Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1 Filing Table of Contents
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(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
Patrick J. Rondeau, Esq.
Wendell C. Taylor, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street Boston, Massachusetts02109
(617) 526-6000
Anthony J.
Medaglia, Jr., P.C.
John M. Mutkoski, Esq.
Jocelyn M. Arel, Esq.
Goodwin Procter LLP
Exchange Place Boston, Massachusetts02109
(617) 570-1000
Approximate date of commencement of proposed sale to
public: as soon as practicable after this
Registration Statement is declared effective.
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. o
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. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Amount of
Title of Each Class of
Aggregate Offering
Registration
Securities to be Registered
Price(1)
Fee(2)
Common Stock, $0.001 par
value per share
$100,000,000
$3,070
(1)
Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(o) under the Securities Act of
1933, as amended.
(2)
Calculated pursuant to Rule 457(o) based on an estimate of
the proposed maximum aggregate offering price.
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.
The information in
this prospectus is not complete and may be changed. We and the
selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
This is the initial public offering of shares of our common
stock. We are
selling shares
of our common stock.
Prior to this offering, there has been no public market for our
common stock. The initial public offering price of our common
stock is expected to be
between and
per share. We have applied to list our common stock on the
NASDAQ Global Market under the symbol “NTZA.”
Investing in our common stock involves risks. See
“Risk Factors” beginning on page 7.
Underwriting
Discounts and
Proceeds to
Price to Public
Commissions
Netezza Corporation
Per Share
$
$
$
Total
$
$
$
Certain of our stockholders have granted the underwriters the
right to purchase up to an
additional shares
of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers
on ,
2007.
You should rely only on the information contained in this
document and any free writing prospectus prepared by or on
behalf of us or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document may only
be accurate on the date of this document.
Dealer
Prospectus Delivery Obligation
Until ,
2007 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer’s obligation
to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
This summary highlights information appearing elsewhere in
this prospectus. This summary does not contain all of the
information you should consider before investing in our common
stock. You should read this entire prospectus carefully,
especially the “Risk Factors” section beginning on
page 7 and our consolidated financial statements and the
related notes appearing elsewhere in this prospectus, before
making an investment decision.
NETEZZA
CORPORATION
Overview
Netezza is a leading provider of data warehouse appliances. Our
product, the Netezza Performance Server, or NPS, integrates
database, server and storage platforms in a purpose-built unit
to enable detailed queries and analyses on large volumes of
stored data. The results of these queries and analyses, often
referred to as business intelligence, provide organizations with
actionable information to improve their business operations. We
designed our NPS data warehouse appliance specifically for
analysis of terabytes of data at higher performance levels and
at a lower total cost of ownership with greater ease of use than
can be achieved via traditional data warehouse systems. Our NPS
appliance performs faster, deeper and more iterative analyses on
larger amounts of detailed data, giving our customers greater
insight into trends and anomalies in their businesses, thereby
enabling them to make better strategic decisions.
As of January 31, 2007, we had shipped over 200 of our data
warehouse appliances worldwide to 87 data-intensive customers
including large global enterprises, mid-market companies and
government agencies. Our customers span multiple vertical
industries and include data intensive companies and government
agencies such as Ahold, Amazon.com, American Red Cross, AOL,
Blue Cross Blue Shield of Rhode Island, Capital One Services,
Catalina Marketing, CNET Networks, CompuCredit Corporation,
LoanPerformance, Marriott, the NASD, Neiman Marcus Group,
Nielsen Company, Orange UK, Restoration Hardware, Ross Stores,
Ryder Systems, Source Healthcare Analytics, Inc., a Wolters
Kluwer Health company, the United States Army Corps of Engineers
and the United States Department of Veterans Affairs. Our
revenues have increased rapidly, from $13.6 million in
fiscal 2004 to $79.6 million in fiscal 2007, representing a
compound annual growth rate of 80.1%.
The
Industry
The amount of data that is being generated and stored by
organizations is exploding. Examples of this data include
click-stream records generated by
e-business,
customer purchasing histories, call data records, information
from RFID tagging of inventory and products, and pharmaceutical
trial data. Additionally, compliance initiatives driven by
government regulations, such as those issued under the
Sarbanes-Oxley Act of 2002 and the Health Insurance Portability
and Accountability Act of 1996, or HIPAA, as well as company
policies requiring data preservation, are expanding the
proportion of data that must be retained and easily accessible
for future use. As the volume of data continues to grow,
enterprises have recognized the value of analyzing such data to
significantly improve their operations and competitive position.
These enterprises have also realized that frequent analysis of
data at a more detailed level is more meaningful than periodic
analysis of sampled data.
This increasing amount of data and importance of data analysis
has led to heightened demand for data warehouses that provide
the critical framework for data-driven enterprise
decision-making and business intelligence. A data warehouse
consists of three main elements — database, server,
and storage — and interacts with external systems to
acquire and retain raw data, receive query instructions and
provide analytical results. The data warehouse acts as a data
repository for an enterprise, aggregating information from many
departments, and more importantly, enabling analytics through
the querying of the data to deliver specific information. The
need for more robust, yet cost-effective, data warehouse
solutions is being accelerated by the growing number of users of
business intelligence within the enterprise, the increasing
volume and sophistication of their queries and the need for
real-time data availability.
In contrast to traditional data warehouse systems which patch
together general-purpose database, server and storage platforms
that were not originally designed for analytical processing of
large amounts of constantly changing data, our NPS appliance is
designed specifically to provide high-performance business
intelligence solutions at a low total cost of ownership. It
tightly couples database, server, and storage platforms in a
compact, efficient unit that integrates easily through open,
industry-standard interfaces with leading data access and
integration tools. This approach, combined with our proprietary
Intelligent Query Streaming technology and Asymmetric Massively
Parallel Processing architecture, provides significant benefits
to our customers, including:
Superior Performance. The time required to
perform many complex and ad hoc queries on terabytes of data is
reduced from days or hours to minutes or seconds, enabling our
customers to analyze their data more comprehensively so they can
make faster and better decisions.
Easy and Cost-Effective Procurement. Combining
database, server, and storage platforms into a single scalable
platform, based on open standards and commodity components,
delivers a significant cost advantage and enables an easier
procurement process when compared with competing products.
Quick and Easy Infrastructure Installation and
Deployment. With our NPS appliance, data is
loaded quickly and easily, and existing tools and software can
be easily integrated through standard interfaces. Our NPS
appliance can be quickly installed and deployed with minimal
need for custom configuration or additional professional
services.
Rapid Adaptation to Changing Business
Needs. Since our NPS appliance does not require
the tuning, data indexing or the same degree of maintenance and
configuration required by traditional systems, the NPS appliance
can accommodate changes easily without additional administrative
effort.
Minimal Ongoing Administration and
Maintenance. As a self-regulated and
self-monitored data warehouse appliance, our systems typically
require less than a single administrator to manage.
Small Footprint, and Low Power and Cooling
Requirements. Our NPS appliance is a compact,
tightly integrated appliance that requires a significantly
smaller data center “footprint”, consumes less power
and generates less heat than traditional systems.
High Degree of Scalability. Our unique
architecture enables our systems to scale effectively with
additional users, more sophisticated queries and greater amounts
of data. More users can be supported and additional capacity
added quickly and easily, enabling customers to “pay as
they grow.”
Our
Strategy
Our objective is to become the leading provider of data
warehouse solutions. We plan to accomplish this through the
following business strategies:
Broaden Our Target Markets. We plan to
continue our market penetration in the vertical industries that
we currently serve, while expanding into new markets that can
also utilize business intelligence at an affordable cost. We
also plan to expand in the mid-market, enabling companies with
fewer resources and smaller budgets to leverage the benefits of
our data warehouse appliances.
Increase Sales to Our Existing Customer
Base. As our customers increasingly benefit from
the advantages of our solution, we expect further sales to them
to accommodate an increasing number of users and their growing
amount of stored data, as well as for deployment of data
warehouses for other applications in addition to the ones for
which they initially purchased our system.
Extend Our Technology Leadership. We believe
that our proprietary product architecture and design provide us
with significant competitive advantages over traditional data
warehouse systems. We plan to continue to enhance our existing
products and introduce new products to enable us to maintain our
cost and performance advantages versus competitors.
Expand Distribution Channels. We plan to
continue to invest in our global distribution channels,
including our direct salesforce and relationships with
resellers, systems integration firms and analytic service
providers to accelerate the sales of our products.
Develop Additional Strategic Relationships. We
plan to continue to invest in our relationships with technology
partners in the complementary areas of data access and
analytics, data integration and data protection to simplify
integration and increase sales of our combined offerings.
Expand Our Customer Support Capabilities. We
intend to invest in our global customer support organization to
enable us to continue providing “high-touch,”
high-quality support as we scale our customer base.
Pursue Selected Acquisition Opportunities. We
intend to pursue acquisitions of products
and/or
technologies that we believe are complementary to or can be
integrated into our current product suite.
“Be Easy to Do Business With.”Our products,
pricing, contracts and support principles are simple,
straightforward and customer friendly. We plan to continue to
operate with these principles to further differentiate our
offerings from those of our larger competitors.
Company
Information
We were incorporated in Delaware on August 18, 2000 as
Intelligent Data Engines, Inc. and changed our name to Netezza
Corporation in November 2000. Our corporate headquarters are
located at 200 Crossing Boulevard, Framingham, Massachusetts01702, and our telephone number is
(508) 665-6800.
Our website address is www.netezza.com. The information
contained on our website or that can be accessed through our
website is not part of this prospectus, and investors should not
rely on any such information in deciding whether to purchase our
common stock.
We use various trademarks and trade names in our business,
including without limitation “Netezza,”“Netezza
Performance Server,”“NPS” and “Intelligent
Query Streaming.” This prospectus also contains trademarks
and trade names of other businesses that are the property of
their respective holders.
Unless the context otherwise requires, we use the terms
“Netezza,”“our company,”“we,”“us” and “our” in this prospectus to refer
to Netezza Corporation and its subsidiaries.
Over-allotment option offered by the selling stockholders
shares
Common stock to be outstanding after this offering
shares
Use of proceeds
We intend to use the net proceeds to us from this offering for
working capital and other general corporate purposes, including
the development of new products, sales and marketing activities,
capital expenditures and the costs of operating as a public
company. We also intend to use a portion of the net proceeds to
us to repay approximately $ of
debt. We may use a portion of the net proceeds to us to expand
our current business through acquisitions of other companies,
assets or technologies. We will not receive any of the proceeds
from the sale of shares of common stock by the selling
stockholders. See “Use of Proceeds” for more
information.
Risk factors
You should read the “Risk Factors” section of this
prospectus for a discussion of factors to consider carefully
before deciding whether to purchase shares of our common stock.
Proposed NASDAQ Global Market symbol
“NTZA”
The number of shares of our common stock to be outstanding after
this offering is based on 46,309,542 shares of our common
stock outstanding as of February 28, 2007 and excludes:
•
9,039,748 shares of our common stock issuable upon the
exercise of stock options outstanding as of February 28,2007;
•
2,412,107 shares of our common stock reserved as of
February 28, 2007 for future issuance under our stock
compensation plans; and
•
312,781 shares of our common stock issuable upon the
exercise of warrants outstanding as of February 28, 2007.
Unless otherwise indicated, the information in this prospectus
assumes the following:
•
a
one-for-two
reverse split of our common stock to be effected prior to the
closing of this offering;
•
the automatic conversion of all of our outstanding convertible
preferred stock into 38,774,847 shares of our common stock
upon the closing of this offering;
•
the filing of our second amended and restated certificate of
incorporation and the adoption of our amended and restated
by-laws as of the closing date of this offering; and
•
no exercise by the underwriters of their over-allotment option.
You should read the following financial information together
with the more detailed information contained in “Selected
Consolidated Financial Data,”“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and
the related notes appearing elsewhere in this prospectus. Our
fiscal year ends on January 31. When we refer to a
particular fiscal year, we are referring to the fiscal year
ended on January 31 of that year. For example, fiscal 2007
refers to the fiscal year ended January 31, 2007.
Loss before cumulative effect of
change in accounting principle
(3,014
)
(13,807
)
(7,975
)
Cumulative effect of change in
accounting principle
—
(218
)
—
Net loss
$
(3,014
)
$
(14,025
)
$
(7,975
)
Accretion to preferred stock
(4,096
)
(5,797
)
(5,931
)
Net loss attributable to common
shareholders
$
(7,110
)
$
(19,822
)
$
(13,906
)
Net loss per share attributable to
common stockholders — basic and diluted Loss before
cumulative effect of change in accounting principle
$
(0.50
)
$
(2.08
)
$
(1.10
)
Cumulative effect of change in
accounting principle
—
(0.03
)
—
Accretion to preferred stock
(0.67
)
(0.88
)
(0.82
)
Net loss per share attributable to
common stockholders — basic and diluted
$
(1.17
)
$
(2.99
)
$
(1.92
)
Weighted average number of common
shares outstanding:
6,077,538
6,635,274
7,230,278
Pro forma net loss per
share — basic and diluted (unaudited)(1)
$
(0.17
)
Pro forma weighted average common
shares outstanding (unaudited)(1)
46,005,125
Other Operating Data:
Number of customers
15
46
87
Number of full-time employees
140
179
225
(1)
The pro forma consolidated
statement of operations data in the table above gives effect to
the automatic conversion of all of our outstanding convertible
preferred stock into common stock upon the closing of this
offering.
The pro forma consolidated balance sheet data in the table above
gives effect to the automatic conversion of all of our
outstanding convertible preferred stock into common stock upon
the closing of this offering.
(2)
The pro forma as adjusted consolidated balance sheet data in the
table above gives effect to our receipt of the estimated net
proceeds to us from this offering at an assumed initial public
offering price of $ per
share, which is the midpoint of the range listed on the cover
page of this prospectus, after deducting estimated underwriting
discounts and commissions and estimated offering expenses
payable by us.
An investment in our common stock involves a high degree of
risk. You should carefully consider the risks and uncertainties
described below together with all of the other information
appearing elsewhere in this prospectus, including our
consolidated financial statements and the related notes, before
deciding whether to purchase shares of our common stock. Each of
these risks could materially adversely affect our business,
operating results and financial condition. As a result, the
trading price of our common stock could decline and you might
lose all or part of your investment in our common stock.
Risks
Related to Our Business and Industry
We
have a history of losses, and we may not achieve or maintain
profitability in the future.
We have not been profitable in any fiscal period since we were
formed. We experienced a net loss of $14.0 million in
fiscal 2006 and $8.0 million in fiscal 2007. As of
January 31, 2007, our accumulated deficit was
$80.8 million. We expect to make significant additional
expenditures to facilitate the expansion of our business,
including expenditures in the areas of sales, research and
development, and customer service and support. Additionally, as
a public company, we expect to incur legal, accounting and other
expenses that are substantially higher than the expenses we
incurred as a private company. Furthermore, we may encounter
unforeseen issues that require us to incur additional costs. As
a result of these increased expenditures, we will have to
generate and sustain increased revenue to achieve profitability.
Accordingly, we may not be able to achieve or maintain
profitability and we may continue to incur significant losses in
the future.
Our
operating results may fluctuate significantly from quarter to
quarter and may fall below expectations in any particular fiscal
quarter, which could adversely affect the market price of our
common stock.
Our operating results are difficult to predict and may fluctuate
from quarter to quarter due to a variety of factors, many of
which are outside of our control. As a result, comparing our
operating results on a
period-to-period
basis may not be meaningful, and you should not rely on our past
results as an indication of our future performance. If our
revenue or operating results fall below the expectations of
investors or any securities analysts that follow our company in
any period, the price of our common stock would likely decline.
Factors that may cause our operating results to fluctuate
include:
•
the typical recording of a significant portion of our quarterly
sales in the final month of the quarter, whereby small delays in
completion of sales transactions could have a significant impact
on our operating results for that quarter;
•
the relatively high average selling price of our products and
our dependence on a limited number of customers for a
substantial portion of our revenue in any quarterly period,
whereby the loss of or delay in a customer order could
significantly reduce our revenue for that quarter;
•
the possibility of seasonality in demand for our products;
•
the addition of new customers or the loss of existing customers;
•
the rates at which customers purchase additional products or
additional capacity for existing products from us;
•
changes in the mix of products and services sold;
•
the rates at which customers renew their maintenance and support
contracts with us;
•
our ability to enhance our products with new and better
functionality that meet customer requirements;
•
the timing of recognizing revenue as a result of revenue
recognition rules, including due to the timing of delivery and
receipt of our products;
service interruptions with any of our single source suppliers or
manufacturing partners;
•
changes in pricing by us or our competitors, or the need to
provide discounts to win business;
•
the timing of our product releases or upgrades or similar
announcements by us or our competitors;
•
the timing of investments in research and development related to
new product releases or upgrades;
•
our ability to control costs, including operating expenses and
the costs of the components used in our products;
•
volatility in our stock price, which may lead to higher stock
compensation expenses pursuant to Statement of Financial
Accounting Standards No. 123(R), Share-Based
Payment, or SFAS No. 123(R), which first became
effective for us in fiscal 2007 and requires that employee
stock-based compensation be measured based on fair value on
grant date and treated as an expense that is reflected in our
financial statements over the recipient’s service period;
•
future accounting pronouncements and changes in accounting
policies;
•
costs related to the acquisition and integration of companies,
assets or technologies;
•
technology and intellectual property issues associated with our
products; and
•
general economic trends, including changes in information
technology spending or geopolitical events such as war or
incidents of terrorism.
Most of our operating expenses do not vary directly with revenue
and are difficult to adjust in the short term. As a result, if
revenue for a particular quarter is below our expectations, we
could not proportionately reduce operating expenses for that
quarter, and therefore this revenue shortfall would have a
disproportionate effect on our expected operating results for
that quarter.
Our
limited operating history and the emerging nature of the data
warehouse market make it difficult to evaluate our current
business and future prospects, and may increase the risk of your
investment.
Our company has only been in existence since August 2000. We
first began shipping products in February 2003 and much of our
growth has occurred in the past two fiscal years. Our limited
operating history and the nascent state of the data warehouse
market in which we operate makes it difficult to evaluate our
current business and our future prospects. As a result, we
cannot be certain that we will sustain our growth or achieve or
maintain profitability. We will encounter risks and difficulties
frequently experienced by early-stage companies in
rapidly-evolving industries. These risks include the need to:
•
attract new customers and maintain current customer
relationships;
•
continue to develop and upgrade our data warehouse solutions;
•
respond quickly and effectively to competitive pressures;
•
offer competitive pricing or provide discounts to customers in
order to win business;
•
manage our expanding operations;
•
maintain adequate control over our expenses;
•
maintain adequate internal controls and procedures;
•
maintain our reputation, build trust with our customers and
further establish our brand; and
•
identify, attract, retain and motivate qualified personnel.
If we fail to successfully address these needs, our business,
operating results and financial condition may be adversely
affected.
We
depend on a single product family, the Netezza Performance
Server family, for all of our revenue, so we are particularly
vulnerable to any factors adversely affecting the sale of that
product family.
Our revenue is derived exclusively from sales and service of the
NPS product family, and we expect that this product family will
account for substantially all of our revenue for the foreseeable
future. If the data warehouse market declines or the Netezza
Performance Server fails to maintain or achieve greater market
acceptance, we will not be able to grow our revenues
sufficiently to achieve or maintain profitability.
We
face intense and growing competition from leading technology
companies as well as from emerging companies. Our inability to
compete effectively with any or all of these competitors could
impact our ability to achieve our anticipated market penetration
and achieve or sustain profitability.
The data warehouse market is highly competitive and we expect
competition to intensify in the future. This competition may
make it more difficult for us to sell our products, and may
result in increased pricing pressure, reduced profit margins,
increased sales and marketing expenses and failure to increase,
or the loss of, market share, any of which would likely
seriously harm our business, operating results and financial
condition.
Currently, our most significant competition includes companies
which typically sell several if not all elements of a data
warehouse environment as individual products, including database
software, servers, storage and professional services. These
competitors are often leaders in many of these segments
including EMC, Hewlett-Packard, IBM, Oracle, Sun Microsystems,
Sybase and Teradata (a division of NCR). In addition, a large
number of fast growing companies have recently entered the
market, many of them selling integrated appliance offerings
similar to our products. Additionally, as the benefits of an
appliance solution have become evident in the marketplace, many
of our larger competitors have also begun to bundle their
products into appliance-like offerings that more directly
compete with our products. We also expect additional competition
in the future from new and existing companies with whom we do
not currently compete directly. As our industry evolves, our
current and potential competitors may establish cooperative
relationships among themselves or with third parties, including
software and hardware companies with whom we have partnerships
and whose products interoperate with our own, that could acquire
significant market share, which could adversely affect our
business. We also face competition from internally-developed
systems. Any of these competitive threats, alone or in
combination with others, could seriously harm our business,
operating results and financial condition.
Many of our competitors have greater market presence, longer
operating histories, stronger name recognition, larger customer
bases and significantly greater financial, technical, sales and
marketing, manufacturing, distribution and other resources than
we have. In addition, many of our competitors have broader
product and service offerings than we do. These companies may
attempt to use their greater resources to better position
themselves in the data warehouse market including by pricing
their products at a discount or bundling them with other
products and services in an attempt to rapidly gain market
share. Moreover, many of our competitors have more extensive
customer and partner relationships than we do, and may therefore
be in a better position to identify and respond to market
developments or changes in customer demands. Potential customers
may also prefer to purchase from their existing suppliers rather
than a new supplier regardless of product performance or
features. We cannot assure you that we will be able to compete
successfully against existing or new competitors.
If we
lose key personnel, or if we are unable to attract and retain
highly-qualified personnel on a
cost-effective
basis, it will be more difficult for us to manage our business
and to identify and pursue growth opportunities.
Our success depends substantially on the performance of our key
senior management, technical, and sales and marketing personnel.
Each of our employees may terminate his or her relationship with
us at any time and the loss of the services of such persons
could have an adverse effect on our business. We rely on our
senior management to manage our existing business operations and
to identify and pursue new growth opportunities, and our ability
to develop and enhance our products requires talented hardware
and software engineers with specialized skills. In addition, our
success depends in significant part on maintaining and growing
an effective salesforce. We experience intense competition for
such personnel and we cannot ensure that we will successfully
attract, assimilate, or retain highly qualified managerial,
technical or sales and marketing personnel in the future.
Our
success depends on the continued recognition of the need for
business intelligence in the marketplace and on the adoption by
our customers of data warehouse appliances, often as
replacements for existing systems, to enable business
intelligence. If we fail to improve our products to further
drive this market migration as well as to successfully compete
with alternative approaches and products, our business would
suffer.
Due to the innovative nature of our products and the new
approaches to business intelligence that our products enable,
purchases of our products often involve the adoption of new
methods of database access and utilization on the part of our
customers. This may entail the acknowledgement of the benefits
conferred by business intelligence and the customer-wide
adoption of business intelligence analysis that makes the
benefits of our system particularly relevant. Business
intelligence solutions are still in their early stages of growth
and their continued adoption and growth in the marketplace
remain uncertain. Additionally, our appliance approach requires
our customers to run their data warehouses in new and innovative
ways and often requires our customers to replace their existing
equipment and supplier relationships, which they may be
unwilling to do, especially in light of the often critical
nature of the components and systems involved and the
significant capital and other resources they may have previously
invested. Furthermore, purchases of our products involve
material changes to established purchasing patterns and
policies. Even if prospective customers recognize the need for
our products, they may not select our NPS solution because they
choose to wait for the introduction of products and technologies
that serve as a replacement or substitute for, or represent an
improvement over, our NPS solutions. Therefore, our future
success also depends on our ability to maintain our leadership
position in the data warehouse market and to proactively address
the needs of the market and our customers to further drive the
adoption of business intelligence and to sustain our competitive
advantage versus competing approaches to business intelligence
and alternative product offerings.
Claims
that we infringe or otherwise misuse the intellectual property
of others could subject us to significant liability and disrupt
our business, which could have a material adverse effect on our
business and operating results.
Our competitors protect their intellectual property rights by
means such as trade secrets, patents, copyrights and trademarks.
We have not conducted an independent review of patents issued to
third parties. Although we have not been involved in any
litigation related to intellectual property rights of others,
from time to time we receive letters from other parties
alleging, or inquiring about, breaches of their intellectual
property rights. We may in the future be sued for violations of
other parties’ intellectual property rights, and the risk
of such a lawsuit will likely increase as our size and the
number and scope of our products increase, as our geographic
presence and market share expand and as the number of
competitors in our market increases. Any such claims or
litigation could:
•
be time-consuming and expensive to defend, whether meritorious
or not;
•
cause shipment delays;
•
divert the attention of our technical and managerial resources;
•
require us to enter into royalty or licensing agreements with
third parties, which may not be available on terms that we deem
acceptable, if at all;
•
prevent us from operating all or a portion of our business or
force us to redesign our products, which could be difficult and
expensive and may degrade the performance of our products;
•
subject us to significant liability for damages or result in
significant settlement payments; and/or
•
require us to indemnify our customers, distribution partners or
suppliers.
Any of the foregoing could disrupt our business and have a
material adverse effect on our operating results and financial
condition.
If we
are unable to develop and introduce new products and
enhancements to existing products, if our new products and
enhancements to existing products do not achieve market
acceptance, or if we fail to manage product transitions, we may
fail to increase, or may lose, market share.
The market for our products is characterized by rapid
technological change, frequent new product introductions and
evolving industry standards. Our future growth depends on the
successful development and introduction of new products and
enhancements to existing products that achieve acceptance in the
market. Due to the complexity of our products, which include
integrated hardware and software components, any new products
and product enhancements would be subject to significant
technical risks that could impact our ability to introduce those
products and enhancements in a timely manner. In addition, such
new products or product enhancements may not achieve market
acceptance despite our expending significant resources to
develop them. If we are unable, for technological or other
reasons, to develop, introduce and enhance our products in a
timely manner in response to changing market conditions or
evolving customer requirements, or if these new products and
product enhancements do not achieve market acceptance due to
competitive or other factors, our operating results and
financial condition could be adversely affected.
Product introductions and certain enhancements of existing
products by us in future periods may also reduce demand for our
existing products or could delay purchases by customers awaiting
arrival of our new products. As new or enhanced products are
introduced, we must successfully manage the transition from
older products in order to minimize disruption in
customers’ ordering patterns, avoid excessive levels of
older product inventories and ensure that sufficient supplies of
new products can be delivered in a timely manner to meet
customer demand.
Our
products must interoperate with our customers’ information
technology infrastructure, including customers’ software
applications, networks, servers and data-access protocols, and
if our products do not do so successfully, we may experience a
weakening demand for our products.
To be competitive in the market, our products must interoperate
with our customers’ information technology infrastructure,
including software applications, network infrastructure and
servers supplied by a variety of other vendors, many of whom are
competitors of ours. Our products currently interoperate with a
number of business intelligence and data-integration
applications provided by vendors including Business Objects,
Cognos, IBM and Oracle, among others. When new or updated
versions of these software applications are introduced, we must
sometimes develop updated versions of our software that may
require assistance from these vendors to ensure that our
products effectively interoperate with these applications. If
these vendors do not provide us with assistance on a timely
basis, or decide not to work with us for competitive or other
reasons, including due to consolidation with our competitors, we
may be unable to ensure such interoperability. Additionally, our
products interoperate with servers, network infrastructure and
software applications predominantly through the use of
data-access protocols. While many of these protocols are created
and maintained by independent standards organizations, some of
these protocols that exist today or that may be created in the
future are, or could be, proprietary technology and therefore
require licensing the proprietary protocol’s specifications
from a third party or implementing the protocol without
specifications. Our development efforts to provide
interoperability with our customers’ information technology
infrastructures require substantial capital investment and the
devotion of substantial employee resources. We may not
accomplish these development efforts quickly, cost-effectively
or at all. If we fail for any reason to maintain
interoperability, we may experience a weakening in demand for
our products, which would adversely affect our business,
operating results and financial condition.
If we
fail to enhance our brand, our ability to expand our customer
base will be impaired and our operating results may
suffer.
We believe that developing and maintaining awareness of the
Netezza brand is critical to achieving widespread acceptance of
our products and is an important element in attracting new
customers and shortening our sales cycle. We expect the
importance of brand recognition to increase as competition
further develops in our market. Successful promotion of our
brand will depend largely on the effectiveness of our marketing
efforts and our ability to provide customers with reliable and
technically sophisticated products at competitive prices. If
customers do not perceive our products and services to be of
high value, our brand and reputation could be harmed, which
could adversely impact our financial results. Despite our best
efforts our brand promotion efforts may not yield increased
revenue sufficient to offset the additional expenses incurred in
our brand-building efforts.
We may
not receive significant revenues from our current research and
development efforts for several years, if at all.
Investment in product development often involves a long payback
cycle. We have made and expect to continue making significant
investments in research and development and related product
opportunities. Accelerated product introductions and short
product life cycles require high levels of expenditures for
research and development that could adversely affect our
operating results if not offset by revenue increases. We believe
that we must continue to dedicate a significant amount of
resources to our research and development efforts to maintain
our competitive position. However, we do not expect to receive
significant revenues from these investments for several years,
if at all.
Our
sales cycles can be long and unpredictable, and our sales
efforts require considerable time and expense, which contribute
to the unpredictability and variability of our financial
performance and may adversely affect our
profitability.
The timing of our revenue is difficult to predict as we
experience extended sales cycles, due in part to our need to
educate our customers about our products and participate in
extended product evaluations and the high purchase price of our
products. In addition, product purchases are often subject to a
variety of customer considerations that may extend the length of
our sales cycle, including customers’ acceptance of our
approach to data warehouse management and their willingness to
replace their existing solutions and supplier relationships,
timing of their budget cycles and approval processes, budget
constraints, extended negotiations, and administrative,
processing and other delays, including those due to general
economic factors. As a result, our sales cycle extends to more
than nine months in some cases, and it is difficult to predict
when or if a sale to a potential customer will occur. All of
these factors can contribute to fluctuations in our quarterly
financial performance and increase the likelihood that our
operating results in a particular quarter will fall below
investor expectations. In addition, the provision of evaluation
units to customers may require significant investment in
inventory in advance of sales of these units, which sales may
not ultimately transpire.
If we are unsuccessful in closing sales after expending
significant resources, or if we experience delays for any of the
reasons discussed above, our future revenues and operating
expenses may be materially adversely affected.
Our
company is growing rapidly and we may be unable to manage our
growth effectively.
Between January 31, 2005 and January 31, 2007, the
number of our employees increased from 140 to 225 and our
installed base of customers grew from 15 to 87. In addition,
during that time period our number of office locations has
increased from 3 to 12. We anticipate that further expansion of
our organization and operations will be required to achieve our
growth targets. Our rapid growth has placed, and is expected to
continue to place, a significant strain on our management and
operational infrastructure. Our failure to continue to enhance
our management personnel and policies and our operational and
financial systems and controls in response to our growth could
result in operating inefficiencies that could impair our
competitive position and would increase our costs more than we
had planned. If we are unable to manage our growth effectively,
our business, our reputation and our operating results and
financial condition will be adversely affected.
Our
ability to sell to the U.S. federal government and its
agencies is subject to uncertainties that could have a material
adverse effect on our growth prospects and operating results,
and our contracts with the U.S. federal government contain
certain provisions that may be unfavorable to us.
In fiscal 2007, we derived approximately 5% of our revenue from
the U.S. federal government and its agencies. Our ability
to sell products to the government and its agencies is subject
to uncertainties related to the government’s policies and
funding priorities and commitments as well as our ability to
maintain compliance with applicable government regulations and
other requirements. Any difficulties complying with government
regulations, or changes in government regulations, policies or
priorities, including funding levels through agency or program
budget reductions by the U.S. Congress or government
agencies, could harm our ability to sell products to the
government, causing fluctuations in our revenues from this
segment from period to period and resulting in a weakening of
our growth prospects, operating results and financial condition.
Our contracts with the government and its agencies subject us to
certain risks and give the government and its agencies rights
and remedies not typically found in commercial contracts,
including rights that allow the government and its agencies to:
•
terminate contracts for convenience at any time and for any
reason;
•
perform routine audits; and
•
control or prohibit the export of certain of our products.
Moreover, some of our contracts allow the government and its
agencies rights to use, or have others use, patented inventions
developed under those contracts on behalf of the government.
Some of the contracts allow the federal government and its
agencies to disclose technical data without constraining the
recipient in how that data is used. The ability of third parties
to use patents and technical data for government purposes
creates the possibility that the government could attempt to
establish additional sources for the products we provide that
stem from these contracts. It may also allow the government the
ability to negotiate with us to reduce our prices for products
we provide to it. The potential that the government may release
some of the technical data without constraint creates the
possibility that third parties may be able to use this data to
compete with us in the commercial sector.
Our
international operations are subject to additional risks that we
do not face in the United States, which could have an adverse
effect on our operating results.
In fiscal 2007, we derived approximately 24% of our revenue from
customers based outside the United States, and we currently
have sales personnel in five different foreign countries. We
expect our revenue and operations outside the United States will
continue to expand in the future. Our international operations
are subject to a variety of risks that we do not face in the
United States, including:
•
difficulties in staffing and managing our foreign offices and
the increased travel, infrastructure and legal and compliance
costs associated with multiple international locations;
•
general economic conditions in the countries in which we
operate, including seasonal reductions in business activity in
the summer months in Europe, during Lunar New Year in parts of
Asia and in other periods in various individual countries;
•
longer payment cycles for sales in foreign countries and
difficulties in enforcing contracts and collecting accounts
receivable;
•
additional withholding taxes or other taxes on our foreign
income, and tariffs or other restrictions on foreign trade or
investment;
•
imposition of, or unexpected adverse changes in, foreign laws or
regulatory requirements, many of which differ from those in the
United States;
•
increased length of time for shipping and acceptance of our
products;
•
difficulties in repatriating overseas earnings;
•
increased exposure to foreign currency exchange rate risk;
•
reduced protection for intellectual property rights in some
countries;
•
costs and delays associated with developing products in multiple
languages; and
•
political unrest, war, incidents of terrorism, or responses to
such events.
Our overall success in international markets depends, in part,
on our ability to succeed in differing legal, regulatory,
economic, social and political conditions. We may not be
successful in developing and implementing policies and
strategies that will be effective in managing these risks in
each country where we do business. Our
failure to manage these risks successfully could harm our
international operations, reduce our international sales and
increase our costs, thus adversely affecting our business,
operating results and financial condition.
Our
future revenue growth will depend in part on our ability to
further develop our indirect sales channel, and our inability to
effectively do so will impair our ability to grow our revenues
as we anticipate.
Our future revenue growth will depend in part on the continued
development of our indirect sales channel to complement our
direct salesforce. Our indirect sales channel includes
resellers, systems integration firms and analytic service
providers. In fiscal 2007, we derived approximately 18% of our
revenue from our indirect sales channel. We plan to continue to
invest in our indirect sales channels, by expanding upon and
developing new relationships with resellers, systems integration
firms and analytic service providers. While the development of
our indirect sales channel is a priority for us, we cannot
predict the extent to which we will be able to attract and
retain financially stable, motivated indirect channel partners.
Additionally, due in part to the complexity and innovative
nature of our products, our channel partners may not be
successful in marketing and selling our products. Our indirect
channel may be adversely affected by disruptions in
relationships between our channel partners and their customers,
as well as by competition between our channel partners or
between our channel partners and our direct salesforce. In
addition our reputation could suffer as a result of the conduct
and manner of marketing and sales by our channel partners. Our
agreements with our channel partners are generally not exclusive
and may be terminated without cause. If we fail to effectively
develop and manage our indirect channel for any of these
reasons, we may have difficulty attaining our growth targets.
Our
ability to sell our products and retain customers is highly
dependent on the quality of our maintenance and support services
offerings, and our failure to offer high-quality maintenance and
support could have a material adverse effect on our operating
results.
Most of our customers purchase maintenance and support services
from us, which represents a significant portion of our revenue
(approximately 19% of our revenue in fiscal 2007). Customer
satisfaction with our maintenance and support services is
critical for the successful marketing and sale of our products
and the success of our business. In addition to our support
staff and installation and technical account management teams,
we have developed a worldwide service relationship with
Hewlett-Packard to provide
on-site
hardware service to our customers. Although we believe
Hewlett-Packard and any other third-party service provider we
utilize in the future will offer a high level of service
consistent with our internal customer support services, we
cannot assure you that they will continue to devote the
resources necessary to provide our customers with effective
technical support. In addition, if we are unable to renew our
service agreement with Hewlett-Packard or any other third-party
service provider we utilize in the future or such agreements are
terminated, we may be unable to establish alternative
relationships on a timely basis or on terms acceptable to us, if
at all. If we or our service partners are unable to provide
effective maintenance and support services, it could adversely
affect our ability to sell our products and harm our reputation
with current and potential customers.
