-----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, RMiYKFghj8T88HVr2zprC7lQnd91ddwyIA6ySzOaxz78TZ6vvdGOZmL8d8qrJVFk 5La+VhR7mF3stm6Y0L9RUQ== 0000927016-96-001402.txt : 19961023 0000927016-96-001402.hdr.sgml : 19961023 ACCESSION NUMBER: 0000927016-96-001402 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19961022 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: 1933 Act SEC FILE NUMBER: 333-11711 FILM NUMBER: 96646088 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQ STREET 2: BLDG 1400 W CITY: CAMBRIDGE STATE: MA ZIP: 02139 MAIL ADDRESS: STREET 1: ONE LONGWATER CIRCLE CITY: NORWELL STATE: MA ZIP: 02061 S-1/A 1 AMENDMENT # 2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1996 REGISTRATION NO. 333-11711 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- GIGA INFORMATION GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 8732 06-1422860 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER) INCORPORATION OR CLASSIFICATION CODE ORGANIZATION) NUMBER) ---------------- ONE KENDALL SQUARE, BUILDING 1400W, CAMBRIDGE, MASSACHUSETTS 02139 (617) 577- 9595 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- GIDEON I. GARTNER CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER GIGA INFORMATION GROUP, INC. ONE KENDALL SQUARE, BUILDING 1400W CAMBRIDGE, MASSACHUSETTS 02139 (617) 577-9595 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- Copies to: PAUL P. BROUNTAS, ESQ. GORDON H. HAYES, JR., ESQ. MARK G. BORDEN, ESQ. TESTA, HURWITZ & THIBEAULT, llp HALE AND DORR High Street Tower 60 State Street 125 High Street Boston, Massachusetts 02109 Boston, Massachusetts 02110 (617) 526-6000 (617) 248-7000 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. ---------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] 333- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] 333- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, dated October 22, 1996 PROSPECTUS 4,000,000 SHARES [GIGA LOGO APPEARS HERE] COMMON STOCK ------------- All of the 4,000,000 shares of Common Stock offered hereby are being sold by Giga Information Group, Inc. ("Giga" or the "Company"). Prior to this Offering, there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $9.00 and $11.00 per share. See "Underwriting" for the factors to be considered in determining the initial public offering price. The Company has applied for inclusion of the Common Stock on the Nasdaq National Market under the symbol "GIGX." THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 5. ------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Price to Underwriting Discounts Proceeds to Public and Commissions(1) Company(2) - -------------------------------------------------------------------------------- Per Share.......................... - -------------------------------------------------------------------------------- Total(3)...........................
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." (2) Before deducting estimated expenses of $1,550,000 payable by the Company. (3) The Company has granted to the Underwriters a 30-day option to purchase up to an aggregate of 600,000 additional shares of Common Stock on the same terms and conditions set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------- The shares of Common Stock offered by this Prospectus are offered by the Underwriters subject to prior sale, to withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriters and to certain other conditions. It is expected that delivery of certificates for the shares of Common Stock will be made at the offices of Lehman Brothers Inc., New York, New York, on or about , 1996. ------------- LEHMAN BROTHERS OPPENHEIMER & CO., INC. SALOMON BROTHERS INC , 1996 [graphic depiction of an internet menu bar] http://Welcome to GigaWeb, Your IT Decision Support from Giga Information Group [picture of a building] [picture of a building] [picture of a building] RELEVANCE SERVICES GIGA ADVISORY EXPERNET The VIRTUAL OFFICE is your personalized command center for all Giga Advisory Service IT analysis, and other functions as follows: [LOGO] SMART SEARCH - Enter a topic word or phrase in Smart Search and receive immediate content plus a list of related subjects to help you extract the most relevant IT analysis. GIGA CONTENT - Giga's growing library of Planning Assumption (PA) research documents and "idea bytes" are on view. From here you can immediately download a PA, continue your search, or access Forums. SMART EXPERNET - A network of external IT practitioners SEARCH helps you solve tactical problems and adds to your internal IT department resources. GIGA CONTENT PARTNER CONTENT - Content from Dow Jones and Company, Inc., including The Wall Street Journal Interactive, EXPERNET gives you IT coverage which supplements Giga analysis. PARTNER CONTENT KNOWLEDGE CENTER - Submit your on-line inquiry and track its progress. GIGABOTS - Save your defined Smart Searches as Gigabots to run when you wish, when you enter your Virtual Office, or continuously with email modification of results. KNOWLEDGE CENTER GIGA EVENTS - Your schedule of GigaTels (audio- teleconferences), local Giga briefings, and GIGABOTS conferences helps you plan your peer-to-peer networking activities. GIGA EVENTS FORUMS - Initiate or participate in electronic FORUMS discussion groups. HELP HELP - View frequently asked questions and answers about the specific area of the site you are in. [LOGO] USA UK GERMANY FRANCE ITALY JAPAN KOREA AUSTRALIA IN CONNECTION WITH THE OFFERING, THE UNDERWITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the financial statements, including notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus (i) assumes no exercise of the Underwriters' over- allotment option, (ii) reflects the automatic conversion of all outstanding shares of the Company's Series A and Series B Preferred Stock (the "Preferred Stock") into an aggregate of 7,552,215 shares of Common Stock upon the closing of the Offering, and (iii) has been adjusted to reflect a four-for-one stock split of the Common Stock effected as a stock dividend in November 1995. THE COMPANY Giga Information Group, Inc. (the "Company") provides information, analysis and advice relating to developments and trends in the computing, telecommunications and related industries (collectively, the information technology or "IT" industry). Information technologies have become increasingly critical to the competitiveness and long-term viability of a wide range of organizations. As a result, many of these organizations have turned to IT "Continuous Information Services" providers, which monitor and analyze IT developments and trends to support customers' IT decisions. The Company's customers include: users of IT products and services; vendors of IT hardware, software and services; and institutional and other investors in the IT industry. These customers access the Company's services and products through a personalized Internet-based interface, as well as through published reports and consultation with the Company's analysts and consultants. Giga was founded in 1995 by Gideon I. Gartner, who founded Gartner Group, Inc. in 1979 and served as its Chairman and Chief Executive Officer for twelve years. Building upon his extensive experience in the IT Continuous Information Services industry, Mr. Gartner formed Giga with the objective of creating a new integrated single-service approach to providing Continuous Information Services to address customers' needs more effectively than the multiple-service offerings of existing IT information providers. See "Business--Industry Background" and "--The Giga Solution." The Giga Advisory Service, the principal service offering of the Company, provides customers access to all of the Company's Giga Advisory Service information, analysis and advice, as well as inquiry access to analysts and practitioners and participation in briefings, conferences, electronic forums and teleconferences. The Company believes that its integrated, single-service offering, which is provided to customers for an annual subscription fee, delivers significant advantages over its competitors' multiple-service offerings which require customers to select, and separately purchase, subject- specific services. The Company believes that significant advantages include integrated broad-based coverage of IT developments and trends and on-line access through its GigaWeb system. See "Business--Industry Background," "--The Giga Solution" and "--The Giga Strategy." The Company also provides its customers with access to its ExperNet network of external IT practitioners who are available to answer inquiries by customers. The Company recently introduced the first of a planned series of specialized research services, called Relevance Services, which combine original analysis, data and information produced by proprietary surveys and methodologies with consulting, to assist in enhancing the IT practices and operations of Giga's customers. In addition, the Company is pursuing relationships with select content partners to complement the original information and analyses provided by Giga's analysts. The Company's GigaWeb system, an Internet-based interface to its services, is designed to make it easy and efficient for customers to navigate through the full spectrum of Giga's original research and third-party content. Through the use of intelligent software agents, the Company is able to provide customized information to each customer and also allow customers to search for and select the information that is most relevant to their particular needs. In addition, customers of the Giga Advisory Service and Relevance Services have access to the Company's other information services, including various IT events, publications, consulting and econometric forecasting. These services are generally offered on a non-continuous basis and are also marketed outside the Company's Giga Advisory Service and Relevance Services customer base to generate incremental revenue and broaden the Company's IT industry visibility. Since the introduction of its Giga Advisory Service in April 1996, the Company's customers grew to 109 as of September 30, 1996. Customers of the Company's services include AIG, Alcatel Mobile Phones, The Boeing Co., Colonial Penn Insurance Company, Digital Equipment Corporation, Duracell Inc., IBM, KPMG Peat Marwick LLP, Oracle Corporation, Safeguard Scientifics, Inc. and Southwestern Bell Telephone Company. These specific customers accounted for approximately 8.5% of the Company's revenue from Continuous Information Services during the nine months ended September 30, 1996. This Prospectus contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements. 3 THE OFFERING Common Stock offered.............. 4,000,000 shares Common Stock to be outstanding after the Offering............... 17,662,815 shares(1) Working capital and other general corporate Use of Proceeds................... purposes Proposed Nasdaq National Market symbol........................... GIGX
SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSOR COMPANIES (2) COMPANY ---------------------------------------------------- ------------------------------------ SIX MONTHS JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 MARCH 17 TO MARCH 17 ENDED DECEMBER 15, DECEMBER 31, DECEMBER 31, TO APRIL 5, DECEMBER 31, TO JUNE 30, JUNE 30, 1993 1993 1994 1995 1995 1995 1996 ------------ -------------- ------------ ----------- ------------ ----------- ---------- STATEMENT OF OPERATIONS DATA: Revenues.............. $11,371 $ 329 $12,700 $3,237 $10,706 $ 3,571 $6,482 Loss from continuing operations, net of taxes................ (2,193) (462) (5,064) (449) (5,116) (733) (9,913) Income (loss) from discontinued BIS market research business, net of taxes................ 1,044 44 (1,469) 597 1,490 301 (2,390) Net income (loss)..... (1,149) (418) (6,533) 148 (3,626) (432) (12,303) Historical results per common and common equivalent share: Loss from continuing operations......... (0.38) (0.06) (0.70) Income (loss) from discontinued operations......... 0.11 0.02 (0.01) Loss from disposal of discontinued operations......... -- -- (0.16) Net loss............ (0.27) (0.04) (0.87) Historical weighted average common and common equivalent shares outstanding: 13,486,788 12,299,420 14,180,287 Pro forma results per common and common equivalent share(3): Loss from continuing operations......... (0.34) (0.61) Income (loss) from discontinued operations......... 0.10 0.00 Loss from disposal of discontinued operations......... -- (0.14) Net loss............ (0.24) (0.75) Pro forma weighted average common and common equivalent shares outstanding(3)....... 14,855,209 16,360,287 JUNE 30, 1996 ---------------------------------------- DECEMBER 31, PRO FORMA 1995 ACTUAL PRO FORMA (3) AS ADJUSTED (3)(4) ------------ ------- ------------- ------------------ BALANCE SHEET DATA: Cash and cash equiva- lents.................. $16,906 $ 9,331 $ 9,331 $44,981 Working capital......... 11,205 2,734 2,734 38,384 Total assets............ 24,684 19,220 19,220 54,870 Deferred revenues....... 2,480 4,995 4,995 4,995 Long-term debt, less current portion........ 1,437 1,472 1,472 1,472 Total stockholders' equity................. 13,660 4,053 4,053 39,703
- ------- (1) Based on shares outstanding as of June 30, 1996. Does not include (i) 3,649,473 shares of Common Stock issuable upon the exercise of outstanding options as of August 31, 1996 at a weighted average option exercise price of $0.64 per share; (ii) 3,426,653 shares of Common Stock reserved for issuance under the Company's stock plans as of August 31, 1996; (iii) 233,873 shares of Common Stock issuable upon conversion of outstanding convertible notes at a weighted average conversion price of $5.00 per share at August 31, 1996; (iv) 393,590 shares of Common Stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.95 per share at August 31, 1996; and (v) shares of Common Stock issued by the Company to employees after June 30, 1996. See "Management--Executive Compensation" and "Description of Capital Stock." (2) Financial data included herein contains results of certain predecessor companies acquired by the Company in 1995. For a description of the predecessor companies and an explanation of the comparative periods presented herein, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Organization of the Company and Financial Statement Presentation." (3) Presented on a pro forma basis to give effect to the automatic conversion of all outstanding shares of the Company's Preferred Stock into an aggregate of 7,552,215 shares of Common Stock upon the closing of the Offering. See Note 2 of Notes to Consolidated Financial Statements. (4) Adjusted to give effect to the sale by the Company of 4,000,000 shares of Common Stock offered hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." RECENT DEVELOPMENTS For the quarter ended September 30, 1996, the Company estimates that it had revenues of approximately $3.2 million, of which approximately $900,000 was attributable to Continuous Information Services and the balance to Other Services. The Company estimates that its loss from continuing operations and pro forma loss from continuing operations per share for such quarter were approximately $5.3 million and $0.32, respectively. 4 RISK FACTORS The following risk factors should be considered carefully in addition to the other information contained in this Prospectus before purchasing the Common Stock offered hereby. LIMITED OPERATING HISTORY; PRIOR LOSSES AND ANTICIPATION OF FUTURE LOSSES The Company was incorporated on March 17, 1995, and in April 1996 introduced the Giga Advisory Service, its principal service offering, and GigaWeb, the Company's Internet-based system for delivering information, analyses and advice to its customers. The Company introduced the first of its planned series of Relevance Services in July 1996. The Company has been marketing its Giga Advisory Service and Relevance Services for only a limited period of time, and the Company's future success will depend on its ability to successfully market and enhance these services. Substantially all of the Company's revenues through June 30, 1996 were derived from the operations of BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively, "BIS") which the Company acquired on April 5, 1995. Since its inception, the Company has incurred substantial costs to develop its Giga Advisory Service, establish its GigaWeb system, build a management team and recruit, employ and train research analysts, sales and support staff for its Giga Advisory Service. As a consequence, the Company has incurred substantial operating losses since its inception, and at June 30, 1996 had an accumulated deficit of $16,537,000. For the fiscal year ended December 31, 1995 (pro forma) and the six months ended June 30, 1996, the Company incurred net losses of $3,733,000 and $12,303,000, respectively. The results for these two periods include the discontinued BIS market research business. In its report for 1993 and 1994 for the predecessor company, Ernst & Young LLP described credit risks and projected 1995 cash shortfalls which raised substantial doubt at that time about the predecessor company's ability to continue as a going concern. The Company does not consider the historical results of the discontinued BIS market research business to be meaningful or indicative of the Company's future operating results. See "Risk Factors--Risks Associated with Discontinuance of BIS Market Research Business." The Company expects to incur losses through at least 1997 and expects that such losses will continue to be substantial as the Company expands and develops its services. The magnitude and duration of the Company's losses will depend on a number of factors both within and outside of the Company's control, including the Company's ability to successfully market its Giga Advisory Service and Relevance Services; customer acceptance of the Company's single-service model; the Company's ability to attract and retain qualified research analysts and sales personnel on a timely basis and the related costs of such efforts; the response of competitors to the Company's services; the ability of the Company to develop and market new services; and the continued acceptance by customers of subscription agreements providing for advance payments rather than equal monthly installments or some other payment model. In addition, the Company has significantly increased its operating expenses and expects to continue such increases in the future primarily to expand its staff of research analysts and sales and support personnel and to further develop and enhance its Giga Advisory Service, Relevance Services, GigaWeb system and other information services. As a result, the Company may not be readily able to reduce or adjust expenses in the event that it does not generate planned revenues or if its revenues decrease. There can be no assurance when or if the Company will begin to generate revenue that is sufficient to achieve profitability, to maintain profitability on a quarterly or annual basis or to sustain or increase its revenue growth in future periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." DEPENDENCE ON SALES AND RENEWALS OF SUBSCRIPTION-BASED SERVICES; NEED TO ANTICIPATE CHANGING MARKET NEEDS The Company offers its Continuous Information Services on a subscription basis. Accordingly, the Company's prospects will depend on its ability to enter into a significant number of contracts for subscriptions to its services and to achieve and sustain high renewal rates, and no assurance can be given that it will be successful in doing so. The Company's ability to secure subscriptions and subscription renewals is dependent 5 upon, among other things, its ability to deliver, through its Continuous Information Services, consistently high-quality and timely analysis and advice with respect to issues, developments and trends in the IT industry that clients view as important. To deliver valuable analysis and advice on a sustained basis, the Company must, among other things, recruit and retain a large and growing number of highly talented professionals in a very competitive job market, understand and anticipate market trends so as to keep its analysis focused on the changing needs of its customers, and deliver services of sufficiently high quality and on a timely basis to withstand competition. There can be no assurance that the Company will be able to sustain the necessary level of performance to enter into contracts for subscriptions to its services and to achieve and sustain high subscription renewal rates or that the Company's employees will be able to achieve expected sales productivity levels. Any material decline in subscriptions and subscription renewal rates or inability of the Company's employees to achieve expected sales productivity levels would have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMPETITION The Company competes in the market for IT information services directly with other independent providers of Continuous Information Services, including Gartner Group, Inc., META Group, Inc. and Forrester Research Inc., and also competes with the internal planning, research and marketing staffs of current and prospective customer organizations. The Company also competes indirectly with other information providers, including market research firms, "Big Six" accounting firms, consulting firms and systems integrators. Many of the Company's direct and indirect competitors have substantially greater financial, information gathering and marketing resources than the Company. Some of the Company's direct and indirect competitors also have established research organizations with greater market recognition and experience in the IT industry. There can be no assurance that the Company will continue to be successful in establishing a competitive research organization. Delays, difficulty in developing and achieving market acceptance of the Giga Advisory Service and Relevance Services or customer dissatisfaction would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, there are few barriers to entry into the Company's market, and new competitors could readily seek to compete in one or more market segments addressed by the Company's services and products. There can be no assurance that the Company's current or potential competitors will not develop services comparable or superior to those developed by the Company or respond more quickly to new or emerging industry trends or changing customer requirements. There can be no assurance that the Company will be able to continue to compete successfully against existing or new competitors. In addition, any pricing pressures, reduced margins or loss of market share resulting from increased competition could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Competition." DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL The Company's success will depend in large part upon the continued services of its executive officers and key employees, including its founder, Chairman of the Board of Directors and Chief Executive Officer, Gideon I. Gartner. Mr. Gartner, in particular, is well known in the IT community and his reputation in the Continuous Information Services industry and his network of contacts have been instrumental in establishing and building the Company's business and in obtaining financing for the Company. The loss of the services of either Mr. Gartner or one or more of the Company's other key personnel would have a material adverse effect on the Company. The Company's success will also depend upon its ability to hire, train, motivate and retain a significant number of highly-skilled and experienced employees, particularly management, research analysts and sales personnel. The Company experiences, and expects to continue to experience, intense competition for professional personnel with, among others, producers of IT services, management consulting firms and systems integrators. Many of these firms have substantially greater financial resources than the Company to attract and compensate qualified personnel. In addition, some of the Company's competitors require that their employees enter into non- 6 competition agreements the terms of which could prohibit such individuals for a period of time from working for the Company. There can be no assurance that the Company will be successful in attracting a sufficient number of highly- skilled employees in the future, or that it will be successful in training, motivating and retaining the employees it is able to hire, and any inability to do so would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Employees." RISKS ASSOCIATED WITH DISCONTINUANCE OF BIS MARKET RESEARCH BUSINESS The Company acquired BIS to obtain its marketing, sales, and other corporate infrastructure and certain of its personnel. BIS was engaged in compiling and providing data-intensive market research to vendors for use primarily in planning their product offerings and marketing programs. The BIS offerings were principally quantitative in nature; employed in large part relatively junior data specialists; were marketed to purchasers of quantitative research; included little high-level advice and analysis; were marketed in multiple separate service offerings; and focused principally on vendors (collectively, the "BIS Market Research Business"). In contrast, the Company's strategic business plan focuses on qualitative, analytical information and advice addressed to a broader range of customers; employs a single, integrated continuous information model; contemplates building a cadre of high-level research analysts and other professionals who are peers of its target customers to develop original ideas and knowledge; and concentrates marketing of its services to senior decision makers to support their critical IT decisions. The BIS Market Research Business did not fit with Giga's business model. Accordingly, in June 1996 the Company decided to discontinue the BIS Market Research Business. In connection with the discontinuance of the BIS Market Research Business, in August 1996 the Company entered into contracts with two unrelated IT service providers to fulfill the Company's obligations under certain existing BIS subscription agreements, all of which expire on or before June 1997. There can be no assurance that these providers will be able to satisfactorily fulfill the Company's obligations under these subscription agreements. If such providers are not able to satisfactorily fulfill the terms of the subscription agreements, customers may seek refunds and other damages from the Company. As of August 15, 1996, the total remaining contract value of these agreements for which payment has been received by the Company was $1,982,000. Although the Company has established a provision (approximately $416,000) for these probable refunds which it believes is adequate, there can be no assurance that the amount of actual obligations of the Company to these BIS customers will not exceed the amount of this provision. A substantial amount of claims in excess of the provision established by the Company would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company determined to cease or relocate former BIS operations at leased facilities in Luton, England at Rothesay Road (the "Rothesay Road Facility") and Napier Road (the "Napier Road Facility"). The leases at the Rothesay Road Facility and the Napier Road Facility have remaining terms of approximately 19 years and five years, respectively, at annual rental obligations of approximately $145,000 and $184,000, respectively. If the Company is not able to negotiate a termination of these lease agreements, it will seek to sublease the rental obligations for the remainder of each lease term. There can be no assurance that the Company will be able to enter into sublease contracts on terms that satisfy the Company's obligations under the leases, if at all. The aggregate net present value of the rental obligations under these two leases is approximately $2,200,000. The Company has established a provision (approximately $1,210,000) for the Rothesay Road Facility and for the Napier Road Facility equal to the present value of the expected rental obligations of these facilities for two and one- half years plus 50% of the expected rental obligations over the remaining life of the leases. There can be no assurance that this provision is adequate for such expenses or that the Company will be able to terminate these leases or enter into sublease agreements. Any failure to successfully negotiate a termination of the leases or to successfully enter into subleases on terms favorable to the Company would have a material adverse effect on the business, financial condition and results of operations of the Company. In connection with the cessation of operations at the Rothesay Road Facility and Napier Road Facility and the relocation of certain of the operations previously conducted at those facilities, the Company has terminated approximately eight employees and expects that, in addition, approximately 16 of the remaining 22 employees 7 will determine not to relocate. Pursuant to certain United Kingdom labor laws, the Company will be required to pay severance wages to its terminated employees and to those employees who elect not to relocate. The Company has established a provision of approximately $241,000 which the Company believes approximates the Company's maximum liability for the payment of such severance wages. Although the Company believes that this provision is adequate, if additional employees elect not to relocate then the actual obligations of the Company would exceed the provision. Significant claims in excess of the provision established by the Company could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISKS ASSOCIATED WITH DEVELOPMENT OF NEW SERVICES The Company's future success will depend in part on its ability to anticipate emerging market trends and to develop or acquire new services that address the changing information, analysis and advice needs of IT users, vendors and investors. The process of internally researching, developing, launching and gaining client acceptance of a new service, or assimilating and marketing an acquired service, is inherently risky and costly. Delays or failures during development or implementation, or lack of market acceptance of these services could have a material adverse effect on the Company. The future success of the Giga Advisory Service will depend in part of the Company's ability to expand the breadth and depth of its services through the addition of internal analysts and content from third party sources. The Company has recently introduced the first of a planned series of Relevance Services. The success of these services will depend on the Company's ability to add experienced consultants and to complete the development of additional Relevance Services on a timely basis. The Company's continued ability to differentiate itself through its Internet-based GigaWeb system will depend on its ability to continue to add features and functionality to GigaWeb. In addition, the Company has limited internal resources dedicated to its Web site development and relies on third parties, including consultants and software developers, for the design, development and testing of its GigaWeb system. Any technical or other related problems or deficiencies in GigaWeb in the areas of reliability, performance and scalability could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has had limited experience introducing new services and there can be no assurance that its efforts to introduce new services or to assimilate acquired services will be successful. If the Company is unable, for technical or other reasons, to develop and introduce new services or make enhancements to existing services in a timely manner in response to changing market conditions or customer requirements, or if its Giga Advisory Service or other services offered by the Company do not achieve market acceptance, the Company's business, financial condition and results of operations would be materially adversely affected. See "Business--Services." POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's operating results may fluctuate significantly in the future due to various factors, including the level and timing of renewals of subscriptions to its Continuous Information Services, the timing and amount of new business generated by the Company, the mix of domestic versus international business, the timing of the development, introduction and marketing of new services, the timing of the hiring of research analysts and sales people, changes in the spending patterns of the Company's target clients, the Company's accounts receivable collection experience, changes in market demand for IT research and analysis and competitive conditions in the industry. Due to these and other factors, the Company believes period-to- period comparisons of results of operations may not be meaningful and should not be relied upon as an indication of future results of operations. The potential fluctuations in the Company's operating results make it possible that, in some future period, the Company's operating results will be below the expectations of securities analysts and investors, which would have a material adverse effect on the price of the Company's Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." UNCERTAINTIES RELATING TO PROPRIETARY RIGHTS AND USE OF THE INTERNET The Company's success and ability to compete is dependent in part upon its proprietary information and technology. The Company relies on a combination of copyright, trademark and trade secret laws, employee and 8 third-party nondisclosure agreements and contractual provisions and other methods to protect its proprietary information and technology. There can be no assurance that the measures taken by the Company to protect its proprietary information and technology will be adequate to prevent misappropriation or that others will not develop independently similar proprietary information or technology. Furthermore, there can be no assurance that competitors will not develop similar or superior proprietary information or technologies. As a distributor of content over the Internet, the Company faces potential liability for libel, defamation, negligence, copyright and trademark infringement and other claims based on the nature of the content that it distributes, although the nature and extent of the liability is generally unsettled under law. In addition, the Company licenses certain content from a third party and may license content from other third parties in the future. There can be no assurance the Company will not be involved in expensive and time consuming litigation with respect to claims based on the third-party content that it distributes. Any such litigation, whether or not resulting in a ruling requiring the payment of damages, could have a material adverse effect on the Company's business, financial condition and results of operations. SUBSTANTIAL FUTURE CAPITAL NEEDS; RISKS OF WORKING CAPITAL DEFICIENCY The Company's business has significant fixed costs, primarily attributable to the costs associated with producing research to implement its single- service strategy, which provides for coverage of many of the IT sectors and contemplates broad direct distribution worldwide. The Company has spent substantial amounts to date and expects capital and operating expenditures to increase in the near term as it hires additional sales people, research analysts and other support staff and continues to develop its services. The Company anticipates funding its ongoing working capital needs, including the hiring of additional research analysts and other personnel, the expansion of its sales force, the further enhancement of the GigaWeb system and the expansion of its international operations, principally through the net proceeds to the Company from the Offering. However, the Company is unable to quantify the amount of funds to be required for each specific use because such expenditures will depend on factors such as the rate at which it will be able to recruit and hire additional personnel. In the event that the Company encounters difficulties in collecting accounts receivable, experiences low or reduced subscription renewal rates or otherwise has revenues that are lower than planned, the Company might require additional working capital and there can be no assurance that such capital would be available to the Company on terms that are acceptable, if at all. If adequate funds are not available, the Company may be required to reduce its fixed costs and delay, scale back or eliminate certain of its services, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS Certain of the Company's operations are located outside of the United States and the Company expects to expand its international operations significantly. Revenues attributable to the Company's continuing foreign operations were 65% and 64%, respectively, of total revenues for 1995 and the six months ended June 30, 1996. The Company believes there are certain risks inherent in international operations, including changes in demand resulting from fluctuations in interest and exchange rates, changes in trade policies, regulatory requirements, difficulties in staffing and managing foreign sales operations, and higher levels of taxation on foreign income than domestic income. Most of the Company's international revenues are expected to be denominated in foreign currencies. Consequently, a decrease in the value of a relevant foreign currency in relation to the United States dollar could have an adverse impact on the Company's results of operations. Adverse developments in any one of these factors could have a material adverse effect on the Company's business, financial condition or results of operations. MANAGEMENT OF PLANNED EXPANSION The Company's planned expansion is expected to place a significant strain on the Company's financial, operational and managerial resources. To manage its expansion, the Company must continue to implement and improve its operations and financial systems and to increase, train and manage its personnel. There can be no 9 assurance that the Company's systems, procedures or controls currently in place will be adequate to support the Company's operations or that the Company will be able to implement additional systems successfully and in a timely manner if required. If the Company continues to grow, it will be required to expand its research staff, expand its sales and marketing force, recruit additional key management personnel, improve its operational and financial systems and train, motivate and manage additional employees. There can be no assurance that the Company will be able to manage these changes successfully. Any inability of the Company to manage its growth successfully could have a material adverse effect on the Company's business, financial condition and results of operations. RISK OF NON-UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS The Company has incurred substantial tax loss carryforwards since inception and acquired tax loss carryforwards with its acquisition of BIS, all of which aggregate approximately $15.0 million at June 30, 1996. Due to the magnitude of these existing tax loss carryforwards, the continuing anticipated losses through 1997 and the substantial uncertainties associated with its business, the Company is unable to conclude that it is more likely than not that the deferred tax asset associated with these tax loss carryforwards will be realized. Accordingly, this deferred tax asset has been substantially reserved. This valuation allowance will be reduced and the deferred tax asset will be recognized when it becomes more likely than not that the deferred tax asset will be realized. LEGAL PROCEEDINGS The Company and Mr. Gartner are currently involved in a pending lawsuit with a former employee based upon allegations by the former employee that, among other things, the Company breached an oral employment agreement with him and that the Company and Mr. Gartner made fraudulent representations in inducing him to accept employment with the Company. The former employee has asserted that he is entitled to certain compensation, 60,000 shares of the Company's Common Stock (or cash in lieu thereof) and an option to purchase an additional 60,000 shares of the Company's Common Stock, as well as $2.5 million in compensatory damages and $1.0 million in punitive damages. See "Business-- Legal Proceedings." CONTROL BY MANAGEMENT Upon the closing of the Offering, Mr. Gartner will beneficially own approximately 36% of the outstanding Common Stock and Mr. Gartner, together with the Company's other executive officers and directors, including entities affiliated with them, will beneficially own approximately 55% of the outstanding Common Stock. As a result, these stockholders will be able to exercise control over matters requiring stockholder approval, including the election of directors and the approval of significant corporate matters such as transactions which may lead to a change of control of the Company. The effects of such control could be to delay or prevent a change of control of the Company unless the terms are approved by such stockholders, which could adversely affect the market price of the Company's Common Stock. See "Management" and "Principal Stockholders." ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Company's Common Stock. There can be no assurance that, following the Offering, an active trading market for the Common Stock will develop or be sustained or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price was determined through negotiations between the Company and the Representatives of the Underwriters and will not necessarily reflect the market price of the Common Stock after the Offering. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The stock market in recent years has experienced extreme price and volume fluctuations that have particularly affected market prices of many growth-oriented companies in industries similar or related to that of the Company and that have often been unrelated or disproportionate to the operating performance of such companies. The market price of the Common Stock could also be subject to significant fluctuations in response to, and may be adversely affected by, variations in quarterly results, changes in earnings estimates or other actions by analysts and earnings or other announcements of the Company's customers or competitors as well as other factors. 10 IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of shares of Common Stock offered hereby will experience immediate and substantial dilution of $7.83 in the net tangible book value of the Common Stock from an assumed initial public offering price of $10.00 per share (after deducting the estimated underwriting discounts and commissions and estimated offering expenses). Additional dilution will occur upon exercise or conversion of outstanding stock options, warrants or convertible notes. See "Dilution" and "Shares Eligible for Future Sale." SHARES ELIGIBLE FOR FUTURE SALE Sales of a substantial number of shares of Common Stock in the public market following the Offering could adversely affect the market price for the Common Stock. The 4,000,000 shares offered hereby will be eligible for sale in the public market immediately following the effective date of the Registration Statement; 2,600 shares will become eligible for sale in the public market 90 days after the effective date of the Registration Statement; and the remaining outstanding shares will become eligible for sale in the public market at various dates beginning 180 days after the effective date of the Registration Statement. Holders of 10,880,215 shares have contractual rights to have their shares registered with the Securities and Exchange Commission for resale to the public beginning 180 days after the effective date of the Registration Statement. In addition, within 180 days after the effective date of the Registration Statement, the Company intends to file a registration statement covering the shares of Common Stock issued or reserved for issuance under the Company's 1995 Stock Option/Stock Issuance Plan, 1996 Stock Option Plan and 1996 Employee Stock Purchase Plan, and upon filing any shares subsequently issued under such plans will be eligible for sale in the public market, subject to Rule 144 compliance in the case of affiliates of the Company. See "Shares Eligible for Future Sale" and "Description of Capital Stock." EFFECT OF ANTI-TAKEOVER PROVISIONS A Restated Certificate of Incorporation (the "Restated Certificate") will be filed upon the closing of the Offering, pursuant to which the Company's Board of Directors will have the authority to issue up to 5,000,000 shares of Preferred Stock and to determine the price, rights, conversion ratios, preferences and privileges of those shares without any further vote or action by the Company's stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of such Preferred Stock. Any such issuance, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company and could negatively impact the voting power or other rights of the holders of Common Stock. In addition, such Preferred Stock may have other rights, including economic rights senior to the Common Stock, and, as a result, the issuance thereof could have a material adverse effect on the market value of the Common Stock. The Restated Certificate will provide for a classified Board of Directors and will permit a member of the Board of Directors to be removed for cause only upon the affirmative vote of holders of a majority, or without cause only upon the affirmative vote of at least two-thirds, of the shares of capital stock of the Company entitled to vote. Furthermore, the Company is subject to the anti- takeover provisions of Section 203 of the Delaware General Corporation Law that prohibit the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person first becomes an "interested stockholder," unless the business combination is approved in a prescribed manner. The application of Section 203 could also have the effect of delaying or preventing a change of control of the Company. Certain other provisions of the Restated Certificate may have the effect of delaying or preventing changes of control or management of the Company, which could adversely affect the market price of the Company's Common Stock. See "Description of Capital Stock-- Delaware Law and Certain Charter and By-Law Provisions." 11 USE OF PROCEEDS The net proceeds to Giga from the sale of the 4,000,000 shares of Common Stock offered hereby are estimated to be $35,650,000 ($41,230,000 if the Underwriters' over-allotment option is exercised in full) after deducting the underwriting discounts and commissions and estimated offering expenses payable by the Company and assuming an initial public offering price of $10.00 per share. The Company is conducting the Offering at this time in order to raise funds for working capital and other general corporate purposes. The Company's planned working capital uses include the expansion of the Company's staff of analysts, further development of the Giga Advisory Service, Relevance Services and other consulting services and expansion of its sales, marketing and support staff. See "Risk Factors--Future Capital Needs, Risks of Working Capital Deficiency." A portion of the net proceeds may also be used for the acquisition of businesses, services and technologies that are complementary to those of the Company. The Company currently has no plans, commitments or agreements with respect to any such acquisitions as of the date of this Prospectus. The Company has not determined the allocation of the net proceeds among the expected uses, since the allocation is dependent on the future expansion of the Company's business and the accompanying working capital needs, available future acquisition opportunities and other related future business opportunities that are not predictable at this time. Pending such uses, the Company intends to invest the net proceeds from the Offering in short-term, investment grade, interest-bearing instruments. The Company has broad discretion over the use and investment of the net proceeds. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain earnings, if any, to support its growth strategy and does not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account various factors including the Company's financial condition, operating results, current and anticipated cash needs and plans for expansion. 12 CAPITALIZATION The following table sets forth as of June 30, 1996 (i) the actual capitalization of the Company, (ii) the pro forma capitalization of the Company as described in Note (1) below, and (iii) the pro forma capitalization of the Company as adjusted to reflect the issuance and sale by the Company of 4,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $10.00 per share and receipt of the estimated net proceeds therefrom. See "Use of Proceeds." This table should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
JUNE 30, 1996 --------------------------------------------------------- PRO FORMA ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2) --------------- ---------------- --------------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Long term debt, less current portion.......... $1,472 $1,472 $1,472 --------------- --------------- --------------- Stockholders' Equity(3): Preferred Stock, $.001 par value; 5,000,000 shares authorized; none issued or outstanding on an actual, pro forma or pro forma as adjusted basis................... -- -- -- Series A Preferred Stock, $.001 par value; 650,000 shares authorized; 570,000 shares issued and outstanding (actual); no shares authorized, issued or outstanding on a pro forma or pro forma as adjusted basis....... 1 -- -- Series B Preferred Stock, $.001 par value; 6,500,000 shares authorized; 5,272,215 shares issued and outstanding (actual); no shares authorized, issued or outstanding on a pro forma or pro forma as adjusted basis....... 5 -- -- Common Stock, $.001 par value; 60,000,000 shares authorized; 6,110,600 shares issued and outstanding (actual); 13,662,815 shares issued and outstanding (pro forma); 17,662,815 shares issued and outstanding (pro forma as adjusted)(2)......... 6 14 18 Additional paid-in capital................. 20,631 20,629 56,275 Stock subscriptions receivable.............. (75) (75) (75) Accumulated deficit...... (16,537) (16,537) (16,537) Cumulative translation adjustments............. 22 22 22 --------------- --------------- --------------- Total stockholders' equity................. 4,053 4,053 39,703 --------------- --------------- --------------- Total capitalization.... $ 5,525 $ 5,525 $ 41,175 =============== =============== ===============
- -------- (1) Presented on a pro forma basis to give effect to the conversion of all outstanding shares of Preferred Stock into an aggregate of 7,552,215 shares of Common Stock upon the closing of the Offering. See Note 2 of Notes to Consolidated Financial Statements. (2) Based on shares outstanding as of June 30, 1996. Does not include (i) 3,649,473 shares of Common Stock issuable upon the exercise of outstanding options at a weighted average option exercise price of $0.64 per share as of August 31, 1996; (ii) 3,426,653 shares of Common Stock reserved for issuance under the Company's stock plans as of August 31, 1996; (iii) 233,873 shares of Common Stock issuable upon conversion of outstanding convertible notes at a weighted average conversion price of $5.00 per share at August 31, 1996; (iv) 393,590 shares of Common Stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $2.95 per share at August 31, 1996; and (v) shares of Common Stock issued by the Company to employees after June 30, 1996. See "Management--Executive Compensation" and "Description of Capital Stock." (3) Reflects the filing of the Company's Restated Certificate of Incorporation upon the closing of the Offering. 13 DILUTION The pro forma net tangible book value of the Company as of June 30, 1996 was $2,756,000 or $0.20 per share. Pro forma net tangible book value per share represents the amount of total tangible assets (total assets less intangible assets) of the Company reduced by the Company's total liabilities, divided by the pro forma number of shares of Common Stock outstanding. Assuming an initial public offering price of $10.00 per share, and after giving effect to the sale by the Company of 4,000,000 shares of Common Stock in the Offering (after deducting the estimated underwriting discounts and commissions and estimated offering expenses), the pro forma net tangible book value of the Company as of June 30, 1996 would have been $38,406,000 or $2.17 per share. This represents an immediate increase in pro forma net tangible book value of $1.97 per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $7.83 per share to new investors purchasing Common Stock in the Offering. The following table illustrates this per share dilution: Assumed price to public...................................... $10.00 Pro forma net tangible book value per share before the Offering................................................... $0.20 Increase per share attributable to new investors............ 1.97 ----- Pro forma net tangible book value per share after the Offering.................................................... 2.17 ------ Dilution per share to new investors.......................... $ 7.83 ======
The following table sets forth on a pro forma basis as of June 30, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price paid per share by the existing stockholders and by the investors purchasing shares of Common Stock offered hereby (at an assumed initial public offering price of $10.00 per share):
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockholders..... 13,662,815 77.4% $21,564,052 35.0% $ 1.58 New investors............. 4,000,000 22.6% $40,000,000 65.0% $10.00 ---------- ------ ----------- ------ Total................. 17,662,815 100.0% $61,564,052 100.0% ========== ====== =========== ======
The foregoing assumes no exercise or conversion of any outstanding stock options, warrants or convertible notes to purchase shares of Common Stock. As of August 31, 1996, there were outstanding (i) options to purchase 3,649,473 shares of Common Stock at a weighted average exercise price of $0.64 per share; (ii) warrants to purchase 393,590 shares of Common Stock at a weighted average exercise price of $2.95 per share; and (iii) convertible notes that are convertible into 233,873 shares of Common Stock at a weighted average conversion price of $5.00 per share. In addition, as of August 31, 1996, 3,426,653 shares of Common Stock were reserved for future issuance pursuant to the Company's stock plans. To the extent that the outstanding options, warrants and convertible notes are exercised or converted at prices lower than the initial public offering price, there will be further dilution to new investors. See "Management--Executive Compensation," "Certain Transactions" and "Description of Capital Stock." 14 SELECTED FINANCIAL DATA The following selected financial data are derived from the consolidated financial statements of the Company and the combined financial statements of BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively, the "Predecessor Companies"). For the years ended December 31, 1991 and 1992 and the period January 1 to December 15, 1993, the operations comprising the Predecessor Companies were those of wholly-owned subsidiaries of NYNEX Corporation ("NYNEX"). For the period December 16 to December 31, 1993, the year ended December 31, 1994 and the period January 1 to April 5, 1995, the operations of the Predecessor Companies were those of wholly-owned subsidiaries of Friday Holdings, L.P. ("Friday Holdings"). Because of the impact to the statements of operations of the revaluation of the assets and liabilities in connection with the acquisitions and the application of different accounting methods, the results of operations of the Predecessor Companies for the periods under NYNEX and Friday Holdings ownership are not comparable with each other or with those reported by the Company. The consolidated financial statements of the Company as of December 31, 1995 and June 30, 1996 and for the period from March 17, 1995 to December 31, 1995 and the six months ended June 30, 1996 included elsewhere in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent accountants. The consolidated financial statements of the Company for the period March 17, 1995 to June 30, 1995 included elsewhere in this Prospectus are unaudited, however, in the opinion of management, such unaudited data include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information included therein. The results of operations for the periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and the six months ended June 30, 1996 are not necessarily indicative of the results for an entire fiscal year or any other interim period. The combined financial statements of the Predecessor Companies for the period January 1, 1995 to April 5, 1995 included elsewhere in this Prospectus have been audited by Coopers & Lybrand L.L.P. The combined financial statements of the Predecessor Companies as of December 31, 1994 and for the periods January 1, 1993 to December 15, 1993 and December 16, 1993 to December 31, 1993 and for the year ended December 31, 1994 included elsewhere in this Prospectus have been audited by Ernst & Young LLP, independent auditors. For the periods January 1, 1993 to December 15, 1993 and December 16, 1993 to December 31, 1993, the financial statements of BIS Shrapnel PTY Limited, one of the combined companies, were audited by other auditors. Ernst & Young LLP's report on the combined financial statements as of December 31, 1994 and for the periods January 1, 1993 to December 15, 1993, and December 16, 1993 to December 31, 1993 and the year ended December 31, 1994, includes a description of uncertainties regarding the Predecessor Companies' ability to continue as a going concern which is discussed in Note 4 to the financial statements of BIS Strategic Decisions. The selected historical financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and accompanying notes thereto included elsewhere in this Prospectus. 15 SELECTED FINANCIAL DATA--(CONTINUED)
PREDECESSOR COMPANIES(1) PREDECESSOR COMPANIES YEAR ENDED JANUARY 1 DECEMBER 16 YEAR JANUARY 1 DECEMBER 31, TO TO ENDED TO ---------------- DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, 1991 1992 1993 1993(1) 1994 1995 ------- ------- ------------ ------------ ------------ --------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Continuous information services........ $ -- $ -- $ -- $ -- $ -- $ -- Other services... 14,415 12,774 11,371 329 12,700 3,237 ------- ------- ------- ----- ------- ------ Total revenues.. 14,415 12,774 11,371 329 12,700 3,237 ------- ------- ------- ----- ------- ------ Costs and Expenses: Cost of services........ 7,169 6,462 5,530 357 6,172 2,208 Sales and marketing....... 2,617 1,685 1,448 92 1,589 266 Research and development..... -- -- -- -- -- -- General and administrative.. 9,802 9,132 6,901 307 8,108 1,197 Depreciation and amortization.... 1,064 963 744 38 3,068 250 ------- ------- ------- ----- ------- ------ Total costs and expenses....... 20,652 18,242 14,623 794 18,937 3,921 ------- ------- ------- ----- ------- ------ Operating loss... (6,237) (5,468) (3,252) (465) (6,237) (684) Interest income... 206 153 114 7 103 26 Interest expense.. (176) (57) (38) (4) (26) (4) ------- ------- ------- ----- ------- ------ Loss from continuing operations before income taxes (benefit)....... (6,207) (5,372) (3,176) (462) (6,160) (662) Benefit from income taxes..... -- (1,063) (983) -- (1,096) (213) ------- ------- ------- ----- ------- ------ Loss from continuing operations...... (6,207) (4,309) (2,193) (462) (5,064) (449) ------- ------- ------- ----- ------- ------ Discontinued operations: Income (loss) from the discontinued BIS market research business (net of tax effect)..... 4,922 4,623 1,044 44 (1,469) 597 Loss on disposal of discontinued BIS market research business (net of tax effect)..... -- -- -- -- -- -- ------- ------- ------- ----- ------- ------ Income (loss) from discontinued operations...... 4,922 4,623 1,044 44 (1,469) 597 ------- ------- ------- ----- ------- ------ Net income (loss).......... $(1,285) $ 314 $(1,149) $(418) $(6,533) $ 148 ======= ======= ======= ===== ======= ====== Historical results per common and common equivalent share: Loss from continuing operations...... Income (loss) from discontinued operations...... Loss from disposal of discontinued operations...... Net loss......... Historical weighted average common and common equivalent shares outstanding: Pro forma results per common and common equivalent share: Loss from continuing operations...... Income (loss) from discontinued operations...... Loss from disposal of discontinued operations...... Net loss......... Pro forma weighted average common and common equivalent shares outstanding......
