000 shares of Series A Convertible Preferred Stock, net of expenses................................... 2,025 Issuance of 4,026,772 shares of Series B Convertible Preferred stock, net of expenses................................... 13,216 Conversion of bridge financing to 571,428 shares of Series B Convertible Preferred Stock...................................... 1,980 Net loss.................................... $ (3,722) (3,722) Translation adjustments..................... $ (37) (37) ------ --- ----------- ------------- Balance at December 31, 1995................ (37) (3,722) 14,972 ------ --- ----------- ------------- Payment of stock subscription receivable.... 300 Issuance of 3,327,728 shares of Series B Convertible Preferred Stock, net of expenses................................... 11,550 Issuance of 36,458 shares of Common Stock... 70 Repurchase of 12,389 shares of Common Stock...................................... (23) Cancellation of 33,333 shares of Common Stock issued............................... -- Exercise of warrant for 218,714 shares of Series B Convertible Preferred Stock....... -- Net loss.................................... (25,390) (25,390) Translation adjustments..................... 180 180 ------ --- ----------- ------------- Balance at December 31, 1996................ 143 (29,112) 1,659 ------ --- ----------- ------------- Issuance of 72,479 shares of Common Stock... 148 Repurchase of 6,110 shares of Common Stock...................................... (38) Issuance of 2,609,491 shares of Series C Convertible Preferred Stock, net of expenses................................... 10,537 Payment of stock subscription receivable.... 25 Net loss.................................... (21,817) (21,817) Translation adjustments..................... 396 396 ------ --- ----------- ------------- Balance at December 31, 1997................ 539 (50,929) (9,090) ------ --- ----------- ------------- Issuance of 31,035 shares of Common Stock... 73 Deferred Compensation....................... (1,229) 0 Net loss.................................... (3,807) (3,807) Translation adjustments..................... 74 74 ------ --- ----------- ------------- Balance at March 31, 1998 (unaudited)....... $ (1,229) $ 613 $ (54,736) $ (12,750) ------ --- ----------- ------------- ------ --- ----------- -------------
The accompanying notes are an integral part of the consolidated financial statements. F-5 GIGA INFORMATION GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED YEAR ENDED MARCH 17 TO DECEMBER 31, MARCH 31, DECEMBER 31, -------------------- ------------------ 1995 1996 1997 1997 1998 ------------ -------- -------- ------- ------- (UNAUDITED) Cash flows from operating activities: Net loss................................................. $ (3,722) $(25,390) $(21,817) $(5,689) $(3,807) Adjustments to reconcile net loss to net cash used in continuing operating activities: (Income) loss from discontinued operations............. (1,644) 213 -- -- -- (Income) loss on disposal of discontinued operations... -- 2,475 (1,313) -- -- Depreciation and amortization.......................... 1,387 2,391 2,810 634 385 Net loss on write-down of investments.................. -- 200 179 -- -- Provision for doubtful accounts........................ 20 395 27 59 (79) Decrease in deferred taxes............................. 50 61 -- -- -- Interest on long-term debt added to principal.......... 37 74 74 18 13 Interest on note receivable added to principal......... -- (9) (5) (3) -- Gain on sale of fixed assets........................... (3) (11) (2) (7) (9) Other non-cash items................................... -- -- 87 8 8 Change in assets and liabilities net of effects of acquisitions: Decrease (increase) in accounts receivable............. 1,489 (4,092) (8,405) 563 5,321 Increase in prepaid expenses and other current assets............................................... (1,509) (536) (1,755) (853) (53) Increase (decrease) in accounts payable and accrued liabilities.......................................... 1,988 1,928 1,894 (458) (2,045) Increase (decrease) in deferred revenues............... 551 4,582 13,696 2,137 (1,023) ------------ -------- -------- ------- ------- Net cash provided by (used in) operating activities: Net cash used in continuing operations................... (1,356) (17,719) (14,530) (3,591) (1,289) Net cash provided by (used in) discontinued operations... 335 (571) (1,667) (145) (13) ------------ -------- -------- ------- ------- Net cash used in operating activities.................. (1,021) (18,290) (16,197) (3,736) (1,302) ------------ -------- -------- ------- ------- Cash flows from investing activities: Acquisition of equipment and improvements................ (961) (1,799) (559) (151) (261) Net cash acquired in BIS acquisition..................... 1,013 -- -- -- -- Net cash acquired in ExperNet acquisition................ 61 -- -- -- -- Issuance of note receivable.............................. -- (150) -- -- -- Proceeds from sale of Shrapnel........................... -- -- 293 -- -- Other, net............................................... 76 40 60 24 10 ------------ -------- -------- ------- ------- Cash provided by (used in) investing activities........ 189 (1,909) (206) (127) (251) ------------ -------- -------- ------- ------- Cash flows from financing activities: Proceeds from issuance of Common Stock................... 710 70 61 8 65 Repurchase of common stock............................... -- (23) (38) -- -- Proceeds from issuance of Series A Convertible Preferred Stock.................................................. 2,025 -- -- -- -- Proceeds from bridge financing, net of issuance costs of $20................................................. 1,980 -- -- -- -- Proceeds from issuance of Series B Convertible Preferred Stock, net of issuance costs of $90 and $878................................................. 13,216 11,557 -- -- -- Proceeds from issuance of Series C Convertible Preferred Stock, net of issuance costs of $188......... -- -- 10,537 -- -- Repayments of principal to related parties............... (321) -- -- -- (224) Proceeds from stock subscriptions receivable............. -- 300 25 -- -- Net increase (decrease) in short-term borrowings......... 234 (294) (193) 56 -- Proceeds from long-term debt............................. -- -- 1,465 -- -- Principal payments on long-term debt..................... (97) (11) (139) -- (72) ------------ -------- -------- ------- ------- Cash provided by (used in) financing activities........ 17,747 11,599 11,718 64 (231) ------------ -------- -------- ------- ------- Effect of exchange rates on cash......................... (39) 10 (62) (28) (2) Net increase (decrease) in cash and cash equivalents..... 16,876 (8,590) (4,747) (3,827) (1,786) Cash and cash equivalents, beginning of period........... -- 16,876 8,286 8,286 3,539 ------------ -------- -------- ------- ------- Cash and cash equivalents, end of period............... $ 16,876 $ 8,286 $ 3,539 $ 4,459 $ 1,753 ------------ -------- -------- ------- ------- ------------ -------- -------- ------- ------- Supplementary cash flow information: Income taxes paid...................................... $ 39 $ 30 $ 15 $ 5 $ 5 Interest paid.......................................... $ 58 $ 22 $ 121 $ 0 $ 55
The accompanying notes are an integral part of the consolidated financial statements. F-6 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 1. THE COMPANY: Giga Information Group, Inc. ('Giga' or the 'Company') was incorporated on March 17, 1995 (date of inception) in the State of Delaware. The Company's principal business activity is to provide information, analysis and advice relating to developments and trends in the computing, telecommunications and related industries (collectively, the information technology or 'IT' industry) primarily through subscription-based products. The Company derives its revenues primarily from three sources; Continuous Information Services, which include its Giga Advisory Service and IT Practices; Other Services, which include events and consulting; and Publications. Continuous Information Services consist of monitoring, research and analysis of IT developments and trends to support customers' IT decisions, distributed through a variety of electronic and print media, as well as inquiry access to analysts and practitioners and participation in briefings and conferences, packaged into an annually renewable subscription-based product. On April 5, 1995, the Company acquired BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively, 'BIS'). On July 6, 1995 Giga acquired a 77.8% equity interest in ExperNet Corporation ('ExperNet') which was owned by Gideon I. Gartner, Chairman of the Board of Directors and Chief Executive Officer of the Company, and David L. Gilmour, then a director and officer of the Company, and, on December 29, 1995, acquired the remaining 22.2% interest. The Company is subject to a number of risks similar to other companies in its industry including a dependence on sales and renewals of subscription-based services, uncertainty of market acceptance of its services, competition from other companies including those with greater resources than the Company, dependence on key individuals, the development of new services and products, the need to obtain additional financing, protection of proprietary information and technology and the risks associated with international operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation and Principles of Consolidation The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year's presentation. Pursuant to the purchase method of accounting, acquired assets and liabilities were revalued to their fair market value. The excess of the purchase price over the fair market value of the net assets acquired was recorded as goodwill. Interim Financial Information The consolidated financial statements of the Company at March 31, 1998 and for the three months ended March 31, 1997 and 1998 are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made which, in the opinion of management, are necessary for a fair presentation. Results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results that may be expected for any future period. Cash and Cash Equivalents Cash equivalents consist primarily of liquid investments, with original maturities of 90 days or less, in money market funds which are convertible to a known amount of cash and bear an insignificant risk of change in value. F-7 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Foreign Currency Translation The accounts of foreign subsidiaries are translated using exchange rates in effect at period-end for assets and liabilities and at average exchange rates during the period for results of operations. The local currency for all foreign subsidiaries is the functional currency. The related translation adjustments are reported as a separate component of stockholders' equity (deficit). Gains (losses) resulting from foreign currency transactions are included in other income (expense) and are immaterial for all periods presented. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments in money market funds and trade accounts receivable. The Company places its temporary cash investments with high credit quality financial institutions in accordance with its investment policy as approved by its board of directors. Trade receivables result from contracts with various customers. Giga generally does not require collateral or other security from these customers. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. Such losses have historically been within management's expectations. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company's consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using currently enacted tax rates for the year in which the differences are expected to reverse. The Company records a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Revenue and Commission Expense Recognition Subscription revenues from Continuous Information Services are deferred and recognized on a pro rata basis over the contract period, generally one year. The Company's policy is to record a receivable and related deferred revenues for the full amount of the contract on the date it is signed. Contracts are generally billable upon signing. The Company also records the related commission obligation upon the signing of these contracts and amortizes the corresponding deferred commission expense over the contract period in which the related Continuous Information Services revenues are earned. In the event the contract is canceled by the customer, the commission is refundable with respect to the portion related to the revenue which will not be recognized. Revenues from (i) Advisory Service, IT Practice Services and Continuous Advisory Consulting are aggregated into Continuous Information Services, (ii) Events and other services, principally consulting, are aggregated into Other Services and (iii) Publications are listed separately. Revenues from Other Services are recognized as follows: events as they occur and consulting as such services are performed. Revenues from Publications are recognized when publications are delivered. Unbilled accounts receivable pertain to the portion of a customer's service period not yet invoiced in accordance with contractual quarterly billing terms offered in conjunction with the Continuous Information Services. F-8 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Property and Equipment Property and equipment are stated at cost for items acquired after the initial acquisition of the respective entities and at estimated fair market value for those assets in existence at date of acquisition. Expenditures for maintenance and repairs are charged to expense; expenditures for additions, renewals and betterments are capitalized. Depreciation is computed for financial reporting purposes principally by use of the straight-line method over the following estimated useful lives: Computers and related equipment..................... 3 years Furniture and fixtures.............................. 5 years Motor vehicles...................................... 4 years Leaseholds and related improvements................. Shorter of economic life or remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the balance sheet and the resulting gains or losses reflected in income. Long-Lived Assets The Company regularly reviews long-lived assets for impairment. Any write-downs are treated as permanent reductions in the carrying amount of the assets. Management's policy regarding long-lived assets is to evaluate the recoverability of its assets when the facts and circumstances suggest that these assets may be impaired. The test of such recoverability is a comparison of the asset value to its expected undiscounted future cash flows over the remaining life of the asset. This analysis relies on a number of factors including operating results, business plans, budgets, economic projections and changes in management's strategic direction or market emphasis. Goodwill Goodwill represents the excess of the purchase price of entities acquired over the fair values of amounts assigned to the net tangible and intangible assets acquired and liabilities assumed. Amortization is recorded using the straight-line method over two years for the BIS acquisition and five years for the ExperNet acquisition. The carrying value of goodwill is included in management's evaluation of the recoverability of its long-lived assets. During 1996, approximately $666,000 of goodwill identifiable with the discontinuance of the BIS market research business was written off to amortization expense in connection with the disposition of this business. In 1997, the Company's assessment of the recoverability of goodwill associated with the ExperNet acquisition indicated a de-minimis level of future cash flows associated with this business. As such, the Company wrote-off the remaining unamortized portion of the goodwill resulting in a charge to amortization expense of $1,025,000. Total amortization expense related to goodwill was approximately $578,000, $929,000, $1,186,000, $231,000 and $0 for the period from March 17, 1995 to December 31, 1995, the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. F-9 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Historical Net Loss per Common Share The Company computes basic and diluted earnings per share in accordance with Statement of Financial Accounting Standard ('SFAS') No. 128, 'Earnings Per Share.' Basic earnings per share is based upon the weighted average number of common shares outstanding during the period. Common equivalent shares have been excluded from the computation of diluted loss per share as their effect would be anti-dilutive. Common equivalent shares result from the assumed exercise of outstanding stock options and warrants, the proceeds of which are then assumed to have been used to repurchase outstanding common stock using the treasury stock method, and the conversion of convertible notes into Common Stock. As a result, options and warrants to purchase 1,638,825 and 1,903,730 shares of Common Stock and convertible notes convertible into 93,196 and 78,910 shares of Common Stock outstanding during the year ended December 31, 1997 and the three months ended March 31, 1998, respectively, were excluded from the calculation of diluted net loss per common share. Pro Forma Net Loss Per Common Share (unaudited) The pro forma basic and diluted net loss per common share is computed based upon the weighted average number of common shares outstanding in accordance with SFAS No. 128. In addition, all outstanding shares of convertible preferred stock, which convert to Common Stock upon the closing of an initial public offering of Common Stock at a price of at least $15.75 per share and having aggregate proceeds of at least $15,000,000, are treated as if converted to Common Stock (see Note 13). Comprehensive Income (Loss) The Company has adopted SFAS No. 130, 'Reporting Comprehensive Income,' which establishes standards for the reporting and display of comprehensive income and its components in general purpose financial statements for the year ended December 31, 1998 and interim periods. The table below sets forth 'Comprehensive income (loss)' as defined by SFAS No. 130 (in thousands):
YEAR ENDED DECEMBER THREE MONTHS MARCH 17 TO 31, ENDED MARCH 31, DECEMBER 31, ------------------- ----------------- 1995 1996 1997 1997 1998 ------------ -------- -------- ------- ------- Net loss...................................................... $ (3,722) $(25,390) $(22,075) $(5,689) $(3,807) Other Comprehensive income (loss), net of tax: Foreign currency translation adjustment.................. (37) 180 396 99 74 ------------ -------- -------- ------- ------- Comprehensive loss............................................ $ (3,759) $(25,210) $(21,679) $(5,590) $(3,733) ------------ -------- -------- ------- ------- ------------ -------- -------- ------- -------
New Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, 'Disclosures about Segments of an Enterprise and Related Information.' This statement supersedes SFAS No. 14, 'Financial Reporting for Segments of a Business Enterprise.' SFAS No. 131 includes requirements to report selected segment information quarterly and entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenues. The statement will be effective for annual periods beginning after December 15, 1997 and the Company will adopt its provisions in the year ended December 31, 1998. Reclassification for earlier periods is required, unless impracticable, for comparative purposes. The Company is currently evaluating the impact this statement will have on its financial statements; however, because the statement requires only additional disclosure, the Company does not expect the statement to have a material impact on its financial position or results of operations. F-10 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 3. ACQUISITIONS: BIS Strategic Decisions, Inc. and Affiliates On April 5, 1995, the Company acquired 100% of the stock of BIS for $200,000 in cash and a $1,000,000 convertible promissory note (see Note 11). BIS was engaged in compiling and providing data intensive market research to vendors for use primarily in planning their product operating and marketing programs. The acquisition was accounted for as a purchase and, accordingly, the cost (including acquisition costs of $204,000) was assigned to the tangible and identifiable intangible assets acquired, including a leasehold for one of the facilities, and liabilities assumed based upon their estimated fair values at the date of acquisition. As part of the transaction, an intangible asset (leasehold) of approximately $1,300,000 was recorded representing the fair value of payments being made through May 1998 by a former owner of BIS. In addition the Company acquired current assets of approximately $8,700,000 and furniture and equipment of approximately $2,000,000 offset by current liabilities assumed of approximately $12,600,000 (of which approximately $9,100,000 were deferred revenues), a note payable of $192,000 and a tax provision of approximately $1,000,000. The excess of the purchase price over the net assets acquired of approximately $3,059,000 was recorded as goodwill. The Company's statements of operations include the results of operations of BIS from April 5, 1995. ExperNet On July 6, 1995, the Company acquired a majority interest in ExperNet in exchange for (i) 160,000 shares of Series A Preferred Stock (213,333 shares of Common Stock on an as-converted basis), 80,000 shares (106,667 shares of Common Stock on an as-converted basis) of which were issued to Mr. Gartner and 80,000 shares (106,667 shares of Common Stock on an as-converted basis) of which were issued to Mr. Gilmour and (ii) the issuance to Mr. Gartner of an option to purchase 53,333 shares of Common Stock at an exercise price of $1.50 per share which vested immediately. On December 29, 1995 the Company acquired Mr. Gilmour's remaining interest in ExperNet in exchange for a $400,000, 6% convertible note (the 'Note') due December 31, 2005 (see Note 11). ExperNet is comprised of a network of external IT practitioners, and the related interactive software, which respond to specific customer inquiries. In the transaction, the Company acquired current assets of approximately $148,000 and furniture and equipment of approximately $126,000, offset by current liabilities assumed of approximately $96,000 and long-term debt of approximately $386,000. The acquisition was accounted for as a purchase; accordingly, the excess of the purchase price over the net assets acquired of approximately $1,408,000 has been recorded as goodwill. The Company's statements of operations include the results of operations of ExperNet from July 6, 1995. 4. RELATED PARTIES: During the period from March 17, 1995 to December 31, 1995, the Company reimbursed Mr. Gartner $186,000 for disbursements made by him for items related to the acquisition of BIS and for other operational expenses prior to the incorporation of the Company. In addition, following the initial closing of the sale of Series B Convertible Preferred Stock by the Company in November 1995, ExperNet repaid a loan in the principal amount of approximately $221,000 plus accrued interest at a rate of 10%, or a total of approximately $248,000, to Mr. Gartner and a loan in the principal amount of approximately $101,000 plus accrued interest at a rate of 10%, or a total of approximately $113,000, to Mr. Gilmour. During 1997, the Company awarded 17,778 shares of Common Stock at a fair value of $3.00 per share to Mr. Gartner in lieu of a payment of cash for services rendered during 1996 as Chief Executive Officer. The Company recorded as compensation expense in 1996 the fair value of the Common Stock awarded to Mr. Gartner. F-11 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) In February 1998, the Company entered into an agreement with Mr. Gilmour, a director and co-founder of the Company, relating to Mr. Gilmour's continuing relationship with the Company. As part of this agreement, the Company agreed to early prepayment of a note issued by the Company to Mr. Gilmour in December 1995 in connection with the acquisition by the Company of Mr. Gilmour's remaining interest in ExperNet (see Note 3). In addition, the agreement also provided that the Company would receive a 7.5% equity interest in a company newly formed by Mr. Gilmour and would be granted an irrevocable, royalty-free, worldwide license to use any software, products or technologies the new company develops during a three year period commencing on February 1, 1998. Certain of the Company's existing investors have represented that they will, to the extent necessary, fund the Company through May 1999 on terms to be mutually agreed upon. 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets consist of the following (in thousands):
DECEMBER 31, ---------------- MARCH 31, 1996 1997 1998 ------ ------ --------- Prepaid compensation..................................................... $1,126 $2,559 $ 2,422 Other.................................................................... 627 1,194 1,243 ------ ------ --------- Total.................................................................. $1,753 $3,753 $ 3,665 ------ ------ --------- ------ ------ ---------
6. PROPERTY AND EQUIPMENT Property and equipment at cost, less accumulated depreciation and amortization, consist of the following (in thousands):
DECEMBER 31, ---------------- MARCH 31, 1996 1997 1998 ------ ------ --------- Computer and related equipment........................................... $2,849 $3,202 $ 3,463 Furniture and fixtures................................................... 781 827 771 Motor vehicles........................................................... 108 27 1 Leasehold improvements................................................... 119 119 119 ------ ------ --------- 3,857 4,175 4,354 Less accumulated depreciation and amortization........................... 1,460 2,480 2,676 ------ ------ --------- Property and equipment, net.............................................. $2,397 $1,695 $ 1,678 ------ ------ --------- ------ ------ ---------
Depreciation and amortization expense was $525,000, $1,020,000, $1,190,000, $293,000 and $278,000 for the period March 17, 1995 to December 31, 1995, the years ended December 31, 1996 and 1997, and the three months ended March 31, 1997 and 1998, respectively. F-12 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 7. LEASE COMMITMENTS The Company leases certain office space and equipment under operating lease agreements. Future minimum rental commitments under all operating leases with remaining noncancelable terms of one year or more are as follows (in thousands):
OPERATING LEASES --------- April 1 through December 31, 1998.................................................. $ 685 1999............................................................................... 910 2000............................................................................... 590 2001............................................................................... 137 2002............................................................................... 80 Thereafter......................................................................... 39 --------- Total............................................................................ $ 2,441 --------- ---------
Rent expense, net of sublease income of approximately $60,000, $78,000, $54,000, $11,000 and $6,000 was $482,000, $701,000, $725,000, $232,000 and $189,000 for the period March 17, 1995 to December 31, 1995, the years ended December 31, 1996 and 1997, and the three months ended March 31, 1997 and 1998, respectively. An agreement was entered into by and among the Company and two prior owners of BIS providing for one of the prior owners, who had guaranteed all payments under a lease, to pay an aggregate of $1,500,000 to the landlord for rent under the lease, payable monthly in an amount of $36,722. The guaranteed payments end at May 30, 1998. 8. INCOME TAXES: The Company has deferred tax assets of approximately $11,148,000, $20,216,000 and $21,862,000 at December 31, 1996 and 1997 and March 31, 1998, respectively. For financial reporting purposes, valuation allowances of $11,148,000, $20,216,000 and $21,862,000, respectively, have been recognized to offset these deferred tax assets until the Company can conclude that it is more likely than not that these deferred tax assets will be realized. During the years ended December 31, 1996 and 1997, and the three months ended March 31, 1998, the valuation allowance increased by approximately $8,529,000, $9,068,000 and $1,646,000, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, ------------------ MARCH 31, 1996 1997 1998 ------- ------- --------- Deferred tax assets: Deferred revenue.................................................... $ 742 Net operating loss carryforwards.................................... 9,112 $19,119 $20,604 Discontinued operations............................................. 474 24 -- Other--net.......................................................... 820 1,073 1,258 ------- ------- --------- Total deferred tax assets........................................ 11,148 20,216 21,862 Valuation allowance for deferred tax assets........................... 11,148 20,216 21,862 ------- ------- --------- Net deferred tax assets............................................... -- -- -- ------- ------- --------- ------- ------- ---------
F-13 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) For financial reporting purposes, income before income taxes includes the following components (in thousands):
YEAR ENDED DECEMBER THREE MONTHS ENDED MARCH 17 TO 31, MARCH 31, DECEMBER 31, -------------------- ------------------ 1995 1996 1997 1997 1998 ------------ -------- -------- ------- ------- Pretax loss for continuing operations: United States............................. $ (5,068) $(20,688) $(21,006) $(5,120) $(3,005) Non-United States......................... (1,391) (2,505) (2,765) (562) (798) ------------ -------- -------- ------- ------- Consolidated................................ $ (6,459) $(23,193) $(23,771) $(5,682) $(3,803) ------------ -------- -------- ------- ------- ------------ -------- -------- ------- -------
The income tax expense(benefit) of the loss from continuing operations, substantially all of which is deferred, consists of the following components (in thousands):
YEAR ENDED THREE MONTHS ENDED MARCH 31, MARCH 17 TO DECEMBER 31, DECEMBER 31, -------------- ---------------------------------- 1995 1996 1997 1997 1998 ------------ ----- ----- --------------- --------------- U.S. Federal....................................... $ (754) $(239) $(554) $ 7 $ 4 Foreign............................................ (339) (252) (87) -- -- -- -- ------------ ----- ----- $ (1,093) $(491) $(641) $ 7 $ 4 -- -- -- -- ------------ ----- ----- ------------ ----- -----
The income tax benefit of the loss from continuing operations differs from the amount of income tax benefit determined by applying the applicable U.S. statutory income tax rate to pretax loss from continuing operations as a result of the following differences:
YEAR ENDED THREE MONTHS MARCH 17 TO DECEMBER 31, ENDED MARCH 31, DECEMBER 31, ---------------- ---------------- 1995 1996 1997 1997 1998 ------------ ----- ----- ----- ----- Income tax at the statutory rate................... (34.0)% (34.0)% (34.0)% (34.0)% (34.0)% Foreign subsidiary losses with no benefit recognized....................................... 3.5 1.7 4.0 3.4 7.1 Foreign income taxed at different rates............ (1.4) 0.9 0.4 (0.2) (0.4) Nondeductible goodwill............................. 3.1 1.4 1.7 -- -- U.S. losses with no benefit recognized............. 12.3 27.8 24.9 30.5 26.9 Other items (net).................................. (0.4) 0.1 0.3 0.4 0.5 ------------ ----- ----- ----- ----- (16.9)% (2.1)% (2.7)% 0.1% 0.1% ------------ ----- ----- ----- ----- ------------ ----- ----- ----- -----
The Company has available net operating loss carryforwards of approximately $47,988,000 and $51,791,000 at December 31, 1997 and March 31, 1998 which may be used to reduce future taxable income. Of this amount, at December 31, 1997 U.S. carryforwards of approximately $43,081,000 expire in various years through 2012, certain non-U.S. carryforwards of approximately $2,367,000 expire in various years through 2002 and the balance may be carried forward indefinitely. If losses of acquired companies are used to reduce future taxable income, associated tax benefits will first reduce acquired goodwill and other noncurrent intangible assets before being recognized as a reduction of income tax expense in the period the benefits are realized. Utilization of the net operating loss carryforwards may be limited pursuant to the provisions of Section 382 of the Internal Revenue Code of 1986, as amended. F-14 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 9. JOINT VENTURE AGREEMENT: In 1991, BIS entered into a joint venture agreement with a Japanese company (the 'Joint Venture') to provide additional market penetration in Japan for the Company's products and services. BIS's initial equity ownership was 40%. Pursuant to the terms of the agreement, the Company was required to purchase an additional 10% interest in the Joint Venture from its partner in March 1996 for approximately $85,000. In April 1996, the Company and its partner each increased their investment in the joint venture by approximately $24,000. In December 1996, the Company notified its partner, pursuant to the terms of the agreement, of its desire to dissolve the Joint Venture. The Company does not expect any proceeds from the dissolution and, as such, wrote off to expense its investment of approximately $125,000. The net earnings of the joint venture to date have been de minimis. At December 31, 1996 and 1997 and March 31, 1998 the Company had accounts receivable due from the Joint Venture of $125,000, $0 and $0, respectively. 10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses and other current liabilities consist of the following (in thousands):
DECEMBER 31, ---------------- MARCH 31, 1996 1997 1998 ------ ------ --------- Accrued compensation and benefits........................................ $1,675 $2,260 $ 1,101 Sales tax payable........................................................ 1,110 1,198 1,026 Other.................................................................... 2,772 2,927 2,906 ------ ------ --------- Total.................................................................. $5,557 $6,385 $ 5,033 ------ ------ --------- ------ ------ ---------
11. BORROWINGS AND LONG-TERM DEBT: In connection with the Company's acquisition of BIS, the seller received a $1,000,000, 5% convertible note due April 5, 1998. The note was convertible into 185,298 shares of Common Stock. The note plus accrued interest was fully repaid on April 17, 1998. In connection with the Company's acquisition of ExperNet, the Company issued a $400,000, 6% convertible note to Mr. Gilmour (see also Note 3). The note plus accrued interest was repaid in two installments, the last of which was in April 1998. In June 1997, the Company entered into a loan agreement with a lending institution collateralized by certain equipment, machinery and fixtures. Under this agreement the Company received a $1,465,000 loan due in June 2000 with an effective interest rate of 17.133%. Principal payments required on this loan in the years 1998 through 2000 are $389,000, $461,000 and $444,000. The weighted average interest rates of outstanding short-term borrowings were 7.3%, 6.9%, 7.1%, 0% and 8.1% for the period March 17, 1995 to December 31, 1995, the years ended December 31, 1996 and 1997 and the three months ended March 31, 1997 and 1998, respectively. 12. COMMITMENTS AND CONTINGENT LIABILITIES: In October 1997, the Company entered into an invoice factoring arrangement with a commercial bank under which the Company could borrow up to $1,250,000. Under the arrangement, the bank charges an administrative fee of 0.5% of each factored invoice and a monthly factoring management fee of 1.25% of the gross average monthly factored invoices. Borrowings under the arrangement are collateralized by all the Company's assets. Upon the initial utilization of the factoring arrangement, the bank will receive warrants equal to the value of $125,000 for a class of stock to be determined and at a price to be determined. As of March 31, 1998, no invoices have been factored under the arrangement. F-15 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 13. PREFERRED STOCK: The authorized capital stock of the Company includes 16,500,000 shares of Preferred Stock. Of the Preferred Stock, 650,000, 9,000,000 and 4,500,000 shares have been designated as Series A, Series B and Series C Convertible Preferred Stock. The remaining 2,350,000 shares of Preferred Stock have not been designated. Series A Convertible Preferred Stock ('Series A') During 1995, the Company issued 410,000 shares of Series A (546,668 shares of Common Stock on an as-converted basis) for consideration of $2,050,000 which consisted of $2,025,000 cash and a $25,000 non-recourse note from an employee in connection with his acceptance of employment with the Company. In addition, 160,000 shares of Series A (213,333 shares of Common Stock on an as-converted basis) were issued in connection with the acquisition of ExperNet as described in Note 3. Series B Convertible Preferred Stock ('Series B') During 1995, the Company issued 4,026,772 shares of Series B for cash consideration of $13,216,000, net of issuance costs of $878,000. In addition, bridge financing in the principal amount of $2,000,000 was automatically converted into 571,428 shares of Series B at the first closing of the Series B Stock financing in November 1995. During 1996 the Company issued an additional 3,327,728 shares of Series B, in two separate financings, for cash consideration of $11,550,000, net of issuance costs of $97,000. In addition, a warrant issued to the lender in connection with the Series B bridge financing in August 1995 was exercised on a cashless basis for 218,714 shares in September 1996 (see Note 15). Series C Convertible Preferred Stock ('Series C') During 1997, the Company issued 2,609,491 shares of Series C, in two separate financings, for cash consideration of $10,537,000, net of issuance costs of $188,000. In connection with this issuance the Company issued warrants to purchase-up to 1,409,129 shares of Series C at an exercise price of $4.50 per share (see Note 15). Conversion Each share of Series A, Series B and Series C is convertible, at the holder's option, into that number of shares of Common Stock as is determined by dividing the initial purchase price of such shares by the conversion price in effect at the time of conversion. The conversion price of each share of Series A, Series B and Series C is subject to adjustment upon the occurrence of certain events. At March 31, 1998 each share of Series A, Series B and Series C is convertible into four-thirds (4/3), one-third (1/3) and 0.39143 shares of Common Stock, respectively. The Series A, Series B and Series C Shares will automatically convert into Common Stock at the then effective conversion price upon the closing of a firmly underwritten public offering of Common Stock at a price of at least $15.75 per share (as adjusted for splits, combinations and share dividends), and generating gross proceeds of at least $15,000,000. In addition, the Series A, Series B and Series C Shares will convert into Common Stock at the then effective conversion price upon the consent of the holders of at least two-thirds (2/3) of the then outstanding Series A, Series B and Series C Shares. Liquidation Upon (i) the liquidation, dissolution, or winding up of the Company (either voluntary or involuntary) or (ii) the merger or consolidation of the Company with another corporation or the sale or other transfer of all or substantially all of the assets of the Company which is not agreed to by the holders of not less than a majority of F-16 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) the Convertible Preferred Stock, voting together as a single class, and in which the stockholders of the Company immediately prior to such transaction do not own more than a 50% interest in the surviving entity, (i) holders of the Series A, Series B and Series C Shares are entitled to receive out of the assets of the Company available for distribution to its stockholders, an amount equal to $5.00, $3.50 and $4.11 per share, respectively, plus any declared but unpaid dividends, prior to any distribution to the holders of the Company's Common Stock. Following distribution of such preferential amounts, holders of Series A, Series B and Series C Shares shall not participate in any further distribution. Voting Except as provided by law or in the Company's Amended and Restated Certificate of Incorporation, the holders of the Series A, Series B and Series C Shares vote with holders of the Company's Common Stock on an as converted basis and not as a separate class or series. In addition, so long as at least 1,000,000 shares of Series A, Series B and Series C Shares are outstanding, the Company may not, without the approval of at least a majority of the outstanding shares of the Series A, Series B and Series C Shares, take certain actions as described in the Certificate of Incorporation. 14. COMMON STOCK: In November 1995, the Company amended its Certificate of Incorporation to increase the authorized number of shares of Common Stock from 10,000,000 to 28,000,000. In December 1996, the Company amended its Certificate of Incorporation to increase the authorized number of Common Stock from 28,000,000 to 50,000,000. During March 1995, the Company sold to Mr. Gartner 1,400,000 shares of Common Stock at a purchase price of $0.07125 per share. During the remainder of 1995, the Company sold 636,000 shares of Common Stock to employees, consultants and directors at a purchase price of $1.50 per share. 15. STOCK OPTIONS AND WARRANTS: Stock Options In June 1995, the Company adopted the 1995 Stock Plan (the 'Prior Stock Plan'). The Prior Stock Plan was superseded in October 1995 by the 1995 Stock Option/Stock Issuance Plan (the '1995 Stock Plan'). On August 28, 1996 the Board of Directors adopted the 1996 Stock Option Plan (the '1996 Stock Plan') to effectively supersede the 1995 Stock Plan. The 1995 Stock Plan provided for the granting of options to purchase and for direct purchases of up to 1,033,333 shares of Common Stock. The 1996 Stock Plan provides for the granting of options to purchase up to 1,000,000 shares of Common Stock. Both the 1995 Stock Plan and the 1996 Stock Plan provide for the grants of non-qualified and incentive options to purchase shares of the Company's Common Stock to employees (including officers and directors who are employed by the Company) of, and consultants to, the Company generally at the fair market value determined by the Board on the date of the grant. The 1995 Stock Plan also provided for direct purchases of Common Stock. The Board may determine the date on which these shares vest and become exercisable. Shares purchased as the result of the exercise of these options or direct purchases under the 1995 Stock Plan are subject to the Company's right to repurchase such shares upon the occurrence of certain events and at a price equal to the fair market value as defined on the date of repurchase. Options granted under the 1995 and 1996 stock plans have variable vesting periods. No options granted under these plans have a term in excess of 10 years after the date of grant. In March, 1998 the Board voted to grant 319,008 options to certain employees at exercise prices ranging from $3.00 to $3.30 per share. The estimated fair market value of the Company's Common Stock at the date of F-17 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) grant was determined to be $6.75 per share. Accordingly, such grants were deemed to be compensatory options in accordance with Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to Employees' ('APB No. 25'). Total option-related compensation expense for the three months ended March 31, 1998 was immaterial. In June 1997, the Company adopted the 1997 Director Stock Option Plan (the 'Director Plan') which provides for the granting of non-qualifying stock options to purchase-up to 50,000 shares of common stock. Under the Director Plan, non-employee directors are entitled to receive options to purchase 2,000 shares of common stock on July 1 of each year commencing in 1997. In addition, each eligible non-employee director would receive an option to purchase 2,000 shares of common stock upon the initial election to the Board of Directors. The exercise price of the options, which vest in four equal installments starting from the date of the grant, will equal the fair market value on the date of the grant. Each option shall expire 10 years after the date of the grant. A summary of stock option activity through March 31, 1998:
WEIGHTED AVERAGE SHARES EXERCISE PRICE ---------- -------------- Outstanding at March 17, 1995 Granted........................................................ 1,023,718 $ 1.50 Exercised...................................................... (53,332) 1.50 Forfeited/canceled............................................. (20,000) 1.50 ---------- ------ Outstanding at December 31, 1995................................. 950,386 1.50 Granted........................................................ 444,554 2.07 Exercised...................................................... (24,792) 1.50 Forfeited/canceled............................................. (450,028) 1.61 ---------- ------ Outstanding at December 31, 1996................................. 920,120 1.72 Granted........................................................ 517,597 3.00 Exercised...................................................... (38,035) 1.64 Forfeited/canceled............................................. (349,475) 2.30 ---------- ------ Outstanding at December 31, 1997................................. 1,050,207 2.16 Granted........................................................ 385,543 3.08 Exercised...................................................... (37,702) 1.71 Forfeited/canceled............................................. (102,267) 2.48 ---------- ------ Outstanding at March 31, 1998.................................... 1,295,781 2.42 ---------- ------ ---------- ------
Options vested and exercisable at December 31, 1996 and 1997 and March 31, 1998 were 384,005, 488,763, and 487,372, respectively. In July and October 1995 the Company granted options to purchase a total of 260,000 shares of Common Stock other than pursuant to the 1995 Stock Plan at an exercise price of $1.50 per share. The Company has adopted the disclosure-only provisions of SFAS No. 123, but applies APB No. 25 and related Interpretations in accounting for options. Accordingly, no compensation expense has been recognized for the issuance of options. Pursuant to the required pro forma disclosure under the fair value method of estimating compensation cost, the Company has estimated the fair value of its stock options by applying a present value approach which does not consider expected volatility of the underlying stock ('minimum value method') using risk free interest rates based on zero coupon Treasury instruments with maturities similar to the estimated option term and assuming no dividends. F-18 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 1995, 1996 and 1997 consistent with the provisions of SFAS No. 123, the Company's net loss to common stockholders and net loss per share to common stockholders would have been increased to the SFAS No. 123 pro forma amounts indicated below in thousands except per share amounts:
THREE MONTHS ENDED MARCH 1996 1997 31, 1998 -------- -------- ------------ Net loss to common stockholders--as reported..................... $(25,390) $(21,817) $ (3,807) Net loss to common stockholders--SFAS No. 123 pro forma...................................................... (25,427) (21,941) (3,852) Net loss per share to common stockholders--as reported........... $ (10.53) $ (1.80) Net loss per share to common stockholders--SFAS No. 123 pro forma.......................................................... (10.59) (1.82)
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of the effects on reported net income for future years. SFAS No. 123 does not apply to awards prior to 1996 and additional awards in future years are anticipated. The weighted average fair value per share at date of grant for stock options granted during the years December 31, 1996 and 1997 and the three months ended March 31, 1998 was $0.22, $0.38 and $0.36, respectively. The fair value of each option granted during the years ended December 31, 1996 and 1997 is estimated on the date of grant using the Black-Scholes option pricing model with a zero expected volatility, a dividend yield of 0%, weighted average expected lives of 6.3 and 8.0 years, respectively, and weighted average risk free interest rates of 6.0% and 6.2%, respectively. The following table summarizes the status of the Company's stock options outstanding and exercisable at March 31, 1998:
STOCK OPTIONS STOCK OPTIONS OUTSTANDING EXERCISABLE ------------------------------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE RANGE OF REMAINING EXERCISE EXERCISE EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE - --------------- --------- ---------------- -------- --------- -------- $1.50 to $1.80 528,788 5.4 years $ 1.54 422,420 $ 1.53 $2.70 to $3.30 766,993 9.6 years $ 3.03 64,952 $ 2.94 --------- --------- Total 1,295,781 487,372 --------- --------- --------- ---------