Our
products are highly technical and may contain undetected
software or hardware defects, which could cause data
unavailability, loss or corruption that might result in
liability to our customers and harm to our reputation and
business.
Our products are highly technical and complex and are often used
to store and manage data critical to our customers’
business operations. Our products may contain undetected errors,
defects or security vulnerabilities that could result in data
unavailability, loss or corruption or other harm to our
customers. Some errors in our products may only be discovered
after the products have been installed and used by customers.
Any errors, defects or security vulnerabilities discovered in
our products after commercial release or that are caused by
another vendor’s products with which we interoperate but
are nevertheless attributed to us by our customers, as well as
any computer virus or human error on the part of our customer
support or other personnel, that result in a customer’s
data being misappropriated, unavailable, lost or corrupted could
have significant adverse consequences, including:
diversion of our engineering, customer service and other
resources;
•
increased service and warranty costs; and
•
loss or delay in revenue or market acceptance of our products.
Any of these events could adversely affect our business,
operating results and financial condition. In addition, there is
a possibility that we could face claims for product liability,
tort or breach of warranty, including claims from both our
customers and our distribution partners. The cost of defending
such a lawsuit, regardless of its merit, could be substantial
and could divert management’s attention from ongoing
operations of the company. In addition, if our business
liability insurance coverage proves inadequate with respect to a
claim or future coverage is unavailable on acceptable terms or
at all we may be liable for payment of substantial damages. Any
or all of these potential consequences could have an adverse
impact on our operating results and financial condition.
It is
difficult to predict our future capital needs and we may be
unable to obtain additional financing that we may need, which
could have a material adverse effect on our business, operating
results and financial condition.
We believe that our current balance of cash and cash
equivalents, together with borrowings available under our bank
line of credit and the net proceeds to us of this offering, will
be sufficient to fund our projected operating requirements,
including anticipated capital expenditures, for at least the
next 12 months. We may need to raise additional funds
subsequent to that or sooner if we are presented with unforeseen
circumstances or opportunities in order to, among other things:
•
develop or enhance our products;
•
support additional capital expenditures;
•
respond to competitive pressures;
•
fund operating losses in future periods; or
•
take advantage of acquisition or expansion opportunities.
Any required additional financing may not be available on terms
acceptable to us, or at all. If we raise additional funds by
issuing equity securities, you may experience significant
dilution of your ownership interest, and the newly issued
securities may have rights senior to those of the holders of our
common stock. If we raise additional funds by obtaining loans
from third parties, the terms of those financing arrangements
may include negative covenants or other restrictions on our
business that could impair our operational flexibility and would
also require us to fund additional interest expense, which would
harm our profitability. Holders of debt would also have rights,
preferences or privileges senior to those of holders of our
common stock.
If we
are unable to protect our intellectual property rights, our
competitive position could be harmed or we could be required to
incur significant expenses to enforce our rights.
Our success is dependent in part on obtaining, maintaining and
enforcing our intellectual property and other proprietary
rights. We rely on a combination of trade secret, patent,
copyright and trademark laws and contractual provisions with
employees and third parties, all of which offer only limited
protection. Despite our efforts to protect our intellectual
property and proprietary information, we may not be successful
in doing so, for several reasons. We cannot be certain that our
pending patent applications will result in the issuance of
patents or whether the examination process will require us to
narrow our claims. Even if patents are issued to us, they may be
contested, or our competitors may be able to develop similar or
superior technologies without infringing our patents.
Although we enter into confidentiality, assignments of
proprietary rights and license agreements, as appropriate, with
our employees and third parties, including our contract
engineering firm, and generally control access to and
distribution of our technologies, documentation and other
proprietary information, we cannot be certain that the steps we
take to prevent unauthorized use of our intellectual property
rights are sufficient to prevent their misappropriation,
particularly in foreign countries where laws or law enforcement
practices may not protect our intellectual property rights as
fully as in the United States.
Even in those instances where we have determined that another
party is breaching our intellectual property and other
proprietary rights, enforcing our legal rights with respect to
such breach may be expensive and difficult. We may need to
engage in litigation to enforce or defend our intellectual
property and other proprietary rights, which could result in
substantial costs and diversion of management resources.
Further, many of our current and potential competitors are
substantially larger than we are and have the ability to
dedicate substantially greater resources to defending any claims
by us that they have breached our intellectual property rights.
Our
products may be subject to open source licenses, which may
restrict how we use or distribute our solutions or require that
we release the source code of certain technologies subject to
those licenses.
Some of our proprietary technologies incorporate open source
software. For example, the open source database drivers that we
use may be subject to an open source license. The GNU General
Public License and other open source licenses typically require
that source code subject to the license be released or made
available to the public. Such open source licenses typically
mandate that proprietary software, when combined in specific
ways with open source software, become subject to the open
source license. We take steps to ensure that our proprietary
software is not combined with, or does not incorporate, open
source software in ways that would require our proprietary
software to be subject to an open source license. However, few
courts have interpreted the open source licenses, and the manner
in which these licenses may be interpreted and enforced is
therefore subject to uncertainty. If these licenses were to be
interpreted in a manner different than we interpret them, we may
find ourselves in violation of such licenses. While our customer
contracts prohibit the use of our technology in any way that
would cause it to violate an open source license, our customers
could, in violation of our agreement, use our technology in a
manner prohibited by an open source license.
In addition, we rely on multiple software engineers to design
our proprietary products and technologies. Although we take
steps to ensure that our engineers do not include open source
software in the products and technologies they design, we may
not exercise complete control over the development efforts of
our engineers and we cannot be certain that they have not
incorporated open source software into our proprietary
technologies. In the event that portions of our proprietary
technology are determined to be subject to an open source
license, we might be required to publicly release the affected
portions of our source code, which could reduce or eliminate our
ability to commercialize our products.
We may
engage in future acquisitions that could disrupt our business,
cause dilution to our stockholders, reduce our financial
resources and result in increased expenses.
In the future, we may acquire companies, assets or technologies
in an effort to complement our existing offerings or enhance our
market position. We have not made any acquisitions to date. Any
future acquisitions we make could subject us to a number of
risks, including:
•
the purchase price we pay could significantly deplete our cash
reserves, impair our future operating flexibility or result in
dilution to our existing stockholders;
•
we may find that the acquired company, assets or technology do
not further improve our financial and strategic position as
planned;
•
we may find that we overpaid for the company, asset or
technology, or that the economic conditions underlying our
acquisition have changed;
•
we may have difficulty integrating the operations and personnel
of the acquired company;
•
we may have difficulty retaining the employees with the
technical skills needed to enhance and provide services with
respect to the acquired assets or technologies;
•
the acquisition may be viewed negatively by customers, financial
markets or investors;
•
we may have difficulty incorporating the acquired technologies
or products with our existing product lines;
•
we may encounter difficulty entering and competing in new
product or geographic markets;
•
we may encounter a competitive response, including price
competition or intellectual property litigation;
we may have product liability, customer liability or
intellectual property liability associated with the sale of the
acquired company’s products;
•
we may be subject to litigation by terminated employees or third
parties;
•
we may incur debt, one-time write-offs, such as acquired
in-process research and development costs, and restructuring
charges;
•
we may acquire goodwill and other intangible assets that are
subject to impairment tests, which could result in future
impairment charges;
•
our ongoing business and management’s attention may be
disrupted or diverted by transition or integration issues and
the complexity of managing geographically or culturally diverse
enterprises; and
•
our due diligence process may fail to identify significant
existing issues with the target company’s product quality,
product architecture, financial disclosures, accounting
practices, internal controls, legal contingencies, intellectual
property and other matters.
These factors could have a material adverse effect on our
business, operating results and financial condition.
From time to time, we may enter into negotiations for
acquisitions or investments that are not ultimately consummated.
Such negotiations could result in significant diversion of
management time, as well as substantial
out-of-pocket
costs, any of which could have a material adverse effect on our
business, operating results and financial condition.
We
currently rely on a single contract manufacturer to assemble our
products, and our failure to manage our relationship with our
contract manufacturer successfully could negatively impact our
ability to sell our products.
We currently rely on a single contract manufacturer, Sanmina-SCI
Corporation (referred to in this prospectus as
“Sanmina”), to assemble our products, manage our
supply chain and participate in negotiations regarding component
costs. While we believe that our use of Sanmina provides
benefits to our business, our reliance on Sanmina reduces our
control over the assembly process, exposing us to risks,
including reduced control over quality assurance, production
costs and product supply. These risks could become more acute if
we are successful in our efforts to increase revenue. If we fail
to manage our relationship with Sanmina effectively, or if
Sanmina experiences delays, disruptions, capacity constraints or
quality control problems in its operations, our ability to ship
products to our customers could be impaired and our competitive
position and reputation could be harmed. In addition, we are
required to provide forecasts to Sanmina regarding product
demand and production levels. If we inaccurately forecast demand
for our products, we may have excess or inadequate inventory or
incur cancellation charges or penalties, which could adversely
impact our operating results and financial condition.
Additionally, Sanmina can terminate our agreement for any reason
upon 90 days’ notice or for cause upon
30 days’ notice. If we are required to change contract
manufacturers or assume internal manufacturing operations due to
any termination of the agreement with Sanmina, we may lose
revenue, experience manufacturing delays, incur increased costs
or otherwise damage our customer relationships. We cannot assure
you that we will be able to establish an alternative
manufacturing relationship on acceptable terms or at all.
We
depend on a continued supply of components for our products from
third-party suppliers, and if shortages of these components
arise, we may not be able to secure enough components to build
new products to meet customer demand or we may be forced to pay
higher prices for these components.
We rely on a limited number of suppliers for several key
components utilized in the assembly of our products, including
disk drives and microprocessors. Although in many cases we use
standard components for our products, some of these components
may only be purchased or may only be available from a single
supplier. In addition, we maintain relatively low inventory and
acquire components only as needed, and neither we nor our
contract manufacturer enter into long-term supply contracts for
these components and none of our third-party suppliers is
obligated to supply products to us for any specific period or in
any specific quantities, except as may be provided in a
particular purchase order. Our industry has experienced
component shortages and delivery delays in the past, and
we may experience shortages or delays of critical components in
the future as a result of strong demand in the industry or other
factors. If shortages or delays arise, we may be unable to ship
our products to our customers on time, or at all, and increased
costs for these components that we could not pass on to our
customers would negatively impact our operating margins. For
example, new generations of disk drives are often in short
supply, which may limit our ability to procure these disk
drives. In addition, disk drives represent a significant portion
of our cost of revenue, and the price of various kinds of disk
drives is subject to substantial volatility in the market. Many
of the other components required to build our systems are also
occasionally in short supply. Therefore, we may not be able to
secure enough components at reasonable prices or of acceptable
quality to build new products, resulting in an inability to meet
customer demand or our own operating goals, which could
adversely affect our customer relationships, business, operating
results and financial condition.
We
currently rely on a contract engineering firm for quality
assurance and product integration engineering.
In addition to our internal research and development staff, we
have contracted with Persistent Systems Pvt. Ltd. (referred to
in this prospectus as “Persistent Systems”), located
in Pune, India, to employ a dedicated team of over 50 engineers
focused on quality assurance and product integration
engineering. Persistent Systems can terminate our agreement for
any reason upon 15 days’ notice. If we were required
to change our contract engineering firm, including due to a
termination of the agreement with Persistent Systems, we may
experience delays, incur increased costs or otherwise damage our
customer relationships. We cannot assure you that we will be
able to establish an alternative contract engineering firm
relationship on acceptable terms or at all.
Future
interpretations of existing accounting standards could adversely
affect our operating results.
Generally Accepted Accounting Principles in the United States,
or GAAP, are subject to interpretation by the Financial
Accounting Standards Board, or FASB, the American Institute of
Certified Public Accountants, or AICPA, the SEC and various
other bodies formed to promulgate and interpret appropriate
accounting principles. A change in these principles or
interpretations could have a significant effect on our reported
operating results, and they could affect the reporting of
transactions completed before the announcement of a change. For
example, we recognize our product revenue in accordance with
AICPA Statement of Position, or
SOP 97-2,
Software Revenue Recognition, and related amendments and
interpretations contained in
SOP 98-9, Software
Revenue Recognition with Respect to Certain Transactions. The
AICPA and its Software Revenue Recognition Task Force continue
to issue interpretations and guidance for applying the relevant
accounting standards to a wide range of sales contract terms and
business arrangements that are prevalent in software licensing
arrangements and arrangements for the sale of hardware products
that contain more than an insignificant amount of software.
Future interpretations of existing accounting standards,
including
SOP 97-2 and
SOP 98-9,
or changes in our business practices could result in delays in
our recognition of revenue that may have a material adverse
effect on our operating results. For example, we may in the
future have to defer recognition of revenue for a transaction
that involves:
•
undelivered elements for which we do not have vendor-specific
objective evidence of fair value;
•
requirements that we deliver services for significant
enhancements and modifications to customize our software for a
particular customer; or
•
material acceptance criteria.
Because of these factors and other specific requirements under
GAAP for recognition of software revenue, we must include
specific terms in customer contracts in order to recognize
revenue when we initially deliver products or perform services.
Negotiation of such terms could extend our sales cycle, and,
under some circumstances, we may accept terms and conditions
that do not permit revenue recognition at the time of delivery.
If we
fail to maintain proper and effective internal controls, our
ability to produce accurate financial statements could be
impaired, which could adversely affect our operating results,
our ability to operate our business and investors’ and
customers’ views of us.
Ensuring that we have adequate internal financial and accounting
controls and procedures in place so that we can produce accurate
financial statements on a timely basis is a costly and
time-consuming effort that needs to be re-
evaluated frequently. We are in the process of documenting,
reviewing and, if appropriate, improving our internal controls
and procedures in anticipation of being a public company and
eventually being subject to the requirements of Section 404
of the Sarbanes-Oxley Act of 2002 and the related SEC rules
concerning internal control over financial reporting, which will
in the future require annual management assessments, and an
audit by our independent registered public accounting firm, of
the effectiveness of our internal control over financial
reporting. Implementing any appropriate changes to our internal
controls may entail substantial costs in order to modify our
existing financial and accounting systems, take a significant
period of time to complete, and distract our officers, directors
and employees from the operation of our business. Moreover,
these changes may not be effective in maintaining the adequacy
or effectiveness of our internal controls. Any failure to
maintain effective internal controls, or a consequent inability
to produce accurate financial statements on a timely basis in
accordance with SEC and NASDAQ rules, which we will be subject
to as a public company, could increase our operating costs,
materially impair our ability to operate our business, result in
SEC investigations and penalties and lead to the delisting of
our common stock from the NASDAQ Global Market. The resulting
damage to our reputation in the marketplace and our financial
credibility could significantly impair our sales and marketing
efforts with customers. In addition, investors’ perceptions
that our internal controls are inadequate or that we are unable
to produce accurate financial statements may seriously affect
our stock price.
In the current public company environment, officers and
directors are subject to increased scrutiny and may be subject
to increased risk of liability. As a result, it may be more
difficult for us to attract and retain qualified individuals to
serve on our board of directors or as our executive officers.
This could negatively impact our future success.
We are
subject to governmental export controls that could impair our
ability to compete in international markets.
Our products are subject to U.S. export controls and may be
exported outside the United States only with the required level
of export license or through an export license exception.
Changes in our products or changes in export regulations may
create delays in the introduction of our products in
international markets, prevent our customers with international
operations from deploying our products throughout their global
systems or, in some cases, prevent the export of our products to
certain countries altogether. Any change in export regulations
or related legislation, shift in approach to the enforcement or
scope of existing regulations or change in the countries,
persons or technologies targeted by these regulations could
result in decreased use of our products by, or in our decreased
ability to export or sell our products to, existing or potential
customers with international operations.
Adverse
changes in economic conditions and reduced information
technology spending may negatively impact our
business.
Our business depends on the overall demand for information
technology and on the economic health of our current and
prospective customers and the geographic regions in which we
operate. In addition, the purchase of our products is often
discretionary and may involve a significant commitment of
capital and other resources. As a result, weak economic
conditions or a reduction in information technology spending
could adversely impact demand for our products and therefore our
business, operating results and financial condition.
Risks
Related to this Offering and Ownership of Our Common
Stock
The
trading price of our common stock is likely to be volatile, and
you might not be able to sell your shares at or above the
initial public offering price.
Our common stock has no prior trading history. The initial
public offering price for our common stock will be determined
through negotiations with the underwriters. The trading prices
of the securities of newly public companies have often been
highly volatile and may vary significantly from the initial
public offering price. In addition, the trading price of our
common stock will be susceptible to fluctuations in the market
due to numerous factors, many of which may be beyond our
control, including:
•
changes in operating performance and stock market valuations of
other technology companies generally or those that sell data
warehouse solutions in particular;
actual or anticipated fluctuations in our operating results;
•
the financial guidance that we may provide to the public, any
changes in such guidance, or our failure to meet such guidance;
•
changes in financial estimates by securities analysts, our
failure to meet such estimates, or failure of analysts to
initiate or maintain coverage of our stock;
•
the public’s response to our press releases or other public
announcements by us, including our filings with the SEC;
•
announcements by us or our competitors of significant technical
innovations, customer wins or losses, acquisitions, strategic
partnerships, joint ventures or capital commitments;
•
introduction of technologies or product enhancements that reduce
the need for our products;
•
the loss of key personnel;
•
the development and sustainability of an active trading market
for our common stock;
•
lawsuits threatened or filed against us;
•
future sales of our common stock by our officers or
directors; and
•
other events or factors affecting the economy generally,
including those resulting from political unrest, war, incidents
of terrorism or responses to such events.
The trading price of our common stock might also decline in
reaction to events that affect other companies in our industry
even if these events do not directly affect us. As a result of
these and other factors, you might not be able to sell your
shares at or above the price you pay for them in the initial
public offering.
Some companies that have had volatile market prices for their
securities have had securities class actions filed against them.
If a suit were filed against us, regardless of its merits or
outcome, it would likely result in substantial costs and divert
management’s attention and resources. This could have a
material adverse effect on our business, operating results and
financial condition.
An
active trading market may not develop for our common
stock.
Prior to this offering, there has been no public market for
shares of our common stock, and we cannot assure you that one
will develop or be sustained after this offering. If a market
does not develop or is not sustained, it may be difficult for
you to sell your shares of our common stock at an attractive
price or at all.
Future
sales of shares by existing stockholders could cause our stock
price to decline.
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their common stock
for the first time, subject to the contractual
lock-up
agreements and other restrictions on resale discussed in this
prospectus. Sales by our existing stockholders of a substantial
number of shares of common stock in the public market, or the
threat that substantial sales might occur, could cause the
market price of the common stock to decrease significantly.
These factors could also make it difficult for us to raise
additional capital by selling our common stock. See
“Shares Eligible for Future Sale” for further
details regarding the number of shares eligible for sale in the
public market after this offering.
If
securities or industry analysts do not publish research or
publish unfavorable research about our business, our stock price
and trading volume could decline.
The trading market for our common stock will depend in part on
any research reports that securities or industry analysts
publish about us or our business. After this offering, if no
securities or industry analysts initiate coverage of our
company, the trading price for our stock may be negatively
impacted. In the event securities or industry analysts cover our
company and one or more of these analysts downgrade our stock or
publish unfavorable reports about our business, our stock price
would likely decline. In addition, if any securities or industry
analysts cease coverage of
our company or fail to publish reports on us regularly, demand
for our stock could decrease, which could cause our stock price
and trading volume to decline.
As a
new investor, you will experience substantial dilution as a
result of this offering.
The assumed initial public offering price per share is
substantially higher than the pro forma net tangible book value
per share of our common stock immediately prior to this
offering. As a result, new investors purchasing shares of our
common stock in this offering will experience immediate dilution
of $ per share in pro forma
net tangible book value per share from the price they paid, at
an assumed initial public offering price of
$ per share, which is the
midpoint of the range listed on the cover page of this
prospectus. In addition, investors who purchase shares in this
offering will contribute approximately % of the total
amount of equity capital raised by us through the date of this
offering, but such investors will only own
approximately % of our outstanding shares. This
dilution is due to the fact that our earlier investors paid
substantially less than the initial public offering price when
they purchased their shares of the company. In addition, we have
issued options and warrants to acquire common stock at prices
significantly below the assumed initial public offering price.
To the extent any outstanding options and warrants are
exercised, there will be further dilution to new investors in
this offering.
We do
not currently intend to pay dividends on our common stock and
your ability to achieve a return on your investment will
therefore depend on appreciation in the price of our common
stock.
We have never declared or paid any cash dividends on our common
stock and do not currently expect to pay any cash dividends for
the foreseeable future. Our loan agreements with our lenders
contain provisions prohibiting us from paying any dividends
during the term of the agreements without our lenders’
prior written consent. We intend to use our future earnings, if
any, in the operation and expansion of our business.
Accordingly, you are not likely to receive any dividends on your
common stock for the foreseeable future, and your ability to
achieve a return on your investment will therefore depend on
appreciation in the price of our common stock.
Provisions
in our certificate of incorporation and bylaws and Delaware law
might discourage, delay or prevent a change in control of our
company or changes in our management and, therefore, may
negatively impact the trading price of our common
stock.
Provisions of our certificate of incorporation and our bylaws
may discourage, delay or prevent a merger, acquisition or other
change in control that stockholders may consider favorable,
including transactions in which you might otherwise receive a
premium for your shares of our common stock. These provisions
may also prevent or frustrate attempts by our stockholders to
replace or remove our management. These provisions:
•
establish a classified board of directors so that not all
members of our board are elected at one time;
•
provide that directors may only be removed “for cause;”
•
authorize the issuance of “blank check” preferred
stock that our board of directors could issue to increase the
number of outstanding shares and to discourage a takeover
attempt;
•
eliminate the ability of our stockholders to call special
meetings of stockholders;
•
prohibit stockholder action by written consent, which has the
effect of requiring all stockholder actions to be taken at a
meeting of stockholders;
•
provide that the board of directors is expressly authorized to
make, alter or repeal our bylaws; and
•
establish advance notice requirements for nominations for
election to our board of directors or for proposing matters that
can be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General
Corporation Law may discourage, delay or prevent a change in
control of our company by prohibiting stockholders owning in
excess of 15% of our outstanding voting stock from merging or
combining with us during a specified period unless certain
approvals are obtained.
Our
management will have broad discretion as to the use of the net
proceeds from this offering and might not apply the proceeds in
ways that increase the value of your investment or in ways with
which you agree.
We expect to use a portion of the net proceeds to us from this
offering to repay the amounts outstanding under our outstanding
credit facilities. We intend to use the balance of the net
proceeds for unspecified general corporate purposes, which may
include acquisitions of companies, assets or technologies. Our
management will have broad discretion over the use of the net
proceeds from this offering, and you will be relying on the
judgment of our management regarding the application of these
net proceeds. While it is the intention of our management to use
the net proceeds from the offering in the best interests of the
company, our management might not apply the net proceeds from
this offering in ways that increase the value of your investment
or in ways with which you agree. In addition, the market price
of our common stock may fall if the market does not view our use
of the net proceeds from this offering favorably.
Insiders
will continue to own a significant portion of our outstanding
common stock following this offering and will therefore have
substantial control over us and will be able to influence
corporate matters.
Upon completion of this offering, our executive officers,
directors and their affiliates will beneficially own, in the
aggregate, approximately % of our
outstanding common stock. As a result, our executive officers,
directors and their affiliates will be able to exercise
significant influence over all matters requiring stockholder
approval, including the election of directors and approval of
significant corporate transactions, such as a merger or other
sale of our company or its assets. This concentration of
ownership could limit your ability to influence corporate
matters and may have the effect of delaying or preventing
another party from acquiring control over us.
This prospectus contains forward-looking statements. All
statements other than statements of historical facts contained
in this prospectus, including statements regarding our future
results of operations and financial position, business strategy
and plans and objectives of management for future operations,
are forward-looking statements. In many cases, you can identify
forward-looking statements by terms such as “may,”“will,”“should,”“expects,”“plans,”“anticipates,”“could,”“intends,”“target,”“projects,”“contemplates,”“believes,”“estimates,”“predicts,”“potential” or “continue” or other similar
words.
These forward-looking statements are only predictions. These
statements relate to future events or our future financial
performance and involve known and unknown risks, uncertainties
and other important factors that may cause our actual results,
levels of activity, performance or achievements to materially
differ from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking
statements. We have described in the “Risk Factors”
section and elsewhere in this prospectus the principal risks and
uncertainties that we believe could cause actual results to
differ from these forward-looking statements. Because
forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified,
you should not rely on these forward-looking statements as
guarantees of future events.
The forward-looking statements in this prospectus represent our
views as of the date of this prospectus. We anticipate that
subsequent events and developments will cause our views to
change. However, while we may elect to update these
forward-looking statements at some point in the future, we have
no current intention of doing so except to the extent required
by applicable law. You should, therefore, not rely on these
forward-looking statements as representing our views as of any
date subsequent to the date of this prospectus.
This prospectus also contains estimates and other statistical
data made by independent parties and by us relating to market
size and growth and other data about our industry. This data
involves a number of assumptions and limitations, and you are
cautioned not to give undue weight to such estimates. We have
not independently verified the statistical and other industry
data generated by independent parties and contained in this
prospectus and, accordingly, we cannot guarantee their accuracy
or completeness. In addition, projections, assumptions and
estimates of our future performance and the future performance
of the industries in which we operate are necessarily subject to
a high degree of uncertainty and risk.
We estimate that the net proceeds to us from this offering will
be approximately $ million,
assuming an initial public offering price of
$ per share, which is the
midpoint of the range listed on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us. A
$1.00 increase (decrease) in the assumed initial public offering
price of $ per share would
increase (decrease) the net proceeds to us from this offering by
approximately $ million,
assuming that the number of shares offered by us, as listed on
the cover page of this prospectus, remains the same. We will not
receive any of the proceeds from the sale of shares of our
common stock by the selling stockholders.
We intend to use the net proceeds to us from this offering for
working capital and other general corporate purposes, including
the development of new products, sales and marketing activities,
capital expenditures and the costs of operating as a public
company. We also intend to use a portion of the net proceeds to
us to repay our outstanding debt under two loan agreements. As
of January 31, 2007 we had $6.5 million outstanding
under a term loan credit facility, dated June 14, 2005,
with Silicon Valley Bank, as agent for certain other lenders,
including Gold Hill Venture Lending. All unpaid principal and
accrued interest under this loan is due and payable in full on
June 1, 2009. Under the terms of this loan, the interest
rate for each advance is the prime rate plus 4% and was between
10% to 12% at the time of each advance. In addition, on
January 31, 2007 we entered into a revolving credit
facility with Silicon Valley Bank to borrow up to an additional
$15 million. All outstanding debt incurred under this
revolving facility will become payable on January 30, 2008.
Our interest rate under this revolving facility is 1% below the
prime rate, and on January 31, 2007 was 7.25%. As of
February 28, 2007, there was nothing outstanding under this
revolving credit facility.
We may use a portion of the net proceeds to us to expand our
current business through acquisitions of complementary
companies, assets or technologies. We currently have no
agreements or commitments for any acquisitions. In addition, the
amount and timing of what we actually spend for these purposes
may vary significantly and will depend on a number of factors,
including our future revenue and cash generated by operations.
Accordingly, our management will have broad discretion in
applying the net proceeds of this offering.
Some of the principal purposes of this offering are to create a
public market for our common stock, increase our visibility in
the marketplace, provide liquidity to existing stockholders and
obtain additional working capital. A public market for our
common stock will facilitate future access to public equity
markets and enhance our ability to use our common stock as a
means of attracting and retaining key employees and as
consideration for acquisitions.
Pending the uses described above, we intend to invest the net
proceeds to us in investment-grade, interest-bearing securities
including corporate, financial institution, federal agency and
U.S. government obligations.
We have never declared or paid any cash dividends on our capital
stock and do not expect to pay any cash dividends for the
foreseeable future. We intend to use future earnings, if any, in
the operation and expansion of our business. Payment of future
cash dividends, if any, will be at the discretion of our board
of directors after taking into account various factors,
including our financial condition, recent and expected operating
results, current and anticipated cash needs, and restrictions
imposed by lenders, if any.
Our term loan and security agreement, dated June 14, 2005
with Silicon Valley Bank and certain other lenders and our loan
and security agreement with Silicon Valley Bank dated
January 31, 2007 each contains a provision prohibiting us
from paying any dividends during the term of the agreements
without Silicon Valley Bank’s prior written consent.
The following table sets forth our capitalization as of
January 31, 2007:
•
on an actual basis;
•
on a pro forma basis to give effect to the automatic conversion
of all of our outstanding convertible preferred stock into
common stock upon the closing of this offering, the
one-for-two
reverse split of our common stock effected prior to the closing
of this offering, and the filing of our second amended and
restated certificate of incorporation as of the closing date of
this offering; and
•
on a pro forma as adjusted basis to give effect to the issuance
and sale by us
of shares
of our common stock in this offering at an assumed initial
public offering price of
$ per share, which is the
midpoint of the range listed on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
You should read the following table together with our
consolidated financial statements and the related notes
appearing elsewhere in this prospectus and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and other financial
information appearing elsewhere in this prospectus.
Convertible redeemable preferred
stock, par value $0.001 per share
Series A convertible
redeemable preferred stock, 17,280,000 shares authorized,
17,200,000 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and pro forma as
adjusted
12,805
—
Series B convertible
redeemable preferred stock, 29,425,622 shares authorized,
issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
35,245
—
Series C convertible
redeemable preferred stock, authorized, 23,058,151 shares
issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
25,700
—
Series D convertible
redeemable preferred stock, 8,147,452 shares authorized,
7,901,961 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and pro forma as
adjusted
23,381
—
Stockholders’ equity (deficit):
Common stock, par value
$0.001 per share, 150,000,000 shares authorized,
7,542,372 shares issued, actual; 500,000,000 shares
authorized, 46,317,219 shares issued, pro forma; and
500,000,000 shares
authorized, shares
issued, pro forma as adjusted
8
46
Preferred stock, par value
$0.001 per share; no shares authorized issued or
outstanding, actual; 5,000,000 shares authorized and no
shares issued or outstanding, pro forma and pro forma as adjusted
—
—
—
Treasury stock, at cost
(14
)
(14
)
Other comprehensive income (loss)
(284
)
(284
)
Additional paid-in capital
—
97,093
Accumulated deficit
(80,833
)
(80,833
)
Total stockholders’ equity
(deficit)
(81,123
)
16,008
Total capitalization (including
note payable, net of current portion)
$
20,107
$
20,107
$
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) total stockholders’ equity by
$ million, assuming that the
number of shares offered by us, as listed on the cover page of
this prospectus, remains the same.
The table above excludes (on a pro forma and pro forma as
adjusted basis):
•
7,441,697 shares of our common stock issuable upon the
exercise of stock options outstanding as of January 31,2007, at a weighted average exercise price of $1.66 per
share;
•
4,102,795 shares of our common stock reserved as of
January 31, 2007 for future issuance under our stock
compensation plans;
•
312,781 shares of our common stock issuable upon the
exercise of warrants outstanding as of January 31, 2007, at
a weighted average exercise price of $1.26 per share; and
•
38,750 shares of unvested restricted common stock.
If you invest in our common stock in this offering, your
ownership interest will be immediately diluted to the extent of
the difference between the initial public offering price per
share and the net tangible book value per share of our common
stock after this offering. Our pro forma net tangible book value
as of January 31, 2007, was $16.0 million, or
$0.35 per share of our common stock. Pro forma net tangible
book value per share represents the amount of our total tangible
assets less our total liabilities, divided by the total number
of shares of our common stock outstanding, after giving effect
to the automatic conversion of all of our outstanding
convertible preferred stock into common stock upon the closing
of this offering and the
one-for-two
reverse split of our common stock effected prior to the closing
of this offering.
After giving effect to the sale by us
of shares
of our common stock in this offering at an assumed initial
public offering price of
$ per share, which is the
midpoint of the range listed on the cover page of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us,
our pro forma net tangible book value as of January 31,2007 would have been approximately
$ million, or
$ per share of our common
stock. This amount represents an immediate increase in our pro
forma net tangible book value of
$ per share to our existing
stockholders and an immediate dilution in our pro forma net
tangible book value of $ per
share to new investors purchasing shares of our common stock in
this offering at the assumed initial public offering price.
The following table illustrates
this dilution on a per share basis:
Assumed initial public offering
price per share
$
Pro forma net tangible book value
per share as of January 31, 2007
$
0.35
Increase per share attributable to
this offering
Pro forma net tangible book value
per share after this offering
Dilution per share to new investors
$
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) our pro forma net tangible book value
per share after this offering by approximately
$ and would increase (decrease)
dilution per share to new investors by approximately
$ , assuming that the number of
shares offered by us, as listed on the cover page of this
prospectus, remains the same. In addition, to the extent any
outstanding options or warrants are exercised, new investors
will experience further dilution.
The following table summarizes, as of January 31, 2007, the
number of shares purchased or to be purchased from us, the total
consideration paid or to be paid to us, and the average price
per share paid or to be paid to us by existing stockholders and
new investors purchasing shares of our common stock in this
offering at an assumed initial public offering price of
$ per share, which is the
midpoint of the range listed on the cover page of this
prospectus, before deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
As the table below shows, new investors purchasing shares of our
common stock in this offering will pay an average price per
share substantially higher than our existing stockholders paid.
Average
Shares Purchased
Total Consideration
Price Per
Number
Percent
Amount
Percent
Share
Existing stockholders
%
$
%
$
New investors
Total
100
%
100
%
A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) the total consideration paid to us by
new investors by $ million
and increase (decrease) the percent of total consideration paid
to us by new investors by %
assuming that the number of shares offered by us, as listed on
the cover page of this prospectus, remains the same.
The number of shares purchased from us by existing stockholders
is based on 46,216,907 shares of our common stock
outstanding as of January 31, 2007 after giving effect to
the automatic conversion of all of our
outstanding convertible preferred stock into common stock upon
the closing of this offering and the
one-for-two
reverse split of our common stock effected prior to the closing
of this offering. This number excludes:
•
7,441,697 shares of our common stock issuable upon the
exercise of stock options outstanding as of January 31,2007, at a weighted average exercise price of $1.66 per
share;
•
4,102,795 shares of our common stock reserved as of
January 31, 2007 for future issuance under our stock
compensation plans; and
•
312,781 shares of our common stock issuable upon the
exercise of warrants outstanding as of January 31, 2007, at
a weighted average exercise price of $1.26 per share.
If all our outstanding stock options and outstanding warrants
had been exercised as of January 31, 2007, our pro forma
net tangible book value as of January 31, 2007 would have
been approximately $ million
or $ per share of our common
stock, and the pro forma net tangible book value after giving
effect to this offering would have been
$ per share, representing
dilution in our pro forma net tangible book value per share to
new investors of $ .
The following consolidated statement of operations data for the
fiscal years ended January 31, 2005, January 31, 2006
and January 31, 2007 and consolidated balance sheet data as
of January 31, 2006 and January 31, 2007 have been
derived from our audited consolidated financial statements and
the related notes appearing elsewhere in this prospectus. The
following consolidated statement of operations data for the
fiscal years ended January 31, 2003 and January 31,2004 and consolidated balance sheet data as of January 31,2003, January 31, 2004 and January 31, 2005 have been
derived from our audited consolidated financial statements that
do not appear in this prospectus. The financial data set forth
below should be read together with our consolidated financial
statements, the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” appearing elsewhere in this prospectus. Our
historical results are not necessarily indicative of the results
to be expected for any future period.
Loss before cumulative effect of
change in accounting principle
$
(15,032
)
$
(9,952
)
$
(3,014
)
$
(13,807
)
$
(7,975
)
Cumulative effect of change in
accounting principle
—
—
—
(218
)
—
Net loss
$
(15,032
)
$
(9,952
)
$
(3,014
)
$
(14,025
)
$
(7,975
)
Accretion to preferred stock
(2,482
)
(3,877
)
(4,096
)
(5,797
)
(5,931
)
Net loss attributable to common
shareholders
$
(17,514
)
$
(13,829
)
$
(7,110
)
$
(19,822
)
$
(13,906
)
Net loss per share attributable to
common stockholders — basic and diluted:
Loss before cumulative effect of
change in accounting principle
$
(2.74
)
$
(1.74
)
$
(0.50
)
$
(2.08
)
$
(1.10
)
Cumulative effect of change in
accounting principle
—
—
—
(0.03
)
—
Accretion to preferred stock
(0.45
)
(0.67
)
(0.67
)
(0.88
)
(0.82
)
Net loss per share attributable to
common stockholders — basic and diluted
$
(3.19
)
$
(2.41
)
$
(1.17
)
$
(2.99
)
$
(1.92
)
Weighted average common shares
outstanding
5,492,625
5,735,952
6,077,538
6,635,274
7,230,278
Pro forma net loss per
share — basic and diluted (unaudited)(1)
$
(0.17
)
Pro forma weighted average common
shares outstanding (unaudited)(1)
46,005,125
(1)
The pro forma consolidated
statement of operations data in the table above gives effect to
the automatic conversion of all of our outstanding convertible
preferred stock into common stock upon the closing of this
offering.