PRO FORMA(2) COMPANY ----------------------- ----------------------------------- SIX MONTHS MARCH 17 MARCH 17 SIX MONTHS ENDED YEAR ENDED TO TO ENDED JUNE 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, 1995 1995 1995 1995 1996 ---------- ------------ ------------ ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Continuous information services........ $ -- $ -- $ -- $ -- $ 627 Other services... 6,880 14,015 10,706 3,571 5,855 ------ ------- ---------- ---------- ---------- Total revenues.. 6,880 14,015 10,706 3,571 6,482 ------ ------- ---------- ---------- ---------- Costs and Expenses: Cost of services........ 4,803 10,427 8,097 2,473 8,809 Sales and marketing....... 457 1,282 1,016 191 1,982 Research and development..... -- 348 348 -- 839 General and administrative.. 2,672 7,455 6,216 1,433 4,257 Depreciation and amortization.... 927 1,797 1,397 527 1,088 ------ ------- ---------- ---------- ---------- Total costs and expenses....... 8,859 21,309 17,074 4,624 16,975 ------ ------- ---------- ---------- ---------- Operating loss... (1,979) (7,294) (6,368) (1,053) (10,493) Interest income... 54 287 259 26 375 Interest expense.. (50) (134) (100) (16) (52) ------ ------- ---------- ---------- ---------- Loss from continuing operations before income taxes (benefit)....... (1,975) (7,141) (6,209) (1,043) (10,170) Benefit from income taxes..... (531) (1,311) (1,093) (310) (257) ------ ------- ---------- ---------- ---------- Loss from continuing operations...... (1,444) (5,830) (5,116) (733) (9,913) ------ ------- ---------- ---------- ---------- Discontinued operations: Income (loss) from the discontinued BIS market research business (net of tax effect)..... 899 2,097 1,490 301 (85) Loss on disposal of discontinued BIS market research business (net of tax effect)..... -- -- -- -- (2,305) ------ ------- ---------- ---------- ---------- Income (loss) from discontinued operations...... 899 2,097 1,490 301 (2,390) ------ ------- ---------- ---------- ---------- Net income (loss).......... $ (545) $(3,733) $ (3,626) $ (432) $ (12,303) ====== ======= ========== ========== ========== Historical results per common and common equivalent share: Loss from continuing operations...... (0.38) (0.06) (0.70) Income (loss) from discontinued operations...... 0.11 0.02 (0.01) Loss from disposal of discontinued operations...... -- -- (0.16) Net loss......... (0.27) (0.04) (0.87) Historical weighted average common and common equivalent shares outstanding: 14,486,788 12,299,420 14,180,287 Pro forma results per common and common equivalent share: Loss from continuing operations...... (0.34) (0.61) Income (loss) from discontinued operations...... 0.10 0.00 Loss from disposal of discontinued operations...... -- (0.14) Net loss......... (0.24) (0.75) Pro forma weighted average common and common equivalent shares outstanding...... 14,855,209 16,360,287
SELECTED FINANCIAL DATA--(CONTINUED)
PREDECESSOR COMPANIES COMPANY -------------------------------- ---------------------- DECEMBER 31, -------------------------------- DECEMBER 31, JUNE 30, 1991 1992 1993 1994 1995 1996 ------ ------- ------- ------- ------------ -------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............ $2,177 $ 1,798 $ 2,814 $ 1,809 $ 16,906 $ 9,331 Working capital (deficit).............. (347) (680) 1,893 (1,777) 11,205 2,734 Total assets............ 7,124 6,632 12,979 8,601 24,684 19,220 Deferred revenues....... 1,194 386 1,299 1,681 2,480 4,995 Long term debt, less current portion........ 258 -- -- -- 1,437 1,472 Total stockholders' equity................. 1,784 1,843 8,679 1,823 13,660 4,053
- -------- (1) Effective January 1, 1993, the Predecessor Companies changed the method of accounting for revenue recognized from the BIS Market Research Business. For the years ended December 31, 1991 and 1992, the Predecessor Companies recognized 35% of the revenue upon execution of a services contract and the remaining 65% on a pro rata monthly basis over the contract period. Under the Company's current revenue recognition method, income after taxes from the discontinued BIS Market Research Business and net income would have been reduced by approximately $632,000 and $32,000 for the years ended December 31, 1991 and 1992, respectively. Subsequent to January 1, 1993, the Predecessor Companies recognized such revenue ratably over the related contract periods. The cumulative effect of this change in accounting method decreased income from the discontinued BIS Market Research Business and net income for the period ended December 15, 1993 by $1,928,000, net of applicable income taxes of $462,000. (2) The pro forma results reflect the results of operations as if the acquisitions of BIS and ExperNet had occurred on January 1, 1995. See Note 3 of Notes to Consolidated Financial Statements. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ORGANIZATION OF THE COMPANY AND FINANCIAL STATEMENT PRESENTATION The Company was organized on March 17, 1995. On April 5, 1995, the Company acquired BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively, "BIS" or the "Predecessor Companies") as part of its strategic plan to accelerate the development of its Continuous Information Services business and to obtain the marketing, sales and other corporate infrastructures and certain personnel of BIS. On July 6, 1995, the Company acquired a 77.8% equity interest in ExperNet Corporation ("ExperNet"), which was owned by Gideon I. Gartner and David L. Gilmour, each a director and officer of the Company, and, on December 29, 1995, acquired the remaining 22.2% equity interest. This Prospectus includes the financial statements of BIS, as the predecessor to the Company, through the period ended April 5, 1995, the date of acquisition by the Company. The period December 16 to December 31, 1993 is shown separately for the Predecessor Companies because of a prior acquisition by an unrelated entity on December 16, 1993. The periods covered by the financial statements of the Company commence on March 17, 1995, the date of its incorporation, and include the results of operations of BIS from April 5, 1995 and the results of operations of ExperNet from July 6, 1995, their respective dates of acquisition. Results of operations of ExperNet are not included in results of Predecessor Companies, which are solely the results of BIS. The acquisition of BIS was accounted for under the purchase method; accordingly, acquired assets were recorded at their estimated fair values and related goodwill of approximately $3,059,000 was also recorded and is being amortized over two years. Because ExperNet was a related company under common control, its assets were recorded by the Company at their historical cost. OVERVIEW The Company's current services target three principal customer markets: IT users, IT vendors and IT institutional and other investors. The Company derives its revenues primarily from two sources: Continuous Information Services, which include its Giga Advisory Service and Relevance Services, and Other Services, which include events, publications, consulting and econometric forecasting. In June 1996, the Company discontinued the BIS Market Research Business. Results of operations from the discontinued BIS Market Research Business are reflected as Discontinued Operations in the Company's financial statements. The Company continues to generate revenues from the events, publications, consulting and econometric forecasting businesses acquired as part of the acquisition of BIS, which are reflected in the statements of operations as Other Services revenue. Revenues to date have been primarily attributable to Other Services. The Company expects these revenues will be a declining percentage of total revenues in future periods. As a result of the discontinuance of the BIS Market Research Business, Giga recorded a charge of approximately $2.3 million in the six months ended June 30, 1996. The Company does not consider the historical results of Predecessor Companies' operations which have been discontinued to be meaningful or indicative of the Company's future operating results. The Company has entered into agreements with two unrelated parties which have assumed responsibility for fulfillment of the Company's obligations to former BIS customers in exchange for a share of the deferred revenues recorded by Giga with respect to such customers. See "Risk Factors--Limited Operating History; Prior Losses and Anticipation of Future Losses," and "--Risks Associated with Discontinuance of BIS Market Research Business." In April 1996, the Company introduced its Giga Advisory Service and GigaWeb. In July 1996, the Company introduced the first of a planned series of specialized research products, called Relevance Services, which combine original analysis, data and information with consulting to address specific IT needs of customers. The Company expects that future revenues from its Continuous Information Services will significantly increase as a percentage of future total revenues. 18 The Company's Giga Advisory Service and Relevance Services are typically sold through annual subscriptions which generally provide for payment at the commencement of the subscription period and renew automatically unless the customer cancels the subscription. These agreements generally may be terminated by the customer on 90-days' notice. Amounts received in advance of services provided are reflected initially in the Company's financial statements as deferred revenues and are recognized on a pro rata monthly basis over the term of the subscription. The Company expects costs of services to continue to significantly increase in the future primarily as a result of the Company's expansion of its staff of analysts and further development of its Giga Advisory Service, Relevance Services and other consulting services. The Company has incurred significant operating losses since its inception in 1995 due to its focus on building its research, sales and marketing capabilities, development and enhancement of its GigaWeb system and the development of the Giga Advisory Service and Relevance Services. The Company expects sales and marketing expenses to continue to significantly increase in the future as it expands its sales, marketing and support staff. The Company expects to incur losses through at least fiscal year 1997 as it continues to invest in these activities. The Company has incurred substantial tax loss carryforwards since inception and acquired tax loss carryforwards with its acquisition of BIS, all of which aggregate approximately $15.0 million at June 30, 1996. Due to the magnitude of these existing tax loss carryforwards, the continuing anticipated losses through 1997 and the substantial uncertainties associated with its business, the Company is unable to conclude that it is more likely than not that the deferred tax asset associated with these tax loss carryforwards will be realized. Accordingly, this deferred tax asset has been substantially reserved. This valuation allowance will be reduced and the deferred tax asset will be recognized when it becomes more likely than not that the deferred tax asset will be realized. The Company believes that a leading measure of the Company's volume of business is the contract value ("Contract Value") of its Giga Advisory Service and Relevance Services agreements in effect at a given point in time. The Company calculates Contract Value each month as the cumulative annualized subscription value payable under subscription agreements, without regard to commencement date, duration or risk of cancellation. Since the introduction of the Company's Giga Advisory Service and Relevance Services, as of September 30, 1996, the Company had entered into contracts with 109 customers having an aggregate Contract Value of approximately $3.8 million, excluding approximately $1.1 million of subscriptions sold to former customers of the BIS Market Research Business. The Company can give no assurance that its Contract Value will continue to grow. In the six months ended June 30, 1996, approximately 64% of the Company's revenue was attributable to foreign operations, substantially all of which was related to sales of the Company's Other Services. The Company expects that this percentage will decline significantly as it grows its Continuous Information Services business, substantially all of which is currently located in the United States. The Company does not believe that changes in foreign exchange rates will have a material effect on its future results of operations. ESTIMATED THIRD QUARTER RESULTS For the quarter ended September 30, 1996, the Company estimates that it had revenues of approximately $3.2 million, of which approximately $900,000 was attributable to Continuous Information Services and the balance to Other Services. The Company estimates that its loss from continuing operations and pro forma loss from continuing operations per share for such quarter were approximately $5.3 million and $0.32, respectively. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO PRO FORMA SIX MONTHS ENDED JUNE 30, 1995 For purposes of the following discussion, the pro forma six month period ended June 30, 1995 reflects the results of operations of the Predecessor Companies from January 1, 1995 to April 5, 1995 (the date of acquisition of the Predecessor Companies by the Company) and the Company from March 17, 1995 (the date of inception) through June 30, 1995, and includes the results of operations of ExperNet and the amortization of 19 goodwill incurred in connection with the acquisition of the Predecessor Companies as though these acquisitions occurred on January 1, 1995. The Company's activities from March 17, 1995 to April 5, 1995 were principally devoted to the acquisition of the Predecessor Companies. Revenues. Revenues for the six months ended June 30, 1996 were approximately $6.5 million compared to revenues of approximately $6.9 million for the pro forma six months ended June 30, 1995, due to a decrease in revenues from Other Services of approximately $1.0 million which was partially offset by revenues from the Company's newly introduced Continuous Information Services. In the six months ended June 30, 1996, the Company recorded Continuous Information Services revenues of $0.6 million. Other Services revenues declined by approximately $1.0 million as compared to the pro forma six months ended June 30, 1995, primarily due to a reduction in the number of events sponsored by the Company. Cost of Services. The Company's cost of services development increased to approximately $8.8 million in the six months ended June 30, 1996 from approximately $4.8 million in the pro forma six months ended June 30, 1995. The increase was principally attributable to the Company's substantial investment during the six months ended June 30, 1996 in research and technology related to the development of the Company's Giga Advisory Service and Relevance Services. Sales and Marketing Expenses. Sales and marketing expenses in the six months ended June 30, 1996 increased to approximately $2.0 million compared to approximately $0.5 million in the pro forma six months ended June 30, 1995. The increase was principally attributable to the increased investment in marketing programs and expansion of the Company's sales force to support the introduction and marketing of its Giga Advisory Service. Research and Development Expenses. Research and development expenses increased from approximately $348,000 in 1995 to approximately $839,000 for the six months ended June 30, 1996 due to an increased investment required for the development of GigaWeb and ExperNet. General and Administrative Expenses. General and administrative expenses increased to approximately $4.3 million in the six months ended June 30, 1996 from approximately $2.7 million in the pro forma six months ended June 30, 1995. The increase resulted principally from significant investments for internal systems, facilities and infrastructure, including the hiring of a senior management team. Discontinued Operations. The Company recorded a loss from discontinued operations of approximately $2.4 million for the six months ended June 30, 1996 compared to income of approximately $0.9 million for the pro forma six months ended June 30, 1995. The 1996 loss included $2.3 million of charges related to the discontinuance of the BIS Market Research Business in June 1996. See Note 16 of Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS FOR 1995 PRO FORMA, 1994 AND 1993 For purposes of the following discussion, the pro forma year ended December 31, 1995 reflects the operations of the Predecessor Companies from January 1, 1995 to April 5, 1995 and the Company from March 17, 1995 to December 31, 1995 and includes the results of operations of ExperNet and the amortization of goodwill incurred in connection with the acquisition of the Predecessor Companies as though these acquisitions occurred on January 1, 1995. The Company's activities from March 17, 1995 to April 5, 1995 were principally devoted to the acquisition of the Predecessor Companies. Revenues. Revenues were approximately $14.0 million, $12.7 million and $11.7 million for pro forma 1995, 1994 and 1993, respectively. The revenues were derived from the Predecessor Companies' Other Services business, consisting of events, publications, consulting and econometric forecasting. The increases in pro forma 1995 and 1994 were attributable primarily to increased events and consulting revenues in those years. Cost of Services. Expenses for cost of services increased year to year, with the major increase occurring in pro forma 1995, when these costs were approximately $10.4 million compared to approximately $6.2 million 20 in 1994. The pro forma 1995 increase resulted primarily from increased expenditures relating to the hiring of research analysts to support the Company's Giga Advisory Service and Relevance Services. Sales and Marketing Expenses. Sales and marketing expenses in 1994 and 1993 were relatively unchanged, but declined to approximately $1.3 million in pro forma 1995 from $1.6 million in 1994. The pro forma 1995 decline resulted primarily from a curtailment of marketing investments in the Predecessor Companies' Other Services business and a reduction in the number of sponsored events. Research and Development Expenses. The Company incurred research and development expenses of approximately $348,000 for the development of GigaWeb and ExperNet. General and Administrative Expenses. General and administrative expenses for pro forma 1995, 1994 and 1993 did not vary significantly during the three year period. The decrease in these expenses to approximately $7.5 million in pro forma 1995 from approximately $8.1 million in 1994 resulted primarily from certain headcount reductions made by the Company shortly after its acquisition of BIS in April 1995 and severance expenses included in the 1994 results. In 1994, severance expenses totaled $905,000 (of which $600,000 pertain to continuing operations), and in 1995 severance expenses totaled approximately $220,000 (of which $198,000 pertain to continuing operations). Discontinued Operations. The income from discontinued operations increased to $2.1 million in pro forma 1995, compared with a loss of $1.5 million in 1994. The results for the year ended 1994 included a charge of $2.6 million for an impairment of goodwill recognized in connection with the planned sale of BIS by Friday Holdings. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations since inception primarily through private placements of equity securities. The private placements of equity securities have provided the Company with net proceeds of approximately $20.6 million, representing $1.0 from the sale of Common Stock, $2.0 million from the sale of Series A Preferred Stock and $17.6 million from the sale of Series B Preferred Stock. At June 30, 1996, the Company had cash and cash equivalents of $9.3 million. See Notes 10 and 11 of Notes to Consolidated Financial Statements. The Company has used the proceeds of the private placements primarily to hire research analysts and sales personnel and to fund the development of its Continuous Information Services. In the period March 17 to June 30, 1995 and the six months ended June 30, 1996, the Company's capital expenditures totalled approximately $0.2 million and $1.1 million, respectively, primarily for computer equipment. The Company expects that additional purchases of computer equipment will be made as the Company's employee base grows. As of June 30, 1996, the Company had no material commitments for capital expenditures. The Company's accounts receivable, exclusive of unbilled amounts, increased from approximately $2.2 million at December 31, 1995 to approximately $3.0 million at June 30, 1996, primarily due to sales of the Company's Continuous Information Services. These accounts receivables reflect both revenue that has been recognized as income, as well as unrecognized revenue attributable to billed amounts for the remaining balance of the customer's contract. Unbilled accounts receivable increased from $90,000 at December 31, 1995 to $925,000 at June 30, 1996, primarily as a result of sales of Continuous Information Services to customers who are billed on a periodic basis rather than upon contract signing. Cash used by continuing operations of approximately $1.1 million and $345,000 for the periods March 17 to December 31, 1995 and March 17 to June 30, 1995 and approximately $8.5 million for the six months ended June 30, 1996 were due primarily to losses incurred from continuing operations. Cash flows from investing activities of $121,000 and $981,000 for the periods March 17 to December 31, 1995 and March 17 to 21 June 30, 1995 and cash used of approximately $1.3 million for the six months ended June 30, 1996 were due primarily to cash used for the acquisition of computer equipment offset by cash received from the acquisition of BIS. Cash provided from financing activities of approximately $17.6 million and approximately $1.3 million for the periods March 17 to December 31, 1995 and March 17 to June 30, 1995, respectively, and approximately $2.6 million for the six months ended June 30, 1996 were generated primarily from the issuance of Common Stock and Series A and Series B Preferred Stock. The Company does not presently expect to generate cash from operations until at least fiscal year 1998. The Company believes that the net proceeds from the Offering, together with its existing cash and cash equivalents and cash generated from operations, will be sufficient to fund the Company's working capital needs at least through 1997. In the event that the Company is unable to complete the Offering, certain of its existing investors have represented that they will, to the extent necessary, fund the Company through June 1997 on terms to be mutually agreed upon. The Company's actual future capital requirements will depend on numerous factors, including the Company's ability to successfully market its Giga Advisory Service and Relevance Services; the Company's ability to enter into contracts for the sale of its services and to achieve and sustain high renewal rates; its ability to attract and retain qualified research analysts and sales personnel on a timely basis and the related costs of such efforts; the response of competitors to the Company's services; the Company's ability to develop and market new services and products; and the continued acceptance by customers of annual membership agreements providing for advance payments rather than equal monthly installments or some other payment model. The Company expects that it may require additional working capital in the future and there can be no assurance that such capital would be available to the Company on terms that are acceptable, if at all. If adequate funds are not available, the Company may be required to reduce its fixed costs and delay, scale back or eliminate certain of its services, any of which could have a material adverse effect on the Company's business, financial condition or results of operations. See "Risk Factors--Substantial Future Capital Needs; Risks of Working Capital Deficiency." 22 BUSINESS The Company provides information, analysis and advice relating to developments and trends in the computing, telecommunications and related industries (collectively, the information technology or "IT" industry). Information technologies have become increasingly critical to the competitiveness and long-term viability of a wide range of organizations. As a result, many of these organizations have turned to IT "Continuous Information Services" providers, which monitor and analyze IT developments and trends to support customers' IT decisions. The Company's customers include: users of IT products and services; vendors of IT hardware, software and services; and institutional and other investors in the IT industry. These customers access the Company's services through a personalized Internet-based interface, as well as through published reports and consultation with the Company's analysts and consultants. Giga was founded in 1995 by Gideon I. Gartner, who founded Gartner Group, Inc. in 1979 and served as its Chairman and Chief Executive Officer for twelve years. Building upon his extensive experience in the IT Continuous Information Services industry, Mr. Gartner formed Giga with the objective of creating a new integrated single-service approach to providing Continuous Information Services to address customers' needs more effectively than the multiple- service offerings of existing IT information providers. See "--Industry Background" and "--The Giga Solution." The Giga Advisory Service, the principal service offering of the Company, provides customers access to all of the Company's Giga Advisory Service information, analysis and advice, as well as inquiry access to analysts and practitioners and participation in briefings, conferences, electronic forums and teleconferences. The Company believes that its integrated, single-service offering, which is provided to customers for an annual subscription fee, delivers significant advantages over its competitors' multiple-service offerings which require customers to select, and separately purchase, subject- specific services. The Company believes that significant advantages include integrated broad-based coverage of IT development and trends and on-line access through its GigaWeb system. See "Business--Industry Background," "--The Giga Solution" and "--The Giga Strategy." The Company also provides its customers with access to its ExperNet network of external IT practitioners who are available to answer inquiries by customers. The Company recently introduced the first of a planned series of specialized research products, called Relevance Services, which combine original analysis, data and information produced by proprietary surveys and methodologies with consulting, to assist in enhancing the IT practices and operations of Giga's customers. In addition, the Company is pursuing relationships with select content partners to complement the original information and analyses provided by Giga's analysts. The Company's GigaWeb system, an Internet-based interface to its services and products, is designed to make it easy and efficient for customers to navigate through the full spectrum of Giga's original research and third-party content. Through the use of intelligent software agents, the Company is able to provide customized information to each customer and also allow customers to search for and select the information that is most relevant to their particular needs. In addition, customers of the Giga Advisory Service and Relevance Services have access to the Company's other information services, including various IT events, publications, consulting and econometric forecasting. These services are generally offered on a non-continuous basis and are also marketed outside the Company's Giga Advisory Service and Relevance Services customer base to generate incremental revenue and broaden the Company's IT industry visibility. INDUSTRY BACKGROUND Information technologies have become increasingly critical to the competitiveness and long-term viability of a wide range of organizations. As organizations have recognized the importance of information technologies, they have made substantial and increasing financial commitments to IT systems and services. At the same time, IT products have become increasingly complex and diverse, and the rate of technological change and new product introductions has accelerated. Many organizations maintain an internal staff of IT professionals and also engage outside consultants to assist in IT decision support. However, these organizations often require greater capabilities than they can economically support internally and a more integrated approach than individual consultants can provide. As a result, they have increasingly turned for assistance to providers of Continuous Information Services which continuously monitor and analyze IT industry developments and trends and provide reports and information to clients on a subscription basis. 23 The overall market for IT Continuous Information Services consists primarily of three types of customers --users of IT products and services; vendors of IT hardware, software and services; and institutional and other investors in the IT industry. Users. Users continually assess new technologies and anticipate future trends in making major purchasing decisions and formulating long-term IT strategies. Decision-making has become increasingly complicated as the pace of technological change continues to accelerate. As a result, IT users require current information and analysis of new product introductions and other events, independent comparisons among competing platforms and vendors, accurate assessments of trends such as pricing and obsolescence and reasoned analysis of how issues will evolve over time. Users generally seek alternative points of view and rely on the advice and insights of more than one provider of Continuous Information Services for their IT requirements. Vendors. Vendors use Continuous Information Services primarily for product planning, evaluation of competitors' products and formulation of marketing and other business strategies. Vendors require a reliable source of information on areas such as new markets and market forecasts, competitive products, user preferences and buying trends, distribution and marketing strategies and evolving market needs. The Company believes that much of the information and analyses serving the needs of users can also benefit the vendor community. Investors. Institutional and other investors require Continuous Information Services to evaluate user and vendor strategies, new IT product performance, product purchase expectations and evolving market trends. By gaining timely access to this information and using it in their company and industry analyses, investors can make more informed decisions and enhance their ability to make successful IT investments. The IT information service industry began in the 1960s with companies that analyzed IT market trends and provided quantitative data to either users or vendors. The next generation of IT information providers, which emerged in the 1980s, generally offered IT analysis to both users and vendors. This second generation model is still prevalent and typically provides multiple information service offerings, each of which is focused on a specific subject within the IT industry. For example, a second generation provider might offer separate service offerings addressing mainframes, personal computers, operating systems, application development tools and relational databases. The Company believes that the second generation business model for IT information providers does not fulfill the evolving needs of IT users, vendors and investors. A solution to a customer's particular IT problem typically involves a broad range of platforms, technologies and services. Giga believes that separate reports addressing each distinct technology or issue do not provide integrated or cost-effective support for the customer. The planning, selection and implementation of IT solutions is becoming increasingly complex. Historically, IT users would typically purchase a vertically integrated solution involving hardware, operating systems and application software from a single large vendor. In the current environment, IT users must evaluate a variety of products based on emerging technologies from multiple vendors and design systems in which the products operate with one another, with existing legacy systems and, increasingly, within the Internet and emerging corporate intranet environments. Users have been confronted not only with an increasing number of technological choices but also with a proliferation of technical information from multiple independent sources, such as newsletters, vendors, trade publications, the World Wide Web and the news media. This glut of information makes it difficult for users to find the particular analysis and expertise that is most relevant to their particular operational needs and can lead to information-anxiety, confusion and frustration. In seeking to formulate their IT plans and strategies in an environment of rapid technological change and proliferation of available information, organizations desire Continuous Information Services that can best address the following needs: . Broad-Based Coverage. Since IT solutions generally require knowledge of multiple segments of the IT industry, the Company believes that customers will increasingly desire integrated broad-based coverage of the IT market, rather than a subject-specific approach. 24 . Practical Experience. Industry analysts who conduct IT research and analysis generally have an analytical or strategic orientation. However, the solutions to many of today's IT problems require practical hands-on experience. . Customized Services. The mass of content produced by IT information providers is often unconnected to the specific problem confronted by the IT customer. IT customers need services that can provide access to independent research while at the same time make that research relevant to their particular application or environment. . Efficient Information Retrieval. Customers want to quickly search for, find and retrieve the particular research, analyses and expertise that they require. The Company believes that these largely unsatisfied and evolving needs have created a market opportunity for a third generation IT information provider that is able, through the use of technological innovation and reorientation of the IT information provider business model, to satisfy the demand for comprehensive, easy-to-use and cost-effective Continuous Information Services. THE GIGA SOLUTION The Company has developed, and is continuing to develop, a range of innovative IT services that meet customers' needs for comprehensive and customized Continuous Information Services. The principal elements of Giga's solution for IT users, vendors and investors are as follows: . Single-Service Model. The Company's Giga Advisory Service is offered to customers as a single integrated service. Customers may, for a subscription fee, access the full spectrum of the Giga Advisory Service information, analysis and advice on a continuous basis, in contrast to the multiple-services approach that requires customers to purchase multiple services which generally are neither integrated nor comprehensive. . ExperNet. Subscribers to the Giga Advisory Service have access to the Company's ExperNet network of external IT practitioners. These practitioners have significant practical experience in solving real-world IT problems and are available to answer customer inquiries and provide analysis and advice. . Relevance Services. The Company offers a series of Relevance Services that combine original analysis, data and information produced by proprietary surveys and methodologies with consulting, to assist in enhancing the IT practices and operations of the Company's customers. The Company believes its Relevance Services will be used by IT management to evaluate competitive industry practices, benchmark their IT practices against peer practices and assist in decision support. . GigaWeb. The Company has focused its efforts not only on developing original research and analyses content, but also on developing technologies and methodologies to effectively deliver such original content and other third-party content to customers in an efficient, flexible and personalized manner. The Company's Internet-based interface, GigaWeb, enables Giga's customers to gain personalized, interactive access to the Company's full range of information sources. The GigaWeb interface includes search and intelligent software agent technology ("Gigabots") that is designed to make it easy for customers to navigate through the full spectrum of the Company's available information and, based on the customer's profile, to obtain automatically the content that is of particular interest to the customer. THE GIGA STRATEGY Giga's objective is to become a leading provider of IT Continuous Information Services by delivering information, analysis and advice that is of high strategic relevance to customers. The Company's strategy includes the following key elements: . Expand Breadth of Research. The Company plans to broaden its research and analysis coverage both by hiring additional analysts and by recruiting additional IT practitioners for the ExperNet network. At August 31, 1996, the Company employed 50 in-house analysts, 32 of whom were Giga Advisory Service 25 analysts, and has established relationships with approximately 210 external IT practitioners as part of its ExperNet network. The Company seeks to hire analysts who have significant experience in existing and emerging areas of technology covering computer infrastructure, applications and development, networking and telecommunications and IT management. . Increase Penetration of Existing Customers. The Company seeks to expand its relationships with existing customers both by increasing the number of individual subscribers within an organization and by upgrading the status of subscribers from site license seat holders (who only have access to the Company's research databases) to members (who have full access to all of the Company's Continuous Information Services and may make inquiries to the Company's analysts and ExperNet practitioners). The Company will also seek to increase its penetration of existing accounts by developing and offering additional services, such as its Relevance Services, events, publications, consulting and econometric forecasting. . Leverage Technological Innovation. The Company seeks to take advantage of technological developments to enhance both the creation and delivery of its research and analyses to customers. For example, the Company has developed GigaWeb using both its own proprietary technology and licensed third-party technologies. The Company plans to continue to evaluate and implement technologies that can help to facilitate the flow of information between the Company and its customers. . Expand Worldwide Sales Force and Marketing. The Company's global strategy is to increase its market penetration on a worldwide basis. The Company plans to approximately double its worldwide direct sales force in the next six months and to continue to expand its sales force in the future. At August 31, 1996, the Company had 51 sales personnel worldwide. The Company also plans to expand its market presence through events and publications, the World Wide Web, direct mail, public relations, telesales, and additional strategic alliances. 26 SERVICES The Company's three principal service areas are the Giga Advisory Service, Relevance Services and Other Services. The Company's services are designed to be accessed through the Company's personalized Internet-based interface, GigaWeb, as well as through published reports and consultation with the Company's analysts and consultants. -------------------- | GIGA INFORMATION | | GROUP | -------------------- | ---------------------------------------------------------- | | | | ------------------------- | | | GIGA ADVISORY | | - --------------------- | SERVICE | ----------------------- | RELEVANCE SERVICES | | | | OTHER SERVICES | | | |Continuous subscription-| | | | Survey/methodology | | based advisory service | | | | based research | | | | | | services combined | | ExperNet Network | |Events, Publications,| | with consulting | -------------------------- | Consulting and | |focusing on specific| | | Econometric | | user needs | | | Forecasting | - ---------------------- | ----------------------- | | | ---------------------------------------------------------- | GIGA WEB | | Internet-based information delivery system for | | proprietary research and third-party content | ---------------------------------------------------------- GIGA ADVISORY SERVICE The Company's Giga Advisory Service is the principal service offering of the Company. The Giga Advisory Service offers customers, generally for an annual subscription fee billed and payable in advance, access to all of the Company's Giga Advisory Service information, analysis and advice, as well as inquiry access to analysts and practitioners, and participation in briefings, conferences and teleconferences. The Giga Advisory Service offers the following deliverables to its customers: . PAs (Planning Assumptions). PAs are typically multi-page research reports that provide customers with in-depth analyses of IT topics and recommendations for action. Through August 31, 1996, the Company had produced approximately 465 PAs. . CQAs (Catalyst, Question and Answer). CQAs are brief presentations of developments or ideas, in question and answer format, that are intended to provide customers with quick, up-to-date findings and opinions, authored by the Company's analysts. Through August 31, 1996, the Company had produced approximately 3,000 CQAs. . Inquiry Support. The Company maintains a "Knowledge Center," which consists of experienced research associates who track customer inquiries and direct customers to the appropriate analyst or source of information. Customers also have direct access to the Company's analysts to answer specific questions. Customers can make their inquiries and track the status of an inquiry on-line through GigaWeb. 27 . ExperNet. ExperNet is a network of external IT practitioners who are available to respond to customer inquiries that require hands-on, practical advice. ExperNet practitioners may include consultants, system integrators, value-added resellers, IT vendor representatives and developers. The Company has developed a multi-dimensional database organized by topic that enables customers to access the particular ExperNet practitioner whose experience and skills match the customer's IT area of inquiry. Customers can direct their ExperNet inquiries to the Knowledge Center by telephone. The Company reimburses its ExperNet practitioners on a fee basis per customer inquiry. In addition, the Company permits its ExperNet practitioners to enter into follow-on consulting arrangements with the Company's customers for which Giga currently receives no compensation. . Events. The Company sponsors conferences on significant IT industry issues and trends. Since the beginning of 1996, Giga had sponsored or co- sponsored six conferences addressing various industry topics in North America and Europe, with attendance exceeding approximately 1,700 participants, and plans to sponsor or co-sponsor five additional conferences prior to the end of 1996. . GigaTels. GigaTels are audioteleconferences that include presentations by analysts on selected topics and provide an open forum for questions, exchanges and debate. GigaTels typically take place from three to five times per week. Through August 31, 1996, the Company had produced over 70 GigaTels with over 1,000 participants. . Workgroups. Customers who have shared objectives or interests will be able to interact with each other through on-line discussion groups (electronic forums) and special interest groups, which the Company plans to introduce in the fourth quarter of 1996. Also, customers can respond to a PA by initiating discussion among analysts and other users of GigaWeb. . Partner Content. In May 1996, the Company entered into a content distribution agreement with Dow Jones & Company, Inc. ("Dow Jones") pursuant to which Dow Jones granted the Company a nonexclusive right to distribute and make available to GigaWeb users IT industry news and information via access to several leading business-oriented news sources, including Dow Jones Online News, The Wall Street Journal Interactive, Public Relations Newswire, and Canada Businesswire. The agreement is for an initial term ending in November 1997 and is renewable yearly thereafter. As a result of this collaboration, a user can, using the Company's Smart Search technology, supplement original Giga content with up-to-date news and information. Giga plans to add additional suppliers of third-party content in the future. As of August 31, 1996, the Company employed 32 analysts to support its Giga Advisory Service and had relationships with approximately 210 external IT practitioners to support its ExperNet network. In addition, the Company employed 44 research and analysis support and fulfillment personnel. The Company plans to broaden its research and analysis coverage both by hiring additional analysts and by recruiting additional external IT practitioners for the ExperNet network. The Company actively monitors technology trends and industry issues. The Company's research process is designed to produce timely analysis that is responsive to day-to-day IT developments. In their research, analysts identify significant patterns from a broad range of inputs, formulate original ideas, collaborate with other Company analysts to refine these ideas, and document the results. 