Warrants In connection with its engagement of a private placement agent for the sale by the Company of the Series B Preferred Stock, the Company agreed in June 1995 to issue the placement agent a warrant to purchase 107,876 shares of Series B at an exercise price of $4.625 per share. In connection with the Series B bridge financing, the Company agreed in August 1995 to issue the lender a warrant to purchase 285,714 shares of Series B at an exercise price of $2.345 per share, which warrant was exercised on a cashless basis in September 1996 for 218,714 shares. Both of these warrants are for a term of five years, subject to earlier expiration upon the occurrence of certain events. The Company believes the fair market value of each warrant was nominal. In connection with the issuance of Series C, the Company issued warrants to purchase up to 1,409,127 shares of Series C at an exercise price of $4.50 per share. These warrants are for a term of five years, subject to earlier expiration upon the occurrence of certain events. F-19 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 16. STOCK PURCHASE PLANS/AGREEMENTS: In the period from inception to December 31, 1995, the Company sold 139,999 shares of Common Stock to certain employees of the Company at $1.50 per share under the provisions of the 1995 Stock Plan or separate stock purchase agreements. Employees vest in these shares over four years from their respective dates of purchase, with 25% vesting on the first anniversary of the purchase and pro rata thereafter over the remaining 36 months. If an employee who purchased stock under either the 1995 Stock Plan or separate agreements ceases to be employed by the Company, the Company at its option may elect to repurchase the employee's unvested shares at the original cost paid by the employee for such stock and vested shares at a price equal to the fair market value as determined on the date of repurchase. In October 1995, the Company sold 40,000 shares of Common Stock to a director who also serves as a consultant to the Company for $1.50 per share of which $10,000 was paid in cash and $50,000 was paid in the form of a nonrecourse interest bearing note due March 31, 1996. In June 1996, the Company canceled the promissory note plus interest accrued thereunder (totaling approximately $52,000), in lieu of payment to the director for services rendered to the Company in 1995 (for which the director was entitled to receive $25,000) and the first six months of 1996 (for which the director was entitled to receive $30,000) plus interest. These shares are also subject to certain repurchase rights by the Company in the event that the director ceases to be either a director of, or consultant to, the Company. Pursuant to an agreement entered into in February 1997, the Company issued to a director of the Company for services rendered 16,667 shares of Common Stock which vest over six quarterly periods contingent upon services being provided during the period. The Company recorded as compensation expense $50,000 representing the fair value of the Common Stock over the period during which the services are rendered. Under the agreement, the Company also granted to the director 8,333 non-qualified stock options with an exercise price at the fair market value on the date of grant which vest over four years. In addition, the Company reimbursed him $18,000 for operational expenses. 17. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS: In the United States, the Company maintains a Savings and Retirement Plan (the '401 (k) Plan') under Section 401 of the Internal Revenue Code. In 1997, the Company amended its 401(k) Plan specifying that employees can enter the plan on the date of hire or the first day of the month. Employees must have attained the age of 21. In prior years, employees were eligible to participate in the 401(k) Plan who worked a minimum of one year and had attained the age of 21. The Company matched by 25% that portion representing the first 3% of an employee's base salary and by 50% that portion representing the next 3% of an employee's base salary. Effective in 1997, the employer contributions are discretionary after considering business results at the conclusion of each plan year. The Company has made mandatory contributions to the 401(k) Plan of $47,000 and $63,000 during the period March 17 to December 31, 1995 and the year ended December 31, 1996, respectively, and made no discretionary contributions during the year ended December 31, 1997 and the three months ended March 31, 1997 and 1998. In the United Kingdom, the Company maintains a defined contribution plan. All permanent employees who have attained the age of 20, and are not contributing to a personal pension plan, are eligible to participate. The Company matches a percentage of employee contributions which are invested at each participant's discretion in a choice of three funds. The employer matching percentage is determined within defined age ranges. During the period March 17 to December 31, 1995, the years ended December 31, 1996 and 1997, and the three months ended March 31, 1997 and 1998, the Company's match totaled $2,000, $2,000, $2,000, $500 and $500, respectively. F-20 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 18. DISCONTINUED OPERATIONS: On June 25, 1996, the Company announced the discontinuation of the BIS market research business. In connection with the discontinuance of such operations, the Company terminated the personnel employed in developing and compiling the data-intensive BIS market research products, ceased operations at two of its licensed facilities in England and entered into contracts with two independent IT service providers engaged to fulfill the Company's obligations to customers of BIS under certain existing subscription agreements, all of which expired by June 1997. The contracts with the service providers required that Giga pay a percentage of the remaining contract value in exchange for their fulfillment of Giga's obligations. In 1996, a total of approximately $623,000 was paid to the service providers to fulfill the obligations remaining under the discontinued operations. A provision of approximately $1,187,000 was established for probable refunds in connection with dissatisfied clients. At December 31, 1996 a total of approximately $720,000 remained in the provision for refunds. The contracts with the providers also require the service providers to pay royalties to Giga upon the renewal of contracts by them. Through December 31, 1997, no royalties had been earned or received. The results of these operations prior to June 25, 1996 have been classified as discontinued operations and prior year financial statements have been restated to reflect the discontinuance. A charge of approximately $2,315,000 (net of taxes of approximately $158,000) was recorded in 1996 for the loss on disposition of the operations consisting primarily of rent and compensation. Included within the charge was a provision related to the operations at two facilities in England which, based on the market for subleased properties at the time, approximates the present value of the expected expenses of these facilities for two and one-half years plus fifty percent of the expected expenses over the remaining life of the leases and a provision for the severance benefits payable to the terminated employees. A gain of approximately $1,101,000 was recorded in 1997, mainly comprised of a reversal of the provision for future lease commitments and related expenses for two facilities in England and the provision which was established for refunds to dissatisfied customers. The net liabilities of the discontinued operations of the BIS business have been segregated in the consolidated balance sheets and as of December 31, 1996 consist primarily of accounts receivable ($404,000), amounts payable related to rent and facilities expenses ($2,245,000), customer refunds ($720,000), liability to providers ($206,000) and salaries and related severance costs ($56,000). The operating results of the BIS business are summarized as follows (in thousands):
MARCH 17, TO DECEMBER 31, YEAR ENDED 1995 DECEMBER 31, 1996 ------------ ----------------- Revenues.................................................... $ 11,329 $ 3,557 Pre-tax income.............................................. 2,987 35 Provision for income taxes.................................. 1,497 114 Net income (loss)........................................... 1,490 (79)
On December 20, 1996 the Company elected to discontinue its Australian econometric forecasting business, BIS Shrapnel, and commenced discussions with the management team for the purchase of the entire business. A charge of approximately $160,000 was recorded at the time for the loss on disposition of the operations consisting primarily of estimated losses to be incurred in the operation of the business through the anticipated disposal date. The entire business was sold in July 1997 to the management team for AU$407,500, or approximately $293,000 at the time of sale. A gain of approximately $212,000 was recognized on the disposition after giving effect to transaction costs. The net assets of the discontinued BIS Shrapnel business have been segregated in the consolidated balance sheets and as of December 31, 1996 consist primarily of accounts receivable ($438,000), prepaid expenses F-21 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) ($394,000), property, plant and equipment, net ($404,000), deferred revenue ($496,000), reserve for loss on disposal ($162,000) and provision for long-term service ($258,000). The results of BIS Shrapnel operations prior to December 20, 1996 have been classified as discontinued operations and prior year financial statements have been restated to reflect the discontinuance. The operating results of BIS Shrapnel operations are summarized as follows (in thousands):
MARCH 17, TO DECEMBER 31, YEAR ENDED 1995 DECEMBER 31, 1996 ------------ ----------------- Revenues.................................................... $ 3,747 $ 4,437 Pre-tax income.............................................. 154 (134) Provision for income taxes.................................. -- -- Net income (loss)........................................... 154 (134)
F-22 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 19. GEOGRAPHICAL MARKET INFORMATION: The Company operates in one continuing business segment and in the geographical markets indicated in the table below. Sales for continuing operations are reflected in the segment from which the sales are made. The Other International segment includes France, Italy, Germany and Korea.
UNITED UNITED OTHER STATES KINGDOM INTERNATIONAL TOTAL -------- ------- ------------- -------- (IN THOUSANDS) March 17, 1995 to December 31, 1995: Revenues: Total revenues.............................................. $ 3,755 $2,051 $ 1,270 $ 7,076 Transfers between areas..................................... -- (55 ) (62) (117) -------- ------- ------------- -------- Unaffiliated revenues....................................... $ 3,755 $1,996 $ 1,208 $ 6,959 -------- ------- ------------- -------- -------- ------- ------------- -------- Loss from operations........................................... $ (5,183) $ (857 ) $ (565) $ (6,605) Total assets................................................... 21,534 2,077 1,222 24,833 January 1, 1996 to December 31, 1996: Revenues: Total revenues.............................................. $ 6,961 $2,314 $ 948 $ 10,223 Transfers between areas..................................... -- (35 ) (50) (85) -------- ------- ------------- -------- Unaffiliated revenues....................................... $ 6,961 $2,279 $ 898 $ 10,138 -------- ------- ------------- -------- -------- ------- ------------- -------- Loss from operations........................................... $(21,073) $(1,386) $(1,154) $(23,613) Total assets................................................... 17,928 1,019 732 19,679 January 1, 1997 to December 31, 1997: Revenues: Total revenues.............................................. $ 17,249 $2,014 $ 396 $ 19,659 Transfers between areas..................................... -- -- -- -- -------- ------- ------------- -------- Unaffiliated revenues....................................... $ 17,249 $2,014 $ 396 $ 19,659 -------- ------- ------------- -------- -------- ------- ------------- -------- Loss from operations........................................... $(21,031) $(1,064) $(1,718) $(23,813) Total assets................................................... 20,114 1,690 1,219 23,023 January 1, 1997 to March 31, 1997: Revenues: Total revenues.............................................. $ 3,432 $ 506 $ 88 $ 4,026 Transfers between areas..................................... -- -- -- -- -------- ------- ------------- -------- Unaffiliated revenues....................................... $ 3,432 $ 506 $ 88 $ 4,026 -------- ------- ------------- -------- -------- ------- ------------- -------- Loss from operations........................................... $ (5,193) $ (168 ) $ (401) $ (5,762) Total assets................................................... 13,485 1,189 964 15,638 January 1, 1998 to March 31, 1998: Revenues: Total revenues.............................................. $ 7,852 $ 514 $ 186 $ 8,552 Transfers between areas..................................... -- -- -- -- -------- ------- ------------- -------- Unaffiliated revenues....................................... $ 7,852 $ 514 $ 186 $ 8,552 -------- ------- ------------- -------- -------- ------- ------------- -------- Loss from operations........................................... $ (2,948) $ (404 ) $ (402) $ (3,754) Total assets................................................... 12,353 1,875 1,445 15,673
F-23 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) Export Sales The information below summarizes export sales by geographic area for the United States operations of Giga (in thousands):
TOTAL EXPORT EUROPE FAR EAST OTHER SALES ------ -------- ----- ------ March 17 to December 31, 1995............................ $191 $251 $105 $ 547 1996..................................................... 124 101 11 236 1997..................................................... 924 87 8 1,019 January 1 to March 31, 1997.............................. 153 41 2 196 January 1 to March 31, 1998.............................. 443 11 1 455
20. SUBSEQUENT EVENTS: In April 1998, the Company designated 2,000,000 shares of Preferred Stock as Series D Convertible Preferred Stock ('Series D') and, for cash proceeds of $1,500,000, issued 214,286 shares of Series D and warrants to purchase 115,714 shares of Series D at $9.00 per share. The warrants expire on April 5, 2003. Each share of Series D is convertible, at the holder's option, into that number of shares of Common Stock as determined by dividing the original purchase price by the conversion price in effect at the time of conversion. Each share of Series D is currently convertible into two-thirds of a share of Common Stock. The Series D will automatically convert into Common Stock at the then effective conversion price upon the earlier of (a) the approval by the holders of at least two-thirds (2/3) of the then outstanding Series D shares, (b) immediately prior to the closing of a firmly underwritten public offering of Common Stock at a price of at least $15.75 per share (as adjusted for splits, combinations and share dividends), and having aggregate cash proceeds of at least $15,000,000 and (c) immediately prior to the closing of a firmly underwritten public offering of Common Stock at a price of at least $12.00 per share and having aggregate cash proceeds of at least $30,000,000 and which closes on or prior to January 31, 1999. In the event of liquidation, dissolution or winding up of the Company (either voluntary or involuntary) or the merger or consolidation of the Company with another corporation or the sale or transfer of all or substantially all of the assets of the Company which is not agreed to by the holders of not less than a majority of the Preferred Stock, voting together as a single class, and in which the stockholders of the Company immediately prior to the such transaction do not own more than 50% interest in the surviving entity, holders of Series D will be entitled to receive out of the assets of the Company, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Stock, but after payment of any liquidation preference which may be provided for any other series of Preferred Stock, the original purchase price for each outstanding share of Series D held (as adjusted for splits and combinations), plus all declared and unpaid dividends prior to any distribution to the holders of the Company's Common Stock. Following distribution of such preferential amounts, holders of Series D shall not participate in any further distribution. Except as provided by law or in the Company's Amended and Restated Certificate of Incorporation, the holders of Series D vote with the holders of the Company's Common Stock on an as converted basis. In addition, as described in the Certificate of Incorporation, the company may not take certain actions as long as at least 1,000,000 shares of Series A, Series B, Series C and Series D are outstanding, and without the approval of the holders of at least a majority of the outstanding shares of Series A, Series B, Series C and Series D generally voting together as a class. Also in April 1998, the Company entered into a Loan and Warrant Purchase Agreement whereby the Company issued convertible promissory notes with a face value of $10,000,000 and warrants to purchase up to F-24 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED) 166,666 shares of Common Stock in exchange for cash proceeds of $10,000,000. The notes bear interest at an annual interest rate of 12% payable in quarterly installments. The warrants are exercisable at $3.00 per share for a period of ten years from the date of the grant. The fair market value of the warrants was recorded as a discount of $1,046,907 to the Notes and such Notes will be recorded at $8,953,093. Accordingly, approximately $1,046,907 of accretion will be charged to interest expense, in addition to the stated interest rates, over the term of the notes. The outstanding principal amount of the notes and warrants will be automatically converted on February 1, 1999 into 1,428,571 shares of Series D with warrants to purchase up to a maximum of 514,286 shares of Common Stock at an exercise price of $13.50 per share unless the Company completes prior to that date a public offering of Common Stock generating proceeds of at least $30,000,000 at an offering price of at least $12.00 per share. In May 1998, the Company issued an additional 71,429 shares of Series D and warrants to purchase 38,571 shares of Series D for consideration of $500,000. In May 1998, pursuant to a vote of the board of directors, the board approved, subject to shareholder approval, a 1 for 3 reverse stock split of the Common Stock effective as of the closing of an initial public offering. All share and per share data presented herein have been restated to reflect the Common Stock split. F-25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Giga Information Group, Inc.: We have audited the accompanying combined statements of operations and cash flows of BIS Strategic Decisions for the period from January 1, 1995 to April 5, 1995. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. As discussed in Note 1 to the combined financial statements, BIS Strategic Decisions was acquired by Giga Information Group, Inc. on April 5, 1995 and has been operated by the management of Giga since that date. The transaction involved the payment of $200,000 cash and a convertible note in the principal amount of $1,000,000 for all the outstanding shares of BIS Strategic Decisions. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of BIS Strategic Decisions' operations and its cash flows for the period from January 1, 1995 to April 5, 1995 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boston, Massachusetts April 17, 1998 F-26 BIS STRATEGIC DECISIONS COMBINED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM JANUARY 1 TO APRIL 5, 1995 (IN THOUSANDS) Information service revenues............................................................................. $ 2,116 Cost and expenses: Cost of services and product development............................................................... 1,422 Sales and marketing.................................................................................... 167 General and administrative............................................................................. 1,047 Depreciation and amortization.......................................................................... 215 --------- Total costs and expenses....................................................................... 2,851 --------- Operating loss........................................................................................... (735) Interest income, net..................................................................................... 19 --------- Loss from continuing operations before income taxes............................................ (716) --------- Income tax benefit....................................................................................... (213) --------- Loss from continuing operations................................................................ (503) --------- Discontinued operations: Income from the discontinued BIS market research business, net of tax effect........................... 597 Income from the discontinued Shrapnel business, net of tax effect...................................... 54 --------- Income from discontinued operations............................................................ 651 --------- Net income..................................................................................... $ 148 --------- ---------
The accompanying notes are an integral part of the combined financial statements. F-27 BIS STRATEGIC DECISIONS COMBINED STATEMENTS OF CASH FLOWS FOR THE PERIOD JANUARY 1 TO APRIL 5, 1995 (IN THOUSANDS) Cash flows from operating activities: Net income............................................................................................. $ 148 Adjustments to reconcile net income to net cash used in continuing operating activities: Net income from discontinued operations........................................................... (651) Depreciation...................................................................................... 191 Amortization and write-down of goodwill........................................................... 24 Provision for deferred income taxes............................................................... 58 Allowance for doubtful accounts................................................................... 7 Changes in certain operating assets and liabilities: Increase in accounts receivable................................................................... (383) Decrease in unbilled services..................................................................... 183 Increase in prepaid expenses and other current assets............................................. (310) Decrease in accounts payable and accrued expenses................................................. (531) Increase in deferred revenue...................................................................... 370 --------- Net cash provided by (used in) operating activities of: Continuing operations.................................................................................. (894) Discontinued operations................................................................................ 681 --------- Net cash used in operating activities.................................................................... (213) Cash flows from investing activities: Purchase of fixed assets............................................................................... (83) Proceeds from sale of equipment........................................................................ 32 --------- Net cash used in investing activities.................................................................... (51) Cash flows from financing activities: Proceeds from borrowings............................................................................... 22 Principal payments on borrowings....................................................................... (157) Principal payments on capital lease obligations........................................................ (19) --------- Net cash used in financing activities.................................................................... (154) Effect of exchange rate changes on cash.................................................................. 219 --------- Net decrease in cash and cash equivalents................................................................ (199) Cash and cash equivalents at beginning of period......................................................... 1,809 --------- Cash and cash equivalents at end of period............................................................... $ 1,610 --------- --------- Supplemental cash flow information: Income taxes paid...................................................................................... $ 7 Interest paid.......................................................................................... $ 2
The accompanying notes are an integral part of the combined financial statements. F-28 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS 1. BACKGROUND: BIS Strategic Decision, Inc. and its five foreign affiliates (collectively 'BIS Strategic Decisions' or 'BIS') were wholly-owned subsidiaries of Friday Holdings, L.P. ('FHLP'). On April 5, 1995, Giga Information Group, Inc. ('Giga') acquired 100% of the common stock outstanding of each of the BIS companies from FHLP for $200,000 in cash and a $1,000,000 convertible promissory note. The acquisition of BIS by Giga was accounted for as a purchase. As part of the transaction, a $1,300,000 intangible asset was recorded representing the fair value of payments being made on a property lease through May 1998 by a former owner of BIS. On June 25, 1996, Giga elected to discontinue the BIS market research business. In connection with the discontinuance of such operations, Giga terminated the personnel employed in developing and compiling the BIS market research products, ceased operations at two of the licensed facilities in England and entered into contracts with two independent IT service providers engaged to fulfill Giga's obligations to customers of BIS under certain existing subscription agreements, all of which expired on or before June 1997. On December 20, 1996, Giga elected to discontinue its economic forecasting business in Australia, BIS Shrapnel PTY Ltd. ('BIS Shrapnel'). In connection with the discontinuance of such business, in July 1997 Giga sold the stock of BIS Shrapnel to the management team in exchange for AU$407,500, or approximately $293,000 at the time of sale. The continuing operations reflected in the financial statements represent revenues and expenses associated with BIS Information Service revenues which include events, publications and consulting. The results of the BIS market research business and BIS Shrapnel have been shown as discontinued operations. 2. SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The combined financial statements of BIS Strategic Decision include the accounts of BIS Strategic Decisions, Inc., BIS Strategic Decisions, Ltd., BIS Shrapnel, BIS Strategic Decisions, GmbH, BIS Strategic Decisions, Srl and BIS Strategic Decisions, Sarl. All intercompany accounts and transactions have been eliminated in combination. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that effect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Foreign Currency Translation For international operations, the local currency is used as the functional currency. Income statement items are translated at the average rates of exchange for the year. Realized and unrealized exchange gains or losses arising from transaction adjustments are reflected in operations and are not material. F-29 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Cash Equivalents Cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. Revenue Recognition Revenues from events, publications and consulting are recognized as follows: Events--revenues and associated expenses are recognized during the month that the conference is held. Publications--revenues from general and research reports are recognized when the report is published. Newsletter revenues are recognized over the subscription period. Consulting Services--revenues are recognized based on the percentage of the service that has been performed. Income Taxes The Predecessor Companies recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Predecessor Companies' consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using currently enacted tax rates for the year in which the differences are expected to reverse. The Predecessor Companies record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The BIS companies filed separate tax returns. Property and Equipment Property and equipment are depreciated over the estimated useful lives of the related assets using the straight-line method. Computers and related equipment are depreciated over three years, furniture and fixtures are depreciated over five years and motor vehicles are depreciated over four years. Leasehold improvements are amortized over the lesser of the noncancelable term of the related lease or their estimated economic lives. Maintenance and repairs are charged to expense as incurred. 3. PROPERTY AND EQUIPMENT: Depreciation expense and amortization of leasehold improvements was $191,000 for the period from January 1, 1995 to April 5, 1995. 4. CREDIT ARRANGEMENTS: One of the combined affiliates of the Company has a working capital line of credit agreement with a bank under which it may borrow amounts up to $750,000. The line of credit bears interest at the bank's base rate plus 1.5% and is secured by all assets owned or leased by the affiliate. The agreement contains operational covenants and expired on December 31, 1994; however, the bank has allowed the affiliate to extend the line pending resolution of the sale of the affiliate. As of April 5, 1995, no amounts were outstanding under the line. The weighted average interest rate of outstanding borrowings was 7.5% for the period January 1, 1995 to April 5, 1995. F-30 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. INCOME TAXES: For financial reporting purposes, the income tax benefit from continuing operations was based on the following components: Pretax loss from continuing operations: United States................................................... $(497) Foreign......................................................... (219) ----- Total pretax loss from continuing operations............ $(716) ----- -----
The results of continuing operations include a foreign tax benefit of $3,000. 6. PENSION PLANS: BIS has established the CAP International Savings and Retirement Plan (the 401(k) Plan), a profit sharing plan under Section 401 of the Internal Revenue Code. Employees are eligible to participate in the 401(k) Plan by meeting certain requirements, including length of service and minimum age. BIS matches the first 3% of an employee's contribution by 25% and the next 3% of an employee's contribution by 50%. BIS may also make additional contributions to the plan at the discretion of the Board of Directors. BIS has not made any discretionary contributions to the profit sharing plan. For the period January 1 to April 5, 1995, BIS contributed $23,000 to the plan. 7. LEASE COMMITMENTS: BIS leases certain office space and equipment under operating lease agreements. Rent expense was $232,000 for the period January 1 to April 5, 1995. 8. JOINT VENTURE AGREEMENT: On October 18, 1991, BIS entered into a joint venture agreement with a Japanese company. The purpose of the joint venture was to provide additional market penetration in Japan for its products and services. Under the terms of the joint venture agreement, the Predecessor Companies may be required to pay its Japanese partner approximately $75,000 if cumulative sales under the joint venture do not meet certain agreed upon levels by December 31, 1995. In addition, on or prior to April 1, 1996, the Predecessor Companies may be required to increase its investment in the joint venture by approximately $23,000. 9. GEOGRAPHIC MARKETS: BIS operates in one business segment and in the geographical markets indicated in the table below. Revenues from continuing operations are reflected in the market from which the sales are made. The Other International market includes France, Italy and Germany. JANUARY 1, 1995 TO APRIL 5, 1995 (IN THOUSANDS):
NORTH UNITED OTHER AMERICA KINGDOM INTERNATIONAL TOTAL ------- ------- ------------- ------ Revenues: Total revenues........................................... $1,113 $ 499 $ 586 $2,198 Transfers between areas.................................. -- (19) (63) (82) ------- ------- ------ ------ Unaffiliated revenues.................................... $1,113 $ 480 $ 523 $2,116 ------- ------- ------ ------ ------- ------- ------ ------ Loss from continuing operations............................ $ (537 ) $ (22) $(176) $ (735)
F-31 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Export sales by geographic area for the U.S. operations of BIS totaled $163,000 for the period January 1 to April 5, 1995 and were comprised of $57,000 to Europe, $75,000 to the Far East and $31,000 to other areas. 10. DISCONTINUED OPERATIONS: On June 25, 1996, Giga decided to discontinue the BIS Market Research business. The results of these operations have been classified as discontinued operations and the financial statements have been restated to reflect the discontinuance. The operating results of the business for the period from January 1 to April 5, 1995 are summarized as follows (in thousands): Revenues......................................................... $3,994 Pre-tax income................................................... 876 Provision for income taxes....................................... 279 Net income....................................................... 597
On December 20, 1996, Giga decided to discontinue its Australian econometric forecasting business. The results of these operations have been classified as discontinued operations and the financial statements have been restated to reflect the discontinuance. The operating results of the business for the period from January 1 to April 5, 1995 are summarized as follows (in thousands): Revenues......................................................... $1,121 Pre-tax income................................................... 54 Provision for income taxes....................................... -- Net income....................................................... 54
F-32 [LOGO] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS ------------------------
PAGE ---- Prospectus Summary............................. 3 Risk Factors................................... 7 Use of Proceeds................................ 14 Dividend Policy................................ 14 Capitalization................................. 15 Dilution....................................... 16 Selected Consolidated Financial Data........... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 20 Business....................................... 27 Management..................................... 34 Certain Transactions........................... 41 Principal Stockholders......................... 45 Description of Capital Stock................... 48 Shares Eligible for Future Sale................ 51 Underwriting................................... 53 Legal Matters.................................. 55 Experts........................................ 55 Additional Information......................... 55 Index to Consolidated Financial Statements................................... F-1
------------------------ UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3,000,000 SHARES [LOGO] COMMON STOCK ------------------------ PROSPECTUS ------------------------ FRIEDMAN, BILLINGS, RAMSEY & CO., INC. PRUDENTIAL SECURITIES INCORPORATED , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than the underwriting discounts and commissions. All amounts shown are estimates except for the Securities and Exchange Commission registration fee and the NASD filing fee. SEC Registration Fee........................................................................ $ 13,570 NASD Filing Fee............................................................................. 5,100 Nasdaq Listing Fee.......................................................................... * Blue Sky Fees and Expenses.................................................................. * Transfer Agent and Registrar Fees........................................................... * Accounting Fees and Expenses................................................................ * Legal Fees and Expenses..................................................................... * Printing, Engraving and Mailing Expenses.................................................... * Premium for directors and officers insurance................................................ * Miscellaneous............................................................................... * -------- Total.................................................................................. $ * --------
- ------------------ * To be completed by Amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article Seven of the Registrant's Amended and Restated Certificate of Incorporation (the 'Restated Certificate') provides that no director of the Registrant shall be personally liable for any monetary damages for any breach of fiduciary duty as a director, except to the extent that the Delaware General Corporation Law (the 'DGCL') prohibits the elimination or limitation of liability of directors for breach of fiduciary duty. Article Eight of the Restated Certificate provides that a director or officer of the Registrant (a) shall be indemnified by the Registrant against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any litigation or other legal proceeding (other than an action by or in the right of the Registrant) brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful and (b) shall be indemnified by the Registrant against all expenses (including attorneys' fees) and amounts paid in settlement incurred in connection with any action by or in the right of the Registrant brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, except that no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the Registrant, unless a court determines that, despite such adjudication but in view of all of the circumstances, he is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that a director or officer has been successful, on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, he is required to be indemnified by the Registrant against all expenses (including attorneys' fees) incurred in connection therewith. Expenses shall be advanced to a director or officer at his request, provided that he undertakes to repay the amount advanced if it is ultimately determined that he is not entitled to indemnification for such expenses. Indemnification is required to be made unless the Registrant determines that the applicable standard of conduct required for indemnification has not been met. In the event of a determination by the Registrant that the director or officer did not meet the applicable standard of conduct required for indemnification, or if the Registrant fails to make an indemnification payment within 60 days after such payment is claimed by such person, such person is permitted to petition the court to make an independent determination as to whether such person is entitled to indemnification. As a condition precedent to the right of indemnification, the director or II-1 officer must give the Registrant notice of the action for which indemnity is sought and the Registrant has the right to participate in such action or assume the defense thereof. Section 145 of the DGCL provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against amounts paid and expenses incurred in connection with an action or proceeding to which he is or is threatened to be made a party by reason of such position, if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal proceeding, if such person had no reasonable cause to believe his conduct was unlawful; provided that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the adjudicating court determines that such indemnification is proper under the circumstances. The Board of Directors on April 26, 1996 approved, in accordance with Section 145 of the DGCL, a Directors and Officers Indemnification Agreement to be entered into between the Registrant and each of Registrant's directors and officers. Pursuant to the terms of the agreement, the Registrant agrees to hold any director or officer harmless against any and all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such director or officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Registrant), to which the director or officer becomes a party at any time or is threatened to be made a party, by reason of the fact that the director or officer is a director, officer, employee or agent of the Registrant, or serves at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and otherwise to the fullest extent as may be provided to the director or officer by the Registrant under the non-exclusivity provisions of Article V of the Bylaws of the Registrant and the Delaware General Corporation Law. The agreement also obligates the Registrant under certain circumstances to advance amounts and contribute to any amounts paid out by a director or officer as a result of his or her role as a director or officer of the Registrant in cases where indemnification by the Registrant is not available. This agreement is also intended to indemnify special advisors of the Registrant. Under Section 8 of the Underwriting Agreement, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrant against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement filed as Exhibit 1 hereto. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Set forth in chronological order below is information regarding the number of shares of capital stock and other securities issued by the Registrant since the Registrant's inception in March 1995. Further included is the consideration, if any, received by the Registrant for such shares of capital stock and other securities and information relating to the section of the Securities Act, or rule of the Commission under which exemption from registration was claimed. All awards of options did not involve any sale under the Securities Act and none of these securities was registered under the Securities Act. 1. Since March 1995, the Registrant has issued options to purchase an aggregate of 2,464,957 shares of Common Stock at a weighted average exercise price of $2.51 per share. During this same time period, the Registrant has issued a total of 207,601 shares of Common Stock pursuant to the exercise of options previously granted. 2. In March 1995, the Registrant sold to its Chairman of the Board of Directors and Chief Executive Officer 1,400,000 shares of Common Stock at a purchase price of $0.07125 per share. 3. In April 1995, the Registrant issued to Friday Holdings, L.P. a 5% $1.0 million principal amount convertible promissory note in connection with the Registrant's acquisition of BIS Strategic Decisions, Inc. and its five foreign affiliates. 4. In June 1995, the Registrant issued a warrant to purchase 107,876 shares of Series B Preferred Stock, $.001 par value ('Series B Preferred Stock'), to Montgomery Securities in consideration for certain placement agent services at an exercise price of $4.625 per share. II-2 5. In July 1995 and October 1995, the Registrant issued and sold an aggregate of 570,000 shares of Series A Preferred Stock, $.001 par value ('Series A Preferred Stock') to a group of investors, including certain employees and directors, at a purchase price of $5.00 per share. 6. In July 1995, the Registrant issued 160,000 shares of Series A Preferred Stock to its Chairman of the Board of Directors and Chief Executive Officer and to its Senior Vice President, Research & Technology in connection with the Registrant's acquisition of a majority of the shares of ExperNet Corporation ('ExperNet') and in December 1995, the Registrant issued to its Senior Vice President, Research & Technology, in connection with the Registrant's acquisition of the remaining shares of ExperNet, a 6% $400,000 convertible promissory note. 7. In August 1995, the Company issued to Mr. Crandall 40,000 shares of Common Stock at a purchase price of $1.50 per share. 8. In August 1995, the Registrant issued a warrant to purchase 285,714 shares of Series B Preferred Stock to an investor at an exercise price of $2.345 per share. In September 1996, the investor made a cashless exercise of the warrant and received 218,714 shares of the Company's Series B Preferred Stock. 9. Throughout 1995, the Registrant issued 528,620 shares of Common Stock to a group of employees, consultants and directors at a purchase price of $1.50 per share. 10. In November 1995, bridge financing in the principal amount of $2,000,000 was automatically converted into 571,428 shares of Series B Preferred Stock. 11. In November 1995, February 1996 and December 1996, the Registrant issued and sold an aggregate of 7,354,500 shares of Series B Preferred Stock, to a group of investors at a purchase price of $3.50 per share. 12. In August 1996, the Registrant issued 8,333 shares of Common Stock to an employee in connection with the acquisition of his business. 13. In May and December 1997, the Company issued and sold an aggregate of 2,609,491 shares of Series C Preferred Stock, $.001 par value ('Series C Preferred Stock'), at a purchase price of $4.11 per share to a limited number of investors (the 'Series C Investors'). 14. In January 1998, the Company issued warrants to purchase an aggregate of 1,409,127 shares of Series C Preferred Stock at an exercise price of $5.28 per share to the Series C Investors. 15. In April 1998, the Company issued convertible promissory notes in the aggregate principal amount of $10.0 million and warrants to purchase an aggregate of 166,666 shares of Common Stock at an exercise price of $3.00 per share to certain affiliates of Friedman, Billings, Ramsey & Co., Inc. ('FBR'). 16. In April and May 1998, the Company issued and sold an aggregate of 285,715 shares of Series D Preferred Stock, par value $.001 per share ('Series D Preferred Stock'), at a purchase price of $7.00 per share and warrants to purchase an additional 154,286 shares of Series D Preferred Stock at an exercise price of $9.00 per share. The shares of capital stock and other securities issued in the above transactions were offered and sold in reliance upon the exemption from registration under Section 4(2) of the Securities Act or Regulation D or Rule 701 promulgated under the Securities Act, relative to sales by an issuer not involving any public offering or as not constituting sales under Section 2(3) of the Securities Act. II-3 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
EXHIBIT NO. DESCRIPTION - -------- ----------------------------------------------------------------------------------------------------------- 1 *** -- Form of Underwriting Agreement. 3.1** -- Fourth Amended and Restated Certificate of Incorporation of the Registrant. 3.2** -- Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant (to be filed with the State of Delaware prior to the closing of the Offering to which this Registration Statement relates). 3.3* -- Certificate of Designations of Series D Preferred Stock of the Registrant. 3.4** -- Form of Fifth Amended and Restated Certificate of Incorporation of the Registrant (to be filed with the State of Delaware simultaneous with the closing of the Offering to which this Registration Statement relates). 3.5** -- By-Laws of the Registrant. 3.6** -- Form of Amended and Restated Bylaws of the Registrant (to become effective upon the closing of the Offering to which this Registration Statement relates). 4.1** -- Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant. 5*** -- Opinion of Weil, Gotshal & Manges LLP with respect to the validity of the securities being offered. 10.1* -- Series B Preferred Stock Purchase Agreement dated November 13, 1995, as amended, between the Registrant and the Investors named on Exhibit A thereto. 10.2** -- Form of Series B Preferred Stock Purchase Warrant dated February 28, 1996 registered in the name of Montgomery Securities. 10.3 -- *(a) Series C Preferred Stock and Warrant Purchase Agreement dated May 9, 1997, between the Registrant and the Investors named in Exhibit A thereto. -- **(b) Amendment No. 1 to Series C Preferred Stock and Warrant Purchase Agreement. -- **(c) Letter Agreement re: Purchase of Series C Stock, between the Company and the Investors named on the signature page thereto. 10.4* -- Form of Series C Preferred Stock Purchase Warrant dated January 2, 1998 and issued to the Investors in the Series C Financing. 10.5* -- Series D Preferred Stock and Warrant Purchase Agreement dated April 6, 1998 between the Registrant and the Investors named in Exhibit A thereto. 10.6 -- *(a) Registration Rights Agreement dated November 13, 1995, among the Registrant, the Investors named on Exhibit A thereto, Gideon I. Gartner and David L. Gilmour. -- **(b) Amendment No. 1 to Registration Rights Agreement. -- **(c) Amendment No. 2 to Registration Rights Agreement. -- **(d) Amendment No. 3 to Registration Rights Agreement. -- **(e) Amendment No. 4 to Registration Rights Agreement. 10.7 -- *(a) Co-Sale and Stock Restriction Agreement dated November 13, 1995, among the Registrant, Gideon I. Gartner and the stockholders named on the signature pages thereto. -- **(b) Amendment No. 1 to Co-Sale Agreement. -- **(c) Amendment No. 2 to Co-Sale Agreement. 10.8* -- Form of Series D Preferred Stock Purchase Warrant dated April 7, 1998 and issued to the Investors in the Series D Financing. 10.9* -- Loan and Warrant Purchase Agreement dated April 7, 1998 between the Registrant and the Lenders named in Schedule A thereto. 10.10* -- Form of Convertible Promissory Note dated April 7, 1998 issued to certain affiliates of Friedman, Billings, Ramsey & Co., Inc.