The following discussion and analysis of our financial
condition and results of operations should be read together with
our consolidated financial statements and the related notes and
the other financial information appearing elsewhere in this
prospectus. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking
statements as a result of various factors, including those
discussed below and elsewhere in this prospectus, particularly
under “Risk Factors.”
Overview
We were founded in August 2000 to develop data warehouse
appliances that enable real-time business intelligence. Our NPS
appliance integrates database, server and storage platforms in a
purpose-built unit to enable detailed queries and analyses on
large volumes of stored data. The results of these queries and
analyses provide organizations with actionable information to
improve their business operations.
We are headquartered in Framingham, Massachusetts. Our personnel
and operations are also located throughout the United States, as
well as in Canada, the United Kingdom, Australia, Japan and
Korea. We expect to continue to add personnel in the United
States and internationally to provide additional geographic
sales and technical support coverage.
Revenue
We derive our revenue from sales of products and related
services. We sell our data warehouse appliances worldwide to
large global enterprises, mid-market companies and government
agencies through our direct salesforce as well as indirectly via
distribution partners. To date, we have derived the substantial
majority of our revenue from customers located in the United
States. In fiscal 2007, U.S. customers accounted for
approximately 76% of our revenue.
Product Revenue. The significant majority of
our revenue is generated through the sale of our NPS appliances,
primarily to companies in the following vertical industries:
telecommunications,
e-business,
retail, financial services, analytic service providers,
government and healthcare. Since we began shipping our products
in fiscal 2004, our product revenue has grown from
$13.0 million in fiscal 2004 to $30.9 million in
fiscal 2005, $45.5 million in fiscal 2006 and
$64.6 million in fiscal 2007. As we have grown we have
reduced our dependency on our largest customers, with no
customer accounting for more than 10% of our total revenue in
fiscal 2007. Our future revenue growth will depend in
significant part upon further sales of our NPS appliances to our
existing customer base. As of January 31, 2007, 67% of our
customers have purchased more than one NPS appliance, and the
NPS system is priced to allow customers to “pay as they
grow” by adding incremental capacity as their needs
increase. In addition, increasing our sales to new customers in
existing vertical industries we currently serve and in other
vertical industries that depend upon high-performance data
analysis is an important element of our strategy. We consider
the further development of our direct and indirect sales
channels in domestic and international markets to be a key to
our future revenue growth and the global acceptance of our
products. Our future revenue growth will also depend on our
ability to sustain the high levels of customer satisfaction
generated by providing “high-touch”, high-quality
support. We also are dependent on the successful development and
introduction of new products and enhancements to existing
products that achieve acceptance in the market to increase our
revenue.
We maintain a standard price list for all our products. In
addition, we have a corporate policy that governs the level of
discounting our sales organization may offer on our products
based on factors such as transaction size, volume of products,
competition and distribution partner involvement. Our total
product revenue and gross profit are directly affected by our
ability to manage our product pricing policy. In addition,
competition continues to increase and, in the future, we may be
forced to reduce our prices to remain competitive.
Services Revenue. We sell hardware and
software support services to our customers. In addition, we
offer installation services and product training. The percentage
of our total revenue derived from support services was 14% in
fiscal 2005, 15% in fiscal 2006 and 19% in fiscal 2007. We
anticipate that support services will continue to
be purchased by new and existing customers and that services
revenue will continue to be between 18% and 20% of our total
revenue.
Cost
of Revenue and Gross Profit
Cost of product revenue consists primarily of amounts paid to
Sanmina, our contract manufacturer, in connection with the
procurement of hardware components and assembly of those
components into our NPS appliance systems. Neither we nor
Sanmina enter into long-term supply contracts for our hardware
components, which can cause our cost of product revenue to
fluctuate. These product costs are recorded when the related
product revenue is recognized. Cost of revenue also includes
costs of shipping, warehousing and logistics expenses, warranty
reserves and valuation reserves taken for excess and obsolete
inventory. Shipping, warehousing and logistics costs are
recognized as incurred. Estimated warranty costs are recorded
when the related product revenue is recognized and inventory
valuation reserves are evaluated and recognized periodically.
Cost of services revenue consists primarily of salaries and
employee benefits for our support staff and worldwide
installation and technical account management teams and amounts
paid to Hewlett-Packard to provide
on-site
hardware service.
Our gross profit has been and will continue to be affected by a
variety of factors, including the relative mix of product versus
services revenue; our mix of direct versus indirect sales (as
sales through our indirect channels have lower average selling
prices and gross profit); and changes in the average selling
prices of our products and services, which can be adversely
affected by competitive pressures. Additional factors affecting
gross profit include the timing of new product introductions,
which may reduce demand for our existing product as customers
await the arrival of new products and could also result in
additional reserves against older product inventory, cost
reductions through redesign of existing products and the cost of
our systems hardware. The data warehouse market is highly
competitive and we expect this competition to intensify in the
future, which may increase pricing pressure and reduce product
gross margins.
If our customer base continues to grow, it will be necessary for
us to continue to make significant upfront investments in our
customer service and support infrastructure to support this
growth. The rate at which we add new customers will affect the
level of these upfront investments. The timing of these
additional expenditures could materially affect our cost of
revenue, both in absolute dollars and as a percentage of total
revenue, in any particular period. This could cause downward
pressure on gross margins.
Operating
Expenses
Operating expenses consist of sales and marketing, research and
development, and general and administrative expenses.
Personnel-related costs are the most significant component of
each of these expense categories. We grew from 90 employees at
January 31, 2004 to 225 employees at January 31, 2007.
We expect to continue to hire significant numbers of new
employees to support our anticipated growth.
Sales and
Marketing Expenses
Sales and marketing expenses consist primarily of salaries and
employee benefits, sales commissions, marketing program expenses
and allocated facilities expenses. We plan to continue to invest
in sales and marketing by increasing the number of our sales
personnel worldwide, expanding our domestic and international
sales and marketing activities, and further building brand
awareness. Accordingly, we expect sales and marketing expenses
to continue to increase in total dollars although we expect
these expenses to decrease as a percentage of total revenue.
Generally, sales personnel are not immediately productive and
thus sales and marketing expenses related to new sales hires are
not immediately accompanied by higher revenue. Hiring additional
sales personnel may reduce short-term operating margins until
the sales personnel become productive and generate revenue.
Accordingly, the timing of hiring sales personnel and the rate
at which they become productive will affect our future
performance.
Research and development expenses consist primarily of salaries
and employee benefits, product prototype expenses, allocated
facilities expenses and depreciation of equipment used in
research and development activities. In addition to our
U.S. development teams, we use an offshore development team
employed by a contract engineering firm in Pune, India. Research
and development expenses are recorded as incurred. We devote
substantial resources to the development of additional
functionality for existing products and the development of new
products. We intend to continue to invest significantly in our
research and development efforts because we believe they are
essential to maintaining and increasing our competitive
position. We expect research and development expenses to
increase in total dollars, although we expect such expense to
decrease as a percentage of total revenue.
General
and Administrative Expenses
General and administrative expenses consist primarily of
salaries and employee benefits, allocated facilities expenses
and fees for professional services such as legal, accounting and
compliance. We expect general and administrative expenses to
increase in total dollars and to increase slightly as a
percentage of revenue in fiscal 2008 as we invest in
infrastructure to support continued growth and incur additional
expenses related to being a publicly traded company, including
additional accounting and legal fees, costs of compliance with
securities and other regulations, investor relation expenses and
higher insurance premiums, including premiums related to
director and officer insurance.
Stock-based
Compensation
Effective February 1, 2006, we adopted the Statement of
Financial Accounting Standards, or SFAS, No. 123(R),
Share Based Payment, using the prospective transition
method. SFAS No. 123(R) addresses all forms of
shared-based payment awards, including shares issued under
employee stock purchase plans, stock options, restricted stock
and stock appreciation rights. SFAS No. 123(R)
requires us to expense share-based payment awards with
compensation cost for share-based payment transactions measured
at fair value. Under this transition method, stock-based
compensation expense recognized beginning February 1, 2006
is based on the grant date fair value of stock awards granted or
modified after February 1, 2006. For fiscal 2007, we
recorded an expense of $0.9 million in connection with
stock-based awards. Unrecognized stock-based compensation
expense of non-vested stock options of $6.2 million, net of
forfeitures, as of January 31, 2007 is expected to be
recognized using the straight-line method over a weighted
average period of 4.2 years. We expect to recognize
$1.5 million in stock-based compensation in fiscal 2008,
excluding the impact of any grants made after January 31,2007.
Other
Interest
Income (Expense), Net
Interest income (expense), net primarily consists of interest
income on cash balances and interest expense on our outstanding
debt.
Other
Income (Expense), Net
Other income (expense), net primarily consists of losses or
gains on translation of
non-U.S. dollar
transactions into U.S. dollars and mark-to-market
adjustments on preferred stock warrants.
Cumulative
Effect of Change in Accounting Principle
On June 29, 2005, the FASB issued FSP
150-5. FSP
150-5
affirms that freestanding warrants to purchase shares that are
redeemable are subject to the requirements in
SFAS No. 150, regardless of the redemption price or
the timing of the redemption feature. Therefore, under
SFAS No. 150, the outstanding freestanding warrants to
purchase our convertible preferred stock are liabilities that
must be recorded at fair value each quarter, with the changes in
estimated fair value in the quarter recorded as other expense or
income in our consolidated statement of operations.
We adopted FSP
150-5 as of
August 1, 2005 and recorded an expense of $0.2 million
for the cumulative effect of the change in accounting principle
to reflect the estimated fair value of these warrants as of that
date. There was no change in fair value between the adoption
date and January 31, 2006. In the year ended
January 31, 2007, we recorded $0.2 million of
additional expense to reflect the increase in fair value between
February 1, 2006 and January 31, 2007. The pro forma
effect of the adoption of FSP
150-5 on our
results of operations for 2004 and 2005, if applied
retroactively as if SFAS No. 150 had been adopted in
those years, was not material. We estimated the fair value of
these warrants at the respective balance sheet dates using the
Black-Scholes option valuation model. This model utilizes as
inputs the estimated fair value of the underlying convertible
preferred stock at the valuation measurement date, the remaining
contractual term of the warrant, risk-free interest rates,
expected dividends and expected volatility of the price of the
underlying convertible preferred stock.
Application
of Critical Accounting Policies and Use of Estimates
Our consolidated financial statements are prepared in accordance
with GAAP. These accounting principles require us to make
certain estimates, judgments and assumptions that can affect the
reported amounts of assets and liabilities as of the dates of
the consolidated financial statements, the disclosure of
contingencies as of the dates of the consolidated financial
statements, and the reported amounts of revenue and expenses
during the periods presented. We evaluate these estimates,
judgments and assumptions on an ongoing basis. Although we
believe that our estimates, judgments and assumptions are
reasonable under the circumstances, actual results may differ
from those estimates.
We believe that of our significant accounting policies, which
are described in the notes to the financial statements appearing
elsewhere in this prospectus, the following accounting policies
involve the most judgment and complexity:
•
revenue recognition;
•
stock-based compensation;
•
inventory valuation;
•
warranty reserves; and
•
accounting for income taxes.
Accordingly, we believe the policies set forth above are the
most critical to aid in fully understanding and evaluating our
financial condition and results of operations. If actual results
or events differ materially from the estimates, judgments and
assumptions used by us in applying these policies, our reported
financial condition and results of operations could be
materially affected.
Revenue
Recognition
We derive our revenue from sales of products and related
services and enter into multiple-element arrangements in the
normal course of business with our customers and distribution
partners. In all of our arrangements, we do not recognize any
revenue until we can determine that persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or
determinable, and we deem collection to be probable. In making
these judgments, we evaluate these criteria as follows:
•
Evidence of an arrangement. We consider a
non-cancelable agreement signed by the customer and us to be
persuasive evidence of an arrangement.
•
Delivery has occurred. We consider delivery to
have occurred when product has been delivered to the customer
and no post-delivery obligations exist other than ongoing
support obligations. In instances where customer acceptance is
required, delivery is deemed to have occurred when customer
acceptance has been achieved.
•
Fees are fixed or determinable. We consider
the fee to be fixed or determinable unless the fee is subject to
refund or adjustment or is not payable within normal payment
terms. If the fee is subject to refund or adjustment, we
recognize revenue when the right to a refund or adjustment
lapses. If offered payment terms
exceed our normal terms, we recognize revenue as the amounts
become due and payable or upon the receipt of cash.
•
Collection is deemed probable. We conduct a
credit review for all transactions at the inception of an
arrangement to determine the creditworthiness of the customer.
Collection is deemed probable if, based upon our evaluation, we
expect that the customer will be able to pay amounts under the
arrangement as payments become due. If we determine that
collection is not probable, revenue is deferred and recognized
upon the receipt of cash.
We enter into multiple element arrangements in the normal course
of business with our customers. We recognize elements in such
arrangements when delivered and the amount allocated to each
element is based on vendor specific objective evidence of fair
value (“VSOE”). We determine VSOE based upon the
amount charged when we sell an element separately. When VSOE
exists for undelivered elements but not for the delivered
elements, we use the “residual method.” Under the
residual method, we initially defer the fair value of the
undelivered elements. The residual contract amount is then
allocated to and recognized for the delivered elements.
Thereafter, we recognize the amount deferred for the undelivered
elements when those elements are delivered. For arrangements in
which VSOE does not exist for each undelivered element, we defer
revenue for the entire arrangement and recognize it only when
delivery of all the elements without VSOE has occurred, unless
the only undelivered element is maintenance in which case we
recognize revenue from the entire contract ratably over the
maintenance period.
The determination of VSOE is highly judgmental and is a key
factor in determining whether revenue may be recognized or must
be deferred and the extent to which it may be recognized once
the various elements of an arrangement are delivered. We assess
VSOE based on previous sales of products and services, the type
and size of customer and renewal rates in contracts. We monitor
VSOE on an ongoing basis. A change in our assessment of, or our
inability to establish VSOE for products or services may result
in significant variation in our revenues and operating results.
Stock-Based
Compensation
Through January 31, 2006, we accounted for our stock-based
employee compensation arrangements in accordance with the
intrinsic value provisions of Accounting Principles Board, or
APB, Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations. Under the intrinsic
value method, compensation expense is measured on the date of
the grants as the difference between the fair value of our
common stock and the exercise or purchase price multiplied by
the number of stock options or restricted stock awards granted.
Through January 31, 2006, we accounted for stock-based
compensation expense for non-employees using the fair value
method prescribed by Statement of Financial Accounting
Standards, or SFAS, No. 123 and the Black-Scholes option
pricing model, and recorded the fair value of non-employee stock
options as an expense over the vesting term of the option.
In December 2004, FASB issued SFAS No. 123(R), which
requires companies to expense the fair value of employee stock
options and other forms of stock-based compensation. We adopted
SFAS No. 123(R) effective February 1, 2006.
SFAS No. 123(R) requires nonpublic companies that used
the minimum value method under SFAS No. 123 for either
recognition or pro forma disclosures to apply
SFAS No. 123(R) using the prospective-transition
method. As such, we will continue to apply APB Opinion
No. 25 in future periods to equity awards outstanding at
the date of adoption of SFAS No. 123(R) that were
measured using the minimum value method. In accordance with
SFAS No. 123(R), we will recognize the compensation
cost of employee stock-based awards granted subsequent to
February 1, 2006 in the statement of operations using the
straight-line method over the vesting period of the award.
Effective with the adoption of SFAS No. 123(R), we
have elected to use the Black-Scholes option pricing model to
determine the fair value of stock options granted.
As there has been no public market for our common stock prior to
this offering, and therefore a lack of company-specific
historical and implied volatility data, we have determined the
share price volatility for options granted in fiscal 2007 based
on an analysis of reported data for a peer group of companies
that granted options with substantially similar terms. The
expected volatility of options granted has been determined using
an average of the
historical volatility measures of this peer group of companies
for a period equal to the expected life of the option. The
expected volatility for options granted during fiscal 2007 was
75%-83%. We intend to continue to consistently apply this
process using the same or similar entities until a sufficient
amount of historical information regarding the volatility of our
own share price becomes available, or unless circumstances
change such that the identified entities are no longer similar
to us. In this latter case, more suitable, similar entities
whose share prices are publicly available would be utilized in
the calculation.
The expected life of options granted has been determined
utilizing the “simplified” method as prescribed by the
SEC’s Staff Accounting Bulletin, or SAB, No. 107,
Share-Based Payment. The expected life of options granted
during fiscal 2007 was 6.5 years. For fiscal 2007, the
weighted average risk-free interest rate used ranged from 4.56%
to 5.03%. The risk-free interest rate is based on a daily
treasury yield curve rate whose term is consistent with the
expected life of the stock options. We have not paid and do not
anticipate paying cash dividends on our shares of common stock;
therefore, the expected dividend yield is assumed to be zero.
In addition, SFAS No. 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates, whereas SFAS No. 123 permitted companies to
record forfeitures based on actual forfeitures, which was our
historical policy under SFAS No. 123. As a result, we
applied an estimated forfeiture rate, based on our historical
forfeiture experience, of 2.0% in fiscal 2007 in determining the
expense recorded in our consolidated statement of operations.
We have historically granted stock options at exercise prices no
less than the fair market value as determined by our board of
directors, with input from management. Our board exercised
judgment in determining the estimated fair value of our common
stock on the date of grant based on a number of objective and
subjective factors. Factors considered by our board of directors
included:
•
independent valuation reports that we received;
•
The independent valuation methodology derives a range of equity
values based upon a combination of three different approaches:
•
Implied valuation based on comparable companies — uses
direct comparisons to comparable public companies and their
valuations, trading and operating statistics to estimate
comparable valuation ranges. Discounts are applied based upon
the lack of marketability and minority interest nature of our
common stock to estimate its fair value.
•
Implied valuation based on precedent transactions —
compares recently acquired companies and their enterprise values
relative to their revenue profile to develop a comparative
valuation based upon revenue multiple profiles similar to our
revenue multiple profiles.
•
Implied valuation based upon projected discounted cash flows.
•
the
agreed-upon
consideration paid in arms-length transactions in the form of
convertible preferred stock;
•
the superior rights and preferences of our preferred stock as
compared to our common stock;
•
historical and anticipated fluctuations in our revenue and
results of operations; and
•
the risk of owning our common stock and its lack of liquidity.
Since the beginning of fiscal 2006, we granted stock options
with exercise prices as follows:
Inventories primarily consist of finished systems and are stated
at the lower of cost or market value. A large portion of our
inventory also relates to evaluation units located at customer
locations, as some of our customers test our equipment prior to
purchasing. The number of evaluation units has increased due to
our overall growth and an increase in our customer base. We
assess the valuation of all inventories, including raw
materials,
work-in-process
and finished goods, on a periodic basis. We write down obsolete
inventory or inventory in excess of our estimated usage to its
estimated market value if less than its cost. Inherent in our
estimates of market value in determining inventory valuation are
estimates related to economic trends, future demand for our
products and technological obsolescence of our products. If
actual market conditions are less favorable than our
projections, additional inventory write-downs may be required.
Inventory valuation reserves were $0 and $0.7 million as of
January 31, 2006 and 2007, respectively.
Warranty
Reserves
Our standard product warranty provides that our product will be
free from defects in material and workmanship and will, under
normal use, conform to the published specifications for the
product for a period of 90 days. Under this warranty, we
will repair the product, provide replacement parts at no charge
to the customer or refund amounts to the customer for defective
products. We record estimated warranty costs, based upon
historical experience, at the time we recognize revenue. As the
complexity of our product increases, we could experience higher
warranty costs relative to sales than we have previously
experienced, and we may need to increase these estimated
warranty reserves. Warranty reserves were $0.7 million and
$1.1 million as of January 31, 2006 and 2007,
respectively.
Accounting
for Income Taxes
At January 31, 2007, we had net operating loss
carryforwards available to offset future taxable income for
federal and state purposes of $29.2 million and
$25.7 million, respectively. These net operating loss
carryforwards expire at various dates through fiscal year 2027
and 2011 for federal and state purposes, respectively. At
January 31, 2007 we had available net operating losses for
foreign purposes of $7.8 million, of which
$7.5 million may be carried forward indefinitely and
$0.3 million expire beginning in fiscal 2011. We also had
available at January 31, 2007 research and development
credit carryforwards to offset future federal and state taxes of
approximately $3.0 million and $2.3 million
respectively which may be used to offset future taxable income
and expire at various dates beginning in 2016 through fiscal
years 2027 As part of the process of preparing our consolidated
financial statements, we are required to estimate our income
taxes in each of the jurisdictions in which we operate. We
record this amount as a provision or benefit for taxes in
accordance with SFAS No. 109, Accounting for Income
Taxes. This process involves estimating our actual current tax
exposure, including assessing the risks associated with tax
audits, and assessing temporary differences resulting from
different treatment of items for tax and accounting purposes.
These differences result in deferred tax assets and liabilities.
As of January 31, 2007, we had gross deferred tax assets of
$25.8 million, which were primarily related to federal and
state net operating loss carryforwards, research and development
credit carryforwards and research and development expenses
capitalized for tax purposes. We assess the likelihood that our
deferred tax assets will be recovered from future taxable income
and, to the extent that we believe recovery is not likely, we
establish a valuation allowance. Due to the uncertainty of our
future profitability, we have recorded a valuation allowance
equal to the $25.8 million of gross deferred tax assets as
of January 31, 2007. Accordingly, we have not recorded a
provision for income taxes in our statement of operations for
any of the periods presented. If we determine in the future that
these deferred tax assets are more-likely-than-not to be
realized, a release of all or a portion of the related valuation
allowance would increase income in the period in which that
determination is made.
Total revenue increased $25.7 million, or 48%, to
$79.6 million in fiscal 2007 from $53.9 million in
fiscal 2006. Total revenue related to new customer sales
represented 61% of total revenue in fiscal 2007 as compared to
74% in fiscal 2006, while repeat business from the installed
customer base represented 39% of total revenue in fiscal 2007 as
compared to 26% in fiscal 2006.
Product revenue increased $19.1 million, or 42%, to
$64.6 million in fiscal 2007 from $45.5 million in
fiscal 2006. This increase was due primarily to sales to new
customers, as the number of customers increased from 46 to 87,
or 89%, during the year.
Services revenue increased $6.7 million, or 81%, to
$15.0 million in fiscal 2007 from $8.3 million in
fiscal 2006. This increase was a result of increased product
sales and accompanying sales of new maintenance and support
contracts combined with the renewal of maintenance and support
contracts by existing customers.
Gross
Margin
Total gross margin increased to 60% in fiscal 2007 from 58% in
fiscal 2006. Product gross margin increased to 59% in fiscal
2007 from 58% in fiscal 2006. This increase was due primarily to
a reduction in the cost of our hardware components throughout
fiscal 2007 and as a result of higher transition costs,
consisting primarily of the costs to upgrade inventory to then
current selling specifications, incurred in fiscal 2006 in
conjunction with the release of a new product line. These cost
improvements were partially offset by price erosion primarily
due to increased competition. Stock-based compensation expense
included in cost of product revenue increased to approximately
$12,000 in fiscal 2007 from $0 in fiscal 2006 in connection with
our adoption of SFAS No. 123(R) in fiscal 2007.
Services gross margin increased to 64% in fiscal 2007 from 58%
in fiscal 2006. This increase was a result of our services
revenue growth of 81% while services headcount only grew 22%
between fiscal 2006 and fiscal 2007. Stock-based compensation
expense included in cost of services revenue increased to
approximately $19,000 in fiscal 2007 from $0 in fiscal 2006.
Sales and
Marketing Expenses
Sales and marketing expenses increased $7.3 million, or
28%, to $32.9 million in fiscal 2007 from
$25.6 million in fiscal 2006. As a percentage of revenue,
sales and marketing expenses decreased to 41% in fiscal 2007
from 48% in fiscal 2006. The number of sales and marketing
employees increased to 85 at January 31, 2007 from 67 at
January 31, 2006. Sales commissions, salaries and employee
benefits, sales and marketing promotions and programs, partner
referral fees and sales and marketing travel accounted for
$3.3 million, $1.4 million, $0.7 million,
$0.6 million and $0.4 million, respectively, of the
$7.3 million increase. The remainder of the increase was
attributable primarily to additional sales office rent and
office costs to support the geographic expansion of the
salesforce. Stock-based compensation expense included in sales
and marketing expenses increased to $0.2 million in fiscal
2007 from $0 in fiscal 2006.
Research
and Development Expenses
Research and development expenses increased $1.3 million,
or 8%, to $18.0 million in fiscal 2007 from
$16.7 million in fiscal 2006. As a percentage of revenue,
research and development expenses decreased to 23% in fiscal
2007 from 31% in fiscal 2006. The number of research and
development employees increased to 85 at January 31, 2007
from 70 at January 31, 2006. The offshore development team
from our contract engineering firm increased to 53 people
at January 31, 2007 from 43 people at January 31,2006. Salaries and benefit and offshore and other consulting
costs each increased by $1.0 million from fiscal 2006. This
increase was also attributable to higher allocated facilities
and depreciation expenses and travel expenses totaling
$0.5 million. These increases were partially offset by a
$1.3 million decrease in new product prototype expenses.
Stock-based compensation expense included in research and
development expenses decreased to $0.2 million in fiscal
2007 from $0.8 million in fiscal 2006. The fiscal 2006
stock-based compensation expense related to a purchase by
certain principal investors in Netezza of 500,000 shares of
our common stock from a former executive of Netezza. We
determined that the transaction resulted in consideration paid
to the former executive in excess of the fair value of the
common stock purchased. Due to the close relationship between
the investors and the company, the excess consideration was
considered compensation on behalf of the company and recorded as
an expense.
General
and Administrative Expenses
General and administrative expenses increased $1.7 million,
or 55%, to $4.8 million in fiscal 2007 from
$3.1 million in fiscal 2006. As a percentage of revenue,
general and administrative expenses were 6% in both fiscal 2007
and fiscal 2006. The number of general and administrative
employees increased to 19 at January 31, 2007 from 14 at
January 31, 2006. Salaries and professional services fees
accounted for $0.7 million and $0.3 million,
respectively, of the $1.7 million increase. The remainder
of the increase was attributable to stock-based compensation
expense and various other expenses including allocated
facilities expenses. The additional personnel and professional
services fees were primarily the result of our ongoing efforts
to build legal, financial, human resources and information
technology functions required of a public company. Stock-based
compensation expense included in general and administrative
expenses increased to $0.5 million in fiscal 2007 from
approximately $24,000 in fiscal 2006.
Interest
Income (Expense), Net
We incurred $0.4 million of interest expense, net in fiscal
2007 as compared to $0.3 million of interest income, net in
fiscal 2006. This increase was due to an increase in our average
debt balance during fiscal 2007. The increase in the average
debt balance was attributable to $3.6 million in net debt
drawdowns during fiscal 2007.
Other
Income (Expense), Net
We incurred other income, net of $0.6 million in fiscal
2007 as compared to $0.1 million of other expense, net in
fiscal 2006. This increase was due to higher transaction gains
for activities in our foreign subsidiaries, primarily the United
Kingdom, and $0.2 million from the mark-to-market
adjustments on preferred stock warrants.
Fiscal
2006 Compared to Fiscal 2005
Revenue
Total revenue increased $17.8 million, or 49%, to
$53.9 million in fiscal 2006 from $36.0 million in
fiscal 2005. Total revenue related to new customer sales
represented 74% of total revenue in fiscal 2006 as compared to
19% in fiscal 2005, while repeat business from the installed
customer base represented 26% of total revenue in fiscal 2006 as
compared to 81% in fiscal 2005. One repeat customer accounted
for 49% of total revenue in fiscal 2005.
Product revenue increased $14.6 million, or 47%, to
$45.5 million in fiscal 2006 from $30.9 million in
fiscal 2005. This increase was due primarily to sales to new
customers, as the number of customers increased from 15 to 46,
or 207%, during the year.
Services revenue increased $3.2 million, or 63%, to
$8.3 million in fiscal 2006 from $5.1 million in
fiscal 2005. This increase was a result of increased product
sales and accompanying sales of new maintenance and support
contracts combined with the renewal of maintenance and support
contracts by existing customers.
Gross
Margin
Total gross margin decreased to 58% in fiscal 2006 from 71% in
fiscal 2005. Product gross margin also decreased to 58% in
fiscal 2006 from 71% in fiscal 2005. This decrease was primarily
due to our increased penetration into more vertical industries
and increased pricing pressure from competition in those
vertical industries. In addition, the release of a new product
line in fiscal 2006 resulted in higher product costs initially
for these new products.
Services gross margin decreased to 58% in fiscal 2006 from 68%
in fiscal 2005. During fiscal 2006, we developed a more
high-touch strategy for our support services and, accordingly,
invested in the staffing of a
technical account management team. This account management team
provides
on-site
customer support services to supplement our Framingham-based
help desk services. The initial investment in this group
resulted in additional costs incurred in advance of anticipated
additional services revenue.
Sales and
Marketing Expenses
Sales and marketing expenses increased $10.8 million, or
73%, to $25.6 million in fiscal 2006 from
$14.8 million in fiscal 2005. As a percentage of revenue,
sales and marketing expenses increased to 48% in fiscal 2006
from 41% in fiscal 2005. The number of sales and marketing
employees increased to 67 at January 31, 2006 from 46 at
January 31, 2005. Salaries and employee benefits, sales and
marketing travel, sales commissions, and sales and marketing
promotions and programs accounted for $4.4 million,
$2.4 million, $1.3 million and $0.9 million,
respectively, of the $10.8 million increase. The remainder
of the increase was attributable primarily to additional sales
office rents and office costs to support the geographic
expansion of the salesforce.
Research
and Development Expenses
Research and development expenses increased $5.3 million,
or 47%, to $16.7 million in fiscal 2006 from
$11.4 million in fiscal 2005. As a percentage of revenue,
research and development expenses were 31% and 32% in fiscal
2006 and 2005, respectively. The number of research and
development employees increased to 70 at January 31, 2006
from 65 at January 31, 2005. The offshore development team
from our contract engineering firm increased to 43 people
at January 31, 2006 from 24 people at January 31,2005. Salaries and benefits and offshore consulting costs
accounted for $2.6 million and $0.7 million,
respectively, of the $5.3 million increase. New product
prototype expenses and test equipment depreciation accounted for
$1.5 million of the increase. The remainder of the increase
was attributable primarily to allocated facilities and other
depreciation expenses.
General
and Administrative Expenses
General and administrative expenses increased $0.6 million,
or 24%, to $3.1 million in fiscal 2006 from
$2.5 million in fiscal 2005. As a percentage of revenue,
general and administrative expenses decreased to 6% in fiscal
2006 from 7% in fiscal 2005. This decrease is attributable to
50% revenue growth from fiscal 2006 to fiscal 2007 while the
number of general and administrative employees totaled 14 at
both January 31, 2006 and January 31, 2005. Salaries
and professional services fees, office costs and Massachusetts
use tax expenses accounted for $0.2 million,
$0.1 million and $0.2 million, respectively, of the
$0.6 million increase. The remainder of the increase was
attributable to various expenses including allocated facilities
expenses.
Interest
Income (Expense), Net
Interest income, net increased to $0.3 million in fiscal
2006 from $0.1 million in fiscal 2005. This increase was
due to a higher average cash balance during fiscal 2006.
Other
Income (Expense), Net
We incurred other expense, net of $0.1 million in fiscal
2006 as compared to approximately $35,000 of other income, net,
in fiscal 2005. This increase in expense resulted from an
increase in transaction losses for activities in our foreign
subsidiaries, primarily the United Kingdom.
The following table sets forth our unaudited quarterly
consolidated statements of operations data for each of the eight
quarters of fiscal 2006 and fiscal 2007. The quarterly data have
been prepared on the same basis as the audited consolidated
financial statements included elsewhere in this prospectus, and
reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of this
information. You should read this information together with our
consolidated financial statements and the related notes
appearing elsewhere in this prospectus. Our operating results
may fluctuate due to a variety of factors. As a result,
comparing our operating results on a
quarter-to-quarter
basis may not be meaningful. Our results for these quarterly
periods are not necessarily indicative of the results to be
expected for a full year or any future period.
Loss before cumulative effect of
change in accounting principle
(51.1
)
(40.5
)
(18.1
)
(7.6
)
(34.4
)
(10.6
)
(6.4
)
(1.7
)
Cumulative effect of change in
accounting principle
0.0
0.0
1.5
0.0
0.0
0.0
0.0
0.0
Net loss
(51.1
)%
(40.5
)%
(19.6
)%
(7.6
)%
(34.4
)%
(10.6
)%
(6.4
)%
(1.7
)%
Seasonality
Revenue has increased sequentially in most of the quarters
presented due to increases in the number of products sold to new
and existing customers. Our product revenue has tended to be
seasonal. In our fourth quarter, we have historically benefited
from our customers’ year-end purchasing activity in
November and December in addition to customers’ new budget
year purchasing activity in January. As a result, historically
we have experienced seasonally reduced product revenue, cost of
product revenue and gross profit in the first quarter of each
fiscal year, as is the case with many technology companies.
Operating expenses have increased sequentially in most of the
quarters presented as we continued to add personnel and related
costs to accommodate our growing business on a quarterly basis.
Timing of
sales
On a quarterly basis, we have usually generated the majority of
our product revenue in the final month of each quarter. This is
primarily due to the fact that our sales personnel who have a
strong incentive to meet quarterly sales targets tend to
increase their sales activity as the end of a quarter nears. As
a result, small delays in completion of sales transactions could
have a significant impact on our operating results for any
particular quarter.
At January 31, 2007, we had cash and cash equivalents of
$5.0 million and accounts receivable of $31.8 million.
Since our inception, we have funded our operations using a
combination of issuances of convertible preferred stock, which
has provided us with aggregate net proceeds of
$73.3 million, cash collections from customers and a term
loan credit facility with Silicon Valley Bank. As of
January 31, 2007, we had a total of $6.5 million
outstanding under this credit facility.
Our principal uses of cash historically have consisted of
payroll and other operating expenses, repayments of borrowings,
purchases of property and equipment primarily to support the
development of new products and purchases of inventory to
support our sales and our increasing volume of evaluation units
located at customer locations that enable our customers and
prospective customers to test our equipment prior to purchasing.
The number of evaluation units has consistently increased due to
our overall growth and an increase in our pipeline of potential
customers.
The following table shows our cash flows from operating
activities, investing activities and financing activities for
the stated periods:
Net cash used in operating activities is affected by our
investments in sales and marketing, research and development,
and corporate administration to support the growth of our
business. We also use cash to support growth and changes in
inventory, accounts receivable, accounts payable and other
current assets and liabilities. Accounts receivable balances at
quarter and year-ends have historically been affected by the
timing of orders from our customers during the year.
Net cash used in operating activities was $2.6 million,
$9.8 million and $11.2 million in fiscal 2005, 2006
and 2007, respectively. Net cash used in operating activities in
fiscal 2007 primarily consisted of a net loss of
$8.0 million, an increase in accounts receivable of
$17.9 million due to the timing of year-end orders, and a
use of $15.5 million to fund our net increase in inventory
primarily used to provide additional evaluation units provided
to our increasing customer base and prospective customers. These
were partially offset by an increase in deferred revenue of
$14.8 million due to the increase in our customer base and
related increase in purchases of annual maintenance and support
agreements, depreciation expense of $2.6 million,
stock-based compensation expense of $0.9 million and net
changes in our other operating assets and liabilities of
$11.6 million. Net cash used in operating activities in
fiscal 2006 consisted of a net loss of $14.0 million, a net
increase in accounts receivable of $8.4 million and a net
increase in inventory of $2.8 million. These were partially
offset by an increase in deferred revenue of $6.3 million,
depreciation expense of $2.8 million and net changes in our
other operating assets and liabilities of $5.2 million. Net
cash used in operating activities in fiscal 2005 consisted of a
net loss of $3.0 million and a net increase in inventory of
$5.1 million, reduced by depreciation expense of
$1.8 million and net changes in our other operating assets
and liabilities of $3.7 million.
Cash
Used in Investing Activities
Net cash used in investing activities primarily relates to
capital expenditures to support our growth, including computer
equipment, internal use software, furniture and fixtures and
engineering and test equipment.
Net cash used in investing activities was $4.3 million,
$5.5 million and $1.5 million in fiscal 2005, 2006 and
2007, respectively. Net cash used in investing activities in
fiscal 2007 primarily consisted of $1.1 million of
computer equipment and software and $0.4 million of
engineering and test equipment. Net cash used in investing
activities in fiscal 2005 and 2006 consisted primarily of
$3.2 million and $4.3 million, respectively, related
to purchases of engineering and test equipment. Our capital
expenditure budget for fiscal 2008 totals approximately
$2 million, primarily for additional network and
infrastructure systems and for computer equipment and software
for additional personnel we anticipate hiring.