28 The following table sets forth certain technology areas covered by the Company's Giga Advisory Service: - -------------------------------------------------------------------------------- GIGA ADVISORY SERVICE RESEARCH COMPETENCIES - -------------------------------------------------------------------------------- MANAGEMENT OF IT APPLICATIONS AND SOLUTIONS . Asset Management . Application Development . Costs of Ownership Tools and Methods . Financial Strageties for IT . Object Technology . Help Desk and Customer Support . Packaged Solutions . Intellectual Property and Licensing . Personal Productivity . Organizing the IT Function . Programming Environments . Outsourcing . Web Development Tools . Process Management . Workgroup and Workflow . Project Management Computing . Quality and Testing . Re-engineering IT . Year 2000 Problem - -------------------------------------------------------------------------------- COMPUTER INFRASTRUCTURE NETWORKING AND COMMUNICATIONS . Client-Server Architectures . Electronic Commerce . Data Management on the Internet . Data Mining . Internet Security . Desktop Computing . LAN Hardware and Software Hardware . Network Operating Systems . Middleware . Private Networking . Operating Systems . Protocols and Interoperability . Server Hardware . Public Networking . Storage Management . Remote Access . Systems Configuration . Telecommunications and Management Environment . Transaction Processing . Web Browsers and Clients . Web Servers . Wireless Networking - -------------------------------------------------------------------------------- RELEVANCE SERVICES The Company has begun to offer a series of Relevance Services, which combine original analysis, data, and information produced by proprietary surveys and methodologies with consulting, to assist in enhancing the IT practices and operations of Giga's customers. The Company believes its Relevance Services will be used by IT management to evaluate competitive industry practices, benchmark their IT practices against peer practices and assist in decision support. In July 1996, the Company introduced the first of its Relevance Services which will consist of several studies relating to best industry practices ("Best Practices") for IT management job functions. The initial Relevance Service focuses on the human resources management function within organizations, and illustrates tested IT Best Practices of individuals performing that function. The first study within this service covers skills assessment and management Best Practices. Results of each Relevance Service will be furnished to customers through the studies, peer group meetings, GigaWeb-facilitated collaborations and periodic on-site visits by the Company's consultants. 29 The Company also plans to develop additional Relevance Services addressing other customer IT needs. One such planned service will assist clients in determining the benefits, productivity and returns from IT assets and investments. The Company is also developing Relevance Services that will focus on specific IT industry sectors and vertical applications. OTHER SERVICES Giga offers discrete services which are not subscribed to on a continuous basis, including separately-priced events, publications, consulting services and econometric forecasting. Events. Through the acquisition of BIS, Giga acquired a conference development and management operation that produced more than 20 IT industry events in 1995 in the U.S. and Europe. In the first half of 1996, the Company sponsored or co-sponsored six events and five half-day briefings and plans to conduct five additional events and six half-day briefings during the remainder of 1996. The events are targeted to IT users and vendors, and cover such topics as business process reengineering, workflow, electronic commerce, mobile and wireless communications and data warehousing. The Company's events typically draw between 200 and 500 participants per conference and are designed to showcase its analysts and encourage networking among participants. The Company establishes strategic alliances with prominent industry associations, consulting firms, and publishing houses to enhance the quality of its conferences and gain marketing leverage. For example, the Company has relationships with Arthur D. Little, Inc. with which the Company co-sponsors conferences, Smith Bucklin, Inc. and Decision Support Technology, Inc. These relationships supplement the Company's marketing communications programs and help build awareness of the Giga name. Publications. The Company's publications business includes special reports and newsletters. The Company plans to publish approximately 35 reports and newsletters in 1996. These reports include original content as well as contributions from outside authors. Consulting. The Company offers engagement-based consulting that focuses on solving specific customer problems in areas such as market and product line strategy, competitive positioning, channel dynamics, product life cycle analysis, feature and functional specification requirements and market demand analysis. At August 31, 1996, the Company provided these consulting services through 11 consultants located at the Company's facilities in the United States, Europe and Australia. Econometric Forecasting. The Company's Australian subsidiary specializes in supporting a diverse range of industries with a mix of econometric forecasting and modeling, market research, and market analysis services. This organization offers customers multi-client studies and subscription-based information services in key industry sectors, including information technologies, building and construction, economics and government, financial services, manufacturing and commercial property. GIGAWEB GigaWeb is the Company's Internet-based information delivery interface. GigaWeb provides customers with on-line access to the Company's analysts, research and reports and third-party content. Customers who have shared objectives or interests can interact with each other through on-line discussion groups, such as electronic forums. GigaWeb is designed to optimize the search and retrieval of the information and analyses by enabling the selection and management of information from multiple sources based on the customer's specific needs. GigaWeb is designed to make it easy and efficient for a customer to navigate through the full spectrum of Giga's original research and third-party content. Subscribers to GigaAdvisory are provided with a personalized home page (the "Virtual Office") which may be accessed through a password using a standard Web browser. 30 Based on the individualized customer profile, GigaWeb automatically selects the particular subset of Giga original and third-party content most relevant to the customer and delivers it to the customer's Virtual Office. In addition, GigaWeb includes search technologies that enable customers to search for relevant information using word searches, concept and topic associations. GigaWeb also incorporates intelligent software agents that are designed to accept predetermined search criteria and apply them on a repetitive basis against selected sources of information, alerting the customer only when the criteria under which the agent is operating finds a match. These technologies enable the Company to provide customized information to each customer and also allow customers to search for and select information most relevant to their particular needs. GigaWeb is based on both proprietary and third-party software, including both text indexing and retrieval. The Company plans to continue to evaluate and implement technologies that can help facilitate the flow of information from the Company to its customers. For example, the Company has established an authoring environment based on Lotus Notes that automatically feeds research findings over GigaWeb. The Company also offers an alternative on-line delivery mechanism, GigaNotes, for customers that use the Lotus Notes platform for collaboration and information access. SALES, MARKETING AND CUSTOMERS The Company offers its Giga Advisory Service pursuant to subscription agreements which generally provide for payment promptly following the start of the subscription period and renew automatically each year unless cancelled by the customer. These agreements may generally be terminated by the customer on 90-days' notice. The Company initially records contractual subscription fees as deferred revenue and recognizes the revenue on a pro rata monthly basis over the term of the agreement. The Company has three categories of subscribers: members (who have full access to all of the Company's Continuous Information Services and may make inquiries to the Company's analysts and ExperNet practitioners); users (who have access only to the Company's research databases and partner content), and site license seat holders (who have access to the Company's research databases). The Company's list annual subscription fee for these services is currently $12,000 per member, $1,200 per user and approximately $150 per site license seat holder for up to 250 site license seats after which the price per site license seat varies. The Company also offers volume discounts and transaction-based options to qualified customers. The Company offers its Relevance Services pursuant to subscription agreements which provide for payment in full promptly after the start of the subscription period and renew automatically each year unless cancelled by the customer. The Company's annual list subscription fee for its Relevance Services ranges between $24,000 and $36,000. The Company initially records contractual subscription fees as deferred revenue and recognizes the revenue on a pro rata monthly basis over the term of the agreement. The Company believes that a leading measure of the Company's volume of business is the contract value ("Contract Value") of its Giga Advisory Service and Relevance Services agreements in effect at a given point in time. The Company calculates Contract Value each month as the cumulative annualized subscription value payable under subscription agreements, without regard to commencement date, duration or risk of cancellation. Since the introduction of the Company's Giga Advisory Service and Relevance Services, as of September 30, 1996, the Company had entered into contracts with 109 customers having an aggregate Contract Value of approximately $3.8 million, excluding approximately $1.1 million of subscriptions sold to former customers of the BIS Market Research Business. The Company can give no assurance that its Contract Value will continue to grow. 31 Customers of the Company's Giga Advisory Service include: AIG Hewlett Packard Alcatel Mobile Phones IBM The Boeing Co. KPMG Peat Marwick LLP Colonial Penn Insurance Company National Cash Register Company Digital Equipment Corporation Oracle Corporation Duracell Inc. Safeguard Scientifics, Inc. First USA Bank Southwestern Bell Telephone Company Domestic. As of August 31, 1996, the Company had a North American direct sales force comprised of 41 field sales personnel. The Company's internal marketing organization, comprised of 12 marketing personnel located primarily at the Company's Norwell, Massachusetts facility, provides public relations, lead generation, direct mail support and other related services. The Company plans to approximately double its domestic sales force over the next six months and to continue to substantially expand its domestic marketing organization. The Company also plans to develop a domestic telemarketing group. International. The Company presently conducts operations in six foreign countries with offices in England, Germany, France, Italy, Korea and Australia. The Company's activities in these countries are conducted through the Company's wholly-owned subsidiaries. Revenues from the Company's foreign operations accounted for approximately 65% and 64% of the Company's total revenues for the year ended December 31, 1995 and the six month period ended June 30, 1996, respectively. For the year ended December 31, 1995 and the six month period ended June 30, 1996, BIS Shrapnel Pty Limited, the Company's Australian subsidiary, accounted for approximately 54% and 55%, respectively, of its total foreign revenues and Giga Information Group Limited, its United Kingdom subsidiary, accounted for approximately 27% and 30% of its total foreign revenues, respectively. As of August 31, 1996, the Company had an international sales and marketing force of 10 sales personnel in Europe and Asia Pacific. The Company plans to expand its international sales force over the next six months and to explore the development of alternative worldwide distribution channels. COMPETITION The Company competes in the IT information services market directly with other independent providers of Continuous Information Services including Gartner Group, Inc., META Group, Inc. and Forrester Research Inc., and will compete with the internal planning, research and marketing staffs of current and prospective customer organizations. The Company also competes indirectly with other information providers, including market research firms, "Big Six" accounting firms, consulting companies and systems integrators. Many of the Company's direct and indirect competitors have substantially greater financial information gathering and marketing resources than the Company. Some of the Company's direct and indirect competitors also have established research organizations with greater market recognition and experience in the IT industry. There can be no assurance that the Company will continue to be successful in establishing a competitive research organization. Delays, difficulty in developing and achieving market acceptance of the Giga Advisory Service and Relevance Services or customer dissatisfaction would have a material adverse effect on the Company's business, financial condition and results of operations. While the Company believes it can compete successfully on the basis of price, quality, distinctiveness, and responsiveness to customers, there are few barriers to entry into the Company's market and new competitors could readily seek to compete in one or more market segments addressed by the Company's services. There can be no assurance that the Company's current or potential competitors will not develop services comparable or superior to those developed by the Company or respond more quickly to new or emerging industry trends or changing customer requirements. There can be no assurance that the Company will be able to compete successfully against existing or new competitors. In addition, any pricing pressures, reduced margins or loss of market share resulting from increased competition could have a material adverse effect on the Company's business, financial condition or results of operations. 32 BIS STRATEGIC DECISIONS ACQUISITION The Company acquired BIS in April 1995 to obtain its marketing, sales, and other corporate infrastructures and certain of its personnel. BIS was engaged in compiling and providing data-intensive market research to vendors for use primarily in planning their product offerings and marketing programs. The BIS Market Research Business offerings were principally quantitative in nature; employed in large part relatively junior data specialists; were marketed to purchasers of quantitative research; included little high-level advice and analysis; were marketed in multiple separate service offerings; and focused principally on vendors. In contrast, the Company's strategic business plan focuses on qualitative, analytical information and advice addressed to a broader range of customers; employs a single, integrated continuous information model; contemplates building a cadre of high-level research analysts and other professionals who are peers of its target customers to develop original ideas and knowledge; and concentrates marketing of its services and products to senior decision makers to support their critical IT decisions. The BIS Market Research Business did not fit with Giga's business model. Accordingly, in June 1996 the Company decided to discontinue the BIS Market Research Business, including termination of the personnel employed in developing and compiling its data-intensive market research products; assignment of its obligations under existing BIS subscription agreements to two unrelated IT service providers; and cessation of operations at its two leased facilities in England. See "Risk Factors--Risks Associated With Discontinuance of BIS Market Research Business." EMPLOYEES As of August 31, 1996, the Company employed 247 persons (excluding employees from the Company's discontinued BIS Market Research Business), including 50 analysts, 44 research and analysis support and fulfillment personnel, 51 sales personnel, 20 conferences, events and publications personnel, 12 marketing personnel, 11 consultants and 59 administrative and operational personnel. Of such employees, 100 are located at the Company's facilities in Cambridge and Norwell, Massachusetts, 67 are located at other domestic facilities or home offices and 80 are located overseas. None of the Company's employees is represented by a collective bargaining arrangement and the Company has experienced no work stoppages. The Company considers its relations with employees to be good. FACILITIES The Company's headquarters are located in approximately 8,000 square feet of office space in Cambridge, Massachusetts. This facility, together with the Company's approximately 27,000 square feet Norwell facility, accommodate corporate administration, research and analysis, marketing and sales and customer support. The lease on the Cambridge facility expires in November 2000 and the lease on the Norwell facility expires in April 1998. The Company also leases office space in four other domestic and seven international locations to support its research and analysis, domestic and international sales efforts and other functions. The Company believes its existing facilities and expansion options are adequate for its current needs and that additional facilities will be available for lease on reasonable terms to meet future needs. LEGAL PROCEEDINGS In July 1996, Alan J. Green, a former employee of the Company, filed a lawsuit against the Company and Gideon I. Gartner in the United States District Court for the Southern District of New York. In his complaint, Mr. Green alleged that the Company breached an oral employment agreement with him by failing to pay him certain compensation. In connection with this claim, Mr. Green is seeking damages of approximately $2,200 in cash; at his option, either the right to purchase 60,000 shares of Common Stock at a purchase price of $.50 per share or payment of an amount of money equal to the fair market value of 60,000 shares of Common Stock on the date that judgment is entered less $30,000; and an option to purchase an additional 60,000 shares of Common Stock at an exercise price of $0.50 per share. Mr. Green also alleged that the Company and Mr. Gartner, among other things, made fraudulent representations in inducing him to accept employment with the Company, and with respect to this claim Mr. Green is seeking compensatory damages of $2.5 million and punitive damages of $1.0 million. The Company believes it has meritorious defenses and intends to vigorously defend itself against these claims. 33 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- Gideon I. Gartner 61 Chairman of the Board of Directors and Chief Executive Officer Kenneth E. Marshall 44 President and Chief Operating Officer; Director David L. Gilmour 38 Senior Vice President, Research; Director Richard B. Goldman 50 Senior Vice President and Chief Financial Officer; Treasurer; Secretary Leander R. Jennings, Jr. 36 Senior Vice President, Worldwide Sales Jeffrey L. Swartz 42 Senior Vice President, Marketing Operations, Events and Publications Neill H. Brownstein 52 Director Richard L. Crandall 53 Director Irwin Lieber(1)(2) 57 Director James D. Robinson III(1)(2) 60 Director
- -------- (1) Member of Compensation Committee (2) Member of Audit Committee MR. GARTNER has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since its inception in March 1995. From 1993 to 1994, he was a private investor. From 1991 to 1992, he served as Chairman, and from 1979 to 1991 he served as President, Chairman and Chief Executive Officer, of Gartner Group, Inc., an information technology company which he founded. From 1972 to 1979, he served as a technology analyst and subsequently as a partner at Oppenheimer & Co., an entity engaged in the financial services business. Mr. Gartner received his B.S. in engineering from Massachusetts Institute of Technology ("MIT") and received an M.A. in management from MIT's Sloan School. MR. MARSHALL has served as President and Chief Operating Officer and as a director of the Company since December 1995. From 1990 to 1995, he served as President and Chief Executive Officer of Object Design, Inc., a computer software company ("Object Design"). From 1985 to 1989, he held a variety of management positions, the last being Group Vice President, East Operations, at Oracle Corporation, a computer software company ("Oracle"). From 1979 to 1985, he served as a consultant at Planmetrics, Inc., a management consulting firm. Mr. Marshall received his B.S. in education from Northeastern University and his M.A. in economics from Boston College. MR. GILMOUR has served as Senior Vice President, Research of the Company since April 1996 and as a director of the Company since July 1995. From December 1995 to April 1996, he served as Senior Vice President of Technology of the Company. From July 1993 to December 1995, he served as Chief Executive Officer of ExperNet Corporation ("ExperNet"), an information technology company which he founded with Mr. Gartner. From October 1992 to April 1993, Mr. Gilmour served as acting President and Chief Executive Officer, and from April 1991 to October 1992 and from April 1993 to July 1993 he served as Executive Vice President, Marketing, of Versant Object Technology Corporation, a computer software company. From 1989 to 1991, he served as Vice President-- Database Systems Division, from 1986 to 1989 he served as General Manager-- Advanced Products Division, and from 1984 to 1986 he served as Director-- Product Planning, at Lotus Development 34 Corporation, a software company. Mr. Gilmour received a B.S. in Applied Physics, an M.E. in engineering and an M.B.A. with distinction from Harvard University. MR. GOLDMAN has served as Senior Vice President and Chief Financial Officer since May 1996, and as Treasurer and Secretary of the Company since August 1996. From October 1992 to May 1996, he served as Executive Vice President, Finance and Chief Financial Officer of Sequoia Systems, Inc., a manufacturer of fault tolerant servers, mobile computers and other computer products. From May 1991 to October 1992, he served as Senior Vice President, Finance and Chief Financial Officer for Connell Limited Partnership, a multi-business industrial equipment manufacturing company. From 1990 to 1991, he served as Senior Vice President, Finance and Administration and Chief Financial Officer of Alliant Computer Systems Corporation, a manufacturer of super computers. From 1978 to 1989, he served in a number of management capacities at Prime Computer, Inc., a supplier of mini computers and CAD/CAM services and products, the last of which was as Senior Vice President, Finance and Administration and Chief Financial Officer from 1988 to 1989. Mr. Goldman received a B.S. in accounting from Northeastern University and an M.B.A. in finance from Boston University. MR. JENNINGS has served as Senior Vice President, Worldwide Sales of the Company since February 1996. From June 1995 to February 1996, Mr. Jennings served as National Product and Sales Manager of the Telecom, Cable and Wireless Division of Oracle. From 1991 to June 1995, he served as the Western Regional Director of Object Design. From 1990 to 1991, he served as Vice President of Sales of Carlyle Sales, Inc., a developer of library automation systems. Mr. Jennings received a B.A. from Boston College. MR. SWARTZ has served as Senior Vice President, Marketing Operations, Events and Publications since April 1996. From March 1995 to February 1996, he served as Vice President, Conferences and Publications of the Company. From 1989 until 1995, he served in a number of capacities at BIS Strategic Decisions, Inc., serving as interim Co-CEO from January until March 1995, as Senior Vice President, Conferences and Publications Division from 1994 to 1995, as Senior Vice President, Consulting from 1992 to 1993, and as Vice President, Research Publications from 1989 to 1992. From 1986 to 1989 he served as an independent consultant to and from 1982 to 1986 he served as President of Communications Publishing Group, Inc., a newsletter publishing company which he founded. Mr. Swartz received a B.S. in psychology from Boston College. MR. BROWNSTEIN has served as a director of the Company since July 1995 and has served as an advisor to the Company since its inception. Since January 1995, he has been a private investor. From 1970 to January 1995, Mr. Brownstein was associated with Bessemer Securities Corporation and was a founder and General Partner of three affiliated venture capital funds: Bessemer Venture Partners L.P., Bessemer Venture Partners II L.P. and Bessemer Venture Partners III L.P., for which he currently serves as a Special General Partner. Since 1970, he has been president of Neill H. Brownstein Corporation, an investment management counseling enterprise. He serves as a director of DSP Communications, Inc. Mr. Brownstein received a B.A. from Columbia College and an M.B.A. from the Kellogg School of Management at Northwestern University. MR. CRANDALL has served as a director of the Company since August 1995. Since April 1994, he has served as Chairman, and from 1970 until April 1994 he served as President and Chief Executive Officer, of Comshare, Incorporated, a software company which he founded ("Comshare"). He currently serves on the Board of Directors of Comshare, Computer Task Group, Incorporated and Diebold, Incorporated. Mr. Crandall received a B.S. in electrical engineering, a B.S. in mathematics and an M.S.E. in industrial engineering from the University of Michigan. MR. LIEBER has served as a director of the Company since November 1995. Since 1979, he has served as Chairman and Chief Executive Officer of Geo Capital Corporation, a investment advisory firm which he founded. Additionally, Mr. Lieber has served as a corporate officer of InfoMedia Associates Ltd., a general partner of 21st Century Communications Partners, L.P., an investment fund. From 1970 to 1979, Mr. Lieber was a General Partner of First Manhattan Co., an investment management, brokerage and investment banking firm. Mr. Lieber is a director of LeaRonal Inc. He received a B.S. degree in electrical engineering from City College of New York and an M.S. degree in electrical engineering from Syracuse University. 35 MR. ROBINSON has served as a director of the Company since August 1995. Since 1994, Mr. Robinson has served as Chairman and Chief Executive Officer of RRE Investors, L.L.C., a venture capital firm which he co-founded. From 1977 to 1993, Mr. Robinson served as Chairman and Chief Executive Officer of the American Express Company and held a series of executive positions with American Express Company from 1970 to 1976. Mr. Robinson is a director of The Coca-Cola Company, Union Pacific Corporation, Bristol-Meyers Squibb Company, First Data Corporation, New World Communications Group, Incorporated, Alexander & Alexander Services Inc. and Cambridge Technology Partners (Massachusetts), Inc. Mr. Robinson received a B.S. from the Georgia Institute of Technology and an M.B.A. from Harvard University. Following the Offering, the Board of Directors will be divided into three classes, each of whose members will serve for a staggered three-year term. The Board will consist of three Class I Directors (Messrs. Gilmour, Crandall and Lieber), two Class II Directors (Messrs. Marshall and Brownstein) and two Class III Directors (Messrs. Gartner and Robinson). At each annual meeting of stockholders, a class of directors will be elected for a three-year term to succeed directors of the same class whose term is then expiring. The terms of the Class I Directors, Class II Directors and Class III Directors will expire upon the election and qualification of successor directors at the annual meeting of stockholders held during the calendar years 1997, 1998 and 1999, respectively. Certain of the current directors of the Company were nominated and elected in accordance with a stockholders voting agreement. This agreement will terminate upon the consummation of the Offering. See "Certain Transactions." Mr. Marshall serves on the Board of Directors pursuant to the terms of his Employment Agreement. See "--Executive Compensation." Each officer serves at the discretion of the Board of Directors. There are no family relationships among any of the directors and executive officers of the Company. BOARD COMPENSATION Each non-employee director is reimbursed for expenses incurred in connection with his attendance at meetings of the Board of Directors and committees thereof. Directors who are employees of the Company currently receive no compensation for serving as directors. For a discussion of transactions between the Company and certain directors of the Company, see "Certain Transactions." 36 EXECUTIVE COMPENSATION The following table sets forth the compensation for the fiscal year ended December 31, 1995 of the Company's Chief Executive Officer and the Company's other most highly compensated executive officer whose annual cash compensation exceeds $100,000 (the Chief Executive Officer and such other executive officer are hereinafter referred to as the "Senior Executives"): SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION AWARDS --------------------- ------------ NUMBER OF SECURITIES NAME AND UNDERLYING PRINCIPAL POSITION SALARY($)(1) BONUS($) OPTIONS ------------------ ------------ -------- ------------ Gideon I. Gartner............................ 0(2) 0 660,000 Chairman of the Board of Directors and Chief Executive Officer David L. Gilmour(3).......................... 129,838 0 120,000 Senior Vice President, Research; Director
- -------- (1) Includes amounts payable in 1995 and/or 1996 for services rendered by the Senior Executives in 1995. Other compensation in the form of perquisites and other personal benefits has been omitted because it constitutes the lesser of $50,000 or ten percent of the total annual salary and bonus of each of the Senior Executives in 1995. (2) In 1995, Mr. Gartner was paid no compensation for his services as Chairman of the Board of Directors and Chief Executive Officer of the Company. In 1996, Mr. Gartner will receive annual compensation and will be entitled to receive a cash bonus in such amount as shall be determined by the Board of Directors or Compensation Committee thereof. (3) In 1995, Mr. Gilmour served as Chief Executive Officer of ExperNet, which became a wholly-owned subsidiary of the Company in that year. The following table sets forth certain information regarding options granted by the Company to each of the Senior Executives during the fiscal year ended December 31, 1995: OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ---------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER ANNUAL RATES OF OF PERCENT OF EXERCISE STOCK PRICE SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO PER OPTION TERM($)(1) OPTIONS EMPLOYEES IN SHARE EXPIRATION ----------------- GRANTED FISCAL YEAR ($) DATE 5% 10% ---------- ------------- -------- ---------- -------- -------- Gideon I. Gartner....... 500,000(2) 16.1% $0.50 10/16/05 $157,224 $398,436 160,000(2) 5.1 0.50 07/06/05 50,312 127,499 David L. Gilmour........ 120,000(3) 3.9 0.50 07/06/05 37,734 95,625
- -------- (1) The amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on assumed rates of stock appreciation of 5% and 10%, compounded annually from the date the respective options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of the Common Stock, the optionholders' continued employment through the option period and the date on which the options are exercised. (2) These stock options are immediately exercisable. (3) Twenty-five percent of the shares subject to the option vest on July 6, 1996 and one forty-eighth of the shares vest monthly thereafter. 37 The following table sets forth certain information concerning stock options held as of December 31, 1995 by each of the Senior Executives: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS NUMBER OF AT FISCAL YEAR-END AT FISCAL YEAR END(1) SHARES ACQUIRED VALUE ------------------------- ------------------------- NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- --------------- -------- ------------------------- ------------------------- Gideon I. Gartner....... 0 0 660,000/ 0 $6,207,000/$ 0 David L. Gilmour........ 0 0 0 /120,000 $ 0 /$1,140,000
- -------- (1) Represents the total gain which would be realized if all in-the-money options held at December 31, 1995 were exercised, determined by multiplying the number of shares underlying the options by the difference between the assumed initial public offering price of $10.00 per share and the per share option exercise price. An option is in-the-money if the fair market value of the underlying shares exceeds the exercise price of the option. Employment Agreements Gideon I. Gartner. The Company has entered into a non-competition agreement with Mr. Gartner, dated November 13, 1995, pursuant to which Mr. Gartner has agreed not to compete with the Company, solicit any employee or take away any customer of the Company either during his employment with the Company or for so long thereafter as the Company continues to pay Mr. Gartner annual compensation of at least $120,000 (whether as an employee, consultant or in the form of severance or post-employment benefits). Kenneth E. Marshall. Mr. Marshall serves as President and Chief Operating Officer pursuant to the terms of a five-year employment agreement with the Company, dated December 1, 1995. During the term of his employment, Mr. Marshall will serve as a director of the Company and will have the right to recommend one person to serve on the Board of Directors. Mr. Marshall is entitled to a base salary of $160,000 and a guaranteed bonus of $80,000 for 1996, and a base salary of $192,000 and a target bonus of $96,000, of which $48,000 is guaranteed, for 1997. Pursuant to the employment agreement, Mr. Marshall was granted a stock option to purchase 600,000 shares of Common Stock at an exercise price of $0.50 per share and received a loan from the Company in the amount of $20,000. Twenty-five percent of the shares subject to the option vest on January 31, 1997 and one forty-eighth of the shares vest monthly thereafter. In addition, the Company has agreed to grant Mr. Marshall an option to purchase 80,000 shares of Common Stock if the Company achieves certain goals for the year ended December 31, 1996. If Mr. Marshall terminates his employment for cause or is terminated by the Company other than for cause, the agreement provides for a severance payment of $160,000 in the event termination occurs prior to January 31, 1997, or, in the event such termination occurs on or following January 31, 1997, 50% of his average annual base salary during the twelve months prior to such termination. In addition, Mr. Marshall has agreed not to compete with the Company either during his employment and for a period of one year thereafter. David L. Gilmour. Mr. Gilmour serves as Senior Vice President, Research pursuant to the terms of a two-year employment agreement, dated July 6, 1995, with ExperNet, at the time a majority-owned subsidiary of the Company, to which the Company is successor by reason of the merger of ExperNet with and into the Company. Pursuant to the terms of the employment agreement, Mr. Gilmour was elected to serve as a director of the Company. Mr. Gilmour was entitled to receive a salary of $90,000 per year through August 1995 and a salary of $160,000 per year commencing on September 1, 1995. If Mr. Gilmour is terminated without cause before July 6, 1997, he is entitled to a severance payment equal to one year's salary and thirty percent of all unvested options become immediately exercisable. If Mr. Gilmour is terminated without cause, he has agreed to provide the Company with consultation services for up to one- quarter time for one year after such termination. 38 He also has agreed that he will not engage in any activities that are designed to impact the Company negatively in the marketplace, which agreement will terminate on the latter to occur of one year after such termination or the date Mr. Gilmour divests himself of all shares of the Company's capital stock then owned by him. Leander R. Jennings, Jr. Mr. Jennings serves as Senior Vice President, Worldwide Sales pursuant to the terms of an employment agreement with the Company, dated February 1, 1996. The employment agreement terminates on June 30, 1997. Mr. Jennings is entitled to receive a base salary of $120,000, plus commissions and relocation expenses, for the first twelve months, and thereafter as may be determined by the Compensation Committee of the Board of Directors. Pursuant to the employment agreement, Mr. Jennings was granted an option to purchase 120,000 shares of Common Stock at $.60 per share. Twenty- five percent of the shares subject to the option vest on February 1, 1997 and one forty-eighth of the shares vest monthly thereafter. Mr. Jennings is also entitled to receive additional options if certain sales quotas are met in 1997. If his employment is terminated by the Company other than for cause, the agreement provides for a severance payment equal to the greater of (i) the base salary he would have received had his employment not been so terminated and (ii) the amount that would be payable to Mr. Jennings for the greater of the remainder of his term of employment or six months. In addition, Mr. Jennings has agreed not to compete with the Company either during his employment by the Company and for a period of one year thereafter. Stock Plans 1995 Stock Option/Stock Issuance Plan. The Company's 1995 Stock Option/Stock Issuance Plan, as amended (the "1995 Stock Plan") was adopted by the Board of Directors in September 1995 and was approved by the stockholders in February 1996. Under the terms of the 1995 Stock Plan, the Company is authorized to make awards of restricted stock and to grant incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock options"), and stock options not intended to qualify as incentive stock options ("non-statutory stock options"), to employees, officers and directors of, and consultants and advisors to, the Company and its subsidiaries. A total of 3,100,000 shares of Common Stock may be issued upon the exercise of options or restricted stock awards granted under the 1995 Stock Plan. The Board of Directors is authorized to select the option recipients and to determine the kind and terms of each option, including (i) the number of shares of Common Stock subject to each option, (ii) the option exercise price, (iii) the vesting schedule of the option, and (iv) the duration of the option. Options are generally not assignable or transferable except by will or the laws of descent and distribution. Restricted stock awards under the 1995 Stock Plan entitle the recipient to purchase Common Stock from the Company under terms which provide for vesting over a period of time and a right of repurchase of unvested stock by the Company when the recipient's relationship with the Company terminates. The Board of Directors is authorized to select the recipients of restricted stock awards and to determine the terms of each award, including (i) the dates on which restricted stock awards are made, (ii) the number of shares of Common Stock subject to the award, (iii) the purchase price (which can be less than the fair market value of the Common Stock) of the award, and (iv) the vesting schedule of the award. The recipients may not sell, transfer or otherwise dispose of shares subject to a restricted stock award until such shares are vested. Upon termination of the recipient's relationship with the Company, the Company will be entitled to repurchase those shares which are not vested on the termination date at a price equal to their original purchase price. As of August 31, 1996, 26,653 shares of Common Stock were available for future grant under the 1995 Stock Plan. However, in connection with the adoption of the 1996 Option Plan (defined below), the Board of Directors amended the 1995 Stock Plan to provide that all future options would only be granted under the 1996 Option Plan. 1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the "1996 Option Plan") was adopted by the Board of Directors in August 1996 and was approved by the stockholders in September 1996. The 1996 39 Option Plan provides for the grant of stock options to employees, officers and directors of, and consultants or advisors to, the Company and its subsidiaries. Under the 1996 Option Plan, the Company may grant incentive stock options or non-statutory stock options. Incentive stock options may only be granted to employees of the Company. A total of 3,000,000 shares of Common Stock may be issued upon the exercise of options granted under the 1996 Option Plan. The maximum number of shares with respect to which options may be granted to any employee under the 1996 Option Plan shall not exceed 100,000 shares of Common Stock during any calendar year. The 1996 Option Plan is administered by the Compensation Committee of the Board of Directors. Subject to the provisions of the 1996 Option Plan, the Compensation Committee has the authority to select option recipients and to determine the kind and terms of each option, including (i) the number of shares of Common Stock subject to the option, (ii) the option exercise price, which, in the case of incentive stock options, must be at least 100% (110% in the case of incentive stock options granted to a stockholder owning in excess of 10% of the Company's Common Stock) of the fair market value of the Common Stock as of the date of grant, (iii) the vesting schedule of the option, and (iv) the duration of the option (which, in the case of incentive stock options, may not exceed ten years). Payment of the option exercise price may be made in cash, shares of Common Stock, a combination of cash and Common Stock or by any other method (including delivery of a promissory note payable on terms specified by the Compensation Committee) approved by the Compensation Committee consistent with Section 422 of the Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Options are not assignable or transferable except by will or the laws of descent and distribution and, in the case of non-statutory options, pursuant to a "qualified domestic relations order" (as defined in the Code). 1996 Employee Stock Purchase Plan. The Company's 1996 Employee Stock Purchase Plan (the "1996 Purchase Plan") was adopted by the Board of Directors in August 1996, was approved by the stockholders in September 1996, and will become effective upon the consummation of the Offering. The 1996 Purchase Plan authorizes the issuance of up to 400,000 shares of Common Stock to participating employees. All employees of the Company, including directors of the Company who are employees and all employees of the Company's subsidiaries whose customary employment is more than 25 hours per week and for more than six months in any calendar year, are eligible to participate in the 1996 Purchase Plan. Employees who would immediately after a grant own 5% or more of the total combined voting power or value of the Common Stock of the Company or any subsidiary are not eligible to participate. On the first day of a payroll deduction period, as designated by the Compensation Committee of the Board of Directors (the "Offering Period"), the Company will grant to each eligible employee who has elected to participate in the 1996 Purchase Plan an option to purchase shares of Common Stock. The employee may authorize a percentage (as determined by the Compensation Committee and in no event greater than 10%) of such employee's regular pay to be deducted by the Company during the Offering Period and applied to the purchase of Common Stock. On the last day of the Offering Period, the employee is deemed to have exercised the option, at the option exercise price, to the extent of all accumulated payroll deductions. Under the terms of the 1996 Purchase Plan, the option price is an amount equal to 85% of the fair market value per share of the Common Stock on either the first day or the last day of the Offering Period, whichever is lower. No employee may purchase Common Stock under the 1996 Purchase Plan at a rate which exceeds $25,000 of the fair market value of such Common Stock (determined on the commencement date of the Offering Period) in any calendar year. The Compensation Committee may, in its discretion, choose an Offering Period of 12 months or less for each Offering Period. If an employee is not a participant of the 1996 Purchase Plan on the last day of the Offering Period, such employee is not entitled to exercise any option and the amount of such employee's accumulated payroll deductions will be refunded. An employee's rights under the 1996 Purchase Plan terminate upon voluntary withdrawal from the 1996 Purchase Plan at any time or when such employee ceases employment for any reason, 40 except that upon termination of employment because of death, the employee's beneficiary has certain rights to elect to exercise the option to purchase the shares which the accumulated payroll deductions in the participant's account would purchase on the date of death. 