II-4
EXHIBIT NO. DESCRIPTION - -------- ----------------------------------------------------------------------------------------------------------- 10.11** -- Form of Common Stock Purchase Warrant dated April 7, 1998 issued to certain affiliates of Friedman, Billings, Ramsey & Co., Inc. 10.12* -- Security Agreement dated as of April 7, 1998 between the Registrant and an affiliate of Friedman, Billings, Ramsey & Co., Inc. as agent for the Lenders. 10.13** -- Consulting Agreement dated February 1, 1998 between the Registrant and David Gilmour. 10.14** -- Separation Agreement dated January 7, 1998 between the Registrant and Henry S. Givray. 10.15** -- Separation Agreement dated October 2, 1997 between the Registrant and Jacques Bouvard. 10.16* -- Non-competition Agreement dated November 13, 1995 between the Registrant and Gideon I. Gartner. 10.17 -- *(a) Letter Agreement dated July 12, 1996 between the Registrant and Richard L. Crandall. -- **(b) Letter Agreement dated February 11, 1997 between the Registrant and Richard L. Crandall. 10.18* -- Lease dated October 31, 1995 between the Registrant and Cambridge 1400 Limited Partnership. 10.19 -- *(a) Lease dated October 6, 1987, as amended, between BIS Strategic Decisions, Inc. and Charles A. Pesko, Jr., as Trustee of Longwater Circle Trust. -- ***(b) Lease dated May 29, 1998 between the Registrant and Trinet Property Partners, L.P. 10.20** -- 1995 Stock Option/Stock Issuance Plan. 10.21** -- 1996 Stock Option Plan. 10.22* -- 1997 Director Option Plan. 21* -- Subsidiaries of the Registrant. 23.1*** -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5). 23.2** -- Consent of PricewaterhouseCoopers LLP. 24* -- Powers of Attorney (included on page II-7). 27* -- Financial Data Schedule. 99.1*** -- Consent of Josh S. Weston.
- ------------------ * Previously filed. ** Filed herewith. *** To be filed by Amendment. (B) FINANCIAL STATEMENT SCHEDULES All other schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions contained in the Restated Certificate of Incorporation and Amended and Restated By-Laws of the Registrant and the laws of the State of Delaware, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS, ON THIS 6 DAY OF JULY, 1998. GIGA INFORMATION GROUP, INC. By: /s/ GIDEON I. GARTNER ---------------------------------- Gideon I. Gartner Chairman of the Board, President and Chief Executive Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES GIDEON I. GARTNER AND DANIEL M. CLARKE, AND EACH OF THEM SINGLY, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, EACH WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION (UNTIL REVOKED IN WRITING) TO SIGN FOR SUCH PERSON AND IN SUCH PERSON'S NAME AND CAPACITY INDICTAED BELOW, ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT AND ANY OTHER REGISTRATION STATEMENT FILED IN CONNECTION WITH THE SAME OFFERING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND CONFIRMING SUCH PERSON'S SIGNATURE AS IT MAY BE SIGNED BY SUCH ATTORNEYS TO ANY AND ALL SUCH AMENDMENTS AND ADDITIONAL REGISTRATION STATEMENTS.
SIGNATURE TITLE DATE - --------------------------------------------- ---------------------------------------------- ------------ /s/ GIDEON I. GARTNER Chairman of the Board of Directors, President July 6, 1998 - --------------------------------------------- and Chief Executive Officer (Principal Gideon I. Gartner Executive Officer) * Senior Vice President and Chief Financial July 6, 1998 - --------------------------------------------- Officer, Treasurer and Secretary (Principal Daniel M. Clarke Financial and Accounting Officer) * Director July 6, 1998 - --------------------------------------------- David L. Gilmour * Director July 6, 1998 - --------------------------------------------- Neill H. Brownstein * Director July 6, 1998 - --------------------------------------------- Richard L. Crandall * Director July 6, 1998 - --------------------------------------------- Irwin Lieber * Director July 6, 1998 - --------------------------------------------- Bernard Goldstein By: /s/ GIDEON I. GARTNER ------------------------------------------ Gideon I. Gartner Attorney-in-Fact
II-7 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. - ---------- --------------------------------------------------------------------------------------------- -------- 1 *** -- Form of Underwriting Agreement 3.1** -- Fourth Amended and Restated Certificate of Incorporation of the Registrant 3.2** -- Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant (to be filed with the State of Delaware prior to the closing of the Offering to which this Registration Statement relates) 3.3* -- Certificate of Designations of Series D Preferred Stock of the Registrant 3.4** -- Form of Fifth Amended and Restated Certificate of Incorporation of the Registrant (to be filed with the State of Delaware simultaneous with the closing of the Offering to which this Registration Statement relates) 3.5** -- By-Laws of the Registrant 3.6** -- Form of Amended and Restated Bylaws of the Registrant (to become effective upon the closing of the Offering to which this Registration Statement relates) 4.1** -- Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant 5*** -- Opinion of Weil, Gotshal & Manges LLP with respect to the validity of the securities being offered. 10.1* -- Series B Preferred Stock Purchase Agreement dated November 13, 1995, as amended, between the Registrant and the Investors named on Exhibit A thereto 10.2** -- Form of Series B Preferred Stock Purchase Warrant dated February 28, 1996 registered in the name of Montgomery Securities 10.3 -- *(a) Series C Preferred Stock and Warrant Purchase Agreement dated May 9, 1997, between the Registrant and the Investors named in Exhibit A thereto -- **(b) Amendment No. 1 to Series C Preferred Stock and Warrant Purchase Agreement -- **(c) Letter Agreement re: Purchase of Series C Stock, between the Company and the Investors named on the signature page thereto 10.4* -- Form of Series C Preferred Stock Purchase Warrant dated January 2, 1998 and issued to the Investors in the Series C Financing 10.5* -- Series D Preferred Stock and Warrant Purchase Agreement dated April 6, 1998 between the Registrant and the Investors named in Exhibit A thereto 10.6 -- *(a) Registration Rights Agreement dated November 13, 1995, among the Registrant, the Investors named on Exhibit A thereto, Gideon I. Gartner and David L. Gilmour -- **(b) Amendment No. 1 to Registration Rights Agreement -- **(c) Amendment No. 2 to Registration Rights Agreement -- **(d) Amendment No. 3 to Registration Rights Agreement -- **(e) Amendment No. 4 to Registration Rights Agreement 10.7 -- *(a) Co-Sale and Stock Restriction Agreement dated November 13, 1995, among the Registrant, Gideon I. Gartner and the stockholders named on the signature pages thereto -- **(b) Amendment No. 1 to Co-Sale Agreement -- **(c) Amendment No. 2 to Co-Sale Agreement 10.8* -- Form of Series D Preferred Stock Purchase Warrant dated April 7, 1998 and issued to the Investors in the Series D Financing 10.9* -- Loan and Warrant Purchase Agreement dated April 7, 1998 between the Registrant and the Lenders named in Schedule A thereto 10.10* -- Form of Convertible Promissory Note dated April 7, 1998 issued to certain affiliates of Friedman, Billings, Ramsey & Co., Inc.
EXHIBIT NO. DESCRIPTION PAGE NO. - ---------- --------------------------------------------------------------------------------------------- -------- 10.11** -- Form of Common Stock Purchase Warrant dated April 7, 1998 issued to certain affiliates of Friedman, Billings, Ramsey & Co., Inc. 10.12* -- Security Agreement dated as of April 7, 1998 between the Registrant and an affiliate of Friedman, Billings, Ramsey & Co., Inc. as agent for the Lenders 10.13** -- Consulting Agreement dated February 1, 1998 between the Registrant and David Gilmour 10.14** -- Separation Agreement dated January 7, 1998 between the Registrant and Henry S. Givray 10.15** -- Separation Agreement dated October 2, 1997 between the Registrant and Jacques Bouvard 10.16* -- Non-competition Agreement dated November 13, 1995 between the Registrant and Gideon I. Gartner 10.17 -- *(a) Letter Agreement dated July 12, 1996 between the Registrant and Richard L. Crandall -- **(b) Letter Agreement dated February 11, 1997 between the Registrant and Richard L. Crandall 10.18* -- Lease dated October 31, 1995 between the Registrant and Cambridge 1400 Limited Partnership 10.19 -- *(a) Lease dated October 6, 1987, as amended, between BIS Strategic Decisions, Inc. and Charles A. Pesko, Jr., as Trustee of Longwater Circle Trust -- ***(b) Lease dated May 29, 1998 between the Registrant and Trinet Property Partners, L.P. 10.20** -- 1995 Stock Option/Stock Issuance Plan 10.21** -- 1996 Stock Option Plan 10.22* -- 1997 Director Option Plan 21* -- Subsidiaries of the Registrant 23.1*** -- Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5) 23.2** -- Consent of PricewaterhouseCoopers LLP 24* -- Powers of Attorney (included on page II-7) 27* -- Financial Data Schedule 99.1*** -- Consent of Josh S. Weston
- ------------------ * Previously filed. ** Filed herewith. *** To be filed by amendment. EX-3.1 2 FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GIGA INFORMATION GROUP, INC. Giga Information Group, Inc., a corporation organized and existing under the laws of the State of Delaware, does hereby certify that: 1. The name of the corporation is Giga Information Group, Inc. Giga Information Group, Inc. was originally incorporated under the name Giga Strategic Decisions, Inc., and the original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 17, 1995. 2. Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware, this Fourth Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors and stockholders of Giga Information Group, Inc. 3. Pursuant to Section 245 of the General Corporation Law of the State of Delaware, this Fourth Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this corporation as previously filed. 4. The text of the Certificate of Incorporation is hereby restated and further amended to read in its entirety as follows: ARTICLE I The name of this corporation is Giga Information Group, Inc. ARTICLE II The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Law of the State of Delaware. ARTICLE III This corporation is authorized to issue two classes of shares designated "Common Stock" and "Preferred Stock", respectively. The total number of shares which this corporation shall have authority to issue is Sixty-Six Million Five Hundred Thousand (66,500,000), with a par value of $.001 per share. The number of shares of Common Stock authorized to be issued is Fifty Million (50,000,000) and the number of shares of Preferred Stock authorized to be issued is Sixteen Million Five Hundred Thousand (16,500,000), of which Six Hundred and Fifty Thousand (650,000) shares shall be designated as "Series A Preferred Stock", Nine Million (9,000,000) shares shall be designated as "Series B Preferred Stock", and Four Million Five Hundred Thousand (4,500,000) shares shall be designated as "Series C Preferred Stock", having the rights, preferences, privileges and restrictions set forth herein. Subject to Section 6 of Article IV.A hereof, the Board of Directors of the corporation (the "Board of Directors") is expressly authorized to provide for the issue of all or any of the remaining shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designations, preferences, and relative, participating, optional or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such shares and as may be permitted by the General Corporation Law of the State of Delaware. Subject to Section 6 of Article IV.A hereof, the Board of Directors is also expressly authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series, other than the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, subsequent to the issue of shares of the series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE IV A. Series Preferred Stock. The rights, preferences, privileges and restrictions granted to or imposed upon the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, are as follows: 1. Definitions. For purposes of this Article IV, the following definitions shall apply: (a) "Board" shall mean the Board of Directors of the corporation. -2- (b) "Company" shall mean this corporation. (c) "Common Stock" shall mean the Common Stock, $.001 par value, of the corporation. (d) "Original Issue Date" shall mean the effective date of the initial sale of each Series of Preferred Stock issued by the corporation. (e) "Original Series A Purchase Price" shall mean $5.00 per share. (f) "Original Series B Purchase Price" shall mean $3.50 per share. (g) "Original Series C Purchase Price" shall mean $4.11 per share. (h) "Series A Preferred Stock" shall mean the Series A Preferred Stock, $.001 par value, of the Company. (i) "Series B Preferred Stock" shall mean the Series B Preferred Stock, $.001 par value, of the Company. (j) "Series C Preferred Stock" shall mean the Series C Preferred Stock $.001 par value of the Company. (k) "Series A Original Issue Date" shall mean July 6, 1995. (l) "Series B Original Issue Date" shall mean November 11, 1995. (m) "Series C Original Issue Date" shall mean May 9, 1997. (n) "Series Preferred Stock" shall mean, unless otherwise specified in this Fourth Amended and Restated Certificate of Incorporation, collectively, the Series A Preferred Stock, Series B Preferred Stock and the Series C Preferred Stock. (o) "Subsidiary" shall mean any corporation of which more then fifty percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the corporation or by one or more other Subsidiaries. 2. Voting Rights. Except as otherwise required by law or provided by this Fourth Amended and Restated Certificate of Incorporation, the holders of Series Preferred Stock will be entitled to notice of any meeting of stockholders of the corporation and to vote upon any matter submitted to stockholders or a class of stockholders of the corporation on -3- the basis that each holder of shares of Series Preferred Stock will have the right to the number of votes equal to the number of shares of Common Stock into which such shares could be converted on the record date fixed for the vote or consent of stockholders (with any fractional share determined on an aggregate conversion basis being rounded to the nearest whole share). With respect to such vote, each such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock. 3. Dividends. The holders of Series Preferred Stock shall be entitled to receive dividends from legally available funds when and if declared by the Company's Board of Directors. In the event this corporation shall declare a distribution (other than distributions payable solely in shares of Common Stock) payable in cash, securities of other persons, evidences of indebtedness issued by this corporation or other persons, assets or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Series Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Series Preferred Stock were the holders of the number of shares of Common Stock of the corporation into which their respective shares of Series Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the corporation entitled to receive such distribution. The holders of Series Preferred Stock shall have no right to share in any preferential distributions made to any other series of Preferred Stock which may hereafter be issued in compliance with Section 6. 4. Liquidation Preference. (a) In the event of the liquidation, dissolution or winding up of the corporation, either voluntarily or involuntarily, the holders of the Series Preferred Stock will be entitled to receive out of the assets of the corporation, prior and in preference to any distribution of any of the assets or surplus ends of the corporation to the holders of the Common Stock by reason of their ownership thereof, but after payment of any liquidation preference which may hereafter be provided for any other series of Preferred Stock issued in accordance with Section 6, an amount equal to the greater of (i) the Original Series A Purchase Price for each outstanding shares of Series A Preferred Stock, the Original Series B Purchase Price for each outstanding shares of Series B Preferred Stock and the Original Series C Purchase Price for each outstanding share of Series C Preferred Stock then held by them (as appropriately adjusted for stock splits and combinations), plus all declared and unpaid dividends with respect thereto, or (ii) such amount per share as would have been payable had each such share been converted to Common -4- Stock pursuant to paragraph 5 immediately prior to such liquidation, dissolution and winding up, and the holders of Series Preferred Stock shall not be entitled to any further payment. If upon the occurrence of an event referred to in the preceding sentence the assets and funds thus distributed among the holders of the Series Preferred Stock are insufficient to permit the payment to such holders of the full preferential amount for each such series, then the entire assets and funds of the corporation legally available for distribution will be distributed ratably among the holders of the Series Preferred Stock (so that each holder receives the same percentage of the applicable preferential amount). After payment has been made to the holders of the Series Preferred Stock of the full preferential amounts referred to above, the holders of Series Preferred Stock shall not participate with the Common Stock in any further distributions. (b) Unless otherwise agreed to by the holders of not less than a majority of the Series Preferred Stock then outstanding, voting together as a single class, a merger of this corporation with or into any other corporation or corporations, or a sale, transfer or lease (other than a pledge or grant of a security interest to a bona fide lender) of all or substantially all of the assets of this corporation shall be deemed to be a liquidation, dissolution or winding up for purposes of this subsection b, unless the stockholders of this corporation immediately prior to such transaction own more than fifty (50) percent of the voting power of the surviving entity (or its parent) subsequent to the transaction (provided, however, that shares of the surviving entity held by holders of the capital stock of this corporation acquired by means other than the exchange or conversion of the capital stock of this corporation shall not be used in determining if the stockholders of this corporation own more than fifty (50) percent of the voting power of the surviving entity (or its parent), but shall be used for determining the total outstanding voting power of the surviving entity). (c) The corporation shall give each holder of record of Series Preferred Stock written notice of an impending transaction described in subsection 4(a) or 4(b) not later than fifteen (15) days prior to the stockholders' meeting called to approve such transaction, or fifteen (15) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than fifteen (15) days after the corporation has given the -5- first notice provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of the Series Preferred Stock which are entitled to such notice rights or similar notice rights and which represents at least a majority of the voting power of all then outstanding shares of such Series Preferred Stock voting together as a single class. (d) Whenever the distribution provided for in this Section 4 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors. 5. Conversion Rights. (a) Right to Convert. The holders of the Series Preferred Stock shall have conversion rights as follows: (i) Optional Conversion. Each share of Series Preferred Stock will be convertible, at the option of the holder thereof, at the office of the corporation or any transfer agent for the Series Preferred Stock, into Common Stock. The number of shares of Common Stock into which each \ share of Series Preferred Stock will be converted will equal (i) the Original Series A Purchase Price in the case of the Series A Preferred Stock, (ii) the Original Series B Purchase Price, in the case of the Series B Preferred Stock, and (iii) the Original Series C Purchase Price, in the case of the Series C Preferred Stock, divided by the applicable Conversion Price (as hereafter defined), such conversion ratio being referred to hereafter as the "Conversion Rate" for each such series. The initial Conversion Price for shares of Series A Preferred Stock shall be $5.00 per share, the initial Conversion Price for shares of Series B Preferred Stock shall be $3.50 per share and the initial Conversion Price for shares of Series C Preferred Stock shall be $4.11 per share; provided, however, that the initial Conversion Price for the Series C Preferred Stock shall be subject to adjustment as set forth on Appendix A hereto, and further, provided, that each such Conversion Prices shall be subject to adjustment as set forth in subsection 5(c), (d) and (e). Upon any decrease or increase of the Conversion Price or the Conversion Rate for the Preferred Stock as described in this Section 5, the Conversion Rate or Conversion Price, as the case may be, for the Preferred Stock will be increased or decreased proportionately. (ii) Automatic Conversion. Each share of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will be converted automatically into shares of Common Stock at the then effective Conversion Rate upon the earlier to occur of (A) the approval by the holders of at -6- least two-thirds (2/3) of the then outstanding shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, respectively, or ( B) immediately prior to the closing of a firmly underwritten public offering pursuant to a registration statement (other than a registration statement relating either to the sale of securities to employees of the corporation pursuant to a stock option, stock purchase or similar plan or a transaction pursuant to Rule 145 under the Securities Act of 1933, as amended (the "Act")) under the Act covering the corporation's Common Stock, which results in aggregate cash proceeds (prior to underwriters' commissions and expenses) to the corporation and any selling stockholders of at least $15,000,000 and which has a public offering price of not less than $5.25 per share (as adjusted for any stock split, stock dividend, subdivision or combination of the Common Stock). (b) Mechanics of Conversion. Before any holder of Series Preferred Stock will be entitled to convert the same into shares of Common Stock, such holder will surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Series Preferred Stock, and such holder will give written notice to the corporation stating the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued. The corporation, as soon as practicable thereafter, will issue and deliver at such office to such holder or to his nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which he will be entitled as aforesaid. Such conversion will be deemed to have been made immediately prior to the close of business on the date of notice of conversion provided by the holder to the corporation, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion will be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (c) Adjustment for Subdivisions or Combinations of Common Stock. In the event the corporation at any time or from time to time after the Series A Original Issue Date effects a subdivision or combination of its outstanding Common Stock into a greater or lesser number of shares without a proportionate and corresponding subdivision or combination of its outstanding shares of the Series A Preferred Stock then the Conversion Price of the Series A Preferred Stock shall be decreased or increased, as applicable, so that the number of shares into which each share of the Series A Preferred Stock is convertible will be decreased or increased proportionately. In the event the corporation at any time or from time to time after the Series B Original Issue Date effects a -7- subdivision or combination of its outstanding Common Stock into a greater or lesser number of shares without aproportionate and corresponding subdivision or combination of its outstanding shares of the Series B Preferred Stock, then the Conversion Price of the Series B Preferred Stock shall be decreased or increased, as applicable, so that the number of shares into which each share of the Series C Preferred Stock is convertible will be decreased or increased proportionately. In the event the corporation at any time from time to time after the Series C Original Issue Date effects a subdivision or combination of its outstanding Common Stock into a greater or lesser number of shares without a proportionate and corresponding subdivision or combination of its outstanding shares of the Series C Preferred Stock, then the Conversion Price of the Series C Preferred Stock shall be decreased or increased, as applicable, so that the number of shares into which each share of the Series C Preferred Stock is convertible will be decreased or increased proportionately. (d) Adjustment for Dividends, Distributions and Common Stock Equivalents. In the event the corporation at any time or from time to time after the Original Issue Date for any series of Series Preferred Stock makes or issues, or fixes a record date for the determination of holders of Common Stock (but not holders of the Series Preferred Stock) entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights (hereinafter referred to as "Common Stock Equivalents") convertible into or entitling the holder thereof to receive additional shares of Common Stock without payment of any consideration by such holder for such Common Stock Equivalents or the additional shares of Common Stock, for the purpose of protecting the holders of the Series Preferred Stock from any dilution in connection therewith, then and in each such event the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable in payment of such dividend or distribution or upon conversion or exercise of such Common Stock Equivalents will be deemed to be issued and outstanding as of the time of such issuance or, in the event such a record date has been fixed, as of the close of business on such record date. In each such event the then existing Conversion Rate for each series of the Series Preferred Stock will be increased as of the time of such issuance or, in the event such a record date has been fixed, as of the close of business on such record date, by multiplying the Conversion Rate for such series of Series Preferred Stock by a fraction; -8- (i) the numerator of which will be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution or upon conversion or exercise of such Common Stock Equivalents; and (ii) the denominator of which will be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; provided, however, (A) if such record date has been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Rate for such series of Series Preferred Stock will be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Rate for such series of Series Preferred Stock will be adjusted pursuant to this Section 5(d) as of the time of actual payment of such dividends or distribution; (B) if such Common Stock Equivalents provide, with the passage of time or otherwise, for any decrease in the number of shares of Common Stock issuable upon conversion or exercise thereof, the Conversion Rate for such series shall, upon any such decrease becoming effective, be recomputed to reflect such decrease insofar as it affects the rights of conversion or exercise of the Common Stock Equivalents then outstanding, and (C) upon the expiration of any conversion rights or exercise under any unexercised Common Stock Equivalents, the Conversion Rate for such series computed upon the original issue thereof shall, upon such expiration, be recomputed as if the only additional shares of Common Stock issued were the shares of such stock, if any, actually issued upon the conversion or exercise of such Common Stock Equivalents. (e) Adjustment for Sale of Shares. If at any time after the Original Issue Date for the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock, the corporation issues or sells any Additional Stock (as defined below) for a consideration per share less than the Conversion Price for such series of Series Preferred Stock, then and in each such case, the Conversion Price for such series of Series Preferred Stock will be reduced to a price (calculated to the nearest cent) determined by multiplying such applicable Conversion Price by a fraction (1) the numerator of which will be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the corporation for such issue would purchase at such applicable Conversion Price, and (2) the denominator of which will be the number of shares of Common Stock outstanding immediately after the Additional Stock is issued or sold; provided, however, that such -9- fraction will in no event be greater than one (1). Notwithstanding the foregoing, if after the Original Issue Date for the Series C Preferred Stock and prior to the earlier of (a) May 9, 1999 and (b) the consummation by the corporation of a sale or series of related sales of any series or class of its Preferred Stock or Common Stock at a price per share of not less than $4.61 and for aggregate proceeds to corporation of at least Six Million Five Hundred Thousand Dollars ($6,500,000), the corporation issues or sells any Additional Stock for a consideration per share less than the Conversion Price for the Series C Preferred Stock, then and in each such case the Conversion Price for the Series C Preferred Stock will not be adjusted pursuant to the preceding sentence, but instead will be reduced to a price (calculated to the nearest cent) equal to the consideration per share received by the Corporation for such Additional Stock. For purposes of this Section 5(e), the shares of Common Stock issuable upon conversion of any Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock and upon exercise or conversion of all outstanding warrants, options or other securities exercisable or exchangeable for, or convertible into, Common Stock, will be deemed to be outstanding on the Original Issue Date for such series of Series Preferred Stock. "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued as provided herein) by this corporation after the applicable Original Issue Date other than: (i) the issuance (or deemed issuance) of up to Seven Million Five Hundred Thousand (7,500,000) shares of Common Stock issuable or issued to officers, directors, employees, advisors and consultants of the corporation, at not less than fair market value (as determined by the corporations' Board of Directors) pursuant to stock option or stock issuance plans approved by the corporation's Board of Directors (including a majority of the directors who are not then employees of the corporation nor purchasers or grantees of such shares or options); (ii) capital stock or warrants or options to purchase capital stock at not less than fair market value (as determined by the corporation's Board of Directors) issued in connection with bona fide acquisitions, licensing transactions, mergers or similar transactions which do not violate clause (y) of Section 6, in which the majority of the value of the consideration received therefor (as determined by the corporation's Board of Directors) is not cash, and the terms of which are approved by the Board of Directors of the corporation; -10- (iii) capital stock or warrants or options to purchase capital stock the issuance of which is determined to be excluded from the definition of "Additional Stock" upon the written consent of the holders of at least a majority of the then outstanding Series Preferred Stock of all series of Series Preferred Stock as to which such issuance would otherwise result in an adjustment to the Conversion Price as provided above (without any requirement of an amendment to this Fourth Amended and Restated Certificate of Incorporation); (iv) shares of Common Stock issued or issuable upon conversion of shares of Series Preferred Stock (including shares issued or issuable upon conversion of Series B Preferred Stock or Series C Preferred Stock issued upon exercise of warrants issued by the Company); (v) shares of Common stock issued or issuable in a public offering before or in connection with which all outstanding shares of Series Preferred Stock are converted to Common Stock; (vi) except for shares described in clause e(i) above, any securities issuable upon exercise of any options, warrants or rights to purchase any securities of the Corporation outstanding on the Original Issue Date for the Series B Preferred Stock ("Warrant Securities") and any securities issuable upon the conversion of any Warrant Securities or other securities or instruments outstanding on the Original Issue Date for the Series B Preferred Stock; (vii) shares of the Corporation's Common Stock or Series Preferred Stock issued in connection with any stock split or stock dividend with respect to which the Conversion Price is adjusted pursuant to Section 5(d); (viii) shares of Common Stock issued (or deemed issued) in connection with the acquisition by the Corporation of capital stock in ExperNet, Inc. in accordance with the terms of the Stock Purchase Agreement between the corporation and David Gilmour dated as of July 9, 1995; and (ix) 2,676,399 shares of Series C Preferred Stock (the "Series C Shares") and warrants to purchase up to 1,445,255 shares of Series C Preferred Stock (the "Series C Stock Warrants") issued or issuable pursuant to that certain Series C Preferred Stock and Warrant Purchase Agreement dated May 9, 1997 by and among the Corporation and the entities named on Schedule I thereto and the shares of Common Stock issued or issuable upon conversion of the Series C Preferred Shares and the shares of Series C Preferred Stock underlying the Series C Stock Warrants (the "Warrant Shares") and the -11- shares of Common Stock underlying the Series C Shares and the Warrant Shares. For the purpose of making any adjustment in the Conversion Price as provided above, the consideration received by the corporation for any issue or sale of Common Stock will be computed: (x) to the extent it consists of cash, as the amount of cash received by the corporation before deduction of any offering expenses payable by the corporation and any underwriting or similar commissions, compensation, or concessions paid or allowed by the corporation in connection with such issue or sale; (y) to the extent it consists of property other than cash, at the fair market value of that property as determined in good faith by the corporation's Board of Directors; and (z) if Common Stock is issued or sold together with other stock or securities or other assets of the corporation for a consideration which covers both, as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Common Stock. If the corporation (1) grants any rights or options to subscribe for, purchase, or otherwise acquire shares of Common Stock, or (2) issues or sells any security convertible into shares of Common Stock (in either case, other than rights or options issued to employees, officers, directors and consultants of the corporation pursuant to paragraph (i) above), then, in each case, the price per share of Common Stock issuable on the exercise of the rights or options or the conversion of the securities will be determined by dividing the total amount, if any, received or receivable by the corporation as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the corporation on exercise or conversion of the securities, by the maximum number of shares of Common Stock issuable on exercise or conversion at the price per share determined under this subsection, and the Conversion Price for each series of Series Preferred Stock will be adjusted as and if above so provided to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Conversion Price for any series of Series Preferred Stock will be made as a result of the actual issuance of shares of Common Stock on the exercise of any such rights or options or the conversion of any such convertible securities. -12- Upon the redemption or repurchase of any such securities or the expiration or termination of the right to convert into, exchange for, or exercise with respect to, Common Stock, the Conversion Price for each series of Series Preferred Stock for which the Conversion Price had been adjusted upon the issuance of such securities will be readjusted (giving effect to all provisions hereof and all issuances after such original issuance) to such price as would have been obtained had the adjustment made upon their issuance been made upon the basis of the issuance of only the number of such securities as were actually converted into, exchanged for, or exercised with respect to, Common Stock. If the purchase price or conversion or exchange rate provided for in any such security changes at any time, then, upon such change becoming effective, the Conversion Price for each series of Series Preferred Stock for which it has been adjusted upon the issuance of such securities then in effect will be readjusted (giving effect to all provisions hereof and all issuance after such original issuance) forthwith to such price as would have been obtained had the adjustment made upon the issuance of such securities been made upon the basis of (1) the issuance of only the number of shares of Common Stock theretofore actually delivered upon the conversion, exchange or exercise of such securities, and the total consideration received therefor, and (2) the granting or issuance, at the time of such change, of any such securities then still outstanding for the consideration, if any, received by the Company therefore and to be received on the basis of such changed price or rate. (f) No Impairment. The corporation, whether by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, will not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Section 5 by the corporation, but at all time in good faith will assist in the carrying out of all of such actions as may be necessary or appropriate in order to protect the conversion rights pursuant to this Section 5 of the holders of Series Preferred Stock against impairment. (g) Certificate to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate for the Series Preferred Stock pursuant to this Section 5, the corporation at its expense promptly will compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such Series Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation, upon the written request at any time of any holder of Series Preferred Stock, will furnish or cause to be -13- furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Rate for such Series Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series Preferred Stock held by such holder. (h) Notice of Record Date. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, and Common Stock Equivalents or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the corporation will mail to each holder of Series Preferred Stock at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or rights, and the amount and character of such dividend, distribution or right. (i) Reservation of Stock Issuable Upon Conversion. The corporation at all times will reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Series Preferred Stock such number of its shares of Common Stock as from time to time will be sufficient to effect the conversion of all then outstanding shares of Series Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then outstanding shares of Series Preferred Stock, in addition to such other remedies as may be available to the holders of Series Preferred Stock for such failure, the corporation will take such corporate action as, in the opinion of its counsel, may be necessary to increase its authorized but unissued shares of Common stock to such number of shares as will be sufficient for such purposes. (j) Notices. Any notices required by the provisions of this Section 5 to be given to the holders of shares of any series of Series Preferred Stock shall be given in writing and shall be conclusively deemed effectively given to persons located in the United States five days after deposit in the United Stated mail by registered or certified mail postage prepaid, or upon actual receipt if given by any other method or to persons located outside of the United States, addressed to such holder at his address appearing on the books of the corporation. To persons located outside the United States, such notice shall be sent by telex or -14- facsimile in cases where the corporation has notice of a telex or facsimile number for such person. (k) Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in Section 4 or in this Section 5), provision shall be made so that the holders of the Series Preferred Stock shall thereafter be entitled to receive upon conversion of such shares of such Series Preferred Stock the number of shares of stock or other securities or property of the corporation or otherwise, to which a holder of Common Stock deliverable upon conversion of such Series Preferred Stock would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series Preferred Stock after the recapitalization to the end that the provisions of this Section 5 (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of such Series Preferred Stock) shall be applicable after that event in as nearly an equivalent manner as may be practicable. 6. Covenants. In addition to any other rights provided by law, so long as not less than an aggregate of 1,000,000 shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are outstanding, the corporation, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single class, will not: (a) amend or repeal any provision of, or add any provision to, this corporations' Certificate of Incorporation if such action would adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; (b) increase the number of shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock authorized hereby; (c) reclassify any class or series of any Common Stock into shares having any preference or priority as to dividends or in liquidation over the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; (d) create any new series of preferred stock having a preference as to dividends or in liquidation over -15- the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; (e) apply any of its assets to the redemption, retirement, purchase or acquisition, directly or indirectly, through subsidiaries or otherwise, of any shares of any class or series of equity securities of the corporation, except from (i) current or former employees, officers, directors, and consultants of the corporation under the terms of any stock option or stock purchase plans or agreements, upon or following termination of employment or association and (ii) holders of any series of Preferred Stock which may be issued hereafter which has a liquidation preference senior to that of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock; and (f) declare or pay any dividend or make any distribution on shares of Common Stock or any series of Preferred Stock which may be issued hereafter which is senior in dividend preference to the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. Notwithstanding the foregoing, if any of the actions referred to in clauses (a) through (d) would adversely affect the rights, preference, privileges or powers of either the Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock in a different manner than the other such series, then such action shall require the approval of the holders of a majority of the then outstanding shares of each of the individual adversely affected series of Series Preferred Stock, voting separately as a class, and shall not require the approval of holders of any such series not adversely affected by such action. In addition to the foregoing and any other rights provided by law, so long as an aggregate of 1,000,000 shares of Series B Preferred Stock and Series C Preferred Stock are outstanding, the corporation shall not without first obtaining the affirmative vote or written consent of the holders of not less than a majority of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock, voting together as a separate class: (x) sell, convey, or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) of effect any transaction or series of related transactions in which more than 50% of the voting power of the corporation is transferred. (y) enter into any transaction with any director or Affiliate (as defined below) of the Company unless the -16- terms of such transaction are at least as favorable to the Company than those which might be obtained at the time from persons who are not Affiliates and, in the case of a single transaction or series of transactions involving more than $50,000, has been approved by a written resolution duly adopted prior to such transaction by a majority of the independent directors. For purposes hereof, an "Affiliate" shall mean a holder of more than five percent of the existing Common Stock of the Company (on a fully diluted basis after giving effect to the conversion of any outstanding convertible Series Preferred Stock and the exercise of any exercisable warrants and options) or a member of the Board of Directors of the Company. (z) incur indebtedness for borrowed money in excess of $7,500,000 at any one time outstanding (excluding short term or revolving credit borrowing the proceeds of which are used to finance current assets, to repay current liabilities or for working capital). B. Common Stock. 1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends (including the Series Preferred Stock), the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the corporation, after payment has been made to the holders of Series Preferred Stock and any other series of Preferred Stock having prior rights in liquidation, the remaining assets and funds of this corporation legally available for distribution shall be distributed ratably among holders of Common Stock. 3. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of this corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law ARTICLE V The address of the corporation's registered office in the State of Delaware is National Corporate Research, Ltd., 9 East Loockerman Street, County of Kent, Dover, 19901. The -17- name of its registered agent at such address is National Corporate Research, Ltd. ARTICLE VI The corporation is to have perpetual existence. ARTICLE VII In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. ARTICLE VIII The number of directors which will constitute the whole Board of Directors of the corporation shall be as specified in the Bylaws of the corporation ARTICLE IX The election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. ARTICLE X Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the corporation may be kept (subject to any statutory provision) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the corporation. ARTICLE XI To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or otherwise. The corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate or was a director, officer or employee of the corporation, or serves or serviced at any -18- other enterprise as a director, officer or employee at the request of the corporation or any predecessor to the corporation. Neither any amendment nor repeal of this Article XI, nor the adoption of any provision of this Fourth Amended and Restated Certification of Incorporation inconsistent with this Article XI, shall eliminate or reduce the effect of this Article XI in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article XI, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. ARTICLE XII Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the corporation. ARTICLE XIII The corporation reserves the right to amend, alter, change or repeal any provision contained in this Fourth Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as otherwise provided in this Fourth Amended and Restated Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. -19- The undersigned, being the President and Chief Operating Officer, does make, file and record this Fourth Amended and Restated Certificate of Incorporation, hereby declaring, certifying and acknowledging that the foregoing Fourth Amended and Restated Certificate of Incorporation is his act and deed and that the facts stated therein are true, and has accordingly hereunto set his hand this day of May, 1997. _____________________ Henry Givray President and Chief Operating Officer -20- APPENDIX A SERIES C PREFERRED STOCK CONVERSION PRICE ADJUSTMENT The original Conversion Price for the Series C Preferred Stock is subject to adjustment based on the Company's NAVI (as defined) attainment for the fiscal year ended December 31, 1997 ("FY 1997") as follows: Adjusted Original NAVI(1) Conversion Price (in millions) (in dollars) $2,50 or less $3.50 40.0 or more $4.72 - -------- (1) NAVI means the annualized dollar value for FY 1997 of new customer contracts and upgrades to existing contracts entered into by the Company in FY 1997 minus the dollar value of downgrades and cancellations to existing customer contracts in FY 1997. For purposes of the calculations of NAVI, "new contracts" mens both (a) contracts with an initial term of at least six (6) months and (b) contracts whose terms and conditions are as set forth in a written agreement. -21- EX-3.2 3 FORM OF CERTIFICATE OF AMENDMENT Exhibit 3.2 FORM OF CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GIGA INFORMATION GROUP, INC. Pursuant to Sections 228 and 224 of the General Corporation Law of the State of Delaware GIGA INFORMATION GROUP, INC. (hereinafter called the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: The Board of Directors of the Corporation duly adopted a resolution, pursuant to Section 242 of the General Corporation Law, setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The resolution setting forth the amendment is as follows: RESOLVED: That the Board of Directors hereby deems it advisable and in the best interests of the Corporation to amend the Corporation's Amended and Restated Certificate of Incorporation by including the following provision: Upon the filing of this Certificate of Amendment to Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the "Effective Time"), each share of the Common Stock, par value $0.001 per share, of the Corporation issued and outstanding immediately prior to the Effective Time (the "Old Common Stock") shall, automatically by operation of law and without any further action on the part of the Corporation or any holders of shares of capital stock of the Corporation, be converted into and reclassified as 1/3 of a validly issued, fully paid and non-assessable share of the Common Stock of the Corporation, par value $0.001 per share, (the "New Common Stock"), with the number of shares of New Common Stock to be issued to a Stockholder rounded to the nearest whole number of shares, authorized for issuance pursuant to this Certificate of Amendment to the Amended and Restated Certificate of Incorporation. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Certificate of Amendment to be signed by its President and Chief Operating Officer this ____ day of July, 1998. GIGA INFORMATION GROUP, INC. By: ------------------------------- Gideon I. Gartner President and Chief Operating Officer 2 EX-3.4 4 FORM OF FIFTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.4 FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GIGA INFORMATION GROUP, INC. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware GIGA INFORMATION GROUP, INC. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "General Corporation Law"), hereby certifies as follows: 1. The name of the corporation is Giga Information Group, Inc. Giga Information Group, Inc., was originally incorporated under the name Giga Strategic Decisions, Inc., and the original Certificate of Incorporation was filed with the Secretary of State of Delaware on March 17, 1995. 2. This Restated Certificate of Incorporation restates and integrates and further amends the Amended and Restated Certificate of Incorporation of the Corporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law, and was approved by written consent of the stockholders of the Corporation given in accordance with the provisions of Section 228 of the General Corporation Law (prompt notice of such action having been given to those stockholders who did not consent in writing). The resolution setting forth the Restated Certificate of Incorporation is as follows: RESOLVED: That the Amended and Restated Certificate of Incorporation of the Corporation, as amended, be and hereby is amended and restated in its entirety so that the same shall read as follows: FIRST. The name of this Corporation is: Giga Information Group, Inc. SECOND. The address of the Corporation's registered office in the State of Delaware is National Corporate Research, Ltd., 9 East Loockerman Street, County of Kent, Dover 19901. The name of its registered agent at such address is National Corporate Research, Ltd. THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 55,000,000 shares, consisting of (i) 50,000,000 shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.001 par value per share ("Preferred Stock"). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. A. COMMON STOCK. 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2 2. Voting. The holders of the Common Stock are entitled to one vote for each share held at all meetings of stockholders (and written actions in lieu of meetings). There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. 3. Dividends. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. Liquidation. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law or this Certificate of Incorporation. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. 3 Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issue of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law and this Certificate of Incorporation. Except as otherwise provided in this Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the designation or issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. FIFTH. The Corporation shall have a perpetual existence. SIXTH. In furtherance of and not in limitation of powers conferred by statute, it is further provided: 1. Election of directors need not be by written ballot. 2. The Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation. 4 SEVENTH. Except to the extent that the General Corporation Law of the State of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. EIGHTH. 1. Action, Suits and Proceedings Other than by or in the Right of the Corporation. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corp- oration, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) judgment, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, 5 of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding anything to the contrary in this Article, except as set forth in Section 6 below, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. Actions or Suits by or in the Right of the Corporation. The Corporation shall indemnify any indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity 6 for such expenses (including attorneys' fees) which the Court of Chancery of Delaware or such other court shall deem proper. 3. Indemnification for Expenses of Successful Party. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. Notification and Defense of Claim. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the 7 Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 below, in the event that the Corporation does not assume the defense pursuant to Section 4 of this Article of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; provided, however, that the payment of such expense incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of 8 the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification or advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance by (a) a majority vote of a quorum of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), (b) if no such quorum is obtainable, a majority vote of a committee of two or more disinterested directors, (c) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit or proceeding in question, (d) independent legal counsel (who may be regular legal counsel to the Corporation), or (e) a court of competent jurisdiction. 7. Remedies. The right to indemnification or advances as granted by this Article shall be enforceable by 9 the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6. Unless otherwise provided by law, the burden of proving that the Indemnitee is not entitled to indemnification or advance of expenses under this Article shall be on the Corporation. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 9. Other Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue 10 as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 10. Partial Indemnification. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal, therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation law of Delaware. 11 12. Merger or Consolidation. If the Corporation is merged into or consolidated with another corporation and the Corporation is not the surviving corporation, the surviving corporation shall assume the obligations of the Corporation under this Article with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the date of such merger or consolidation. 13. Savings Clause. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees) judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Definitions. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). 15. Subsequent Legislation. If the General Corporation Law of Delaware is amended after adoption of this Article to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. NINTH. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Restated 12 Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. TENTH. This Article is inserted for the management of the business and for the conduct of the affairs of the Corporation. 1. Number of Directors. The number of directors shall be fixed from time to time by, or in the manner provided in, the Corporation's Bylaws. 2. Classes of Directors. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. 3. Election of Directors. Elections of directors need not be by written ballot except as and to the extent provided in the Bylaws of the Corporation. 4. Terms of Office. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected and until his successor is duly elected and qualified; provided, that each initial director in Class I shall serve for a term ending on the date of the annual meeting of stockholders in 1999 and until his successor is duly elected and qualified; each initial director in Class II shall serve for a term ending on the date of the annual meeting of stockholders in 2000 and until his successor is duly elected and qualified; and each initial director in Class III shall serve for a term ending on the date of the annual meeting of stockholders in 2001 and until his successor is duly elected and qualified; and provided further, that the term of each director shall be subject to his earlier death, resignation or removal. 5. Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such 13 shall nevertheless continue as a director of the class of which he is a member and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 6. Quorum; Action at Meeting. A majority of the directors at any time in office shall constitute a quorum for the transaction of business. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each director so disqualified, provided that in no case shall less than one-third of the number of directors fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of those present may adjourn the meeting from time to time. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law, by the Bylaws of the Corporation or by this Restated Certificate of Incorporation. 7. Removal. Directors of the Corporation may be removed only for cause by the affirmative vote of the holders of at least two-thirds of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote. 14 8. Vacancies. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the board, shall be filled only by a vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected to hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. 9. Stockholder Nominations and Introduction of Business, Etc. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the Bylaws of the Corporation. 10. Amendments to Article. Notwithstanding any other provisions of law, this Restated Certificate of Incorporation or the Bylaws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TENTH. ELEVENTH. Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provisions of law, the Restated Certificate of Incorporation or the Bylaws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. 15 TWELFTH. Special meetings of stockholders may be called at any time by only the Chairman of the Board of Directors, the Chief Executive Officer (or if there is no Chief Executive Officer, the President) or the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Notwithstanding any other provision of law, this Restated Certificate of Incorporation or the Bylaws of the Corporation, each as amended, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TWELFTH. IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Restated Certificate of Incorporation to be signed by its President and Chief Operating Officer this ____ day July, 1998. GIGA INFORMATION GROUP, INC. By: -------------------------------- Gideon I. Gartner President and Chief Operating Officer 16 EX-3.5 5 BYLAWS OF GIGA INFORMATION GROUP, INC. Exhibit 3.5 BYLAWS OF GIGA INFORMATION GROUP, INC. (a Delaware corporation) TABLE OF CONTENTS
Page ARTICLE I - CORPORATE OFFICES......................................................................... 1 1.1 REGISTERED OFFICE......................................................................... 1 1.2 OTHER OFFICES............................................................................. 1 ARTICLE II - MEETINGS OF STOCKHOLDERS.................................................................. 1 2.1 PLACE OF MEETINGS......................................................................... 1 2.2 ANNUAL MEETING............................................................................ 1 2.3 SPECIAL MEETING........................................................................... 2 2.4 NOTICE OF STOCKHOLDERS' MEETINGS.......................................................... 2 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.................................................... 2 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.............................................. 3 2.7 QUORUM.................................................................................... 3 2.8 ADJOURNED MEETING; NOTICE................................................................. 4 2.9 CONDUCT OF BUSINESS....................................................................... 4 2.10 VOTING.................................................................................... 4 2.11 WAIVER OF NOTICE.......................................................................... 5 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING............................................................................... 5 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS......................................................................... 6 2.14 PROXIES................................................................................... 6 ARTICLE III - DIRECTORS................................................................................. 7 3.1 POWERS.................................................................................... 7 3.2 NUMBER OF DIRECTORS....................................................................... 7 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTOR................................................................................ 7 3.4 RESIGNATION AND VACANCIES................................................................. 7 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.................................................. 8 3.6 REGULAR MEETINGS.......................................................................... 9 3.7 SPECIAL MEETINGS; NOTICE.................................................................. 9 3.8 QUORUM.................................................................................... 9 3.9 WAIVER OF NOTICE.......................................................................... 10 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................................... 10 3.11 FEES AND COMPENSATION OF DIRECTORS........................................................ 10 3.12 APPROVAL OF LOANS TO OFFICERS............................................................. 10 3.13 REMOVAL OF DIRECTORS...................................................................... 11 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS........................................................ 11
i TABLE OF CONTENTS (Cont.)
Page ---- ARTICLE IV - COMMITTEES................................................................................ 11 4.1 COMMITTEES OF DIRECTORS................................................................... 11 4.2 COMMITTEE MINUTES......................................................................... 12 4.3 MEETINGS AND ACTION OF COMMITTEES......................................................... 12 ARTICLE V - OFFICERS.................................................................................. 13 5.1 OFFICERS.................................................................................. 13 5.2 APPOINTMENT OF OFFICERS................................................................... 13 5.3 SUBORDINATE OFFICERS...................................................................... 13 5.4 REMOVAL AND RESIGNATION OF OFFICERS....................................................... 13 5.5 VACANCIES IN OFFICES...................................................................... 14 5.6 CHIEF EXECUTIVE OFFICER................................................................... 14 5.7 PRESIDENT................................................................................. 14 5.8 VICE PRESIDENTS........................................................................... 14 5.9 SECRETARY................................................................................. 14 5.10 CHIEF FINANCIAL OFFICER................................................................... 15 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS............................................ 15 5.12 AUTHORITY AND DUTIES OF OFFICERS.......................................................... 16 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS................................................................ 16 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................. 16 6.2 INDEMNIFICATION OF OTHERS................................................................. 16 6.3 INSURANCE................................................................................. 17 ARTICLE VII - RECORDS AND REPORTS....................................................................... 17 7.1 MAINTENANCE AND INSPECTION OF RECORDS..................................................... 17 7.2 INSPECTION BY DIRECTORS................................................................... 17 7.3 ANNUAL STATEMENT TO STOCKHOLDERS.......................................................... 18 ARTICLE VIII - GENERAL MATTERS........................................................................... 18 8.1 CHECKS.................................................................................... 18 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS............................................................................. 18 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.................................................... 18 8.4 SPECIAL DESIGNATION ON CERTIFICATES....................................................... 19 8.5 LOST CERTIFICATES......................................................................... 19
ii TABLE OF CONTENTS (Cont.)
Page 8.6 CONSTRUCTION; DEFINITIONS............................................................... 20 8.7 DIVIDENDS............................................................................... 20 8.8 FISCAL YEAR............................................................................. 20 8.9 SEAL.................................................................................... 20 8.10 TRANSFER OF STOCK....................................................................... 21 8.11 STOCK TRANSFER AGREEMENTS............................................................... 21 8.12 REGISTERED STOCKHOLDERS................................................................. 21 ARTICLE IX - AMENDMENTS.............................................................................. 21 ARTICLE X - DISSOLUTION............................................................................. 22 ARTICLE XI - CUSTODIAN............................................................................... 23 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES............................................. 23 11.2 DUTIES OF CUSTODIAN..................................................................... 23
iii BYLAWS OF GIGA INFORMATION GROUP, INC. ARTICLE I CORPORATE OFFICES ----------------- 1.1 REGISTERED OFFICE ----------------- The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES ------------- The board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS ----------------- Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the corporation. 2.2 ANNUAL MEETING -------------- The annual meeting of stockholders shall be held each year at such date, time and place, either within or without the State of Delaware, as may be designated by resolution of the board of directors from time to time. At the meeting, directors shall be elected and any other proper business may be transacted. 1 2.3 SPECIAL MEETING --------------- A special meeting of the stockholders may be called at any time by the board of directors, the president, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors, the president or the chairman of the board, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of this Article II, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the board of directors may be held. 2.4 NOTICE OF STOCKHOLDERS' MEETINGS -------------------------------- All notices of meetings with stockholders shall be in writing and shall be sent or otherwise given in accordance with Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES -------------------------------------- Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as directors. Nominations of persons for election to the board of directors of the corporation may be made at a meeting of stockholders by or at the direction of the board of directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the board of directors, shall be made pursuant to timely notice in writing to the secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; provided, however, that in the event that less than sixty (60) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public 2 disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director, (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including, without limitation, such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (b) as to the stockholder giving the notice (1) the name and address, as they appear on the corporation's books, of such stockholder and (2) the class and number of shares of the corporation which are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 2.5. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE -------------------------------------------- Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.7 QUORUM ------ The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the Chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. 3 2.8 ADJOURNED MEETING; NOTICE ------------------------- When a meeting is adjourned to another time or place, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.9 CONDUCT OF BUSINESS ------------------- The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. 2.10 VOTING ------ The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.14 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). Except as provided in the last paragraph of this Section 2.10, or as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. At a stockholders' meeting at which directors are to be elected, each stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such stockholder normally is entitled to cast) if the candidates' names have been properly placed in nomination (in accordance with these Bylaws) prior to commencement of the voting and the stockholder requesting cumulative voting has given notice prior to commencement of the voting of the stockholder's intention to cumulate votes. If cumulative voting is properly requested, each holder of stock, or of any class or classes or of a series or series thereof, who elects to cumulate votes shall be entitled to as many votes as equals the number of votes which (absent this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his or her shares of stock multiplied by the number of directors to be elected by him or her, and he or she may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them, as he or she may see fit. 2.11 WAIVER OF NOTICE ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, 4 signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 2.12 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A ----------------------------------------------- MEETING ------- Unless otherwise provided in the certificate of incorporation, any action required by this chapter to be taken at any annual or special meeting of stockholders of the corporation, or any action that may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.13 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING -------------------------------------------------- CONSENTS -------- In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date: 5 (i) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (ii) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. (iii) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.14 PROXIES ------- Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. ARTICLE III DIRECTORS --------- 3.1 POWERS ------ Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 6 3.2 NUMBER OF DIRECTORS* -------------------- The Board of Directors shall consist of one (1) person until changed by a proper amendment of this Section 3.2. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTOR ------------------------------------------------------ Except as provided in Section 3.4 of these Bylaws, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES ------------------------- Any director may resign at any time upon written notice to the attention of the secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in the certificate of incorporation or these Bylaws: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies. and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with 7 *AMENDED - See Certificate of Amendment attached the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ---------------------------------------- The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS ---------------- Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board. 3.7 SPECIAL MEETINGS NOTICE ----------------------- Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or by telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate 8 it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM ------ At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws. 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------- Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. 3.11 FEES AND COMPENSATION OF DIRECTORS ---------------------------------- Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 9 3.12 APPROVAL OF LOANS TO OFFICERS ----------------------------- The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS -------------------- Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that, so long as stockholders of the corporation are entitled to cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS ---------------------------------- The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation. ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS ----------------------- The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the 10 extent provided in the resolution of the Board of Directors or in the Bylaws of the corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the Bylaws of the corporation; and, unless the board resolution establishing the committee, the Bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 COMMITTEE MINUTES ----------------- Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. 4.3 MEETINGS AND ACTION OF COMMITTEES --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. 11 ARTICLE V OFFICERS -------- 5.1 OFFICERS -------- The officers of the corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS ----------------------- The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS -------------------- The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS ----------------------------------- Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES -------------------- Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. 12 5.6 CHIEF EXECUTIVE OFFICER ----------------------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, the chief executive officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. The chief executive officer shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors. The chief executive officer shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.7 PRESIDENT --------- Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. The President shall have the general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS --------------- In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. 5.9 SECRETARY --------- The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders, meetings, and the proceedings thereof. 13 The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. The secretary shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER ----------------------- The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president and directors, whenever they request it, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ---------------------------------------------- The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. 14 5.12 AUTHORITY AND DUTIES OF OFFICERS -------------------------------- In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, --------------------------------------- EMPLOYEES AND OTHER AGENTS -------------------------- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS ------------------------- The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 INSURANCE --------- The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, 15 joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS ------------------- 7.1 MAINTENANCE AND INSPECTION OF RECORDS ------------------------------------- The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal place of business. 7.2 INSPECTION BY DIRECTORS ----------------------- Any director shall have the right to examine the corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS -------------------------------- The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 16 ARTICLE VIII GENERAL MATTERS --------------- 8.1 CHECKS ------ From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS ------------------------------------------------ The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES -------------------------------------- The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer transfer agent or registrar at the date of issue. 17 The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES ----------------------------------- If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES ----------------- Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS ------------------------- Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 18 8.7 DIVIDENDS --------- The directors of the corporation, subject to any restrictions contained in (i) the General Corporation Law of Delaware or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock. The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies. 8.8 FISCAL YEAR ----------- The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 SEAL ---- The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK ----------------- Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS ------------------------- The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS ----------------------- The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 19 ARTICLE IX AMENDMENTS ---------- The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. ARTICLE X DISSOLUTION ----------- If it should be deemed advisable in the judgment of the Board of Directors of the corporation that the corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the directors and officers shall be executed, acknowledged, and filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the secretary or some other officer of the corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the secretary or some other officer of the corporation setting forth the names and residences of the directors and officers of the corporation. 20 ARTICLE XI CUSTODIAN --------- 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES ------------------------------------------- The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the corporation is insolvent, to be receivers, of and for the corporation when: (i) at any meeting held for the election of directors the stockholders are so divided that they have failed to elect successors to directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the corporation is suffering or is threatened with irreparable injury because the directors are so divided respecting the management of the affairs of the corporation that the required vote for action by the Board of Directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN ------------------- The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the business of the corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. 21 EX-3.6 6 FORM OF AMENDED AND RESTATED BYLAWS Exhibit 3.6 FORM OF AMENDED AND RESTATED BYLAWS OF GIGA INFORMATION GROUP, INC. ARTICLE - Stockholders 1.1 Place of Meetings. All meetings of stockholders shall be held at such place within or without the State of Delaware as may be designated from time to time by the Board of Directors or the President or, if not so designated, at the registered office of the corporation. 1.2 Annual Meeting. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting shall be held within six months after the end of each fiscal year of the corporation on a date to be fixed by the Board of Directors or the President (which date shall not be a legal holiday in the place where the meeting is to be held) at the time and place to be fixed by the Board of Directors or the President and stated in the notice of the meeting. If no annual meeting is held in accordance with the foregoing provisions, the Board of Directors shall cause the meeting to be held as soon thereafter as convenient. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu of the annual meeting, and any action taken at that special meeting shall have the same effect as if it had been taken at the annual meeting, and in such case all references in these Bylaws to the annual meeting of the stockholders shall be deemed to refer to such special meeting. 1.3 Special Meetings. Special meetings of stockholders may be called at any time by the Chairman of the Board of Directors, the Chief Executive Officer (or, if there is no Chief Executive Officer, the President) or the Board of Directors. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. 1.4 Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notices of all meetings shall state the place, date and hour of the meeting. The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. 1.5 Voting List. The officer who has charge of the stock ledger of the corporation shall prepare, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, at a place within the city where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present. 1.6 Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote 2 at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. 1.7 Adjournments. Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these Bylaws by the stockholders present or represented at the meeting and entitled to vote, although less than a quorum, or, if no stockholder is present, by any officer entitled to preside at or to act as Secretary of such meeting. It shall not be necessary to notify any stockholder of any adjournment of less than 30 days if the time and place of the adjourned meeting are announced at the meeting at which adjournnent is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. 1.8 Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by the General Corporation Law of the State of Delaware, the Certificate of Incorporation or these Bylaws. Each stockholder of record entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may vote or express such consent or dissent in person or may authorize another person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent and delivered to the Secretary of the corporation. No such proxy shall be voted or acted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period. 1.9 Action at Meeting. When a quorum is present at any meeting, the holders of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as sepa- 3 arate classes, then in the case of each such class, the holders of a majority of the stock of that class present or represented and voting on a matter) shall decide any matter to be voted upon by the stockholders at such meeting, except when a different vote is required by express provision of law, the Certificate of Incorporation or these By-Laws. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. 1.10 Nomination of Directors. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nomination for election to the Board of Directors of the corporation at a meeting of stockholders may be made by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 1.10. Such nominations, other than those made by or on behalf of the Board of Directors, shall be made by notice in writing delivered or mailed by first class United States mail, postage prepaid, to the Secretary, and received not less than fourty-five (45) days prior to the first anniversary date of the initial notice of meeting given to stockholders of the previous year's annual meeting; provided, however, that such notice shall not be required to be given more than seventy-five (75) days prior to the annual meeting of stockholders. Such notice shall set forth (a) as to each proposed nominee (i) the name, age, business address and, if known, residence address of each such nominee, (ii) the principal occupation or employment of each such nominee, (iii) the number of shares of stock of the corporation which are beneficially owned by each such nominee, and (iv) any other information concerning the nominee that must be disclosed as to nominees in proxy solicitations pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such 4 person's written consent to be named as a nominee and to serve as a director if elected); and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the corporation's books, of such stockholder and (ii) the class and number of shares of the corporation which are beneficially owned by such stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 1.11 Notice of Business at Annual Meetings. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before an annual meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, if such business relates to the election of directors of the corporation, the procedures in Section 1.10 must be complied with. If such business relates to any other matter, the stockholder must have given timely notice thereof in writing to the Secretary. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than fourty-five (45) days prior to the first anniversary date of the initial notice of meeting given to stockholders of the previous year's annual meeting; provided, however, that such notice shall not be required to be given more than seventy-five (75) days prior to the annual meeting of stockholders. 5 A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 1.11 and except that any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or any successor provision) promulgated under the Securities Exchange Act of 1934, as amended, and is to be included in the corporation's proxy statement for an annual meeting of stockholders shall be deemed to comply with the requirements of this Section 1.11. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1.11, and if he should so determine, the chairman shall so declare to the meeting that any such business not properly brought before the meeting shall not be transacted. 1.12 Action without Meeting. Stockholders may not take any action by written consent in lieu of a meeting. 1.13 Organization. The Chairman of the Board, or in his absence the Vice Chairman of the Board designated by the Chairman of the Board, or the President, in the order 6 named, shall call meetings of the stockholders to order, and shall act as chairman of such meeting; provided, however, that the Board of Directors may appoint any stockholder to act as chairman of any meeting in the absence of the Chairman of the Board. The Secretary of the corporation shall act as secretary at all meetings of the stockholders; but in the absence of the Secretary at any meeting of the stockholders, the presiding officer may appoint any person to act as secretary of the meeting. ARTICLE - Directors 2.1 General Powers. The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled. 2.2 Number; Election and Qualification. The number of directors which shall constitute the whole Board of Directors shall be determined by resolution of the Board of Directors, but in no event shall be less than three. The number of directors may be decreased at any time and from time to time by a majority of the directors then in office, but only to eliminate vacancies existing by reason of the death, resignation, removal or expiration of the term of one or more directors. The directors shall be elected at the annual meeting of stockholders by such stockholders as have the right to vote on such election. Directors need not be stockholders of the corporation. 2.3 Classes of Directors. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. 7 2.4 Terms of Office. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, that each initial director in Class I shall serve for a term ending on the date of the annual meeting of stockholders in 1999; each initial director in Class II shall serve for a term ending on the date of the annual meeting of stockholders in 2000; and each initial director in Class III shall serve for a term ending on the date of the annual meeting of stockholders in 2001; and provided further, that the term of each director shall be subject to the election and qualification of his successor and to his earlier death, resignation or removal 2.5 Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors so as to ensure that no one class has more than one director more than any other class. To the extent possible, consistent with the foregoing rule, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution adopted by the Board of Directors. 2.6 Vacancies. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, shall be filled only by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected for the 8 unexpired term of his predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. 2.7 Resignation. Any director may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 2.8 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. 2.9 Special Meetings. Special meetings of the Board of Directors may be held at any time and place, within or without the State of Delaware, designated in a call by the Chairman of the Board, President, two or more directors, or by one director in the event that there is only a single director in office. 2.10 Notice of Special Meetings. Notice of any special meeting of directors shall be given to each director by the Secretary or by the officer or one of the directors calling the meeting. Notice shall be duly given to each director (i) by giving notice to such director in person or by telephone at least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy, or telex, or delivering written notice by hand, to his last known business or home address at least 24 hours in advance of the meeting, or (iii) by mailing written notice to his last known business or 9 home address at least 72 hours in advance of the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 2.11 Meetings by Telephone Conference Calls. Directors or any members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting. 2.12 Quorum. A majority of the total number of the whole Board of Directors shall constitute a quorum at all meetings of the Board of Directors. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each such director so disqualified; provided, however, that in no case shall less than one-third (1/3) of the number so fixed constitute a quorum. In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. 2.13 Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these Bylaws. 