Cash
Provided by Financing Activities
Net cash provided by financing activities was
$14.1 million, $7.6 million and $3.8 million in
fiscal 2005, 2006 and 2007, respectively. Net cash provided by
financing activities in fiscal 2007 primarily consisted of
$3.6 million of net borrowings under our term loan credit
facility. These borrowings were used to fund losses from
operations and our net increase in accounts receivable and
inventory. Net cash provided by financing activities in fiscal
2006 consisted primarily of $4.5 million in net proceeds
from the sale of our Series D preferred stock and
$3.0 million of net borrowings under our term loan credit
facility. Net cash provided by financing activities in fiscal
2005 consisted primarily of $15.5 million in net proceeds
from the sale of our Series D preferred stock, partially
offset by a $1.5 million repayment of principal and
interest on an equipment line of credit.
Working
Capital Facilities
As of January 31, 2007 we had $6.5 million outstanding
under a term loan credit facility with Silicon Valley Bank, as
agent for certain other lenders, including Gold Hill Venture
Lending. We were required to initially make interest-only
payments on any amounts borrowed through June 2006, after which
we were required to make 36 equal consecutive monthly
installments of principal and interest through June 2009. All
unpaid principal and accrued interest under this loan is due and
payable in full on June 1, 2009. Under the terms of this
loan, interest rates are fixed for the term of the loan at the
time of each advance at the prime rate plus 4% and were 10%,
10.75%, 11.75% and 12%, for each advance, respectively, as of
January 31, 2007. As of January 31, 2007, there was no
additional borrowing availability under this agreement.
On January 31, 2007, we obtained a revolving line of credit
with Silicon Valley Bank under which we can borrow up to
$15.0 million. Our interest rate under this revolving line
of credit is 1% below the prime rate, and at January 31,2007 was 7.25%. Borrowings are secured by substantially all of
our assets other than our intellectual property. All outstanding
debt will become payable on January 30, 2008. As of
January 31, 2007, we had no amounts outstanding under this
new revolving line of credit and $15.0 million available to
borrow.
Contractual
Obligations
The following is a summary of our contractual obligations as of
January 31, 2007:
Payments Due In
Total
Less Than 1 Year
1 - 3 Years
3 - 5 Years
More Than 5 Years
(In thousands)
Long-term debt, including current
portion(1)
$
6,639
$
2,540
$
4,099
—
—
Capital lease obligations
—
—
—
—
—
Operating lease obligations
900
846
54
—
—
Purchase obligations(2)
16,310
16,310
—
—
—
(1)
Excludes interest payments, which cannot be calculated at this
time due to the fluctuating interest rate.
(2)
Purchase obligations primarily represent the value of purchase
orders issued to our contract manufacturer, Sanmina, for the
procurement of assembled NPS appliance systems for the next
three months.
We believe that our cash and cash equivalents of
$5.0 million and accounts receivable of $31.8 million
at January 31, 2007, together with the anticipated net
proceeds to us of this offering and any cash flows from our
operations will be sufficient to fund our projected operating
requirements for at least the next 12 months. However, we
may need to raise additional funds subsequent to that time, or
sooner if we are presented with unforeseen
circumstances or opportunities. See “Risk
Factors — It is difficult to predict our future
capital needs and we may be unable to obtain additional
financing that we may need, which could have a material adverse
effect on our business, operating results and financial
condition.”
Off-Balance
Sheet Arrangements
We did not have during the periods presented, and we do not
currently have, any off-balance sheet arrangements, as defined
under SEC rules, such as relationships with unconsolidated
entities or financial partnerships, which are often referred to
as structured finance or special purpose entities, established
for the purpose of facilitating financing transactions that do
not have to be reflected on our balance sheet.
Quantitative
and Qualitative Disclosures About Market Risk
Foreign
Currency Risk
Our international sales and marketing operations incur expenses
that are denominated in foreign currencies. These expenses could
be materially affected by currency fluctuations. Our exposures
are to fluctuations in exchange rates for the U.S. dollar
versus the British pound and the Japanese yen. Changes in
currency exchange rates could adversely affect our consolidated
results of operations or financial position. Additionally, our
international sales and marketing operations maintain cash
balances denominated in foreign currencies. In order to decrease
the inherent risk associated with translation of foreign cash
balances into our reporting currency, we have not maintained
excess cash balances in foreign currencies. As of
January 31, 2007, we had $0.8 million of cash in
foreign accounts. To date, we have not hedged our exposure to
changes in foreign currency exchange rates and, as a result, we
could incur unanticipated translation gains and losses.
Interest
Rate Risk
We had a cash and cash equivalents balance of $5.0 million
at January 31, 2007, which was held for working capital
purposes. We do not enter into investments for trading or
speculative purposes. We do not believe that we have any
material exposure to changes in the fair value of these
investments as a result of changes in interest rates. Declines
in interest rates, however, will reduce future investment
income, and increases in interest rates may increase future
interest expense.
At January 31, 2007, we had $6.5 million of borrowings
outstanding under our term loan credit facility, which bears
interest at a variable rate adjusted monthly based on the prime
rate plus applicable margins.
Recent
Accounting Pronouncements
On February 15, 2007, the FASB issued Statement
No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities — Including an amendment of FASB
Statement No. 115,
(“SFAS No. 159”), which permits companies to
choose to measure many financial instruments and certain other
items at fair value. The objective of SFAS No. 159 is
to improve financial reporting by providing companies with the
opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions.
SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. We are currently evaluating the
effect that SFAS No. 159 may have on our financial
statements taken as a whole.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, which defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosures about
fair value measurements. This statement does not require any new
fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value
measurements. The provisions of SFAS No. 157 are
effective for fiscal years beginning after November 15,2007. We are currently assessing SFAS No. 157 and have
not yet determined the impact, if any, that its adoption will
have on our result of operations or financial condition.
In June 2006, the FASB issued FASB Interpretation No.
(“FIN”) 48, Accounting for Uncertainty in Income
Taxes — An Interpretation of FASB Statement
No. 109, which prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 will be effective for fiscal years
beginning after December 15, 2006. We do not expect the
adoption to have a material impact on our results of operations
or financial condition.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, which replaces
APB No. 20, Accounting Changes, and
SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements — An Amendment of APB Opinion
No. 28. SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction
of an error. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We adopted SFAS No. 154
effective February 1, 2006 and the adoption did not have an
effect on our consolidated results of operations and financial
condition.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs, an amendment of Accounting Research
Bulletin (“ARB”) No. 43, Chapter 4,
Inventory Pricing. SFAS No. 151 amends previous
guidance regarding treatment of abnormal amounts of idle
facility expense, freight, handling costs, and spoilage.
SFAS No. 151 requires that those items be recognized
as current period charges regardless of whether they meet the
criterion of “so abnormal” which was the criterion
specified in ARB No. 43. In addition,
SFAS No. 151 requires that allocation of fixed
production overheads to the cost of the production be based on
normal capacity of the production facilities. We adopted
SFAS No. 151 effective February 1, 2006 and the
adoption did not have an effect on our consolidated results of
operations and financial condition.
From time to time, new accounting pronouncements are issued by
the FASB that are adopted by us as of the specified effective
date. Unless otherwise discussed, we believe that the impact of
recently issued standards, which are not yet effective, will not
have a material impact on our consolidated financial statements
upon adoption.
Netezza is a leading provider of data warehouse appliances. Our
product, the Netezza Performance Server, or NPS, integrates
database, server and storage platforms in a purpose-built unit
to enable detailed queries and analyses on large volumes of
stored data. The results of these queries and analyses, often
referred to as business intelligence, provide organizations with
actionable information to improve their business operations. As
more information is recorded and communicated electronically,
the amount of data generated and the potential utility of the
business intelligence that can be extracted from this data is
increasing significantly. We designed our NPS data warehouse
appliance specifically for analysis of terabytes of data at
higher performance levels and at a lower total cost of ownership
with greater ease of use than can be achieved via traditional
data warehouse systems. Our NPS appliance performs faster,
deeper and more iterative analyses on larger amounts of detailed
data, giving our customers greater insight into trends and
anomalies in their businesses, thereby enabling better strategic
decision-making.
Unlike traditional data warehouse systems, which patch together
general-purpose database, server and storage platforms that were
not originally designed for analytical processing of large
amounts of constantly changing data, our NPS appliance is
purpose-built to deliver:
•
Fast data query response times through our proprietary
Intelligent Query Streaming technology.
•
Massive scalability through our proprietary Asymmetric Massively
Parallel Processing, or AMPP, architecture.
•
Simplicity of installation, operation and administration.
•
Cost effectiveness through the use of industry-standard server
and storage components packaged in a single unified solution.
Our products integrate easily through open, industry-standard
interfaces with leading data access and analytics, data
integration and data protection tools to enable quick and
accurate business intelligence. Our customers have reported
faster query performance, lower costs of ownership and improved
analytic productivity as a result of using our products.
We sell our data warehouse appliances worldwide to large global
enterprises, mid-market companies and government agencies
through our direct salesforce as well as indirectly via
distribution partners. As of January 31, 2007, we had 87
customers and had shipped over 200 of our data warehouse
appliances. Our customers span multiple vertical industries and
include data-intensive companies and government agencies such as
Ahold, Amazon.com, AOL, American Red Cross, Blue Cross Blue
Shield of Rhode Island, Capital One Services, Catalina
Marketing, CNET Networks, CompuCredit Corporation,
LoanPerformance, Marriott, the NASD, Neiman Marcus Group,
Nielsen Company, Orange UK, Restoration Hardware, Ross Stores,
Ryder Systems, Source Healthcare Analytics, Inc., a Wolters
Kluwer Health company, the United States Army Corps of Engineers
and the United States Department of Veterans Affairs.
Industry
Background
Proliferation
of Data
Data is one of the most valued assets within an organization.
The amount of data that is being generated and kept for
availability and analysis by organizations is exploding. The
timely and comprehensive analysis of this vast amount of data is
vital to organizations in a variety of vertical industries,
including:
•
Telecommunications. The telecommunications
industry is characterized by intense competition and customer
attrition, or “churn.” Targeted marketing
opportunities and the rapid response to behavior trends are
paramount to the success of telecommunications service providers
in retaining existing customers and attracting new customers.
Customer relationship management, or CRM, analyses need to be
constantly and quickly performed, to enable service providers to
market to at-risk customers before they churn, offer new
products and services to those most likely to buy, and identify
and manage key customer relationships. Other key analytical
needs of telecommunications service providers include call data
record analysis for revenue assurance, billing and least-cost
routing, fraud detection and network management.
•
E-Business. For
online businesses, the process of collecting, analyzing and
reporting data about page visits, otherwise known as click
stream analysis, is required for constant monitoring of website
performance and customer pattern changes. In addition to needing
to address the operational and customer relationship challenges
faced by traditional retailers,
e-businesses
must also analyze hundreds of millions or even billions of click
stream data records to track and respond to customer behavior
patterns in real time. Additionally, with online advertising
becoming a major revenue generator, many
e-businesses
and their advertisers need to understand who is looking at the
advertisements and their actions as a result of viewing the
advertisements. Fast analysis of online activity can enable
better cross-selling of products, prevent customers from
abandoning shopping carts or leaving the web site, and mitigate
click stream fraud.
•
Retail. With thousands of products and
millions of customers, many retailers need sophisticated systems
to track, manage and optimize customer and supplier
relationships. Targeted marketing programs often require the
analysis of millions of customer transactions. To prevent supply
shortages large retailers must integrate and analyze customer
transaction data, vendor delivery schedules and RFID supply
chain data. Other useful analyses for retail companies include
“market basket” analysis of the items customers buy in
a given shopping session, customer loyalty programs for frequent
buyers, overstock/understock and supply chain optimization.
•
Financial Services. Financial services
institutions generate terabytes of data related to millions of
client purchases, banking transactions and contacts with
marketing, sales and customer service across multiple channels.
This data contains crucial business information on client
preferences and buying behavior, and can reveal insights that
enable stronger customer relationship management and increase
the lifetime value of the customer. In addition, risk management
and portfolio management applications require analysis of vast
amounts of rapidly changing data for fraud prevention and loan
analysis. With extensive compliance and regulatory requirements,
financial institutions are required to retain an ever-increasing
amount of data and need to make this data available for detailed
reporting on a periodic basis.
•
Analytic Service Providers. The primary
purpose of these companies is providing business intelligence
support to enterprises on an outsourced basis. Analytic service
providers serving many industries, including retail,
telecommunications, healthcare and others, provide clients with
domain expertise in database-driven marketing and customer
segmentation. Since their clients are looking for faster
turn-arounds for more sophisticated reports on continuously
increasing amounts of data, these companies require solutions
that will scale better with lower cost of ownership to meet
their clients’ service-level agreements, while improving
their own profitability.
•
Government. As some of the largest creators
and consumers of data, government agencies around the world need
to access, analyze and share vast amounts of
up-to-date
data quickly and efficiently. These agencies face a broad range
of challenges, including identifying terrorist threats and
reducing fraud, waste and abuse. Iterative analysis on many
terabytes of data with high performance is crucial for achieving
these missions.
•
Healthcare. Healthcare providers seek to
analyze terabytes of operational and patient care data to
measure drug effectiveness and interactions, improve quality of
care and streamline operations through more cost-effective
services. Pharmaceutical companies rely on data analysis to
speed new drug development and increase marketing effectiveness.
In the future, these companies plan to incorporate large amounts
of genomic data into their analyses in order to tailor drugs for
more personalized medicine.
Additionally, compliance initiatives driven by government
regulations, such as those issued under the Sarbanes-Oxley Act
of 2002 and the Health Insurance Portability and Accountability
Act of 1996, or HIPAA, as well as company policies requiring
data preservation, are expanding the proportion of data that
must be retained and easily accessible for future use.
This significant growth of enterprise data is fueling a need for
additional storage and other information technology
infrastructure to maintain and manage it. According to a 2006
report by IDC, an independent technology research organization,
worldwide shipment of disk storage systems capacity exceeded
2 million terabytes in 2005 and is forecasted to grow to
over 16 million terabytes in 2010, representing a compound
annual growth rate of approximately 51%. This growth in data is
being further fueled by a steady decline in data storage prices,
which makes storing large data sets more economical.
As the volume of data continues to grow, enterprises have
recognized the value in analyzing such data to significantly
improve their operations and competitive position. They have
also realized that frequent analysis of data at a more detailed
level is more meaningful than periodic analysis of sampled data.
These factors have driven the demand for the data warehouses
that provide the critical framework for data-driven enterprise
decision-making by way of business intelligence.
Growing
Role of the Data Warehouse
A data warehouse consists of three main elements —
database, server, and storage — and interacts with
external systems to acquire and retain raw data, receive query
instructions and provide analytical results. The data warehouse
acts as a data repository for the enterprise, aggregating
information from many departments, and more importantly, enables
analytics through the querying of the data to deliver specific
information used to monitor, measure and manage business
performance and to drive future business decisions. The goal of
a data warehouse is to enable a business to better understand
its customers’ behavior patterns, competitive position, and
internal efficiency and productivity.
As business intelligence becomes more widespread across the
enterprise, data warehouses are experiencing explosive growth in
the amount of their data as well as in the number of business
users accessing this data. October 2006 IDC research indicates
that 15% of organizations expect their data warehouse to at
least double in the next 12 months, and Winter Corp., a
consulting and research organization, estimates that the size of
the largest data warehouses triple every two years.
The need for even more robust, yet cost-effective, data
warehouse solutions across multiple industries is being further
accelerated by the following:
Growth in Users of Business Intelligence. The
need for detailed analytics is becoming more mainstream
throughout the enterprise as well as in the “extended
enterprise,” which includes suppliers, partners and
customers. As the number of users accessing the data warehouse
increases, demand for data warehouse solutions multiplies. This
is a change from prior years when business intelligence analysis
within an organization was primarily performed by a small number
of analysts and IT professionals. IDC noted in a 2006 report
that 70% of organizations indicated they are planning to
increase the number of internal users of business intelligence
tools over the next 12 months.
Increasing Number and Sophistication of Data
Queries. As enterprises continue to recognize the
utility of the analyses data warehouses enable, the quantity and
sophistication of data queries continue to increase. Without
more powerful data warehouse performance to meet this demand,
significant data latency problems can ensue. A data warehouse
solution can contain several billion rows of data within its
resident database causing even one sophisticated data query to
take as long as several hours to several weeks to perform using
some traditional data warehouse systems.
Need for Real-time Data Availability. As data
continues to proliferate, increasing load times are continually
shrinking the time windows for querying warehoused data. Many
organizations need to have their data warehouses available for
query and analysis at all times even as fresh data is being
constantly loaded. This creates increasing requirements for
simultaneous load and query performance.
All these factors are resulting in an addressable data warehouse
market that is large and growing quickly. IDC estimates that the
data warehouse management software market alone will increase
from $4.0 billion in 2005 to $6.3 billion in 2010, a
compound annual growth rate of 9.6%. We believe the software
required to manage the data warehouse represents only a portion
of the total cost of data warehouse systems, which require
hardware such as servers and storage as well as services to
install, integrate and manage the data warehouse.
Many traditional data warehouse systems were initially designed
to aggregate and analyze smaller quantities of data, using
general-purpose database, server and storage platforms patched
together as a data warehouse system. Such patchwork
architectures are often used by default to store and analyze
data, despite the fact that they are not optimized to handle
terabytes of constantly growing and changing data and as a
result, they are not as effective in handling the in-depth
analyses that large businesses are now requiring of their data
warehouse systems. The increasing number of users accessing the
data warehouse and the sophistication of the queries employed by
these users is making the strain of using these legacy systems
even more challenging for many organizations.
We believe traditional data warehouse systems do not fully
address the key requirements of today’s business
intelligence environments and the needs of customers for the
following reasons:
Inefficient Execution of Complex and Ad Hoc
Queries. Most traditional systems read data from
storage, bring it across an input/output, or I/O, interface and
load it into memory for processing. This approach is extremely
inefficient for processing millions or even billions of rows of
data in order to execute complex queries or “ad hoc”
queries, which are queries created to obtain information as the
need arises, often as other queries are reviewed. The result is
significant delays in data movement and query processing, which
can slow response times to many hours or even days. This delay
often eliminates any potential benefit of the query results as
conclusions are reached too late to be actionable.
Difficult and Costly Procurement Process. Most
traditional data warehouse systems require multiple product and
service contracts from several suppliers. The customer must
manage the procurement of costly servers, storage, cabling,
database and operating systems software licenses, systems
management tools, and installation and integration services.
This “a la carte” approach results in higher costs and
a lack of accountability from suppliers due to their tendency to
blame each other when issues arise and need to be remedied.
Additionally, these disparate products are often not easily
integrated with other business intelligence applications or
other hardware or software products that a customer may
incorporate into its data warehouse, resulting in additional
hardware, implementation, training, maintenance and support
costs.
Complex Infrastructure Installation and
Deployment. A traditional data warehouse is a
complex environment that must be assembled and configured on
site. Installation can take weeks, requiring assembly, testing,
debugging and fine-tuning of system parameters. Traditional data
warehouse systems depend on elaborate tuning and data
manipulation to generate the performance required by the user.
Data loads into the system need to be balanced, indexes created,
and disk partitions and logical volumes defined. The entire
process can take from weeks to several months, typically
requiring extensive professional services engagements.
Slow Response to Changing Business Needs. As
the data warehouse grows and queries and analyses increase in
volume and complexity, the tuning and configuration needs of the
data warehouse solution further increase, creating ongoing costs
in hardware, software and services for the user. In addition,
business requirements are constantly changing and the data
warehouse needs to evolve to meet these changing requirements.
Most traditional data warehouses have customized data models
that define the structure and relationships of the data;
therefore, when data formats or query requirements change, these
solutions require extensive reconfiguration and tuning,
resulting in delays and extra personnel costs.
Costly Ongoing Administration and
Maintenance. Managing a traditional data
warehouse system is a complex and time-intensive task. Dedicated
database administrators are required to monitor and maintain the
system. Often, separate administrative teams are dedicated to
distinct solution components such as database, server, and
storage platforms. Additionally, many traditional systems come
with separate management programs for each component, lowering
the efficacy of the management of the overall data warehouse.
Inefficient Power, Cooling and Footprint
Requirements. As data warehouses grow
dramatically with the proliferation of data, the costs of space,
power and cooling are becoming serious concerns in data center
management. Because traditional systems are often a patchwork of
general-purpose components, significant footprint size and
energy consumption issues arise, at odds with ongoing efforts of
many businesses to centralize and shrink data center square
footage and increase energy efficiency.
Limited Scalability. Most traditional systems
have a difficult time increasing capacity to meet increased user
demand and the growing amounts of stored data due to their
architectures and technology. In these instances, the
I/O limitations become particularly acute. In addition,
there are difficulties associated with procurement, installation
and integration of additional capacity with existing
infrastructure. As a result, significant time and effort must be
dedicated to retune the system to reflect the new parameters. In
most cases, it is impossible to achieve linear scalability,
which means that performance will not scale at the same rate as
data growth or system capacity.
As a consequence of these limitations, the rapid growth of
enterprise data, and the growing need to utilize this data to
address business requirements, we believe there is a significant
market opportunity for a purpose-built data warehouse solution
that is optimized for efficiently analyzing vast amounts of
business-critical data to enable actionable business
intelligence.
Our
Solution
Our NPS appliance is designed specifically to enable
high-performance business intelligence solutions at a low total
cost of ownership. It tightly couples database, server, and
storage platforms in a compact, efficient unit that integrates
easily through open, industry-standard interfaces with leading
business intelligence, data access and analytics, data
integration and data protection tools. As a result, the NPS
appliance enables our customers to load, access and query data
faster, more easily and cost-effectively than with traditional
systems.
This approach, combined with our innovative product
architecture, provides the following significant benefits to our
customers:
Superior Performance. We believe our systems
provide industry-leading performance. With the NPS appliance,
many complex and ad hoc queries on terabytes of information are
reduced from days or hours to minutes or seconds, as disk access
speed becomes the primary limiting factor rather than I/O and
network constraints. Our customers have reported response times
for complex and ad hoc queries that are often 10 to 100 times
faster, and in some instances 500 times faster than those of
traditional data warehouse systems. This improved performance
enables our customers to analyze their data more
comprehensively, more iteratively and in a more timely way, so
they can make faster and better decisions.
Easy and Cost-Effective Procurement. Our NPS
appliance combines database, server, and storage platforms in a
single scalable device using open standards and commodity
components, to deliver a significant cost advantage compared
with the products of our competitors. In addition, since our NPS
appliance provides these technologies in a single product,
customers can purchase their data warehouse appliance from one
vendor as opposed to from multiple vendors, streamlining the
procurement process.
Quick and Easy Infrastructure Installation and
Deployment. NPS appliances are factory-configured
and tested, enabling our customers to install our systems
typically in less than two days. With all processors and storage
in the same cabinet and all components integrated, configured
and tested as a purpose-built data warehouse appliance, there is
no custom installation and configuration required, unlike
traditional solutions. In addition to faster installation, the
NPS appliance enables customers to deploy large, multi-terabyte
data warehouse environments much more rapidly than with
traditional systems. Data is loaded quickly and easily from
source systems, and existing tools and software for business
intelligence, data access and analytics, data integration and
data protection all integrate in a straightforward way through
standard interfaces. This enables our customers to deploy and
launch their data warehousing initiatives faster than is
possible with traditional systems, with minimal need for
professional services or customization.
Rapid Adaptation to Changing Business
Needs. Our NPS appliance does not require the
tuning, data indexing or most of the maintenance and
configuration tasks required by traditional systems. As a
result, the NPS appliance is flexible with regard to the layout
and structure of data models, so as new data is added and models
are automatically updated, the NPS appliance can accommodate
changes easily without requiring additional administrative
effort.
Minimal Ongoing Administration and
Maintenance. As a self-regulated and
self-monitored data warehouse appliance, our systems typically
require less than a single administrator to manage. There are no
obscure Netezza-specific commands that need to be learned by
administrators, and the NPS appliance integrates a single
interface for
the management and operation of the entire data warehouse. The
management and administration requirements of our systems remain
limited even as the data and system capacity grow significantly
in size.
Small Footprint, and Low Power and Cooling
Requirements. The NPS appliance is a compact,
tightly integrated appliance that requires a significantly
smaller data center “footprint” than traditional
solutions. Because we build our systems specifically for data
warehousing, we are able to more effectively integrate
components in a less dense, rack-enabled solution consuming
significantly less power and generating less heat than the
solutions of our competitors.
High Degree of Scalability. Our systems scale
effectively with additional users or more sophisticated queries,
as the limiting factor becomes disk access speed rather than
shared I/O and network constraints. Because storage and
processing are tightly coupled into a modular unit, as data
scales, so does processing power without diminution of
performance. Additionally, with no need for tuning or indexing,
more users can be supported and additional capacity added very
quickly and easily. The NPS appliance is priced to allow
customers to “pay as they grow,” adding incremental
capacity at a low cost per terabyte.
Our
Strategy
Our objective is to become the leading provider of data
warehouse solutions. We plan to accomplish this through the
following business strategies:
Broaden Our Target Markets. Today, we have
market penetration in the telecommunications,
e-business,
retail, financial services, analytic service provider,
government and healthcare markets. Our customers are large and
established organizations in these markets. We plan to continue
our market penetration in these target industries, while
expanding into new markets that can utilize business
intelligence at an affordable cost. We also plan to continue to
expand our addressable market through offerings in the
mid-market, enabling companies with fewer resources and smaller
budgets to leverage the benefits of data warehouse appliances.
Increase Sales to Our Existing Customer
Base. As our customers increasingly benefit from
the performance and cost attributes of our solution, we expect
further sales, driven by growing volumes of their stored data,
the increasing usage of business intelligence by growing numbers
of internal users, as well as additional users accessing our
systems across our customers’ extended enterprise.
Additionally, we have seen our customers use our systems for
other applications beyond the ones for which they initially
purchased our system as the benefits of the system become
evident, resulting in incremental sales. We expect our existing
customers to continue to be important sources of revenue in
addition to important allies in promoting the benefits of our
solution to new customers.
Extend Our Technology Leadership. We believe
that our proprietary product architecture and design provide us
with significant competitive advantages over traditional data
warehouse systems. Our appliance design enables us to leverage
advances and innovations in both hardware and software. We plan
to continue to employ our hardware acceleration techniques and
software optimization techniques to achieve faster data loading
and processing rates, and to take advantage of improvements in
the reliability, performance, cost, power and cooling attributes
of the hardware components integrated into our appliances. We
believe this will enable us to maintain our cost and performance
advantages versus competitive products.
Expand Distribution Channels. We plan to
continue to invest in our global distribution channels,
including our direct salesforce and relationships with
resellers, systems integration firms and analytic service
providers. We are establishing relationships with additional
resellers and with systems integration firms across North
America, Europe and Asia, which we believe will accelerate the
sales of our products.
Develop Additional Strategic Relationships. We
have established relationships with leading technology partners
in the complementary areas of data access and analytics, data
integration and data protection. These partners have certified
our appliances for integration with their software solutions,
and we participate in joint sales and marketing activities. We
plan to continue to invest in these relationships to simplify
integration and increase sales of our combined offerings. In
addition, we plan to introduce integrated product offerings with
our partners by bundling additional hardware or applications
with our NPS appliance to further extend the value of our
product offering. We believe our partnership-based model
differentiates us from our competitors, providing flexibility to
our customers and enhancing our operating leverage.
Expand Our Customer Support Capabilities. We
plan to continue investing in our global customer support
organization, through additional hiring, training, technical
infrastructure and partnerships with global hardware support
providers. Our customers have reported high levels of
satisfaction with our support organization, and we intend to
continue providing “high-touch,” high-quality support
as we scale our customer base.
Pursue Selected Acquisition Opportunities that are
Complementary to Our Strategy. We intend to
pursue acquisition opportunities that we believe will provide us
with products
and/or
technologies that are complementary to or can be integrated into
our current products. We believe that further expansion of our
product offerings will enable us to offer more comprehensive
solutions and functionality to our customers.
“Be Easy to Do Business With.” Our
customers are our most valuable asset and we have designed our
products, pricing, contracts and support principles to be
simple, straightforward and customer friendly. We plan to
continue to operate with these principles to further
differentiate our offerings with those of our larger competitors.
Products
The NPS family of appliances currently consists of two main
product lines:
The 10000 Series is our core performance line, with
current data capacity ranging from less than one terabyte of
data up to 100 terabytes. This is the primary product line from
which we derive the substantial majority of our revenue. The
10000 Series currently consists of six product models
(10050, 10100, 10200, 10400, 10600 and 10800). The various
models have different price points and support varying amounts
of data capacity. The prices range from several hundred thousand
dollars up to several million dollars. Our on-demand pricing
allows our customers to add capacity in terabyte increments
based on their data growth.
The 5000 Series, which currently consists of one product
model, has available data capacity of up to three terabytes,
with prices ranging from less than $200,000 to $250,000. This
product is sized and priced for our mid-market and smaller
customers and does not need to be deployed in a data center,
which offers more flexibility to these customers. Many of our
customers purchase the 5000 Series as a development system to
enable them to design and test new applications and queries
prior to deploying a 10000 Series production system.
NPS Product Performance Scalability
Smallest
Largest
Configuration
Configuration
(NPS 5200)
(NPS 10800)
Snippet Processing Units (SPUs)
28
896
User Data Capacity (Terabytes)
3
100
Data Scan Rate (Terabytes/hour)
6
190
Product Partnerships and Alliances. Through a
network of partnerships and alliances, we provide our customers
with integrated,
best-of-breed
solutions to meet their growing business intelligence
requirements. Our appliances provide high-performance
infrastructure technology as part of a larger “bundle”
of software and hardware used by our customers to load and
integrate data, perform analyses on their data and protect their
data. We have developed partnerships and alliances with major
software partners in the areas of business intelligence, data
access and analytics, data integration and data protection,
which have certified that our appliances integrate easily with
their software solutions. We are working to create closer
integration of our products with certain of these partners for
even simpler customer deployments and administration.
Our partnerships and alliances include the following software
providers:
•
Business intelligence: Business Objects, Cognos, MicroStrategy
and SAP
•
Data access and analytics: SAS Institute, SPSS and Unica
•
Data integration: Ab Initio Software, IBM, Informatica and Oracle
•
Data protection: Symantec
•
Industry-specific solutions: QuantiSense, Claraview and Unica
The architecture of the NPS appliance is based upon two guiding
principles:
•
Moving processing intelligence to a record stream adjacent to
storage significantly enhances performance and scalability. Our
approach allows us to perform database operations in a
“streaming” fashion. This patent-pending Netezza
innovation is called Intelligent Query Streaming technology. The
approach of traditional solutions requires data from storage to
be moved through many stages before database operations can be
performed.
•
Performance and scalability goals can be met using elements of
both symmetric multi-processing, or SMP, and massively parallel
processing, or MPP, applying each method where it is best suited
to meet the specific needs of analytic applications operating on
terabytes of data. We believe our architectural approach, which
we refer to as AMPP, provides significant improvements in
performance and scalability as compared to traditional data
warehouse systems. We have several patents pending surrounding
our AMPP architecture.
By applying these two principles in an integrated architecture,
we believe we have achieved significant improvement in the
performance, scalability and manageability of data warehouse
systems.
Our AMPP architecture is a two-tiered system designed to quickly
handle very large queries from multiple users:
•
The first tier is a high-performance Linux SMP host that
compiles data query tasks received from business intelligence
applications, and generates query execution plans. It then
divides a query into a sequence of
sub-tasks,
or snippets that can be executed in parallel, and distributes
the snippets to the second tier for execution.
•
The second tier consists of dozens to many hundreds of snippet
processing units, or SPUs, operating in parallel. Each SPU is an
intelligent query processing and storage node, and consists of a
commodity processor, dedicated memory, a disk drive and a field
programmable gate array, or FPGA, acting as a disk controller
with hard-wired logic to manage data flows.
This disk controller, which is at the heart of our Intelligent
Query Streaming technology, filters records as they stream off
the disk into memory on the SPU. This greatly reduces the data
traffic at SPU nodes and at the host, and therefore the data
that needs to be processed even for large and complex queries.
Nearly all query processing is done at the SPU level,
significantly reducing the amount of data required to be
transferred within the system and shared over I/O, thereby
limiting latency and speeding response times.
With our approach, the pathways used by traditional
architectures to deliver data to the host are streamlined and
shortened. Because the query is initially screened at the disk
drive level in the NPS appliance, there is far less
reliance on CPUs, data modeling or bandwidth for performance.
This results in a significant competitive advantage over
traditional systems, which often require shared connections over
which large amounts of data must travel prior to any analysis,
and which rely primarily on incremental gains in
general-computing processing power that cannot overcome I/O
constraints.
Customers
We sell our data warehouse appliances worldwide to large global
enterprises, mid-market companies and government agencies
through our direct salesforce as well as indirectly via
distribution partners. As of January 31, 2007, we had 87
customers and had shipped over 200 of our data warehouse
appliances. Our customers span multiple vertical industries and
include data-intensive companies and government agencies,
including:
Catalina Marketing
CompuCredit
Epsilon
Ryder Systems
Nielsen Company
Database marketing and analytics
Government
The United States Army Corps of
Engineers
The United States Department of Veterans Affairs
American Red Cross
Confidential
Healthcare
Blue Cross Blue Shield of Rhode
Island
Premier Health
Source Healthcare Analytics, Inc., a Wolters Kluwer Health
company
Healthcare analytics; supply chain
analysis
Our customers use our data warehouse appliances to analyze
terabytes of customer and operational data faster, more
comprehensively and affordably than they had been able to do
with the traditional systems that we replaced. They report
faster query performance, the ability to perform previously
impossible queries, lower costs of ownership, and improvements
in analytical productivity as a result of using our products.
Some representative customer experiences with our appliances
include:
•
Catalina Marketing, a leading behavior-based marketing
company, operates in over 20,000 retail stores nationwide and
reaches approximately 250 million shoppers weekly. Catalina
Marketing needed a data warehouse system that could keep pace
with the analytic demands of its large volumes of data. With the
NPS system, Catalina has a scalable data warehouse architecture
that can now accommodate large numbers of complex queries on
five times the data by a greater number of users than its
previous system, giving its retail customers faster and more
comprehensive insights to their data.
•
Orange UK, one of the UK’s most popular mobile phone
services and a division of France Telecom Group, chose the NPS
system to analyze billions of call data records in a fraction of
the time other systems are capable of delivering. Even as the
amount of information stored in Orange’s data center
continues to grow, it has managed to reduce its equipment
footprint. The new infrastructure in the data center has seen
the number of cabinet spaces dedicated to data warehousing drop
from 26 to nine. With complexity and floor space now seen as two
of the biggest costs facing information technology departments,
we have helped Orange prepare itself for future growth.
•
CompuCredit, a specialty finance company, relies on
sophisticated computer models and targeted marketing strategies
in its efforts to evaluate credit risk more effectively than its
competitors. The company’s explosive growth had led to a
substantial increase in the amount of data that it had to
manage, creating significant IT challenges and limiting the
overall ability of the organization to extract impactful
business intelligence from this data. Since deploying the NPS
appliance, CompuCredit has been able to perform many queries
more than 100 times faster than before, drastically improving
the usability of its business intelligence applications and
spurring user adoption throughout the organization. In addition,
CompuCredit has also realized significant administrative
efficiencies, boosting IT productivity and enhancing its ability
to react to changing business needs. With the NPS appliance,
CompuCredit is able to extract value from its enterprise data
more completely and efficiently and is enhancing the return on
its business intelligence investments.
•
Epsilon is a leading provider of multi-channel,
data-driven marketing technologies and services to Fortune
2,000 companies. Epsilon analyzes terabytes of data against
strict deadlines and needed a data warehouse that would scale
with client growth and meet stringent service level agreements.
By optimizing data storage and querying speeds using the NPS
appliance, Epsilon can work more efficiently with clients to
quickly turn data into valuable insights that drive success
across the enterprise. In addition to improved performance
including shortening campaign cycles by days and in some cases
weeks, Epsilon has reduced the total cost of ownership for its
data warehouse using Netezza.
Service
and Support
Through our 27 service and support employees as of
January 31, 2007, we offer our customers service and
support for the deployment and ongoing use of NPS appliances. We
focus primarily on maintenance, although we offer training and
consulting services on a limited basis as well. We believe the
overall simplicity of our appliances limits the need for
extensive training, customization and deployment services or
ongoing consulting. Unlike vendors offering traditional systems,
we do not depend on service offerings for revenue growth
opportunities and, as a result, our interests in providing
easy-to-use
products are clearly aligned with those of our customers.