401(k) Profit Sharing Plan. The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan"), a tax-qualified plan covering all of its employees who are at least 21 years of age and have completed one year of service with the Company. Each employee may elect to reduce his or her current compensation by up to 10% (on a pre-tax basis). The Company matches by 25% that portion of an employee's contribution representing the first 3% of an employee's base salary and by 50% that portion representing the next 3% of an employee's base salary. All employee and Company contributions to the 401(k) Plan are fully vested at all times. Upon termination of employment, an employee may elect a lump sum distribution of all amounts contributed by him or her under the 401(k) Plan. Early withdrawals from amounts contributed under the 401(k) Plan are allowed under certain circumstances, such as disability. In addition, subject to certain restrictions, employees may take a loan drawn on contributions made by the employee under the 401(k) Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee are Irwin Lieber and James D. Robinson III. 41 CERTAIN TRANSACTIONS In 1995, Mr. Gartner, Chairman of the Board of Directors and Chief Executive Officer of the Company, contributed approximately $1.0 million to the capital of the Company. In consideration for such capital contribution, the Company issued to Mr. Gartner (i) in March 1995, 4,200,000 shares of Common Stock at a purchase price of $0.02375 per share, (ii) in July 1995, 240,000 shares of Series A Preferred Stock at a purchase price of $1.25 per share, and (iii) in October 1995, 1,200,000 shares of Common Stock at a purchase price of $0.50 per share. The shares of Common Stock and Series A Preferred Stock of the Company issued to Mr. Gartner are subject to restrictions on transfer and rights of first offer pursuant to an agreement entered into in November 1995 among Mr. Gartner, the Company and certain stockholders, which agreement will terminate upon the consummation of the Offering. In addition, Mr. Gartner has made loans totalling $221,000 to ExperNet and $186,000 to the Company, which loans were repaid, together with interest thereon, in December 1995 and August 1995, respectively. In July 1995, Giga acquired all of the ExperNet shares owned by Mr. Gartner and a majority of the ExperNet shares owned by Mr. Gilmour, aggregating 77.8% of ExperNet's outstanding common stock, in exchange for (i) 160,000 shares of Series A Preferred Stock (640,000 shares on an as-converted basis) of the Company, 80,000 shares (320,000 shares on an as-converted basis) of which were issued to Mr. Gartner and 80,000 shares (320,000 shares on an as-converted basis) of which were issued to Mr. Gilmour, and (ii) the issuance to Mr. Gartner of a fully-vested option to purchase 160,000 shares of Common Stock at an exercise price of $0.50 per share. In December 1995, the Company acquired Mr. Gilmour's remaining 22.2% interest in ExperNet in exchange for a $400,000 6% Convertible Note due December 31, 2005 (the "Convertible Note"). The Convertible Note is convertible at any time after December 31, 1995 at the option of Mr. Gilmour into shares of the Company's Series B Preferred Stock pursuant to a formula set forth in the Convertible Note. The shares of Series A Preferred Stock, as well as the shares of Series B Preferred Stock issuable upon the conversion of the Convertible Note held by Mr. Gilmour, are subject to repurchase by the Company under certain circumstances. In addition, Mr. Gilmour made loans totalling $101,000 to ExperNet, which loans were repaid in full, together with interest thereon, by ExperNet in December 1995. In July 1995, the Company issued and sold an aggregate of 2,280,000 shares of Series A Preferred Stock at a purchase price of $1.25 per share to a limited number of investors, including Mr. Brownstein (240,000 shares), Mr. Crandall (60,000 shares) and Mr. Robinson (40,000 shares). In August 1995, the Company entered into a Convertible Promissory Note and Warrant Purchase Agreement (the "Note and Warrant Agreement") with RRE Giga Investors, L.P. ("RRE Giga"), pursuant to which the Company borrowed $2.0 million from RRE Giga and issued RRE Giga a convertible promissory note (the "Note") in the principal amount of $2,000,000 and a warrant to purchase 285,714 shares of Series B Preferred Stock at an exercise price of $2.345 per share (the "Series B Warrant"). In November 1995, the Note was converted into 571,428 shares of Series B Preferred Stock. In September 1996, RRE Giga made a cashless exercise of the Series B Warrant and received 218,714 shares of Series B Preferred Stock. Mr. Robinson, a director of the Company, is Chairman and Chief Executive Officer of RRE Investors, L.L.C., the General Partner of RRE Giga. In August 1995, the Company entered into a consulting arrangement with Mr. Crandall, a director of the Company. The arrangement provided for payment to Mr. Crandall of $50,000 per annum in 1995 and $60,000 per annum in 1996. In lieu of certain payments due to Mr. Crandall, the Company issued to Mr. Crandall 120,000 shares of Common Stock at a purchase price of $0.50 per share. The shares are subject to vesting and certain restrictions on transfer. In July 1996, as compensation for the consulting services Mr. Crandall will render to the Company for the twelve month period ending June 30, 1997, the Company granted to Mr. Crandall an option to purchase 20,000 shares of Common Stock at an exercise price of $0.60 per share. Twenty-five percent of the shares subject to the option vest one year from the date of grant and one forty-eighth of the shares vest monthly thereafter. In October 1995, the Company sold to Mr. Brownstein, a director of the Company, 80,000 shares of Common Stock at a purchase price of $.50 per share. The shares are subject to vesting and certain restrictions on transfer. 42 In November 1995 and February 1996, the Company issued and sold an aggregate of 5,272,215 shares of Series B Preferred Stock, at a purchase price of $3.50 per share, to a limited number of investors, including the following persons and entities who are directors, affiliates of directors and/or principal stockholders of the Company:
TOTAL NAME NO. OF SHARES CONSIDERATION PAID ---- ------------- ------------------- 21st Century Communications Partners, L.P..................................... 968,615 $3,390,153 21st Century Communications T-E Partners, L.P..................................... 329,560 1,153,460 21st Century Communications Foreign Part- ners, L.P............................... 130,397 456,390 Quota Fund N.V........................... 224,000 784,000 Haussmann Holdings....................... 288,000 1,008,000 Montgomery Small Cap Partners, L.P....... 40,000 140,000 Montgomery Small Cap Partners II, L.P.... 96,000 336,000 Montgomery Small Cap Partners III, L.P... 40,000 140,000 Nosrob Investments Ltd................... 48,000 168,000 RRE Giga Investors, L.P.................. 571,428 2,000,000 RRE Giga Investors II, L.P............... 288,571 1,010,000 Neill and Linda Brownstein............... 16,000 56,000
Mr. Lieber, a director of the Company, is a corporate officer of InfoMedia Associates, Ltd., which is a General Partner of 21st Century Communications Partners, L.P., 21st Century Communications T-E Partners, L.P. and 21st Century Communications Foreign Partners, L.P. Mr. Robinson, a director of the Company, is Chairman and Chief Executive Officer of RRE Investors, L.L.C., the General Partner of RRE Giga and RRE Giga Investors II, L.P. Montgomery Securities served as private placement agent in connection with the sale by the Company of the Series B Preferred Stock. In consideration for such private placement agent services, Montgomery Securities received a placement agent fee of $695,105 and a warrant to purchase 107,876 shares of Series B Preferred Stock, exercisable for five years from the date of issuance at an exercise price of $4.625 per share. Montgomery Securities is a limited partner of Montgomery Asset Management, L.P., which is the investment advisor for Montgomery Small Cap Partners, L.P., Montgomery Small Cap Partners II, L.P., Montgomery Small Cap Partners III, L.P., Quota Fund N.V., Haussmann Holdings and Nosrob Investments Ltd. In December 1995, the Company loaned to Mr. Marshall, its President and Chief Operating Officer, $20,000 pursuant to the terms of a promissory note which bears interest at 5.74% per annum. The loan, plus interest, is payable in full on December 1, 1996. In January 1996, the Company entered into a one-year consulting agreement with the Neill H. Brownstein Corporation (the "Brownstein Corporation"), of which the sole shareholder is Neill H. Brownstein, a director of the Company. Pursuant to the consulting agreement, the Brownstein Corporation is entitled to receive a consulting fee of $60,000, plus reasonable expenses, payable quarterly. The Brownstein Corporation has agreed that during the term of the agreement and for a period of one year thereafter, the Brownstein Corporation will not use any of the Company's proprietary or confidential information or disclose such proprietary and confidential information to any third party. Messrs. Gartner, Gilmour, Robinson and Lieber were elected to the Board of Directors pursuant to the terms of an Investor Rights and Voting Agreement dated November 13, 1995 among the Company, Messrs. Gartner and Gilmour and certain stockholders of the Company. The agreement terminates upon the consummation of the Offering. For a description of certain transactions between the Company and certain directors of the Company, see "Management--Director Compensation." For a description of certain employment and other arrangements 43 between the Company and certain executive officers of the Company, see "Management--Executive Compensation" and "Management--Employment Agreements." The Company believes that the securities issued in the transactions involving the Company described above were sold by the Company at their then fair market value and that the terms of the transactions described above were no less favorable than the Company could have obtained from unaffiliated third parties. The Company has adopted a policy, effective following the consummation of the Offering, that all material transactions between the Company and its officers, directors and other affiliates must (i) be approved by a majority of the members of the Company's Board of Directors and by a majority of the disinterested members of the Company's Board of Directors, and (ii) be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. In addition, this policy will require that any loans by the Company to its officers, directors or other affiliates be for bona fide business purposes only. 44 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock of the Company as of July 31, 1996 (assuming the conversion of all outstanding shares of all series of Preferred Stock into Common Stock), and as adjusted to reflect the sale of the shares of Common Stock offered hereby, by (i) each person or entity known to the Company to beneficially own more than 5% of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Senior Executives and (iv) all directors and executive officers as a group.
PERCENTAGE OF SHARES BENEFICIALLY OWNED(1)(2) ---------------------------- NUMBER OF SHARES NAME AND ADDRESS OF BENEFICIALLY OWNED BEFORE AFTER BENEFICIAL OWNER PRIOR TO OFFERING(1) OFFERING OFFERING ------------------- -------------------- ------------ ------------ 21st Century 1,428,572(3) 10.5% 8.1% Communications Partners L.P. .................... 767 Fifth Avenue, 45th Floor New York, NY 10153 Entities affiliated with 1,049,143(4) 7.7 5.9 S/2/ Technology Corporation.............. 515 Madison Avenue, Suite 4200 New York, NY 10022 Funds managed by 736,000(5) 5.4 4.2 Montgomery Asset Management, L.P.......... 101 California Street San Francisco, CA 94111 RRE Giga Investors, 1,078,713(6) 7.9 6.1 L.P...................... 126 East 56th Street, 22nd Floor New York, NY 10022 Gideon I. Gartner........ 6,608,000(7) 46.1 36.1 c/o Giga Information Group, Inc. One Kendall Square Cambridge, MA 02139 David L. Gilmour......... 355,000(8) 2.6 2.0 Neill H. Brownstein...... 360,000(9) 2.6 2.0 Richard L. Crandall...... 180,000(10) 1.3 1.0 Irwin Lieber............. 1,428,572(11) 10.5 8.1 James D. Robinson III.... 1,118,713(12) 8.2 6.3 Kenneth E. Marshall...... 0 -- -- Richard B. Goldman....... 0 -- -- Leander R. Jennings, 0 -- -- Jr. ..................... Jeffrey L. Swartz........ 14,166(13) * * All directors and execu- tive officers as a group (10 persons)............ 10,064,451(14) 70.0 54.8
- -------- * Less than 1% (1) Each stockholder possesses sole voting and investment power with respect to the shares listed, except as otherwise noted. Amounts shown include shares issuable within the 60-day period following July 31, 1996 pursuant to the exercise of options or warrants. (2) On July 31, 1996, there were 13,664,148 shares of Common Stock outstanding, assuming the conversion of all outstanding shares of all series of Preferred Stock into Common Stock. (3) Includes 968,615 shares of Common Stock held by 21st Century Communications Partners, L.P., a limited partnership ("21-CCP"), 329,560 shares of Common Stock held by 21st Century Communications T-E Partners, L.P., a limited partnership ("21-CCTEP") and 130,397 shares of Common Stock held by 21st Century Communications Foreign Partners, L.P., a limited partnership ("21-CCFP"). 45 (4) S/2/ Technology Corporation ("S Squared"), an investment manager, is the General Partner of (i) Sci-Tech Investment Partners L.P., which holds 98,058 shares of Common Stock, (ii) SG Partners, L.P., which holds 84,127 of Common Stock, and (iii) Executive Technology, L.P., which holds 66,080 shares of Common Stock. Seymour L. Goldblatt, the President of S Squared, is the Managing Director of both The Matrix Technology Group, which holds 39,746 shares of Common Stock, and Core Technology Fund, Inc., which holds 184,339 shares of Common Stock. S Squared serves as an investment advisor to each of the foregoing funds and exercises by agreement investment and voting power on behalf of each fund. Mr. Goldblatt, as President of S Squared, also exercises by agreement investment and voting power for the following funds: (i) Yale University, which holds 524,581 shares of Common Stock, (ii) Yale University Retirement Plan for Retired Employees, which holds 25,752 shares of Common Stock, and (iii) Monstol Investment N.V., which holds 26,460 shares of Common Stock. (5) Includes 224,000 shares of Common Stock held by Quota Fund N.V., a Netherland Antilles corporation, 288,000 shares of Common Stock held by Haussmann Holdings, a Netherland Antilles limited liability company, 40,000 shares of Common Stock held by Montgomery Small Cap, L.P., 96,000 shares of Common Stock held by Montgomery Small Cap Partners II, L.P., 40,000 shares of Common Stock held by Montgomery Small Cap Partners III, L.P. and 48,000 shares of Common Stock held by Nosrob Investments Ltd., a Channel islands limited liability company. Montgomery Asset Management, L.P. serves as the investment advisor to each of these entities and possesses investment and voting power with respect to each such entity but disclaims beneficial ownership. (6) Includes 790,142 shares of Common Stock held by RRE Giga (including 218,714 shares acquired after July 31, 1996 upon the exercise of a warrant) and 288,571 shares of Common Stock held by RRE Giga Investors II, L.P ("RRE Giga II"). RRE Investors, L.L.C. is the General Partner of RRE Giga and RRE Giga II. Mr. Robinson, a director and stockholder of the Company, is the Chairman and Chief Executive Officer of RRE Investors, L.L.C. (7) Includes options to purchase 660,000 shares of Common Stock which are exercisable within 60 days of July 31, 1996. Also includes 660,000 shares of Common Stock which are held of record by members of Mr. Gartner's family. Mr. Gartner disclaims beneficial ownership of shares held by members of his family. (8) Includes options to purchase 35,000 shares of Common Stock which are exercisable within 60 days of July 31, 1996. (9) Includes 24,000 shares of Common Stock held by Mr. Brownstein's children and 16,000 shares of Common Stock held by Mr. Brownstein and his spouse jointly. Mr. Brownstein disclaims beneficial ownership of the 18,000 shares of Common Stock held by his adult children, Adam J. and Todd D. Brownstein, and Will Gordon, the adult child of his spouse. Mr. Brownstein disclaims beneficial ownership of the 6,000 shares of Common Stock held by his minor child, Emily Hamilton; however, Mr. Brownstein claims investment and voting power with respect to these shares. Of the shares held by Mr. Brownstein directly, 80,000 of such shares are subject to repurchase by the Company under certain circumstances. (10) Includes 120,000 shares of Common Stock which are subject to repurchase by the Company under certain circumstances. (11) Includes 968,615 shares of Common Stock held by 21-CCP, 329,560 shares of Common Stock held by 21-CCTEP and 130,397 shares of Common Stock held by 21-CCFP. Mr. Lieber, a director of the Company, is a General Partner of a General Partner of 21-CCP, 21-CCTEP and 21-CCFP. Mr. Lieber disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. Mr. Lieber shares dispositive and voting power of such shares with the General Partners of the General Partner of each fund. (12) Includes 790,142 shares held by RRE Giga (including 218,714 shares acquired after July 31, 1996 upon the exercise of a warrant) and 288,571 shares of Common Stock held by RRE Giga II. Mr. Robinson, a director of the Company, is a General Partner of RRE Investors, L.L.C., the General Partner of RRE Giga and RRE Giga II. Mr. Robinson disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such shares. Mr. Robinson shares dispositive and voting power of such shares with the General Partners of RRE Investors, L.L.C. (13) Represents shares which Mr. Swartz has the right to acquire within 60 days of July 31, 1996 upon exercise of stock options. (14) Includes 709,166 shares of Common Stock issuable upon exercise of stock options held by all directors and executive officers as a group which are exercisable within 60 days of July 31, 1996 and 218,714 shares acquired after July 31, 1996 by RRE Giga upon the exercise of a warrant. Also includes 200,000 shares of Common Stock held by all directors and executive officers as a group which may be repurchased by the Company under certain circumstances. 46 DESCRIPTION OF CAPITAL STOCK At June 30, 1996, there were outstanding an aggregate of 6,110,600 shares of Common Stock and 5,842,215 shares of Preferred Stock of the Company. Upon the closing of the Offering, all of such shares of Preferred Stock will automatically be converted into an aggregate of 7,552,215 shares of Common Stock. All of the shares of Preferred Stock that have been converted will cease to be outstanding and may not be reissued. Assuming conversion of all of the Company's Preferred Stock, at June 30, 1996, there were 13,662,815 shares of Common Stock outstanding, held of record by 81 stockholders. COMMON STOCK The Company's Restated Certificate of Incorporation (the "Restated Certificate of Incorporation"), which will become effective upon the closing of the Offering, will authorize the issuance of up to 60,000,000 shares of Common Stock, $.001 par value per share. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered by the Company in the Offering will be, when issued and paid for, fully paid and nonassessable. PREFERRED STOCK Upon the consummation of the Offering, the Restated Certificate of Incorporation will authorize the issuance of up to 5,000,000 shares of Preferred Stock, $.001 par value per share. Under the terms of the Restated Certificate of Incorporation, the Board of Directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue such shares of Preferred Stock in one or more series. Each such series of Preferred Stock shall have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Board of Directors. The purpose of authorizing the Board of Directors to issue Preferred Stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. WARRANTS At August 31, 1996, there were outstanding a warrant to purchase 285,714 shares of Common Stock at an exercise price of $2.345 per share and a warrant to purchase 107,876 shares of Common Stock at an exercise price of $4.5625 per share. The holders of such warrants have no rights as stockholders until the exercise thereof. CONVERTIBLE NOTES The Company's 6% $400,000 convertible note (the "6% Note") is convertible at the option of the holder after December 31, 1995 and at any time prior to December 31, 2005 into the lesser of (i) the number of shares of 47 Common Stock arrived at by dividing the unpaid principal of the 6% Note being converted by $3.50 and (ii) the amount of such unpaid principal amount being converted, expressed as a fraction of the total unpaid principal of the 6% Note, multiplied by the Maximum Conversion Amount. The "Maximum Conversion Amount" equals 28,576 shares plus an additional 2,857 shares on the sixth day of each of the thirty months after January 1996. At August 31, 1996, the principal amount of the 6% Note is convertible into 48,575 shares of Common Stock of the Company. The Company's 5% $1.0 million convertible note (the "5% Note") is convertible at the option of the holder, Friday Holdings L.P., at any time prior to April 5, 1998, in whole or in part, into 185,298 shares of Common Stock of the Company. The Company has provided notice to the holder that it intends to repay the 5% Note promptly after the closing of the Offering and therefore expects that the 5% Note will be converted into Common Stock at that time. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS The Company is subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within the past three years did own, 15% or more of a corporation's voting stock. The Restated Certificate of Incorporation provides for the division of the Board of Directors into three classes as nearly equal in size as possible with staggered three-year terms. See "Management." In addition, the Restated Certificate of Incorporation provides that directors may be removed only for cause by the affirmative vote of the holders of two-thirds of the shares of capital stock of the Company entitled to vote. Under the Restated Certificate of Incorporation, any vacancy on the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, may only be filled by vote of a majority of the directors then in office. The classification of the Board of Directors and the limitations on the removal of directors and filling of vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of the Company. The Restated Certification of Incorporation also provides that, after the consummation of the Offering, any action required or permitted to be taken by the stockholders of the Company at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be undertaken by written action in lieu of a meeting. The Restated Certificate of Incorporation further provides that special meetings of the stockholders may only be called by the Chairman of the Board of Directors, the Chief Executive Officer or, if none, the President of the Company or by the Board of Directors. Under the Company's Amended and Restated By-Laws (the "By- Laws"), which will become effective upon the closing of the Offering, in order for any matter to be considered "properly brought" before a meeting, a stockholder must comply with certain requirements regarding advance notice to the Company. The foregoing provisions could have the effect of delaying until the next stockholders' meeting stockholder actions which are favored by the holders of a majority of the outstanding voting securities of the Company. These provisions may also discourage another person or entity from making a tender offer for the Company's Common Stock, because such person or entity, even if it acquired a majority of the outstanding voting securities of the Company, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders meeting, and not by written consent. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, 48 unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. The Restated Certificate of Incorporation and the By-Laws require the affirmative vote of the holders of at least two-thirds of the shares of capital stock of the Company issued and outstanding and entitled to vote to amend or repeal any of the provisions described in the prior two paragraphs. The Restated Certificate of Incorporation contains certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, the Restated Certificate of Incorporation contains provisions to indemnify the Company's directors and officers to the fullest extent permitted by the General Corporation Law of Delaware. The Company believes that these provisions will assist the Company in attracting and retaining qualified individuals to serve as directors. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is The First National Bank of Boston. 49 SHARES ELIGIBLE FOR FUTURE SALE Upon consummation of the Offering, based on the number of shares outstanding at June 30, 1996, there will be 17,662,815 shares of Common Stock outstanding. Of these shares, the 4,000,000 shares of Common Stock sold in the Offering will be freely transferable without restriction under the Securities Act, except that any shares purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act ("Rule 144"), generally must be sold in compliance with the limitations of Rule 144 described below. The remaining 13,662,815 shares of Common Stock outstanding will be "restricted securities" as that term is defined in Rule 144 (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market (subject in the case of shares held by affiliates to compliance with certain volume restrictions) as follows: (i) no shares will be available for immediate sale in the public market on the date of the Prospectus, (ii) 2,600 shares will be eligible for resale 90 days after the date of this Prospectus, (iii) 4,200,000 shares will be eligible for resale upon expiration of lock-up agreements 180 days after the date of this Prospectus, and thereafter (iv) the remaining 9,460,215 shares will be eligible for sale upon expiration of their respective two-year holding periods. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years, including persons who may be deemed affiliates of the Company, would be entitled to sell within any three-month period, subject to meeting certain manner of sale and notice requirements, a number of shares that does not exceed the greater of (i) one percent of the number of shares of Common Stock then issued and outstanding (176,628 shares upon consummation of the Offering) and (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of a Form 144 notice of sale with the Securities and Exchange Commission. A person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least three years, is entitled to sell such shares under Rule 144(k) without regard to the volume limitations described above. Affiliates whose shares are not Restricted Shares must nonetheless comply with the same Rule 144 restrictions applicable to Restricted Shares with the exception of the two-year holding period requirement. The Securities and Exchange Commission has proposed to reduce the two- and three-year holding periods to one and two years, respectively. If enacted, such modification may have a material effect on the timing of when certain shares of Common Stock become eligible for resale. Rule 701 promulgated under the Securities Act provides that shares of Common Stock acquired on the exercise of outstanding options may be resold by persons, other than affiliates, beginning 90 days after the date of this Prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days after the date of this Prospectus, subject to all provisions of Rule 144 except its two-year minimum holding period. The Company's executive officers and directors of the Company (who in the aggregate will beneficially own approximately 10,064,451 Restricted Shares, including 709,166 shares of Common Stock that may be acquired by them upon the exercise of stock options exercisable with 60 days of July 31, 1996) have agreed not to sell or offer to sell or otherwise dispose of any shares of Common Stock currently held by them, or to exercise any right to acquire any shares of Common Stock or any securities exercisable for or convertible into any shares of Common Stock for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. Lehman Brothers Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to these lock-up agreements. See "Underwriting." 50 The Company has agreed, subject to certain exceptions, not to offer, sell or otherwise dispose of any shares of Common Stock for a period of 180 days after the date of this Prospectus, except that the Company may issue, and grant options to purchase, shares of Common Stock under its current stock option and purchase plans and other currently outstanding options. The Company intends to file registration statements on Form S-8 under the Securities Act to register all shares of Common Stock issuable under the 1995 Stock Plan, 1996 Option Plan and 1996 Purchase Plan. These registration statements are expected to be filed approximately 180 days after the effective date of the Registration Statement of which this Prospectus is a part and will be effective upon filing. Shares issued upon the exercise of stock options after the effective date on the Form S-8 registration statements will be eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements noted above. As of August 31, 1996, the holders of 10,880,215 shares of Common Stock and warrants to purchase 393,590 shares of Common Stock are entitled to certain demand and/or piggyback registration rights with respect to such shares (the "Registrable Shares"). At any time after the earlier of November 1, 1999 or six months after the Company's initial public offering, holders of at least 40% of the Registrable Shares then outstanding may request that the Company file, at the Company's expense, a registration statement under the Securities Act covering at least 20% of the Registrable Shares then outstanding with aggregate gross proceeds of at least $5,000,000. The Company is obligated to effect only two demand registrations and, in any event, not more than one such registration in any twelve-month period. In addition, holders of Registrable Shares with piggyback registration rights may include their shares in any registration statement the Company intends to effect for the Company's shares for stockholders other than the holders of Registrable Shares. So long as the Company is qualified to effect a registration statement on Form S-3, holders of at least 20% of the Registrable Shares may request that the Company effect a registration on Form S-3 provided that (i) the aggregate price of the Registrable Shares to be sold on such Form S-3 exceeds $500,000, (ii) the Company is obligated to file only one such Form S-3 in any 6-month period and (iii) the Company is only obligated to effect a total of six such registrations. Prior to the Offering, there has been no public market for the Common Stock of the Company, and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of significant numbers of shares of the Common Stock in the public market could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through an offering of its equity securities. 51 UNDERWRITING Under the terms of, and subject to the conditions contained in, an Underwriting Agreement (the "Underwriting Agreement"), the form of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, the underwriters named below (the "Underwriters"), for whom Lehman Brothers Inc., Oppenheimer & Co., Inc. and Salomon Brothers Inc are acting as Representatives (the "Representatives"), have severally agreed to purchase from the Company, and the Company has agreed to sell to the Underwriters, the aggregate number of shares of Common Stock set forth opposite the name of each Underwriter below:
NUMBER OF UNDERWRITERS SHARES ------------ --------- Lehman Brothers Inc. ............................................. Oppenheimer & Co., Inc. .......................................... Salomon Brothers Inc.............................................. --------- Total........................................................... 4,000,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters to purchase shares of Common Stock are subject to certain conditions, and that if any of the shares of Common Stock are purchased by the Underwriters pursuant to the Underwriting Agreement, all shares of Common Stock agreed to be purchased by the Underwriters pursuant to the Underwriting Agreement must be purchased. The Company has been advised that the Underwriters initially propose to offer the shares of Common Stock directly to the public at the public offering price set forth on the cover page of this Prospectus and to certain selected dealers (who may include the Underwriters) at such public offering price less a selling concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other Underwriters or to certain other brokers or dealers. After the initial public offering, the public offering price, the concession to selected dealers and the reallowance to other dealers may be changed by the Underwriters. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments that the Underwriters may be required to make in respect thereof. The Company has granted to the Underwriters an option to purchase up to an additional 600,000 shares of Common Stock at the public offering price less the underwriting discounts and commissions shown on the cover page of this Prospectus, solely to cover over-allotments, if any. Such option may be exercised at any time until 30 days after the date of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will be committed, subject to certain conditions, to purchase a number of option shares proportionate to such Underwriter's initial commitment. The Representatives of the Underwriters have informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company, the directors and officers and certain other securityholders of the Company have agreed not to, directly or indirectly, offer, sell or contract to sell, or otherwise dispose of shares of Common Stock of the Company, or any securities convertible into, or exchangeable for, or any rights to acquire, shares of Common 52 Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Lehman Brothers Inc. on behalf of the Representatives, except that the Company may issue, and grant options to purchase, shares of Common Stock under its current stock option and purchase plans and other currently outstanding options. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiation among the Company and the Representatives of the Underwriters. Among the factors to be considered in determining the initial public offering price, in addition to prevailing market conditions, will be the Company's historical performance, capital structure, estimates of the business potential and earnings prospects of the Company, an overall assessment of the Company, an assessment of the Company's management, and the consideration of the above factors in relation to market valuation of companies in related businesses. The Underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares of Common Stock offered hereby for employees of the Company and certain other individuals who have expressed an interest in purchasing such shares of Common Stock in the Offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as other shares offered hereby. LEGAL MATTERS The validity of the shares of Common Stock offered by the Company hereby will be passed upon for the Company by Hale and Dorr, Boston, Massachusetts. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. EXPERTS The consolidated balance sheets of the Company at December 31, 1995 and June 30, 1996 and the related consolidated statements of operations, cash flows and stockholders' equity for each of the periods March 17, 1995 to December 31, 1995 and January 1, 1996 to June 30, 1996 included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined balance sheet of BIS Strategic Decisions at April 5, 1995 and the related combined statements of operations, cash flows and stockholder's equity for the period January 1, 1995 to April 5, 1995 included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined balance sheet of BIS Strategic Decisions at December 31, 1994 and the related combined statements of operations, cash flows and stockholder's equity for the periods January 1, 1993 to December 15, 1993, December 16, 1993 to December 31, 1993 and for the year ended December 31, 1994 included in this Prospectus have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon (which contains explanatory paragraphs with respect to BIS Strategic Decision's ability to continue as a going concern and an accounting change as described in Notes 4 and 2, respectively, of the Notes to the Combined Financial Statements) appearing elsewhere herein, which, as to the periods from January 1, 1993 through December 15, 1993, and December 16, 1993 through December 31, 1993 are based in part on the report of Coopers & Lybrand and are included herein in reliance upon such reports, given upon the authority of such firms as experts in accounting and auditing. 53 The statements of operations, changes in stockholder's equity and cash flows of BIS Shrapnel PTY Limited for each of the periods of January 1, 1993 to December 15, 1993 and December 16, 1993 to December 31, 1993 on which the report of Ernst & Young LLP, independent auditors, for the related periods are based in part is given in reliance on the reports of Coopers & Lybrand, independent accountants, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, D.C. 20549, a Registration Statement (which term shall include all amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, to which Registration Statement reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits thereto may be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. ---------------- The Giga logo(TM), Giga Information Group(TM), Giga Advisory Service(TM), GigaWeb(TM), Relevance Services(TM), Gigabots(TM), GigaNotes(TM), GigaTel(TM), Giga World Forum(TM), Smart Search(TM) and ExperNet(TM) are trademarks of Giga Information Group, Inc. All other trademarks or trade names referred to in this Prospectus are the property of their respective owners. 54 INDEX TO FINANCIAL STATEMENTS
PAGE ---- GIGA INFORMATION GROUP, INC.: Report of Independent Accountants--Coopers & Lybrand L.L.P............... F-2 Consolidated Balance Sheets at December 31, 1995 and June 30, 1996....... F-3 Consolidated Statements of Operations for the periods March 17, 1995 to December 31, 1995; March 17, 1995 to June 30, 1995 (unaudited) and January 1, 1996 to June 30, 1996........................................ F-4 Consolidated Statements of Changes in Stockholders' Equity for the periods March 17, 1995 to December 31, 1995 and January 1, 1996 to June 30, 1996................................................................ F-5 Consolidated Statements of Cash Flows for the periods March 17, 1995 to December 31, 1995; March 17, 1995 to June 30, 1995 (unaudited) and January 1, 1996 to June 30, 1996........................................ F-6 Notes to Consolidated Financial Statements............................... F-7 BIS STRATEGIC DECISIONS: Report of Independent Accountants--Coopers & Lybrand L.L.P............... F-20 Report of Independent Auditors--Ernst & Young LLP........................ F-21 Reports of Independent Accountants--Coopers & Lybrand ................... F-22 Combined Balance Sheet at December 31, 1994.............................. F-24 Combined Statements of Operations for the periods January 1, 1993 to December 15, 1993; December 16, 1993 to December 31, 1993; the year ended December 31, 1994 and for the period January 1, 1995 to April 5, 1995.................................................................... F-25 Combined Statements of Changes in Stockholder's Equity for the periods January 1, 1993 to December 15, 1993; December 16, 1993 to December 31, 1993; the year ended December 31, 1994 and for the period January 1, 1995 to April 5, 1995.................................................................... F-26 Combined Statements of Cash Flows for the periods January 1, 1993 to December 15, 1993; December 16, 1993 to December 31, 1993; the year ended December 31, 1994 and for the period January 1, 1995 to April 5, 1995.................................................................... F-27 Notes to Combined Financial Statements................................... F-28
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, 1995 and June 30, 1996, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the period March 17, 1995 (date of inception) to December 31, 1995 and the six months ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Giga Information Group, Inc. as of December 31, 1995 and June 30, 1996, and the results of its operations and its cash flows for the period March 17, 1995 to December 31, 1995 and the six months ended June 30, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts August 31, 1996 F-2 GIGA INFORMATION GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, PRO FORMA 1995 JUNE 30, 1996 JUNE 30, 1996 ------------ ------------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........... $16,906 $ 9,331 Trade accounts receivable, net of allowance for uncollectible accounts of $79 and $86 at December 31, 1995 and June 30, 1996, respectively....................... 2,180 3,030 Unbilled accounts receivable........ 90 925 Prepaid expenses and other current assets............................. 1,406 1,571 ------- ------- Total current assets................ 20,582 14,857 Property and equipment, net of accumulated depreciation and amortization of $562 and $1,136 at December 31, 1995 and June 30, 1996, respectively........................ 2,194 2,716 Leasehold intangible, net of accumulated amortization of $283 and $496 at December 31, 1995 and June 30, 1996, respectively.............. 1,028 815 Goodwill, net of accumulated amortization of $482 and $803 at December 31, 1995 and June 30, 1996, respectively........................ 803 482 Note receivable...................... 150 Other assets......................... 77 200 ------- ------- Total assets...................... $24,684 $19,220 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank overdrafts..................... $ 458 $ 479 Accounts payable.................... 1,519 651 Deferred revenues................... 2,480 4,995 Accrued compensation and benefits... 632 1,095 Accrued expenses.................... 1,924 1,774 Sales tax reserve................... 1,000 1,000 Other current liabilities........... 503 563 Other current liabilities and accrued expenses................... 3,427 3,337 Net liabilities of discontinued operations, current portion........ 861 1,566 ------- ------- Total current liabilities........... 9,377 12,123 Long-term debt - related party....... 400 412 Long-term debt - other............... 1,037 1,060 Other liabilities.................... 210 240 Net liabilities of discontinued operations, less current portion.... -- 1,332 ------- ------- Total liabilities................... 11,024 15,167 Commitments and other contingent liabilities (Note 17)............... Stockholders' equity: Preferred Stock, $.001 par value; 10,000,000 shares authorized at December 31, 1995 and June 30, 1996; 5,000,000 shares authorized at June 30, 1996 pro forma; none issued or outstanding at June 30, 1996 pro forma..................... -- -- -- Series A Preferred Stock; $.001 par value per share, 650,000 shares authorized: 570,000 shares issued and outstanding (liquidation preference of $2,850,000).......... 1 1 -- Series B Preferred Stock; $.001 par value per share, 6,000,000 and 6,500,000 shares authorized: 4,598,200 and 5,272,215 shares issued and outstanding at December 31, 1995 and June 30, 1996, respectively (liquidation preference of $16,094,000 and $18,453,000 at December 31, 1995 and June 30, 1996, respectively)... 4 5 -- Common Stock; $.001 par value per share, 28,000,000 shares authorized: 6,108,000, 6,110,600 and 13,662,815 shares issued and outstanding at December 31, 1995, June 30, 1996 and June 30, 1996 pro forma, respectively................ 6 6 $ 14 Additional paid-in capital.......... 18,295 20,631 20,629 Stock subscriptions receivable...... (375) (75) (75) Accumulated deficit................. (4,234) (16,537) (16,537) Cumulative translation adjustments.. (37) 22 22 ------- ------- ------- Total stockholders' equity.......... 13,660 4,053 $ 4,053 ------- ------- ------- Total liabilities and stockholders' equity............. $24,684 $19,220 ======= =======