2.14 Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting, if all members of the Board or committee, as the case may be, consent to the action in writ- 10 ing, and the written consents are filed with the minutes of proceedings of the Board or committee. 2.15 Removal. Directors of the corporation may be removed only for cause by the affirmative vote of the holders of two-thirds of the shares of the capital stock of the corporation issued and outstanding and entitled to vote. 2.16 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members of the committee present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the General Corporation Law of the State of Delaware, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the Board of Directors. 2.17 Compensation of Directors. Directors may be paid such compensation for their services and such reim- 11 bursement for expenses of attendance at meetings as the Board of Directors may from time to time determine. No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service. ARTICLE 3 - Officers 3.1 Enumeration. The officers of the corporation shall consist of a President, a Secretary, a Treasurer and such other officers with such other titles as the Board of Directors shall determine, including a Chairman of the Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries. The Board of Directors may appoint such other officers as it may deem appropriate. 3.2 Election. The President, Treasurer and Secretary shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be appointed by the Board of Directors at such meeting or at any other meeting. 3.3 Qualification. No officer need be a stockholder. Any two or more offices may be held by the same person. 3.4 Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal. 3.5 Resignation and Removal. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secre- 12 tary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any officer may be removed at any time, with or without cause, by vote of a majority of the entire number of directors then in office. Except as the Board of Directors may otherwise determine, no officer who resigns or is removed shall have any right to any compensation as an officer for any period following his resignation or removal, or any right to damages on account of such removal, whether his compensation be by the month or by the year or otherwise, unless such compensation is expressly provided in a duly authorized written agreement with the corporation. 3.6 Vacancies. The Board of Directors may fill any vacancy occurring in any office for any reason and may, in its discretion, leave unfilled for such period as it may determine any offices other than those of President, Treasurer and Secretary. Each such successor shall hold office for the unexpired term of his predecessor and until his successor is elected and qualified, or until his earlier death, resignation or removal. 3.7 Chairman of the Board and Vice Chairman of the Board. The Board of Directors may appoint a Chairman of the Board. If the Board of Directors appoints a Chairman of the Board, he shall perform such duties and possess such powers as are assigned to him by the Board of Directors. If the Board of Directors appoints a Vice Chairman of the Board, he shall, in the absence or disability of the Chairman of the Board, perform the duties and exercise the powers of the Chairman of the Board and shall perform such other duties and possess such other powers as may from time to time be vested in him by the Board of Directors. 13 3.8 President. The President shall, subject to the direction of the Board of Directors, have general charge and supervision of the business of the corporation. Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the stockholders, if he is a director, at all meetings of the Board of Directors. Unless the Board of Directors has designated the Chairman of the Board or another officer as Chief Executive Officer, the President shall be the Chief Executive Officer of the corporation. The President shall perform such other duties and shall have such other powers as the Board of Directors may from time to time prescribe. 3.9 Vice Presidents. Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe. In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have all the powers of and be subject to all the restrictions upon the President. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors. 3.10 Secretary and Assistant Secretaries. The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe. In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the secretary, including without limitation the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to attend all meetings of stockholders and the Board of Directors and keep a record of the proceedings, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records 14 and the corporate seal and to affix and attest to the same on documents. Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary. In the absence of the Secretary or any Assistant secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting. 3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of Directors or the President. In addition, the Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation the duty and power to keep and be responsible for all funds and securities of the corporation, to deposit funds of the corporation in depositories selected in accordance with these Bylaws, to disburse such funds as ordered by the Board of Directors, to make proper accounts of such funds, and to render as required by the Board of Directors statements of all such transactions and of the financial condition of the corporation. The Assistant Treasurers shall perform such duties and possess such powers as the Board of Directors, the President or the Treasurer may from time to time prescribe. In the event of the absence, inability or refusal to act of the Treasurer, the Assistant Treasurer (or if there shall be more than one, the Assistant Treasurers in the order deter- 15 mined by the Board of Directors) shall perform the duties and exercise the powers of the Treasurer. 3.12 Salaries. Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors ARTICLE 4 - Capital Stock 4.1 Issuance of Stock. Unless otherwise voted by the stockholders and subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine. 4.2 Certificates of Stock. Every holder of stock of the corporation shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the corporation. Each such certificate shall be signed by, or in the name of the corporation by, the Chairman or Vice Chairman, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation. Any or all of the signatures on the certificate may be a facsimile. Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among any number of stockholders or among such holders and the corporation shall have con- 16 spicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction. 4.3 Transfers. Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these Bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these Bylaws. 4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar. 4.5 Record Date. The Board of Directors may fix in advance a date as a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, conversion or exchange of 17 stock, or for the purpose of any other lawful action. Such record date shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE 5 - General Provisions 5.1 Fiscal Year. Except as from time to time otherwise designated by the Board of Directors, the fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of December in each year. 5.2 Corporate Seal. The corporate seal shall be in such form as shall be approved by the Board of Directors. 5.3 Waiver of Notice. Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these Bylaws, a waiver of such notice either in writing signed by the person entitled to such notice or such person's duly authorized attorney, or by telegraph, cable or any other available method, whether 18 before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice. 5.4 Voting of Securities. Except as the directors may otherwise designate, the President or Treasurer may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for this corporation (with or without power of substitution) at, any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. 5.5 Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action. 5.6 Certificate of Incorporation. All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the corporation, as amended and in effect from time to time. 5.7 Transactions with Interested Parties. No contract or transaction between the corporation and one or more of the directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one or more of the directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or a committee of the Board of Directors which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: 19 (1) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee of the Board of Directors, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. 5.8 Severability. Any determination that any provision of these Bylaws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these Bylaws. 5.9 Pronouns. All pronouns used in these Bylaws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require. ARTICLE 6 - Amendments 6.1 By the Board of Directors. These Bylaws may be altered, amended or repealed or new bylaws may be adopted 20 by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present. 6.2 By the Stockholders. Except as otherwise provided in Section 6.3, these Bylaws may be altered, amended or repealed or new bylaws may be adopted by the affirmative vote of the holders of a majority of the shares of the capital stock of the corporation issued and outstanding and entitled to vote at any regular or special meeting of stockholders, provided notice of such alteration, amendment, repeal or adoption of new bylaws shall have been stated in the notice of such regular or special meeting. 6.3 Certain Provisions. Notwithstanding any other provision of law, the Certificate of Incorporation or these Bylaws, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least two-thirds of the shares of the capital stock of the corporation issued and outstanding and entitled to vote shall be required to amend or repeal, or to adopt any provision inconsistent with Section 1.3, Section 1.10, Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6 of these Bylaws. 21 AMENDED AND RESTATED BYLAWS TABLE OF CONTENTS ARTICLE 1 - Stockholders....................................................................... 1 1.1 Place of Meetings............................................................... 1 1.2 Annual Meeting.................................................................. 1 1.3 Special Meetings................................................................ 1 1.4 Notice of Meetings.............................................................. 1 1.5 Voting List..................................................................... 2 1.6 Quorum.......................................................................... 2 1.7 Adjournments.................................................................... 2 1.8 Voting and Proxies.............................................................. 2 1.9 Action at Meeting............................................................... 3 1.10 Nomination of Directors......................................................... 3 1.11 Notice of Business at Annual Meetings........................................... 4 1.12 Action without Meeting.......................................................... 5 1.13 Organization.................................................................... 5 ARTICLE 2 - Directors.......................................................................... 6 2.1 General Powers.................................................................. 6 2.2 Number; Election and Qualification.............................................. 6 2.3 Classes of Directors............................................................ 6 2.4 Terms of Office................................................................. 6 2.5 Allocation of Directors Among Classes in the Event of Increases or Decreases in the Number of Directors.......................................... 6 2.6 Vacancies....................................................................... 7 2.7 Resignation..................................................................... 7 2.8 Regular Meetings................................................................ 7 2.9 Special Meetings................................................................ 7 2.10 Notice of Special Meetings...................................................... 8 2.11 Meetings by Telephone Conference Calls.......................................... 8 2.12 Quorum.......................................................................... 8 2.13 Action at Meeting............................................................... 8 2.14 Action by Consent............................................................... 8 2.15 Removal......................................................................... 9 2.16 Committees...................................................................... 9 2.17 Compensation of Directors....................................................... 9
22 ARTICLE 3 - Officers.......................................................................... 10 3.1 Enumeration.................................................................... 10 3.2 Election....................................................................... 10 3.3 Qualification.................................................................. 10 3.4 Tenure......................................................................... 10 3.5 Resignation and Removal........................................................ 10 3.6 Vacancies...................................................................... 11 3.7 Chairman of the Board and Vice Chairman of the Board........................... 11 3.8 President...................................................................... 11 3.9 Vice Presidents................................................................ 11 3.10 Secretary and Assistant Secretaries............................................ 12 3.11 Treasurer and Assistant Treasurers............................................. 12 3.12 Salaries....................................................................... 13 ARTICLE 4 - Capital Stock..................................................................... 13 4.1 Issuance of Stock.............................................................. 13 4.2 Certificates of Stock.......................................................... 13 4.3 Transfers...................................................................... 13 4.4 Lost, Stolen or Destroyed Certificates......................................... 14 4.5 Record Date.................................................................... 14 ARTICLE 5 - General Provisions................................................................ 15 5.1 Fiscal Year.................................................................... 15 5.2 Corporate Seal................................................................. 15 5.3 Waiver of Notice............................................................... 15 5.4 Voting of Securities........................................................... 15 5.5 Evidence of Authority.......................................................... 15 5.6 Certificate of Incorporation................................................... 15 5.7 Transactions with Interested Parties........................................... 16 5.8 Severability................................................................... 16 5.9 Pronouns....................................................................... 16 ARTICLE 6 - Amendments........................................................................ 17 6.1 By the Board of Directors...................................................... 17 6.2 By the Stockholders............................................................ 17 6.3 Certain Provisions............................................................. 17
23 EX-4.1 7 COMMON STOCK CERTIFICATES Exhibit 4.1 - ---------- ---------- NUMBER [LOGO] SHARES G GIGA INFORMATION GROUP, INC. - ---------- ---------- INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINIATIONS COMMON STOCK CUSIP 37517M 10 9 This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF ONE TENTH OF ONE CENT ($.001) EACH OF GIGA INFORMATION GROUP, INC. (hereinafter called the "Corporation") transferable upon the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all the provisions of the Amended and Restated Certificate of Incorporation and the Amended and Restated By-Laws of the Corporation as from time to time amended (copies of which are on file with the Corporation) to all of which the holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the facsimile signatures of its duly authorized officers and its facsimile corporate seal to be hereunto affixed. Dated: [SEAL OF GIGA INFORMATION GRUOP, INC.] /s/ Daniel M. Clarke /s/ Gideon I.Gartner SECRETARY CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE GIGA INFORMATION GROUP, INC. The Corporaiton is authorized to issue more than one class of stock. A statement of the powers, designations, preferences, and the relative participating, optional or other rights of each class and series of stock and the qualifications, limitations or restrictions thereon will be provided without charge to each stockholder upon request to the Corporation. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ____________ Custodian ______________ (Cust) (Minor) under Uniform Gifts to Minors Act _________________________________ (State) Additional abbreviations may also be used though not in the above list. For value received, _______________________ hereby sell, assign, and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________ | | | | | | |_____________________________________|_________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRTIE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated,________________ ________________________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement, or any change whatever. SIGNATURE(S) GUARANTEED:________________________________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. - ---------- ---------- NUMBER [LOGO] SHARES G GIGA INFORMATION GROUP, INC. - ---------- ---------- INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINIATIONS COMMON STOCK CUSIP 37517M 10 9 This Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF ONE TENTH OF ONE CENT ($.001) EACH OF GIGA INFORMATION GROUP, INC. (hereinafter called the "Corporation") transferable upon the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be subject to all the provisions of the Amended and Restated Certificate of Incorporation and the Amended and Restated By-Laws of the Corporation as from time to time amended (copies of which are on file with the Corporation) to all of which the holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the facsimile signatures of its duly authorized officers and its facsimile corporate seal to be hereunto affixed. Dated: [SEAL OF GIGA INFORMATION GRUOP, INC.] /s/ David M. [illegible] /s/ [illegible] SECRETARY CHIEF EXECUTIVE OFFICER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE GIGA INFORMATION GROUP, INC. The Corporaiton is authorized to issue more than one class of stock. A statement of the powers, designations, preferences, and the relative participating, optional or other rights of each class and series of stock and the qualifications, limitations or restrictions thereon will be provided without charge to each stockholder upon request to the Corporation. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -- ____________ Custodian ______________ (Cust) (Minor) under Uniform Gifts to Minors Act _________________________________ (State) Additional abbreviations may also be used though not in the above list. For value received, _______________________ hereby sell, assign, and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________ | | | | | | |_____________________________________|_________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRTIE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated,________________ ________________________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement, or any change whatever. SIGNATURE(S) GUARANTEED:________________________________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.2 8 FORM OF WARRANT TO PURCHASE Exhibit 10.2 The Warrant represented by this certificate has not been registered under the Securities Act of 1933, and such Warrant may not be sold or transferred unless such sale or transfer is in accordance with the registration requirements of the Securities Act of 1933, as at the time amended, or in conformity with thelimitations of Rule 144 or similar rule as then in effect under such Act, or unless some other exemption from the registration requirements of such Act is available with respect thereto. No. 1 Warrant to Purchase ________ Shares of Series B Preferred Stock (Subject to Adjustment) Giga Information Group, Inc. SERIES B PREFERRED STOCK PURCHASE WARRANT Void after February 28, 2001 Giga Information Group, Inc. a Delaware corporation (together with any corporation which shall succeed to or assume the obligations of the Company hereunder, the "Company"), hereby certifies that, for value received, MONTGOMERYSECURITIES, or registered assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 p.m. Pacific time, on February 28, 2001 (the "Expiration Date"), ________________________________________________________ (_______) fully paid and nonassessable shares of Series B Stock of the Company, as constituted on the date hereof at the purchase price per share of $4.5625 and otherwise in accordance with the terms hereof. The number and character of such shares of Series B Stock are subject to adjustment as provided below. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The terms "Common Stock" shall mean the Common Stock, $.001 par value per share, of the Company. (b) The term "Series B Stock" shall mean the Series B Convertible Preferred Stock, $.001 par value per share, of the Company and any other securities or property of the Company or of any other person (corporate or otherwise) which the holder of this Warrant at any time shall be entitled -1- to receive on the exercise hereof, in lieu of or in addition to Series B Stock, or which at any time shall be issuable in exchange for or in replacement of Series B Stock. 1. Exercise Period. This Warrant may be exercised at any time or from time to time and shall expire at 5:00 p.m., Pacific time, on February 28, 2001; provided, however, that this Warrant shall terminate if not otherwise exercised or exchanged pursuant to Section 2 below immediately prior to the closing of the Company's sale of all or substantially all of its assets or the acquisition of the Company by another entity by means of merger, combination or other transaction as a result of which shareholders of the Company immediately prior to such acquisition possess in the aggregate less than 50% of the voting power of the acquiring entity immediately following such acquisition (an "Acquisition"). In the event of an Acquisition, the Company shall give notice to the Holder at least fifteen (15) days prior to the closing of such transaction. 2. Exercise of Warrant; Partial Exercise and Exchange of Warrant. 2.1 Exercise of Warrant and Partial Exercise. This Warrant may be exercised in full or in part by the Holder hereof by surrender of this Warrant, with the form of subscription attached hereto duly executed by such Holder, to the Company at its principal office, accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, of the purchase price of the shares of Series B Stock to be purchased hereunder, the cancellation by the holder of indebtedness of the Company to the Holder in an amount equal to such purchase price, or any combination thereof. For any partial exercise hereof, the Holder shall designate in the subscription the number of shares of Series B Stock that it wishes to purchase. On any such partial exercise, the Company at its expense shall forthwith issue and deliver to the Holder hereof a new warrant of like tenor, in the name of the Holder hereof, which shall be exercisable for such number of shares of Series B Stock represented by this Warrant which have not been purchased upon such exercise. 2.2 Right to Exchange Warrant for Series B Stock. (a) Right to Exchange. In addition to and without limiting the rights of the Holder under the terms of this Warrant, the Holder shall have the right to exchange this Warrant or any portion hereof (the "Exchange Right") into shares of Series B Stock as provided in this Section 2.2 at any time or from time to time during the term of this Warrant; provided that -2- the Exchange Right shall expire on an Acquisition of the Company. Upon exercise of the Exchange Right with respect to a particular number of shares subject to this Warrant (the "Exchange Warrant Shares"), the Company shall deliver to the Holder (without payment by the Holder of any cash or other consideration) that number of shares of Series B Stock equal to the quotient obtained by dividing (x) the value of this Warrant (or the specified portion hereof) on the Exchange Date (as defined in section 2.2(c), which value shall be determined by subtracting (A) the aggregate exercise purchase price of the Exchanged Warrant Shares immediately prior to the exercise of the Exchange Right from (B) the aggregate fair market value of the Exchanged Warrant Shares issuable upon exercise of this Warrant (or the specified portion hereof) on the Exchange Date by (y) the fair market value of one share of Series B Stock on the Exchange Date. No fractional shares shall be issuable upon exercise of the Exchange Right, and if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the Holder an amount in cash equal to the fair market value of the resulting fractional share on the Exchange Date. (b) Method of Exercise. The Exchange Right may be exercised by the Holder by the surrender of this Warrant prior to its expiration, at the principal office of the Company together with a written statement specifying that the Holder thereby intends to exercise the Exchange Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in subsection (a) hereof as the Exchanged Warrant Shares) in exercise of the Exchange Right. Such exchange shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the "Exchange Date") and, at the election of the Holder, may be made contingent upon the closing of an Acquisition. Certificates for the shares of Series B Stock issuable upon exercise of the Exchange Right (or any other securities deliverable in lieu thereof under Section 5) and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Exchange Date and shall be delivered to the holder immediately following the Exchange Date. (c) Determination of Fair Market Value. For purposes of this Section 2.2, fair market value of a share of Exchanged Warrant Shares as of a particular date (the "Determination Date") shall mean: (i) If the Exchange Right is exercised in connection with an Acquisition, the effective per share consideration to be received in an Acquisition by holders of the Series B Stock, which price shall be as specified in the agreement entered into with respect to such -3- Acquisition and determined assuming receipt of the aggregate exercise price of all outstanding warrants to purchase equity securities of the Company (the "Outstanding Warrants"), or if no such price is set forth in the agreement concerning the Acquisition, than as determined in good faith by the Company's Board of Directors upon a review of relevant factors, including the aggregate exercise price of all Outstanding Warrants. (ii) If the Exchange Right is not exercised in connection with or contingent upon an Acquisition, then as follows: (A) If such type of security is traded on a securities exchange, the fair market value shall be deemed to be the average of the closing prices of such type of security on such exchange over the 30-day period ending five business days prior to the Determination Date; (B) If such type of security is traded over-the- counter, the fair market value shall be deemed to be the average of the closing bid prices of such type of security over the 30-day period ending five business days prior to the Determination Date; and (C) If there is no public market for such type of security, then fair market value shall be determined by mutual agreement of the Holder and the Company, and if the Holder and the Company are unable to so agree, by an investment banker of national reputation selected by the Company and reasonably acceptable to the Holder. 3. When Exercise Effective. The exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the business day on which this Warrant is surrendered to the Company as provided in Section 2, and at such time the person in whose name any certificate for shares of Series B Stock shall be issuable upon such exercise, as provided in Section 4, shall be deemed to be the record holder of such Series B Stock for all purposes. 4. Delivery on Exercise. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within five business days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof, or as such Holder may direct, a certificate or certificates for the number of fully paid and nonassessable full shares of -4- Series B Stock to which such Holder shall be entitled on such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the current market value of one full share as determined in good faith by the Board of Directors. 5. Adjustment of Purchase Price and Number of Shares. The character of the shares of Series B Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) and the purchase price therefor, are subject to adjustment upon the occurrence of the following events: 5.1 Adjustment for Stock Splits Stock Dividends, Recapitalizations, etc. The exercise price of this Warrant and the number of shares of Series B Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be appropriately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number of outstanding shares of Series B Stock (or such other stock or securities). For example if there should be a 2-for-1 stock split, the exercise price would be divided by two and such number of shares would be doubled. 5.2 Adjustment for Other Dividends and Distributions. In case the Company shall make or issue, or shall fix a record date for the determination of eligible holders entitled to receive, a dividend or other distribution with respect to the Series B Stock (or any shares of stock or other securities at the time issuable upon exercise of the Warrant) payable in (i) securities of the Company (other than shares of Series B Stock) or (ii) assets (excluding cash dividends paid or payable solely out of retained earnings), then in each case, the Holder of this Warrant on exercise hereof at any time after the consummation, effective date or record date of such event, shall receive, in addition to the Common Stock (or such other stock or securities) issuable on such exercise prior to such date, the securities or such other assets of the Company to which such Holder would have been entitled upon such date if such Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 5.3 Adjustment for Reorganization, Consolidation, Merger, etc. In case of any consolidation or merger of the Company with or into any other corporation, entity or person, or any other corporate reorganization, in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization, or any transaction in which in excess of 50% of the Company's voting power is transferred, or any sale of -5- all or substantially all of the assets of the Company (any such transaction being hereinafter referred to as a "Reorganization"), then, in each case, the Holder of this Warrant, on exercise hereof at any time after the consummation or effective date of such Reorganization (the "Effective Date"), shall receive, in lieu of the Series B Stock issuable on such exercise prior to the Effective Date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon the Effective Date if such Holder had exercised this Warrant immediately prior thereto (all subject to further adjustment as provided in this Warrant). 5.4 Certificate as to Adjustments. In case of any adjustment or readjustment in the price or kind of securities issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the Holder of this Warrant in the form of a certificate, certified and confirmed by the Board of Directors of the Company, setting forth such adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. 6. No Dilution or Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of this Warrant above the amount payable therefor on such exercise, (b) will at all times reserve and keep available a number of its authorized shares of Series B Stock, free from all preemptive rights therein, which will be sufficient to permit the exercise of this Warrant, and (c) shall take all such action as may be necessary or appropriate in order that all shares of Series B Stock as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. 7. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or -6- (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities, then and in each such event the Company will mail to the Holder hereof a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Series B Stock (or any shares of stock or other securities at the time issuable upon the exercise of this Warrant) shall be entitled to exchange their shares for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least 20 days prior to the date therein specified. 8. Exchange of Warrants. On surrender for exchange of this Warrant, properly endorsed, to the Company, the Company at its expense will issue and deliver to or on the order of the Holder thereof a new Warrant of like tenor, in the name of such Holder or as such Holder may direct, calling in the aggregate on the face thereof for the number of shares of Series B Stock called for on the face of the Warrant so surrendered. 9. Replacement of Warrants. On receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction of this Warrant, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or in the case of any such mutilation, on surrender and cancellation of such Warrant, the -7- Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 10. Investment Intent. Unless a current registration statement under the Securities Act of 1933, as amended, shall be in effect with respect to the securities to be issued upon exercise of this Warrant, the Holder thereof, by accepting this Warrant, covenants and agrees that, at the time of exercise hereof, and at the time of any proposed transfer of securities acquired upon exercise hereof, such Holder will deliver to the Company a written statement that the securities acquired by the Holder upon exercise hereof are for the account of the Holder for investment and are not acquired with a view to, or for sale in connection with, any distribution thereof (or any portion thereof) and with no present intention (at any such time) of offering and distributing such securities (or any portion thereof). 11. Transfer. Subject to the transfer conditions referred to in the legend endorsed hereon, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the Holder hereof upon surrender of this Warrant with a properly executed assignment (in the form annexed hereto) at the principal office of the Company. Upon any partial transfer, the Company will at its expense issue and deliver to the Holder hereof a new Warrant of like tenor, in the name of the Holder hereof, which shall be exercisable for such number of shares of Series B Stock which were not so transferred. 12. No Rights or Liability as a Stockholder. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company. No provisions hereof, in the absence of affirmative action by the Holder hereof to purchase Series B Stock, and no enumeration herein of the rights or privileges of the Holder hereof shall give rise to any liability of such Holder as a stockholder of the Company. Notwithstanding the foregoing, the Company will transmit to the Holder such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders. 13. Damages. The Company recognizes and agrees that the Holder hereof will not have an adequate remedy if the Company fails to comply with the terms of this Warrant and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by the Holder of this Warrant or any other person entitled to the benefits of this Warrant requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of the terms hereof. -8- 14. Representations and Warranties. The Company represents and warrants to the Holder as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms; (b) The shares of Series B Stock issuable hereunder have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable; (c) The execution and delivery of this Warrant are not, and the issuance of the shares of Series B Stock upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Company's Certificate of Incorporation or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and, except for consents that have already been obtained by the Company, do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration with or the taking of any action in respect of or by, any Federal, state or local governmental authority or agency or other person. 15. Registration Rights. The Company covenants and agrees as follows: 15.1 Definitions. For purposes of this Section 15: The term "Registrable Securities" means (i) the Common Stock issuable upon conversion of the Series B Stock issued pursuant to this Warrant and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Common Stock. 15.2 Grant of Rights. The Company hereby grants to the initial Holder of this Warrant (and the permitted transferee of the Registration Rights, as hereinafter defined) the "piggy-back" registration rights set forth in Section 2.3 of the Registration Rights Agreement dated as of November 13, 1995, by and among the Company and the investors who are signatories thereto (the "Registration Rights Agreement")(such rights are referred to herein as the "Registration Rights"). Each of the Company and the Holder severally covenants and agrees that it shall comply with each of the -9- covenants and agreements contained in the Registration Rights Agreement, which covenants and agreements are expressly incorporated herein by reference as though stated herein in full. 15.3 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to the Registration Rights may be assigned by a Holder to a transferee or assignee of such securities to the same extent as permitted by Section 2.13 of the Registration Rights Agreement. 15.4 No Conflicting Agreements. The Company represents and warrants to the Holder that the Company is not a party to any agreement that conflicts in any manner with the Holder's rights to cause the Company to register Registrable Securities pursuant to the Registration Rights. The Company covenants and agrees that it shall comply with the provisions set forth in Section 1.1 of the Registration Rights Agreement with respect to amendments or modifications of the Registration Rights. 15.5 Rights and Obligations Survive Exercise and Expiration of Warrant. The rights and obligations of the Company and the Holder set forth in this Section 15 and in the Registration Rights shall survive the exercise and expiration of this Warrant. 16. Initial Public Offering. If the Company shall effect an initial public offering of its Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (an "Initial Public Offering"), which results in the conversion of the Series B Stock into Common Stock pursuant to the Company's Certificate of Incorporation in effect immediately prior to such Initial Public Offering, then, effective upon such conversion, this Warrant shall change from the right to purchase shares of Series B Stock to the right to purchase shares of Common Stock, and the Holder shall thereupon have the right to purchase, at a total price equal to that payable upon the exercise of this Warrant in full, the number of shares of Common Stock which would have been receivable by the Holder upon the exercise of this Warrant for shares of Series B Stock immediately prior to such conversion of such shares of Series B Stock into shares of Common Stock, and in such event appropriate provisions shall be made with respect to the rights and interest of the Holder to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the purchase price and the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable to any shares of Common Stock deliverable upon the exercise hereof. -10- 17. Notices. All notices referred to in this Warrant shall be in writing and shall be delivered personally or by certified or registered mail, return receipt requested, postage prepaid and will be deemed to have been given when so delivered or mailed (i) to the Company, at its principal executive offices and (ii) to the Holder of this Warrant, at such Holder's address as it appears in the records of the Company (unless otherwise indicated by such Holder). 18. Payment of Taxes. All shares of Series B Stock issued upon the exercise of this Warrant shall be validly issued, fully paid and nonassessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect to the issue or delivery thereof. 19. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in the State of California and shall be governed by and construed and enforced in accordance with the internal laws of the State of California (without reference to any principles of the conflicts of laws). The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. [Rest of Page Left Blank Intentionally] -11- Effective as of February 28, 1996 (Corporate Seal) GIGA INFORMATION GROUP, INC. By: ------------------------------- Kenneth Marshall President Attest: By: ------------------------------- Richard B. Goldman Senior Vice President -12- FORM OF SUBSCRIPTION (To be signed only on exercise of Warrant) TO --------------------------- The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ________________/*/ shares of Common Stock of __________, and herewith makes payment of $__________ therefor, and requests that the certificates for such shares be issued in the name of, and delivered to _________________, whose address is_________________________________________. - --------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) - --------------------------------------- - --------------------------------------- (Address) Dated: - -------------------- /*/Insert here the number of shares as to which the Warrant is being exercised. -13- FORM OF ASSIGNMENT (To be signed only on transfer of Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto _________________ the right represented by the within Warrant to purchase shares of Common Stock of _________________ to which the within Warrant relates, and appoints ____________________ Attorney to transfer such right on the books of ____________________ with full power of substitution in the premises. - --------------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant) - ------------------------------------ - ------------------------------------ (Address) Dated: - ---------------- -14- EX-10.3(B) 9 AMENDMENT NO. 1 TO SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT Exhibit 10.3(b) AMENDMENT NO. 1 TO SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO SERIES C PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT dated September 15, 1997, ("Amendment") to the Series C Preferred Stock and Warrant Purchase Agreement dated May 9, 1997 (the "Agreement") by and among Giga Information Group, Inc., a Delaware corporation (the "Company") and the purchasers listed on Schedule A thereto (the "Investors") is entered into by the Company and the Investors. Except as set forth below, the Agreement shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement. WHEREAS, on May 9, 1997, the Company sold to the Investors 1,824,818 shares (the "Initial Shares") of its Series C Convertible Preferred Stock, $.001 par value per share ("Series C Stock") pursuant to the Agreement. WHEREAS, pursuant to the terms of the Agreement, the Company was permitted to offer and sell, at a price of not less than $4.11 per share, up to an additional 851,581 shares (the "Additional Shares") of its Series C Stock, provided that, such Additional Shares were to be sold, if at all, on or before August 6, 1997. WHEREAS, the Company and the Investors desire to amend the Agreement to extend the time in which the Company may sell the Additional Shares, from August 6, 1997 to December 31, 1997. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Acting in accordance with Section 8.9 of the Agreement, the Company and the undersigned holders of Initial Shares representing at least a majority of the outstanding number of Initial Shares hereby consent to the following amendment to the Agreement: a. Section 2.2(a) of the Agreement is deleted in its entirety and a new Section 2.2(a) is inserted in lieu thereof which reads as follows: "(a) Conditions of Additional Closings. At any time or times on or before December 31, 1997, the Company may, at one or more closings (each an "Additional Closing"), without obtaining the signature, consent or permission of any of the Investors, offer and sell to other Investors ("New Investors"), at a price of not less than $4.11 per share, up to that number of shares of Series C Stock that is equal to 2,676,399 shares of Series C Stock less the number of shares of Series C Stock actually issued and sold by the Company prior to such Additional Closing pursuant to this Agreement and such New Investors shall be entitled to receive Warrants, if any, on the same terms and conditions as are set forth in this Agreement. New Investors may include persons or entities who are already Investors under this Agreement." 2. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 3. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like 2 import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by and construed and interpreted in accordance with the laws of the Commonwealth of Massachusetts. 