We provide our customers with support priced as a percentage of
license sales. Our support strategy includes highly-trained
support staff located in our Framingham, Massachusetts
headquarters, and worldwide installation and technical account
management teams. We have invested in help desk, FAQ,
trouble-ticketing and online forum infrastructure to enable our
customers to log product and support issues, and to share best
practices with each other. Our
on-site
hardware service is performed through a hardware service
relationship that we have with Hewlett-Packard.
We offer training services to our customers in administration
and usage of our NPS appliances through
three-day
sessions as well as shorter sessions
on-site and
in our Framingham, Massachusetts headquarters. In addition, we
plan to offer limited consulting services, in particular where
the customers do not have the
on-site
staff
required for their data warehouse projects and the projects are
too small to justify systems integration partner services. These
bundled services are provided by our technical account managers
assigned to help customers with specific installation,
integration and administration projects.
Our customers report high levels of satisfaction with our
support and we believe our “high-touch” approach is an
important aspect of our growth and success, driving repeat
business through further product purchases and upgrades. We plan
to continue to invest in the growth and training of our support
staff and infrastructure as we scale.
Where additional professional services are requested by the
customer for application development and customization, these
services are provided through our network of systems integration
and consulting partners worldwide. Our partners provide
expertise in business intelligence, data warehousing and related
areas to our customers. We believe the combined
“best-of-breed”
expertise and technology of us and our partners provide
significant value to our joint customers, without the channel
conflict that is typical of traditional data warehouse vendors
and third-party services firms.
Our professional services partnerships and alliances include the
following companies:
•
Cognizant Technology Solutions
•
Electronic Data Systems Corporation (EDS)
•
Headstrong Corporation
•
Infosys Technologies Limited
•
Multi Threaded, Inc.
•
NEC
•
Systech Solutions, Inc.
•
Unisys
Sales and
Marketing
We have established a worldwide sales and distribution network
to sell data warehouse appliances to large global enterprises,
mid-market companies and government agencies, both directly
through our salesforce and indirectly via distribution partners.
As of January 31, 2007, we had 85 sales and marketing
employees located in 12 offices, including offices throughout
the United States, as well as in Canada, the United Kingdom,
Australia, Japan and Korea. We plan to continue to invest in
both our direct and indirect selling efforts worldwide.
Direct
Salesforce
Our direct salesforce consists of paired teams of account
executives and systems engineers who work closely together
throughout the sales cycle. These teams are primarily organized
geographically and are focused on strategic account targets. In
addition, we have built two larger sales groups that focus
solely on the retail/consumer packaged goods vertical industry
and federal government, respectively.
Distribution
Partnerships
In addition to our direct selling efforts, we continue to
develop reseller partnerships, which we believe will enable us
to reach a broader range of customers worldwide. Our reseller
partners sell to global enterprises as well as to mid-market
customers. We are particularly reliant on these relationships in
the Asia-Pacific region. We plan to continue to invest in
building and supporting our reseller distribution channel in
order to increase overall sales as well as the percentage of our
revenues through this channel.
We have reseller partnerships with the following companies:
•
North America: EDS and MSI Systems Integrators
•
EMEA: EDS, BizIntel and Keyrus
•
Asia-Pacific: NEC, Unisys, Information Services
International-Dentsu and CTC
In addition to our traditional reseller partners, many of our
systems integrator partners have in certain circumstances acted
as distribution partners. We also work closely with a number of
analytic service providers who provide hosted analytic and data
warehousing services as a bundled solution to their customers.
These partners continue to be an important part of our channel
selling and we plan to expand our relationships with existing
and new partners.
We have partnerships with the following analytic service
providers:
•
Acxiom
•
Epsilon (an affiliate of Alliance Data Systems Corporation)
•
Merkle
Marketing
We conduct a broad range of marketing activities to promote
market awareness of our products, generate product demand,
accelerate sales and demonstrate our thought leadership. These
include trade shows, field marketing events, public relations,
analyst relations, user conferences, webinars and other
activities. In addition, we are actively engaged with existing
customers in marketing activities to build a community of
NPS users worldwide who can promote the benefits of our
products from first-hand experience.
We have been recognized by industry analysts for our development
of data warehouse appliances, and our company, technology and
management team have garnered numerous industry awards and
recognition for our innovation and vision.
Research
and Development
Our research and development organization, which as of
January 31, 2007 was comprised of 85 employees, is
responsible for designing, developing and testing our products
and for integrating our appliances with partner solutions. Our
product development approach utilizes a multi-disciplinary team
of professionals with experience in a broad range of areas,
including databases, networking, microcode, firmware,
performance measurement, application programming interfaces,
optimization techniques and user interface design.
In addition to our internal research and development staff, we
have contracted with Persistent Systems, located in Pune, India,
to employ a dedicated team of over 50 engineers focused on
quality assurance and product integration engineering. Our
relationship with Persistent Systems began in 2001, but is
terminable by either party on short notice. If we are required
to change our contract engineering firm, including due to a
termination of the agreement with Persistent Systems, we may
experience delays, incur increased costs and damage our customer
relationships.
We plan to continue to invest in all areas of research and
development to maintain our price/performance leadership and to
continue to innovate in software, hardware and firmware design.
We are also investing in an advanced development team that is
engaged in prototyping technologies that enable new market
applications for our products, leveraging our core product
advantages.
Our NPS appliance integrates several commodity hardware
components including CPUs, disk drives, servers, network
switches and memory. Our manufacturing strategy is to manage the
supply chain, manufacturing process, test process, finished
goods inventory and logistics using third-party expertise and
resources, using a highly-leveraged outsourced manufacturing
model. We had 9 employees dedicated to manufacturing operations
as of January 31, 2007. Our manufacturing team is augmented
by a dedicated group of 25 persons at Sanmina.
We work closely with several suppliers to select components
based on price/performance, reliability, and power and cooling
characteristics. Our operations and engineering personnel work
directly with these suppliers on technology roadmap and supply
chain issues. We update our hardware platform roughly every
18 months, taking advantage of our suppliers’ advances
and new market offerings. Our advanced manufacturing team,
located in our Framingham, Massachusetts headquarters, works
closely with hardware engineering to review the hardware product
roadmap and to plan short- and longer-term materials acquisition
strategies, in addition to testing new components for
manufacturability and reliability. We rely on a limited number
of suppliers for several key components utilized in the assembly
of our products, including disk drives and microprocessors.
Although in many cases we use standard components for our
products, some of these components may only be purchased or may
only be available from a single supplier. In addition, we
maintain relatively low inventory and acquire components only as
needed, and neither we nor our contract manufacturer enter into
long-term supply contracts for these components and none of our
third-party suppliers is obligated to supply products to us for
any specific period or in any specific quantities, except as may
be provided in a particular purchase order.
We partner with Sanmina, a global provider of electronics
manufacturing services for the manufacture and delivery of our
systems. Sanmina fulfills our manufacturing requirements from
their facility in Manchester, New Hampshire and has other
locations across the United States at which our requirements may
be fulfilled. The Sanmina manufacturing facility is
International Standards Organization, or ISO, 9002 certified for
manufacturing, ISO 14001 certified for new product introduction
and has a quality-system training program based on TL9000
directives of the Quality Excellence for Suppliers of
Telecommunications, or QuEST, Forum. Our agreement with Sanmina
is terminable on short notice. If we are required to change
contract manufacturers or assume internal manufacturing
operations due to any termination of the agreement with Sanmina,
we may lose revenue, experience manufacturing delays, incur
increased costs and damage our customer relationships.
We have implemented a formal product development life cycle
process that is based on Software Engineering Institute, or SEI,
and ISO guidelines and principles. We plan to continue to
improve our manufacturing and quality processes, and to drive
down the manufacturing costs of our appliances through scaling
and improvements in overall design, including the ongoing
evaluation of component costs.
Competition
Competition in the data warehouse industry is based primarily on
performance; ease of deployment and administration; acquisition
and operating costs; scalability; and power, cooling and
footprint requirements. We believe we compete effectively based
on all of these factors.
The data warehouse industry has traditionally been dominated by
a small number of major providers, including EMC,
Hewlett-Packard, IBM, Oracle, Sun Microsystems, Sybase and
Teradata (a division of NCR). Each of these companies provides
several if not all elements of a data warehouse environment as
individual products, including database software, servers,
storage and professional services. Many of our competitors have
greater market presence, longer operating histories, stronger
name recognition, larger customer bases and significantly
greater financial, technical, sales and marketing,
manufacturing, distribution and other resources than we have.
Moreover, many of our competitors have more extensive customer
and partner relationships than we do, and may therefore be in a
better position to identify and respond to market developments
or changes in customer demands. Potential customers may also
prefer to purchase from their existing suppliers rather than a
new supplier regardless of product performance or features.
In addition to traditional data warehouse offerings, several new
offerings and vendors have entered the market over the past few
years. As the benefits of an appliance solution become evident
in the marketplace, several of the large players have introduced
“appliance-like” offerings that combine traditional
database software integrated with lower-cost, commodity hardware
including servers and storage. In addition, several smaller
vendors have entered the market, offering open source or
proprietary database software with commodity hardware.
Furthermore, we expect additional competition in the future from
new and existing companies with whom we do not currently compete
directly. As our industry evolves, our current and potential
competitors may establish cooperative relationships among
themselves or with third parties, including software and
hardware companies with whom we have partnerships and whose
products interoperate with our own, that could acquire
significant market share, which could adversely affect our
business. We also face competition from internally developed
systems. The success of any of these sources of competition,
alone or in combination with others, could seriously harm our
business, operating results and financial condition.
Intellectual
Property
Our success depends in part upon our ability to develop and
protect our core technology and intellectual property. We rely
primarily on a combination of trade secret, patent, copyright
and trademark laws, as well as contractual provisions with
employees and third parties, to establish and protect our
intellectual property rights. Our products are provided to
customers pursuant to agreements that impose restrictions on use
and disclosure. Our agreements with employees and contractors
who participate in the development of our core technology and
intellectual property include provisions that assign any
intellectual property rights to us. In addition to the foregoing
protections, we generally control access to our proprietary and
confidential information through the use of internal and
external controls.
As of January 31, 2007, we had 8 issued patents and 15
pending patent applications in the United States. As of
January 31, 2007, we also had 14 European patent
applications with the European Patent Office, which, if allowed,
may be converted into issued patents in various European
Contracting States. Pending patent applications may receive
unfavorable examination and are not guaranteed allowance as
issued patents. To the extent that a patent is issued, any such
future patent may be contested, circumvented, found
unenforceable or invalidated, and we may not be able to prevent
third parties from infringing this patent. We may elect to
abandon or otherwise not pursue prosecution of certain pending
patent applications due to patent examination results, strategic
concerns, economic considerations or other factors. We will
continue to assess appropriate occasions to seek patent
protection for aspects of our technology that we believe provide
us a significant competitive advantage in the market. However,
we believe that effective and timely product innovation is more
important to the success of our business than the protection of
our existing technology.
We have registered the following trademarks in the United
States: Netezza, Netezza and design, Netezza Performance Server
and NPS. We also have numerous trademarks registered and
trademark applications pending in foreign jurisdictions
including: the European Union, India, Australia, China, Japan,
Canada, Argentina, Hong Kong, Korea, Norway, Poland, Singapore,
Switzerland, Taiwan, Thailand, Turkey, Mexico and Brazil.
Despite our efforts to protect the intellectual property rights
associated with our technology, unauthorized parties may still
attempt to copy or otherwise obtain and use our technology.
Moreover, it is difficult and expensive to monitor whether other
parties are complying with patent and copyright laws and their
confidentiality or other agreements with us, and to pursue legal
remedies against parties suspected of breaching our intellectual
property rights. In addition, we intend to expand our
international operations where the laws do not protect our
proprietary rights as fully as do the laws of the United States.
Third parties could claim that our products or technologies
infringe their proprietary rights. Our industry is characterized
by the existence of a large number of patents, trademarks and
copyrights and by frequent litigation based on allegations of
infringement or other violations of intellectual property
rights. Although we have not been involved in any litigation
related to intellectual property rights of others, we have from
time to time received letters from other parties alleging, or
inquiring about, breaches of their intellectual property rights.
We may in the future be
sued for violations of other parties’ intellectual property
rights, and the risk of such a lawsuit will likely increase as
our size and market share expand and as the number of products
and competitors in our market increase.
Employees
As of January 31, 2007, we had 225 employees worldwide,
including 27 employees in service and support, 85 employees in
sales and marketing, 85 employees in research and development, 9
employees in manufacturing and 19 employees in general
administration. None of our employees is represented by a labor
union, and we consider current employee relations to be good.
Facilities
Our principal administrative, sales, marketing, customer support
and research and development facility is located at our
headquarters in Framingham, Massachusetts. We currently occupy
approximately 46,000 square feet of office space in the
Framingham facility under the terms of an operating lease
expiring in March 2008. We believe that our current facilities
are adequate to meet our needs until the expiration of our
operating lease in March 2008. We also have leased sales or
support offices in various locations throughout the United
States, as well as in Canada, the United Kingdom, Australia,
Japan and Korea. We believe that suitable additional or
alternative facilities will be available as needed on
commercially reasonable terms.
Legal
Proceedings
From time to time, we may become involved in legal proceedings
arising in the ordinary course of our business. We are not
presently a party to any legal proceedings.
The following table sets forth information regarding our
executive officers and directors, including their ages as of
February 28, 2007.
Name
Age
Position
Jitendra S. Saxena
61
Chief Executive Officer, Director
James Baum
43
President and Chief Operating
Officer, Director
Patrick J. Scannell, Jr.
53
Senior Vice President, Chief
Financial Officer, Treasurer and Secretary
Raymond Tacoma
57
Senior Vice President, Worldwide
Sales
Patricia Cotter
48
Vice President Worldwide Customer
Support & Manufacturing
Sunil Dhaliwal
31
Director
Ted R. Dintersmith(1)(2)
54
Director
Robert J. Dunst, Jr.(1)
46
Director
Paul J. Ferri(2)(3)
68
Director
Charles F. Kane(1)
49
Director
Edward J. Zander(2)(3)
60
Director
(1)
Member of audit committee
(2)
Member of compensation committee
(3)
Member of the nominating and corporate governance committee
Jitendra S. Saxena, a founder of Netezza, has served as
our Chief Executive Officer and as a director since October
2000. Mr. Saxena also served as our President from our
inception to June 2006. Prior to founding Netezza,
Mr. Saxena served as Chairman and Chief Executive Officer
of Applix, Inc., a provider of performance management
applications, from 1983 to 2000. In July 2003, Mr. Saxena
was named an Ernst & Young New England Entrepreneur of
the Year in the “Emerging” category.
James Baum has served as our President and Chief
Operating Officer since June 2006 and as a director since August
2006. Prior to joining Netezza, Mr. Baum served as the
President and Chief Executive Officer of Endeca Technologies,
Inc., a provider of search and guided navigation solutions, from
November 2004 to October 2005 and President and Chief Operating
Officer from June 2001 to November 2004. From October 1998
to December 2000, Mr. Baum served first as Executive Vice
President, Engineering, Research and Development, then Executive
Vice President and General Manager of Parametric Technology
Corporation, a provider of product lifecycle management, content
management and publishing solutions.
Patrick J. Scannell, Jr. has served as our Senior
Vice President and Chief Financial Officer since March 2003.
Prior to joining Netezza, Mr. Scannell served as Chief
Financial Officer of PhotonEX Corporation, a provider of optical
systems, from November 2000 to January 2003. From November 1998
to August 2000, Mr. Scannell served as Chief Financial
Officer of Silknet Software, Inc., a provider of CRM
infrastructure software. From September 1992 until October 1998,
Mr. Scannell served as Executive Vice President and Chief
Financial Officer of Applix, Inc.
Raymond Tacoma has served as our Senior Vice President,
Worldwide Sales since September 2003. Prior to joining Netezza,
Mr. Tacoma served as Executive Vice President of Sales and
Marketing at Corechange, a global provider of portal framework
software, from February 2002 to July 2003. From August 1996 to
December 2001, Mr. Tacoma served as Vice President of North
American Sales at MicroStrategy, Inc., a business intelligence
software company.
Patricia Cotter has served as our Vice President,
Worldwide Customer Support and Manufacturing since July 2001.
Prior to joining Netezza, Ms. Cotter served as a Vice
President at Visual Networks, Inc., a provider of application
performance and network management solutions, from 1996 to 2000.
From 1993 to 1996, Ms. Cotter served as Director of
Corporate Program Management at Stratus Technologies, Inc. a
global solutions provider.
Sunil Dhaliwal has served as a director since August
2005. Mr. Dhaliwal is a Partner at Battery Ventures, a
venture capital firm, which he joined in August 1998. Prior to
joining Battery Ventures, Mr. Dhaliwal worked in the High
Technology Group at Alex Brown & Sons, Inc. where he
executed numerous equity financings and mergers and acquisitions
in the communications and software industries.
Ted R. Dintersmith has served as a director since
December 2000. Mr. Dintersmith has been a General Partner
of Charles River Ventures, a venture capital firm, since
February 1996. Mr. Dintersmith has been an early and active
investor in numerous successful
start-ups
and previously served on the board of directors for the National
Venture Capital Association.
Robert J. Dunst, Jr. has served as a director since
February 2007. Mr. Dunst is currently Executive Vice
President, Technology and Supply Chain of Albertsons, a food and
drug retailer where from November 2001 to May 2005, he served as
Executive Vice President and Chief Technology Officer. Prior to
holding that position, Mr. Dunst was Vice President,
Advanced Technology and Internet Business Group at Safeway,
Inc., a food retailer. Mr. Dunst is also an Executive Board
Member of the Global Commerce Initiative and World Wide Retail
Exchange.
Paul J. Ferri has served as a director since November
2005. Mr. Ferri has been a General Partner of Matrix
Partners, a venture capital firm, since February 1982.
Mr. Ferri also is a director of Sycamore Networks, Inc.
Mr. Ferri also serves on the boards of directors of several
private companies.
Charles F. Kane has served as a director since May 2005.
Mr. Kane is currently the Chief Financial Officer of One
Laptop per Child, a non-profit organization founded at
Massachusetts Institute of Technology that provides computers
and internet access for students in the developing world. From
May 2006 to September 2006 Mr. Kane served as the Chief
Financial Officer of RSA Security, Inc., a provider of
e-security
solutions. From July 2003 to May 2006 Mr. Kane served as
Senior Vice President, Finance and Chief Financial Officer of
Aspen Technology, Inc., a provider of software and professional
services. From May 2000 to February 2003 Mr. Kane was
President and Chief Executive Officer of Corechange.
Mr. Kane is a director of Applix, Inc. and Progress
Software Corporation.
Edward J. Zander has served as a director since April
2002. Mr. Zander has served as Chairman and Chief Executive
Officer of Motorola, Inc., a provider of wireless and broadband
communications products, since January 2004. Prior to joining
Motorola, Mr. Zander was a managing partner of Silver Lake
Partners, a private equity fund focused on investments in
technology industries, from July 2003 to December 2003. Prior to
holding that position, Mr. Zander was President and Chief
Operating Officer of Sun Microsystems, Inc., a provider of
hardware, software and services for networks, from January 1998
until June 2002. He serves on the board of directors of Time
Warner Inc., and several educational and non-profit
organizations. He also serves as a member of the Dean’s
Advisory Council of the School of Management at Boston
University, a trustee and Presidential Advisor at Rensselaer
Polytechnic Institute and Chairman of the Technology
CEO Council.
Corporate
Governance Guidelines
Our board of directors has adopted corporate governance
guidelines to assist the board in the exercise of its duties and
responsibilities and to serve the best interests of our company
and our stockholders. These guidelines, which provide a
framework for the conduct of our board’s business, provide
that:
•
the board’s principal responsibility is to oversee the
management of Netezza;
•
a majority of the members of the board shall be independent
directors;
•
the independent directors meet regularly in executive session;
•
directors have full and free access to management and, as
necessary and appropriate, independent advisors;
•
new directors participate in an orientation program and all
directors are expected to participate in continuing director
education on an ongoing basis; and
at least annually, the board and its committees will conduct a
self-evaluation to determine whether they are functioning
effectively.
Code of
Business Conduct and Ethics
We have adopted a written code of business conduct and ethics
that applies to our directors, officers and employees, including
our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions. Following this offering, a current
copy of the code will be posted on the Corporate Governance
section of our website, which is located at
www.netezza.com.
Board
Composition
Our board of directors currently consists of eight members. Our
directors hold office until their successors have been elected
and qualified or until the earlier of their resignation or
removal. Our board of directors has determined that none of
Messrs. Dhaliwal, Dintersmith, Dunst, Ferri, Kane and
Zander has a relationship which would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director and that each of these directors
is an independent director, as such term is defined by the
listing standards of the NASDAQ Stock Market. In reaching such
determination, our board considered, among other factors, the
transactions described under “Related Party
Transactions” and the stock holdings of the venture capital
funds with which Messrs. Dhaliwal, Dintersmith and Ferri
are affiliated.
In accordance with the terms of our certificate of incorporation
and by-laws, our board of directors is divided into three
classes, class I, class II and class III, with
members of each class serving staggered three-year terms. Upon
the closing of this offering, the members of the classes will be
divided as follows:
•
the class I directors will be Messrs. Baum, Dhaliwal
and Kane, and their term will expire at the annual meeting of
stockholders to be held in 2008;
•
the class II directors will be Messrs. Dintersmith and
Saxena, and their term will expire at the annual meeting of
stockholders to be held in 2009; and
•
the class III directors will be Messrs. Dunst, Ferri
and Zander, and their term will expire at the annual meeting of
stockholders to be held in 2010.
Our certificate of incorporation provides that the authorized
number of directors may be changed only by resolution of the
board of directors. Any additional directorships resulting from
an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. Our certificate of
incorporation and our by-laws also provide that our directors
may be removed only for cause by the affirmative vote of the
holders of at least 75% of our voting stock, and that any
vacancy on our board of directors, including a vacancy resulting
from an enlargement of our board of directors, may be filled
only by vote of a majority of our directors then in office. Our
classified board could have the effect of delaying or
discouraging an acquisition of Netezza or a change in our
management.
We currently are party to a stockholders’ voting agreement
providing certain parties with the right to designate directors.
The stockholders’ voting agreement will terminate upon the
closing of this offering, and there will be no further
contractual obligations regarding the election of our directors.
There are no family relationships among any of our directors or
executive officers.
Board
Committees
Our board of directors has established an audit committee, a
compensation committee and a nominating and corporate governance
committee. Each committee operates under a charter that has been
approved by our board. Following this offering, current copies
of each committee’s charter will be posted on the Corporate
Governance section of our website, which is located at
www.netezza.com. Our board has determined that all of the
members of each of our board’s three standing committees
are independent as defined under the rules of the NASDAQ Stock
Market, including, in the case of all members of the audit
committee, the independence requirements contemplated by
Rule 10A-3
under the Securities Exchange Act of 1934.
Audit Committee. The members of our audit
committee are Messrs. Dintersmith, Dunst and Kane.
Mr. Kane chairs the audit committee. Our board of directors
has determined that Mr. Kane is an “audit committee
financial expert” as defined in applicable SEC rules. Our
audit committee’s responsibilities include:
•
appointing, approving the compensation of, and assessing the
independence of our registered public accounting firm;
•
overseeing the work of our registered public accounting firm,
including through the receipt and consideration of certain
reports from such firm;
•
reviewing and discussing with management and the registered
public accounting firm our annual and quarterly financial
statements and related disclosures;
•
monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct
and ethics;
•
establishing policies regarding hiring employees from the
registered public accounting firm and procedures for the receipt
and retention of accounting related complaints and concerns;
•
meeting independently with our internal auditing staff,
registered public accounting firm and management; and
•
reviewing and approving or ratifying any related person
transactions.
Compensation Committee. The members of our
compensation committee are Messrs. Dintersmith, Ferri and
Zander. Mr. Dintersmith chairs the compensation committee.
The purpose of our compensation committee is to discharge the
responsibilities of our board of directors relating to
compensation of our executive officers. Specific
responsibilities of our compensation committee include:
•
annually reviewing and approving corporate goals and objectives
relevant to chief executive officer compensation;
reviewing and approving, or making recommendations to our board
with respect to, the compensation of our other executive
officers;
•
overseeing an evaluation of our senior executives;
•
overseeing and administering our cash and equity incentive
plans; and
•
reviewing and making recommendations to our board with respect
to director compensation.
Nominating and Corporate Governance
Committee. The members of our nominating and
corporate governance committee are Mr. Ferri and
Mr. Zander. Mr. Ferri chairs the nominating and
corporate governance committee. Our nominating and corporate
governance committee’s responsibilities include:
•
identifying individuals qualified to become members of our board;
•
recommending to our board the persons to be nominated for
election as directors and to each of our board’s committees;
•
reviewing and making recommendations to our board with respect
to management succession planning;
•
developing and recommending to our board corporate governance
principles; and
•
overseeing an annual evaluation of our board.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the board
of directors or compensation committee, or other committee
serving an equivalent function, of any other entity that has one
or more of its executive officers serving as a member of our
board of directors or compensation committee.
Non-employee directors receive no cash compensation for their
service as directors or committee members. Non-employee
directors are reimbursed for expenses incurred in connection
with attendance at board and committee meetings.
In August 2004, we granted to Mr. Zander a stock option for
80,000 shares of our common stock, at an exercise price of
$.78 per share, which was the fair market value of our
common stock at the time of the grant of the option. That option
vested over the two-year period following its grant.
In May 2005, we granted to Mr. Kane a stock option for
50,000 shares of our common stock, at an exercise price of
$1.00 per share, which was the fair market value of our
common stock at the time of the grant of the option. That option
vests over the two-year period following its grant and will be
fully vested on May 1, 2007.
In February 2007, we granted to each of Mr. Dhaliwal,
Mr. Dintersmith, Mr. Dunst, Mr. Ferri and
Mr. Zander a stock option for 50,000 shares of our
common stock, at an exercise price of $6.70 per share,
which was the fair market value of our common stock at the time
of the grant of the option. Those options vest as to 25% of the
shares on February 1, 2008 and as to an additional 6.25% of
the shares at the end of each successive three-month period
following February 1, 2008 through and including
February 1, 2011, provided the optionholder continues to
serve as a director on such dates. In addition, those options
become vested in full upon an acquisition of Netezza.
Our board of directors, on the recommendation of the
compensation committee, has adopted a policy under which we will
grant a stock option for 50,000 shares of our common stock:
•
to each new non-employee director upon his or her initial
election to our board, and
•
to each non-employee director at such time as the option held by
him or her, as described in the preceding two paragraphs,
becomes fully vested.
Those stock options will have an exercise price equal to the
fair market value of our common stock on the date of grant.
Those options will vest as to 25% of the shares on the first
anniversary of the grant date and as to an additional 6.25% of
the shares at the end of each successive three-month period
following the first anniversary of grant through and including
the fourth anniversary of grant, provided the optionholder
continues to serve as a director on such dates. In addition,
those options will become vested in full upon an acquisition of
Netezza.
Compensation
Discussion and Analysis
Objectives
and Philosophy of Our Executive Compensation
Program
The primary objectives of the compensation committee with
respect to executive compensation are:
•
to attract, retain and motivate executives who make important
contributions to the achievement of our business
objectives and
•
to align the incentives of our executives with the creation of
value for our stockholders.
Our compensation plans and policies currently, and will continue
to, compensate executive officers with a combination of base
salary, cash bonuses tied to our financial performance, equity
incentives and customary employee benefits. We currently intend
to implement total compensation packages for our executive
officers in line with the median compensation levels of
comparable public companies. Our compensation committee
considers companies within the same industry, of comparable
size, and in the same geographic region to be comparable
companies for executive compensation comparison purposes.
As a privately-held company, both our board of directors and the
compensation committee of our board participated in decisions
concerning executive compensation. As a public company, the
compensation committee will oversee our executive compensation
program. In making compensation decisions for executives other
than the Chief Executive Officer, the compensation committee
receives and takes into account specific recommendations from
our Chief Executive Officer.
The following elements comprise compensation paid to our
executive officers:
Base
Salary.
The base salaries that we pay to our executives are based on the
level of responsibility required of each executive, and take
into account the level of base salary paid by comparable
companies for similar positions. None of our executives has an
employment agreement that provides for automatic or scheduled
increases in base salary. Our compensation committee reviews
base salaries annually, generally early in the fiscal year,
based on each executive’s performance during the prior
fiscal year, and it adjusts salaries to ensure that they are
aligned with our compensation objectives and the compensation
paid by comparable public companies.
Cash
Bonuses.
A significant element of the cash compensation of our executive
officers is based upon an annual executive officer incentive
bonus plan adopted by our compensation committee. Our executive
officer incentive bonus policy for fiscal 2007 covered
Messrs. Saxena, Baum, Scannell and Tacoma. Our executive
officer incentive bonus plan for fiscal 2008 covers
Messrs. Saxena, Baum, Scannell, Tacoma and Ms. Cotter.
The principal elements of the fiscal 2007 policy were as follows:
•
The executive officers other than Mr. Tacoma were assigned
a target bonus of approximately 40% of their annual base salary.
Mr. Tacoma, who serves as our Senior Vice President,
Worldwide Sales, had a target bonus that was slightly in excess
of his annual base salary.
•
For the executive officers other than Mr. Tacoma, 80% of
their target bonus was based upon our attainment of a specified
revenue target for fiscal 2007 and 20% of their target bonus was
based upon our attainment of a specified adjusted operating
income (which is operating income plus the amount of the our
non-cash stock compensation expense) target for fiscal 2007.
Revenue and adjusted operating income were selected as bonus
metrics for the executive officers, other than Mr. Tacoma,
to align executive bonus compensation with the metrics used by
the board of directors to measure the success of the company.
For Mr. Tacoma, 100% of his bonus was based upon our
attainment of quarterly and annual bookings targets. Bookings
targets were selected as bonus metrics for Mr. Tacoma to
reward him for achieving sustained sales success during the year
and generation of potential future revenue. The revenue,
adjusted operating income and bookings targets used for purposes
of the 2007 executive officer incentive bonus policy were
established prior to the commencement of fiscal 2007, and were
set at levels that were designed to be attainable if our
business had what we considered to be a successful year but that
were by no means certain or even probable of being attained.
•
No portion of the target bonuses based on revenue was payable
unless we attained at least 70% of our revenue target. No
portion of the target bonuses based on adjusted operating income
was payable unless we attained a specified level of net loss. No
portion of the target bonuses based on bookings was payable
unless we attained at least 60% of our bookings targets. There
was no cap on the amount of the revenue-based bonus; the amount
of the bonuses based on adjusted operating income and bookings
could not exceed the target amounts.
In fiscal 2007, we attained 94% of our revenue target; we did
not attain our adjusted operating income target; and we exceeded
our bookings targets for fiscal 2007 and for three of the four
quarters of fiscal 2007.
The principal elements of the fiscal 2008 executive officer
incentive bonus plan are as follows:
•
As in fiscal 2007, the executive officers other than
Mr. Tacoma have a target bonus of approximately 40% of
their annual base salary. Mr. Tacoma has a target bonus
that is in excess of his annual base salary.
•
For the executive officers other than Mr. Tacoma, 50% of
their target bonus is based upon our attainment of a specified
revenue target for fiscal 2008 and 50% of their target bonus is
based upon our attainment of a specified adjusted operating
income target for fiscal 2008. For Mr. Tacoma, $100,000 of
his target bonus is based upon attainment of quarterly and
annual revenue targets and $175,000 of his target bonus is based
upon attainment of quarterly,
year-to-date
and annual bookings targets. The revenue, adjusted operating
income and bookings targets used for purposes of the fiscal 2008
incentive bonus plan were established prior to the commencement
of fiscal 2008, and were set at levels that were designed to be
attainable if our business had what we considered to be a
successful year but that were by no means certain or even
probable of being attained.
•
No portion of the target bonuses based on revenue, adjusted
operating income or bookings is payable unless we attain at
least 70% of the applicable target. In addition, the amount of
the revenue-based, operating income-based, and bookings-based
bonuses is capped at 120% of the target bonus allocated to that
metric.
Long-Term
Equity Incentives.
We believe that the long-term performance of our business is
improved through the grant of stock-based awards so that the
interests of our executives are aligned with the creation of
value for our stockholders. Prior to this offering, our
executives were eligible to participate in our 2000 stock
incentive plan (as amended, the 2000 Plan). Following the
closing of this offering, we will continue to grant our
executives and other employees stock-based awards pursuant to
the 2007 stock incentive plan, or the 2007 Plan. Under the 2007
Plan, executives will be eligible to receive grants of stock
options, restricted stock awards, restricted stock unit awards,
stock appreciation rights and other stock-based equity awards at
the discretion of the compensation committee.
To date, we have granted the substantial majority of our equity
awards in the form of stock options that vest with the passage
of time. While we currently expect to continue to use time-based
stock options as the primary form of equity awards that we
grant, we may in the future use alternative forms of equity
awards, such as restricted stock or performance-based stock
options, in addition to or in replacement of time-based stock
options.
We generally grant options to executive officers and other
employees upon their initial hire, in connection with a
promotion, and annually based upon merit.
In February 2006 (early fiscal 2007), the compensation committee
granted options to each of our executive officers (other than
Mr. Baum, who had not yet joined the company), as part of a
broad-based option grant to over 70 employees. Mr. Baum
received an option grant in August 2006, shortly following the
commencement of his employment with the company. See
“— Executive Compensation — Grants of
Plan-Based Awards in Fiscal 2007” below for a description
of those grants and their material terms.
In February 2007 (early fiscal 2008), the board of directors
granted options to each of our executive officers as part of a
broad-based option grant to over 75 employees. The number of
shares covered by the grants to our executive officers was as
follows: Mr. Saxena: 600,000 shares; Mr. Baum:
100,000 shares; Mr. Scannell: 400,000 shares;
Mr. Tacoma: 300,000 shares; and Ms. Cotter:
100,000 shares. We intend to make annual grants of equity
awards to executive officers, generally early in the fiscal year
following an evaluation of the executive’s performance in
the prior fiscal year.
Except as described below, all of our option grants referenced
above were on the following terms, and we currently expect that
these terms will also be used for future option grants:
•
The exercise price of the options is equal to the fair market
value of the common stock on the date of grant. For the options
referenced above, the exercise price was established by our
board of directors, taking into account, among other factors, an
appraisal of the fair market value of our common stock by an
independent valuation firm. Following this offering, the
exercise price will be equal to the closing sale price of our
common stock on the NASDAQ Global Market on the date of grant.
•
Options vest over a five-year period (subject to continued
employment), with 20% of the shares vesting on the first
anniversary of the vesting start date and the remaining shares
vesting in 5% increments at the end of each successive
three-month period following the first anniversary of the
vesting start date. The vesting start date is generally the day
on which the option was granted or the first day of the quarter
or month in which the option was granted depending on the type
of option grant. Prior to February 2006, option grants vested
over a four-year period with 25% of the shares vesting on the
first anniversary of the vesting start date and the remaining
shares vesting in 6.25% increments at the end of each successive
three-month period following
the first anniversary of the vesting start date. We adopted a
five-year vesting period to create an incentive for employees to
remain with the company for a longer period.
•
Generally, vesting accelerates as to 20% of the shares covered
by each option upon an acquisition of Netezza. As explained
below, our executive officers have agreements providing for the
acceleration of vesting in the event of an employment
termination under specified circumstances following a
“change in control” of Netezza.
•
Options expire either seven or ten years following the date of
grant, subject to earlier expiration upon termination of
employment.
Our board of directors has adopted the following policies with
respect to the grant of stock options. The primary purpose of
these policies is to establish procedures for option grants that
minimize the opportunity — or the perception of the
opportunity — for us to time the grant of options in a
manner that takes advantage of any material nonpublic
information.
Annual Grants. The annual option grants to our
employees will be approved by the compensation committee on the
first Monday following our public announcement of operating
results for the recently completed fiscal year. The exercise
price of the options will be at least equal to the closing price
of our common stock on NASDAQ on the grant date.
New Hire Grants —
Non-executives. Our Chief Executive Officer has
the authority, subject to limitations on the number of shares
that may be covered by his grants, to make option grants to all
newly hired employees other than executive officers. The grant
date of those options will be the last trading day of the month
of the employee’s hire date. The exercise price of those
options will be at least equal to the closing price of our
common stock on NASDAQ on the grant date.
New Hire Grants — Executives. Option
grants to all newly hired executive officers must be approved by
the compensation committee at the first in-person or telephonic
meeting of the committee following the executive’s hire
date. However, if that meeting occurs during a quarterly or
year-end trading blackout period under our Insider Trading
Policy or during a time when we are otherwise in possession of
material nonpublic information (referred to as an option
blackout period), the option grant will instead be made at the
first in-person or telephonic meeting of the committee outside
of an option blackout period. The exercise price of those
options will be at least equal to the closing price of our
common stock on NASDAQ on the grant date.