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)
SIX MONTHS MARCH 17 TO MARCH 17 TO ENDED DECEMBER 31, JUNE 30, JUNE 30, 1995 1995 1996 ------------ ----------- ---------- (UNAUDITED) Revenues: Continuous Information Services....... $ -- $ -- $ 627 Other Services........................ 10,706 3,571 5,855 ---------- ---------- ---------- Total revenues...................... 10,706 3,571 6,482 Cost and Expenses: Cost of services...................... 8,097 2,473 8,809 Sales and marketing................... 1,016 191 1,982 Research and development.............. 348 -- 839 General and administrative............ 6,216 1,433 4,257 Depreciation and amortization......... 1,397 527 1,088 ---------- ---------- ---------- Total costs and expenses............ 17,074 4,624 16,975 ---------- ---------- ---------- Operating loss........................ (6,368) (1,053) (10,493) Interest income......................... 259 26 375 Interest expense........................ (100) (16) (52) ---------- ---------- ---------- Loss from continuing operations before income taxes......................... (6,209) (1,043) (10,170) Income tax benefit...................... (1,093) (310) (257) ---------- ---------- ---------- Loss from continuing operations....... (5,116) (733) (9,913) ---------- ---------- ---------- Discontinued operations: Income (loss) from the discontinued BIS market research business, net of tax effect................................. 1,490 301 (85) Loss on disposal of discontinued BIS market research business, net of tax effect................................. -- -- (2,305) ---------- ---------- ---------- Income (loss) from discontinued operations........................... 1,490 301 (2,390) ---------- ---------- ---------- Net loss............................ $ (3,626) $ (432) $(12,303) ========== ========== ========== Historical results per common and common equivalent share: Loss from continuing operations....... $(0.38) $ (0.06) $(0.70) Income (loss) from discontinued operations........................... 0.11 0.02 (0.01) Loss from disposal of discontinued operations........................... -- -- (0.16) Net loss.............................. $(0.27) $(0.04) $(0.87) Historical weighted average common and common equivalent shares outstanding... 13,486,788 12,299,420 14,180,287 Pro forma results per common and common equivalent share: Loss from continuing operations....... $(0.34) $(0.61) Income (loss) from discontinued operations........................... 0.10 0.00 Loss from disposal of discontinued operations........................... -- (0.14) Net loss.............................. $(0.24) $(0.75) Pro forma weighted average common and common equivalent shares outstanding... 14,855,209 16,360,287
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 (IN THOUSANDS, EXCEPT SHARE DATA)
SERIES A SERIES B ADDITIONAL STOCK CUMULATIVE TOTAL PREFERRED PREFERRED COMMON PAID-IN SUBSCRIPTIONS TRANSLATION ACCUMULATED STOCKHOLDERS' STOCK STOCK STOCK CAPITAL RECEIVABLE ADJUSTMENTS DEFICIT EQUITY --------- --------- ------ ---------- ------------- ----------- ----------- ------------- Issuance of 6,108,000 shares of Common Stock.................. $ 6 $1,054 $(350) $710 Issuance of 160,000 shares of Series A Preferred Stock and convertible note for acquisition of ExperNet Corporation............ $(608) (608) Issuance of 410,000 shares of Series A Preferred Stock ....... $ 1 2,049 (25) 2,025 Issuance of 4,026,772 shares of Series B Preferred Stock........ $ 4 13,212 13,216 Conversion of bridge financing to 571,428 shares of Series B Preferred Stock........ 1,980 1,980 Net loss................ (3,626) (3,626) Translation adjustments............ $(37) (37) --- --- --- ------- ----- ---- -------- -------- Balance at December 31, 1995................... 1 4 6 18,295 (375) (37) (4,234) 13,660 --- --- --- ------- ----- ---- -------- -------- Payment of stock subscription receivable............. 300 300 Issuance of 674,015 shares of Series B Preferred Stock........ 1 2,336 2,337 Issuance of 2,600 shares of Common Stock........ -- -- Net loss................ (12,303) (12,303) Translation adjustments............ 59 59 --- --- --- ------- ----- ---- -------- -------- Balance at June 30, 1996................... $ 1 $ 5 $ 6 $20,631 $ (75) $ 22 $(16,537) $ 4,053 === === === ======= ===== ==== ======== ========
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)
SIX MONTHS MARCH 17 TO MARCH 17 TO ENDED DECEMBER 31, JUNE 30, JUNE 30, 1995 1995 1996 ------------ ----------- -------- (UNAUDITED) Cash flows from operating activities: Net loss.............................. $(3,626) $ (432) $(12,303) Adjustments to reconcile net loss to net cash used in continuing operating activities: (Income) loss from discontinued operations......................... (1,490) (301) 85 Loss on disposal of discontinued operations......................... -- -- 2,305 Depreciation and amortization....... 1,397 527 1,088 Provision for (recovery from) doubtful accounts.................. 27 (24) 48 (Increase) decrease in deferred taxes.............................. 50 -- (8) Interest on long term debt added to principal.......................... 37 12 35 (Gain) loss on sale of fixed assets............................. 15 (6) 4 Changes in assets and liabilities net of effects of acquisitions: Decrease (increase) in accounts receivable........................ 1,638 525 (1,799) Decrease (increase) in prepaid expenses and other current assets............................ (1,462) 585 (142) Increase (decrease) in accounts payable and accrued liabilities... 2,067 (295) (292) Increase (decrease) in deferred revenues........................... 283 (936) 2,500 ------- ------ -------- Net cash provided by (used in) operating activities: Net cash used in continuing operations.......................... (1,064) (345) (8,479) Net cash provided by (used in) discontinued operations............. 335 352 (333) ------- ------ -------- Net cash provided by (used in) operating activities: (729) 7 (8,812) Cash flows from investing activities: Acquisition of equipment and improvements........................ (1,049) (34) (1,140) Net cash acquired in BIS acquisition......................... 1,013 1,013 -- Net cash acquired in ExperNet acquisition......................... 61 -- -- Issuance of note receivable.......... -- -- (150) Other, net........................... 96 2 (56) ------- ------ -------- Cash provided by (used in) investing activities............................ 121 981 (1,346) ------- ------ -------- Cash flows from financing activities: Proceeds from issuance of Common Stock............................... 710 100 -- Due to shareholder................... -- 1,086 -- Proceeds from issuance of Series A Preferred Stock..................... 2,025 -- -- Proceeds from bridge financing, net of issuance costs of $20............ 1,980 -- -- Proceeds from issuance of Series B Preferred Stock, net of issuance costs of $878 and $25............... 13,216 -- 2,337 Repayments of principal to related parties............................. (321) -- -- Proceeds from stock subscriptions receivable.......................... -- -- 300 Net short-term borrowings............ 40 193 23 Principal payments on long-term debt................................ (97) (34) (32) ------- ------ -------- Cash provided by financing activities.. 17,553 1,345 2,628 ------- ------ -------- Effect of exchange rates on cash....... (39) -- (45) Net increase (decrease) in cash and cash equivalents...................... 16,906 2,333 (7,575) Cash and cash equivalents, beginning of period................................ -- -- 16,906 ------- ------ -------- Cash and cash equivalents, end of period................................ $16,906 $2,333 $ 9,331 ======= ====== ======== Supplementary cash flow information: Income taxes paid.................... $39 $0 $22 Interest paid........................ $58 $2 $14
The accompanying notes are an integral part of the consolidated financial statements. F-6 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO THE PERIOD MARCH 17, 1995 TO JUNE 30, 1995 IS UNAUDITED) 1. THE COMPANY Giga Information Group, Inc. ("Giga" or the "Company") was incorporated on March 17, 1995 (date of inception) in the State of Delaware. The Company's principal business activity is to provide information, analysis and advice relating to developments and trends in the computing, telecommunications and related industries (collectively the information technology or "IT" industry) primarily through subscription based products. The Company derives its revenues primarily from two sources: Continuous Information Services, which include its Giga Advisory Service and Relevance Services; and Other Services, which include events, publications, consulting and econometric forecasting. On April 5, 1995, the Company acquired BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively "BIS" or "Predecessor Companies"). On July 6, 1995, Giga acquired a 77.8% equity interest in ExperNet Corporation ("ExperNet") which was owned by Gideon I. Gartner, Chairman of the Board of Directors and Chief Executive Officer of the Company, and David L. Gilmour, a director and officer of the Company, and, on December 29, 1995, acquired the remaining 22.2% interest. The results of operations of ExpertNet are included in the Company's results from July 6, 1995. The Company is subject to a number of risks similar to other companies in its industry, including a dependence on sales and renewals of subscription- based services, uncertainty of market acceptance of its services, competition from other companies including those with greater resources than the Company, dependence on key individuals, the need to obtain additional financing, protection of proprietary information and technology and the risks associated with international operations. In addition, the Company is subject to risks associated with the discontinuance of the BIS Market Research Business (see Note 16). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements include the results of operations, cash flows and changes in stockholders' equity for the periods from March 17, 1995 (date of inception) to December 31, 1995 and March 17, 1995 to June 30, 1995 and the six months ended June 30, 1996. The financial statements pertaining to the period from the date of inception to June 30, 1995 have been prepared for comparative purposes only and as such have not been audited. In the opinion of the Company's management, these unaudited financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation. The comparison of the period from the date of inception to June 30, 1995 and the six months ended June 30, 1996 may not be meaningful because the periods are of different durations. PRINCIPLES OF CONSOLIDATION The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries. The Company's 50% interest in BIS Japan, Inc. has been accounted for at cost which approximates equity. All significant intercompany balances and transactions have been eliminated. Pursuant to the purchase method of accounting, acquired assets and liabilities were revalued to their fair market value. The excess of the purchase price over the fair market value of the net assets acquired was recorded as goodwill. CASH AND CASH EQUIVALENTS Cash equivalents primarily represent liquid investments, with original maturities of 90 days or less, in money market funds which are convertible to a known amount of cash and bear an insignificant risk of change in value. FOREIGN CURRENCY TRANSLATION For international operations, the local currency is used as the functional currency. The assets and liabilities of the foreign entities are translated at the period-end rates of exchange and the related statements of operations and cash flows are translated at the weighted average rates of exchange for the respective periods. The resulting F-7 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) translation adjustments are excluded from the results of operations and charged to a separate component of stockholders' equity. Realized and unrealized exchange gains or losses arising from transaction adjustments are reflected in operations and are not material. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments in money market accounts and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions in accordance with its investment policy as approved by its board of directors. Trade receivables result from contracts with various customers. Giga generally does not require collateral or other security from these customers. Historically, no significant credit-related losses have been incurred. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" ("SFAS 109"), which uses a balance sheet approach in accounting for income taxes. Under SFAS 109, deferred tax liabilities and assets are recognized based on differences between book and tax bases of assets and liabilities using presently enacted tax rates. The provision for income taxes is the sum of the amount of income tax paid or payable for the period as determined by applying the provisions of enacted tax laws to taxable income for the period and the net changes during the period in the Company's deferred tax assets and liabilities. Income taxes on $807,000, $444,000 and $0 of cumulative undistributed earnings of subsidiaries outside of the United States for the periods from March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and the six months ended June 30, 1996, respectively, have not been provided for as these earnings will either be indefinitely reinvested or remitted substantially free of additional tax. REVENUE AND COMMISSION EXPENSE RECOGNITION Continuous Information Services provide customers with ongoing information, analysis and advice relating to developments and trends in the IT industry on a subscription basis. Revenues from Continuous Information Services are deferred and recognized on a pro rata monthly basis over the contract period, generally one year. The Company's policy is to record a receivable and related deferred revenues for the full amount of the contract on the date it is signed. Contracts are generally billable upon signing. The Company also records the related commission obligation upon the signing of these contracts and amortizes the corresponding deferred commission expense over the contract period in which the related Continuous Information Services revenues are earned. The commissions are payable to the Company's sales force upon the execution of the subscription agreement. In the event the contract is canceled by the customer, the commission is refundable with respect to the portion related to the revenue which will not be recognized. Revenues from Other Services are recognized as follows: events as they occur; publications when delivered; and consulting and econometric forecasting as such services are performed. Unbilled receivables are primarily generated as a result of contractual quarterly billing terms offered in connection with the Continuous Information Services. PROPERTY AND EQUIPMENT Property and equipment are stated at cost for items acquired after the initial acquisition of the respective entities and at estimated fair market value for those assets in existence at the date of acquisition. Expenditures F-8 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) for maintenance and repairs are charged to expense while the costs of significant improvements are capitalized. Depreciation is computed for financial reporting purposes principally by using the straight-line method over the following estimated useful lives: Computers and related equipment................ 3 years Furniture and fixtures.... 5 years Motor vehicles............ 4 years Leaseholds and related im- provements............... Shorter of economic life or remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are eliminated from the balance sheet and related gains or losses are reflected in income. GOODWILL Goodwill represents the excess of the purchase price of entities acquired over the fair values of amounts assigned to the net tangible assets acquired and liabilities assumed. Amortization is recorded using the straight-line method over two years. These amounts are subject to adjustment in accordance with the provisions of SFAS 109. Impairment of goodwill is measured on the basis of whether anticipated future undiscounted operating cash flows expected from the acquired businesses will recover the recorded respective intangible asset balances over the remaining amortization period. At June 30, 1996, approximately $666,000 of goodwill identifiable with the discontinued operations was written off to expenses in connection with the disposition of these operations. Amortization expense was $482,000, $160,000 and $321,000 for the periods from March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and the six months ended June 30, 1996, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) disclosure of contingent assets and liabilities at the dates of the financial statements and (iii) the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. NET LOSS PER COMMON SHARE The unaudited pro forma net loss per common share is computed based upon the weighted average number of common shares, on an as-if converted basis, and common equivalent shares outstanding after certain adjustments described below. Common equivalent shares comprise stock options and warrants using the treasury stock method. Common equivalent shares from stock options and warrants are excluded from the computation if their effect is antidilutive. In accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"), all common and common equivalent shares and other potentially dilutive instruments which include stock options, warrants and the Series A and Series B Preferred Stock issued at prices below the estimated initial public offering price of $10.00 per share during the twelve month period prior to the initial filing date of September 10, 1996 of the Registration Statement have been included in the calculation as if they were outstanding for all periods presented. Shares of Series A Preferred Stock not included as Common Stock equivalents under SAB No. 83 are not included as Common Stock equivalents because their inclusion would be anti-dilutive. F-9 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PRO FORMA PRESENTATION (UNAUDITED) Upon the closing of an initial public offering of Common Stock at an offering price of not less than $5.25 per share and having aggregate proceeds of $15,000,000, all of the Company's shares of Series A Preferred Stock and Series B Preferred Stock will be converted into 7,552,215 shares of Common Stock. The unaudited pro forma presentation of the June 30, 1996 balance sheet reflects the conversion of outstanding shares of Series A Preferred Stock and Series B Preferred Stock into Common Stock. NEW ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which is effective for fiscal year 1996. The Company has determined that it will elect the disclosure-only alternative. The Company will be required to disclose the pro forma net income or loss and per share amounts in the notes to the financial statements using the fair value based method for fiscal year 1996 with comparable disclosures for fiscal year 1995. The Company has not determined the impact of these pro forma adjustments. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," which must be adopted in fiscal year 1996, requires that impairment losses be recognized when the carrying value of an asset exceeds its fair value. The Company regularly assesses all of its long-lived assets for impairment and, therefore, does not believe the adoption of the standard will have a material effect on its financial position or results of operations. 3. ACQUISITIONS BIS STRATEGIC DECISIONS, INC. AND AFFILIATES On April 5, 1995, the Company acquired 100% of the stock of BIS for $200,000 in cash and a $1,000,000 convertible promissory note (see Note 9). The acquisition was accounted for as a purchase and, accordingly, the cost (including acquisition costs of $204,000) was assigned to the tangible and identifiable intangible assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. As part of the transaction, an intangible asset (leasehold) of approximately $1,300,000 was recorded representing the fair value of payments being made through May 1998 by a former owner of BIS. In addition, the Company acquired current assets of approximately $8,700,000 and furniture and equipment of approximately $2,000,000 offset by current liabilities assumed of approximately $12,600,000 (of which approximately $9,100,000 were deferred revenues), a note payable of $192,000 and a tax provision of approximately $1,000,000. The excess of the purchase price over the net assets acquired of approximately $3,059,000 has been recorded as goodwill. The Company's statements of operations include the results of operations of BIS from April 5, 1995. EXPERNET On July 6, 1995, the Company acquired a majority interest in ExperNet in exchange for (i) 160,000 shares of Series A Preferred Stock (640,000 shares of Common Stock on an as-converted basis), 80,000 shares (320,000 shares of Common Stock on an as-converted basis) of which were issued to Mr. Gartner and 80,000 shares (320,000 shares of Common Stock on an as-converted basis) of which were issued to Mr. Gilmour and (ii) the issuance to Mr. Gartner of an option to purchase 160,000 shares of Common Stock at an exercise price of $.50 per share which vested immediately. On December 29, 1995, the Company acquired Mr. Gilmour's remaining interest in ExperNet in exchange for a $400,000 6% convertible note (the "Note") due December 31, 2005 (see Note 9). As a result of the common control of the Company and ExperNet, there has been no adjustment to the historical cost basis of the net assets acquired and liabilities assumed of ExperNet. As a result of the transaction, the Company's accumulated deficit increased by $608,000 representing the net deficit of ExperNet at the date of acquisition ($208,000) and the obligation under the convertible note ($400,000). The results of operations include ExperNet from July 6, 1995. F-10 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions of BIS and ExperNet had occurred on January 1, 1995 and does not purport to be indicative of what would have occurred had the acquisitions been made as of that date or of the results which may occur in the future (in thousands):
JANUARY 1, TO DECEMBER 31, 1995 ----------------- (UNAUDITED) Other Services revenues............................... $14,015 Cost of services...................................... 10,427 Sales and marketing................................... 1,282 Research and Development.............................. 348 General and administrative............................ 7,455 Depreciation and amortization......................... 1,797 ------- Total costs and expenses........................... 21,309 ------- Operating loss..................................... (7,294) Interest income, net.................................. 153 ------- Loss from continuing operations before income tax- es................................................. (7,141) Income tax benefit.................................... (1,314) ------- Loss from continuing operations.................... $(5,827) =======
4. RELATED PARTIES During the period from March 17, 1995 to December 31, 1995, the Company reimbursed Mr. Gartner $186,000 for disbursements made by him for items related to the acquisition of BIS and for other operational expenses prior to the incorporation of the Company. In addition, following the initial closing of the sale of Series B Preferred Stock by the Company in November 1995, ExperNet repaid a loan in the principal amount of approximately $221,000 plus accrued interest at a rate of 10%, or a total of approximately $248,000, to Mr. Gartner and a loan in the principal amount of approximately $101,000 plus accrued interest at a rate of 10%, or a total of approximately $113,000, to Mr. Gilmour. In the event the Company is unable to complete its proposed initial public offering, certain of its existing investors have represented that they will, to the extent necessary, fund the Company through June 1997 on terms to be mutually agreed upon. 5. PROPERTY AND EQUIPMENT Property and equipment at cost, less accumulated depreciation and amortization, consist of the following (in thousands):
DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ------------- Computers and related equipment............ $1,815 $2,422 Furniture and fixtures..................... 498 1,000 Motor vehicles............................. 426 339 Leasehold improvements..................... 17 91 ------ ------ 2,756 3,852 Less accumulated depreciation and amortiza- tion...................................... (562) (1,136) ------ ------ Property and equipment, net................ $2,194 $2,716 ====== ======
F-11 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. LEASE COMMITMENTS The Company leases certain office space and equipment under operating lease agreements. As of June 30, 1996, future minimum rental commitments under all operating leases with remaining noncancelable terms of one year or more, including the rental payments being made by a former owner of the Company (see Note 3), are as follows (in thousands):
OPERATING YEAR LEASES ---- --------- 1996............................................................... $ 765 1997............................................................... 1,485 1998............................................................... 999 1999............................................................... 729 2000............................................................... 583 Thereafter......................................................... 3,364 ------ Total lease commitments ......................................... $7,925 ======
Rent expense, net of sublease income of approximately $60,000, $20,000 and $39,000, was $650,000, $218,000 and $452,000 for the periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and January 1, 1996 to June 30, 1996, respectively. Amortization expense includes $253,000, $63,000 and $190,000 amortization of the leasehold asset in lieu of rent expense for the periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 1995 and January 1, 1996 to June 30, 1996, respectively. An agreement was entered into by and among the Company and two prior owners of BIS providing for one of the prior owners, who had guaranteed all payments under a lease, to pay an aggregate of $1,500,000 to the landlord for rent under the lease, payable monthly in an amount of $36,722. 7. INCOME TAXES The Company has deferred tax assets of approximately $2,833,000 and $6,421,000 at December 31, 1995 and June 30, 1996, respectively. For financial reporting purposes, valuation allowances of $2,772,000 and $6,351,000, respectively, have been recognized to offset these deferred tax assets until the Company can conclude that it is more likely than not that these deferred tax assets will be realized. During the period March 17, 1995 to December 31, 1995 and the six month period ended June 30, 1996, the valuation allowance increased by approximately $1,006,000 and $3,579,000, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ------------- Deferred revenue........................... $ 539 $ 370 Net operating loss carryforwards........... 2,395 5,910 Other, net................................. (101) 141 ------ ------ Total deferred tax assets................ 2,833 6,421 Valuation allowance for deferred tax assets.................................... 2,772 6,351 ------ ------ Net deferred tax assets.................. $ 61 $ 70 ====== ======
F-12 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For financial reporting purposes, income before income taxes includes the following components (in thousands):
MARCH 17 TO SIX MONTHS DECEMBER 31, ENDED JUNE 30, 1995 1996 ------------ -------------- Pre-tax loss from continuing operations: United States.................................. $(4,972) $ (9,690) Non-United States.............................. (1,237) (480) ------- -------- Consolidated..................................... $(6,209) $(10,170) ======= ========
The income tax benefit of the loss from continuing operations, substantially all of which is deferred, consists of the following components (state and local taxes are not material) (in thousands):
MARCH 17 TO SIX MONTHS DECEMBER 31, MARCH 17 TO ENDED 1995 JUNE 30, 1995 JUNE 30, 1996 ------------ ------------- ------------- U.S. Federal........................... (754) (178) (257) Foreign................................ (339) (132) -- ------ ---- ---- (1,093) (310) (257) ====== ==== ====
The income tax benefit of the loss from continuing operations differs from the amount of income tax benefit determined by applying the applicable U.S. statutory income tax rate to pretax loss from continuing operations as a result of the following differences (in thousands):
MARCH 17 TO SIX MONTHS DECEMBER 31, MARCH 17 TO ENDED 1995 JUNE 30, 1995 JUNE 30, 1996 ------------ ------------- ------------- Income tax at the statutory rate .... (2,111) (355) (3,458) Foreign subsidiary losses with no benefit recognized.................. 224 -- 163 Foreign income taxed at different rates .............................. (141) (90) (1) Nondeductible goodwill............... 164 54 109 U.S. losses with no benefit recognized.......................... 796 107 2,991 Other items (net).................... (25) (26) (61) ------ ---- ------ (1,093) (310) (257) ====== ==== ======
The Company has available net operating loss carryforwards of approximately $15,109,000 at June 30, 1996, which may be used to reduce future taxable income. Of this amount, U.S. carryforwards of approximately $11,804,000 expire in various years through 2011, certain non-U.S. carryforwards of approximately $1,589,000 expire in various years through 2001 and the balance may be carried forward indefinitely. If losses of acquired companies are used to reduce future taxable income, associated tax benefits will first reduce acquired goodwill and other noncurrent intangible assets before being recognized as a reduction of income tax expense in the period the benefits are realized. Utilization of the net operating loss carryforwards may be limited pursuant to the provisions of Section 382 of the Internal Revenue Code of 1986. The results of continuing operations for March 17, 1995 to December 31, 1995, the period March 17, 1995 to June 30, 1995 and the six months ended June 30, 1996 include non-U.S. income tax benefits of approximately $(339,000), $(55,000) and $0, respectively, and U.S. federal, state and local income, franchise and minimum tax benefits of approximately $(754,000), $(255,000) and ($257,000), respectively. 8. JOINT VENTURE AGREEMENT In 1991, BIS Strategic Decisions, Inc. entered into a joint venture agreement with a Japanese company to provide additional market penetration in Japan for its services. BIS Strategic Decisions, Inc.'s initial equity ownership was 40%. Pursuant to the terms of the agreement, the Company purchased an additional 10% interest F-13 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) in the joint venture from its partner in March 1996 for approximately $85,000. In April 1996, the Company and its partner each increased their investment in the joint venture by approximately $24,000. The net earnings of the joint venture to date have been de minimus. At December 31, 1995 and June 30, 1996, the Company had accounts receivable due from the joint venture of $100,000 and $69,000, respectively. 9. LONG TERM DEBT In connection with the Company's acquisition of BIS, the Company issued a $1,000,000 5% convertible note due April 5, 1998 in favor of Friday Holdings, L.P. The note is convertible into 185,298 shares of the Common Stock of the Company. In connection with the Company's acquisition of ExperNet, the Company issued a $400,000 6% convertible note to Mr. Gilmour (see Note 3). The Note is convertible into shares of Series B Preferred Stock. The Note may be prepaid in part, up to $150,000, at the option of the holder at any time between July 1, 1997 and July 1, 1999 and all, or any part, at the option of the holder on or after July 1, 1999. The holder may convert all or part of the unpaid principal of the note into the Company's Series B Preferred Stock at a conversion rate of $3.50 per share, up to a maximum number of 28,576 shares at December 31, 1995, with the maximum number increasing by 2,857 shares for each month after January 1996. As of June 30, 1996, the note is convertible into 42,861 shares of Series B Preferred Stock. 10. PREFERRED STOCK The authorized capital stock of the Company includes 10,000,000 shares of Preferred Stock. Of the Preferred Stock, 650,000 shares have been designated as Series A Preferred Stock and 6,500,000 shares have been designated as Series B Preferred Stock. The remaining 2,850,000 shares of Preferred Stock have not been designated. Upon completion of the Company's proposed initial public offering, the Company will have authorized 5,000,000 shares of undesignated Preferred Stock. SERIES A PREFERRED STOCK During 1995, the Company issued 410,000 shares of Series A Preferred Stock (1,640,000 shares on an as- converted basis) for consideration of $2,050,000 which consisted of $2,025,000 cash and a $25,000 non-recourse note from an employee in connection with his acceptance of employment with the Company. Of these shares, 80,000 were issued and sold to employees of the Company. In addition, 160,000 shares of Series A Preferred Stock (640,000 shares on an as- converted basis) were issued in connection with the acquisition of ExperNet as described in Note 3. SERIES B PREFERRED STOCK During 1995, the Company issued 4,026,772 shares of Series B Preferred Stock for cash consideration of $13,216,000, net of issuance costs of $878,000. In addition, bridge financing in the principal amount of $2,000,000 was automatically converted into 571,428 shares of Series B Preferred Stock at the first closing of the Series B Preferred Stock financing in November 1995. During the six months ended June 30, 1996, the Company issued 674,015 shares of Series B Preferred Stock for cash consideration of $2,337,000, net of issuance costs of $25,000. CONVERSION Each share of Series A Preferred Stock and Series B Preferred Stock is convertible, at the holder's option, into that number of shares of Common Stock as is determined by dividing the initial purchase price of such shares by the conversion price in effect at the time of conversion. The conversion price of each share of Series A Preferred Stock and Series B Preferred Stock is subject to adjustment upon the occurrence of certain events. At F-14 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) June 30, 1996 each share of Series A Preferred Stock is convertible into four shares of Common Stock and each share of Series B Preferred Stock is convertible into one share of Common Stock. The Series A Preferred Stock and Series B Preferred Stock will automatically convert into Common Stock at the then effective conversion price immediately prior to the closing of a firm commitment underwritten public offering of Common Stock at a price of at least $5.25 per share (as adjusted for any stock splits, stock dividends, subdivisions or combinations), and having aggregate gross proceeds of at least $15,000,000. In addition, the Series A Preferred Stock and Series B Preferred Stock will convert into Common Stock at the then effective conversion price upon the consent of the holders of at least two- thirds (2/3) of the then outstanding Series A Preferred Stock and Series B Preferred Stock. LIQUIDATION Upon (i) the liquidation, dissolution, or winding up of the Company (either voluntary or involuntary) or (ii) the merger or consolidation of the Company with another corporation or the sale or other transfer of all or substantially all of the assets of the Company which is not agreed to by the holders of not less than a majority of the Preferred Stock, voting together as a single class, and in which stockholders of the Company immediately prior to such transaction do not own more than a 50% interest in the surviving entity, (i) holders of the Series A Preferred Stock are entitled to receive out of the assets of the Company available for distribution to its stockholders, an amount equal to $5.00 per share, plus any declared but unpaid dividends, prior to any distribution to the holders of the Company's Common Stock, and (ii) holders of Series B Preferred Stock are entitled to receive out of the assets of the Company available for distribution to its shareholders, an amount equal to $3.50 per share, plus any declared but unpaid dividends, prior to any distribution to the holders of the Company's Common Stock. Following distribution of such preferential amounts, holders of Series A Preferred Stock and Series B Preferred Stock shall not participate in any further distribution. VOTING Except as provided by law or in the Company's Amended and Restated Certificate of Incorporation, the holders of the Series A Preferred Stock and Series B Preferred Stock vote with holders of the Company's Common Stock on an as converted basis and not as a separate class or series. In addition, so long as any shares of Series A Preferred Stock or Series B Preferred Stock are outstanding, the Company may not, without the approval of at least a majority of the outstanding shares of the Series A Preferred Stock and Series B Preferred Stock, take certain actions as described in the Certificate of Incorporation. 11. COMMON STOCK In November 1995, the Company amended its Certificate of Incorporation to increase the authorized number of shares of Common Stock from 10,000,000 to 28,000,000. In November 1995, the Company effected a four-for-one stock split of the Common Stock in the form of a stock dividend. All share and per share data presented herein have been restated to reflect the Common Stock split. Upon completion of the Company's proposed initial public offering, the Company will have authorized 60,000,000 shares of Common Stock. During March 1995, the Company sold to Mr. Gartner 4,200,000 shares of Common Stock at a purchase price of $0.02375 per share. During the remainder of 1995, the Company sold 1,908,000 shares of Common Stock to employees, consultants and directors at a purchase price of $0.50 per share. 12. STOCK OPTIONS AND WARRANTS STOCK OPTIONS In June 1995, the Company adopted the 1995 Stock Plan (the "Prior Stock Plan"). The Prior Stock Plan was superseded in October 1995 by the 1995 Stock Option/Stock Issuance Plan (the "1995 Stock Plan"). A total of 5,000,000 shares of Common Stock were reserved for issuance under the 1995 Stock Plan as of June 30, 1996. F-15 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The 1995 Stock Plan provides for direct purchases of Common Stock and the grants of non-qualified and incentive options to purchase shares of the Company's Common Stock to employees (including officers and directors who are employed by the Company) of, and consultants to, the Company at the fair market value determined by the Board on the date of the grant. The Board may determine the date on which these shares vest and become exercisable. Shares purchased as the result of the exercise of these options are subject to the Company's right to repurchase such shares upon the occurrence of certain events and at a price equal to the fair market value as defined on the date of repurchase. At June 30, 1996, 2,271,361 shares were available for grant. A summary of activity under the 1995 Stock Plan through June 30, 1996 follows:
NUMBER OF EXERCISE/ SHARES UNDER PURCHASE OPTION/PURCHASE PRICE --------------- ---------- Outstanding at March 17, 1995 Granted........................................ 2,550,400 $0.50-0.60 Exercised/purchased............................ (160,000) 0.50 Cancelled...................................... (60,000) 0.50 --------- ---------- Outstanding at December 31, 1995 2,330,400 0.50-0.60 Granted........................................ 586,050 0.50-0.60 Exercised/purchased............................ (2,600) 0.50 Cancelled...................................... (347,811) 0.50-0.60 --------- ---------- Outstanding at June 30, 1996..................... 2,566,039 0.50-0.60 ========= ==========
Of the options to purchase 2,566,039 shares of Common Stock outstanding on June 30, 1996, options for 257,991 shares of Common Stock were vested and exercisable at that date. Through August 31, 1996, pursuant to the 1995 Stock Plan, the Company granted additional options to acquire a total of 393,000 shares of Common Stock at exercise prices ranging from $0.60 to $6.75, net of cancellations of options to purchase 86,892 shares of Common Stock. In addition, in July 1995 the Company has granted options to purchase a total of 780,000 shares of Common Stock other than pursuant to the 1995 Stock Plan at an exercise price of $0.50. WARRANTS In connection with its engagement of a private placement agent for the sale by the Company of the Series B Preferred Stock, the Company agreed in June 1995 to issue the placement agent a warrant to purchase 107,876 shares of Series B Preferred Stock at an exercise price of $4.625 per share. In connection with the Series B Preferred Stock bridge financing, the Company agreed in August 1995 to issue the lender a warrant to purchase 285,714 shares of Series B Preferred Stock at an exercise price of $2.345 per share. Both of these warrants are for a term of five years, subject to earlier expiration upon the occurrence of certain events. The Company believes the fair market value of each warrant was nominal. 13. STOCK PURCHASE PLANS/AGREEMENTS In the period from inception to December 31, 1995, the Company sold 420,000 shares of Common Stock to certain employees of the Company at $0.50 per share under the provisions of the 1995 Stock Plan or separate stock purchase agreements. Employees vest in these shares over four years from their respective dates of purchase, with 25% vesting on the first anniversary of the purchase and one forty-eighth vesting pro rata thereafter monthly over the remaining 36 months. If an employee who purchased stock under either the 1995 Stock Plan or separate agreements ceases to be employed by the Company, the Company at its option may elect to repurchase the employee's unvested shares at the original cost paid by the employee for such stock and vested shares at a price equal to the fair market value as defined on the date of repurchase. F-16 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In October 1995, the Company sold 120,000 shares of Common Stock to Richard Crandall, a director who also serves as a consultant to the Company for $0.50 per share of which $10,000 was paid in cash and $50,000 was paid in the form of a non-recourse interest bearing note due March 31, 1996. In June 1996, the Company cancelled the promissory note plus interest accrued thereunder (totalling approximately $52,000), in lieu of payment to Mr. Crandall for services rendered to the Company in 1995 (for which Mr. Crandall was entitled to receive $25,000) and the first six months of 1996 (for which Mr. Crandall was entitled to receive $30,000) plus interest. These shares are also subject to certain repurchase rights by the Company in the event that Mr. Crandall ceases to be either a director of, or consultant to, the Company. 14. EMPLOYEE BENEFITS AND DEFERRED COMPENSATION PLANS In the United States, the Company maintains a Savings and Retirement Plan (the "401(k) Plan") under Section 401 of the Internal Revenue Code. Employees are eligible to participate in the 401(k) Plan who work a minimum of one year and have attained the age of 21. The Company matches by 25% that portion of a participant's contribution representing the first 3% of an employee's base salary and by 50% that portion representing the next 3% of an employee's base salary. The Company may also make additional contributions to the 401(k) Plan at the discretion of the Board of Directors. The Company has made mandatory contributions to the 401(k) Plan of $47,000, $17,000 and $33,000 during the periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and the six months ended June 30, 1996. The Company has not made any discretionary contributions to the 401(k) Plan during 1995 or 1996. 15. GEOGRAPHICAL MARKET INFORMATION The Company operates in one business segment and in the geographical markets indicated in the table below. Sales for continuing operations are reflected in the segment from which the sales are made. The Other International segment includes France, Italy, Germany and Korea.