5. The Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 3 IN WITNESS WHEREOF, the undersigned parties have executed this Amendment No. 1 to Series C Preferred Stock and Warrant Purchase Agreement as of the date first written above. GIGA INFORMATION GROUP, INC. By: -------------------------------------- Name: Title: PEQUOT PRIVATE EQUITY FUND, L.P. By: -------------------------------------- Name: Title: PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC. By: -------------------------------------- Name: Title: 4 IN WITNESS WHEREOF, the undersigned parties have executed this Amendment No. 1 to Series C Preferred Stock and Warrant Purchase Agreement as of the date first written above. GIGA INFORMATION GROUP, INC. By: -------------------------------------- Name: Title: PEQUOT PRIVATE EQUITY FUND, L.P. By: -------------------------------------- Name: Title: PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC. By: -------------------------------------- Name: Title: 5 EX-10.3(C) 10 CONFIRMATION LETTER Exhibit 10.3(c) May 11, 1998 To the Series C Preferred Stockholders Of Giga Information Group, Inc. Ladies and Gentlemen: This letter, when countersigned, will confirm our understanding and agreement, as set forth below, with respect to certain terms of the Series C Preferred Stock, par value $0.01 per share (the "Series C Stock") and the warrants to purchase Series C Stock (the "Warrants") that were issued (the "Series C Financing") pursuant to the Series C Preferred Stock and Warrant Purchase Agreement, dated May 9, 1997, as amended (the "Series C Purchase Agreement"), among Giga Information Group, Inc. (the "Company") and the Investors listed on the schedule of investors attached as Exhibit A thereto. Notwithstanding the express language of the Series C Purchase Agreement and the agreements and documents executed and effected in connection therewith, including, without limitation, the Fourth Amended and Restated Certificate of Incorporation (the "Restated Certificate") and the Warrants, the parties hereby confirm the following: 1. The "full-market" anti-dilution protection of the Series C Stock, as set forth in Section 5(e) of Article 1V.A of the Restated Certificate, was intended to terminate upon the sale by the Company of Preferred Stock or Common Stock at a price per common equivalent share (not per share) of at least $4.61 and for aggregate proceeds to the Company of at least $6,500,000. Consequently, such full-market anti-dilution protection should not terminate upon the consummation of the Series D Preferred Stock financing currently contemplated by the Company. The Company will seek to obtain the necessary consents of stockholders in order to amend said Article IV.A to reflect the foregoing intention. 2. The exercise price of the Warrants was intended to be $4.50 per common equivalent share (not per share of Series C Stock). Consequently, as a result of the adjustment to the Conversation Rate (as defined in the Restated Certificate) of the Series C Stock from 1 to 1.17429 as of December 31, 1997, the exercise price of the Warrants should be adjusted to $5.28 per share of Series C Stock (or $4.50 multiplied by 1.17429). Please sign a copy of this letter agreement where indicated below and return the same to us to evidence your agreement to the foregoing. By executing and returning this letter agreement to us you will be deemed to have (1) consented to an amendment to the Restated Certificate to reflect the understanding in Paragraph 1 above in accordance with Section 228 of the General Corporation Law of the State of Delaware, and (2) subject to such amendment becoming effective, consented to the change in the exercise price of the Warrants to reflect the understanding in Paragraph 2 above. Please return the Warrant(s) previously issued to you together with this letter agreement. Upon receipt of such Warrant(s), the Company will issue an amended warrant in accordance with the foregoing. Very truly yours, GIGA INFORMATION GROUP, INC. By: ---------------------------------------- Name: Daniel M. Clarke Title: Senior Vice President, Chief Financial Officer, Treasurer and Secretary Agreed and Accepted as of the date first written above: ALLEN & COMPANY INCORPORATED By: ------------------------------- Name: Title: - ---------------------------------- Neill H. Brownstein - ---------------------------------- Richard L. Crandall - ---------------------------------- Gideon I. Gartner - ---------------------------------- Bernard Goldstein 2 PEQUOT PRIVATE EQUITY FUND L.P. By: ------------------------------- Name: Title: WHEATLEY FOREIGN PARTNERS, L.P. By: ------------------------------- Name: Title: WHEATLEY PARTNERS, L.P. By: ------------------------------- Name: Title: 3 EX-10.6(B) 11 AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT Exhibit 10.6(b) AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT This Amendment No. 1 dated December 12, 1996 (the "Amendment") to the Registration Rights Agreement dated November 9, 1995 among Giga Information Group, Inc., a Delaware corporation (the "Corporation"), the investors listed on Exhibit A thereto (the "Investors") and those key members of the Company's management listed on Exhibit B thereto (the "Management Persons") is entered into by the Corporation, the Investors and the Management Persons. Except as set forth below, the Agreement shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendments to the Agreement. Acting in accordance with Section 1.1 of the Agreement, the undersigned hereby consent to the following amendments to the Agreement: (a) Clause (ii) of Subsection 2.1(b) is deleted in its entirety and the following is inserted in lieu thereof: "(ii) the shares of Common Stock issuable or issued upon conversion of the Company's Series A Convertible Preferred Stock, $.001 par value, and Series B Convertible Preferred Stock, $.001 par value (such shares of Common Stock referred to in clauses (i) and (ii) hereof collectively referred to hereinafter as the "Stock"); and" (b) Subsection 2.2(a) is amended by changing (i) the date "November 1, 1999" in the second line to "June 30, 1998" and (ii) the term "forty percent (40%)" in the fourth line to "thirty percent (30%)." (c) Exhibit A of the Agreement is hereby amended, as set forth on Exhibit A attached hereto, pursuant to which Ponoma Capital II, L.P., Baupost Limited Partnership 1983 C-1, Wheatley Partners, L.P., Wheatley Foreign Partners, L.P., Charles O. Rossotti Charitable Remainder Trust, Alfred University, Foundation Partners, Tampsco II Partnership, Rochester Institute of Technology and the Series A Preferred Stockholders are added to Exhibit A of the Agreement and thereby become parties thereto and entitled to the rights and benefits thereof. 2. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 3. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 5. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF the parties hereto have executed this Amendment on the date first above written. GIGA INFORMATION GROUP, INC. By: ------------------------------------- Title: Chief Executive Officer ---------------------------------- 2 MANAGEMENT PERSONS: - -------------------------------------- Gideon I. Gartner - -------------------------------------- David L. Gilmour 3 EX-10.6(C) 12 AMENDMENT NO. 2 TO REGISTRATION RIGHTS AGREEMENT Exhibit 10.6(c) AMENDMENT NO. 2 TO REGISTRATION RIGHTS AGREEMENT This Amendment No. 2 dated May 9, 1997 (the "Amendment") to the Registration Rights Agreement dated November 9, 1995 among Giga Information Group, Inc., a Delaware corporation (the "Corporation"), the investors listed on Exhibit A thereto (the "Investors") and those key members of the Company's management listed on Exhibit B thereto (the "Management Persons"), as amended (the "Agreement"), is entered into by the Corporation, the Investors and the Management Persons. Except as set forth below, the Agreement shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement. WHEREAS, the Corporation proposes to enter into a Series C Preferred Stock and Warrant Purchase Agreement dated as of the date hereof (the "Series C Stock and Warrant Purchase Agreement") with the purchasers named on Schedule I thereto (the "Purchasers"), and WHEREAS, it is a condition to the performance of the obligations by the Purchasers under the Series C Stock and Warrant Purchase Agreement that the Corporation, the Investors and the Management Persons enter into this Amendment for the purposes of making the Purchasers parties to the Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendments to the Agreement. Acting in accordance with Section 1.1 of the Agreement, the undersigned hereby consent to the following amendments to the Agreement. (a) Clause (ii) of Subsection 2.1(b) is deleted in its entirety and the following is inserted in lieu thereof: "(ii) the shares of Common Stock issuable or issued upon conversion of the Company's Series A Convertible Preferred Stock, $.001 par value, Series B Convertible Preferred Stock, $.001 par value, and Series C Convertible Preferred Stock, $.001 par value (such shares of Common Stock referred to in clauses (i) and (ii) hereof collectively referred to hereinafter as the "Stock"); and" (b) Exhibit A of the Agreement is hereby amended, as set forth on Exhibit A attached hereto, pursuant to which each of the purchasers of shares of the Corporation's Series C Preferred Stock, $.001 par value, pursuant to the Series C Stock and Warrant Purchase Agreement of even date herewith, is added to Exhibit A of the Agreement and thereby becomes a party thereto and entitled to the rights and benefits thereof; (c) Exhibit B of the Agreement is hereby amended, as set forth on Exhibit B attached hereto, to specifically enumerate the number of shares of the classes and series of the Company's capital stock owned by each of the Management Persons which, in accordance with the terms of the Agreement, collectively with any additional shares of the Company's securities acquired by the Management Persons after the date of this Amendment, shall be deemed to be "Management Shares" under the Agreement. 2. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 3. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 5. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 2 [Remainder of Page Left Blank Intentionally] 3 IN WITNESS WHEREOF the parties hereto have executed this Amendment No. 2 to Registration Rights Agreement on the date first above written. GIGA INFORMATION GROUP, INC. By: ------------------------------- Title: ----------------------------- Management Persons: - ----------------------------------- Gideon I. Gartner - ----------------------------------- David L. Gilmour 4 EX-10.6(D) 13 AMENDMENT NO. 3 TO REGISTRATION RIGHTS AGREEMENT Exhibit 10.6(d) AMENDMENT NO. 3 TO REGISTRATION RIGHTS AGREEMENT This Amendment No. 3, dated April ___, 1998 (the "Amendment"), to the Registration Rights Agreement, dated November 9, 1995, among Giga Information Group, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit A thereto (the "Investors") and those key members of the Company's management listed on Exhibit B thereto (the "Management Persons"), as amended (the "Agreement"), is entered into by the Company, the Management Persons, the undersigned Investors, the undersigned Purchasers (as defined herein) and Friedman, Billings, Ramsey Group, Inc. and Friedman, Billings, Ramsey Investment Management, Inc. (collectively, "FBR"). WHEREAS, the Company proposes to enter into a Series D Preferred Stock and Warrant Purchase Agreement dated as of the date hereof (the "Series D Agreement") with the purchasers named on Exhibit A thereto (the "Purchasers"); WHEREAS, the Company proposes to enter into a Bridge Loan Agreement (the "Bridge Agreement") with FBR pursuant to which, among other things, the Company (i) will issue senior convertible notes and warrants to purchase shares of the Company's Common Stock, $0.001 par value per share and (ii) may (under certain circumstances described therein) issue shares of its Series D Preferred Stock, $0.001 par value per share (the "Series D Stock"), and warrants to purchase additional shares of Series D Stock to FBR; and WHEREAS, it is a condition to the performance of the obligations by the Purchasers under the Series D Agreement and FBR under the Bridge Loan Agreement that the Company, the Investors and Management Persons enter into this Amendment for the purposes, among other things, of making the Purchasers and FBR parties to the Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendments to the Agreement. Acting in accordance with Section 1.1 of the Agreement, the undersigned hereby consent to the following amendments to the Agreement: (a) Clause (ii) of Subsection 2.1(b) is deleted in its entirety and the following clause (ii) is inserted in lieu thereof: "(ii) the shares of Common Stock issuable or issued upon (A) conversion of the Company's Series A Preferred Stock, par value $0.001 per share, Series B Preferred Stock, par value $0.001 per share, Series C Preferred Stock, par value $0.001 per share, and Series D Preferred Stock, par value $0.001 per share, including shares of such series of preferred stock issuable upon exercise of warrants to purchase such shares (collectively, the "Series Preferred Stock") and (B) exercise of warrants issued to Friedman, Billings, Ramsey Group, Inc. and Friedman, Billings, Ramsey Investment Management, Inc. to purchase shares of Common Stock (such shares of Common Stock referred to in clauses (i) and (ii) hereof collectively referred to hereinafter as the "Stock"); and" (b) Subsection 2.2(a) is hereby amended by inserting the phrase "file such registration statement" prior to the phrase "within ninety (90) days" on the fourteenth line therein. (c) Exhibit A of the Agreement is hereby amended, as set forth on Exhibit A attached hereto, pursuant to which each of the Purchasers and FBR is added to Exhibit A of the Agreement and thereby becomes a party thereto and entitled to the rights and benefits thereof; 2. Notwithstanding any provisions contained herein to the contrary, the effectiveness of this Amendment is conditional upon the effectiveness of the Bridge Agreement and the execution of this Amendment by FBR. 3. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 4. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 2 6. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. [SIGNATURES BEGIN ON THE NEXT PAGE] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 3 to the Registration Rights Agreement on the date first above written. GIGA INFORMATION GROUP, INC. By: ------------------------------- Name: Daniel M. Clarke Title: Senior Vice President, Chief Financial Officer, Treasurer and Secretary Management Persons: - -------------------------------------- Gideon I. Gartner - -------------------------------------- David L. Gilmour 4 Amendment No. 3 to Registration Rights Agreement Series A Preferred Stockholders: - -------------------------------------- Jonathan Art - -------------------------------------- Adrian Bowles - -------------------------------------- Neill H. Brownstein RICHARD L. CRANDALL TRUST U/A/D 6/13/86 By: ------------------------- Name: Richard L. Crandall Title: Trustee - -------------------------------------- Esther Dyson - -------------------------------------- Harry Edelson FAHERTY PROPERTIES CO., LTD. By: ----------------------------------- Name: Title: - -------------------------------------- Bert Fingerhut 5 Amendment No. 3 to Registration Rights Agreement - -------------------------------------- Gideon I. Gartner - -------------------------------------- David L. Gilmour - -------------------------------------- Bernard Goldstein - -------------------------------------- George J.W. Goodman - -------------------------------------- Stewart H. Greenfield - -------------------------------------- Michael J. Kolesar - -------------------------------------- Stephen R. Levy - -------------------------------------- Thomas W. Malone - -------------------------------------- James D. Robinson III 6 Amendment No. 3 to Registration Rights Agreement RUTHERFORD GROUP By: ------------------------------------ Name: Title: - -------------------------------------- Cornelius T. Ryan - -------------------------------------- Arno D. Schefler - -------------------------------------- Scott M. Smith - -------------------------------------- Frederick G. Smith - -------------------------------------- Peter A. Wright YALE UNIVERSITY By: ----------------------------------- Name: Title: 7 Amendment No. 3 to Registration Rights Agreement Series B Preferred Stockholders: 21ST CENTURY COMMUNICATIONS PARTNERS, L.P. By: -------------------------------------- Name: Title: 21ST CENTURY COMMUNICATIONS T-E PARTNERS, L.P. By: -------------------------------------- Name: Title: 21ST CENTURY COMMUNICATIONS FOREIGN PARTNERS, L.P. By: -------------------------------------- Name: Title: ACORN INVESTMENT TRUST, SERIES DESIGNATED ACORN FUND By: -------------------------------------- Name: Title: 8 Amendment No. 3 to Registration Rights Agreement AKKAD By: -------------------------------------- Name: Title: ALFRED UNIVERSITY By: -------------------------------------- Name: Title: BAUPOST LIMITED PARTNERSHIP 1983 C-1 By: -------------------------------------- Name: Title: - -------------------------------------- Adam J. Brownstein - -------------------------------------- Neill and Linda Brownstein - -------------------------------------- Todd D. Brownstein - -------------------------------------- Robert E. Cook 9 Amendment No. 3 to Registration Rights Agreement CORE TECHNOLOGY FUND, INC. By: -------------------------------------- Name: Title: - -------------------------------------- Christopher J. DiVecchio - -------------------------------------- Martin P. DuRoss - -------------------------------------- Harry Edelson EDELSON TECHNOLOGY PARTNERS III By: -------------------------------------- Name: Title: EXECUTIVE TECHNOLOGY, L.P. By: -------------------------------------- Name: Title: FOUNDATION PARTNERS By: -------------------------------------- Name: Title: 10 Amendment No. 3 to Registration Rights Agreement GILO FAMILY PARTNERSHIP By: -------------------------------------- Name: Title: - -------------------------------------- Will P. Gordon - -------------------------------------- Jon D. Gruber GRUBER & MCBAINE INTERNATIONAL By: -------------------------------------- Name: Title: - -------------------------------------- Emily G. Hamilton HARE & CO. By: -------------------------------------- Name: Title: 11 Amendment No. 3 to Registration Rights Agreement HAUSSMAN HOLDINGS By: -------------------------------------- Name: Title: - -------------------------------------- Michael J. Kolesar LAGUNITAS PARNTERS, L.P. By: -------------------------------------- Name: Title: - -------------------------------------- John B. Landry - -------------------------------------- Derek Lemke-von Ammon THE MATRIX TECHNOLOGY GROUP N.V. By: -------------------------------------- Name: Title: 12 Amendment No. 3 to Registration Rights Agreement MERRILL LYNCH, CUSTODIAN FOR THE BENEFIT OF RICHARD FOUDY, S.C.P. By: -------------------------------------- Name: Title: - -------------------------------------- J. Patterson McBaine MONTGOMERY SMALL CAP PARTNERS, L.P. By: -------------------------------------- Name: Title: MONTGOMERY SMALL CAP PARTNERS II, L.P. By: -------------------------------------- Name: Title: MONTGOMERY SMALL CAP PARTNERS III, L.P. By: -------------------------------------- Name: Title: 13 Amendment No. 3 to Registration Rights Agreement MONTSOL INVESTMENTS N.V. By: -------------------------------------- Name: Title: NOSROB INVESTMENTS LTD. By: -------------------------------------- Name: Title: POMONA CAPITAL II, L.P. By: -------------------------------------- Name: Title: QUOTA FUND N.V. By: -------------------------------------- Name: Title: CHARLES O. ROSSOTTI CHARITABLE REMAINDER UNITRUST By: -------------------------------------- Name: Title: 14 Amendment No. 3 to Registration Rights Agreement RRE GIGA INVESTORS, L.P. By: -------------------------------------- Name: Title: RRE GIGA INVESTORS II, L.P. By: -------------------------------------- Name: Title: - -------------------------------------- Cornelius T. Ryan - -------------------------------------- Frederick G. Smith SCI-TECH INVESTMENT PARTNERS, L.P. By: -------------------------------------- Name: Title: S.G. PARTNERS, L.P. By: -------------------------------------- Name: Title: 15 Amendment No. 3 to Registration Rights Agreement TAMPSCO II PARTNERSHIP By: -------------------------------------- Name: Title: WHEATLEY FOREIGN PARTNERS, L.P. By: -------------------------------------- Name: Title: WHEATLEY PARTNERS, L.P. By: -------------------------------------- Name: Title: - -------------------------------------- Susan Tracy Wheeler YALE UNIVERSITY By: -------------------------------------- Name: Title: YALE UNIVERSITY RETIREMENT PLAN FOR STAFF EMPLOYEES By: -------------------------------------- Name: Title: 16 Amendment No. 3 to Registration Rights Agreement Series C Preferred Stockholders: ALLEN & COMPANY INCORPORATED By: -------------------------------------- Name: Title: - -------------------------------------- Neill H. Brownstein - -------------------------------------- Richard L. Crandall - -------------------------------------- Gideon I. Gartner - -------------------------------------- Bernard Goldstein PEQUOT PRIVATE EQUITY FUND L.P. By: -------------------------------------- Name: Title: PEQUOT OFFSHORE PRIVATE EQUITY FUND, L.P. By: -------------------------------------- Name: Title: 17 Amendment No. 3 to Registration Rights Agreement WHEATLEY FOREIGN PARTNERS, L.P. By: -------------------------------------- Name: Title: WHEATLEY PARTNERS, L.P. By: -------------------------------------- Name: Title: 18 Amendment No. 3 to Registration Rights Agreement The undersigned Purchasers of Series D Preferred Stock of the Company and Friedman, Billings, Ramsey Group, Inc. and Friedman, Billings, Ramsey Investment Management, Inc. hereby agree that upon their execution of this Amendment the undersigned shall become parties to the Agreement such that the undersigned shall be deemed "Investors," subject to all the terms and conditions applicable to Investors set forth therein, and the shares of Series D Preferred Stock and warrants, and Common Stock issuable upon conversion or exercise thereof, held by the undersigned shall constitute "Registrable Securities," subject to all of the terms and conditions applicable to Registrable Securities set forth therein. Friedman, Billings, Ramsey Group, Inc. By: -------------------------------------- Title: ----------------------------------- Friedman, Billings, Ramsey Investment Management, Inc. By: -------------------------------------- Title: ----------------------------------- Novak Biddle Venture Partners, L.P. By: -------------------------------------- Title: ----------------------------------- 19 REGISTRATION RIGHTS AGREEMENT EXHIBIT A INVESTORS Series A Preferred Stockholders: David Gilmour Michael J. Kolesar c/o Expernet/Giga 35 Park Avenue 3945 Freedom Circle Ardsley, NY 10502 Santa Clara, CA 95054 Neill H. Brownstein Stephen R. Levy 536 West Crescent Drive c/o Bolt Beranek & Newman Inc. Palo Alto, CA 94301 150 Cambridge Park Drive Cambridge, MA 02140 Richard L. Crandall Trust Thomas W. Malone U/A/D 6/13/86, Richard L. 50 Memorial Drive Crandall, Trustee E53-333 2129 Devonshire Road Cambridge, MA 02141 Ann Arbor, MI 48104 Faherty Properties Co., Ltd. James D. Robinson III c/o Michael D. Faherty RRE Investors, L.L.C. 6133 Higate Lane 126 E. 56th Street Dallas, TX 75214 New York, NY 10022 Bert Fingerhut Rutherford Group 1520 Silver King Drive 5514 Calullmet Aspen, CO 81611 La Jolla, CA 92037 Yale University Cornelius T. Ryan c/o S(squared) Technology Corp. 315 Post Road West 515 Madison Avenue Westport, CT 06880 New York, NY 10022 Attn: Sy Goldblatt George J.W. Goodman Arno D. Schefler 45 West 45th Street 2049 McLain Flats Road 15th Floor P.O. Box 1005 New York, NY 10036 Aspen, CO 81611 20 Stewart H. Greenfield Esther Dyson 279 Sturges Highway c/o Daphne Kis Westport, CT 06880 104 5th Avenue, 20th Floor New York, NY 10011 Scott M. Smith Frederick Smith Camelot Capital 435 East 57th Street 10 Glenville Street Apt. 5C Greenwich, CT 06831 New York, NY 10022 Peter A. Wright Adrian Bowles P.A.W. Partners, L.P. 57 Grozier Road 10 Glenville Street Cambridge, MA 02138 Greenwich, CT 06831 Jonathan Art Gideon I. Gartner 80 East End Avenue 0126 Magnifico Drive New York, NY 10028 Aspen, CO 81611 Harry Edelson Bernard Goldstein c/o Edelson Technology Partners c/o Broadview Associates Whitecliff Lake, NJ 07675 1 Bridge Plaza Fort Lee, NJ 07024 21 Series B Preferred Stockholders: 21st Century Communications Sci-Tech Investment Partners, L.P. Partners L.P. c/o S(squared) Technology Corp. 767 5th Avenue 515 Madison Avenue, Suite 4200 New York, NY 10153 New York, NY 10022 Attention: Irwin Lieber Attention: Sy Goldblatt 21st Century Communications Foreign The Matrix Technology Group N.V. Partners, L.P. c/o S(squared) Technology Corp. 767 5th Avenue 515 Madison Avenue, Suite 4200 New York, NY 10153 New York, NY 10022 Attention: Irwin Lieber Attention: Sy Goldblatt 21st Century Communications T-E Yale University Partners, L.P. c/o S(squared) Technology Corp. 767 5th Avenue 515 Madison Avenue, Suite 4200 New York, NY 10153 New York, NY 10022 Attention: Irwin Lieber Attention: Sy Goldblatt Wheatley Partners, L.P. Wheatley Foreign Partners, L.P. 767 5th Avenue 767 5th Avenue New York, NY 10153 New York, NY 10153 Attention: Irwin Lieber Attention: Irwin Lieber Montsol Investments N.V. Yale University Retirement Plan for c/o S(squared) Technology Corp. Staff Employees 515 Madison Avenue, Suite 4200 c/o S(squared) Technology Corp. New York, NY 10022 515 Madison Avenue, Suite 4200 Attention: Sy Goldblatt New York, NY 10022 Attention: Sy Goldblatt Executive Technology, L.P. S.G. Partners, L.P. c/o S(squared) Technology Corp. c/o S(squared) Technology Corp. 515 Madison Avenue, Suite 4200 515 Madison Avenue, Suite 4200 New York, NY 10022 New York, NY 10022 Attention: Sy Goldblatt Attention: Sy Goldblatt 22 Core Technology Fund, Inc. Acorn Investment Trust, Series c/o S(squared) Technology Corp. Designated Acorn Fund 515 Madison Avenue, Suite 4200 c/o Asset Mgmt. New York, NY 10022 227 West Monroe Street Attention: Sy Goldblatt Suite 3000 Chicago, IL 60606 Attention: Ralph Wanger Charles O. Rossotti Charitable Alfred University Remainder Unitrust c/o S(squared) Technology Corp. c/o S(squared) Technology Corp. 515 Madison Avenue, Suite 4200 515 Madison Avenue, Suite 4200 New York, NY 10022 New York, NY 10022 Attention: Sy Goldblatt Attention: Sy Goldblatt Foundation Partners Tampsco II Partnership c/o S(squared) Technology Corp. c/o S(squared) Technology Corp. 515 Madison Avenue, Suite 4200 515 Madison Avenue, Suite 4200 New York, NY 10022 New York, NY 10022 Attention: Sy Goldblatt Attention: Sy Goldblatt Hare & Co. Derek Lemke-von Ammon c/o The Bank of New York c/o Montgomery Securities P.O. Box 11203 600 Montgomery Street New York, NY 10249 San Francisco, CA 94111 Attention: Betty Gorecki Montgomery Small Cap Partners III, L.P. Kensington Partners L.P. c/o Montgomery Asset Management 237 Park Avenue 3200 Cherry Creek Drive New York, NY 10017 Suite 370 Attention: Dick Keim Denver, CO 80209 Quota Fund N.V. Lagunitas Partners, L.P. c/o Montgomery Asset Management c/o Gruber & McBaine Capital 600 Montgomery Street Management San Francisco, CA 94111 50 Osgood Place Attention: Dana Schmidt San Francisco, CA 94133 Haussmann Holdings Jon D. Gruber c/o Montgomery Asset Management c/o Gruber & McBaine Capital 600 Montgomery Street Management San Francisco, CA 94111 50 Osgood Place Attention: Dana Schmidt San Francisco, CA 94133 23 Nosrob Investments Ltd. Martin P. DuRoss c/o Montgomery Asset Management 15120 Eclipse Drive 600 Montgomery Street Manassas, VA 22111 San Francisco, CA 94111 Attention: Dana Schmidt Neill and Linda Brownstein Susan Tracy Wheeler 536 West Crescent Drive 2 Bonnie Brook Road Palo Alto, CA 94301 Westport, Connecticut 06880 Adam J. Brownstein John B. Landry 536 West Crescent Drive 62 Old Connecticut Path Palo Alto, CA 94301 Wayland, MA 01778 Todd D. Brownstein RRE Giga Investors II, L.P. 536 West Crescent Drive 126 East 56th Street, 22nd Floor Palo Alto, CA 94301 New York, New York 10022 Attention: Mr. Stuart Ellman Will P. Gordon Harry Edelson 536 West Crescent Drive c/o Edelson Technology Partners Palo Alto, CA 94301 Whiteweld Centre 300 Tice Boulevard Woodcliff Lake, NJ 07675 Emily G. Hamilton Edelson Technology Partners III 536 West Crescent Drive Whiteweld Centre Palo Alto, CA 94301 300 Tice Boulevard Woodcliff Lake, NJ 07675 Attention: Mr. Harry Edelson Merrill Lynch Gilo Family Partnership Custodian for the benefit of 100 Why Worry Lane Richard Foudy, S.C.P. Woodside, CA 94062 101 Hudson Street Attention: David Gilo 8th Floor Jersey City, NJ 07302-3997 Cornelius T. Ryan Robert E. Cook 315 Post Road West 572 Park Avenue, 2nd Floor Westport, CT 06880 Park City, UT 84060 24 Frederick G. Smith RRE Giga Investors, L.P. 435 East 57th Street, Apt. 5C 126 East 56th Street, 22nd Floor New York, NY 10022 New York, NY 10022 Attention: Mr. Stuart Ellman Michael J. Kolesar Montgomery Small Cap Partners II, L.P. Giga Information Group, Inc. c/o Montgomery Securities 1 Longwater Circle 101 California Street Norwell, MA 02061 San Francisco, CA 94111 Attn: Ms. Dana Schmidt Christopher J. DiVecchio Pomona Capital II, L.P. 254 Main Street, #1C c/o Pomona Capital Southport, CT 06490 780 Third Avenue, 28th Floor New York, NY 10017 AKKAD Baupost Limited Partnership 1983 C-1 Acorn Fund c/o Pomona Capital c/o Wanger Asset Management 780 Third Avenue, 28th Floor 227 West Monroe Street New York, NY 10017 Suite 3000 Chicago, Illinois 60606 Attn: Emily Bredahl Montgomery Small Cap Partners, L.P. c/o Montgomery Securities 101 California Street San Francisco, CA 94111 Attn: Ms. Dana Schmidt 25 Series C Preferred Stockholders: Pequot Private Equity Fund, L.P. Pequot Offshore Private Equity Fund, Inc. 354 Pequot Avenue c/o Hemisphere Management Limited Southport, CT 06490-0760 Hemisphere House Attn: Lawrence D. Lenihan, Jr. 9 Church Street P.O. Box HM951 Hamilton HM OX Bermuda Attn: Thomas L. Healy Neill H. Brownstein Gideon I. Gartner 536 West Crescent Drive 0126 Magnifico Drive Palo Alto, CA 94301 Aspen, CO 81611 Richard L. Crandall Bernard Goldstein c/o Arbor Partners LLC Broadview Associates 505 East Huron, Suite 201 1 Bridge Plaza Ann Arbor, MI 48104 Fort Lee, NJ 07024 Allen & Company Incorporated Wheatley Partners, L.P. 711 Fifth Avenue c/o Wheatley Partners, L.L.C. New York, NY 10022 80 Cutter Mill Road, Suite 311 Great Neck, NY 11021 Wheatley Foreign Partners, L.P. c/o Wheatley Partners, L.L.C. 80 Cutter Mill Road, Suite 311 Great Neck, NY 11021 26 New Series D Preferred Stockholder: Novak Biddle Venture Partners, L.P. 1897 Preston White Drive Reston, VA 20191 FBR: Friedman, Billings, Ramsey Group, Inc. 1001 19th Street North Arlington, VA 22209-1710 Friedman, Billings, Ramsey Investment Management, Inc. 1001 19th Street North Arlington, VA 22209-1710 27 EX-10.6(E) 14 AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT Exhibit 10.6(e) AMENDMENT NO. 4 TO REGISTRATION RIGHTS AGREEMENT This Amendment No. 4, dated May ___, 1998 (the "Amendment"), to the Registration Rights Agreement, dated November 9, 1995, among Giga Information Group, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit A thereto (the "Investors") and those key members of the Company's management listed on Exhibit B thereto (the "Management Persons"), as amended (the "Agreement"), is entered into by the Company and the undersigned Investors and Management Persons. WHEREAS, the Company proposes to register shares of its Common Stock under the Securities Act of 1933, as amended (the "Securities Act"), in connection with the public offering solely for cash of at least $30 million of Common Stock at a minimum price to the public of $3.75 per share (as appropriately adjusted for stock splits, combinations, reclassifications and the like) (the "Offering"); WHEREAS, Section 2.3 of the Agreement provides that if the Company proposes to register any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash, the Company (i) shall promptly give each holder of Registrable Securities (as defined therein) written notice of such registration and (ii) upon timely written request by each such holder, shall cause to be registered (a "Piggyback Registration") under the Securities Act all of the Registrable Securities that each such holder has requested to be registered, subject to certain exceptions, including underwriters' holdbacks; WHEREAS, to facilitate a successful Offering, the Company is seeking (i) a waiver of the Piggyback Registration rights of the holders of Registrable Securities in connection with the Offering and (ii) an amendment of the definition of Qualified Public Offering in the Agreement to include the Offering; and WHEREAS, Section 1.1 of the Agreement provides that any provision of the Agreement may be amended or waived upon the written consent of all of (i) the Company, (ii) the holders of at least a majority of the Registrable Securities (excluding the then outstanding Management Shares) and (iii) the holders of at least a majority of the then outstanding Management Shares. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Waiver. Acting in accordance with Section 1.1 of the Agreement, the undersigned hereby waive their Piggyback Registration rights pursuant to Section 2.3 of the Agreement, which rights arise in connection with the Offering. 2. Amendment. Acting in accordance with Section 1.1 of the Agreement, Section 2.1(f) is hereby amended and restated in its entirety as follows: "(f) The term "Qualified Public Offering" means (i) an underwritten initial public offering pursuant to a registration statement (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a transaction pursuant to Rule 145 under the Securities Act) under the Securities Act covering the Company's Common Stock (an "IPO"), which results in aggregate cash proceeds (prior to underwriters' commissions and expenses) to the Company and any selling stockholder of at least $15,000,000, and which has a public offering price of not less than $5.25 per share (as appropriately adjusted for stock splits, combinations, reclassifications and the like) or (ii) an IPO which results in aggregate cash proceeds (prior to underwriters' commissions and expenses) to the Company and any selling stockholder of at least $30,000,000, which has a public offering price of not less than $3.75 per share (as appropriately adjusted for stock splits, combinations, reclassifications and the like) and which closes on or before January 31, 1999." 3. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 4. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 5. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 6. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. 2 [SIGNATURES BEGIN ON THE NEXT PAGE] 3 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 4 to the Registration Rights Agreement on the date first above written. GIGA INFORMATION GROUP, INC. By: ----------------------------------- Name: Daniel M. Clarke Title: Senior Vice President, Chief Financial Officer, Treasurer and Secretary Management Persons: - --------------------------------------- Gideon I. Gartner - --------------------------------------- David L. Gilmour Holders of Registrable Securities: Name of Stockholder (print): - --------------------------------------- By: ----------------------------------- Name: Title: 4 EX-10.7(B) 15 AMENDMENT NO. 1 TO CO-SALE AND STOCK RESTRICTION AGREEMENT AMENDMENT NO. 1 TO CO-SALE AND STOCK RESTRICTION AGREEMENT This Amendment No. 1 dated December 12, 1996 (the "Amendment") to the Co-Sale and Stock Restriction Agreement dated November 13, 1995 among Giga Information Group, Inc., a Delaware corporation (the "Corporation"), Gideon Gartner and the holders of Series B Preferred Stock, $.001 par value, signatory thereto (the "Stockholders"), is entered into by the Corporation, Gideon Gartner and the Stockholders. Except as set forth below, the Agreement shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendments to the Agreement. Acting in accordance with Section 7.2 of the Agreement, the undersigned hereby consent to an amendment to the Agreement whereby Pomona Capital II, L.P., Baupost Limited Partnership 1983 C-1, Wheatley Partners, L.P., Wheatley Foreign Partners, L.P., Charles O. Rossotti Charitable Remainder Trust, Alfred University, Foundation Partners, Tampsco II Partnership and Rochester Institute of Technology (collectively, the Additional Series B Investors") will be made parties to the agreement such that (i) the Additional Series B Investors will be deemed "Stockholders," as such term is defined in the Agreement, subject to all the terms and conditions applicable to Stockholders set forth therein and (ii) all of the shares of Series B Preferred Stock held of record by the Additional Series B Investors will constitute "Preferred Stock," as such term is defined in the Agreement, subject to all the terms and conditions applicable to Preferred Stock set forth herein. 2. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 3. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 5. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF the parties hereto have executed this Amendment on the date first above written. GIGA INFORMATION GROUP, INC. By: ----------------------------------- Title: Chief Executive Officer ----------------------------------- ACORN INVESTMENT TRUST, Series Designated Acorn Fund By: ----------------------------------- Title: ----------------------------------- 2 21ST CENTURY COMMUNICATIONS PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 3 amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 5. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF the parties hereto have executed this Amendment on the date first above written. GIGA INFORMATION GROUP, INC. By: ----------------------------------- Title: ----------------------------------- ACORN INVESTMENT TRUST, Series Designated Acorn Fund By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 2 amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law doctrines of New York or any other jurisdiction to the contrary. 5. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. IN WITNESS WHEREOF the parties hereto have executed this Amendment on the date first above written. GIGA INFORMATION GROUP, INC. By: ----------------------------------- Title: ----------------------------------- ACORN INVESTMENT TRUST, Series Designated Acorn Fund By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 2 21ST CENTURY COMMUNICATIONS FOREIGN PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS T.E. PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- WHEATLEY FOREIGN PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- WHEATLEY PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- SG PARTNERS, L.P. by S(squared) Technology Corporation, its General Partner By: ----------------------------------- Title: ----------------------------------- 3 21ST CENTURY COMMUNICATIONS FOREIGN PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS T.E. PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- WHEATLEY FOREIGN PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- WHEATLEY PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- SG PARTNERS, L.P. by S(squared) Technology Corporation, its General Partner By: ----------------------------------- Title: ----------------------------------- 3 21ST CENTURY COMMUNICATIONS FOREIGN PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS T.E. PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- WHEATLEY FOREIGN PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- WHEATLEY PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- SG PARTNERS, L.P. by S(squared) Technology Corporation, its General Partner By: ----------------------------------- Title: ----------------------------------- 3 21ST CENTURY COMMUNICATIONS FOREIGN PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS T.E. PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- WHEATLEY FOREIGN PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- WHEATLEY PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- SG PARTNERS, L.P. by S(squared) Technology Corporation, its General Partner By: ----------------------------------- Title: ----------------------------------- 3 21ST CENTURY COMMUNICATION FOREIGN PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- 21ST CENTURY COMMUNICATIONS T.E. PARTNERS, L.P. by Infomedia Associates, Ltd., its General Partner By: ----------------------------------- Title: ----------------------------------- WHEATLEY FOREIGN PARTNERS, L.P. By: ----------------------------------- Title: ----------------------------------- SG PARTNERS, L.P. by S(squared) Technology Corporation, its General Partner 10 By: ----------------------------------- Title: ----------------------------------- 3 CORE TECHNOLOGY FUND, INC. By: ----------------------------------- Title: ----------------------------------- CHARLES O. ROSSOTTI CHARITABLE REMAINDER UNITRUST By: ----------------------------------- Title: ----------------------------------- ALFRED UNIVERSITY By: ----------------------------------- Title: ----------------------------------- FOUNDATION PARTNERS By: ----------------------------------- Title: ----------------------------------- TAMPSCO II PARTNERSHIP By: ----------------------------------- Title: ----------------------------------- 4 CORE TECHNOLOGY FUND, INC. By: ----------------------------------- Title: ----------------------------------- CHARLES O. ROSSOTTI CHARITABLE REMAINDER UNITRUST By: ----------------------------------- Title: ----------------------------------- ALFRED UNIVERSITY By: ----------------------------------- Title: ----------------------------------- FOUNDATION PARTNERS By: ----------------------------------- Title: ----------------------------------- TAMPSCO II PARTNERSHIP By: ----------------------------------- Title: ----------------------------------- 4 CORE TECHNOLOGY FUND, INC. By: ----------------------------------- Title: ----------------------------------- CHARLES O. ROSSOTTI CHARITABLE REMAINDER UNITRUST By: ----------------------------------- Title: ----------------------------------- ALFRED UNIVERSITY By: ----------------------------------- Title: ----------------------------------- FOUNDATION PARTNERS By: ----------------------------------- Title: ----------------------------------- TAMPSCO II PARTNERSHIP By: ----------------------------------- Title: ----------------------------------- 4 CORE TECHNOLOGY FUND, INC. By: ----------------------------------- Title: ----------------------------------- CHARLES O. ROSSOTTI CHARITABLE REMAINDER UNITRUST By: ----------------------------------- Title: ----------------------------------- ALFRED UNIVERSITY By: ----------------------------------- Title: ----------------------------------- FOUNDATION PARTNERS By: ----------------------------------- Title: ----------------------------------- TAMPSCO II PARTNERSHIP By: ----------------------------------- Title: ----------------------------------- 4 CORE TECHNOLOGY FUND, INC. By: Title: CHARLES O. ROSSOTTI CHARITABLE REMAINDER UNITRUST By: ----------------------------------- Title: ----------------------------------- ALFRED UNIVERSITY By: ----------------------------------- Title: ----------------------------------- FOUNDATION PARTNERS By: ----------------------------------- Title: ----------------------------------- TAMPSCO II PARTNERSHIP By: ----------------------------------- Title: ----------------------------------- 4 ROCHESTER INSTITUTE OF TECHNOLOGY By: ----------------------------------- Title: ----------------------------------- MONTGOMERY SMALL CAP PARTNERS, L.P. by Montgomery Asset Management, L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- MONTGOMERY SMALL CAP PARTNERS II, L.P. by Montgomery Asset Management, L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- HAUSSMAN HOLDINGS by Montgomery Asset Management, L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- QUOTA FUND N.V. by Montgomery Asset Management, L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- 5 MONTGOMERY SMALL CAP PARTNERS, L.P. by Montgomery Asset Management, L.P., its General Partner By: ----------------------------------- Title: ----------------------------------- MONTGOMERY SMALL CAP PARTNERS II, L.P. by Keith High, its General Partner By: ----------------------------------- Title: ----------------------------------- HAUSSMAN HOLDINGS by Montgomery Asset Management, L.P., its attorney-in-fact By: ----------------------------------- Title: ----------------------------------- QUOTA FUND N.V. by Montgomery Asset Management, L.P., its attorney-in-fact By: ----------------------------------- Title: ----------------------------------- NOSROB INVESTMENTS LTD. by Montgomery Asset Management, L.P., its attorney-in-fact By: ----------------------------------- Title: ----------------------------------- 5 MONTGOMERY SMALL CAP PARTNERS, L.P. by Montgomery Asset Management L.P., its General Partner By: ----------------------------------- Title: ----------------------------------- MONTGOMERY SMALL CAP PARTNERS II, L.P. by Keith High, its General Partner By: ----------------------------------- Title: ----------------------------------- HAUSSMANN HOLDINGS by Montgomery Asset Management, L.P., its attorney-in-fact By: ----------------------------------- Title: ----------------------------------- QUOTA FUND N.V. by Montgomery Asset Management, L.P., its attorney-in-fact By: ----------------------------------- Title: ----------------------------------- NOSROB INVESTMENTS LTD. by Montgomery Asset Management, L.P., its attorney-in-fact By: ----------------------------------- Title: ----------------------------------- 5 MONTGOMERY SMALL CAP PARTNERS III, L.P. by Keith High, its General Partner By: ----------------------------------- Title: ----------------------------------- POMONA CAPITAL II, L.P. By: ----------------------------------- Title: ----------------------------------- BAUPOST LIMITED PARTNERSHIP 1983 C-1 By: ----------------------------------- Title: ----------------------------------- 6 NOSROB INVESTMENTS LTD. by Montgomery Asset Management, L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- MONTGOMERY SMALL CAP PARTNERS III, L.P. by Montgomery Asset Management L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- POMONA CAPITAL II, L.P. By: ----------------------------------- Title: ----------------------------------- BAUPOST LIMITED PARTNERSHIP 1983 C-1 By: ----------------------------------- Title: ----------------------------------- 6 NOSROB INVESTMENTS LTD. by Montgomery Asset Management, L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- MONTGOMERY SMALL CAP PARTNERS III, L.P. by Montgomery Asset Management L.P., its investment advisor By: ----------------------------------- Title: ----------------------------------- POMONA CAPITAL II, L.P. By: ----------------------------------- Title: ----------------------------------- BAUPOST LIMITED PARTNERSHIP 1983 C-1 By: ----------------------------------- Title: ----------------------------------- 6 KENSINGTON PARTNERS By: ----------------------------------- Title: ----------------------------------- 7 EX-10.7(C) 16 AMENDMENT NO. 2 TO CO-SALE AND STOCK RESTRICTION AGREEMENT Exhibit 10.7(c) AMENDMENT NO. 2 TO CO-SALE AND STOCK RESTRICTION AGREEMENT This Amendment No. 2 dated May 9, 1997 (the "Amendment") to the Co-Sale and Stock Restriction Agreement dated November 13, 1995 among Giga Information Group, Inc., a Delaware corporation (the "Corporation"), Gideon I. Gartner and the holders of Series B Preferred Stock, $.001 par value (the "Stockholders"), as amended (the "Agreement"), is entered into by the Corporation, Gideon I. Gartner and the Stockholders. Except as set forth below, the Agreement shall remain in full force and effect. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Agreement. WHEREAS, the Corporation proposes to enter into a Series C Preferred Stock and Warrant Purchase Agreement dated as of the date hereof (the "Series C Stock and Warrant Purchase Agreement") with the purchasers named on Schedule I thereto (the "Purchasers"), and WHEREAS, it is a condition to the performance of the obligations by the Purchasers under the Series C Stock and Warrant Purchase Agreement that the Corporation, and the Stockholders enter into this Amendment for the purposes of making the Purchasers parties to the Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendments to the Agreement. Acting in accordance with Section 7.2 of the Agreement, the undersigned hereby consent to the following amendments to the Agreement whereby the purchasers of shares of the Company's Series C Preferred Stock, $.001 par value, pursuant to the Series C Preferred Stock and Warrant Purchase Agreement of even date herewith (the "Series C Investors") will be made parties to the Agreement such that (i) the Series C Investors will be deemed "Stockholders," subject to all the terms and conditions applicable to Stockholders set forth therein and (ii) all of the shares of Series C Preferred Stock issued or issuable to the Series C Investors will constitute "Preferred Stock," subject to all the terms and conditions applicable to Preferred Stock set forth therein. (a) The last two lines of the preamble paragraph of the Agreement are hereby deleted and new lines inserted in lieu thereto which read as follows: "Delaware corporation (the "Company"), and the undersigned holders of Series B Preferred Stock and Series C Preferred Stock (the "Stockholders")"; and (b) The definition of "Preferred Stock" set forth in Section 1(b) of the Agreement is hereby deleted and a new definition is inserted in lieu thereof which reads as follows: "Preferred Stock" shall mean the Company's outstanding Series B Preferred Stock, $.001 par value, and Series C Preferred Stock, $.001 par value." (c) Section 7.6 is hereby deleted in its entirety and a new Section 7.6 is added in lieu thereof which reads as follows: "7.6 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery to the party to be notified 2 or five days after deposit in the United States mail, by registered or certified mail, postage prepaid and properly addressed to the party to be notified (a) in the case of Stockholders, at such Stockholder's respective address furnished to the Company and set forth in the stock record books of the Company, (b) to the Founder at 146 West 57th Street, New York, N.Y. 10019; (c) to the Company at 1 Longwater Circle, Norwell, MA 02061, attention: Vice President-Finance; or at such other address as such party may designate by ten (10) days' advance written notice to the other parties hereto. Notwithstanding the foregoing, the telephone notice permitted by Section 2(d) shall be effective at the time it is given." 2. The Agreement, as supplemented and modified by this Amendment, together with the other writings referred to in the Agreement or delivered pursuant thereto which form a part thereof, contain the entire agreement among the parties with respect to the subject matter thereof and amend, restate and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 3. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like import, and each reference in the other documents entered into in connection with the Agreement, shall mean and be a reference to the Agreement, as amended hereby. Except as specifically amended above, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. 4. This Amendment shall be governed by the laws of the State of New York, notwithstanding the conflict-of-law 3 doctrines of New York or any other jurisdiction to the contrary. 5. This Amendment may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. [Remainder of Page Left Blank Intentionally] 4 Amendment No. 2 to Co-Sale and Stock Restriction Agreement IN WITNESS WHEREOF the parties hereto have executed this Amendment No. 2 to Co-Sale and Stock Restriction Agreement on the date first above written. GIGA INFORMATION GROUP, INC. By: --------------------------------------------- Title: ------------------------------------------- Series B Preferred Stockholders: 21st Century Communications Partners, L.P. By: --------------------------------------------- Name: Title: 21st Century Communications T-E Partners, L.P. By: --------------------------------------------- Name: Title: 21st Century Communications Foreign Partners, L.P. By: --------------------------------------------- Name: Title: 5 Amendment No. 2 to Co-Sale and Stock Restriction Agreement Acorn Investment Trust, Series Designated Acom Fund By: --------------------------------------------- Name: Title: AKKAD By: --------------------------------------------- Name: Title: Alfred University By: --------------------------------------------- Name: Title: Baupost Limited Partnership 1983 C-1 By: --------------------------------------------- Name: Title: - ------------------------------------------------- Adam J. Brownstein - ------------------------------------------------- 6 Amendment No. 2 to Co-Sale and Stock Restriction Agreement Neill and Linda Brownstein - ------------------------------------------------- Todd D. Brownstein - ------------------------------------------------- Robert E. Cook Core Technology Fund, Inc. By: --------------------------------------------- Name: Title: - ------------------------------------------------- Christopher J. Di Vecchio - ------------------------------------------------- Martin P. DuRoss - ------------------------------------------------- Harry Edelson Edelson Technology Partners III By: --------------------------------------------- Name: Title: 7 Amendment No. 2 to Co-Sale and Stock Restriction Agreement - ------------------------------------------------- Todd D. Brownsein - ------------------------------------------------- Robert E. Cook Core Technology Fund, Inc. By: --------------------------------------------- Name: Title: - ------------------------------------------------- Christopher J. Di Vecchio - ------------------------------------------------- Martin P. DuRoss - ------------------------------------------------- Harry Edelson Edelson Technology Partners III By: --------------------------------------------- Name: Title: Executive Technology, L.P. 8 Amendment No. 2 to Co-Sale and Stock Restriction Agreement By: --------------------------------------------- Name: Title: Foundation Partners By: --------------------------------------------- Name: Title: Gilo Family Partnership By: --------------------------------------------- Name: Title: - ------------------------------------------------- Will P. Gordon - ------------------------------------------------- Jon D. Gruber Gruber & McBaine International By: --------------------------------------------- Name: Title: ------------------------------------------------- 9 Amendment No. 2 to Co-Sale and Stock Restriction Agreement Emily G. Hamilton Hare & Co. By: --------------------------------------------- Name: Title: Haussman Holdings By: --------------------------------------------- Name: Title: - ------------------------------------------------- Michael J. Kolesal Lagunitas Partners, L.P. By: --------------------------------------------- Name: Title: - ------------------------------------------------- John B. Landry - ------------------------------------------------- Derek Lemke-von Ammon 10 Amendment No. 2 to Co-Sale and Stock Restriction Agreement The Matrix Technology Group N.V. By: --------------------------------------------- Name: Title: Merrill Lynch, Custodian for the benefit of Richard Foudy, S.C.P. By: --------------------------------------------- Name: Title: - ------------------------------------------------- J. Patterson McBaine Montgomery Small Cap Partners, L.P. By: --------------------------------------------- Name: Title: Montgomery Small Cap Partners II, L.P. By: --------------------------------------------- Name: Title: Montgomery Small Cap Partners III, L.P. 11 Amendment No. 2 to Co-Sale and Stock Restriction Agreement By: --------------------------------------------- Name: Title: Montsol Investments N.V. By: --------------------------------------------- Name: Title: Nosrob Investments Ltd. By: --------------------------------------------- Name: Title: Pomona Capital II, L.P. By: --------------------------------------------- Name: Title: Quota Fund N.V. By: --------------------------------------------- Name: Title: 12 Amendment No. 2 to Co-Sale and Stock Restriction Agreement Charles O. Rossotti Charitable Remainder Unitrust By: --------------------------------------------- Name: Title: RRE Giga Investors, L.P. By: --------------------------------------------- Name: Title: RRE Giga Investors II, L.P. By: --------------------------------------------- Name: Title: - ------------------------------------------------- Cornelius T. Ryan - ------------------------------------------------- Frederick G. Smith Sci-Tech Investment Partners, L.P. By: --------------------------------------------- Name: 13 Amendment No. 2 to Co-Sale and Stock Restriction Agreement Title: S.G. Partners, L.P. By: --------------------------------------------- Name: Title: Tampsco II Partnership By: --------------------------------------------- Name: Title: Wheatley Foreign Partners, L.P. By: Wheatley Partners LLC, General Partner By: --------------------------------------------- Name: Title: Wheatley Partners, L.P. By: Wheatley Partners LLC, General Partner By: --------------------------------------------- Name: Title: ------------------------------------------------- 14 Amendment No. 2 to Co-Sale and Stock Restriction Agreement Susan Tracy Wheeler Yale University By: --------------------------------------------- Name: Title: Yale University Retirement Plan for Staff Employees By: --------------------------------------------- Name: Title: 15 Amendment No. 2 to Co-Sale and Stock Restriction Agreement The undersigned holders of Series C Preferred Stock of the Company hereby agree that upon their execution of this Amendment the undersigned shall become parties to the Agreement such that the undersigned shall be deemed Stockholders subject to all the terms and conditions applicable to Stockholders set forth therein and all of the shares of Series C Preferred Stock issued or issuable to the undersigned shall constitute Preferred Stock, subject to all the terms and conditions applicable to Preferred Stock set forth therein. Pequot Private Equity Fund, L.P. By: --------------------------------------------- Name: Title: Pequot Offshore Private Equity Fund, Inc. By: --------------------------------------------- Name: Title: 16 EX-10.11 17 COMMON STOCK PURCHASE WARRANT Exhibit 10.11 THE SECURITIES EVIDENCED BY THIS WARRANT OR ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS AND ARE SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH APPLICABLE BLUE SKY LAWS OR AN EXEMPTION THEREFROM. Warrant No. April 7, 1998 GIGA INFORMATION GROUP, INC. (a Delaware Corporation) COMMON STOCK PURCHASE WARRANT THIS CERTIFIES THAT, for value received, ____________________________ and permitted assigns ("Warrantholder"), is entitled to purchase from Giga Information Group, Inc., a Delaware corporation (the "Company"), on the terms and conditions contained herein, _______________________ (_______) shares of the Company's Common Stock, $.001 par value per share (the "Common Stock"), at a price of One Dollar ($1.00) per share (the "Warrant Price"). This Common Stock Purchase Warrant (the "Warrant") is issued pursuant to a Bridge Loan and Warrant Purchase Agreement (the "Loan and Warrant Purchase Agreement"), dated April 7, 1998, among the Company and the Lender and is subject to the terms and conditions of the Loan and Warrant Purchase Agreement. This Warrant is being issued simultaneously with the Note issued pursuant to the Loan and Warrant Purchase Agreement. Capitalized terms used herein but not defined herein shall have the meaning assigned to them in the Loan and Warrant Purchase Agreement. 1. Exercisability of Warrant/Conversion. This Warrant shall be exercisable on the date of the IPO. The Note and this Warrant shall be automatically converted on February 1, 1999 (unless the IPO has closed prior to such time) into shares of Series D Preferred Stock of the Company ("Series D Preferred Stock") and the number of Warrants as provided in the Note. If this Warrant is converted on the Conversion Date as set forth in the Note this Warrant shall be null and void. 2. Method of Exercise; Payment; Issuance of New Warrant; Transfer and Exchange. This Warrant may be exercised by Warrantholder, in whole or in part, by the surrender of this Warrant at the principal office of the Company at One Longwater Circle, Norwell, MA 02061, and by (a) the payment to the Company of the then applicable Warrant Price of the Common Stock being purchased, which Warrant Price may be paid, in whole or in part, by the delivery of cash or check payable to the order of the Company or cancellation of indebtedness (including accrued but unpaid interest) of the Company to the Warrantholder evidenced by a promissory note issued pursuant to the Loan and Warrant Purchase Agreement in an amount equal to such Warrant Price, and (b) delivery to the Company of a notice of exercise executed by Warrantholder in the form attached hereto as Attachments 1. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to Warrantholder within a reasonable time after the rights represented by this Warrant shall have been so exercised, and unless this Warrant has expired, a new Warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised or that may become exercisable after such date, shall also be issued to Warrantholder within such time. In lieu of exercising this Warrant for a specified number of shares of Common Stock (the "Exercised Shares") and paying the aggregate Warrant Price therefor (the "Exercise Price"), Warrantholder may elect, at any time prior to the expiration of this Warrant, to receive a number of shares of Common Stock equal to the number of Exercised Shares minus that number of shares of Common Stock having an aggregate Fair Market Value equal to the Exercise Price. Following such election, the number of shares of Common Stock covered by this Warrant shall be deemed automatically reduced by the number of Exercised Shares. For purposes of this Warrant, the "Fair Market Value" shall mean the closing sales prices of Common Stock quoted on the Nasdaq National Market or, if then traded on a national securities exchange, the average closing prices of Common Stock on the principal national securities exchange on which listed or, if quoted on the Nasdaq over-the-counter system, the average of the mean of the closing bid and asked prices of Common Stock quoted on such system, in any such case on each of the ten (10) trading days immediately preceding the date of such conversion, or if not publicly traded, the fair market value per share determined by the Board of Directors of the Company in good faith. 3. Stock Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable and free from all liens and encumbrances. The Company covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, it shall reserve for the purpose of the issuance upon exercise of the purchase rights evidenced by this Warrant at least the maximum number of shares of Common Stock as are issuable upon the exercise of the rights represented by this Warrant. 4. Restrictions on Transferability of Securities; Compliance with Securities Act. (a) Restrictions on Transferability. This Warrant and the shares of Common Stock issuable hereunder shall not be transferable except upon the conditions specified in this Section 4, which conditions are intended to insure compliance with the provisions of the Securities Act of 1933, as amended (the "Securities Act"). Each holder of this Warrant or the Common Stock issuable hereunder will cause any proposed transferee of the Warrant or such Common Stock to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 4. Prior to the Maturity Date of the Note issued 2. simultaneously herewith, this Warrant is subject to the transfer restrictions set forth in the Note and may not be transferred except to the transferee of such Note. (b) Restrictive Legend. Each certificate representing (i) this Warrant, (ii) the shares of Common Stock issued upon exercise of the Warrant and (iii) any other securities issued in respect of such shares of Common Stock upon any stock split, stock dividend or similar event (collectively, the "Restricted Securities"), shall (unless otherwise permitted by the provisions of Section 4(c) below or unless such securities have been registered under the Securities Act) be imprinted with the following legend, in addition to any legend required under applicable state securities laws: THESE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. Upon request of a holder of a certificate with such legend imprinted thereon, the Company shall remove the foregoing legend therefrom or, if appropriate, issue to such holder a new certificate therefor free of any transfer legend, if, with such request, the Company shall have received the opinion referred to in Section 4(c) to the effect that any transfer by such holder of the securities evidenced by such certificate will be exempt from the registration and/or qualification requirements of, and that such legend is not required in order to establish compliance with the Securities Act, and if applicable, any state securities laws under which transfer restrictions on such securities had been previously imposed. (c) Notice of Proposed Transfers. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4(c). Prior to any proposed transfer of any Restricted Securities, the holder thereof shall give ten (10) days prior written notice to the Company of such holder's intention to effect such transfer. Each such notice shall describe the transferee and the manner and circumstances of the proposed transfer in sufficient detail, and shall be accompanied by an opinion of counsel satisfactory to the Company to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act and any applicable state securities laws, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear the appropriate restrictive legend set forth in Section 4(b) above. 5. Adjustment of Purchase Price and Number of Shares of Common Stock. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as follows: 3. (a) Consolidation, Merger, Reorganization, Etc. If the Company at any time while this Warrant remains outstanding and unexpired shall consolidate with or merge into any other corporation, reorganize or reclassify, or in any manner change the securities then purchasable upon the exercise of this Warrant, then upon consummation thereof this Warrant shall thereafter represent the right of Warrantholder to receive, to the extent this Warrant is exercisable as provided above in Section 1, in lieu of shares of Common Stock, the cash or such number of securities to which Warrantholder would have been entitled upon consummation thereof if Warrantholder had exercised this Warrant immediately prior thereto. Upon any such event, an appropriate adjustment shall also be made to the Warrant Price, if necessary in the good faith judgment of the Board of Directors of the Company, to preserve the economic benefit intended to be conferred upon Warrantholder in accordance with its terms. (b) Subdivision or Combination of Shares; Dividends and Distribution of Common Stock. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling them to receive without payment a dividend payable in, or other distribution of, Common Stock or other securities, then the number of shares of Common Stock purchasable hereunder shall be adjusted to that number determined by multiplying the number of shares purchasable upon the exercise of this Warrant immediately prior to such adjustment by a fraction (i) the numerator of which shall be the total number of shares of Common Stock outstanding immediately after such subdivision, combination, dividend or distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately prior to such subdivision, combination, dividend or distribution. In addition, the Warrant Price shall be adjusted to that price determined by multiplying the Warrant Price in effect immediately prior to such subdivision, combination, dividend or distribution by a fraction (x) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to such subdivision, combination, dividend or distribution, and (y) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after such subdivision, combination, dividend or distribution. (c) Certificate as to Adjustments. Upon the occurrence of each adjustment pursuant to this Section 5, the Company at its expense shall promptly compute such adjustment in accordance with the terms hereof and shall (i) prepare and retain on file a statement describing in reasonable detail the method used in arriving at the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the exercise of this Warrant and the Warrant Price in effect and (ii) cause a copy of such statement to be mailed to Warrantholder promptly after the date when the circumstances giving rise to the adjustment occurred. 6. Fractional Shares. No fractional shares of Common Stock will be issued in connection with any exercise hereunder but in lieu of such fractional shares, the Company shall make a cash payment therefor upon the basis of the Fair Market Value of the Common Stock on the date of such exercise. 4. 7. No Shareholder Rights. This Warrant, by itself and distinguished from any securities purchased hereunder, shall not entitle Warrantholder to any of the rights of a shareholder of the Company. 8. Registration Rights. Upon exercise of this Warrant, the Warrantholder shall have and be entitled to exercise, together with all other holders of registrable securities possessing registration rights under that certain Registration Rights Agreement dated November 13, 1995, as amended, (the "Registration Rights Agreement"), the rights of registration granted under the Registration Rights Agreement (with respect to the Shares issued upon exercise of this Warrant). 9. Notices. All notices and other communications from the Company to the holder of this Warrant shall be delivered personally or mailed by first class mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing, and if mailed shall be deemed given three days after deposit in the United States mail. 10. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York as applied to agreements among New York residents entered into and to be performed entirely within New York. 11. Expiration of Warrant. This Warrant shall terminate and expire and shall no longer be exercisable on and after 5:00 P.M. on April 7, 2008. 5. IN WITNESS WHEREOF, this Warrant has been duly executed and issued by a duly authorized officer of the Company as of this day of April, 1998. GIGA INFORMATION GROUP, INC. a Delaware corporation By: -------------------------- Name: Title: 6. Attachment 1 NOTICE OF EXERCISE TO: GIGA INFORMATION GROUP, INC. 1. The undersigned hereby elects to purchase shares of the Common Stock of Giga Information Group, Inc. pursuant to the terms of the attached Warrant, and [tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any][directs the Company to issue shares, and to withhold shares in lieu of payment of the Warrant Price, as described in Section 2 of the Warrant]. 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: ----------------- (Name) ----------------- (Address) - ----------------------------------- ------------------------------------ (Date) (Name of Warrantholder) By: --------------------------------- Title: ------------------------------ 1-I. EX-10.13 18 AGREEMENT Exhibit 10.13 AGREEMENT This Agreement (the "Agreement"), is made as of February 1, 1998 (the "Effective Date") between Giga Information Group, Inc. a Delaware corporation having its principal place of business at One Longwater Circle, Norwell, MA 02061 ("Giga"), and David Gilmour, an individual having a place of residence at 26010 Torello Lane, Los Altos Hills, CA 94022 ("Gilmour"). Gilmour has conceived of ideas for the development and commercialization of various forms of software related to the automatic capture of knowledge through messaging systems (the "Software"), and has disclosed to Giga and its directors his desire to pursue development and commercialization of the Software. The parties to this Agreement believe that it is in the best interests of each to permit Gilmour to pursue the development, commercialization, distribution and other exploitation of the Software ("Activities") to: 1. Enable Giga to continue benefiting from Gilmour's efforts, experience and knowledge of Giga; 2. Enable Gilmour to devote up to 75% of his time to the startup of a software venture, Tacit Knowledge Systems ("Tacit"), that anticipates developing and selling software products initially in the email and groupware segments of the knowledge management software market; 3. Enable Giga to benefit from any commercial products developed by Tacit and overall success of Tacit; and 4. Resolve all areas where this arrangement may cause a lack of clarity regarding intellectual property right ownership, time allocation and equity ownership. In consideration of the mutual obligations, covenants and promises contained herein, Giga and Gilmour agree as follows: 1. Financial Considerations 1.1 Gilmour holds a $400,000 note from Giga arising from Giga's acquisition of ExperNet. Giga hereby agrees to redeem this note in cash as follows: (i) 1/2 upon the signing of this Agreement and (ii) 1/2 by April 15, 1998. 1.2 Gilmour owns 80,000 shares of Giga Series A Preferred Stock convertible into 320,000 shares of Giga common stock. Giga has the right to re-purchase a portion of these shares if Gilmour leaves Giga voluntarily prior to July 6, 1998. Giga hereby forfeits its right to repurchase these shares. 1.3 Gilmour has been granted a Giga incentive Stock Option to purchase 120,000 shares of Giga common stock at $0.50 per share. As of January 31, 1998, 75,000 shares were vested and available for exercise. As of the Effective Date, this option will change to a Non-qualified Stock Option and the remaining unvested shares will vest at a revised rate of an additional 1/96 of the total number of shares under the option each month thereafter. This option will continue to vest as long as Gilmour is a consultant, as further defined below, to the Company. No shares vested under the option will be subject to repurchase by Giga. Except as modified by this Agreement, all other terms and conditions of the option will remain in full force and effect. 1.4 Gilmour will be a consultant to the Company for at least six months from the Effective Date, or such longer period as mutually agreed in writing. He will devote approximately 25% of his time advising the Company as its Acting Chief Research Officer or in any other appropriate capacity as Giga may reasonably determine. For this consulting, Giga will pay Gilmour monthly at the annualized rate of $50,000. Gilmour will at all times be an independent contractor and Giga shall have no liability whatsoever for withholding, collection or payment of income taxes or for taxes of any other nature on behalf of Gilmour. It is specifically understood that Giga shall not, with respect to Gilmour services, exercise or have the power to exercise such control over Gilmour as would indicate or establish that a relationship of employer and employee exists between Gilmour and Giga. Gilmour shall have full and complete control over the manner and method of rendering his services hereunder. 1.5 Gilmour will continue to be a Director of Giga, at the pleasure of the Board of Directors. However, as of the Effective Date, he will become a non-employee Director. 1.6 Giga will receive a 7.5% equity ownership of Tacit Knowledge Systems ("Tacit"). The 7.5% ownership will be based on the fully diluted shares outstanding after the formation of Tacit. Giga's ownership position will be protected from dilution arising from shares purchased by Gilmour and/or his family either (i) within the first 18 months from the initial formation of Tacit or (ii) the date of Tacit's closing its first $1 million of financing from investors other than Gilmour and/or his family, whichever comes first, without additional consideration payable by Giga. 2 Giga will have the right to participate in any future financings of Tacit, under the same terms and conditions as the other participants, so that Giga's percentage ownership of Tacit, on a fully diluted basis, does not drop below 7 1/2%. This right will terminate on the earlier of (i) the date Giga elects not to participate in a Tacit financing to maintain it's ownership percentage, (ii) the acquisition of a controlling interest in Tacit by another entity, or (iii) an initial public offering by Tacit. 1.7 Giga will pay for Gilmour's medical benefits as long as they are available to Gilmour under COBRA. 2. Software and Technology License for Giga 2.1 Tacit hereby grants Giga a royalty-free, irrevocable, worldwide license to use, internally and as a value added component of its commercial information services, any and all software, products and technologies, in object code form only ("Licensed Software") Tacit develops during the three year period commencing with the Effective Date. However, Tacit shall not be under any obligation to provide Giga with any software or technology which has not yet been released as a Tacit product while such software or technology is under development by Tacit. This License may be extended, at Giga's option, for two additional one-year periods for a fee of $50,000 per year. Except as provided in this Agreement, Giga's rights in and use of the Licensed Software shall be bound by the most favorable terms and conditions applicable to licensee under Tacit's commercial software licenses. 2.2 Except for any dynamically downloaded software objects necessary for end user access to the Giga services incorporating the Licensed Software, Giga shall not have the right to sublicense, install, or distribute, any of the Licensed Software to any third party or customer. 2.3 Any cost of modifying, supporting and integrating the Licensed Software with Giga services, that may be incurred by Tacit at Giga's request, shall be billed to Giga at Tacit's most favorable rates for such services. Tacit shall not be under any obligation to provide support for those portions of Licensed Software which were never licensed commercially by Tacit to third parties. 2.4 Giga will provide reasonable support with respect to Tacit's alpha and beta testing by being a test bed. 3 2.5 During the term of the aforementioned license, Tacit will indemnify Giga, and its officers, directors and employees against any claim that the use of the Licensed Software infringes: (i) a patent, (ii) a copyright, (iii) a trade secret or (iv) other property right. Tacit will pay resulting costs, damages and attorney's fees finally awarded against Giga on the condition that: (a) Giga notifies Tacit in writing promptly following Giga's receipt of any such claim; (b) Tacit has sole control of the defense, and all related settlement negotiations for, any such claim; and (c) Giga cooperates fully in the defense of, in the implementation of remedies for, and furnishes all related evidence in its control relating to, any such claim Tacit is not liable for infringement claims based on (i) the combination, operation or use of the Licensed Software with data or software not supplied or authorized by Tacit; or (ii) modifications to the Licensed Software not authorized by Tacit. 3. Intellectual Property 3.1 Exclusion. The parties agree that the Software shall not to constitute a "Development" or "Proprietary Information" as such terms are defined in the Invention and Non-Disclosure Agreement dated July 6, 1995 between Gilmour and Giga (the "Invention Agreement"). To the extent any entity were to deem the Software as Developments or Proprietary Information, Giga hereby waives and disclaims any and all rights, title, and interest it may have in such Developments or Proprietary Information, and furthermore agrees to assign to Gilmour any and all rights, title and interest in such Software and Activities. Giga acknowledges and agrees that all rights, title and interest in and to the Software and Activities are the sole and exclusive property of Gilmour. 3.2 Use of Proprietary Information. Gilmour represents that it has no intention to use any Proprietary Information in connection with the Activities, with the exception of a de minimus amount of (i) facilities and equipment and (ii) archival data used solely for the purpose of testing the Software. Giga acknowledges that such de minimus use shall not in any way encumber Gilmour's ownership of the Software. Gilmour acknowledges that such use will not impair Giga's ownership of Proprietary Information. 4. Non-compete 4.1 Gilmour agrees that he shall not, directly or indirectly, either as a consultant, employee, partner, officer, director or majority stockholder or in any other capacity, 4 accept employment with or render consulting services to the following direct competitors of Giga or their affiliates: The Gartner Group, Inc., META Group, Inc. or Forrester Research, Inc. 4.2 Gilmour agrees not to divert the business or patronage of any of the current or Prospective Customers, clients, or accounts of Giga which were contacted or serviced by Gilmour during the period of Gilmour's employment or consulting. Giga agrees to support marketing by Tacit of Tacit's products to Giga customers and Prospective Customers provided such marketing does not adversely affect Giga's relationships with those customers. The term "Prospective Customer" herein shall mean any organization which Giga has actively solicited within twelve (12) months prior to the date of termination of Gilmour's consulting arrangement with Giga. 4.3 Gilmour agrees not to recruit or assist others in recruiting any person who is, or was within the preceding twelve (12) months, an employee of Giga, without prior written consent of Giga. 4.4 This section 4 shall remain in effect for a period of one (1) year from the date Gilmour voluntarily ends his consulting arrangement with Giga. 5. Representations 5.1 Giga agrees that Gilmour has made reasonable disclosure to Giga of his plans regarding the Software. Gilmour agrees that statements made to Giga concerning his plans regarding the Software have been made in good faith and are complete and accurate to the best of his knowledge. 5.2 Giga represents that this Agreement has been approved by a majority of the disinterested members of the Giga Board of Directors. Giga shall indemnify Gilmour against any and all losses, claims, liabilities, or actions resulting from a willful breech of the preceding representation. 6. General 6.1 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts. 6.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior or 5 contemporaneous understandings or agreements, written or oral, regarding such subject matter. This Agreement may not be modified, amended, rescinded, or waived, in whole or in part except by a written instrument signed by the duly authorized representatives of both parties. 6.3 Assignment. This Agreement shall inure to the benefit of and be binding upon the parties' permitted successors and assigns By signing below, each party agrees to the terms of this Agreement as of the Effective Date. Once signed, any reproduction of this Agreement or an Order under it made by reliable means (for example photocopy or facsimile) is considered an original. Giga Information Group, Inc.: David L. Gilmour: By: --------------------------- ------------------------------------------ (on his own behalf and on behalf of Tacit) - ------------------------------- Print Name - ------------------------------- Title - ------------------------------- ------------------------------------------ Signing Date Signing Date 6 EX-10.14 19 AGREEMENT AND RELEASE Exhibit 10.14 AGREEMENT AND RELEASE This Agreement and Release is made by and between Henry S. Givray ("You") and Giga Information Group, Inc. ("Giga") or the ("Company"). In consideration of the mutual obligations and promises contained herein, You and Giga agree as follows: 1. Consideration: The terms regarding your separation from the Company, include: continuation of salary (excluding bonus except as set forth below) at an annualized rate of $160,000 with welfare benefits, electronic mail, Giga Web access, and voice mail (but excluding other benefits not specified in this Agreement) through April 30, 1998. Should you not gain new employment at an equivalent compensation and benefit level before that time, the aforementioned salary and benefits will be continued for an additional two (2) months. You agree to inform us within one week of accepting such a position. You agreed to be available for transition tasks that were mutually identified through the end of 1997. Your active employment status ceases on November 5, 1997. Your 1997 bonus of $30,000 will be paid on or before February 15, 1998. Your unused vacation through October 30, 1997 will be paid on January 15, 1998. An additional bonus of $5,000 will be paid on signing this agreement. The current housing allowance was continued through the end of 1997 and you may keep possession of one company laptop PC and printer. Terms presented here are offered to you in consideration of your execution of this Agreement and Release. 2. Stock Options: Your rights to exercise any vested options under the Company's 1996 Stock Option Plan (the "Plan") will be determined by the applicable provisions of the Plan. Vesting will continue through your last day of employment considered to be November 5, 1997. As an exception to policy, we will allow you to retain all option shares vested on or before November 5, 1997. 3. Release of Claims: In consideration of Giga's payments and undertakings contained in this Agreement and Release and except for any vested interest in the Company's 401(k) Savings and Retirement Plan, and Stock Option Plans, You hereby release and forever discharge, and covenant not to sue or commence proceedings against, Giga, its subsidiaries or affiliates and their respective officers, directors, employees, agents, successors and assigns ("Releases"), from and with respect to any and all claims, debts, demands, damages, actions and causes of action of any kind whatsoever, based on facts or circumstances of which you have present knowledge, which you now have, ever had, or may in the future have, against such Releases, arising to the date of this Agreement and Release, including, without limitation, those arising out of or in any manner relating to your employment by Giga or the termination of such employment, including, without limitation, any claim for reinstatement, back or future pay, bonuses, commission, fringe benefits, medical expenses, attorneys' fees and expenses, damages or consequential damages, including but not limited to any claim, complaint, charge or lawsuit under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Equal Pay Act of 1963, the Employee Retirement Income Security Act of 1974, the Rehabilitation Act of 1973, Executive Order 11246, the Massachusetts Fair Employment Act, the Massachusetts Civil Rights Act, the Massachusetts Equal Rights Act and any other state, federal or municipal law statute, public policy, order or regulation affecting or relating to the claims or rights of employees, including any and all claims and suits in tort or contract. You hereby represent and warrant to Giga that you have no present knowledge of 2 any facts and circumstances that may give rise to a claim against Giga or other Releases. (b) With respect to any rights you may have under the Age Discrimination in Employment Act of 1967, which rights are being released under this Agreement and Release, you understand that you have 21 days to consider this Agreement and Release, which, if you choose to sign this document before the 21-day period expires, you hereby waive; that for a period of seven days following your execution of this Agreement and Release you may revoke it and your release as to such rights; that this Agreement and Release shall not become effective or enforceable as to the release of such rights until this seven-day revocation period has expired; and the Giga has no obligation to pay any sums or provide any benefits referred to in this Agreement and release, except those to which you are entitled under existing Giga policy, until it becomes effective or enforceable. 4. Confidentiality and Non-Disparagement: You agree to keep as confidential that the terms of this Agreement and Release and all facts and circumstances associated therewith. In addition, you agree that you will not act or assist any action to diminish or interfere with the Company's relationship with its employees, clients, or prospective clients, or the Company's goodwill. 5. Arrangement not to Compete: You agree that you shall not, through the period ending october 31, 1998, directly or indirectly, either as an employee, partner, officer, director or majority stockholder or in any other capacity: accept similar employment with or render similar services to any direct competitor of Giga in providing continuous information services to information technology professionals (which include the Gartner Group, Inc., META Group, Inc. and Forrester Research, Inc.). 3 6. Complete Agreement: You acknowledge that you have read and understood this Agreement and Release and have had the opportunity to seek the advice of your attorney upon request. This Agreement and Release sets forth the entire agreement and understanding between you and Giga concerning the matters specified above (but in no way limits your obligations under any other agreement between you and the Company). It may only be amended in writing signed by You and the Company. 7. This Agreement and Release is delivered to You by hand on January 7, 1998. AGREED: - ---------------------------------------- Henry S. Givray Date: ----------------------------------- Giga Information Group: By: ------------------------------------- Daniel M. Clarke Senior Vice President and CFO 4 EX-10.15 20 AGREEMENT AND RELEASE Exhibit 10.15 AGREEMENT AND RELEASE This Agreement and Release is made by and between Jacques Bouvard ("You") and Giga Information Group, Inc. ("Giga") or the ("Company"). In consideration of the mutual obligations and promises contained herein, you and Giga agree as follows: 1. Consideration: The terms regarding your mutually agreeable separation from the Company, including: (1) continuation as an employee and of salary at an annualized rate of $125,000 (excluding bonus except as set forth below), welfare benefits, electronic mail, Giga Web access, and voice mail (but excluding other benefits not specified in this Agreement) through March 15, 1998, in connection with which you agree to report on a daily basis to the Company's offices as requested by the Company through October 15, 1997, but excluding approved vacation for the period October 3, 1997 through October 9, 1997; (2) an annualized bonus of up to $45,000 as determined by the Company, which shall in no event be less than $30,000 and shall be payable on or before February 15, 1998; and (3) use of a MCI phone card on which you may incur total charges of up to a maximum amount of $1,000 (you agree to pay any charges in excess of that amount ) through March 15, 1998 or until the maximum amount is reached, are offered to you in consideration of your execution of this Agreement and Release. In addition, the Company shall not exercise its right to repurchase any Shares of the Company's stock acquired under the Company's 1996 Stock Option Plan (the "Plan") as set forth in Section 7(a) of the Plan. 2. Stock Options: Your rights to exercise any vested options under the Company's 1996 Stock Option Plan (the "Plan") will be determined by the applicable provisions of that Plan. The Company acknowledges that as of your last day of employment, March 15, 1998, you shall be vested with the option to purchase 20,000 shares of stock pursuant to the Plan. 3. Release of Claims: In consideration of Giga's payments and undertakings contained in this Agreement and Release and except for any vested interest in the Company's 401(k) Savings and Retirement Plan, and 1995 Stock Option Plan, you hereby release and forever discharge, and covenant not to sue or commence proceedings against, Giga, its subsidiaries or affiliates and their respective officers, directors, employees, agents, successors and assigns ("Releasees"), from and with respect to any and all claims, debts, demands, damages, actions and causes of action of any kind whatsoever, based on facts or circumstances of which you have present knowledge, which you now have, ever had, or may in the future have, against such Releasees, arising to the date of this Agreement and Release, including, without limitation, those arising out of or in any manner relating to your employment by Giga or the termination of such employment, including, without limitation, any claim for reinstatement, back or future pay, bonuses, commissions, fringe benefits, medical expenses, attorneys' fees and expenses, damages or consequential damages, including but not limited to any claim, complaint, charge or lawsuit under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Equal Pay Act of 1963, the Employee Retirement Income Security Act of 1974, the Rehabilitation Act of 1973, Executive Order 11246, the Massachusetts Fair Employment Act, the Massachusetts Civil Rights Act, the Massachusetts Equal Rights Act and any other state, federal or municipal law statute, public policy, order or regulation affecting or relating to the claims or rights of employees, including any and all claims and suits in tort or contract. You hereby represent and warrant to Giga that you have no present knowledge of any facts and circumstances that may give rise to a claim against Giga or other Releasees. (b) With respect to any rights you may have under the Age Discrimination in Employment Act of 1967, which rights are being released under this Agreement and Release, you understand that you have 21 days to consider this Agreement and Release, which, if you choose to sign this document before the 21-day period expires, you hereby waive; that for a period of seven days following your execution of this Agreement and Release you may revoke it and your release as to such rights; that this Agreement and Release shall not become effective or enforceable as to the release of such rights until this seven-day revocation period has expired; and that Giga has no obligation to pay any sums or provide any benefits referred to in this Agreement and release, except those to which you are entitled under existing Giga policy, until it becomes effective or enforceable. 