Other Grants. All option grants to employees
not described above will be approved by the compensation
committee at an in-person or telephonic meeting held outside of
an option blackout period. The exercise price of those options
will be at least equal to the closing price of our common stock
on NASDAQ on the grant date.
Other
Compensation.
Each of our executive officers is eligible to participate in our
employee benefits programs on the same terms as non-executive
employees, including our 401(k) plan, flexible spending accounts
plan, medical plan, dental plan and vision care plans. In
addition, employees, including executive officers, participate
in our life and accidental death & dismemberment
insurance policies, long-term and short-term disability plans,
employee assistance program, maternity and paternity leave plans
and standard company holidays.
Severance
and
Change-of-Control
Benefits
We have entered into agreements with each of our executive
officers that provide them with severance benefits in the event
of the termination of their employment under specified
circumstances, as well as acceleration of vesting of equity
awards in the event of an employment termination under specified
circumstances following a change in control of Netezza. These
agreements, along with estimates of the value of the benefits
payable under them, are described below under the caption
“— Executive Compensation — Agreements
with Executives.”
We believe providing these benefits helps us compete for and
retain executive talent. After reviewing the practices of
comparable companies, we believe that our severance and
change-in-control
benefits are generally in line with those provided to executives
by comparable companies.
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally disallows a tax deduction for compensation in
excess of $1.0 million paid to our chief executive officer
and our four other most highly paid executive officers.
Qualifying performance-based compensation is not subject to the
deduction limitation if specified requirements are met. We
periodically review the potential consequences of
Section 162(m) and we generally intend to structure the
performance-based portion of our executive compensation, where
feasible, to comply with exemptions in Section 162(m) so
that the compensation remains tax deductible to us. However, the
compensation committee may, in its judgment, authorize
compensation payments that do not comply with the exemptions in
Section 162(m) when it believes that such payments are
appropriate to attract and retain executive talent.
Executive
Compensation
Summary
Compensation Table
The following table sets forth information regarding
compensation earned during fiscal 2007 by our Chief Executive
Officer, our Chief Financial Officer and our three other
executive officers:
Change in
Pension
Value and
Non-Equity
Nonqualified
All
Incentive
Deferred
Other
Stock
Option
Plan
Compensation
Compen-
Name and Principal
Fiscal
Salary
Bonus
Awards
Awards
Compensation
Earnings
sation
Total
Position
Year
($)
($)
($)
($)(1)
($)(2)
($)
($)
($)
Jitendra S. Saxena
2007
$
300,000
—
—
$
137,867
$
93,672
—
$
436
(3)
$
531,975
Chief Executive Officer
James Baum(4)
2007
180,769
—
—
263,900
56,460
—
501,129
President and Chief Operating
Officer
Patrick J. Scannell, Jr.
2007
215,000
—
—
51,700
63,697
—
872
(3)
331,269
Senior Vice President and Chief
Financial Officer
Raymond Tacoma
2007
225,000
—
—
51,700
258,047
—
720
(3)
535,467
Senior Vice President, Worldwide
Sales
Patricia Cotter
2007
168,750
35,000(5
)
—
5,640
—
—
—
209,390
Vice President, Worldwide Customer
Support & Manufacturing
(1)
Compensation expense consists of the amount recognized in fiscal
2007 for financial statement purposes under
SFAS No. 123(R) with respect to stock options granted
to our executive officers in fiscal 2007. Options to purchase
shares of common stock were granted at exercise prices equal to
fair market value of the common stock on the date of grant. For
a discussion of the assumptions relating to our valuation of
stock option grants, see note 2 to our consolidated
financial statements and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Application of Critical Accounting
Policies and Use of Estimates- Stock-Based Compensation,”
included elsewhere in this prospectus. Under the terms of the
stock option agreements granted prior to fiscal 2007, the award
vests as to 25% of the shares on the first anniversary of the
vesting start date and as to an additional 6.25% of the shares
at the end of each successive three-month period following the
first anniversary of the vesting start date through and
including the fourth anniversary of the vesting start date.
Under the terms of the stock option agreements for grants in
fiscal 2007, the award vests as to 20% of the shares on the
first anniversary of the vesting start date and as to an
additional 5% of the shares at the end of each successive
three-month period following the first anniversary of the
vesting start date through and
including the fifth anniversary of the vesting start date. Under
the terms of the executive retention agreements we have entered
into with our executive officers if, following a “change in
control” (as defined in the agreement) of Netezza, the
executive’s employment is terminated by the acquiring
company without cause or by the executive for good reason, all
outstanding stock options, restricted stock or similar equity
awards held by him or her will become vested in full.
(2)
All amounts shown in this column were cash bonuses paid under
our executive officer incentive bonus policy for fiscal 2007,
which was established near the end of fiscal 2006. See
“— Compensation Discussion and
Analysis — Components of our Executive Compensation
Program — Cash Bonuses” for a description of that
plan.
(3)
Consists of tax
gross-up
paid by us on behalf of the named executive officer in
connection with the cost of travel for an accompanying spouse.
(4)
The compensation reported for James Baum for fiscal 2007 is for
the period from June 26, 2006, his date of hire, through
January 31, 2007.
(5)
Consists of a discretionary cash bonus paid for fiscal 2007.
Grants
of Plan-Based Awards in Fiscal 2007
The following table sets forth information regarding grants of
compensation in the form of plan-based awards made during fiscal
2007 to our Chief Executive Officer, our Chief Financial Officer
and our three other executive officers.
All Other
Grant
Stock
All Other
Date Fair
Awards:
Awards:
Exercise
Value of
Estimated Future Payouts
Estimated Future Payouts
Number
Number of
or Base
Stock
Under Non-Equity Incentive
Under Equity Incentive
of Shares
Securities
Price of
and
Plan Awards
Plan Awards
of Stock
Underlying
Option
Option
Grant
Threshold
Target
Maximum
Target
Threshold
Maximum
or Units
Options
Awards
Awards
Name
Date
($)
($)
($)
(#)
(#)
(#)
(#)
(#)(1)
($/Sh)
(2)
Jitendra S. Saxena
2/20/2006
—
—
—
—
—
—
—
400,000
$
2.50
$
752,000
James Baum
8/10/2006
—
—
—
—
—
—
—
1,450,000
2.50
2,639,000
Patrick J. Scannell, Jr.
2/20/2006
—
—
—
—
—
—
—
150,000
2.50
282,000
Raymond Tacoma
2/20/2006
—
—
—
—
—
—
—
150,000
2.50
282,000
Patricia Cotter
2/20/2006
—
—
—
—
—
—
—
30,000
2.50
56,400
(1)
See Note 1 to the Summary Compensation Table above for a
description of these option grants.
(2)
For a discussion of the assumptions relating to our valuation of
stock option grants, see note 2 to our consolidated
financial statements and “Management’s Discussion and
Analysis of Financial Condition and Results of
Operations — Application of Critical Accounting
Policies and Use of Estimates- Stock-Based Compensation,”
included elsewhere in this prospectus.
The following table sets forth information regarding equity
awards held as of January 31, 2007 by our Chief Executive
Officer, our Chief Financial Officer and our three other
executive officers.
Option Awards(1)
Stock Awards(1)
Equity
Incentive
Equity
Plan
Equity
Incentive
Market
Awards:
Incentive Plan
Plan
Value of
Number of
Awards:
Awards:
Shares or
Unearned
Market or
Number of
Number of
Number of
Number of
Units of
Shares,
Payout Value of
Securities
Securities
Securities
Shares or
Stock
Units or
Unearned
Underlying
Underlying
Underlying
Units of
That
Other
Shares, Units
Unexercised
Unexercised
Unexercised
Option
Option
Stock That
Have Not
Rights that
or Other Rights
Options (#)
Options (#)
Unearned
Exercise
Expiration
Have Not
Vested
Have Not
That Have Not
Name
Exercisable
Unexercisable
Options (#)
Price($)
Date
Vested (#)
($)(2)
Vested (#)
Vested ($)
Jitendra S. Saxena
207,000
(3)
169,000
—
$
0.20
11/1/2013
125,000
(4)
125,000
—
1.00
1/14/2015
—
400,000
(5)
—
2.50
2/20/2016
James Baum
—
1,450,000
(6)
—
2.50
8/10/2016
Patrick J. Scannell, Jr.
—
37,750
(3)
—
0.20
11/13/2013
18,750
(7)
$
125,625
50,000
(4)
50,000
—
1.00
1/14/2015
—
150,000
(5)
—
2.50
2/20/2016
Raymond Tacoma
262,500
37,500
(8)
—
0.20
10/7/2013
113,250
37,750
(3)
—
0.20
11/1/2013
50,000
(4)
50,000
—
1.00
1/14/2015
—
150,000
(5)
—
2.50
2/20/2016
Patricia Cotter
9,375
(3)
3,125
—
0.20
11/1/2013
10,000
(4)
10,000
—
1.00
1/14/2015
—
30,000
(5)
—
2.50
2/20/2016
(1)
All option awards and stock awards listed in this table were
granted under our 2000 stock incentive plan. Under the terms of
the executive retention agreements we have entered into with our
executive officers, if following a “change in control”
(as defined in the agreement) of Netezza, the executive’s
employment is terminated by the acquiring company without cause
or by the executive for good reason, all outstanding stock
options, restricted stock or similar equity awards held by him
or her will become vested in full.
(2)
Our common stock did not have a closing market price at
January 31, 2007. The market value of our unvested stock
awards was determined by multiplying the number of shares
unvested under the stock award by $6.70, which represents the
fair market value of our common stock as determined by our board
of directors at its meeting on February 14, 2007, the first
such determination made following January 31, 2007.
(3)
This option vested as to 25% of the shares on November 1,2004 and vests as to an additional 6.25% of the shares at the
end of each successive three-month period through and including
November 1, 2007.
(4)
This option vested as to 25% of the shares on January 14,2006 and vests as to an additional 6.25% of the shares at the
end of each successive three-month period through and including
January 14, 2009.
(5)
This option vested as to 20% of the shares on February 1,2007 and vests as to an additional 5% of the shares at the end
of each successive three-month period through and including
February 1, 2010.
(6)
Granted in connection with Mr. Baum’s commencement of
employment. This option vests as to 20% of the shares on
April 1, 2007 and then as to an additional 5% of the shares
at the end of each successive three-month period through and
including April 2011.
(7)
Relates to a grant of 300,000 shares of restricted stock on
June 18, 2003. This grant vested as to 25% of the shares on
March 24, 2004 and vests as to an additional 6.25% of the
shares at the end of each successive three-month period until
March 24, 2007.
(8)
This option vested as to 25% of the shares on July 1, 2004
and vests as to an additional 6.25% of the shares at the end of
each successive three-month period through and including
July 1, 2007.
The following table sets forth information regarding stock
options exercised and restricted stock awards vested during
fiscal 2007 for our Chief Executive Officer, our Chief Financial
Officer and our three other executive officers.
Option Awards
Stock Awards
Number of Shares
Value Realized
Number of Shares
Value Realized
Acquired on Exercise
on Exercise
Acquired on Vesting
on Vesting
Name
(#)
($)(1)
(#)
($)(2)
Jitendra S. Saxena
50,000
$
215,000
—
—
James Baum
—
—
—
—
Patrick J. Scannell, Jr.
37,750
$
86,825
75,000
$
337,500
Raymond Tacoma
—
—
—
—
Patricia Cotter
—
—
—
—
(1)
The value realized on exercise represents the difference between
the fair market value of our common stock on the date of
exercise, as most recently determined by our board of directors,
and the exercise price of the option.
(2)
The value realized on vesting represents the amount determined
by multiplying the number of shares vested by the fair market
value of the underlying shares on the vesting date, as most
recently determined by our board of directors.
Agreements
with Executives
In March 2007, we entered into an agreement with each of
Mr. Saxena, Mr. Baum, Mr. Scannell,
Mr. Tacoma and Ms. Cotter that provides as follows. If
the executive’s employment is terminated by us without
“cause” or by the executive for “good
reason” (as those terms are defined in the agreement), then
the executive shall receive, for a one-year period following
employment termination, (i) severance payments at a rate
equal to the sum of his or her annual base salary plus the bonus
paid to the executive for the preceding fiscal year and
(ii) a continuation of insurance benefits. In the case of
Mr. Baum, if his employment is terminated prior to
January 31, 2008, his bonus for the preceding fiscal year
will be deemed to be $125,000. In addition, if, following a
“change in control” (as defined in the agreement) of
Netezza, the executive’s employment is terminated by the
acquiring company without cause or by the executive for good
reason, all outstanding stock options, restricted stock or
similar equity awards held by him or her will become vested in
full.
The table below shows the benefits potentially payable to each
of our executive officers if he or she were to be terminated
without cause or resign for good reason. These amounts are
calculated on the assumption that the employment termination
took place on January 31, 2007 and, in the case of the
equity benefits, that the resignation followed a change in
control of Netezza.
Name
Severance Payments
Medical/Dental(1)
Equity Benefits(2)
Jitendra S. Saxena
$
378,329
$
13,233
$
3,491,000
James Baum
425,000
13,233
6,090,000
Patrick J. Scannell, Jr.
269,839
13,233
1,411,625
Raymond Tacoma
389,229
13,233
1,404,125
Patricia Cotter
200,000
4,394
203,313
(1)
Calculated based on the estimated cost to us of providing these
benefits.
(2)
This amount is equal to (a) the number of option shares or
restricted shares that would accelerate, assuming a
January 31, 2007 employment termination, multiplied by
(b) in the case of options, the excess of $6.70 over the
exercise price of the option or, in the case of restricted
stock, $6.70. $6.70 represents the fair market value of our
common stock as determined by our board of directors at its
meeting on February 14, 2007, the first such determination
made following January 31, 2007.
Our 2007 stock incentive plan, which we refer to as the 2007
Plan, will become effective as of the date of this prospectus.
We have reserved for issuance 2,000,000 shares of common
stock under the 2007 Plan. In addition, our plan contains an
“evergreen” provision, which provides for an annual
increase in the number of shares available for issuance under
the plan on the first day of the fiscal years ending
January 31, 2009, January 31, 2010 and
January 31, 2011. The annual increase in the number of
shares shall be equal to the lower of:
•
a number of shares that, when added to the number of shares
already reserved under the plan, equals 3.5% of our outstanding
shares as of such date; or
•
an amount determined by our board of directors.
Our compensation committee will administer the 2007 Plan. The
2007 Plan will provide for the grant of incentive stock options,
nonstatutory stock options, restricted stock, restricted stock
units, stock appreciation rights and other stock-based awards.
Our officers, employees, consultants, advisors and directors,
and those of any of our subsidiaries, will be eligible to
receive awards under the 2007 Plan. Under present law, however,
incentive stock options qualifying under Section 422 of the
Internal Revenue Code may only be granted to our employees.
Stock options entitle the holder to purchase a specified number
of shares of common stock at a specified option price, subject
to the other terms and conditions contained in the option grant.
Our compensation committee determines:
•
the recipients of stock options,
•
the number of shares subject to each option granted,
•
the exercise price of the option, which will be no less than the
fair market value of our common stock on the date of grant,
•
the vesting schedule of the option (generally over five years),
•
the duration of the option (generally seven years, subject to
earlier termination in the event of the termination of the
optionee’s employment), and
•
the manner of payment of the exercise price of the option.
Restricted stock awards entitle the recipient to acquire shares
of common stock, subject to our right to repurchase all or part
of such shares from the recipient in the event of the
termination of the recipient’s employment prior to the end
of the vesting period for such award or if other conditions
specified in the award are not satisfied. Our compensation
committee determines:
•
the recipients of restricted stock,
•
the number of shares subject to each restricted stock award
granted,
•
the purchase price, if any, of the restricted stock award,
•
the vesting schedule of the restricted stock award, and
•
the manner of payment of the purchase price, if any, for the
restricted stock award.
No award may be granted under the 2007 Plan after March 21,2017, but the vesting and effectiveness of awards granted before
that date may extend beyond that date.
2000
Stock Incentive Plan
Our 2000 stock incentive plan, which we refer to as the 2000
Plan, as amended, was adopted in October 2000. A maximum of
15,721,458 shares of common stock are authorized for
issuance under the 2000 Plan. As of February 28, 2007,
there were options and warrants to purchase
9,231,784 shares of common stock outstanding under the 2000
Plan, 4,077,567 shares of common stock had been issued and
are outstanding pursuant to the
exercise of options granted under this plan, and
2,412,107 shares of common stock are available for future
grants under this plan. After the effective date of the 2007
Plan, we will grant no further stock options or other awards
under the 2000 Plan.
The 2000 Plan, as amended, provided for the grant of incentive
stock options, nonstatutory stock options, restricted stock,
warrants and other stock-based awards. Our employees, officers,
directors, consultants and advisors were eligible to receive
awards under the 2000 Plan.
401(k)
Plan
We maintain a deferred savings retirement plan for our
U.S. employees. The deferred savings retirement plan is
intended to qualify as a tax-qualified plan under
Section 401 of the Internal Revenue Code. Contributions to
the deferred savings retirement plan are not taxable to
employees until withdrawn from the plan. The deferred savings
retirement plan provides that each participant may contribute
his or her pre-tax compensation (up to a statutory limit, which
is $15,500 in 2007). For employees 50 years of age or
older, an additional
catch-up
contribution of $5,000 is allowable. In 2007, the statutory
limit for those who qualify for
catch-up
contributions is $20,500. Under the plan, each employee is fully
vested in his or her deferred salary contributions. The deferred
savings retirement plan also permits us to make additional
discretionary contributions, subject to established limits and a
vesting schedule.
Limitation
of Liability and Indemnification
Our certificate of incorporation limits the personal liability
of directors for breach of fiduciary duty to the maximum extent
permitted by the Delaware General Corporation Law. Our
certificate of incorporation provides that no director will have
personal liability to us or to our stockholders for monetary
damages for breach of fiduciary duty or other duty as a
director. However, these provisions do not eliminate or limit
the liability of any of our directors:
•
for any breach of the director’s duty of loyalty to us or
our stockholders;
•
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
•
for voting or assenting to unlawful payments of dividends, stock
repurchases or other distributions; or
•
for any transaction from which the director derived an improper
personal benefit.
Any amendment to or repeal of these provisions will not
eliminate or reduce the effect of these provisions in respect of
any act, omission or claim that occurred or arose prior to such
amendment or repeal. If the Delaware General Corporation Law is
amended to provide for further limitations on the personal
liability of directors of corporations, then the personal
liability of our directors will be further limited to the
greatest extent permitted by the Delaware General Corporation
Law.
In addition, our certificate of incorporation provides that we
must indemnify our directors and officers and we must advance
expenses, including attorneys’ fees, to our directors and
officers in connection with legal proceedings, subject to very
limited exceptions.
In addition to the indemnification provided for in our
certificate of incorporation, we have entered into separate
indemnification agreements with each of our directors and
executive officers that may be broader than the specific
indemnification provisions contained in our certificate of
incorporation. These indemnification agreements require us,
among other things, to indemnify our directors and executive
officers for some expenses (including attorneys’ fees),
judgments, fines and settlement amounts paid or incurred by a
director or executive officer in any action or proceeding
arising out of his or her service as one of our directors or
executive officers. We believe that these provisions and
agreements are important in attracting and retaining qualified
individuals to serve as directors and executive officers.
We maintain a general liability insurance policy that covers
certain liabilities of our directors and officers arising out of
claims based on acts or omissions in their capacities as
directors or officers.
There is no pending litigation or proceeding involving any of
our directors or executive officers to which indemnification is
required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for
indemnification.
Since February 1, 2004 (the beginning of fiscal 2005), we
have engaged in the following transactions in which the amount
involved exceeded $120,000 and in which any of our related
persons had a direct or indirect material interest. For purposes
of this section, “related person” includes our
directors and executive officers and holders of more than 5% of
our voting stock, and immediate family members of our directors,
executive officers and 5% stockholders:
On December 22, 2004, January 19, 2005 and
June 15, 2005, we sold an aggregate of
7,901,961 shares of our Series D preferred stock to 15
purchasers at a purchase price of $2.55 per share, for
approximately $20,150,000 in the aggregate. Various funds
affiliated with Meritech Capital Partners, which currently owns
more than 5% of our outstanding common stock, purchased
4,447,255 of those shares. Various funds affiliated with Sequoia
Capital, which currently owns more than 5% of our outstanding
common stock, purchased 713,399 of those shares. Various funds
affiliated with Battery Ventures, which currently owns more than
5% of our outstanding common stock and has a representative on
our board of directors, purchased 789,266 of those shares.
Various funds affiliated with Matrix Partners, which currently
owns more than 5% of our outstanding common stock and has a
representative on our board of directors, purchased 973,867 of
those shares. Various funds affiliated with Charles River
Ventures, which currently owns more than 5% of our outstanding
common stock and has a representative on our board of directors,
purchased 919,351 of those shares.
In connection with the transaction described above, we entered
into agreements with all of the purchasers of our convertible
preferred stock providing for registration rights with respect
to the shares of common stock issuable upon conversion of our
convertible preferred stock, preemptive rights with respect to
certain issuances of securities by us and other rights customary
for purchasers of preferred stock. In addition, in connection
with the transaction described above, we also entered into
agreements with all of the purchasers of our convertible
preferred stock providing us and the non-founder investors with
certain rights of first refusal and co-sale rights in the event
the founders seek to sell their shares of our common stock.
These agreements (other than the registration rights provisions)
terminate upon the closing of this offering.
In fiscal 2007, we sold products and services to Motorola for a
total purchase price of approximately $2.2 million. Edward
Zander, a member of our board of directors, is Chairman and
Chief Executive Officer of Motorola. Mr. Zander had no
personal involvement in that transaction.
Each of the transactions noted above were entered into prior to
our adoption of a written related party transaction policy,
which is described below. We believe that all transactions set
forth above were made on terms no less favorable to us than
would have been obtained from unaffiliated third parties.
Indemnification
Arrangements
Please see “Management — Limitation of Liability
and Indemnification” for information on our indemnification
agreements with our directors and executive officers.
Executive
Compensation and Employment Arrangements
Please see “Management — Executive
Compensation” and “Management — Employment
Agreement with Executives” for information on compensation
arrangements with our executive officers, including option
grants and agreements with executive officers.
Related
Person Transaction Policy
We have adopted a written policy providing that all
“related person transactions” must be:
•
reported to our chief financial officer;
•
approved or ratified by our audit committee, which our audit
committee will do only if it determines that the transaction is
in, or not inconsistent with, the best interests of
Netezza; and
if applicable, reviewed by our audit committee annually to
ensure that such transaction, arrangement or relationship has
been conducted in accordance with the previous approval, and
that all required disclosures regarding such transaction
arrangement or relationship have been made.
Our policy provides that a “related person
transaction” is any transaction, arrangement or
relationship, or any series of similar transactions,
arrangements or relationships, involving an amount exceeding
$120,000 in which we are a participant and in which any of our
executive officers, directors or 5% stockholders, or any
immediate family member of any of our executive officers,
directors or 5% stockholders, has or will have a direct or
indirect material interest.
The following table sets forth information with respect to the
beneficial ownership of our common stock, as of January 31,2007 by:
•
all persons known by us to beneficially own more than 5% of our
common stock;
•
each of our executive officers;
•
each of our directors;
•
all of our directors and executive officers as a group; and
•
each of the selling stockholders.
The number of shares beneficially owned by each stockholder is
determined under rules issued by the SEC. Under these rules,
beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or
investment power. In addition, these rules provide than an
individual or entity beneficially owns any shares issuable upon
the exercise of stock options or warrants held by such person or
entity that were exercisable on January 31, 2007 or within
60 days after January 31, 2007; and any reference in
the footnotes to this table to stock options or warrants refers
only to such options or warrants. In computing the percentage
ownership of each individual and entity, the number of
outstanding shares of common stock includes, in addition to the
46,216,907 shares outstanding as of January 31, 2007,
any shares subject to options or warrants held by that
individual or entity that were exercisable on or within
60 days after January 31, 2007. These shares are not
considered outstanding, however, for the purpose of computing
the percentage ownership of any other stockholder. Each of the
stockholders listed has sole voting and investment power with
respect to the shares beneficially owned by the stockholder
unless noted otherwise, subject to community property laws where
applicable.
All executive officers and
directors as a group (11 persons)
22,771,042
49.27
%
—
22,771,042
Other Selling
Stockholders
Foster Hinshaw(15)
1,122,321
2.43
%
—
1,122,321
William Blake(16)
300,000
*
—
300,000
Barry Zane(17)
405,357
*
—
405,357
*
Represents beneficial ownership of less than one percent of our
outstanding common stock.
(1)
Consists of 5,707,345 shares held by Matrix Partners VI,
L.P., 1,904,047 shares held by Matrix VI Parallel
Partnership-A L.P., 637,880 shares held by Matrix VI
Parallel Partnership-B L.P. and 1,342,903 shares held by
Weston & Co. VI LLC, as nominee for certain persons.
(2)
Consists of 8,781,396 shares held by Charles River
Partnership XI, LP, 228,551 shares held by Charles
River Friends XI-A, LP and 45,278 shares held by Charles
River Friends XI-B, LP.
(3)
Consists of 7,462,983 shares held by Battery Ventures VI,
L.P. and 310,957 shares held by Battery Investment Partners
VI, LLC.
(4)
Consists of 5,697,931 shares held by Sequoia Capital X,
508,028 held by Sequoia Capital X Principals Fund, L.L.C. and
820,714 shares held by Sequoia Technology Partners X.
(5)
Consists of 3,041,201 shares held by Meritech Capital
Partners II L.P.; 78,252 shares held by Meritech
Capital Affiliates II L.P.; and 23,254 shares held by
MCP Entrepreneur Partners II L.P. Meritech Management
Associates II L.L.C., a managing member of Meritech Capital
Associates II L.L.C., the general partner of Meritech
Capital Partners II L.P., Meritech Capital
Affiliates II L.P. and MCP Entrepreneur Partners II
L.P., has sole voting and dispositive power with respect to the
shares held by Meritech Capital Partners II L.P., Meritech
Capital Affiliates II L.P. and MCP Entrepreneur
Partners II L.P. The managing members of Meritech
Management Associates II L.L.C. are Paul S. Madera and
Michael B. Gordon, who disclaim beneficial ownership of these
shares except to the extent of their pecuniary interest therein.
(6)
Includes 1,788,571 shares held by Mr. Saxena and
454,250 shares of common stock subject to stock options.
(7)
Includes 290,000 shares of common stock subject to stock
options.
(8)
Includes 444,041 shares held by Mr. Scannell and
89,437 shares of common stock subject to stock options.
(9)
Includes 483,937 shares of common stock subject to stock
options.
(10)
Includes 150,000 shares of common stock held by
Ms. Cotter and 27,406 shares of common stock subject
to stock options.
Consists of 8,786,605 shares held by Charles River
Partnership XI, LP, 221,936 shares held by Charles
River Friends XI-A, LP and 46,684 shares held by Charles
River Friends XI-B, LP. Mr. Dintersmith is a general
partner of Charles River XI GP, LP, the general partner of
Charles River Partnership XI, LP, as well as a managing member
of Charles River XI GP, LLC, the general partner of Charles
River Friends XI-A, LP and Charles River Friends XI-B, LP.
Mr. Dintersmith disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest therein,
and does not have sole voting and dispositive power with respect
to such shares.
(12)
Consists of 5,707,345 shares held by Matrix Partners VI,
L.P., 1,904,047 shares held by Matrix VI Parallel
Partnership-A L.P., 637,880 shares held by Matrix VI
Parallel Partnership-B L.P. and 1,342,903 shares held by
Weston & Co. VI LLC, as nominee for certain persons.
Mr. Ferri is a Managing Member of Matrix VI Management Co.,
L.L.C., the general partner for each of Matrix Partners VI,
L.P., Matrix VI Parallel Partnership-A L.P., and Matrix VI
Parallel Partnership-B, L.P. Mr. Ferri, by virtue of his
management position in Matrix VI Management Co., L.L.C., has
sole voting and dispositive power with respect to the shares for
each of those entities. Mr. Ferri disclaims beneficial
ownership of such shares, except to the extent of his pecuniary
interest in such shares. Mr. Ferri is authorized by the
sole member of Weston & Co. VI LLC to take any action
as directed by the underlying beneficial owners with respect to
the shares held by this entity, and Mr. Ferri disclaims
beneficial ownership of such shares. Mr. Ferri does not
have sole or shared voting or investment control with respect to
any of the shares held by Weston & Co. VI LLC.
(13)
Consists of 100,000 shares of common stock subject to stock
options.
(14)
Includes 36,000 shares held by the Edward & Mona Zander
Living Trust u/a dtd
04/19/93, of
which Mr. Zander and his wife are trustees, and
160,000 shares of common stock subject to stock options.
(15)
Mr. Hinshaw is a founder of Netezza and our former
Treasurer and director. Mr. Hinshaw resigned from Netezza
in February 2005.
(16)
Mr. Blake is a former Senior Vice President, Product
Development of Netezza. Mr. Blake resigned from Netezza in
February 2007.
(17)
Mr. Zane is a former Vice President of Architecture of
Netezza. Mr. Zane resigned from Netezza in April 2005.
Upon the closing of this offering, our authorized capital stock
will consist of 500,000,000 shares of common stock, par
value $0.001 per share, and 5,000,000 shares of
preferred stock, par value $0.001 per share. The following
description of our capital stock is intended as a summary only
and is qualified in its entirety by reference to our certificate
of incorporation and by-laws, which are filed as exhibits to the
registration statement, of which this prospectus forms a part,
and to the applicable provisions of the Delaware General
Corporation Law.
Common
Stock
As of February 28, 2007, there were 46,309,542 shares
of our common stock outstanding and held of record by 162
stockholders. Based on the number of shares outstanding on
February 28, 2007, upon the closing of this offering, there
will
be shares
of outstanding common stock. In addition, as of
February 28, 2007:
•
9,039,748 shares of our common stock were issuable upon the
exercise of outstanding stock options;
•
2,412,107 shares of our common stock were reserved for
future issuance under our stock compensation plans; and
•
312,781 shares of our common stock were issuable upon the
exercise of outstanding warrants.
Holders of our 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. An election of
directors by our stockholders will be determined by a plurality
of the votes cast by the stockholders entitled to vote on the
election. Holders of common stock are entitled to receive
proportionately any dividends as may be declared by our board of
directors, subject to any preferential dividend rights of
outstanding preferred stock.
In the event of our liquidation or dissolution, the holders of
common stock are entitled to receive proportionately our net
assets available for distribution to stockholders after the
payment of all debts and other liabilities and subject to the
prior rights of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or
conversion rights. Our outstanding shares of common stock are,
and the shares offered by us in this offering will be, when
issued and paid for, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders
of common stock are subject to and may be adversely affected by
the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
Preferred
Stock
Upon the closing of this offering, our board of directors will
be authorized, without action by the stockholders, to designate
and issue up to an aggregate of 5,000,000 shares of
preferred stock in one or more series. Our board of directors
has the discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue
preferred stock and determine its rights and preferences is to
eliminate the uncertainty and delay associated with a
stockholder vote on specific issuances. The issuance of
preferred stock, while providing flexibility in connection with
possible acquisitions, future financings and other corporate
purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage a third party from
seeking to acquire, a majority of our outstanding voting stock.
Upon the closing of this offering, there will be no shares of
preferred stock outstanding, and we have no present plans to
issue any shares of preferred stock.
Delaware
Anti-takeover Law and Certain Charter and By-Law
Provisions
Delaware
Law
We are subject to Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203
prevents a publicly held Delaware corporation from engaging in a
“business combination” with any “interested
stockholder” for three years following the date that the
person became an interested stockholder, unless
either (1) the interested stockholder attained such status
with the approval of our board of directors, or (2) the
business combination is approved by our board of directors and
stockholders in a prescribed manner or (3) the interested
stockholder acquired at least 85% of our outstanding voting
stock in the transaction in which it became an interested
stockholder. A “business combination” includes, among
other things, a merger or consolidation involving us and the
“interested stockholder,” the sale of more than 10% of
our assets, and other transactions resulting in a financial
benefit to the interested stockholder. In general, an
“interested stockholder” is any entity or person
beneficially owning 15% or more of our outstanding voting stock
and any entity or person affiliated with or controlling or
controlled by such entity or person. This provision may
discourage or prevent unsolicited tender offers for our
outstanding common stock.
Staggered
Board
In accordance with the terms of our certificate of incorporation
and by-laws, our board of directors is divided into three
classes, class I, class II and class III, with
members of each class serving staggered three-year terms. Our
certificate of incorporation provides that the authorized number
of directors may be changed only by resolution of the board of
directors. Any additional directorships resulting from an
increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. Our certificate of
incorporation and our by-laws also provide that our directors
may be removed only for cause by the affirmative vote of the
holders of at least 75% of our voting stock, and that any
vacancy on our board of directors, including a vacancy resulting
from an enlargement of our board of directors, may be filled
only by vote of a majority of our directors then in office. Our
classified board could have the effect of delaying or
discouraging an acquisition of Netezza or a change in our
management.
Stockholder
Action; Special Meeting of Stockholders; Advance Notice
Requirements for Stockholder Proposals and Director
Nominations
Our certificate of incorporation and our by-laws provide that
any action required or permitted to be taken by our stockholders
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 taken by written action in lieu of a meeting. Our
certificate of incorporation and our by-laws also provide that,
except as otherwise required by law, special meetings of the
stockholders can only be called by our chairman of the board,
our chief executive officer, president or our board of
directors. In addition, our by-laws establish an advance notice
procedure for stockholder proposals to be brought before an
annual meeting of stockholders, including proposed nominations
of candidates for election to the board of directors. These
provisions could have the effect of delaying until the next
annual stockholders meeting stockholder actions that are favored
by the holders of a majority of our outstanding voting stock.
These provisions could also discourage a third party from making
a tender offer for our common stock, because even if it acquired
a majority of our outstanding voting stock, it 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.
Super-Majority
Voting
The affirmative vote of the holders of at least 75% of our
voting stock is required to amend or repeal or to adopt any
provisions inconsistent with any of the provisions of our
certificate of incorporation or by-laws described in the prior
two paragraphs.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock will
be .
NASDAQ
Global Market
We have applied to have our common stock listed on the NASDAQ
Global Market under the symbol “NTZA.”
Prior to this offering, there has been no market for our common
stock and we cannot assure you that a significant market for our
common stock will develop or be sustained after this offering.
Future sales of substantial amounts of our common stock in the
public market, or the possibility of these sales, could
adversely affect trading price of our common stock. Furthermore,
since only a limited number of shares will be available for sale
shortly after this offering because of the contractual and legal
restrictions on resale described below, sales of substantial
amounts of our common stock in the public market after those
restrictions lapse could also adversely affect the trading price
of our common stock.
Sales of
Restricted Securities
Upon the closing of this offering, we will have
outstanding shares
of common stock, based on the number of shares outstanding at
February 28, 2007 and after giving effect to the issuance
of shares
of common stock in this offering.
Of the shares to be outstanding after the closing of this
offering,
the shares
sold in this offering will be freely tradable without
restriction under the Securities Act, except that any shares
purchased in this offering by our “affiliates,” as
that term is defined in Rule 144 under the Securities Act
of 1933, generally may be sold in the public market only in
compliance with Rule 144. The
remaining shares of common
stock are “restricted” shares under Rule 144 and
therefore generally may be sold in the public market only in
compliance with Rule 144. In addition, substantially all of
these restricted securities will be subject to the
lock-up
agreements described below.
Lock-up
Agreements
Our officers, directors and holders of substantially all of our
outstanding capital stock, including the selling stockholders,
have agreed that, without the prior written consent of Credit
Suisse Securities (USA) LLC, and Morgan Stanley & Co.
Incorporated, they will not, prior to the date that is
180 days after the date of this prospectus, subject to
exceptions specified in the
lock-up
agreements, offer, sell, contract to sell, pledge, grant any
option to purchase, make any short sale or otherwise dispose of
any shares of our common stock, or any other securities
convertible into, exchangeable for or that represent the right
to receive shares of our common stock, whether now owned or
hereafter acquired. Credit Suisse Securities (USA) LLC and
Morgan Stanley & Co. Incorporated, may, in
their discretion, at any time and without notice, release for
sale in the public market all or any portion of the shares
subject to the
lock-up
agreements.
The 180-day
restricted period described in the preceding paragraph will be
automatically extended if: (1) during the last 17 days
of the
180-day
restricted period we issue an earnings release or announce
material news or a material event relating to us; or
(2) prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding paragraph will continue to apply until the expiration
of the
18-day
period beginning on the date of release of the earnings results
or the announcement of the material news or material event.