(IN THOUSANDS) UNITED UNITED OTHER STATES AUSTRALIA KINGDOM INTERNATIONAL TOTAL ------- --------- ------- ------------- ------- MARCH 17, 1995 TO DECEMBER 31, 1995: Revenues: Total revenues......... $ 3,755 $ 3,832 $ 2,051 $1,185 $10,823 Transfers between areas................. -- -- (55) (62) (117) ------- ------- ------- ------ ------- Unaffiliated revenues.. 3,755 3,832 1,996 1,123 10,706 ======= ======= ======= ====== ======= Income (loss) from operations.............. (5,087) 215 (857) (639) (6,368) Total assets............. 20,222 1,163 2,077 1,222 24,684 MARCH 17, 1995 TO JUNE 30, 1995: Revenues: Total revenues......... $ 1,113 $ 1,337 $ 681 $ 472 $ 3,603 Transfers between areas................. -- -- (13) (19) (32) ------- ------- ------- ------ ------- Unaffiliated revenues.. 1,113 1,337 668 453 3,571 ======= ======= ======= ====== ======= Income (loss) from operations.............. (898) 135 (117) (173) (1,053) Total assets............. 7,517 996 2,017 1,351 11,881 JANUARY 1, 1996 TO JUNE 30, 1996: Revenues: Total revenues......... $ 2,364 $ 2,281 $ 1,239 $ 662 $ 6,546 Transfers between areas................. (12) -- (16) (36) (64) ------- ------- ------- ------ ------- Unaffiliated revenues.. 2,352 2,281 1,223 626 6,482 ======= ======= ======= ====== ======= Loss from operations..... (9,978) (9) (288) (218) (10,493) Total assets............. 15,014 1,434 1,773 999 19,220
F-17 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) EXPORT SALES The information below summarizes export sales by geographic area for the United States operations of Giga (in thousands).
TOTAL EXPORT EUROPE FAR EAST OTHER SALES ------ -------- ----- ------ March 17, 1995 to December 31, 1995................ $191 $251 $105 $547 March 17, 1995 to June 30, 1995.................... 61 80 34 175 January 1, 1996 to June 30, 1996................... 67 90 14 171
16. DISCONTINUED OPERATIONS On June 25, 1996, the Company announced the discontinuation of the BIS Market Research Business. In connection with the discontinuance of such operations, the Company terminated the personnel employed in developing and compiling the BIS data-intensive market research products, ceased operations at two of its licensed facilities in England and entered into contracts with two independent IT service providers engaged to fulfill the Company's obligations to customers of BIS under certain existing subscription agreements, all of which expire on or before June 1997. The contracts with the service providers require that Giga pay a percentage of the remaining contract value in exchange for their fulfillment of Giga's obligations. Through September 30, 1996, a total of approximately $432,000 has been paid to two service providers to fulfill the obligations remaining under the discontinued operations. A provision of approximately $416,000 has been established for probable refunds in connection with the transition of service to the new service providers. An additional provision of approximately $771,000 was established for probable refunds in connection with dissatisfied clients serviced by Giga prior to the transition to the new providers. The contracts with the providers also require the service providers to pay royalties to Giga upon the renewal of contracts by them. Through September 30, 1996, no royalties have been earned or received. The results of these operations prior to June 25, 1996 have been classified as discontinued operations and prior year financial statements have been restated to reflect the discontinuance. A charge of approximately $2,305,000 (net of taxes of approximately $158,000) was recorded in June 1996 for the loss on disposition of the operations consisting primarily of rent and compensation. Included within the charge was the establishment of a provision related to the operations at two facilities in England approximating the present value of the expected expenses of these facilities for two and one-half years plus fifty percent of the expected expenses over the remaining life of the leases and a provision for the severance benefits payable to the terminated employees. The net liabilities of the discontinued operations of the BIS business have been segregated in the consolidated balance sheets and as of June 30, 1996 consist primarily of accounts receivable ($1,739,000) and amounts payable related to rent and facilities expenses ($1,893,000), customer refunds ($1,187,000) and salaries and related severance costs ($495,000). The operating results of the BIS business are summarized as follows (in thousands):
MARCH 17 TO MARCH 17, SIX MONTHS ENDED DECEMBER 31, 1995 TO JUNE 30, 1995 JUNE 30, 1996 ----------------- ---------------- ---------------- (UNAUDITED) Revenues................ $11,329 $3,829 $3,521 Pre-tax income.......... 2,987 731 29 Provision for income taxes.................. 1,497 430 114 ------- ------ ------ Net income (loss)....... $ 1,490 $ 301 $ (85) ======= ====== ======
F-18 GIGA INFORMATION GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 17. COMMITMENTS AND CONTINGENT LIABILITIES The Company entered into an agreement in May 1996 with Dow Jones & Company, Inc. regarding the distribution of certain content provided by Dow Jones to GigaWeb subscribers. In exchange for the rights to distribute Dow Jones information, the Company is required to pay Dow Jones a monthly fee equal to the greater of a Guaranteed Minimum Monthly Payment or an established rate per GigaWeb subscriber. The Guaranteed Minimum Monthly Payment schedule is as follows: $5,000 per month for July and August 1996, $7,500 for September 1996, $10,000 for October 1996, $11,000 per month for November and December 1996 and $22,500 per month throughout calendar year 1997. The total minimum payments would be approximately $320,000 over the life of the Agreement. This agreement is due to expire on December 31, 1997. A subsidiary of the Company has an unused line of credit with a bank which is secured by all assets owned or leased by the Company. The line of credit bears interest at the bank's base rate plus 1.5% and is secured by all assets owned or leased by the subsidiary. The agreement contains operational covenants and expired on December 31, 1995; however the bank has allowed the subsidiary to extend the agreement on a month to month basis with a current limit of approximately $387,000. The weighted average interest rates of outstanding borrowings were 7.3%, 7.5% and 6.9% for the periods March 17, 1995 to December 31, 1995, March 17, 1995 to June 30, 1995 and January 1, 1996 to June 30, 1996, respectively. 18. SUBSEQUENT EVENTS In July 1996, an action was brought against the Company and its chairman by a former employee alleging breach of employment agreement and fraud and seeking, among other things, approximately $3.5 million in compensatory and punitive damages. The Company believes it has meritorious defenses and intends to vigorously defend its case. Management believes it is remote that the outcome of this case will have a material adverse effect on the financial condition, liquidity or results of operations of the Company. However, there can be no assurance that the Company will prevail and an unfavorable outcome could have a material adverse effect on the Company's operating results in the period in which the outcome occurs. In August 1996, the Board of Directors authorized, subject to stockholder approval and the closing of the proposed initial public offering, the filing of a Restated Certificate of Incorporation which authorized 60,000,000 shares of Common Stock and 5,000,000 shares of undesignated Preferred Stock which is issuable in one or more series, each of such series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as shall be determined by the Board of Directors. On August 5, 1996, the Board of Directors amended the 1995 Stock Plan, subject to stockholder approval, to increase the number of shares of Common Stock reserved for issuance under the 1995 Stock Plan from 5,000,000 to 6,000,000. On August 28, 1996, the Board of Directors adopted, subject to stockholder approval, the 1996 Stock Option Plan (the "1996 Plan") to effectively supersede the 1995 Stock Plan. The 1996 Stock Plan will provide for the granting of options to purchase 3,000,000 shares of Common Stock. As a result, the Board of Directors also voted not to grant any additional stock options under the 1995 Stock Plan. On August 28, 1996, the Board of Directors also adopted, subject to stockholder approval and the closing of the proposed initial public offering, the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). A total of 400,000 shares of Common Stock has been reserved for issuance under the Purchase Plan. F-19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Giga Information Group, Inc.: We have audited the accompanying combined statements of operations, changes in stockholder's equity and cash flows of BIS Strategic Decisions for the period from January 1, 1995 to April 5, 1995. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1 to the combined financial statements, BIS Strategic Decisions was acquired by Giga Information Group, Inc. on April 5, 1995 and has been operated by the management of Giga since that date. The transaction involved the payment of $200,000 cash and a convertible note in the principal amount of $1,000,000 for all the outstanding shares of BIS Strategic Decisions. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of BIS Strategic Decisions' operations and its cash flows for the period from January 1, 1995 to April 5, 1995 in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Boston, Massachusetts August 31, 1996 F-20 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Shareholder BIS Strategic Decisions We have audited the accompanying combined balance sheet of the entities listed in Note 2 as of December 31, 1994, and the related combined statements of operations, stockholder's equity, and cash flows for the year ended December 31, 1994, the period from December 16, 1993 to December 31, 1993, and the period from January 1, 1993 to December 15, 1993. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We did not audit the financial statements of BIS Shrapnel PTY Limited for the periods January 1, 1993 to December 15, 1993, and December 16, 1993 to December 31, 1993, which statements reflect total revenues of approximately $4,245,000 and $187,000, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion for the period from January 1, 1993 to December 15, 1993, and December 16, 1993 to December 31, 1993, insofar as it relates to data included for BIS Shrapnel PTY Limited, is based solely on the reports of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and, for the periods January 1, 1993 to December 15, 1993, and December 16, 1993 to December 31, 1993, the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and, for the periods January 1, 1993 to December 15, 1993, and December 16, 1993 to December 31, 1993, the reports of other auditors, the combined financial statements referred to above present fairly, in all material respects, the combined financial condition of the entities listed in Note 2 as of December 31, 1994, and the combined results of their operations and their cash flows for the year ended December 31, 1994, the period from December 16, 1993 to December 31, 1993, and the period from January 1, 1993 to December 15, 1993, in conformity with generally accepted accounting principles. The accompanying combined financial statements have been prepared assuming that the Companies listed in Note 2 will continue as a going concern. As more fully described in Note 4, the Companies' expired line of credit with a bank and projected cash shortfalls for 1995 raise substantial doubt about their ability to continue as a going concern. The Companies are wholly-owned by Friday Holdings, L.P., a limited partnership that is in the process of winding up its affairs. In connection therewith, Friday Holdings, L.P. is in discussions with potential buyers of the Companies. On March 6, 1995, Friday Holdings, L.P. entered into a nonbinding letter of intent to sell the Companies. Among other things, the terms of the nonbinding letter of intent provide that the buyer infuse up to $1,800,000 into the Companies during the first year. See Note 4 for additional information about the nonbinding letter of intent and management's plans to address the projected cash shortfalls. The accompanying combined financial statements as of December 31, 1994, and for the year ended December 31, 1994, the period from December 16, 1993 to December 31, 1993, and the period from January 1, 1993 to December 15, 1993, do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. As described in Note 2, effective January 1, 1993, the Companies changed their method of accounting for revenue recognized for continuous information services. Ernst & Young LLP Boston, Massachusetts March 13, 1995, except with respect to the matters described in Note 12, as to which the date is September 6, 1996. F-21 BIS SHRAPNEL PTY LIMITED INDEPENDENT AUDIT REPORT TO THE MEMBERS OF BIS SHRAPNEL PTY LIMITED SCOPE We have audited the attached financial package of the business BIS Shrapnel from 1 January 1993 to 15 December 1993 which is not included in this Registration Statement. The results incorporate the operations of the two legal entities that carried on the business under the name BIS Shrapnel and have been prepared on the basis of the footnotes to the financial package. The company's directors are responsible for the preparation and presentation of the financial package and the information contained therein. We have conducted an independent audit of this financial package in order to express an opinion on the financial package to the members of the company. Our audit has been conducted in accordance with Australian Auditing Standards, which are substantially comparable to United States Generally Accepted Auditing Standards, to provide reasonable assurance as to whether the financial package is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial package, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial package is presented fairly in accordance with Australian accounting standards so as to present a view of the business which is consistent with our understanding of its financial position, the results of its operations and its cash flows. The audit opinion expressed in this report has been formed on the above basis. AUDIT OPINION In our opinion the financial package of the business of BIS Shrapnel is properly drawn up: (a) so as to give a true and fair view of the state of affairs of the business as at 15 December 1993 and of its result and cash flows for the period from 1 January 1993 to 15 December 1993; and (b) in accordance with applicable Accounting Standards. The applicable Australian Accounting Standards are substantially similar to the applicable accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected the classification of certain items within the financial package but would not have materially affected the determination of net income or shareholder's equity. COOPERS & LYBRAND Chartered Accountants Signed at Sydney this 21st day of October 1996. F-22 BIS SHRAPNEL PTY LIMITED INDEPENDENT AUDIT REPORT TO THE MEMBERS OF BIS SHRAPNEL PTY LIMITED SCOPE We have audited the attached financial package of BIS Shrapnel Pty Limited from 16 December 1993 to 31 December 1993 which is not included in this Registration Statement. The financial package has been prepared on the basis of the footnotes to the financial package. The company's directors are responsible for the preparation and presentation of the financial package and the information contained therein. We have conducted an independent audit of this financial package in order to express and opinion on the financial package to the members of the company. Our audit has been conducted in accordance with Australian Auditing Standards, which are substantially comparable to United States Generally Accepted Auditing Standards, to provide reasonable assurance as to whether the financial package is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial package, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in all material respects, the financial package is presented fairly in accordance with Australian accounting standards so as to present a view of the company which is consistent with our understanding of its financial position, the results of its operations and its cash flows. The audit opinion expressed in this report has been formed on the above basis. AUDIT OPINION In our opinion the financial package of the business of BIS Shrapnel is properly drawn up: (a) so as to give a true and fair view of the state of affairs of the company as at 31 December 1993 and of its result and cash flows for the period from 16 December 1993 to 31 December 1993; and (b) in accordance with applicable Accounting Standards. The applicable Australian Accounting Standards are substantially similar to the applicable accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected the classification of certain items within the financial package but would not have materially affected the determination of net income or shareholder's equity. COOPERS & LYBRAND Chartered Accountants Signed at Sydney this 21st day of October 1996. F-23 BIS STRATEGIC DECISIONS COMBINED BALANCE SHEET DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents.................................... $1,809 Trade accounts receivable, net of allowance for uncollectible accounts of $45............................................. 2,227 Unbilled accounts receivable................................. 663 Prepaid expenses and other current assets.................... 302 ------ Total current assets..................................... 5,001 Property and equipment, net of accumulated depreciation of $674.......................................................... 1,807 Goodwill, net of accumulated amortization of $2,299............ 1,778 Other assets................................................... 15 ------ Total assets........................................... $8,601 ====== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank loans................................................... $345 Accounts payable............................................. 652 Accrued expenses............................................. 991 Other current liabilities.................................... 751 Deferred revenues............................................ 1,681 Accrued compensation and benefits............................ 791 Net liabilities of discontinued operations................... 1,567 ------ Total current liabilities................................ 6,778 Stockholder's equity: Common Stock: BIS Strategic Decisions, Inc. $0.01 par value per share; one share authorized, issued and outstanding.............. -- BIS Strategic Decisions, Ltd. (Pounds)1 par value per share; 2,160,791 shares authorized, issued and outstanding....... 3,220 BIS Shrapnel PTY Ltd. A$1 par value per share; 10,000,000 shares authorized, 2,467,841 shares issued and outstanding....... 1,654 BIS Strategic Decisions, GmbH DM 60,000 par value per share; one share authorized, issued and outstanding.............. 29 BIS Strategic Decisions, Srl Lire 200,000 par value per share; 100 shares authorized, issued and outstanding............. 11 BIS Strategic Decisions, Sarl FF 100 par value per share; 10,000 shares authorized, issued and outstanding.......... 171 Additional paid-in capital................................... 4,011 Accumulated deficit.......................................... (6,951) Cumulative translation adjustment............................ (322) ------ Total stockholder's equity............................... 1,823 ------ Total liabilities and stockholder's equity............. $8,601 ======
The accompanying notes are an integral part of the combined financial statements. F-24 BIS STRATEGIC DECISIONS COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS)
PREDECESSOR COMPANIES (NYNEX) PREDECESSOR COMPANIES (FHLP) --------------- ---------------------------------------- JANUARY 1 DECEMBER 16 YEAR ENDED JANUARY 1 TO DECEMBER 15, TO DECEMBER 31, DECEMBER 31, TO APRIL 5, 1993 1993 1994 1995 --------------- --------------- ------------ ----------- Service revenues........ $11,371 $ 329 $12,700 $3,237 Cost and expenses: Cost of services...... 5,530 357 6,172 2,208 Sales and marketing... 1,448 92 1,589 266 General and administrative....... 6,901 307 8,108 1,197 Depreciation and amortization......... 744 38 974 250 Write down of goodwill............. -- -- 2,094 -- ------- ----- ------- ------ Total costs and expenses........... 14,623 794 18,937 3,921 ------- ----- ------- ------ Operating loss........ (3,252) (465) (6,237) (684) Interest income......... 114 7 103 26 Interest expense........ (38) (4) (26) (4) ------- ----- ------- ------ Loss from continuing operations before income taxes......... (3,176) (462) (6,160) (662) Income tax benefit...... (983) -- (1,096) (213) ------- ----- ------- ------ Loss from continuing operations........... (2,193) (462) (5,064) (449) Discontinued operations: Income (loss) from the discontinued BIS market research business, net of tax effect .............. 1,044 44 (1,469) 597 ------- ----- ------- ------ Net income (loss)....... $(1,149) $(418) $(6,533) $148 ======= ===== ======= ======
The accompanying notes are an integral part of the combined financial statements. F-25 BIS STRATEGIC DECISIONS COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL ---------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDER'S SHARES AMOUNT CAPITAL ADJUSTMENTS DEFICIT EQUITY --------- ------ ---------- ----------- ----------- ------------- Predecessor Companies (NYNEX): Balance at December 31, 1992; $2,764 $(282) $(1,021) $1,461 BIS Strategic Deci- sions, Inc., par value $.01 per share................ 1 $ -- -- -- -- -- BIS Strategic Deci- sions, Ltd., par value (Pounds).1 per share................ 1,050,000 160 -- -- -- 160 BIS Shrapnel PTY Ltd., par value A$1 per share................ 230,000 206 -- -- -- 206 BIS Strategic Deci- sions, Srl, par value Lire 200,000 per share................ 100 16 -- -- -- 16 Reorganization adjust- ments: 135 -- (823) (688) BIS Strategic Deci- sions, GmbH, par value DM 50,000 per share................ 1 29 -- -- -- 29 BIS Strategic Deci- sions, Sarl, par value FF 100 per share................ 10,000 171 -- -- -- 171 BIS Strategic Deci- sions, Ltd. par value (Pounds).01 per share................ -- 31 -- -- -- 31 BIS Strategic, Srl, par value Lire 200,000 share........ -- (5) -- -- -- (5) Net income............ (1,149) (1,149) Common stock issued in conjunction with reor- ganization: BIS Strategic Deci- sions, Ltd., par value (Pounds)1 per share................ 1,110,791 3,029 -- -- -- 3,029 BIS Strategic PTY Ltd., par value A$1 per share............ 2,237,841 1,448 -- -- -- 1,448 Equity adjustment from translation........... -- -- -- 331 -- 331 --------- ------ ------ ----- ------- ------ Balance at December 15, 1993.................. 4,638,734 $5,085 $2,899 $ 49 $(2,993) $5,040 ========= ====== ====== ===== ======= ====== - ------------------------------------------------------------------------------------------- Predecessor Companies (FHLP): Pushdown of invest- ment................. -- -- 1,112 (49) 2,993 4,056 --------- ------ ------ ----- ------- ------ Balance at December 16, 1993.................. 4,638,734 5,085 4,011 -- -- 9,096 --------- ------ ------ ----- ------- ------ Net loss.............. -- -- -- -- (418) (418) Equity adjustment from translation.......... -- -- -- 1 -- 1 --------- ------ ------ ----- ------- ------ Balance at December 31, 1993.................. 4,638,734 5,085 4,011 1 (418) 8,679 --------- ------ ------ ----- ------- Net loss.............. -- -- -- -- (6,533) (6,533) Equity adjustment from translation.......... -- -- -- (323) -- (323) --------- ------ ------ ----- ------- ------ Balance at December 31, 1994.................. 4,638,734 5,085 4,011 (322) (6,951) 1,823 --------- ------ ------ ----- ------- ------ Net income............ -- -- -- -- 148 148 Equity adjustment from translation.......... -- -- -- (6) (6) --------- ------ ------ ----- ------- ------ Balance at April 5, 1995.................. 4,638,734 $5,085 $4,011 $(328) $(6,803) $1,965 ========= ====== ====== ===== ======= ======
The accompanying notes are an integral part of the combined financial statements. F-26 BIS STRATEGIC DECISIONS COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PREDECESSOR COMPANIES (NYNEX) PREDECESSOR COMPANIES (FHLP) ------------ ---------------------------------------- JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, 1993 1993 1994 1995 ------------ -------------- ------------ ------------ Cash flows from operating activities Net income (loss)...... $(1,149) $(418) $(6,533) $148 Adjustments to reconcile net income (loss) to net cash used in continuing operating activities: Net (income) loss from discontinued operations.......... (1,044) (44) 1,469 (597) Depreciation expense............. 744 30 788 226 Amortization and writedown of goodwill............ -- 8 2,280 24 Loss (gain) on sale of fixed assets..... (11) -- 62 -- Provision for deferred income taxes............... -- -- (1,183) 58 Allowance for doubtful accounts... (1) (3) 27 9 Changes in certain operating assets and liabilities: Increase in accounts receivable......... (110) (123) (217) (608) Decrease (increase) in unbilled services........... (74) 10 (3) 183 Decrease (increase) in prepaid expenses and other current assets............. (805) 377 257 (314) Increase (decrease) in accounts payable, accrued expenses and other current liabilities........ 461 (827) 589 (559) Increase (decrease) in deferred revenue............ 818 (221) 1,763 490 ------- ------- ------- ------ Net cash provided by (used in) operating activities of: Continuing operations........... (1,171) (1,211) (701) (940) Discontinued operations........... 3,302 812 1,136 642 ------- ------- ------- ------ Net cash provided by (used in) operating activities........... 2,131 (399) 435 (298) Cash flows from investing activities: Purchase of fixed assets............... (795) (19) (1,157) (197) Proceeds from sale of equipment............ 107 -- 70 32 ------- ------- ------- ------ Net cash used in investing activities........... (688) (19) (1,087) (165) Cash flows from financing activities: Proceeds from borrowings........... 176 -- 80 22 Principal payments on borrowings........... (157) -- -- (157) Principal payments on capital lease obligations.......... (61) -- -- (19) ------- ------- ------- ------ Net cash provided by (used in) financing activities............. (42) -- 80 (154) Effect of exchange rate changes on cash........ 37 (4) (433) 225 ------- ------- ------- ------ Net increase (decrease) in cash and cash equivalents............ 1,438 (422) (1,005) (392) Cash and cash equivalents at beginning of period... 1,798 3,236 2,814 1,809 ------- ------- ------- ------ Cash and cash equivalents at end of period................ $3,236 $2,814 $1,809 $1,417 ======= ======= ======= ====== Supplemental cash flow information: Income taxes paid..... $ 155 $ 0 $ 51 $ 7 Interest paid......... $ 17 $ 6 $ 35 $ 2
The accompanying notes are an integral part of the combined financial statements. F-27 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 1. BACKGROUND During the period January 1, 1993 to December 15, 1993, BIS Strategic Decisions, Inc. and its five foreign affiliates (collectively "BIS Strategic Decisions," "BIS" or the "Predecessor Companies") were wholly-owned subsidiaries of NYNEX Corporation ("NYNEX"). On December 16, 1993, Friday Holdings, L.P. ("FHLP") acquired 100% of the common stock outstanding of each of the Predecessor Companies from NYNEX in exchange for $8,696,000 in cash. On April 5, 1995, Giga Information Group, Inc. ("Giga") acquired 100% of the common stock outstanding of each of the Predecessor Companies from FHLP for $200,000 in cash and a $1,000,000 convertible promissory note. The acquisition of the Predecessor Companies by Giga was accounted for as a purchase. As part of the transaction, a $1,300,000 intangible asset was recorded representing the fair value of payments being made on a property lease through May 1998 by a former owner of the Predecessor Companies. The financial data of the Predecessor Companies for the period January 1, 1993 to December 15, 1993 are reflected on the financial statements and referred to from time to time herein as "Predecessor Companies (NYNEX)." The financial data for the Predecessor Companies for the period December 16, 1993 to December 31, 1993, the year ended December 31, 1994 and for the period January 1 to April 5, 1995 are reflected on the financial statements and referred to from time to time herein as "Predecessor Companies (FHLP)." On June 25, 1996, the Company decided to discontinue the BIS Market Research Business. In connection with the discontinuance of such operations, the Company terminated the personnel employed in developing and compiling the BIS market research services, ceased operations at two of the licensed facilities in England and entered into contracts with two independent IT service providers engaged to fulfill the Company's obligations to customers of BIS under certain existing subscription agreements, all of which expire on or before June 1997. The continuing operations reflected in the financial statements represent revenues and expenses associated with the Predecessor Companies' Service revenues, which include events, publications, consulting and econometric forecasting. The financial statements for the period January 1, 1993 to December 15, 1993 are presented as if the Predecessor Companies existed as an entity separate from NYNEX and include only financial information directly related to the Predecessor Companies. During 1993, in anticipation of the sale of the Predecessor Companies, NYNEX initiated certain reorganization efforts which changed the legal and capital structure of certain of the Predecessor Companies. 2. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The combined financial statements of BIS Strategic Decisions include the accounts of BIS Strategic Decisions, Inc., BIS Strategic Decisions, Ltd., BIS Shrapnel PTY Ltd., BIS Strategic Decisions, GmbH, BIS Strategic Decisions, Srl and BIS Strategic Decisions, Sarl. All intercompany accounts and transactions have been eliminated in combination. Pursuant to the acquisition of BIS on December 16, 1993 by FHLP, identifiable assets acquired and liabilities assumed were carried over at net book value which approximates fair market value. The excess of the purchase price over the fair market value of the net identifiable assets acquired was recorded as goodwill. F-28 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Because of the impact to the combined statements of operations, changes in stockholder's equity and cash flows of the revaluation of the net assets acquired by FHLP on December 16, 1993, the combined statements of operations, changes in stockholder's equity and cash flows for the periods January 1, 1993 to December 15, 1993 are not comparable with those of December 16, 1993 to December 31, 1993, the year ended December 31, 1994 and the period January 1, 1995 to April 5, 1995. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING Effective January 1, 1993, the Predecessor Companies changed their method of accounting for revenue recognized for continuous information services (which services were provided solely by the BIS Market Research Business) to recognize revenue ratably over the contract period. Previously, 35% of the revenue was recognized at the start of the service term and the remaining 65% was recognized ratably over the service period. Management believes that the change in accounting principle results in better matching of revenues and expenses and is preferable given the current industry practice. The cumulative effect of the change in accounting at January 1, 1993, net of $462,000 in applicable income taxes, decreased the net income by $1,928,000 for the period ended December 15, 1993. The change in revenue recognition is reflected in its entirety in the results of discontinued operations. FOREIGN CURRENCY TRANSLATION For international operations, the local currency is used as the functional currency. The assets and liabilities of the foreign companies are translated at the year-end rates of exchange and the related income statement items are translated at the average rates of exchange for the year. The resulting translation adjustments are excluded from income and charged to a separate component of stockholder's equity. Realized and unrealized exchange gains or losses arising from transaction adjustments are reflected in operations and are not material. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with maturities of three months or less at date of purchase. PROPERTY AND EQUIPMENT Property and equipment is stated on the basis of cost less accumulated depreciation. Depreciation is computed using the straight-line method over the following estimated useful lives;
Computers and related equipment... 3 years Furniture and fixtures............ 5 years Motor vehicles.................... 4 years Leasehold improvements............ Shorter of economic life or lease term
Major additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Upon retirement or disposition, the cost and related accumulated depreciation are removed from the account and the resulting gain or loss is included in the determination of net income. REVENUE RECOGNITION Service revenues from events, publications, consulting and econometric forecasting are recognized as follows: Events--revenues and associated expenses are recognized during the month that the conference is held. Publications--revenues from general and research reports are recognized when the report is delivered. Newsletter revenues are recognized over the subscription period. Consulting Services--revenues are recognized on the percentage of completion method with losses recognized in the period that they become evident. Econometric Forecasting--revenues are recognized based on the percentage of the service that has been completed. F-29 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) CONCENTRATIONS OF CREDIT RISK Cash equivalents are financial instruments which potentially subject the Predecessor Companies to concentrations of credit risk. The Predecessor Companies invest the majority of their excess cash in overnight investments in a money market account. The Predecessor Companies have not experienced any losses on their investments. The Predecessor Companies offer services to a diversified client base, many of which are large, well established companies. Accordingly, there is no one customer or industry that represents a significant portion of revenues or receivables. INCOME TAXES The Predecessor Companies account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which is a balance sheet approach for accounting for income taxes (see Note 3). Under SFAS 109, deferred tax liabilities and assets are recognized based on temporary differences between the financial statement and tax bases of assets and liabilities using current statutory tax rates. SFAS 109 also requires a valuation allowance against net deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. For the period January 1, 1993 to December 15, 1993, NYNEX included BIS Strategic Decisions, Inc.'s U.S. tax return in its consolidated U.S. tax return. Income taxes pertaining to BIS Strategic Decisions, Inc. for the period January 1, 1993 to December 15, 1993 were calculated as if BIS Strategic Decisions, Inc. had filed a separate tax return. The Predecessor Companies' foreign affiliates file separate tax returns. From December 16, 1993 through April 15, 1995 the Predecessor Companies (FHLP) filed separate tax returns for all periods presented. GOODWILL Goodwill represents the excess of cost over the fair value of the net assets of companies acquired. This balance is amortized over 20 years using the straight-line method. 3. PROPERTY AND EQUIPMENT Property and equipment for continuing operations at December 31, 1994 consists of the following (in thousands): Computer and related equipment....................................... $1,143 Furniture and fixtures............................................... 522 Motor vehicles....................................................... 794 Leasehold improvements............................................... 22 ------ 2,481 Less accumulated depreciation and amortization....................... (674) ------ Property and equipment, net.......................................... $1,807 ======