4. Confidentiality and Non-Disparagement: You agree to keep as confidential that the terms of this Agreement and Release and all facts and circumstances associated therewith. In addition, you agree that you will not act or assist any action to diminish or interfere with the Company's relationship with its employees, clients, or prospective clients, or the Company's goodwill. Notwithstanding the foregoing, you are permitted to share the details of this Agreement in confidence with your attorney. 5. Arrangement Not to Compete: You agree that you shall not, during your term of employment with Giga and throughout the period ending February 15, 1999, directly or indirectly, either as an employee, partner, officer, director or majority stockholder or in any other capacity: accept similar employment with or render similar services to any direct competitor of Giga in providing continuous information services to information 2 technology professionals (which include the Gartner Group, Inc., META Group, Inc. and Forrester Research, Inc.). 6. Complete Agreement: You acknowledge that you have read and understood this Agreement and Release and have had the opportunity to seek the advice of your attorney upon request. This Agreement and Release sets forth the entire agreement and understanding between you and Giga concerning the matters specified above (but in no way limits your obligations under any other agreement between you and the Company). It may only be amended in writing signed by you and the Company. 7. This Agreement and Release is executed by both parties and delivered to you by hand on October 2, 1997. AGREED: By Giga Information Group: _________________________________ ____________________________________ Jacques Bouvard Henry Givray _________________________________ ____________________________________ Printed Name Date President _________________________________ ____________________________________ Witness Date Date 3 EX-10.17(B) 21 1995 STOCK OPTION/STOCK ISSUANCE PLAN Exhibit 10.17(b) July 12, 1996 Mr. Richard Crandall 2129 Devonshire Road Ann Arbor, MI 48401 Dear Rick: Effective July 1, 1996, you will be granted 20,000 non-qualified stock options at the then current exercise price subject to the Board of Directors' approval, in exchange for your services for the next twelve months as an Advising Cabinet member to Giga Information Group. These options will be issue under the 1995 Stock Option/Stock Issuance Plan, exercisable to purchase shares of Common Stock and will provide for 25% vesting after one year from initial date of grant (July 1, 1996) and continued monthly vesting thereafter over the next thirty-six (36) months ensuring that you will be fully vested after forty-eight (48) months. In the event that you discontinue your role as a cabinet member, but continue as a board member, your shares will continue to vest at this rate. You will receive the formal Stock Option Agreement following approval of this grant after the next board meeting. If you have any questions, please call me at 617-577-4800. Sincerely, /s/ Kenneth E. Marshall Kenneth Marshall President & COO Giga Information Group, Inc. EX-10.20 22 1995 STOCK OPTION/STOCK ISSUANCE PLAN Exhibit 10.20 GIGA INFORMATION GROUP, INC. 1995 STOCK OPTION/STOCK ISSUANCE PLAN ARTICLE ONE GENERAL PROVISIONS I. PURPOSE OF THE PLAN This 1995 Stock Option/Stock Issuance Plan is intended to promote the interests of Giga Information Group, Inc., a Delaware corporation, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. This Plan serves as the successor to the Corporation's 1995 Stock Option Plan (the "Predecessor Plan"), and no further option grants will be made under the Predecessor Plan from and after the date this Plan is adopted by the Board (the "Effective Date"). All options outstanding under the Predecessor Plan on the Effective Date are hereby incorporated into this Plan and will, be treated as outstanding options under this Plan. However, each outstanding option so incorporated will continue to be governed solely by the express terms and conditions of the instrument evidencing such grant, and no provision of this Plan will be deemed to affect or otherwise modify the rights or obligations of the holders of the incorporated options with respect to their acquisition of shares of Common Stock under those incorporated options. Capitalized terms in this document have the meanings assigned to those terms in the attached Appendix. II. STRUCTURE OF THE PLAN A. The Plan is divided into two (2) separate equity programs: (i) the Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, and (ii) the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of 1. Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary). B. The provisions of Articles One and Four shall apply to both equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan. III. ADMINISTRATION OF THE PLAN A. The Plan shall be administered by the Board. However, any or all administrative functions otherwise exercisable by the Board may be delegated to the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee. B. The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any option or stock issuance thereunder. IV. ELIGIBILITY A. The persons eligible to participate in the Plan are as follows: (i) Employees, (ii) non-employee members of the Board or the non- employee members of the board of directors of any Parent or Subsidiary, and (iii) consultants who provide services to the Corporation (or any Parent or Subsidiary). B. The Plan Administrator shall have full authority to determine, (i) with respect to the option grants under the Option Grant Program, which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding, and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive stock issuances, the time or times 2. when such issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid by the Participant for such shares. C. The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program. V. STOCK SUBJECT TO THE PLAN A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed 5,000,000 shares after giving effect to a four-for-one split of the Company's Common Stock. After giving effect to a four-for- one split of the Company's Common Stock, this authorized share reserve is comprised of (i) the number of shares that remained available for issuance, as of the Effective Date, under the Predecessor Plan as last approved by the Corporation's stockholders prior to the Effective Date, including the shares subject to the outstanding options incorporated into this Plan and any other share that would have been available for future option grant under the Predecessor Plan as last approved by the stockholders (750,000 shares in the aggregate), plus (ii) an increase of 500,000 shares, subject to stockholder approval subsequent to the Effective Date. To the extent that one or more outstanding options under the Predecessor Plan that have been incorporated into this Plan are subsequently exercised, the number of shares issued with respect to each such option shall reduce, on a share-for-share basis, the number of shares available for issuance under this Plan. B. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. All shares issued under the Plan, whether or not those shares are subsequently repurchased by the Corporation pursuant to its repurchase rights under the Plan, shall reduce on a share-for-share basis the number of shares of Common Stock available for subsequent issuance under the Plan. C. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan and (ii) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. In no event shall any such adjustments be made in connection 3. with the conversion of one or more outstanding shares of the Corporation's preferred stock into shares of Common Stock. ARTICLE TWO OPTION GRANT PROGRAM I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. 1. The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The exercise price per share shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date. (ii) If the person to whom the option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section 1 of Article Four and the documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12(g) of the 1934 Act at the time the option is exercised, then the exercise price may also be paid as follows: (i) in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or (ii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions (a) to a Corporation-designated brokerage firm to effect the immediate sale of the 4. purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. B. Exercise and Term of Options. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Should the Optionee cease to remain in Service for any reason other than Disability or death, then the Optionee shall have a period of three (3) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee. (ii) Should such Service terminate by reason of Disability, then the Optionee shall have a period of twelve (12) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee. (iii) Should the Optionee die while holding one or more outstanding options, then the personal representative of the Optionee's estate or the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution shall have a period of twelve (12) months following the date of the Optionee's death during which to exercise each such option. (iv) Under no circumstances, however, shall any such option be exercisable after the specified expiration of the option term. (v) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if 5. earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent it is not exercisable for vested shares on the date of such cessation of Service. D. Stockholder Rights. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Unvested Shares. The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase, at the exercise price paid per share, all or (at the discretion of the Corporation and with the consent of the Optionee) any of those unvested shares. The terms upon which such repurchase rights shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. [The Plan Administrator may not impose a vesting schedule upon any option grant or any shares of Common Stock subject to the option which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur one (1) year after the option grant date. However, this minimum vesting requirement shall not be applicable with respect to any option granted to a Highly-Compensated Person.] F. Limited Transferability of Options. During the lifetime of the Optionee, the option shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may provide that it may be assigned in whole or in part during Optionee's lifetime in accordance with the terms of a Qualified Domestic Relations Order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to such Qualified Domestic Relations Order. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Four shall be applicable to Incentive Options. Options which are specifically designated as Non- Statutory Options shall not be subject to the terms of this Section II. 6. A. Eligibility. Incentive Options may only be granted to Employees. B. Exercise Price. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date. C. Dollar Limitation. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Stockholder. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the option term shall not exceed five (5) years measured from the option grant date. III. CORPORATE TRANSACTION A. In the event of any Corporation Transaction, each outstanding option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) in connection with such Corporate Transaction. In addition, all outstanding repurchase rights shall terminate automatically in the event of any Corporate Transaction, except to the extent the repurchase rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction. B. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in the consummation of such Corporate Transaction, had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance the Plan following the consummation of such Corporate Transaction and (ii) the exercise price payable per share under each outstanding option, provided the aggregrate exercise price payable for such securities shall remain the same. C. The grant of options under the Plan shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change in capital or business structure to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. 7. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Option Grant Program and to grant in substitution therefor new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new option grant date. V. ADDITIONAL AUTHORITY The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service or death from the limited period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service or death but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service. ARTICLE THREE STOCK ISSUANCE PROGRAM I. STOCK ISSUANCE TERMS Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. A. Purchase Price. 8. 1. The purchase price per share shall be fixed by the Plan Administrator in accordance with the following provisions: (i) The purchase price per share shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the stock issuance date. (ii) If the person to whom the stock issuance is made is a 10% Stockholder, then the purchase price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the stock issuance date. 2. Subject to the provisions of Section I or Article Four, shares of Common Stock may be issued under the Stock Issuance Program for one or both of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance: (i) cash or check made payable to the Corporation, or (ii) past services rendered to the Corporation (or any Parent or Subsidiary). B. Vesting Provisions. 1. Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant's period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program, namely: (i) the Service period to be completed by the Participant or the performance objectives to be attained, (ii) the number of installments in which the shares are to vest, (iii) the interval or intervals (if any) which are to lapse between installments, and (iv) the effect which death, Disability or other event designated by the Plan Administrator is to have upon the vesting schedule, 9. shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. The Plan Administrator may not impose a vesting schedule upon any stock issuance effected under the Stock Issuance Program which is more restrictive than twenty percent (20%) per year vesting, beginning one (1) year after the stock issuance date. However, this minimum vesting requirement shall not be applicable with respect to any stock issued to a Highly-Compensated Person. 2. Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant's unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant's unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate. 3. The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant's interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares. 4. Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant's purchase-money indebtedness), the Corporation shall repay to the Participant the cash consideration paid for the surrendered shares and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares. 5. The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to such shares. Such waiver shall result in the immediate vesting of the Participant's interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant's cessation of Service or the attainment or non-attainment of the applicable performance objectives. 10. II. CORPORATE TRANSACTION All of the outstanding repurchase rights under the Stock Issuance Program shall terminate automatically in the event of any Corporate Transaction, except to the extent the repurchase rights are assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction. III. SHARE ESCROW/LEGENDS Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares. ARTICLE FOUR MISCELLANEOUS I. FINANCING The Plan Administrator may permit any Optionee or Participant to pay the option exercise price or the purchase price for shares issued to such person under the Plan by delivering a promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. Promissory notes may be authorized with or without security or collateral. In all events, the maximum credit available to the Optionee or Participant may not exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares (less the par value of such shares) plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase. II. EFFECTIVE DATE AND TERM OF THE PLAN A. This Plan is hereby adopted to serve as the successor to the Predecessor Plan, but no option granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board's adoption of the Plan, then all options previously granted under the Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. Subject to such limitation, the Plan Administrator may grant options and issue shares under the Plan at any time after the effective date of the Plan and before the date fixed herein for termination of the Plan. 11. B. The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year period measured from the date the Plan is adopted by the Board, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of options or the issuance of shares (whether vested or unvested) under the Plan or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Upon such Plan termination, all options and unvested stock issuances outstanding under the Plan shall continue to have full force and effect in accordance with the provisions of the documents evidencing such options or issuances. III. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, the Board shall not, without the approval of the Corporation's stockholders, (i) increase the maximum number of shares issuable under the Plan, except for permissible adjustments in the event of certain changes in the Corporation's capitalization, (ii) materially modify the eligibility requirements for Plan participation or (iii) materially increase the benefits accruing to Plan participants. B. Options to purchase shares of Common Stock may be granted under the Plan and shares of Common Stock may be issued under the Plan that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under the Plan are held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short-Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. IV. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes. 12. V. WITHHOLDING The Corporation's obligation to deliver shares of Common Stock upon the exercise of any options or upon the issuance or vesting of any shares issued under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements. VI. REGULATORY APPROVALS The implementation of the Plan, the granting of any options under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or (ii) under the Stock Issuance Program shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the shares of Common Stock issued pursuant to it. VII. NO EMPLOYMENT OR SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. VIII. FINANCIAL REPORTS The Corporation shall deliver a balance sheet and an income statement at least annually to each individual holding an outstanding option under and each Participant in the Plan, unless such individual is a key Employee whose duties in connection with the Corporation (or any Parent or Subsidiary) assure such individual access to equivalent information. 13. APPENDIX The following definitions shall be in effect under the Plan: A. Board shall mean the Corporation's Board of Directors. B. Code shall mean the Internal Revenue Code of 1986, as amended. C. Committee shall mean a committee of two (2) or more Board members appointed by the Board to exercise one or more administrative functions under the Plan. D. Common Stock shall mean the Corporation's common stock. E. Corporate Transaction shall mean either of the following stockholder- approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. F. Corporation shall mean Giga Information Group, Inc., a Delaware corporation. G. Disability shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. Disability shall be deemed to constitute Permanent Disability in the event that such Disability is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more. H. Domestic Relations Order shall mean any judgment, decree or order (including approval of a property settlement agreement) which provides or otherwise conveys, pursuant to applicable State domestic relations laws (including community property laws), marital property rights to any spouse or former spouse of the Optionee. I. Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. J. Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise. A-1 K. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions: (i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate. L. Highly-Compensated Person shall mean an Optionee or Participant (i) whose compensation per calendar year from the Corporation (or any Parent or Subsidiary) equals or exceeds Sixty Thousand Dollars ($60,000) in the aggregate and (ii) who has previously received one or more option grants or stock issuances under the Plan. M. Incentive Option shall mean an option which satisfies the requirements of Code Section 422. N. 1934 Act shall mean the Securities Exchange Act of 1934, as amended. O. Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422. P. Option Grant Program shall mean the option grant program in effect under the Plan. Q. Optionee shall mean any person to whom an option is granted under the Option Grant Program. R. Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty A-2 percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. S. Participant shall mean any person who is issued shares of Common Stock under the Stock Issuance Program. T. Plan shall mean the Corporation's 1995 Stock Option/Stock Issuance Plan, as set forth in this document. U. Plan Administrator shall mean either the Board or the Committee, to the extent the Committee is at the time responsible for the administration of the Plan. V. Qualified Domestic Relations Order shall mean a Domestic Relations Order which substantially complies with the requirements of Code Section 414(p). The Plan Administrator shall have the sole discretion to determine whether a Domestic Relations Order is a Qualified Domestic Relations Order. W. Service shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. X. Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange. Y. Stock Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program. Z. Stock Issuance Program shall mean the stock issuance program in effect under the Plan. AA. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. BB. 10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). A-3 EX-10.21 23 1996 STOCK OPTION PLAN Exhibit 10.21 GIGA INFORMATION GROUP, INC. 1996 STOCK OPTION PLAN 1. Purpose. The purpose of this plan (the "Plan") is to secure for Giga Information Group, Inc. (the "Company") and its shareholders the benefits arising from capital stock ownership by employees, officers and directors of, and consultants or advisors to, the Company and its parent and subsidiary corporations who are expected to contribute to the Company's future growth and success. Except where the context otherwise requires, the term "Company" shall include the parent and all present and future subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or replaced from time to time (the "Code"). Those provisions of the Plan which make express reference to Section 422 shall apply only to Incentive Stock Options (as that term is defined in the Plan). 2. Type of Options and Administration. (a) Types of Options. Options granted pursuant to the Plan may be either incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Code or Non-Statutory Options which are not intended to meet the requirements of Section 422 of the Code ("Non-Statutory Options"). (b) Administration. (i) The Plan will be administered by the Board of Directors of the Company, whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The Board of Directors may in its sole discretion grant options to purchase shares of the Company's Common Stock ("Common Stock") and issue shares upon exercise of such options as provided in the Plan. The Board shall have authority, subject to the express provisions of the Plan, to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements, which need not be identical, and to make all other determinations which are, in the judgment of the Board of Directors, necessary or desirable for the 1 administration of the Plan. The Board of Directors may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director or person acting pursuant to authority delegated by the Board of Directors shall be liable for any action or determination under the Plan made in good faith. (ii) The Board of Directors may, to the full extent permitted by or consistent with applicable laws or regulations and Section 3(b) of this Plan delegate any or all of its powers under the Plan to a committee (the "Committee") appointed by the Board of Directors, and if the Committee is so appointed all references to the Board of Directors in the Plan shall mean and relate to such Committee. (c) Applicability of Rule 16b-3. Those provisions of the Plan which make express reference to Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3"), or which are required in order for certain option transactions to qualify for exemption under Rule 16b-3, shall apply only to such persons as are required to file reports under Section 16(a) of the Exchange Act (a "Reporting Person"). 3. Eligibility. (a) General. Options may be granted to persons who are, at the time of grant, employees, officers or directors of, or consultants or advisors to, the Company; provided, that the class of employees to whom Incentive Stock Options may be granted shall be limited to all employees of the Company. A person who has been granted an option may, if he or she is otherwise eligible, be granted additional options if the Board of Directors shall so determine. Subject to adjustment as provided in Section 15 below, the maximum number of shares with respect to which options may be granted to any employee under the Plan shall not exceed 100,000 shares of common stock during any one year of the Plan. For the purpose of calculating such maximum number, (a) an option shall continue to be treated as outstanding notwithstanding its repricing, cancellation or expiration and (b) the repricing of an outstanding option or the issuance of a new option in substitution for a cancelled option shall be deemed to constitute the grant of a new additional option separate from the original grant of the option that is repriced or cancelled. (b) Grant of Options to Directors and Officers. From and after the registration of the Common Stock of the Company under the Exchange Act, the selection of a director or an officer (as the terms "director" and "officer" are defined for purposes of Rule 16b-3) as a recipient of an option, the timing of the option grant, the exercise price of the option and the number of shares subject to the option shall be determined either (i) by the Board of Directors or (ii) by a 2 Committee of two or more directors having full authority to act in the matter, each of whom shall be a "Non-Employee Director" within the meaning of Rule 16b-3, as such term is interpreted from time to time. 4. Stock Subject to Plan. Subject to adjustment as provided in Section 15 below, the maximum number of shares of Common Stock which may be issued and sold under the Plan is 3,000,000 shares. If an option granted under the Plan shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject to such option shall again be available for subsequent option grants under the Plan. If shares issued upon exercise of an option under the Plan are tendered to the Company in payment of the exercise price of an option granted under the Plan, such tendered shares shall again be available for subsequent option grants under the Plan; provided, that in no event shall such shares be made available for issuance pursuant to exercise of Incentive Stock Options. 5. Forms of Option Agreements. As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement in such form not inconsistent with the Plan as may be approved by the Board of Directors. Such option agreements may differ among recipients. 6. Purchase Price. (a) General. Subject to Section 3(b), the purchase price per share of stock deliverable upon the exercise of an option shall be determined by the Board of Directors, provided, however, that in the case of an Incentive Stock Option, the exercise price shall not be less than 100% of the fair market value of such stock, as determined by the Board of Directors, at the time of grant of such option, or less than 110% of such fair market value in the case of options described in Section 11(b). (b) Payment of Purchase Price. Options granted under the Plan may provide for the payment of the exercise price by delivery of cash or a check to the order of the Company in an amount equal to the exercise price of such options, or, to the extent provided in the applicable option agreement, (i) by delivery to the Company of shares of Common Stock of the Company already owned by the optionee having a fair market value equal in amount to the exercise price of the options being exercised or (ii) by any other means (including, without limitation, by delivery of a promissory note of the optionee payable on such terms as are specified by the Board of Directors) which the Board of Directors determines are consistent with the purpose of the Plan 3 and with applicable laws and regulations (including, without limitation, the provisions of Regulation T promulgated by the Federal Reserve Board). The fair market value of any shares of the Company's Common Stock or other non-cash consideration which may be delivered upon exercise of an option shall be determined by the Board of Directors. 7. Option Period. Each option and all rights thereunder shall expire on such date as shall be set forth in the applicable option agreement, except that, in the case of an Incentive Stock Option, such date shall not be later than ten years after the date on which the option is granted and, in all cases, options shall be subject to earlier termination as provided in the Plan. 8. Exercise of Options. Each option granted under the Plan shall be exercisable either in full or in installments at such time or times and during such period as shall be set forth in the agreement evidencing such option, subject to the provisions of the Plan. 9. Nontransferability of Incentive Stock Options. Incentive Stock Options shall not be assignable or transferable by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the optionee, shall be exercisable only by the optionee. Non-Statutory Options may be transferred, subject to any conditions and restrictions determined by the Board of Directors and set forth in the applicable option agreement. 10. Effect of Termination of Employment or Other Relationship. Except as provided in Section 11(d) with respect to Incentive Stock Options, and subject to the provisions of the Plan, the Board of Directors shall determine the period of time during which an optionee may exercise an option following (i) the termination of the optionee's employment or other relationship with the Company or (ii) the death or disability of the optionee. Such periods shall be set forth in the agreement evidencing such option. 11. Incentive Stock Options. Options granted under the Plan which are intended to be Incentive Stock Options shall be subject to the following additional terms and conditions: 4 (a) Express Designation. All Incentive Stock Options granted under the Plan shall, at the time of grant, be specifically designated as such in the option agreement covering such Incentive Stock Options. (b) 10% Shareholder. If any employee to whom an Incentive Stock Option is to be granted under the Plan is, at the time of the grant of such option, the owner of stock possessing more than 10%, of the total combined voting power of all classes of stock of the Company (after taking into account the attribution of stock ownership rules of Section 424(d) of the Code), then the following special provisions shall be applicable to the Incentive Stock Option granted to such individual: (i) The purchase price per share of the Common Stock subject to such Incentive Stock Option shall not be less than 110% of the fair market value of one share of Common Stock at the time of grant; and (ii) the option exercise period shall not exceed five years from the date of grant. (c) Dollar Limitation. For so long as the Code shall so provide, options granted to any employee under the Plan (and any other incentive stock option plans of the Company) which are intended to constitute Incentive Stock Options shall not constitute Incentive Stock Options to the extent that such options, in the aggregate, become exercisable for the first time in any one calendar year for shares of Common Stock with an aggregate fair market value (determined as of the respective date or dates of grant) of more than $100,000. (d) Termination of Employment, Death or Disability. No Incentive Stock Option may be exercised unless, at the time of such exercise, the optionee is, and has been continuously since the date of grant of his or her option, employed by the Company except that: (i) an Incentive Stock Option may be exercised within the period of three months after the date the optionee ceases to be an employee of the Company (or within such lesser period as may be specified in the applicable option agreement), provided, that the agreement with respect to such option may designate a longer exercise period and that the exercise after such three- month period shall be treated as the exercise of a non-statutory option under the Plan; (ii) if the optionee dies while in the employ of the Company, or within three months after the optionee ceases to be such an employee, the Incentive Stock Option may be exercised by the person to whom it is transferred by will or the laws of descent and 5 distribution within the period of one year after the date of death (or within such lesser period as may be specified in the applicable option agreement); and (iii) if the optionee becomes disabled (within the meaning of Section 22(e)(3) of the Code or any successor provision thereto) while in the employ of the Company, the Incentive Stock Option may be exercised within the period of one year after the date the optionee ceases to be such an employee because of such disability (or within such lesser period as may be specified in the applicable option agreement). For all purposes of the Plan and any option granted hereunder, "employment" shall be defined in accordance with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulations). Notwithstanding the foregoing provisions, no Incentive Stock Option may be exercised after its expiration date. 12. Additional Provisions. (a) Additional Option Provisions. The Board of Directors may, in its sole discretion, include additional provisions in option agreements covering options granted under the Plan, including without limitation restrictions on transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange for or guaranty loans or to transfer other property to optionees upon exercise of options, or such other provisions as shall be determined by the Board of Directors; provided that such additional provisions shall not be inconsistent with any other term or condition of the Plan and such additional provisions shall not cause any Incentive Stock Option granted under the Plan to fail to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code. (b) Acceleration, Extension, Etc. The Board of Directors may, in its sole discretion, (i) accelerate the date or dates on which all or any particular option or options granted under the Plan may be exercised or (ii) extend the dates during which all, or any particular, option or options granted under the Plan may be exercised. 13. General Restrictions. (a) Investment Representations. The Company may require any person to whom an option is granted, as a condition of exercising such option, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the option for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state 6 securities laws, or with covenants or representations made by the Company in connection with any public offering of its Common Stock. (b) Compliance With Securities Laws. Each option shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such option may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. 14. Rights as a Shareholder. The holder of an option shall have no rights as a shareholder with respect to any shares covered by the option (including, without limitation, any rights to receive dividends or non-cash distributions with respect to such shares) until the date of issue of a stock certificate to him or her for such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Adjustment Provisions for Recapitalization and Related Transactions. (a) General. If, through or as a result of any merger, consolidation, sale of all or substantially all of the assets of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction, (i) the outstanding shares of Common Stock are increased, decreased or exchanged for a different number or kind of shares or other securities of the Company, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock or other securities, an appropriate and proportionate adjustment may be made in (x) the maximum number and kind of shares reserved for issuance under the Plan, (y) the number and kind of shares or other securities subject to any then outstanding options under the Plan, and (z) the price for each share subject to any then outstanding options under the Plan, without changing the aggregate purchase price as to which such options remain exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 15 if such adjustment would cause the Plan to fail to comply with Section 422 of the Code. 7 (b) Board Authority to Make Adjustments. Any adjustments under this Section 15 will be made by the Board of Directors, whose determination as to what adjustments, if any, will be made and the extent thereof will be final, binding and conclusive. No fractional shares will be issued under the Plan on account of any such adjustments. 16. Merger, Consolidation, Asset Sale, Liquidation, etc. (a) General. In the event of a consolidation or merger or sale of all or substantially all of the assets of the Company in which outstanding shares of Common Stock are exchanged for securities, cash or other property of any other corporation or business entity or in the event of a liquidation of the Company, the Board of Directors of the Company, or the board of directors of any corporation assuming the obligations of the Company, may, in its discretion, take any one or more of the following actions, as to outstanding options: (i) provide that such options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof), provided that any such options substituted for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, (ii) upon written notice to the optionees, provide that all unexercised options will terminate immediately prior to the consummation of such transaction unless exercised by the optionee within a specified period following the date of such notice, (iii) in the event of a merger under the terms of which holders of the Common Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the merger (the "Merger Price"), make or provide for a cash payment to the optionees equal to the difference between (A) the Merger Price times the number of shares of Common Stock subject to such outstanding options (to the extent then exercisable at prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such outstanding options in exchange for the termination of such options, and (iv) provide that all or any outstanding options shall become exercisable in full immediately prior to such event. (b) Substitute Options. The Company may grant options under the Plan in substitution for options held by employees of another corporation who become employees of the Company, or a subsidiary of the Company, as the result of a merger or consolidation of the employing corporation with the Company or a subsidiary of the Company, or as a result of the acquisition by the Company, or one of its subsidiaries, of property or stock of the employing corporation. The Company may direct that substitute options be granted on such terms and conditions as the Board of Directors considers appropriate in the circumstances. 17. No Special Employment Rights. Nothing contained in the Plan or in any option shall confer upon any optionee any right with respect to the continuation of his or her employment by the Company or interfere in any way 8 with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the optionee. 18. Other Employee Benefits. Except as to plans which by their terms include such amounts as compensation, the amount of any compensation deemed to be received by an employee as a result of the exercise of an option or the sale of shares received upon such exercise will not constitute compensation with respect to which any other employee benefits of such employee are determined, including, without limitation, benefits under any bonus, pension, profit-sharing, life insurance or salary continuation plan, except as otherwise specifically determined by the Board of Directors. 19. Amendment of the Plan. (a) The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the shareholders of the Company is required under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, or under Rule 16b-3, the Board of Directors may not effect such modification or amendment without such approval. (b) The termination or any modification or amendment of the Plan shall not, without the consent of an optionee, affect his or her rights under an option previously granted to him or her. With the consent of the optionee affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify (i) the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan to the extent necessary to qualify any or all such options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code and (ii) the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. 20. Withholding. (a) The Company shall have the right to deduct from payments of any kind otherwise due to the optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan. Subject to the prior approval of the Company, which may be withheld by the Company in its sole discretion, the optionee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company to withhold shares of Common Stock otherwise issuable pursuant to the exercise of an option or (ii) 9 by delivering to the Company shares of Common Stock already owned by the optionee. The shares so delivered or withheld shall have a fair market value equal to such withholding obligation. The fair market value of the shares used to satisfy such withholding obligation shall be determined by the Company as of the date that the amount of tax to be withheld is to be determined. An optionee who has made an election pursuant to this Section 20(a) may only satisfy his or her withholding obligation with shares of Common Stock which are not subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements. (b) Notwithstanding the foregoing, in the case of a Reporting Person, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements of Rule 16b-3 (unless it is intended that the transaction not qualify for exemption under Rule 16b-3). 21. Cancellation and New Grant of Options, Etc. The Board of Directors shall have the authority to effect, at any time and from time to time, with the consent of the affected optionees, (i) the cancellation of any or all outstanding options under the Plan and the grant in substitution therefor of new options under the Plan covering the same or different numbers of shares of Common Stock and having an option exercise price per share which may be lower or higher than the exercise price per share of the cancelled options or (ii) the amendment of the terms of any and all outstanding options under the Plan to provide an option exercise price per share which is higher or lower than the then-current exercise price per share of such outstanding options. 22. Effective Date and Duration of the Plan. (a) Effective Date. The Plan shall become effective when adopted by the Board of Directors, but no option granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company's shareholders. If such shareholder approval is not obtained within twelve months after the date of the Board's adoption of the Plan, options previously granted under the Plan shall not vest and shall terminate and no options shall be granted thereafter. Amendments to the Plan not requiring shareholder approval shall become effective when adopted by the Board of Directors; amendments requiring shareholder approval (as provided in Section 19) shall become effective when adopted by the Board of Directors, but no option granted after the date of such amendment shall become exercisable (to the extent that such amendment to the Plan was required to enable the Company to grant such option to a particular person) unless and until such amendment shall have been approved by the Company's shareholders. If such shareholder approval is not obtained within twelve months of the Board's adoption of such amendment, any options granted on or after the date of such amendment shall 10 terminate to the extent that such amendment was required to enable the Company to grant such option to a particular optionee. Subject to this limitation, options may be granted under the Plan at any time after the effective date and before the date fixed for termination of the Plan. (b) Termination. Unless sooner terminated in accordance with Section 16, the Plan shall terminate upon the close of business on the day next preceding the tenth anniversary of the date of its adoption by the Board of Directors. Options outstanding on such date shall continue to have force and effect in accordance with the provisions of the instruments evidencing such options. 23. Provision for Foreign Participants. The Board of Directors may, without amending the Plan, modify awards or options granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters. Adopted by the Board of Directors on August 28, 1996. Adopted by the Stockholders in September 17, 1996. 11 -----END PRIVACY-ENHANCED MESSAGE-----