Rule 144
and Rule 701
In general, under Rule 144, beginning 90 days after
the date of this prospectus, a person who has beneficially owned
“restricted” shares of our common stock for at least
one year, including the holding period of any prior owner other
than one of our affiliates, would be entitled to sell within any
three-month period a number of shares of our common stock that
does not exceed the greater of:
•
1% of the number of shares of our common stock then outstanding,
which limit will equal
approximately shares
immediately after this offering; or
•
the average weekly trading volume in our common stock on the
NASDAQ Global Market during the four calendar weeks preceding
the date of filing of a Notice of Proposed Sale of Securities
Pursuant to Rule 144 with respect to the sale.
Sales under Rule 144 must be made in brokers’
transactions or directly to market makers. In addition,
Rule 144 sales are subject to notice requirements and to
the availability of current public information about us.
Rule 144 also provides that our affiliates who are selling
shares of common stock that are not “restricted”
shares must nonetheless comply with the same restrictions
applicable to “restricted” shares with the exception
of the holding period requirement.
Rule 701 under the Securities Act applies to shares
purchased from us by our employees, directors or consultants, in
connection with a qualified compensatory stock plan or other
written agreement, either prior to the date of this prospectus
or pursuant to the exercise of options granted prior to the date
of this prospectus. Shares issued in reliance on Rule 701
are “restricted” shares, but may be sold in the public
market beginning 90 days after the date of this prospectus
(i) by persons other than our affiliates, subject only to
the manner of sale provisions of Rule 144, and (ii) by
our affiliates, subject to compliance with the provisions of
Rule 144 other than its one-year holding period requirement.
Rule 144(k) provides that a person may sell
“restricted” shares of our common stock immediately
following this offering (rather than 90 days later) and
without compliance with any of the other restrictions under
Rule 144 if:
•
the person is not an affiliate of us and has not been an
affiliate of us at any time during the three months preceding
the sale; and
•
the person has beneficially owned the shares proposed to be sold
for at least two years, including the holding period of any
prior owner other than one of our affiliates.
Upon the expiration of the
180-day
lock-up
agreement described above,
approximately shares
of our common stock will be eligible for public resale without
restriction (other than the manner of sale requirements for
Rule 701 shares) pursuant to Rule 144(k) or
Rule 701, and
approximately additional
shares of our common stock will be eligible for public resale,
subject to the volume limitations and other restrictions of
Rule 144. The
remaining
“restricted” shares of our common stock will become
eligible for public resale under Rule 144 on dates ranging
from
days
to
days after the date of this prospectus.
Stock
Options
As of February 28, 2007, we had outstanding options to
purchase 9,039,748 shares of common stock, of which options
to purchase 2,544,395 shares of common stock were vested.
Following this offering, we intend to file a registration
statement on
Form S-8
under the Securities Act to register all of the shares of common
stock subject to outstanding options as well as all shares of
our common stock that may be covered by additional options and
other awards granted under our 2007 Plan. Please see
“Management — Executive Compensation —
Stock Option and Other Compensation Plans” for additional
information regarding this plan. Shares of our common stock
issued under the
S-8
registration statement will be available for sale without
restriction in the public market, subject to the Rule 144
provisions applicable to affiliates, and subject to any vesting
restrictions and
lock-up
agreements applicable to these shares.
Registrations
Rights
Following this offering, the holders
of
“restricted” shares of common stock will have the
right, subject to certain exceptions and conditions, to require
us to register their shares of common stock under the Securities
Act, and they will have the right to participate in future
registrations of securities by us. Registration of any of these
outstanding shares of common stock would result in these shares
becoming freely tradable without compliance with Rule 144
upon effectiveness of the registration statement.
The following discussion is a general summary of the material
U.S. federal income tax consequences of the ownership and
disposition of our common stock applicable to
“Non-U.S. Holders”.
As used herein, a
Non-U.S. Holder
means a beneficial owner of our common stock that is neither a
U.S. person nor a partnership for U.S. federal income
tax purposes, and that will hold shares of our common stock as
capital assets. For U.S. federal income tax purposes, a
U.S. person includes:
•
an individual who is a citizen or resident of the United States;
•
a corporation (or other business entity treated as a corporation
for U.S. federal income tax purposes) created or organized
in the United States or under the laws of the United States, any
state thereof or the District of Columbia;
•
an estate the income of which is includible in gross income
regardless of source; or
•
a trust that (A) is subject to the primary supervision of a
court within the United States and the control of one or more
U.S. persons, or (B) otherwise has validly elected to
be treated as a U.S. domestic trust.
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds shares of our
common stock, the U.S. federal income tax treatment of the
partnership and each partner generally will depend on the status
of the partner and the activities of the partnership and the
partner. Partnerships acquiring our common stock, and partners
in such partnerships, should consult their own tax advisors with
respect to the U.S. federal income tax consequences of the
ownership and disposition of our common stock.
This summary does not consider specific facts and circumstances
that may be relevant to a particular
Non-U.S. Holder’s
tax position and does not consider U.S. state and local or
non-U.S. tax
consequences. It also does not consider
Non-U.S. Holders
subject to special tax treatment under the U.S. federal
income tax laws (including partnerships or other pass-through
entities, banks and insurance companies, dealers in securities,
holders of our common stock held as part of a
“straddle,”“hedge,”“conversion
transaction” or other risk-reduction transaction,
controlled foreign corporations, passive foreign investment
companies, companies that accumulate earnings to avoid
U.S. federal income tax, foreign tax-exempt organizations,
former U.S. citizens or residents, persons who hold or
receive common stock as compensation and persons subject to the
alternative minimum tax). This summary is based on provisions of
the U.S. Internal Revenue Code of 1986, as amended (the
“Code”), applicable Treasury regulations,
administrative pronouncements of the U.S. Internal Revenue
Service (“IRS”) and judicial decisions, all as in
effect on the date hereof, and all of which are subject to
change, possibly on a retroactive basis, and different
interpretations.
This summary is included herein as general information only.
Accordingly, each prospective
Non-U.S. Holder
is urged to consult its own tax advisor with respect to the
U.S. federal, state, local and
non-U.S. income,
estate and other tax consequences of owning and disposing of our
common stock.
U.S. Trade
or Business Income
For purposes of this discussion, dividend income and gain on the
sale or other taxable disposition of our common stock will be
considered to be “U.S. trade or business income”
if such income or gain is (i) effectively connected with
the conduct by a
Non-U.S. Holder
of a trade or business within the United States and (ii) in
the case of a
Non-U.S. Holder
that is eligible for the benefits of an income tax treaty with
the United States, attributable to a permanent establishment
(or, for an individual, a fixed base) maintained by the
Non-U.S. Holder
in the United States. Generally, U.S. trade or business
income is not subject to U.S. federal withholding tax
(provided the
Non-U.S. Holder
complies with applicable certification and disclosure
requirements); instead, U.S. trade or business income is
subject to U.S. federal income tax on a net income basis at
regular U.S. federal income tax rates in the same manner as
a U.S. person. Any U.S. trade or business income
received by a corporate
Non-U.S. holder
may be subject to an additional “branch profits tax”
at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Distributions of cash or property that we pay will constitute
dividends for U.S. federal income tax purposes to the
extent paid from our current or accumulated earnings and profits
(as determined under U.S. federal income tax principles). A
Non-U.S. Holder
generally will be subject to U.S. federal withholding tax
at a 30% rate, or, if the
Non-U.S. Holder
is eligible, at a reduced rate prescribed by an applicable
income tax treaty, on any dividends received in respect of our
common stock. If the amount of a distribution exceeds our
current and accumulated earnings and profits, such excess first
will be treated as a tax-free return of capital to the extent of
the
Non-U.S. Holder’s
tax basis in our common stock (with a corresponding reduction in
such
Non-U.S. Holder’s
tax basis in our common stock), and thereafter will be treated
as capital gain. In order to obtain a reduced rate of
U.S. federal withholding tax under an applicable income tax
treaty, a
Non-U.S. Holder
will be required to provide a properly executed IRS
Form W-8BEN
certifying under penalties of perjury its entitlement to
benefits under the treaty. Special certification requirements
and other requirements apply to certain
Non-U.S. Holders
that are entities rather than individuals. A
Non-U.S. Holder
of our common stock that is eligible for a reduced rate of
U.S. federal withholding tax under an income tax treaty may
obtain a refund or credit of any excess amounts withheld by
filing an appropriate claim for a refund with the IRS on a
timely basis. A
Non-U.S. Holder
should consult its own tax advisor regarding its possible
entitlement to benefits under an income tax treaty and the
filing of a U.S. tax return for claiming a refund of
U.S. federal withholding tax.
The U.S. federal withholding tax does not apply to
dividends that are U.S. trade or business income, as
defined above, of a
Non-U.S. Holder
who provides a properly executed IRS
Form W-8ECI,
certifying under penalties of perjury that the dividends are
effectively connected with the
Non-U.S. Holder’s
conduct of a trade or business within the United Sates.
Dispositions
of Our Common Stock
A
Non-U.S. Holder
generally will not be subject to U.S. federal income or
withholding tax in respect of any gain on a sale or other
disposition of our common stock unless:
•
the gain is U.S. trade or business income, as defined above;
•
the
Non-U.S. Holder
is an individual who is present in the United States for 183 or
more days in the taxable year of the disposition and meets other
conditions; or
•
we are or have been a “U.S. real property holding
corporation” (a “USRPHC”) under section 897
of the Code at any time during the shorter of the five-year
period ending on the date of disposition and the
Non-U.S. Holder’s
holding period for our common stock.
If the first exception applies, generally the Non-U.S. Holder
will be required to pay U.S. federal income tax on the net gain
derived from the sale in the same manner as a U.S. person, as
described above under the heading “U.S. Trade or Business
Income.”
If the second exception applies, the Non-U.S. Holder generally
will be subject to tax at a rate of 30% on the amount by which
such holder’s U.S. -source capital gains exceed capital
losses allocable to U.S. sources.
In general, a corporation is a USRPHC if the fair market value
of its “U.S. real property interests” (as defined
in the Code and applicable Treasury regulations) equals or
exceeds 50% of the sum of the fair market value of its worldwide
real property interests and its other assets used or held for
use in a trade or business. If we are determined to be a USRPHC,
the U.S. federal income and withholding taxes relating to
interests in USRPHCs nevertheless will not apply to gains
derived from the sale or other disposition of our common stock
by a
Non-U.S. Holder
whose shareholdings, actual and constructive, at all times
during the applicable period, amount to 5% or less of our common
stock, provided that our common stock is regularly traded on an
established securities market. We are not currently a USRPHC,
and we do not anticipate becoming a USRPHC in the future.
However, no assurance can be given that we will not be a USRPHC,
or that our common stock will be considered regularly traded,
when a
Non-U.S. Holder
sells its shares of our common stock.
Information
Reporting and Backup Withholding Requirements
We must annually report to the IRS and to each
Non-U.S. Holder
any dividend income that is subject to U.S. federal
withholding tax, or that is exempt from such withholding tax
pursuant to an income tax treaty. Copies of these information
returns also may be made available under the provisions of a
specific treaty or agreement to the tax authorities of the
country in which the
Non-U.S. Holder
resides. Under certain circumstances, the Code imposes a backup
withholding obligation (currently at a rate of 28%) on certain
reportable payments. Dividends paid to a
Non-U.S. Holder
of our common stock generally will be exempt from backup
withholding if the
Non-U.S. Holder
provides a properly executed IRS
Form W-8BEN
or otherwise establishes an exemption.
The payment of the proceeds from the disposition of our common
stock to or through the U.S. office of any broker,
U.S. or foreign, will be subject to information reporting
and possible backup withholding unless the holder certifies as
to its
non-U.S. status
under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual
knowledge or reason to know that the holder is a
U.S. person or that the conditions of any other exemption
are not, in fact, satisfied. The payment of the proceeds from
the disposition of our common stock to or through a
non-U.S. office
of a
non-U.S. broker
will not be subject to information reporting or backup
withholding unless the
non-U.S. broker
has certain types of relationships with the United States (a
“U.S. related person”). In the case of the
payment of the proceeds from the disposition of our common stock
to or through a non-U.S office of a broker that is either a
U.S. person or a U.S. related person, the Treasury
regulations require information reporting (but not the backup
withholding) on the payment unless the broker has documentary
evidence in its files that the holder is a
Non-U.S. Holder
and the broker has no knowledge to the contrary.
Non-U.S. Holders
should consult their own tax advisors on the application of
information reporting and backup withholding to them in their
particular circumstances (including upon their disposition of
our common stock).
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules from a payment to a
Non-U.S. Holder
will be refunded or credited against the
Non-U.S. Holder’s
U.S. federal income tax liability, if any, if the
Non-U.S. Holder
provides the required information to the IRS on a timely basis.
Non-U.S. Holders
should consult their own tax advisors regarding the filing of a
U.S. tax return for claiming a refunded of such backup
withholding.
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2007, we and the selling stockholders have agreed to sell to the
underwriters named below, for whom Credit Suisse Securities
(USA) LLC, Morgan Stanley & Co. Incorporated,
Needham & Company, LLC and Thomas Weisel Partners LLC
are acting as representatives, the following respective numbers
of shares of common stock:
Number
Underwriter
of Shares
Credit Suisse Securities (USA) LLC
Morgan Stanley & Co.
Incorporated
Needham & Company, LLC
Thomas Weisel Partners LLC
Total
The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of common stock in the
offering if any are purchased, other than those shares covered
by the over-allotment option described below. The underwriting
agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be
increased or the offering may be terminated.
The selling stockholders have granted to the underwriters a
30-day
option to purchase on a pro rata basis up to an aggregate
of
additional outstanding shares from the selling stockholders at
the initial public offering price less the underwriting
discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock
initially at the public offering price on the cover page of this
prospectus and to selling group members at that price less a
selling concession of $ per
share. The underwriters and selling group members may allow a
discount of $ per share on
sales to other broker/dealers. After the initial public offering
the underwriters may change the public offering price and
concession and discount to broker/dealers.
The following table summarizes the compensation and estimated
expenses we and the selling stockholders will pay:
Per Share
Total
Without
With
Without
With
Over-Allotment
Over-Allotment
Over-Allotment
Over-Allotment
Underwriting Discounts and
Commissions paid by us
$
$
$
$
Expenses payable by us
$
$
$
$
Underwriting Discounts and
Commissions paid by selling stockholders
$
$
$
$
Expenses payable by the selling
stockholders
$
$
$
$
The underwriters have informed us that they do not expect sales
to accounts over which the underwriters have discretionary
authority to exceed 5% of the shares of common stock being
offered.
The underwriters will not confirm sales to any accounts over
which they exercise discretionary authority without first
receiving a written consent from those accounts.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent of the
representatives for a period of 180 days after the date of
this prospectus.
However, in the event that either (1) during the last
17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up will
be extended until the expiration of the
18-day
period beginning on the date of release of the earnings results
or the occurrence of the material news or event, as applicable,
unless the representatives waive, in writing, such an extension.
Our officers and directors and stockholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common
stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any
swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our
common stock, whether any of the transactions is to be settled
by delivery of our common stock or other securities, in cash or
otherwise, or publicly disclose the intention to make any offer,
sale, pledge or disposition, or to enter into any transaction,
swap, hedge or other arrangement, without, in each case, the
prior written consent of the representatives for a period of
180 days after the date of this prospectus. However, in the
event that either (1) during the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in each case the expiration of the
lock-up will
be extended until the expiration of the
18-day
period beginning on the date of release of the earnings results
or the occurrence of the material news or event, as applicable,
unless the representatives waive, in writing, such an extension.
Transfers or dispositions of our common stock can be made sooner
if the transfer is to a family member or trust, provided the
transferee agrees to be bound in writing by the terms of a
lock-up
agreement prior to the transfer and no filing by any party under
the Securities Exchange Act of 1934, or the Exchange Act, shall
be required or shall be voluntarily made in connection with the
transfer (other than a filing on a Form 5 made after the
expiration of the
lock-up
period).
The underwriters have reserved for sale at the initial public
offering price up
to shares
of our common stock for employees, directors and other persons
associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for
sale to the general public in the offering will be reduced to
the extent these persons purchase the reserved shares. Any
reserved shares not so purchased will be offered by the
underwriters to the general public on the same terms as the
other shares.
We and the selling stockholders have agreed to indemnify the
underwriters against liabilities under the Securities Act, or
contribute to payments that the underwriters may be required to
make in that respect.
We have applied to list the shares of common stock on The NASDAQ
Global Market.
In connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Exchange Act.
•
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
•
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short
position. In a covered short position, the number of shares
over-allotted by the underwriters is not greater than the number
of shares that they may purchase in the over-allotment option.
In a naked short position, the number of shares involved is
greater than the number of shares in the over-allotment option.
The underwriters may close out any covered short position by
either exercising their over-allotment option
and/or
purchasing shares in the open market.
•
Syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares
available for purchase in the open market as compared to the
price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than
could be covered by the over-allotment option, a naked short
position, the position can only be closed out by buying shares
in the open market. A naked short position is more likely to be
created if the underwriters are concerned that there could be
downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase
in the offering.
•
Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
•
In passive market making, market makers in the common stock who
are underwriters or prospective underwriters may, subject to
limitations, make bids for or purchases of our common stock
until the time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our common stock or preventing or retarding
a decline in the market price of the common stock. As a result
the price of our common stock may be higher than the price that
might otherwise exist in the open market. These transactions may
be effected on The NASDAQ Global Market or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the
web sites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
The shares of common stock are offered for sale in those
jurisdictions in the United States, Europe, Asia and elsewhere
where it is lawful to make such offers.
Each of the underwriters has represented and agreed that it has
not offered, sold or delivered and will not offer, sell or
deliver any of the shares of common stock directly or
indirectly, or distribute this prospectus or any other offering
material relating to the shares of common stock, in or from any
jurisdiction except under circumstances that will result in
compliance with the applicable laws and regulations thereof and
that will not impose any objections on us except as set forth in
the underwriting agreement.
European
Economic Area
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each underwriter represents and agrees that with
effect from and including the date on which the Prospectus
Directive is implemented in that Relevant Member State (the
Relevant Implementation Date) it has not made and will not make
an offer of shares of common stock to the public in that
Relevant Member State prior to the publication of a prospectus
in relation to the shares of common stock which has been
approved by the competent authority in that Relevant Member
State or, where appropriate, approved in another Relevant Member
State and notified to the competent authority in that Relevant
Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant
Implementation Date, make an offer of shares of common stock to
the public in that Relevant Member State at any time,
•
to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
•
to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than € 43,000,000
and (3) an annual net turnover of more than €
50,000,000, as shown in its last annual or consolidated accounts;
•
to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the manager for any such
offer; or
in any other circumstances which do not require the publication
by the Issuer of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purposes of this provision, the expression an
“offer of Shares to the public” in relation to any
shares of common stock in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and the shares of common
stock to be offered so as to enable an investor to decide to
purchase or subscribe the shares of common stock, as the same
may be varied in that Member State by any measure implementing
the Prospectus Directive in that Member State and the expression
Prospectus Directive means Directive
2003/71/ EC
and includes any relevant implementing measure in each Relevant
Member State.
Notice to
Investors in the United Kingdom
Each of the underwriters severally represents, warrants and
agrees as follows:
•
it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of section 21 of FSMA) to persons who have professional
experience in matters relating to investments falling with
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 or in circumstances in
which section 21 of FSMA does not apply to the
company; and
•
it has complied with, and will comply with all applicable
provisions of FSMA with respect to anything done by it in
relation to the common stock in, from or otherwise involving the
United Kingdom.
The distribution of the common stock in Canada is being made
only on a private placement basis exempt from the requirement
that we and the selling stockholders prepare and file a
prospectus with the securities regulatory authorities in each
province where trades of common stock are made. Any resale of
the common stock in Canada must be made under applicable
securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the common stock.
Representations
of Purchasers
By purchasing common stock in Canada and accepting a purchase
confirmation a purchaser is representing to us, the selling
stockholders and the dealer from whom the purchase confirmation
is received that:
•
the purchaser is entitled under applicable provincial securities
laws to purchase the common stock without the benefit of a
prospectus qualified under those securities laws,
•
where required by law, that the purchaser is purchasing as
principal and not as agent,
•
the purchaser has reviewed the text above under Resale
Restrictions, and
•
the purchaser acknowledges and consents to the provision of
specified information concerning its purchase of the common
stock to the regulatory authority that by law is entitled to
collect the information.
Further details concerning the legal authority for this
information is available on request.
Rights of
Action — Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who
purchase a security offered by this prospectus during the period
of distribution will have a statutory right of action for
damages, or while still the owner of the common stock, for
rescission against us and the selling stockholders in the event
that this prospectus contains a misrepresentation without regard
to whether the purchaser relied on the misrepresentation. The
right of action for damages is exercisable not later than the
earlier of 180 days from the date the purchaser first had
knowledge of the facts giving rise to the cause of action and
three years from the date on which payment is made for the
common stock. The right of action for rescission is exercisable
not later than 180 days from the date on which payment is
made for the common stock. If a purchaser elects to exercise the
right of action for rescission, the purchaser will have no right
of action for damages against us or the selling stockholders. In
no case will the amount recoverable in any action exceed the
price at which the common stock was offered to the purchaser and
if the purchaser is shown to have purchased the securities with
knowledge of the misrepresentation, we and the selling
stockholders will have no liability. In the case of an action
for damages, we and the selling stockholders will not be liable
for all or any portion of the damages that are proven to not
represent the depreciation in value of the common stock as a
result of the misrepresentation relied upon. These rights are in
addition to, and without derogation from, any other rights or
remedies available at law to an Ontario purchaser. The foregoing
is a summary of the rights available to an Ontario purchaser.
Ontario purchasers should refer to the complete text of the
relevant statutory provisions.
Enforcement
of Legal Rights
All of our directors and officers as well as the experts named
herein and the selling stockholders may be located outside of
Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon us or
those persons. All or a substantial portion of our assets and
the assets of those persons may be located outside of Canada
and, as a result, it may not be possible to satisfy a judgment
against us or those persons in Canada or to enforce a judgment
obtained in Canadian courts against us or those persons outside
of Canada.
Canadian purchasers of common stock should consult their own
legal and tax advisors with respect to the tax consequences of
an investment in the common stock in their particular
circumstances and about the eligibility of the common stock for
investment by the purchaser under relevant Canadian legislation.
The validity of the shares of common stock offered hereby will
be passed upon for us by Wilmer Cutler Pickering Hale and Dorr
LLP, Boston, Massachusetts. Goodwin Procter LLP has acted as
counsel for the underwriters in connection with certain legal
matters related to this offering. As of the closing of this
offering, funds affiliated with Wilmer Cutler Pickering Hale and
Dorr LLP will own 157,910 shares of our common stock.
The financial statements as of January 31, 2007 and
January 31, 2006 and for each of the three years in the
period ended January 31, 2007 included in this prospectus
have been so included in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, given on the authority of said firm as experts
in auditing and accounting.
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of our
common stock we are offering to sell. This prospectus, which
constitutes part of the registration statement, does not include
all of the information contained in the registration statement.
You should refer to the registration statement and its exhibits
for additional information. Whenever we make reference in this
prospectus to any of our contracts, agreements or other
documents that are filed as exhibits to the registration
statement, the references are not necessarily complete and you
should refer to the exhibits filed with the registration
statement for copies of the actual contract, agreement or other
document.
We are subject to the information and periodic reporting
requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, we are required to file annual,
quarterly and special reports, proxy statements and other
information with the SEC. These documents are publicly
available, free of charge, on our website, which is located at
www.netezza.com.
You can read the registration statement and our future filings
with the Securities and Exchange Commission, over the Internet
at the Securities and Exchange Commission’s website at
www.sec.gov. You may also read and copy any document that
we file with the Securities and Exchange Commission at its
public reference room at 100 F Street, N.E. Room 1580,
Washington, DC 20549.
You may also obtain copies of the documents at prescribed rates
by writing to the Public Reference Section of the Securities and
Exchange Commission at 100 F Street, N.E. Room 1580,
Washington, DC 20549. Please call the Securities and
Exchange Commission at
1-800-SEC-0330
for further information on the operation of the public reference
room.
To the Board of Directors and Stockholders of Netezza
Corporation:
The reverse stock split described in Note 18 to the
financial statements has not been consummated at March 22,2007. When it has been consummated, we will be in a position to
furnish the following report:
“In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of operations,
stockholders equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Netezza
Corporation and its subsidiaries at January 31, 2007 and
January 31, 2006, and the results of their operations and
their cash flows for each of the three years in the period ended
January 31, 2007 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial
statements, the Company adopted FASB Staff Position
150-5
(“FSP
150-5”),
Issuer’s Accounting under FASB Statement No. 150
for Freestanding Warrants and Other Similar Instruments on
Shares That Are Redeemable, during the year ended
January 31, 2006. As discussed in
Note 2 to the consolidated financial statements, effective
February 1, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment.”
LIABILITIES, CONVERTIBLE
REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable
$
2,502
$
12,683
$
12,683
Accrued expenses
6,847
8,678
8,678
Current portion of note payable to
bank
511
2,436
2,436
Refundable exercise price for
restricted stock
56
24
24
Deferred revenue
9,715
14,741
14,741
Total current liabilities
19,631
38,562
38,562
Long-term deferrred revenue
—
9,765
9,765
Note payable to bank, net of
current portion
2,489
4,099
4,099
Preferred stock warrant liability
476
765
765
Total long-term liabilities
2,965
14,629
14,629
Total liabilities
22,596
53,191
53,191
Commitments and contingencies
(Note 15)
Convertible redeemable preferred
stock, par value $0.001 per share;
Series A; 17,280,000 shares authorized;
17,200,000 shares issued and outstanding at
January 31, 2006 and 2007, respectively (liquidation
preference of $8,600 at January 31, 2007)
12,117
12,805
—
Series B;
29,425,622 shares authorized; 29,389,622 shares issued
and outstanding at January 31, 2006 and 2007, respectively
(liquidation preference of $25,375 at January 31, 2007)
33,214
35,245
—
Series C;
23,058,151 shares authorized, issued and outstanding at
January 31, 2006 and 2007, respectively (liquidation
preference of $20,001 at January 31, 2007)
24,100
25,700
—
Series D;
8,147,452 shares authorized; 7,901,961 shares issued
and outstanding at January 31, 2006 and 2007, respectively
(liquidation preference of $20,150 at January 31, 2007)
21,769
23,381
—
Total convertible redeemable
preferred stock
91,200
97,131
—
Stockholders’ equity (deficit):
Common stock, $0.001 par
value; 150,000,000, 150,000,000 and 500,000,000 shares
authorized at January 31, 2006, January 31, 2007 and
pro forma 2007, respectively; 7,115,459, 7,542,372 and
46,317,219 shares issued at January 31, 2006, 2007 and pro
forma 2007, respectively
7
8
46
Treasury stock, at cost;
139,062 shares at January 31, 2006 and 2007 and pro
forma 2007, respectively
(14
)
(14
)
(14
)
Other comprehensive income
65
(284
)
(284
)
Additional paid-in-capital
—
—
97,093
Accumulated deficit
(67,990
)
(80,833
)
(80,833
)
Total stockholders’ equity
(deficit)
(67,932
)
(81,123
)
16,008
Total liabilities, convertible
redeemable preferred stock and stockholders’ equity
(deficit)
$
45,864
$
69,199
$
69,199
See accompanying Notes to Consolidated Financial Statements
Netezza Corporation (the “Company”) is a leading
provider of data warehouse appliances. The Company’s
product, the Netezza Performance Server, or NPS, integrates
database, server and storage platforms in a purpose-built unit
to enable detailed queries and analyses on large volumes of
stored data. The results of these queries and analyses, often
referred to as business intelligence, provide organizations with
actionable information to improve their business operations. The
NPS data warehouse appliance was designed specifically for
analysis of terabytes of data at higher performance levels and
at a lower total cost of ownership with greater ease of use than
can be achieved via traditional data warehouse systems. The NPS
appliance performs faster, deeper and more iterative analyses on
larger amounts of detailed data, giving customers greater
insight into trends and anomalies in their businesses, thereby
enabling them to make better strategic decisions.
The Company incurred net losses in fiscal 2005, 2006 and 2007 of
approximately $3.0 million, $14.0 million and
$8.0 million, respectively. The Company had an accumulated
deficit of approximately $80.8 million at January 31,2007. Management expects operating losses and negative cash
flows from operations to continue into the near future due to
continued expansion of operations. To date the Company has been
successful in completing several rounds of private equity
financing. Based on the Company’s current operating plan
and its current cash balances, the Company expects to have
sufficient cash to finance its operations through fiscal 2008.
The Company’s future beyond fiscal 2008 is dependent upon
its ability to achieve break-even or positive operating cash
flow, or raise additional financing. There can be no assurances
that the Company will be able to do so.
2.
Summary
of Significant Accounting Policies
Basis
of Presentation
The accompanying consolidated financial statements include those
of the Company and its wholly-owned subsidiaries, after
elimination of all intercompany accounts and transactions. The
Company has prepared the accompanying consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America.
Unaudited
Pro Forma Presentation
Upon the closing of the Company’s initial public offering
of common stock, all of the outstanding shares of Series A,
B, C and D preferred stock will automatically convert into
38,774,847 shares of the Company’s common stock,
assuming the proceeds to the Company are at least
$40 million and the initial public offering price per share
is at least $7.00 (after giving effect to the reverse split
described in Note 18). The unaudited pro forma presentation
of the balance sheet has been prepared assuming the conversion
of all shares of preferred stock into 38,774,847 shares of
common stock as of January 31, 2007.
Unaudited pro forma net loss per share is computed using the
weighted average number of common shares outstanding, including
the pro forma effects of automatic conversion of all outstanding
redeemable convertible preferred stock into shares of the
Company’s common stock effective upon the assumed closing
of the Company’s proposed initial public offering as if
such conversion had occurred at the date of original issuance.
Use of
Estimates
The preparation of these financial statements in conformity with
accounting principles generally accepted in the United States of
America requires the Company to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses, and disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates these
estimates and judgments, including those related to revenue
recognition, warranty claims, the write down of inventory to net
realizable value, stock-based compensation and income taxes. The
Company bases these estimates on historical and anticipated
results and trends and on various other assumptions that the
Company believes are reasonable under the circumstances,
including assumptions as to future
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
events. These estimates form the basis for making judgments
about the carrying values of assets and liabilities that are not
readily apparent from other sources. By their nature, estimates
are subject to an inherent degree of uncertainty. Actual results
may differ from the Company’s estimates.
Reclassification
Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
Cash,
Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an
original or remaining maturity of three months or less at the
time of purchase to be cash equivalents. Cash equivalents and
restricted cash consist primarily of investments in money market
funds of major financial institutions. Accordingly, its
investments are subject to minimal credit and market risk. At
January 31, 2006 and 2007, cash equivalents were comprised
of money market funds totaling $10.7 million and
$0.3 million, respectively. These cash equivalents are
carried at cost which approximates fair value. Restricted cash
represents the amount of cash equivalents required to be
maintained by the Company under a letter of credit to comply
with the requirements of an office space lease agreement. The
letter of credit totaled $0.3 million at January 31,2006 and 2007.
Revenue
Recognition
The Company derives revenue from the sale of its products and
professional services. Revenue is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable and collectibility of the
related receivable is probable. This policy is applicable to all
revenue transactions, including sales to resellers and end
users. The following summarizes the major terms of the
Company’s contractual relationships with end users and
resellers and the manner in which these transactions are
accounted.
The Company’s product offerings include the sale of
hardware with its embedded propriety software. Revenue from
these transactions is recognized upon shipment unless shipping
terms or local laws do not allow the title and risk of loss to
transfer at shipping point. In those cases, the Company defers
revenue until title and risk of loss transfer to the customer.
The Company does not customarily offer a right of return on its
product sales and any acceptance criteria is normally based upon
published specifications. In cases where a right of return is
granted, the Company defers revenue until such rights expire. If
acceptance criteria are not based on published specifications
with which the Company can ensure compliance, the Company defers
revenue until acceptance has been confirmed or the right of
return expires. The Company provides a 90 day standard
warranty. Customers may purchase a standard maintenance
agreement covering hardware and software for periods subsequent
to the initial standard warranty.
The Company’s services revenue consists of installation
services, software and hardware maintenance, training and
professional services. Installation and professional services
are not considered essential to the functionality of the
Company’s products as these services do not customize or
alter the product capabilities and could be performed by
customers or other vendors. Installation and professional
services revenue is recognized upon completion of installation
or requested services. Software and hardware maintenance revenue
is recognized ratably over the contract period. Training revenue
is recognized upon the completion of the training.
The Company enters into multiple element arrangements in the
normal course of business with its customers. Elements in such
arrangements are recognized when delivered and the amount
allocated to each element is based on vendor specific objective
evidence of fair value (“VSOE”). VSOE is determined
based upon the amount charged when an element is sold
separately. When VSOE exists for undelivered elements but not
for the delivered elements, the Company uses the “residual
method.” Under the residual method, the fair values of the
undelivered elements are initially deferred. The residual
contract amount is then allocated to and recognized for the
delivered elements.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Thereafter, the amount deferred for the undelivered element is
recognized when those elements are delivered. For arrangements
in which VSOE does not exist for each undelivered element,
revenue for the entire arrangement is deferred and not
recognized until delivery of all the elements without VSOE has
occurred, unless the only undelivered element is maintenance in
which case the entire contract is recognized ratably over the
maintenance period.
For sales through resellers and distributors, the Company
delivers the product directly to the end user customer to which
the product has been sold. Revenue recognition on reseller and
distributor arrangements is accounted for as described above.
Inventory
Inventories are stated at the lower of standard cost or market
value. Cost is determined by the
first-in,
first-out method and market value represents the lower of
replacement cost or estimated net realizable value. The Company
maintains a reserve for inventory items to provide for an
estimated amount of excess or obsolete inventory.
Activity related to the inventory reserve was as follows (in
thousands):
Deductions related to inventory reserve accounts represent
amounts written off against the reserve.
Property
and Equipment
Property and equipment are recorded at cost and consist
primarily of engineering test equipment and computer equipment
and software. Depreciation is computed using the straight-line
method over the estimated useful lives as follows:
Estimated
Useful Life
Engineering test equipment
1 to 3 years
Computer equipment and software
3 years
Furniture and fixtures
5 years
Leasehold improvements
Term of lease
Expenditures for additions, renewals and betterments of property
and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. As assets are
retired or sold, the related cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is
credited or charged to operations.
Impairment
of Long-Lived Assets
The Company periodically evaluates the recoverability of
long-lived assets whenever events and changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable. When indicators of impairment are present, the
carrying values of the assets are evaluated in relation to the
operating performance and future undiscounted cash flows of the
underlying business. The net book value of the underlying asset
is adjusted to fair value if the sum of the expected discounted
cash flows is less than book value. Fair values are based on
estimates
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of market prices and assumptions concerning the amount and
timing of estimated future cash flows and assumed discount
rates, reflecting varying degrees of perceived risk. There were
no impairment charges recorded during any of the periods
presented.
Fair
Value of Financial Instruments
The carrying value of the Company’s financial instruments,
including cash equivalents, restricted cash, accounts
receivable, accounts payable and other accrued expenses,
approximate their fair values due to their short maturities. The
fair value of the Company’s notes payable approximates the
carrying value of the notes.
Freestanding
Preferred Stock Warrants
The Company accounts for freestanding warrants and other similar
instruments related to shares that are redeemable in accordance
with SFAS No. 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity.” Under SFAS No. 150, the
freestanding warrants that are related to the Company’s
convertible preferred stock are classified as liabilities on the
consolidated balance sheet. The warrants are subject to
re-measurement at each balance sheet date and any change in fair
value is recognized as a component of other income (expense),
net. The Company will continue to adjust the liability for
changes in fair value until the earlier of the exercise or
expiration of the warrants or the completion of a liquidation
event, including the completion of an initial public offering,
at which time all preferred stock warrants will be converted
into warrants to purchase common stock and, accordingly, the
liability will be reclassified to stockholders’ equity
(deficit).
Research
and Development
Costs incurred in the research and development of the
Company’s products are expensed as incurred, except certain
software development costs. Costs associated with the
development of computer software are expensed as incurred prior
to the establishment of technological feasibility in accordance
with SFAS No. 86, “Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise
Marketed.” Costs incurred subsequent to the
establishment of technological feasibility and prior to the
general release of the products are capitalized. No software
development costs have been capitalized to date since costs
incurred between the establishment of technological feasibility
and the software’s
available-for-sale
date have been insignificant.
Foreign
Currency Translation
The financial statements of the Company’s foreign
subsidiaries are translated in accordance with
SFAS No. 52, “Foreign Currency
Translation.” The functional currency for the
Company’s foreign subsidiaries is the applicable local
currency. For financial reporting purposes, assets and
liabilities of subsidiaries outside the United States of America
are translated into U.S. dollars using year-end exchange
rates. Revenue and expense accounts are translated at the
average rates in effect during the year. The effects of foreign
currency translation adjustments are included in accumulated
other comprehensive income as a component of stockholders’
equity. Transaction gains (losses) for the fiscal years ended
January 31, 2005, 2006 and 2007 were $35,000,
$(0.1) million and $0.8 million, respectively and
recorded as other income (expense), net in the consolidated
statements of operations.