4. LIQUIDITY In 1994, the Company made substantial changes in its operations and incurred nonrecurring restructuring costs, predominately severance, of approximately $905,000 of which $680,000 pertains to continuing operations. Further, in March 1995, there was an additional reduction in force with related severance costs of approximately $220,000 of which $198,000 pertains to continuing operations. The budgets for 1995 anticipate a net use of cash F-30 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) which is less than the December 31, 1994 cash balance, however, there are several months where the forecasted cash balance is negative. The Company's only bank financing arrangement expired on December 31, 1994 . The bank has, however, continued to honor the line on an informal month-to-month basis. As of March 13, 1995, all amounts outstanding under this agreement were paid. Should the bank not continue to extend the line, the Company will need to obtain alternative financing or modify the 1995 operating plan to meet its obligations. FHLP acquired 100% of the outstanding capital stock of each of the Predecessor Companies (NYNEX) on December 16, 1993. FHLP has substantial obligations to its limited partners which were due on December 31, 1994. FHLP is in technical default of these obligations. Currently, FHLP management is in the process of winding up its affairs. In connection therewith, on March 6, 1995, FHLP entered into a nonbinding letter of intent to sell the Predecessor Companies. Among other things, the terms of the nonbinding letter of intent includes a sales price of $1,800,000 (cash of $200,000 and a one-year note of $1,600,000) and a requirement that the buyer infuse up to $1,800,000 into the Predecessor Companies during the first year. Because of the terms of this agreement, the Company has recorded an adjustment in 1994 to the carrying value of goodwill of approximately $4,711,000 of which $2,617,000 is attributable to discontinued operations. 5. CREDIT ARRANGEMENTS One of the combined affiliates of the Company has a working capital line of credit agreement with a bank under which it may borrow amounts which ranged from $480,000 to $750,000. The line of credit bears interest at the bank's base rate plus 1.5% and is secured by all assets owned or leased by the affiliate. The agreement contains operational covenants and expired on December 31, 1994; however, the bank has allowed the affiliate to extend the line pending resolution of the sale of the affiliate. As of December 31, 1994, there was approximately $345,000 outstanding on the line of credit. As of March 13, 1995, all amounts outstanding under this agreement were paid. The weighted average interest rates of outstanding borrowings were 4.0%, 4.4% 6.1% and 7.5% for the periods January 1, 1993 to December 15, 1993 and December 16, 1993 to December 31, 1993, the year ended December 31, 1994 and the period January 1, 1995 to April 5, 1995, respectively. 6. INCOME TAXES At December 31, 1994, the Predecessor Companies have deferred tax assets of approximately $2,035,000. For financial reporting purposes, a valuation allowance of $2,035,000 has been recognized to offset the deferred tax assets until the Company can conclude that it is more likely than not that these deferred tax assets will be realized. During the period ended December 31, 1994, the valuation allowance was increased by approximately $586,000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Predecessor Companies' deferred tax liabilities and assets as of December 31, 1994 are as follows (in thousands): Deferred tax assets: Discontinued operations........................................... $ 1,025 Net operating loss carryforward................................... 1,116 Other, net........................................................ (106) ------- Total deferred tax assets......................................... $ 2,035 Valuation allowance for deferred tax assets......................... (2,035) ------- Net deferred tax assets............................................. $ 0 =======
F-31 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) For financial reporting purposes, income taxes (benefit) from continuing operations were based on the following components:
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, 1993 1993 1994 1995 ------------ -------------- ------------ ------------ Pretax loss from continuing operations: United States........................................................ $(1,609) $(338) $(1,458) $(497) Foreign.............................................................. (1,567) (124) (4,702) (165) ------- ----- ------- ----- Total pretax loss from continuing operations....................... $(3,176) $(462) $(6,160) $(662) - -------------------------------------------------- ======= ===== ======= =====
The income tax benefit of the loss from continuing operations, substantially all of which is deferred, consists of the following components (state and local taxes are not material) (in thousands):
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, 1993 1993 1994 1995 ------------ -------------- ------------ ------------ U.S. Federal......................................................... $(638) $ 0 $ (573) $(210) Foreign.............................................................. (345) 0 (523) (3) - -------------------------------------------------- ----- --- ------- ----- $(983) $ 0 $(1,096) $(213) ===== === ======= =====
The income tax benefit of the loss from continuing operations differs from the amount of income tax benefit determined by applying the applicable U.S. statutory income tax rate to pretax loss from continuing operations as a result of the following differences (in thousands):
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, 1993 1993 1994 1995 ------------ -------------- ------------ ------------ Income tax at the statutory rate..................................... $(1,080) $(157) $(2,094) $(225) Foreign subsidiary losses with no benefit recognized............................................... 137 40 425 71 Foreign income taxed at different rates.............................. (51) -- (54) (26) Nondeductible goodwill............................................... -- 3 712 8 U.S. losses with no benefit recognized............................... -- 117 -- -- Other items (net).................................................. 11 (3) (85) (41) ------- ----- ------- ----- Other items (net).................................................. $ (983) $ 0 $(1,096) $(213) ======= ===== ======= =====
The Company had available net operating loss carryforwards of approximately $2,722,000 which may be used to reduce future taxable income. Domestic carryforwards of approximately $1,100,000 expire in 2008. These carryforwards have been limited to approximately $450,000 due to the purchase of the Predecessor Companies by Giga. Certain remaining foreign carryforwards expire in 1998 while others may be carried forward indefinitely. The results of continuing operations for January 1 to December 15, 1993, December 16 to December 31, 1993, the year ended December 31, 1994 and January 1 to April 5, 1995 include foreign tax expense (benefit) of $(345,000), $0, $(512,000) and $(3,000), respectively. F-32 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 7. PENSION PLANS North America--In 1987, the Predecessor Companies established CAP International Savings and Retirement Plan (the 401(k) Plan), a profit sharing plan under Section 401 of the Internal Revenue Code. Employees are eligible to participate in the 401(k) Plan by meeting certain requirements, including length of service and minimum age. The Predecessor Companies match the first 3% of an employee's contribution by 25% and the next 3% of an employee's contribution by 50%. The Predecessor Companies may also make additional contributions to the plan at the discretion of the Board of Directors. The Predecessor Companies have not made any discretionary contributions to the profit sharing plan. From January 1 to December 15, 1993, the Predecessor Companies contributed $89,000 to the plan, $5,000 from December 16 to December 31, 1993, $101,000 in 1994 and $23,000 from January 1 to April 5, 1995. Australia--BIS Shrapnel maintains a Superannuation fund (a defined contribution plan) for its employees to which it contributes 5% of annual salary. Long service leave is provided for when employees become eligible to receive it (5 years). BIS Shrapnel contributed $89,000 to the plan from January 1 to December 15, 1993, $3,000 from December 16 to December 31, 1993, $109,000 in 1994 and $26,000 from January 1 to April 5, 1995. 8. LEASE COMMITMENTS The Predecessor Companies lease certain office space and equipment under operating lease agreements. Future minimum rental commitments under all leases with noncancelable terms of one year or more are as follows (in thousands):
OPERATING LEASES YEAR --------- 1995............................................................... $1,323 1996............................................................... 1,188 1997............................................................... 1,089 1998............................................................... 655 1999............................................................... 451 Thereafter......................................................... 3,271 ------ Total lease commitments....................................... $7,977 ======
Rent expense was $1,195,000, $62,000, $1,169,000 and $296,000 for the periods January 1 to December 16, 1993 and December 16 to December 31, 1993, the year ended December 31, 1994 and the period January 1 to April 6, 1995, respectively. 9. JOINT VENTURE AGREEMENT On October 18, 1991, the Predecessor Companies entered into a joint venture agreement with a Japanese company in which the Company obtained a 40% interest. The interest in this Japanese company has been accounted for at cost which approximates equity. The purpose of the joint venture was to provide additional market penetration in Japan for its products and services. Under the terms of the joint venture agreement, the Predecessor Companies may be required to pay its Japanese partner approximately $75,000 if cumulative sales under the joint venture do not meet certain agreed upon levels by December 31, 1995. In addition, on or prior to April 1, 1996, the Predecessor Companies may be required to increase its investment in the joint venture by approximately $23,000. As of December 31, 1994, the Predecessor Companies had accounts receivable from the joint venture in Japan totalling approximately $100,000. F-33 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 10. RELATED--PARTY TRANSACTIONS During 1994, management fees aggregating $236,000 were paid to FHLP. These fees primarily represent charges for salaries and benefits of the principals of FHLP, who actively managed the operations of BIS. Management believes these fees are reasonable considering the value received. As of December 31, 1994, $50,000 in unpaid management fees due to FHLP are included in accounts payable. In 1994, the Predecessor Companies acquired computer equipment from FHLP (and one of its wholly-owned subsidiaries) for an aggregate purchase price of $100,000. As of December 31, 1994, the entire $100,000 was included in accounts payable. During 1994, a note in the amount of $458,000 from FHLP was repaid with interest of approximately $21,000. For the period January 1 to December 15, 1993 the Predecessor Companies paid to NYNEX a management fee of approximately $131,000. It was NYNEX's policy to charge a management fee on the basis of annual sales regardless of the amount of corporate services utilized by the Predecessor Companies. Management believes the management fee charged by NYNEX for services such as legal, strategic planning and human resource reflects the value of the services received. 11. GEOGRAPHIC MARKETS The Predecessor Companies operate in one business segment and in the geographical markets indicated in the table below. Revenues from continuing operations are reflected in the market from which the sales are made. The Other International market includes France, Italy and Germany. PREDECESSOR COMPANIES (NYNEX) JANUARY 1 TO DECEMBER 15, 1993
UNITED UNITED OTHER STATES AUSTRALIA KINGDOM INTERNATIONAL TOTAL ------ --------- ------- ------------- ----- Revenues: Total revenues............ $4,209 $4,245 $1,275 $2,249 $11,978 Transfers between areas... (118) (8) (48) (433) (607) ------ ------ ------ ------ ------- Unaffiliated revenues..... 4,091 4,237 1,227 1,816 11,371 ====== ====== ====== ====== ======= Income (loss) from opera- tions...................... (1,625) 116 (1,390) (353) (3,252) Total assets................ 6,318 1,628 2,585 2,015 12,546 PREDECESSOR COMPANIES (FHLP) DECEMBER 16, 1993 TO DECEMBER 31, 1993 UNITED UNITED OTHER STATES AUSTRALIA KINGDOM INTERNATIONAL TOTAL ------ --------- ------- ------------- ----- Revenues: Total revenues............ $ 36 $ 187 $ 37 $ 90 $ 350 Transfers between areas... (6) -- -- (15) (21) ------ ------ ------ ------ ------- Unaffiliated revenues..... 30 187 37 75 329 ====== ====== ====== ====== ======= Income from operations...... (345) (12) (71) (37) (465) Total assets................ 8,977 1,500 1,077 1,425 12,979
F-34 BIS STRATEGIC DECISIONS NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) JANUARY 1, 1994 TO DECEMBER 31, 1994 Revenues: Total revenues..................... $4,722 $4,534 $1,831 $1,969 $13,056 Transfers between areas............ (61) -- (101) (194) (356) ------ ------ ------ ------ ------- Unaffiliated revenues.............. 4,661 4,534 1,730 1,775 12,700 ====== ====== ====== ====== ======= Income from operations............... (3,577) (406) (1,569) (685) (6,237) Total assets......................... 4,377 1,007 1,877 1,340 8,601 JANUARY 1, 1995 TO APRIL 5, 1995 Revenues: Total revenues..................... $1,113 $1,121 $499 $586 $3,319 Transfers between areas............ -- -- (19) (63) (82) ------ ------ ------ ------ ------- Unaffiliated revenues.............. 1,113 1,121 480 523 3,237 ====== ====== ====== ====== ======= Income from operations............... (537) 51 (22) (176) (684) Total assets......................... 5,684 1,340 1,747 1,660 10,431
EXPORT SALES The information below summarizes export sales by geographic area for the United States operations of BIS.
TOTAL EXPORT EUROPE FAR EAST OTHER SALES ------ -------- ----- ------ January 1, 1993 to December 15, 1993............. $141 $144 $ 56 $341 December 16, 1993 to December 31, 1993........... 0 0 0 0 January 1, 1994 to December 31, 1994............. 199 196 153 548 January 1, 1995 to April 5, 1995................. 57 75 31 163
12. DISCONTINUED OPERATIONS On June 25, 1996, Giga decided to discontinue the BIS Market Research Business. The results of these operations have been classified as discontinued operations and the financial statements have been restated to reflect the discontinuance. The net liabilities of the BIS business have been segregated in the consolidated balance sheet and as of December 31, 1994, consisted primarily of deferred revenue ($7,002,000), accounts receivable ($3,696,000) and goodwill ($2,222,000). The operating results of the business are summarized as follows:
JANUARY 1 TO DECEMBER 16 TO YEAR ENDED JANUARY 1 TO DECEMBER 15, DECEMBER 31, DECEMBER 31, APRIL 5, 1993 1993 1994 1995 ------------ -------------- ------------ ------------ Revenues................ $14,204 $635 $15,608 $3,994 Pre-tax income (loss)... 2,037 44 (343) 876 Provision for income taxes.................. 993 -- 1,126 279 Net income (loss)....... 1,044 44 (1,469) 597
F-35 [GIGA LOGO] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PRO- SPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UN- LAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 5 Use of Proceeds.......................................................... 12 Dividend Policy.......................................................... 12 Capitalization........................................................... 13 Dilution................................................................. 14 Selected Financial Data.................................................. 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 18 Business................................................................. 23 Management............................................................... 34 Certain Transactions..................................................... 42 Principal Stockholders................................................... 45 Description of Capital Stock............................................. 47 Shares Eligible for Future Sale.......................................... 50 Underwriting............................................................. 52 Legal Matters............................................................ 53 Experts.................................................................. 53 Additional Information................................................... 54 Index to Consolidated Financial Statements............................... F-1
------------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF- FECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN AD- DITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN- DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 4,000,000 SHARES [GIGA LOGO APPEARS HERE] COMMON STOCK ------------------ PROSPECTUS , 1996 ------------------ LEHMAN BROTHERS OPPENHEIMER & CO., INC. SALOMON BROTHERS INC - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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.......................................... $ 17,449 NASD Filing Fee............................................... 5,560 Nasdaq Listing Fee............................................ 50,000 Blue Sky Fees and Expenses.................................... 25,000 Transfer Agent and Registrar Fees............................. 48,000 Accounting Fees and Expenses.................................. 450,000 Legal Fees and Expenses....................................... 500,000 Printing, Engraving and Mailing Expenses...................... 250,000 Premium for directors and officers insurance.................. 160,000 Miscellaneous................................................. 43,991 ---------- Total..................................................... $1,550,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article Eight of the Registrant's Restated Certificate of Incorporation (the "Restated Certificate of Incorporation") provides that no director of the Registrant shall be personally liable for any monetary damages for any breach of fiduciary duty as a director, except to the extent that the Delaware General Corporation Law prohibits the elimination or limitation of liability of directors for breach of fiduciary duty. Article Eight of the Registrant's Restated Certificate of Incorporation provides that a director or officer of the Registrant (a) shall be indemnified by the Registrant against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with any litigation or other legal proceeding (other than an action by or in the right of the Registrant) brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful and (b) shall be indemnified by the Registrant against all expenses (including attorneys' fees) and amounts paid in settlement incurred in connection with any action by or in the right of the Registrant brought against him by virtue of his position as a director or officer of the Registrant if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Registrant, except that no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the Registrant, unless a court determines that, despite such adjudication but in view of all of the circumstances, he is entitled to indemnification of such expenses. Notwithstanding the foregoing, to the extent that a director or officer has been successful, on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, he is required to be indemnified by the Registrant against all expenses (including attorneys' fees) incurred in connection therewith. Expenses shall be advanced to a director or officer at his request, provided that he undertakes to repay the amount advanced if it is ultimately determined that he is not entitled to indemnification for such expenses. Indemnification is required to be made unless the Registrant determines that the applicable standard of conduct required for indemnification has not been met. In the event of a determination by the Registrant that the director or officer did not meet the applicable standard of conduct required for indemnification, or if the Registrant fails to make an indemnification payment within 60 days after such payment is claimed by such person, such person is permitted to petition the court to make an independent determination as to whether such person is entitled to indemnification. As a condition precedent to the right of indemnification, the director or II-1 officer must give the Registrant notice of the action for which indemnity is sought and the Registrant has the right to participate in such action or assume the defense thereof. Section 145 of the Delaware General Corporation Law provides that a corporation has the power to indemnify a director, officer, employee or agent of the corporation and certain other persons serving at the request of the corporation in related capacities against amounts paid and expenses incurred in connection with an action or proceeding to which he is or is threatened to be made a party by reason of such position, if such person shall have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, in any criminal proceeding, if such person had no reasonable cause to believe his conduct was unlawful; provided that, in the case of actions brought by or in the right of the corporation, no indemnification shall be made with respect to any matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the adjudicating court determines that such indemnification is proper under the circumstances. The Board of Directors on April 26, 1996 approved, in accordance with Section 145 of Delaware General Corporation Law, a Directors and Officers Indemnification Agreement to be entered into between the Registrant and each of Registrant's directors and officers. Pursuant to the terms of the agreement, the Registrant agrees to hold any director or officer harmless against any and all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such director or officer in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Registrant), to which the director or officer becomes a party at any time or is threatened to be made a party, by reason of the fact that the director or officer is a director, officer, employee or agent of the Registrant, or serves at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and otherwise to the fullest extent as may be provided to the director or officer by the Registrant under the non- exclusivity provisions of Article V of the Bylaws of the Registrant and the Delaware General Corporation Law. The agreement also obligates the Registrant under certain circumstances to advance amounts and contribute to any amounts paid out by a director or officer as a result of his or her role as a director or officer of the Registrant in cases where indemnification by the Registrant is not available. This agreement is also intended to indemnify special advisors of the Registrant. Under Section Eight of the Underwriting Agreement, the Underwriters are obligated, under certain circumstances, to indemnify directors and officers of the Registrant against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement filed as Exhibit 1 hereto. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Set forth in chronological order below is information regarding the number of shares of capital stock and other securities issued by the Registrant since the Registrant's inception in March 1995. Further included is the consideration, if any, received by the Registrant for such shares of capital stock and other securities and information relating to the section of the Securities Act, or rule of the Commission under which exemption from registration was claimed. All awards of options did not involve any sale under the Securities Act and none of these securities was registered under the Securities Act. 1. Since March 1995, the Registrant has issued options to purchase an aggregate of 3,649,473 shares of Common Stock at a weighted average exercise price of $0.64 per share. During this same time period, the Registrant has issued a total of 11,107 shares of Common Stock pursuant to the exercise of options previously granted. 2. In March 1995, the Registrant sold to its Chairman of the Board of Directors and Chief Executive Officer 4,200,000 shares of Common Stock at a purchase price of $0.02375 per share. 3. In April 1995, the Registrant issued to Friday Holdings, L.P. a 5% $1.0 million principal amount Convertible Promissory Note in connection with the Registrant's acquisition of BIS Strategic Decisions, Inc. and its five foreign affiliates. II-2 4. In July 1995 and October 1995, the Registrant issued and sold an aggregate of 410,000 shares of Series A Convertible Preferred Stock, $.001 par value ("Series A Preferred Stock") (1,640,000 shares on an as-converted basis) to a group of investors, including certain employees and directors, at a purchase price of $5.00 per share ($1.25 per share on as-converted basis). 5. In July 1995, the Registrant issued 160,000 shares of Series A Preferred Stock (640,000 on an as- converted basis) to its Chairman of the Board of Directors and Chief Executive Officer and to its Senior Vice President, Research & Technology in connection with the Registrant's acquisition of a majority of the shares of ExperNet Corporation ("ExperNet") and in December 1995, the Registrant issued to its Senior Vice President, Research & Technology, in connection with the Registrant's acquisition of the remaining shares of ExperNet, a 6% $400,000 Convertible Promissory Note. 6. In October 1995, the Registrant issued 1,908,000 shares of Common Stock to a group of employees, consultants and directors at a purchase price of $0.50 per share. 7. In November 1995 and February 1996, the Registrant issued and sold an aggregate of 5,272,215 shares of Series B Preferred Stock, $.001 par value ("Series B Preferred Stock") to a group of investors at a purchase price of $3.50 per share. 8. In August 1995, the Registrant issued a warrant to purchase 285,714 shares of Series B Preferred Stock to an investor at an exercise price of $2.345 per share. In September 1996, the investor made a cashless exercise of the warrant and received 218,714 shares of the Company's Series B Preferred Stock. 9. In February 1996, the Registrant issued a warrant to purchase 107,876 shares of Series B Preferred Stock to Montgomery Securities in consideration for certain placement agent services at an exercise price of $4.5625 per share. 10. In August 1996, the Registrant issued 25,000 shares of Common Stock to an employee in connection with the acquisition of his business. Other than Montgomery Securities which served as placement agent in connection with the November 1995 and February 1996 sales by the Registrant of shares of its Series B Preferred Stock, no underwriters were engaged in connection with any of the foregoing sales of securities. Montgomery Securities was paid a placement agent fee of $695,105 and received a warrant to purchase 107,876 shares of Series B Preferred Stock, exercisable at a price of $4.5625 per share, in connection with its services as placement agent for the sale of shares of the Registrant's Series B Preferred Stock. The shares of capital stock and other securities issued in the above transactions were offered and sold in reliance upon the exemption from registration under Section 4(2) of the Securities Act or Regulation D or Rule 701 promulgated under the Securities Act, relative to sales by an issuer not involving any public offering. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 1 Form of Underwriting Agreement. 3.1* Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2* Form of Restated Certificate of Incorporation of the Registrant (to be filed with the State of Delaware upon the closing of the Offering to which this Registration Statement relates). 3.3* By-Laws of the Registrant. 3.4* Form of Restated Bylaws of the Registrant (to become effective upon the closing of the Offering to which this Registration Statement relates). 4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant. 5 Opinion of Hale and Dorr with respect to the validity of the securities being offered.
II-3
EXHIBIT NO. DESCRIPTION ------- ----------- 10.1* Stock Purchase Agreement dated July 6, 1995, as amended, between the Registrant and David L. Gilmour. 10.2* Series A Preferred Stock Purchase Agreement dated July 6, 1996 between the Registrant and the investors named on Schedule I thereto. 10.3* Series B Preferred Stock Purchase Agreement dated November 13, 1995, as amended, between the Registrant and the investors named on Exhibit A thereto. 10.4* Convertible Note and Warrant Purchase Agreement dated August 1995 between the Registrant and RRE Giga Investors, L.P. 10.5* Series B Preferred Stock Purchase Warrant dated August 1995 registered in the name of RRE Giga, L.P. 10.6* Registration Rights Agreement dated November 13, 1995 among the Registrant, the investors named on Exhibit A thereto, Gideon I. Gartner and David L. Gilmour. 10.7* Co-Sale and Stock Restriction Agreement dated November 13, 1995 among the Registrant, Gideon I. Gartner and the stockholders named on the signature pages thereto. 10.8 Form of Series B Preferred Stock Purchase Warrant dated February 28, 1996 registered in the name of Montgomery Securities. 10.9* Registrant's 5% $1.0 Million Convertible Promissory Note dated April 5, 1995 naming Friday Holdings, L.P. as payee. 10.10* Registrant's 6% $400,000 Convertible Promissory Note dated December 31, 1995 naming David L. Gilmour as payee. 10.11* Employment Agreement dated February 1, 1996 between the Registrant and Leander R. Jennings, Jr. 10.12* Employment Agreement dated December 1, 1995 between the Registrant and Kenneth E. Marshall. 10.13* Employment Agreement dated July 6, 1995 between the Registrant and David L. Gilmour. 10.14* Non-competition Agreement dated November 13, 1995 between the Registrant and Gideon I. Gartner. 10.15* Consulting Agreement dated January 1, 1996 between the Registrant and Neill H. Brownstein Corporation. 10.16* Promissory Note dated December 1, 1995 naming the Registrant as payee issued by Kenneth E. Marshall. 10.17* Letter Agreement dated July 12, 1996 between the Registrant and Richard L. Crandall. 10.18* Lease dated October 31, 1995 between the Registrant and Cambridge 1400 Limited Partnership. 10.19* Lease dated October 6, 1987, as amended, between BIS Strategic Decisions, Inc. and Charles A. Pesko, Jr., as Trustee of Longwater Circle Trust. 10.20+* Content Distribution Agreement dated May 21, 1996 between the Registrant and Dow Jones and Company, Inc. 10.21+* Agreement dated August 1, 1996 between the Registrant and Peripheral Insight, Inc. 10.22+* Agreement dated August 15, 1996 between the Registrant and Decision Analytics, Inc. 11* Calculation of shares used in determining pro forma net loss per common share. 21 Subsidiaries of the Registrant. 23.1 Consent of Hale and Dorr (included in Exhibit 5). 23.2 Consent of Coopers & Lybrand L.L.P. 23.3 Consent of Ernst & Young LLP. 23.4 Consent of Coopers & Lybrand. 24* Powers of Attorney (included on page II-6). 27* Financial Data Schedule.
- -------- *Previously filed. + Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission. II-4 (B) FINANCIAL STATEMENT SCHEDULES All other schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions contained in the Restated Certificate of Incorporation and Amended and Restated By-Laws of the Registrant and the laws of the State of Delaware, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the Offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CAMBRIDGE, COMMONWEALTH OF MASSACHUSETTS, ON THIS 21ST DAY OF OCTOBER, 1996. Giga Information Group, Inc. /s/ Kenneth E. Marshall By: _________________________________ KENNETH E. MARSHALL PRESIDENT AND CHIEF OPERATING OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE Gideon I. Gartner* Chairman of the - ------------------------------------- Board of Directors October 21, GIDEON I. GARTNER and Chief Executive 1996 Officer (Principal Executive Officer) /s/ Kenneth E. Marshall President and Chief - ------------------------------------- Operating Officer; October 21, KENNETH E. MARSHALL Director 1996 Richard B. Goldman* Senior Vice - ------------------------------------- President and Chief October 21, RICHARD B. GOLDMAN Financial Officer; 1996 Treasurer; Secretary (Principal Financial and Accounting Officer) David L. Gilmour* - ------------------------------------- Senior Vice October 21, DAVID L. GILMOUR President, 1996 Research; Director Neill H. Brownstein* Director - ------------------------------------- October 21, NEILL H. BROWNSTEIN 1996 Richard L. Crandall* Director - ------------------------------------- October 21, RICHARD L. CRANDALL 1996 II-6 SIGNATURE TITLE DATE Irwin Lieber* Director - ------------------------------------- October 21, IRWIN LIEBER 1996 James D. Robinson III* Director - ------------------------------------- October 21, JAMES D. ROBINSON III 1996 /s/ Kenneth E. Marshall *By: ________________________________ October 21, ATTORNEY-IN-FACT 1996 II-7 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION NO. ------- ----------- ---- 1 Form of Underwriting Agreement. 3.1* Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2* Form of Restated Certificate of Incorporation of the Registrant (to be filed with the State of Delaware upon the closing of the Offering to which this Registration Statement relates). 3.3* By-Laws of the Registrant. 3.4* Form of Restated Bylaws of the Registrant (to become effective upon the closing of the Offering to which this Registration Statement relates). 4.1* Specimen Certificate for shares of Common Stock, $.001 par value, of the Registrant. 5 Opinion of Hale and Dorr with respect to the validity of the securities being offered. 10.1* Stock Purchase Agreement dated July 6, 1995, as amended, between the Registrant and David L. Gilmour. 10.2* Series A Preferred Stock Purchase Agreement dated July 6, 1996 between the Registrant and the investors named on Schedule I thereto. 10.3* Series B Preferred Stock Purchase Agreement dated November 13, 1995, as amended, between the Registrant and the investors named on Exhibit A thereto. 10.4* Convertible Note and Warrant Purchase Agreement dated August 1995 between the Registrant and RRE Giga Investors, L.P. 10.5* Series B Preferred Stock Purchase Warrant dated August 1995 registered in the name of RRE Giga, L.P. 10.6* Registration Rights Agreement dated November 13, 1995 among the Registrant, the investors named on Exhibit A thereto, Gideon I. Gartner and David L. Gilmour. 10.7* Co-Sale and Stock Restriction Agreement dated November 13, 1995 among the Registrant, Gideon I. Gartner and the stockholders named on the signature pages thereto. 10.8 Form of Series B Preferred Stock Purchase Warrant dated February 28, 1996 registered in the name of Montgomery Securities. 10.9* Registrant's 5% $1.0 Million Convertible Promissory Note dated April 5, 1995 naming Friday Holdings, L.P. as payee. 10.10* Registrant's 6% $400,000 Convertible Promissory Note dated December 31, 1995 naming David L. Gilmour as payee. 10.11* Employment Agreement dated February 1, 1996 between the Registrant and Leander R. Jennings, Jr. 10.12* Employment Agreement dated December 1, 1995 between the Registrant and Kenneth E. Marshall. 10.13* Employment Agreement dated July 6, 1995 between the Registrant and David L. Gilmour. 10.14* Non-competition Agreement dated November 13, 1995 between the Registrant and Gideon I. Gartner. 10.15* Consulting Agreement dated January 1, 1996 between the Registrant and Neill H. Brownstein Corporation.
EXHIBIT PAGE NO. DESCRIPTION NO. ------- ----------- ---- 10.16* Promissory Note dated December 1, 1995 naming the Registrant as payee issued by Kenneth E. Marshall. 10.17* Letter Agreement dated July 12, 1996 between the Registrant and Richard L. Crandall. 10.18* Lease dated October 31, 1995 between the Registrant and Cambridge 1400 Limited Partnership. 10.19* Lease dated October 6, 1987, as amended, between BIS Strategic Decisions, Inc. and Charles A. Pesko, Jr., as Trustee of Longwater Circle Trust. 10.20+* Content Distribution Agreement dated May 21, 1996 between the Registrant and Dow Jones and Company, Inc. 10.21+* Agreement dated August 1, 1996 between the Registrant and Peripheral Insight, Inc. 10.22+* Agreement dated August 15, 1996 between the Registrant and Decision Analytics, Inc. 11* Calculation of shares used in determining pro forma net loss per common share. 21 Subsidiaries of the Registrant. 23.1 Consent of Hale and Dorr (included in Exhibit 5). 23.2 Consent of Coopers & Lybrand L.L.P. 23.3 Consent of Ernst & Young LLP. 23.4 Consent of Coopers & Lybrand. 24* Powers of Attorney (included on page II-6). 27* Financial Data Schedule.
- -------- *Previously filed. + Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission. EX-1 2 FORM OF UNDERWRITING AGREEMENT DRAFT 10/21/96 -------------- EXHIBIT 1 4,000,000 Shares GIGA INFORMATION GROUP, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- ______ ___,1996 LEHMAN BROTHERS INC. OPPENHEIMER & CO., INC. SALOMON BROTHERS INC As Representatives of the several U.S. Underwriters named in Schedule 1, c/o Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Dear Sirs: Giga Information Group, Inc., a Delaware corporation (the "Company"), proposes to sell an aggregate of 4,000,000 shares (the "Firm Stock") of the Company's Common Stock, par value $.001 per share (the "Common Stock"). In addition, the Company proposes to grant to the Underwriters named in Schedule I hereto (the "Underwriters") an option to purchase up to an additional 600,000 shares of the Common Stock on the terms and for the purposes set forth in Section 2 (the "Option Stock"). The Firm Stock and the Option Stock, if purchased, are hereinafter collectively called the "Stock." This is to confirm the agreement concerning the purchase of the Stock from the Company by the Underwriters named in Schedule I hereto (the "Underwriters"). 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees that: (a) Each of the registration statement on Form S-1, and any registration statement filed pursuant to Rule 462(b) of the Rules and Regulations as hereinafter defined, and any amendments thereto, with respect to the Stock has (i) been prepared by the Company in conformity with the requirements of the United States Securities Act of 1933 (the "Securities Act") and the rules and regulations (the "Rule and Regulations") of the United States Securities and Exchange Commission (the "Commission") thereunder, (ii) been filed with the Commission under the Securities Act and (iii) become effective under the Securities Act. Copies of each of such registration statement, including any registration statement filed pursuant to Rule 462(b), and the amendments thereto have been delivered by the Company to you as the representatives (the "Representatives") of the Underwriters and such copies, to the extent applicable, were identical to the electronically transmitted copies thereof filed with the Commission pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T. As used in this Agreement, "Effective Time" means the date and the time as of which such registration statement, or the most recent post-effective amendment thereto, if any, was declared effective by the Commission; "Effective Date" means the date of the Effective Time; "Preliminary Prospectus" means each prospectus included in such registration statement, or amendments thereof, before it became effective under the Securities Act and any prospectus filed with the Commission by the Company with the consent of the Representatives pursuant to Rule 424(a) of the Rules and Regulations; "Registration Statement" means such registration statement, as amended at the Effective Time, including all information contained in the final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations in accordance with Section hereof and deemed to be a part of the registration statement as of the Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; "Rule 462(b) Registration Statement" means any registration statement filed pursuant to Rule 462(b) of the Rules and Regulations, and after such filing, the term "Registration Statement" shall include the Rule 462(b) Registration Statement; and "Prospectus" means such final prospectus, as first filed with the Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations. The Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus. For purposes of this Agreement, all references to any Preliminary Prospectus, the Registration Statement, any Rule 462(b) Registration Statement, the Prospectus, or any amendment or supplement to any of the foregoing, shall be deemed to include the respective copies thereof filed with the Commission pursuant to EDGAR. (b) The Registration Statement, including any Rule 462(b) Registration Statement, conforms, and the Prospectus and any further amendments or supplements to the Registration Statement, including any Rule 462(b) Registration Statement, or the Prospectus, when they become effective or are filed with the Commission, as the case may be, will conform in all material respects to the requirements of the Securities Act and the Rules and Regulations and do not and will not, as of the applicable Effective Date (as to the Registration Statement and any amendment thereto) and as of the applicable filing date (as to the Prospectus and any amendment or supplement thereto) contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided that no representation or warranty is made as to information contained in or omitted from the Registration Statement, including any Rule 462(b) Registration Statement, or the Prospectus in reliance upon and in conformity with written information furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein. -2- (c) The Company and each of its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification, and has all power and authority necessary to own or hold its properties and to conduct the business in which it is engaged; and none of the subsidiaries (other than BIS Shrapnel Pty Limited (a "Significant Subsidiary")) is a "significant subsidiary," as such term is defined in Rule 405 of the Rules and Regulations. (d) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non- assessable and conform to the description thereof contained in the Prospectus. Except for the Series A Convertible Preferred Stock and Series B Convertible Preferred Stock, which will be converted into Common Stock upon the closing of the Offering, no shares of capital stock of the Company are outstanding other than the Common Stock; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims. (e) The unissued shares of the Stock to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable; and the Stock will conform to the descriptions thereof contained in the Prospectus. (f) This Agreement has been duly authorized, executed and delivered by the Company. (g) The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties or assets; and except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable state or foreign securities laws and clearance by the National Association of Securities Dealers Inc. in connection with the purchase and distribution of the Stock by the Underwriters, no consent, approval, authorization or order -3- of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby. (h) Except as described in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived or satisfied) to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act. (i) Except as described in the Registration Statement, the Company has not sold or issued any shares of Common Stock during the six-month period preceding the date of the prospectus, including any sales pursuant to Rule 144A under, or Regulations D or S of, the Securities Act, other than shares issued pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants. (j) Neither the Company nor any of its subsidiaries has sustained, since the date of the latest audited financial statements included in the Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; and, since such date, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus. (k) The financial statements (including the related notes and supporting schedules) filed as part of the Registration Statement or included in the Prospectus present fairly the financial condition and results of operations of the entities purported to be shown thereby, at the dates and for the periods indicated and have been prepared in conformity with generally accepted accounting principles (except in the case of unaudited interim financial statements for normal recurring adjustments) applied on a consistent basis throughout the periods involved, except as otherwise stated therein. (l) Coopers & Lybrand L.L.P. and Ernst & Young LLP, who have certified certain financial statements of the Company, whose reports appear in the Prospectus and who have delivered the initial letters referred to in Section 9(g) hereof, are independent public accountants as required by the Securities Act and the Rules and Regulations. -4- (m) The Company together with its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries taken as a whole; and, except as set forth or contemplated in the Prospectus, all real property and buildings held under lease by the Company and its subsidiaries are held by it under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries taken as a whole. (n) The Company together with its subsidiaries carry or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their properties and as is customary for companies engaged in similar businesses in similar industries. (o) Except as disclosed in or specifically contemplated by the Prospectus, the Company and its subsidiaries own or possess rights to use all trademarks, trademark applications, trade names, service marks, patents, patent applications, patent rights, copyrights, inventions, trade secrets, know how, licenses, and approvals that are necessary to conduct their business as described in the Registration Statement and Prospectus; the Company has no knowledge of, and has received no notice of, any material infringement or misappropriation by the Company of any trademark, trademark application, trade name, service mark, patent, patent application, patent right, copyright, invention, know how, license, trade secret or other similar rights of others, and there is no claim being made against the Company regarding trademark, trademark application, trade name, service mark, patent, patent application, mask work, copyright, license, trade secret or other infringement which is reasonably likely to have a material adverse effect on the financial position, stockholders' equity or results of operations of the Company; the Company is not in violation of any material agreement covering its intellectual property rights; and the Company and its subsidiaries have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any rights of third parties to any of the intellectual property of the Company or its subsidiaries. (p) Except as described in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, might have a material adverse effect on the financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries taken as a whole; and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. -5- (q) There are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations which have not been described in the Prospectus or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the Rules and Regulations. (r) No relationship, direct or indirect, exists between or among the Company on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company on the other hand, which is required to be described in the Prospectus which is not so described. (s) No labor disturbance by the employees of the Company exists or, to the knowledge of the Company, is imminent which might be expected to have a material adverse effect on the financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries. (t) The Company and its subsidiaries are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (u) The Company has filed all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes due thereon, and no tax deficiency has been determined adversely to the Company which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, is reasonably likely to have) a material adverse effect on the financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries taken as a whole, otherwise than as set forth in the Prospectus. (v) Since the date as of which information is given in the Prospectus through the date hereof, and except as may otherwise be disclosed in the Prospectus, the Company has not (i) issued or granted any securities (other than grants of options to employees and issuances upon exercise of outstanding options or warrants), (ii) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations which were -6- incurred in the ordinary course of business, (iii) entered into any material transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (w) The Company (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (x) Neither the Company nor any of its subsidiaries (i) is in violation of its charter or by-laws, (ii) is in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject or (iii) is in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, which violation would have a material adverse affect on its business. (y) Neither the Company nor any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (z) To the Company's knowledge, there has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or its subsidiaries in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit or which would require remedial action under any applicable law, ordinance, rule, regulation, order, judgment, decree or permit, except for any violation or remedial action which would not have, or could not be reasonably likely to have, singularly or in the aggregate with all such violations and remedial actions, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries; to the Company's knowledge, there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, -7- hazardous wastes or hazardous substances due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a material adverse effect on the general affairs, management, financial position, stockholders' equity or results of operations of the Company and it subsidiaries; and the terms "hazardous wastes", "toxic wastes", "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (aa) Neither the Company nor any of its subsidiaries is, or will become as a result of the consummation of the transactions contemplated by this Agreement, an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 2. Purchase of the Stock by the Underwriters. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell 4,000,000 shares of the Firm Stock to the several Underwriters and each of the Underwriters, severally and not jointly, agrees to purchase the number of shares of the Firm Stock set opposite that Underwriter's name in Schedule 1 hereto. The respective purchase obligations of the Underwriters with respect to the Firm Stock shall be rounded among the Underwriters to avoid fractional shares, as the Representatives may determine. In addition, the Company grants to the Underwriters an option to purchase up to 600,000 shares of Option Stock. Such option is granted solely for the purpose of covering overallotments in the sale of Firm Stock and is exercisable as provided in Section 4 hereof. Shares of Option Stock shall be purchased severally for the account of the Underwriters in proportion to the number of shares of Firm Stock set opposite the name of such Underwriters in Schedule 1 hereto. Such respective purchase obligations with respect to the Option Stock shall be rounded among the Underwriters to avoid fractional shares, as the Representatives may determine. The price of both the Firm Stock and any Option Stock shall be $_____ per share. 3. Offering of Stock by the Underwriters. Upon authorization by the Representatives of the release of the Firm Stock, the several Underwriters propose to offer the Firm Stock for sale upon the terms and conditions set forth in the Prospectus. 4. Delivery of and Payment for the Stock. Delivery of and payment for the Firm Stock shall be made at the office of Hale and Dorr, 60 State Street, Boston, MA 02109, at 10:00 A.M., Boston time, on the third full business day (unless otherwise required by the Commission pursuant to Rule 15c6- 1 of the Exchange Act) following the date of this Agreement or at such other date or place as shall be determined by agreement between the Representatives and the Company. This date and time are sometimes referred to as the "First Delivery Date." On the First Delivery Date, the Company shall deliver or cause to be delivered certificates -8- representing the Firm Stock to the Representatives for the account of each Underwriter against payment to or upon the order of the Company of the purchase price by wire transfer in same-day funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder. Upon delivery, the Firm Stock shall be registered in such names and in such denominations as the Representatives shall request in writing not less than two full business days prior to the First Delivery Date. For the purpose of expediting the checking and packaging of the certificates for the Firm Stock, the Company shall make the certificates representing the Firm Stock available for inspection by the Representatives in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the First Delivery Date. If the Representatives so elect, delivery of the shares of Firm Stock may be made by credit through full fast transfer to the accounts at the Depository Trust Company designated by the Representatives. At any time on or before the thirtieth day after the date of this Agreement the option granted in Section 2 may be exercised by written notice being given to the Company by the Representatives. Such notice shall set forth the aggregate number of shares of Option Stock as to which the option is being exercised, the names in which the shares of Option Stock are to be registered, the denominations in which the shares of Option Stock are to be issued and the date and time, as determined by the Representatives, when the shares of Option Stock are to be delivered; provided, however, that this date and time shall not be earlier than the First Delivery Date nor earlier than the second business day after the date on which the option shall have been exercised nor later than the third business day after the date on which the option shall have been exercised. The date and time the shares of Option Stock are delivered are sometimes referred to as the "Second Delivery Date" and the First Delivery Date and the Second Delivery Date are sometimes each referred to as a "Delivery Date"). Delivery of and payment for the Option Stock shall be made at the place specified in the first sentence of the first paragraph of this Section 4 (or at such other place as shall be determined by agreement between the Representatives and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date. On the Second Delivery Date, the Company shall deliver or cause to be delivered the certificates representing the Option Stock to the Representatives for the account of each Underwriter against payment to or upon the order of the Company of the purchase price by wire transfer in same-day funds. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Underwriter hereunder. Upon delivery, the Option Stock shall be registered in such names and in such denominations as the Representatives shall request in the aforesaid written notice. For the purpose of expediting the checking and packaging of the certificates for the Option Stock, the Company shall make the certificates representing the Option Stock available for inspection by the Representatives in New York, New York, not later than 2:00 P.M., New York City time, on the business day prior to the Second Delivery Date. If the Representatives so elect, delivery of the shares of Option Stock may be made by credit through full fast transfer to the accounts as the Depository Trust Company designated by the Representatives. 5. Further Agreements of the Company. The Company agrees: -9- (a) To prepare the Prospectus in a form approved by the Representatives and to file such Prospectus pursuant to Rule 424(b) under the Securities Act not later than Commission's close of business on the second business day following the execution and delivery of this Agreement or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Securities Act; to make no further amendment or any supplement to the Registration Statement or to the Prospectus except as permitted herein; to advise the Representatives, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement or any Rule 462(b) Registration Statement has been filed or becomes effective or any supplement to the Prospectus or any amended Prospectus has been filed and to furnish the Representatives with copies thereof; to advise the Representatives, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, of the suspension of the qualification of the Stock for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus or suspending any such qualification, to use promptly its best efforts to obtain its withdrawal; (b) To furnish promptly to each of the Representatives and to counsel for the Underwriters a signed copy of the Registration Statement, including any Rule 462(b) Registration Statement, as originally filed with the Commission, and each amendment thereto filed with the Commission, including all consents and exhibits filed therewith; (c) To deliver promptly to the Representatives such number of the following documents as the Representatives shall reasonably request: (i) conformed copies of the Registration Statement, including any Rule 462(b) Registration Statement, as originally filed with the Commission and each amendment thereto (in each case excluding exhibits other than this Agreement and the computation of per share earnings) and, (ii) each Preliminary Prospectus, the Prospectus and any amended or supplemented Prospectus; and, if the delivery of a prospectus is required at any time after the Effective Time in connection with the offering or sale of the Stock or any other securities relating thereto and if at such time any events shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the Securities Act, to notify the Representatives and, upon their request, to prepare and furnish without charge to each Underwriter and to any dealer in securities as many copies as the Representatives may from time to time reasonably request of an amended or supplemented Prospectus which will correct such statement or omission or effect such compliance. To the extent applicable, the copies of the Registration Statement and each amendment thereto (including all exhibits filed -10- therewith), including any Rule 462(b) Registration Statement, any Preliminary Prospectus or Prospectus (in each case, as amended or supplemented) furnished to the Underwriters and counsel to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T; (d) To file promptly with the Commission any amendment to the Registration Statement, including any filing required under Rule 462(b), or the Prospectus or any supplement to the Prospectus that may, in the judgment of the Company or the Representatives, be required by the Securities Act or requested by the Commission; (e) Prior to filing with the Commission any amendment to the Registration Statement, including any filing required under Rule 462(b), or supplement to the Prospectus or any Prospectus pursuant to Rule 424 of the Rules and Regulations, to furnish a copy thereof to the Representatives and counsel for the Underwriters and obtain the consent of the Representatives to the filing; (f) As soon as practicable after the Effective Date, to make generally available to the Company's shareholders and to deliver to the Representatives an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11 (a) of the Securities Act and the Rules and Regulations (including, at the option of the Company, Rule 158); (g) For a period of five years following the Effective Date, to furnish to the Representatives copies of all materials furnished by the Company to its shareholders and all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange upon which the Common Stock may be listed pursuant to requirements of or agreements with such exchange or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder; and to the extent applicable, such reports or documents shall be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (h) Promptly from time to time to take such action as the Representatives may reasonably request to qualify the Stock for offering and sale under the securities laws of such jurisdictions as the Representatives may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Stock; (i) For a period of 180 days from the date of the Prospectus, not to offer for sale, sell or otherwise dispose of (or enter into any transaction which is designed to, or could be expected to, result in the disposition by any person of), directly or indirectly, any shares of Common Stock (other than the Stock and shares issued pursuant to employee benefit plans, stock option plans or other employee compensation plans existing on the date hereof or pursuant to currently outstanding options, warrants or rights), or sell or -11- grant options, rights or warrants with respect to any shares of Common Stock (other than the grant of options pursuant to option plans existing on the date hereof), without the prior written consent of Lehman Brothers Inc.; and to cause each officer and director and each record owner of shares of Common Stock and Preferred Stock of the Company other than those record owners listed in writing by the Company to Lehman Brothers Inc. and approved by it prior to the First Delivery Date, to furnish to the Representatives, prior to the First Delivery Date, a letter or letters, in form and substance satisfactory to counsel for the Underwriters, pursuant to which each such person shall agree not to offer for sale, sell or otherwise dispose of (or enter into any transaction which is designed to, or could be expected to, result in the disposition by any person of), directly or indirectly, any shares of Common Stock for a period of 180 days from the date of the Prospectus, without the prior written consent of Lehman Brothers Inc.; (j) Prior to the Effective Date, to apply for the listing of the Stock on the Nasdaq National Market and to use its best efforts to complete that listing, subject only to official notice of issuance and evidence of satisfactory distribution, prior to the First Delivery Date; (k) Prior to filing with the Commission any reports on Form SR pursuant to Rule 463 of the Rules and Regulations, to furnish a copy thereof to the counsel for the Underwriters and receive and consider its comments thereon, and to deliver promptly to the Representatives a signed copy of each report on Form SR filed by it with the Commission; (l) To apply the net proceeds from the sale of the Stock being sold by the Company as set forth in the Prospectus; and (m) To take such steps as shall be necessary to ensure that neither the Company nor any subsidiary shall become an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 6. Expenses. The Company agrees to pay (a) the costs incident to the authorization, issuance, sale and delivery of the Stock and any taxes payable in that connection; (b) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement and any amendments and exhibits thereto; (c) the costs of distributing the Registration Statement as originally filed and each amendment thereto and any post-effective amendments thereof (including, in each case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or supplement to the Prospectus, all as provided in this Agreement; (d) the costs of producing and distributing this Agreement and any other related documents in connection with the offering, purchase, sale and delivery of the Stock; (e) the costs of delivering and distributing the terms of agreement relating to the organization of the domestic underwriting syndicate and selling group to the members thereof by mail, telex or other means of communications; (f) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of sale of the Stock; (g) any applicable listing -12- or other fees; (h) the fees and expenses of qualifying the Stock under the securities laws of the several jurisdictions as provided in Section 5(h) and of preparing, printing and distributing a Blue Sky Memorandum (including related fees and expenses of counsel to the Underwriters); (k) all other costs and expenses incident to the performance of the obligations of the Company under this Agreement; provided that, except as provided in this Section 6 and in Section 11 the Underwriters shall pay their owns costs and expenses, including the costs and expenses of their counsel, any transfer taxes on the Stock which they may sell and the expenses of advertising any offering of the Stock made by the Underwriters. 7. Conditions of Underwriters' Obligations. The respective obligations of the Underwriters hereunder are subject to the accuracy, when made and on each Delivery Date, of the representations and warranties of the Company contained herein, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) The Prospectus shall have been timely filed with the Commission in accordance with Section 6(a); no stop order suspending the effectiveness of the Registration Statement, including any Rule 462(b) Registration Statement, or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; and any request of the Commission for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with. (b) No Underwriter shall have discovered and disclosed to the Company on or prior to such Delivery Date that the Registration Statement, any Rule 462(b) Registration Statement, or the Prospectus or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Stock, the Registration Statement and the Prospectus, and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Underwriters, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (d) Hale and Dorr shall have furnished to the Representatives its written opinion, as counsel to the Company, addressed to the Underwriters and dated such Delivery Date, in form and substance reasonably satisfactory to the Representatives, to the effect that: -13- (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, is duly qualified to do business and is in good standing as a foreign corporation in Massachusetts and has all power and authority necessary to own or hold its properties and to conduct the business in which it is engaged. To our knowledge, the Company has no direct or indirect subsidiaries other than Giga Information Group Investment Corporation, Giga Information Group Limited, BIS Schrapnel PTY Limited, Giga Information Group GmbH, Giga Information Group S.A.R.L., Giga Information Group Korea, Inc., BIS Italy srl, BIS Strategic Decisions Japan, Inc. and Guidelines of America, Inc.; (ii) The Company has an authorized capitalization as set forth in the Prospectus, and all of the issued shares of capital stock of the Company (including the shares of Stock being delivered on such Delivery Date) have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Prospectus under the caption "Description of Capital Stock"; the shares of Stock being issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued fully paid and non-assessable and the stock will conform to the description thereof contained in the Prospectus; all of the issued shares of capital stock of the subsidiaries of the Company are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims known to such counsel; and no shares of any class of capital stock of the Company are outstanding other than the shares of Common Stock, Series A Convertible Preferred Stock and Series B Convertible Preferred Stock reflected in the Prospectus; (iii) There are no preemptive or other rights to subscribe for or to purchase, nor any restriction upon the voting or transfer of, any shares of the Stock pursuant to the Company's charter or by-laws or any agreement or other instrument known to such counsel; (iv) To such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which, is reasonably expected to have a material adverse effect on the consolidated financial position, stockholders' equity, results of operations, business or prospects of the Company and its subsidiaries taken as a whole; and, to such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (vi) The Registration Statement, including any Rule 462(b) Registration Statement, was declared effective under the Securities Act as of the date and time specified in such opinion, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) of the Rules and Regulations specified in such opinion on the -14- date specified therein and no stop order suspending the effectiveness of the Registration Statement has been issued and, to the knowledge of such counsel, no proceeding for that purpose is pending or threatened by the Commission; (vii) The Registration Statement, including any Rule 462(b) Registration Statement, and the Prospectus and any further amendments or supplements thereto made by the Company prior to such Delivery Date (other than the financial statements and related schedules and financial data therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations (other than the financial statements and related schedules and financial data therein, as to which such counsel need express no opinion), and when they were filed with the Commission complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder; (viii) To such counsel's knowledge, there are no contracts or other documents which are required to be described in the Prospectus or filed as exhibits to the Registration Statement by the Securities Act or by the Rules and Regulations which have not been described or filed as exhibits to the Registration Statement or incorporated therein by reference as permitted by the Rules and Regulations; (ix) The statements contained in the Prospectus under the caption "Business--Legal Proceedings," insofar as such statements constitute a summary of documents referred to therein or matters of law, constitute an accurate summary of the matters described therein; (x) This Agreement has been duly authorized, executed and delivered by the Company; (xi) The issue and sale of the shares of Stock being delivered on such Delivery Date by the Company and the compliance by the Company with all of the provisions of this Agreement and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter or by-laws of the Company or any statute or any order, rule or regulation known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its properties or assets; and, except for the registration of the Stock under the Securities Act and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state or foreign securities laws and clearance by the National Association of Securities Dealers, Inc. in connection with the purchase and distribution of the Stock by the Underwriters, no consent, approval, - 15 - authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby; (xii) To such counsel's knowledge, except as described in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right (other than rights which have been waived or satisfied) to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act; and (xiii) Neither the Company nor any of its subsidiaries is, or will become as a result of the consummation of the transactions contemplated by this Agreement or the International Underwriting Agreement, an "investment company" within the meaning of such term under the United States Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. In rendering such opinion, such counsel may state that its opinion is limited to matters governed by the Federal laws of the United States of America and the General Corporation Law of the State of Delaware and that such counsel is not admitted in the State of Delaware. Such counsel shall also have furnished to the Representatives a written statement, addressed to the Underwriters and dated such Delivery Date, in form and substance satisfactory to the Representatives, to the effect that such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, the Representatives and counsel for the Representatives at which the contents of the Registration Statement and the Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectuses and based on the foregoing, no facts have come to the attention of such counsel which lead it to believe that the Registration Statement, as of the Effective Date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or that the Prospectus contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel is not requested to and need not express any comment with respect to the financial statements and schedules and other financial and statistical data included in the Registration Statement or Prospectus). (e) The Representatives shall have received from ________________, counsel for BIS Shrapnel Pty Limited [and any other significant subsidiary], such opinion or opinions, dated such Delivery Date, with respect to its due incorporation, valid existence - 16 - in good standing under the laws of its jurisdiction of incorporation, and capitalization, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (f) The Representatives shall have received from Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion or opinions, dated such Delivery Date, with respect to the issuance and sale of the Stock, the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (g) At the time of execution of this Agreement, the Representatives shall have received from Coopers & Lybrand L.L.P. and Ernst & Young LLP, a letter, in form and substance satisfactory to the Representatives, addressed to the Underwriters and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to underwriters in connection with registered public offerings. (h) With respect to the letter of Coopers & Lybrand L.L.P. and Ernst & Young LLP, referred to in the preceding paragraph and delivered to the Representatives concurrently with the execution of this Agreement (the "initial letter"), the Company shall have furnished to the Representatives a letter (the "bring-down letter") of such accountants, addressed to the Underwriters and dated such Delivery Date (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (i) The Company shall have furnished to the Representatives a certificate, dated such Delivery Date, of its Chairman of the Board, its President or a Vice President and its chief financial officer stating that: (i) The representations, warranties and agreements of the Company in Section 1 are true and correct as of such Delivery Date; the Company has complied with - 17 - all its agreements contained herein; and the conditions set forth in Sections 7(a) and 7(m) have been fulfilled; and (ii) They have carefully examined the Registration Statement and the Prospectus and, in their opinion (A) as of the Effective Date, the Registration Statement and Prospectus did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) since the Effective Date no event has occurred which should have been set forth in a supplement or amendment to the Registration Statement or the Prospectus. (j) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Representatives, so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Stock being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus. (k) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange or the American Stock Exchange or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of a majority in interest of the several Underwriters, impracticable or inadvisable to proceed with the public offering or delivery of the Stock being delivered on such Delivery Date on the terms and in the manner contemplated in the Prospectus. (l) The Nasdaq National Market shall have approved the Stock for listing, subject only to official notice of issuance and evidence of satisfactory distribution. - 18 - All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters. 8. Indemnification and Contribution. (a) The Company shall indemnify and hold harmless each Underwriter, its officers and employees and each person, if any, who controls any Underwriter within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Stock), to which that Underwriter, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as, such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto or (B) in any blue sky application or other document prepared or executed by the Company (or based upon any written information furnished by the Company) specifically for the purpose of qualifying any or all of the Stock under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a "Blue Sky Application"), (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any act or failure to act or any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Stock or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company shall not be liable under this clause (iii) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct), and shall reimburse each Underwriter and each such officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by that Underwriter, officer, employee or controlling person in connection with investigating or defending or preparing to defend against such loss, claim, damage, liability or action as such expenses are incurred; and, provided, further, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any such amendment or supplement, or in any Blue Sky Application, in reliance upon and in conformity with written information concerning such Underwriter furnished to the Company through the Representatives by or on behalf of any Underwriter specifically for inclusion therein. The foregoing indemnity agreement is in addition to any liability which - 19 - the Company may otherwise have to any Underwriter or to any officer, employee or controlling person of that Underwriter. (b) Each Underwriter, severally and not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors, and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Prospectus, the Registration Statement or the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Underwriter furnished to the Company through the Representatives by or on behalf of that Underwriter specifically for inclusion therein, and shall reimburse the Company and any such director, officer or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Underwriter may otherwise have to the Company or any such director, officer, employee or controlling person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the identified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; - 20 - provided, however, that the Representatives shall have the right to employ counsel to represent jointly the Representatives and those other Underwriters and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Underwriters against the Company under this Section 8 if, in the reasonable judgment of the Representatives, it is advisable for the Representatives and those Underwriters, officers, employees and controlling persons to be jointly represented by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall (i) without, the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a), 8(b) or 8(c) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Stock or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Stock purchased under this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discounts and commissions received by the Underwriters with respect to the shares of the Stock purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the shares of the Stock under this Agreement, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to whether the, untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters, the intent of the parties and - 21 - their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Stock underwritten by it and distributed to the public was offered to the public exceeds the amount of any damages which such Underwriter has otherwise paid or become liable, to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 10(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute as provided in this Section 8(e) are several in proportion to their respective underwriting obligations and not joint. (e) The Underwriters severally confirm that the statements with respect to the public offering of the Stock by the Underwriters set forth on the cover page of, the legend concerning over-allotments on the inside front cover page and the concession and reallowance figures appearing under the caption "Underwriting" in, the Prospectus are correct and constitute the only information concerning such Underwriters furnished in writing to the Company by or on behalf of the Underwriters specifically for inclusion in the Registration Statement and the Prospectus. 9. Defaulting Underwriters. If, on either Delivery Date, any Underwriter defaults in the performance of its obligations under this Agreement, the remaining non- defaulting Underwriters shall be obligated to purchase the Stock which the defaulting Underwriter agreed but failed to purchase on such Delivery Date in the respective proportions which the number of shares of the Firm Stock set opposite the name of each remaining non-defaulting Underwriter in Schedule 1 hereto bears to the total number of shares of the Firm Stock set opposite the names of all the remaining non-defaulting Underwriters in Schedule I hereto; provided, however, that the remaining non-defaulting Underwriters shall not be obligated to purchase any of the Stock on such Delivery Date if the total number of shares of the Stock which the defaulting Underwriter or Underwriters agreed but failed to purchase on such date exceeds 9.09% of the total number of shares of the Stock to be purchased on such Delivery Date, and any remaining non- defaulting Underwriter shall not be obligated to purchase more than 110% of the number of shares of the Stock which it agreed to purchase on such Delivery Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the remaining non-defaulting Underwriters, or those other underwriters satisfactory to the Representatives who so agree, shall have the right, but shall not be obligated, - 22 - to purchase, in such proportion as may be agreed upon among them, all the Stock to be purchased on such Delivery Date. If the remaining Underwriters or other underwriters satisfactory to the Representatives do not elect to purchase the shares which the defaulting Underwriter or Underwriters agreed but failed to purchase on such Delivery Date, this Agreement (or, with respect to the Second Delivery Date, the obligation of the Underwriters to purchase, and of the Company to sell, the Option Stock) shall terminate without liability on the part of any non-defaulting Underwriter or the Company, except that the Company will continue to be liable for the payment of expenses to the extent set forth in Sections 6 and 11. As used in this Agreement, the term "Underwriter" includes, for all purposes of this Agreement unless the context requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases Firm Stock which a defaulting Underwriter agreed but failed to purchase. Nothing contained herein shall relieve a defaulting Underwriter of any liability it may have to the Company for damages caused by its default. If other underwriters are obligated or agree to purchase the Stock of a defaulting or withdrawing Underwriter, either the Representatives or the Company may postpone the Delivery Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement, the Prospectus or in any other document or arrangement. 10. Termination. The obligations of the Underwriters hereunder may be terminated by the Representatives by notice given to and received by the Company prior to delivery of and payment for the Firm Stock if, prior to that time, any of the events described in Sections 9(i) or 9(j), shall have occurred or the event described in Section 7(k) shall not have occurred or if the Underwriters shall decline to purchase the Stock for any reason permitted under this Agreement. 11. Reimbursement of Underwriters' Expenses. If (a) the Company shall fail to tender the Stock for delivery to the Underwriters by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its part to be performed, or because any other condition of the Underwriters' obligations hereunder required to be fulfilled by the Company is not fulfilled, the Company will reimburse the Underwriters for all reasonable out-of-pocket expenses (including fees and disbursements of counsel) incurred by the Underwriters in connection with this Agreement and the proposed purchase of the Stock, and upon demand the Company shall pay the full amount thereof to the Representatives. If this Agreement is terminated pursuant to Section 9 by reason of the default of one or more Underwriters, the Company shall not be obligated to reimburse any defaulting Underwriter on account of those expenses. 12. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Underwriters, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., Three World Financial Center, New York, New York 10285, Attention: Syndicate Department (Fax: 212-526-6588), with a copy, in the case of any notice pursuant to Section 8(d), to the Director of Litigation, Office of the - 23 - General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY 10285, with a copy to Testa, Hurwitz & Thibeault, LLP, 125 High Street, High Street Tower, Boston, Massachusetts 02110, Attention: Gordon H. Hayes, Jr., Esq.; (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: President (Fax: 908-906-1008) with a copy to Hale and Dorr, 60 State Street, Boston, Massachusetts 02109, Attention: Mark G. Borden, Esq.; provided, however, that any notice to an Underwriter pursuant to Section 8(d) shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its acceptance telex to the Representatives, which address will be supplied to any other party hereto by the Representatives upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the Representatives. 13. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company and their respective personal representatives and successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (A) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Underwriter within the meaning of Section 15 of the Securities Act and (B) the indemnity agreement of the Underwriters contained in Section 8(c) of this Agreement shall be deemed to be for the benefit of directors of the Company, officers of the Company who have signed the Registration Statement and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 13, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 14. Survival. The respective indemnities, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Stock and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 15. Definition of the Term "Business Day". For purposes of this Agreement, "business day" means any day on which the New York Stock Exchange, Inc. is open for trading. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of New York. 17. Jurisdiction. The parties hereto each hereby irrevocably submits to the jurisdiction of any New York state or federal court sitting in the city of New York, New York - 24 - County, in any action or proceeding arising out of or relating to this Agreement and the parties hereto each hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state court or such federal court. The parties hereto also each hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The parties hereto each irrevocably consent to the service of copies of the summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivery of a copy of such process to the parties at its address specified in Section 12 or by any other method permitted by law. The parties hereto each agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or by any other manner provided by law. 18. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 19. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. [Remainder of Page Intentionally Left Blank] - 25 - If the foregoing correctly sets forth the agreement among the Company and the Underwriters, please indicate your acceptance in the space provided for that purpose below. Very truly yours, GIGA INFORMATION GROUP, INC. By ------------------------ President Accepted: LEHMAN BROTHERS INC. OPPENHEIMER & CO., INC. SALOMON BROTHERS INC For themselves and as Representatives of the several Underwriters named in Schedule 1 hereto By: LEHMAN BROTHERS INC. By --------------------------- Authorized Representative - 26 - SCHEDULE 1
Underwriters Number of Shares - ------------ ---------------- Lehman Brothers Inc................ Oppenheimer & Co., Inc............. Salomon Brothers Inc............... Total.............................. ----------------
255016 - 27 - EX-5 3 OPINION OF HALE AND DORR EXHIBIT 5.1 October 22, 1996 Giga Information Group, Inc. Ore Kendall Square Building 1400W Cambridge, MA 02139 Ladies and Gentlemen: We have assisted in the preparation and filing of a Registration Statement on Form S-1 (the "Registration Statement"), filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, relating to the registration of an aggregate of 4,600,000 shares (the "Shares") of Common Stock, $.001 par value per share of Giga Information Group, Inc., a Delaware corporation (the "Company"), including 600,000 shares subject to an over-allotment option. The Shares are to be sold to the Underwriters (as defined below) pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into by and among the Company and Lehman Brothers Inc., Openheimer & Co. Inc., and Salomon Brothers Inc, as representatives of the several underwriters named in the Underwriting Agreement (the "Underwriters"). We have examined signed copies of the Registration Statement and all exhibits thereto, all as filed with the Commission. We have also examined and relied upon the original or copies of minutes of meetings of the stockholders and Board of Directors of the Company, stock record books of the Company, a copy of the By-laws of the Company, as amended, and a copy of the Certificate of Incorporation of the Company, as amended. We assume that appropriate action will be taken, prior to the offer and sale of the Shares, to register and qualify the Shares for sale under all applicable state "Blue Sky" and securities laws. In our examination of the foregoing documents, we have assumed the genuineness of all signatures and authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, and the authenticity of the originals of such latter documents. Giga Information Group, Inc. October 22, 1996 Page 2 Based upon the foregoing, we are of the opinion that the Shares have been duly and validly authorized for issuance and, when issued in accordance with the terms of the Underwriting Agreement against payment therefor, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as part of the Registration Statement and to the use of our name therein and in the related Prospectus under the caption "Legal Matters." Very truly yours, /s/ HALE AND DORR HALE AND DORR EX-10.8 4 FORM OF SERIES B PREFERRED STOCK PURCHASE WARRANT Exhibit 10.8 The Warrant represented by this certificate has not been registered under the Securities Act of 1933, and such Warrant may not be sold or transferred unless such sale or transfer is in accordance with the registration requirements of the Securities Act of 1933, as at the time amended, or in conformity with the limitations of Rule 144 or similar rule as then in effect under such Act, or unless some other exemption from the registration requirements of such Act is available with respect thereto. No. 1 Warrant to Purchase 107,876 Shares of Series B Preferred Stock (Subject to Adjustment) Giga Information Group, Inc. SERIES B PREFERRED STOCK PURCHASE WARRANT Void after February 28, 2001 Giga Information Group, Inc. a Delaware corporation (together with any corporation which shall succeed to or assume the obligations of the Company hereunder, the "Company"), hereby certifies that, for value received, MONTGOMERY SECURITIES, or registered assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 p.m. Pacific time, on February 28, 2001 (the "Expiration Date"), One Hundred Seven Thousand Eight Hundred Seventy-Six (107,876) fully paid and nonassessable shares of Series B Stock of the Company, as constituted on the date hereof at the purchase price per share of $4.5625 and otherwise in accordance with the terms hereof. The number and character of such shares of Series B Stock are subject to adjustment as provided below. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The terms "Common Stock" shall mean the Common Stock, $.001 par value per share, of the Company. (b) The term "Series B Stock" shall mean the Series B Convertible Preferred Stock, $.001 par value per share, of the Company and any other securities or property of the Company or of any other person (corporate or otherwise) which the holder of this Warrant at any time shall be entitled -1- 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-21 5 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 Subsidiaries of the Registrant
Name Jurisdiction of Organization/Incorporation ---- ------------------------------------------ Giga Information Group Investment Corporation Massachusetts Giga Information Group Ltd. England BIS Shrapnel PTY Limited Australia Giga Information Group GmbH Germany BIS Italy SRL Italy Giga Information Group S.A.R.L. France Giga Information Group Korea, Inc. Korea BIS Strategic Decisions Japan, Inc. Japan Guidelines of America, Inc. Pennsylvania
EX-23.2 6 CONSENT OF COOPERS AND LYBRAND L.L.P. EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Amendment No. 2 to the Registration Statement of Giga Information Group, Inc. on Form S-1 (File No. 333-11711) to register 4,000,000 shares of Common Stock of our report dated August 31, 1996 on our audits of the consolidated financial statements of Giga Information Group, Inc. as of December 31, 1995 and June 30, 1996 and the periods March 17, 1995 to December 31, 1995 and January 30, 1996 to June 30, 1996. We also consent to the references to our firm under the captions "Selected Financial Data" and "Experts." We also consent to the inclusion in this Amendment No. 2 to the Registration Statement of our report dated August 31, 1996 on our audit of the combined statements of operations, stockholder's equity and cash flows of BIS Strategic Decisions for the period January 1, 1995 to April 5, 1995. Coopers & Lybrand L.L.P Boston, Massachusetts October 22, 1996 EX-23.3 7 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts" and "Selected Financial Data" and the use of our report dated March 13, 1995, except with respect to the matters described in Note 12, as to which the date is September 6, 1996, with respect to the financial statements of BIS Strategic Decisions as of December 31, 1994 and for the year ended December 31, 1994, the period from December 16, 1993 to December 31, 1993 and the period from January 1, 1993 to December 15, 1993, in the Amendment No. 2 to the Registration Statement on (Form S-1 No. 333-11711) and Related Prospectus of Giga Information Group, Inc. Ernst & Young L.L.P. Boston, Massachusetts October 22, 1996 EX-23.4 8 CONSENT OF COOPERS AND LYBRAND EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Amendment No. 2 to the Registration Statement (File No. 333-11711) of Giga Information Group, Inc. on Form S-1 to register 4,000,000 shares of Common Stock of our report dated 21 October 1996, on our audits of the financial reporting packages of BIS Shrapnel Pty Limited as of 15 December 1993 and 31 December 1993 and the periods 1 January 1993 to 15 December 1993 and 16 December 1993 to 31 December 1993. We also consent to the reference to our firm under the caption "Experts". Coopers & Lybrand Sydney, Australia 21 October 1996 -----END PRIVACY-ENHANCED MESSAGE-----