Concentration
of Credit Risk and Significant Customers
The Company maintains its cash in bank deposit accounts at high
quality financial institutions. The individual balances, at
times, may exceed federally insured limits. However, the Company
does not believe that it is subject to unusual credit risk
beyond the normal credit risk associated with commercial banking
relationships.
Financial instruments which potentially expose the Company to
concentrations of credit risk consist of accounts receivable.
Management believes its credit policies are prudent and reflect
normal industry terms and business risk. As of January 31,2006, three customers accounted for 18%, 13% and 12% of accounts
receivable,
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
while three customers accounted for 21%, 15% and 11% of accounts
receivable as of January 31, 2007. In addition, two
customers accounted for 49% and 12% of total revenue for the
fiscal year ended January 31, 2005, while one customer
accounted for 10% of total revenue for the fiscal year ended
January 31, 2006 and no customer accounted for 10% or
greater of total revenue for the fiscal year ended
January 31, 2007.
Stock-Based
Compensation
Through January 31, 2006, the Company accounted for its
stock-based employee compensation arrangements in accordance
with the intrinsic value provisions of APB Opinion No. 25,
“Accounting for Stock Issued to Employees” and
related interpretations. Under the intrinsic value method,
compensation expense is measured on the date of the grants as
the difference between the fair value of the Company’s
common stock and the exercise or purchase price multiplied by
the number of stock options or restricted stock awards granted.
Through January 31, 2006, the Company accounted for
stock-based compensation expense for non-employees using the
fair value method prescribed by Statement of Financial
Accounting Standards, or SFAS, No. 123, “Accounting for
Stock-Based Compensation,” and the Black-Scholes option
pricing model, and recorded the fair value of non-employee stock
options as an expense over the vesting term of the option.
In December 2004, FASB issued SFAS No. 123(R),
“Share-Based Payment,” a revision of
SFAS No. 123, which requires companies to expense the
fair value of employee stock options and other forms of
stock-based compensation. The Company adopted
SFAS No. 123(R) effective February 1, 2006.
SFAS No. 123(R) requires nonpublic companies that used
the minimum value method under SFAS No. 123 for either
recognition or pro forma disclosures to apply
SFAS No. 123(R) using the prospective-transition
method. As such, the Company will continue to apply APB Opinion
No. 25 in future periods to equity awards outstanding at
the date of adoption of SFAS No. 123(R) that were
measured using the minimum value method. In accordance with
SFAS No. 123(R), the Company will recognize the
compensation cost of employee stock-based awards granted
subsequent to January 31, 2006 in the statement of
operations using the straight line method over the vesting
period of the award. Effective with the adoption of
SFAS No. 123(R), the Company has elected to use the
Black-Scholes option pricing model to determine the fair value
of stock options granted.
As there has been no public market for the Company’s common
stock prior to this offering, and therefore a lack of
company-specific historical and implied volatility data, the
Company has determined the share price volatility for options
granted in fiscal 2007 based on an analysis of reported data for
a peer group of companies that granted options with
substantially similar terms. The expected volatility of options
granted has been determined using an average of the historical
volatility measures of this peer group of companies for a period
equal to the expected life of the option. The expected
volatility for options granted during the fiscal year ended
January 31, 2007 was 75% — 83%. The Company
intends to continue to consistently apply this process using the
same or similar entities until a sufficient amount of historical
information regarding the volatility of the Company’s share
price becomes available, or unless circumstances change such
that the identified entities are no longer similar to the
Company. In this latter case, more suitable, similar entities
whose share prices are publicly available would be utilized in
the calculation.
The expected life of options has been determined utilizing the
“simplified” method as prescribed by the SEC’s
Staff Accounting Bulletin No. 107, “Share-Based
Payment.” The expected life of options granted during
the fiscal year ended January 31, 2007 was 6.5 years.
For the fiscal year ended January 31, 2007, the
weighted-average risk free interest rate used ranged from 4.56%
to 5.03%. The risk-free interest rate is based on the daily
treasury yield curve rate whose term is consistent with the
expected life of the stock options. The Company has not paid and
does not anticipate paying cash dividends on its shares of
common stock; therefore, the expected dividend yield is assumed
to be zero.
In addition, SFAS No. 123(R) requires forfeitures to
be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates, whereas SFAS No. 123 permitted companies to
record forfeitures based on actual forfeitures, which was the
Company’s historical policy under SFAS No. 123.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As a result, the Company applied an estimated forfeiture rate,
based on its historical forfeiture experience, of 2.0% in the
fiscal year ended January 31, 2007 in determining the
expense recorded in its consolidated statement of operations.
The Company has historically granted stock options at exercise
prices no less than the fair market value as determined by the
Company’s board of directors, with input from management.
The Company’s board exercised judgment in determining the
estimated fair value of the Company’s common stock on the
date of grant based on a number of objective and subjective
factors. Factors considered by the Company’s board of
directors included:
•
independent valuation reports that the Company received;
•
the
agreed-upon
consideration paid in arms-length transactions in the form of
convertible preferred stock;
•
the superior rights and preferences of securities senior to the
Company’s common stock at the time of each grant;
•
historical and anticipated fluctuations in the Company’s
net sales and results of operations; and
•
the risk of owning the Company’s common stock and its
non-liquid nature.
During fiscal 2007 the Company granted stock options with
exercise prices as follows:
In accordance with the prospective transition method, the
Company’s financial statements for prior periods have not
been restated to reflect, and do not include, the impact of the
adoption of SFAS No. 123(R). For the fiscal year ended
January 31, 2007, the Company recorded expense of
$0.9 million in connection with stock-based awards.
Unrecognized stock-based compensation expense of non-vested
stock options of $6.2 million, net of forfeitures, is
expected to be recognized using the straight line method over a
weighted-average period of 4.2 years.
Net
Loss Per Share
The Company computes basic net income/(loss) per share
attributable to common stockholders by dividing its net loss
attributable to common stockholders for the period by the
weighted average number of common shares outstanding during the
period. Net loss attributable to common stockholders is
calculated using the two-class method; however, preferred stock
dividends were not included in the Company’s diluted net
loss per share calculations because to do so would be
anti-dilutive for all periods presented.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The components of the net loss per share attributable to common
stockholders were as follows for the fiscal years ended
January 31, 2005, 2006 and 2007 (in thousands except share
and per share amounts):
Weighted average shares used to
compute basic and diluted net loss per share
6,077,538
6,635,274
7,230,278
Net loss per share attributable to
common stockholders — basic and diluted
(1.17
)
(2.99
)
(1.92
)
Preferred stock convertible into 37,892,845, 38,774,847 and
38,774,847 shares of common stock as of the fiscal years
ended January 31, 2005, 2006 and 2007, respectively;
options to purchase 4,471,594, 4,352,658 and 7,480,447 shares of
common stock as of the fiscal years ended January 31, 2005,
2006 and 2007, respectively; warrants to purchase 116,000,
202,275 and 241,490 shares of convertible preferred stock as of
the fiscal years ended January 31, 2005, 2006 and 2007,
respectively; and warrants to purchase 192,036, 192,036 and
192,036 shares of common stock as of the fiscal years ended
January 31, 2005, 2006 and 2007, respectively; were
excluded from the computation of diluted net loss per share for
the periods presented because a loss was incurred in those
periods and including the preferred stock, options and warrants
would be anti-dilutive.
Unaudited
Pro Forma Net Loss per Share
Pro forma basic and diluted net loss per share have been
computed to give effect to the conversion of the Company’s
preferred stock (using the if converted method) into common
stock as though the conversion had occurred on the original
dates of issuance and to adjustments to eliminate accretion to
preferred stock and the expenses that were recorded for the
remeasurement to fair value of the preferred stock warrants (in
thousands, except share and per share data).
Add: change in value associated
with preferred stock warrants
198
Pro forma net loss
(7,777
)
Denominator
Weighted average common shares
used to compute basic and diluted net loss per share
7,230,278
Pro forma adjustments to reflect
assumed weighted effect of conversion of redeemable convertible
preferred stock
38,774,847
Weighted average shares used to
compute basic and diluted pro forma net loss per share
46,005,125
Pro forma net loss per share:
Basic and diluted
$
(0.17
)
Advertising
Expense
The Company expenses advertising costs as they are incurred.
During the fiscal years ended January 31, 2005, 2006 and
2007, advertising expense totaled $0.3 million,
$0.4 million and $0.3 million, respectively.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Income
Taxes
Deferred taxes are determined based on the difference between
the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are
provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets
will not be realized.
Comprehensive
Income (Loss)
Comprehensive income (loss) for the fiscal years ended
January 31, 2005, 2006 and 2007 consists of net income
(loss) and adjustments to shareholders’ equity for the
foreign currency translation adjustment. For the purposes of
comprehensive income (loss) disclosures, the Company does not
record tax provisions or benefits for the net changes in the
foreign currency translation adjustment, as the Company intends
to permanently reinvest undistributed earnings in its foreign
subsidiaries. Accumulated other comprehensive income consists
only of foreign exchange gains and losses.
The components of comprehensive income (loss) are as follows (in
thousands):
On February 15, 2007, the FASB issued Statement
No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities — Including an
amendment of FASB Statement No. 115,”
(“SFAS 159”), which permits companies to choose
to measure many financial instruments and certain other items at
fair value. The objective of SFAS 159 is to improve
financial reporting by providing companies with the opportunity
to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to
apply complex hedge accounting provisions. SFAS 159 is
effective for fiscal years beginning after November 15,2007. Management is currently evaluating the effect that
SFAS 159 may have on the Company’s financial
statements taken as a whole.
In September 2006, the FASB issued SFAS No. 157,
“Fair Value Measurements,”which defines fair
value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures
about fair value measurements. This statement does not require
any new fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value
measurements. The provisions of SFAS No. 157 are
effective for fiscal years beginning after November 15,2007. The Company is currently assessing SFAS No. 157
and has not yet determined the impact, if any, that its adoption
will have on its result of operations or financial condition.
In June 2006, the FASB issued FASB Interpretation No.
(“FIN”) 48, “Accounting for Uncertainty in
Income Taxes — An Interpretation of FASB Statement
No. 109”, which prescribes a recognition threshold
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 will be effective for
fiscal years beginning after December 15, 2006. The Company
does not expect the adoption to have a material impact on its
results of operations or financial condition.
In May 2005, the FASB issued SFAS No. 154,
“Accounting Changes and Error Corrections,”
which replaces APB No. 20, “Accounting
Changes,”and SFAS No. 3, “Reporting
Accounting Changes in Interim Financial
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Statements — An Amendment of APB Opinion
No. 28.” SFAS No. 154 provides guidance on
the accounting for and reporting of accounting changes and error
corrections. It establishes retrospective application, or the
latest practicable date, as the required method for reporting a
change in accounting principle and the reporting of a correction
of an error. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The Company adopted
SFAS No. 154 effective February 1, 2006 and the
adoption did not have an effect on its consolidated results of
operations and financial condition.
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs,” an amendment of Accounting
Research Bulletin (“ARB”) No. 43, Chapter 4,
“Inventory Pricing.”SFAS No. 151
amends previous guidance regarding treatment of abnormal amounts
of idle facility expense, freight, handling costs, and spoilage.
SFAS No. 151 requires that those items be recognized
as current period charges regardless of whether they meet the
criterion of “so abnormal” which was the criterion
specified in ARB No. 43. In addition,
SFAS No. 151 requires that allocation of fixed
production overheads to the cost of the production be based on
normal capacity of the production facilities. The Company
adopted SFAS No. 151 effective February 1, 2006
and the adoption did not have an effect on its consolidated
results of operations and financial condition.
From time to time, new accounting pronouncements are issued by
the FASB that are adopted by the Company as of the specified
effective date. Unless otherwise discussed, the Company believes
that the impact of recently issued standards, which are not yet
effective, will not have a material impact on the Company’s
consolidated financial statements upon adoption.
3.
Change in
Accounting Principle
On June 29, 2005, the FASB issued Staff Position
150-5,
Issuer’s Accounting under FASB
Statement No. 150 for Freestanding Warrants and Other
Similar Instruments on Shares That Are Redeemable
(“FSP 150-5”).
FSP 150-5
affirms that warrants of this type are subject to the
requirements in SFAS No. 150, regardless of the
redemption price or the timing of the redemption feature.
Therefore, under SFAS No. 150, the freestanding
warrants to purchase the Company’s convertible preferred
stock are liabilities that must be recorded at fair value.
The Company adopted FSP
150-5 as of
August 1, 2005 and recorded an expense of $0.2 million
for the cumulative effect of the change in accounting principle
to reflect the estimated fair value of these warrants as of that
date. There was no change in fair value between the adoption
date and January 31, 2006. In the year ended
January 31, 2007, the Company recorded $0.2 million of
additional expense to reflect the increase in fair value between
February 1, 2006 and January 31, 2007.
These warrants are subject to revaluation at each balance sheet
date, and any change in fair value will be recorded as a
component of other income (expense), net, until the earlier of
their exercise or expiration or the completion of a liquidation
event, including the completion of an initial public offering,
at which time the preferred stock warrant liability will be
reclassified to stockholders’ equity (deficit).
The pro forma effect of the adoption of FSP
150-5 on the
Company’s results of operations for 2004 and 2005, if
applied retroactively as if FSP
150-5 had
been adopted in those years, was not material.
4.
Restricted
Cash
In May 2002, the Company obtained a letter of credit to comply
with the requirements stated in an office space lease agreement.
Under the letter of credit, the Company was required to maintain
cash equivalents equal to four months rent for the related
lease, which was $0.2 million as of January 31, 2003.
This requirement was released in December 2003 in conjunction
with the renegotiation of the office space lease agreement. In
February 2004, the Company renegotiated the lease and obtained a
letter of credit to comply with the new requirements which was
$0.3 million as of January 31, 2007 (Note 15).
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In April 2005, the Company obtained a letter of credit to comply
with the requirements stated in an office space sublease
agreement. Under the letter of credit, the Company was required
to maintain cash equivalents equal to three months rent for the
related sublease, which was $0.1 million as of
January 31, 2007 (Note 15).
5.
Inventory
Inventory consists of the following (in thousands):
Depreciation and amortization expense for the fiscal years ended
January 31, 2005, 2006 and 2007, was $1.8 million,
$2.8 million, and $2.6 million, respectively. During
the fiscal year ended January 31, 2007, the Company wrote
off fully depreciated property and equipment with an original
cost of $0.5 million.
In August 2001, the Company entered into an equipment line of
credit agreement with a bank. Under the equipment line of
credit, the Company was able to borrow up to $1.0 million
for the purchase of property and equipment. The Company obtained
advances in the amount of $1.0 million on the equipment
line of credit in August 2001. Advances on the equipment line of
credit were under a note payable to the bank and were to be
repaid in 36 equal consecutive monthly installments commencing
on the drawdown date. Interest was fixed at 8% for the term of
the loan. The loan was secured by all assets of the Company,
excluding intellectual property and property and equipment
financed under lease transactions.
In September 2002, the Company negotiated an amendment to the
equipment line of credit agreement, which allowed the Company to
borrow up to an additional $0.8 million. In conjunction
with the execution of this amendment, the Company issued a
warrant to purchase 36,000 shares of Series B
preferred stock at a price of $0.8634 per share
(Note 11).
In June 2005, the Company entered into a credit line agreement
with an outside party. Under this agreement, the Company was
able borrow up to $8.0 million. The Company was required to
make interest only payments on any amounts borrowed through June
2006 and is then required to make 36 equal consecutive monthly
installments of principal and interest through June 2009. The
Company borrowed $3.0 million as of January 31, 2006
and borrowed the remaining available $5.0 million as of
June 30, 2006. Interest rates are fixed for the term of the
loan at the time of each advance and are 10%, 10.75%, 11.75% and
12% as of January 31, 2007. The loan is secured by all
assets of the Company, excluding intellectual property. In
addition, the Company issued warrants for 125,490 shares of
Series D preferred stock at a price of $2.55 per share
(Note 11). As of January 31, 2006 and 2007, there was
$3.0 million and $6.5 million, respectively,
outstanding under the line of credit. Interest expense on the
line of credit of $0.1 million and $0.7 million was
incurred for the fiscal years ended January 31, 2006 and
2007, respectively.
In January 2007, the Company entered into a revolving credit
line agreement with an outside party. Under this agreement, the
Company can borrow up to $15.0 million. Borrowings under
the line are due and payable on the maturity date which is
January 31, 2008. The interest on this revolving credit
line is a floating rate and is 1% below the prime rate and at
January 31, 2007 was 7.25%. Interest is payable monthly.
This revolving line of credit agreement contains a financial
covenant that provides that the Company must achieve certain
minimum revenue targets for each of the six succeeding fiscal
quarters ending on April 30, 2008. The Company is in
compliance with this covenant as of January 31, 2007. The
loan is secured by all assets of the Company, excluding
intellectual property. This agreement contains both a subjective
acceleration clause and a requirement to maintain a lock-box
arrangement. These conditions result in a short-term
classification of the line of credit in accordance with EITF
Issue
No. 95-22,
“Balance Sheet Classification of Borrowings Outstanding
under revolving Credit Agreements that
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
include both a Subjective Acceleration Clause and a
Lock-Box Arrangement.” The Company had no
borrowings under this line at January 31, 2007.
10.
Convertible
Redeemable Preferred Stock
As of January 31, 2006 and 2007, the Company’s
outstanding Series A, Series B, Series C and
Series D preferred stock is comprised of the following (in
thousands except share amounts):
Series A;
17,280,000 shares authorized, 17,200,000 shares issued
and outstanding at January 31, 2006 and 2007, respectively
(liquidation preference of $8,600 at January 31, 2007)
$
12,117
$
12,805
Series B;
29,425,622 shares authorized; 29,389,622 shares issued
and outstanding at January 31, 2006 and 2007, respectively
(liquidation preference of $25,375 at January 31, 2007)
33,214
35,245
Series C;
23,058,151 shares authorized, issued and outstanding at
January 31, 2006 and 2007, respectively (liquidation
preference of $20,001 at January 31, 2007)
24,100
25,700
Series D;
8,147,452 shares authorized; 7,901,961 shares issued
and outstanding at January 31, 2006 and 2007, respectively
(liquidation preference of $20,150 at January 31, 2007)
21,769
23,381
Total convertible redeemable
preferred stock
$
91,200
$
97,131
Voting
Holders of Series A, Series B, Series C and
Series D preferred stock are entitled to the number of
votes equal to the number of common shares into which the shares
of Series A, Series B, Series C and Series D
preferred stock may be converted.
Dividends
At any time that a dividend is declared or paid on the common
stock, there will simultaneously be declared and paid dividends
to the holders of the Series A, Series B,
Series C and Series D preferred stock in an amount
which such holder would have received had all shares of
Series A, Series B, Series C and Series D
preferred stock been converted to common stock at the conversion
price then in effect.
Dividends accrue on the Series A, Series B,
Series C and Series D preferred stock solely for the
purpose of determining the redemption price of those shares. In
connection with the sale of Series D preferred stock, the
accumulating dividend rate was changed retroactively from
8% per year for holders of Series A, Series B and
Series C preferred stock to $0.04, $0.0691 and
$0.0694 per year, respectively. Holders of Series D
preferred stock are entitled to accumulating dividends at the
rate of $0.204 per year. The retroactive adjustment of the
amended dividend rates on Series A, Series B and
Series C preferred stock resulted in a reduction of
previously recorded dividends of $0.4 million. This
adjustment was recorded as a reduction to the 2005 preferred
stock dividends.
As of January 31, 2007 cumulative unpaid dividends were
$4.2 million, $9.9 million, $5.7 million and
$3.2 million on Series A, Series B, Series C
and Series D preferred stock, respectively, and are payable
upon redemption.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Liquidation
Preference
In the event of a liquidation, dissolution or
winding-up
of the Company, the holders of Series A, Series B,
Series C and Series D preferred stock are entitled to
receive, prior to and in preference to holders of common stock,
an amount equal to $0.50, $0.8634, $0.8674 and $2.55 per
share, respectively, plus any declared but unpaid dividends. If
upon any such liquidation, dissolution or winding up of the
Company the remaining assets of the Company are insufficient to
pay the full amount entitled, the holders of Series A,
Series B, Series C and Series D preferred stock
will share ratably in the distribution of remaining assets.
Conversion
Each share of Series A, Series B, Series C and
Series D preferred stock, at the option of the holder, may
be converted into common stock. The Series A,
Series B, Series C and Series D preferred stock
converts into common stock at an exchange ratio as determined by
dividing $0.50, $0.8634, $0.8674 and $2.55, respectively, by the
conversion price in effect at the time. The conversion price of
Series A, Series B, Series C and Series D
preferred stock is subject to adjustment in accordance with
certain antidilution provisions. After giving effect to the
reverse stock split described in Note 18, the conversion
ratio of all outstanding preferred stock will be one share of
common stock for each two shares of preferred stock. The
Series A, Series B, Series C and Series D
preferred stock will automatically convert into common stock
upon the closing of an initial public offering in which the
offering price equals or exceeds $7.00 per share (after
giving effect to the reverse stock split, and subject to further
adjustment to reflect subsequent stock splits, stock
combinations, stock dividends or recapitalizations) and results
in gross proceeds of at least $40.0 million, or upon
written consent of at least 60% of the then outstanding
Series A preferred stock and
662/3%
of the then outstanding Series B preferred stock,
662/3%
of the then outstanding Series C preferred stock and a
majority of the then outstanding Series D preferred stock.
Redemption
At any time on or after December 22, 2009, upon the written
request of a majority of the votes represented by the then
outstanding shares of Series A, Series B,
Series C and Series D preferred stockholders, the
Series A, Series B, Series C and Series D
preferred stockholders shall have the right to cause the Company
to redeem each share at the greater of (i) $0.50, $0.8634,
$0.8674 and $2.55 per share, respectively, plus an
accumulating dividend of $0.04, $0.0691, $0.0694 and
$0.204 per year, respectively, and all declared but unpaid
dividends, or (ii) the fair market value of such stock.
Redemption for Series A, Series B, Series C and
Series D preferred stock will be paid in three annual
installments commencing 60 days from the redemption
request. There have been no dividends declared on the preferred
or common stock through January 31, 2007.
11.
Warrants
for Preferred Stock
In August 2001, the Company issued warrants to purchase
80,000 shares of Series A preferred stock in
conjunction with the issuance of the equipment line of credit.
The warrants have an exercise price of $0.50 per share and
a term of seven years. The Company calculated the fair value of
each warrant using the Black-Scholes option pricing model with
the following assumptions: volatility of 100%, term of seven
years, risk-free interest rate of 4.27% and a dividend yield of
0%. The Company recorded the fair value of the warrants of
$32,410 as a premium to the debt which was amortized to interest
expense. There was no amortization in fiscal years 2005, 2006 or
2007. These warrants were outstanding at January 31, 2007.
In September 2002, the Company issued warrants to purchase
36,000 shares of Series B preferred stock in
conjunction with obtaining a line of credit. The warrants have
an exercise price of $0.8634 per share and a term of seven
years. The Company calculated the fair value of each warrant
using the Black-Scholes option pricing model with the following
assumptions: volatility of 100%, term of seven years, risk-free
interest rate of 3.4% and a dividend yield of 0%. The Company
recorded the fair value of the warrants of $25,856 as a premium
to the debt which was amortized to interest expense over
36 months. There was $14,341, $0 and $0 which was recorded
to
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
interest expense in fiscal years 2005, 2006 and 2007,
respectively. These warrants were outstanding at
January 31, 2007.
In June 2005, the Company issued warrants to purchase
62,745 shares of Series D Preferred stock in
conjunction with obtaining a line of credit. The warrants have
an exercise price of $2.55 per share and a 10 year
term. The Company calculated the fair value of each warrant
using the Black-Scholes option pricing model with the following
assumptions: volatility of 100%, term of ten years, risk free
interest rate of 4.1% and a dividend yield of 0%. The Company
recorded the fair value of the warrants of $145,172 as a premium
to the debt which is being amortized to interest expense over
term of the line or 48 months. There was $0, $21,171 and
$36,293 recorded to interest expense in 2005, 2006 and 2007
respectively. These warrants were outstanding at
January 31, 2007.
In June 2005, the Company issued warrants to purchase
11,765 shares of Series D Preferred stock in
conjunction with a $1.5 million draw on the Company’s
line of credit. The warrants have an exercise price of
$2.55 per share and a 10 year term. The Company
calculated the fair value of each warrant using the
Black-Scholes option pricing model with the following
assumptions: volatility of 100%, term of ten years, risk free
interest rate of 3.9% and a dividend yield of 0%. The Company
recorded the fair value of the warrants of $27,194 as a discount
to the carrying value of the note which is being amortized over
the remaining term of 48 months. There was $0, $3,966 and
$6,799 recorded to interest expense in 2005, 2006 and 2007
respectively. These warrants were outstanding at
January 31, 2007.
In September 2005, the Company issued warrants to purchase
11,765 shares of Series D Preferred stock in
conjunction with a $1.5 million draw on the Company’s
line of credit. The warrants have an exercise price of
$2.55 per share and a 10 year term. The Company
calculated the fair value of each warrant using the
Black-Scholes option pricing model with the following
assumptions: volatility of 100%, term of ten years, risk free
interest rate of 4.2% and a dividend yield of 0%. The Company
recorded the fair value of the warrants of $27,249 as a discount
to the carrying value of the note which is being amortized over
the remaining term of 45 months. There was $0, $2,422 and
$7,266 recorded to interest expense in 2005, 2006 and 2007
respectively. These warrants were outstanding at
January 31, 2007.
In March 2006, the Company issued warrants to purchase
11,765 shares of Series D Preferred stock in
conjunction with a $1.5 million draw on the Company’s
line of credit. The warrants have an exercise price of $2.55 per
share and a 10 year term. The Company calculated the fair
value of each warrant using the Black-Scholes option pricing
model with the following assumptions: volatility of 100%, term
of ten years, risk free interest rate of 4.7% and a dividend
yield of 0%. The Company recorded the fair value of the warrants
of $27,319 as a discount to the carrying value of the note which
is being amortized over the remaining term of 39 months.
There was $0, $0 and $7,005 recorded to interest expense in
2005, 2006 and 2007 respectively. These warrants were
outstanding at January 31, 2007.
In May 2006, the Company issued warrants to purchase
19,608 shares of Series D Preferred stock in
conjunction with a $2.5 million draw on the Company’s
line of credit. The warrants have an exercise price of $2.55 per
share and a 10 year term. The Company calculated the fair
value of each warrant using the Black-Scholes option pricing
model with the following assumptions: volatility of 100%, term
of ten years, risk free interest rate of 4.9% and a dividend
yield of 0%. The Company recorded the fair value of the warrants
of $45,573 as a discount to the carrying value of the note which
is being amortized over the remaining term of 38 months.
There was $0, $0 and $10,330 recorded to interest expense in
2005, 2006 and 2007 respectively. These warrants were
outstanding at January 31, 2007.
In June 2006, the Company issued warrants to purchase
7,842 shares of Series D Preferred stock in
conjunction with a $1 million draw on the Company’s
line of credit. The warrants have an exercise price of $2.55 per
share and a 10 year term. The Company calculated the fair
value of each warrant using the Black-Scholes option pricing
model with the following assumptions: volatility of 100%, term
of ten years, risk free interest rate of 5.1% and a dividend
yield of 0%. The Company recorded the fair value of the warrants
of $18,244 as a discount to the carrying value of
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the note which is being amortized over the remaining term of
36 months. There was $0, $0 and $3,629 recorded to interest
expense in 2005, 2006 and 2007 respectively. These warrants were
outstanding at January 31, 2007.
As discussed in Note 3, in 2006 the Company reclassified
all of its freestanding preferred stock warrants as a liability
and began adjusting the warrants to their respective fair values
at each reporting period. Upon the automatic conversion of the
Series A, Series B, Series C and Series D preferred stock into
common upon the closing of a qualifying initial public offering
(see Note 10), the preferred stock warrants will become warrants
for such number of shares of common stock into which the
underlying preferred stock was converted.
12.
Common
Stock
As of January 31, 2007, the Company had authorized
150,000,000 shares of common stock with a $0.001 par
value per share. Each share of common stock entitles the holder
to one vote on all matters submitted to a vote of the
Company’s stockholders. Common stockholders are entitled to
receive dividends, if any, as may be declared by the Board of
Directors, subject to preferential dividend rights of the
Series A, Series B, Series C and Series D
preferred stockholders.
Warrants to purchase redeemable
covertible preferred stock
120,745
Warrants to purchase common stock
192,036
Options to purchase common stock
7,480,447
Options reserved for future
issuance
4,102,795
50,670,870
During February 2005, certain key investors in the Company
purchased 500,000 shares of common stock from a former
executive of the Company for $2.3 million. The terms of the
purchase agreement included provisions for adjustment of the
purchase price within two years based on certain events. The
Company determined that the fair value of the arrangement
resulted in $0.8 million of consideration paid to the
former executive in excess of the fair value of the shares sold.
Due to the close relationship between the investors and the
Company, the excess consideration was recorded as compensation
expense for the Company during the fiscal year ended
January 31, 2006.
Restricted
Stock Agreements
The Company has entered into restricted stock agreements with
certain employees. The agreements provide that, in the event
these individuals are no longer employed by the Company, the
Company has the right to repurchase any or all unvested shares
at the original purchase price per share. Shares subject to
restriction typically vest over a four-year period. As of
January 31, 2007, 38,750 shares of common stock were
subject to repurchase by the Company at a price range of $0.20
to $1.00 per share. In accordance with the provisions of
Emerging Issues Task
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Force (EITF)
00-23,
“Issues Related to Accounting for Stock Compensation
under APB Opinion No. 25 and FASB Interpretation
No. 44,” certain unvested restricted stock grants
issued after March 21, 2002 are recognized as liabilities.
These related unvested restricted shares are only accounted for
as outstanding when certain repurchase restrictions lapse. At
January 31, 2006 and 2007, 161,250 and 38,750 shares
are subject to these provisions and, accordingly, $56,250 and
$23,750 are presented as a liability at January 31, 2006
and 2007, respectively.
Options
and Warrants for Common Stock
During the fiscal year ended January 31, 2001, the Company
issued a warrant to purchase 5,893 shares of common stock
to a consultant in consideration for services rendered. The
warrant becomes fully exercisable upon specified liquidity
events and expires ten years from the date of grant. The
original fair value of $585 was charged to general and
administrative expense during the fiscal year ended
January 31, 2001. Changes in the fair value of the unvested
shares are recognized as expense in the period of change. There
was no change in the fair value of the unvested warrants during
the fiscal years ended January 31, 2003 and 2004, and $589,
$413, $8,839 and $24,750 was charged to general and
administrative expense during the fiscal years ended
January 31, 2002, 2005, 2006 and 2007, respectively. The
warrant was granted through the 2000 Stock Incentive Plan and
all 5,893 shares are unvested at January 31, 2007.
During the fiscal year ended January 31, 2001, the Company
issued warrants to purchase 157,143 shares of common stock
to a consultant in consideration for services. These warrants
vest over three years, and have exercise prices of
$0.002 per share and expire ten years from the date of
grant. The fair value was determined using the Black-Scholes
option-pricing model with the following assumptions: no dividend
yield; risk-free interest rates of 6.1%; expected volatility of
100% and an expected life of ten years. The original fair value
of $21,220 was charged to research and development expense over
the vesting period of which $8,168 and $7,488 was expensed
during the fiscal years ended January 31, 2003 and 2004,
respectively. The warrant was granted through the 2000 Stock
Incentive Plan and the warrant is fully vested and unexercised
at January 31, 2007.
During the fiscal year ended January 31, 2002, the Company
issued an option to purchase 5,000 shares of common stock
to a consultant. The option vested over two years, has an
exercise price of $0.20 per share and expires ten years
from the date of grant. The fair value was determined using the
Black-Scholes option-pricing model with the following
assumptions: no dividend yield; risk-free rate of 5.5%;
volatility of 100% and an expected life of ten years. The fair
value of was charged to research and development expense over
the vesting period of which $776 and $97 was expensed during the
fiscal years ended January 31, 2003 and 2004, respectively.
The option was granted through the 2000 Stock Incentive Plan and
the option is fully vested and unexercised at January 31,2007.
During the fiscal year ended January 31, 2003, the Company
issued an option to purchase 5,000 shares of common stock
to a consultant. The option vested over two years, has an
exercise price of $0.20 per share and expires ten years
from the date of grant. The fair value was determined using the
Black-Scholes option-pricing model with the following
assumptions: no dividend yield; risk-free rate of 4.4%;
volatility of 100% and an expected life of ten years. The fair
value was charged to general and administrative expense over the
vesting period of which $876 and $32 was expensed during the
fiscal years ended January 31, 2003 and 2004, respectively.
The option was granted through the 2000 Stock Incentive Plan and
the option is fully vested and unexercised at January 31,2007.
During the fiscal year ended January 31, 2004, the Company
issued an option to purchase 5,000 shares of common stock
to a consultant. The option vested over two years, has an
exercise price of $0.20 per share and expires ten years
from the date of grant. The fair value was determined using the
Black-Scholes option-pricing model with the following
assumptions: no dividend yield; risk-free rate of 4.4%;
volatility of 100% and an expected life of ten years. Changes in
the fair value of the unvested shares were recognized as expense
over the remaining vesting period. The fair value was charged to
general and administrative expense over the vesting period of
which $851 and $438 was expensed during the fiscal years ended
January 31, 2004 and 2005, respectively. The option was
granted through the 2000 Stock Incentive Plan and the option is
fully vested and unexercised at January 31, 2007.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
During the fiscal year ended January 31, 2005, the Company
issued an option to purchase 5,000 shares of common stock
to a consultant. The option vested over two years, has an
exercise price of $1.00 per share and expires ten years
from the date of grant. The fair value was determined using the
Black-Scholes option-pricing model with the following
assumptions: no dividend yield; risk-free rate of 4.5%;
volatility of 100% and an expected life of ten years. The
original fair value of $4,546 is being charged to general and
administrative expense over the vesting period. Changes in the
fair value of the unvested shares are recognized as expense over
the remaining vesting period. During the fiscal years ended
January 31, 2006 and 2007, $9,963 and $3,025, respectively,
was charged to general and administrative expense. The option
was granted through the 2000 Stock Incentive Plan and the option
is fully vested and unexercised at January 31, 2007.
During the fiscal year ended January 31, 2006, the Company
issued an option to purchase 5,000 shares of common stock
to a consultant. The option vests over two years, has an
exercise price of $1.00 per share and expires ten years
from the date of grant. The fair value was determined using the
Black-Scholes option-pricing model with the following
assumptions: no dividend yield; risk-free rate of 4.5%;
volatility of 100% and an expected life of ten years. The
original fair value of $11,820 is being charged to general and
administrative expense over the vesting period. Changes in the
fair value of the unvested shares ($6,232 during the fiscal year
ended January 31, 2007) are recognized as expense over
the remaining vesting period. During the fiscal years ended
January 31, 2006 and 2007, $5,635 and $9,210, respectively,
was charged to general and administrative expense. The option
was granted through the 2000 Stock Incentive Plan and
2,500 shares are unvested at January 31, 2007.
Since inception, the Company has issued non-qualified options
and warrants for 267,036 shares of common stock. At
January 31, 2007, 217,036 non-qualified options and
warrants remain outstanding and 209,893 are fully vested and
exercisable.
13.
Stock
Option Plan
In 2000, the Company adopted the 2000 Stock Incentive Plan (the
“Plan”). The Plan provides for the grant of incentive
stock options and nonqualified stock options, restricted stock,
warrants and stock grants for the purchase of up to
15,721,458 shares, as amended, of the Company’s common
stock by employees, officers, directors and consultants of the
Company. The Plan is administered by the Board of Directors.
Options may be designated and granted as either “incentive
stock options” or “nonstatutory” stock options.
The Board of Directors determines the term of each option, the
option exercise price, the number of shares for which each
option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any
officer or employee at an exercise price per share of not less
than the fair value per common share on the date of the grant
(not less than 110% of fair value in the case of holders of more
than 10% of the Company’s voting stock) and with a term not
to exceed ten years from the date of grant (five years for
incentive stock options granted to holders of more than 10% of
the Company’s voting stock). As of January 31, 2007,
there are 4,102,795 shares of common stock available for
grant under the Plan.
Under SFAS No. 123(R), the Company calculates the fair
value of stock option grants using the Black-Scholes
option-pricing model. Determining the appropriate fair value
model and calculating the fair value of stock-based payment
awards require the use of highly subjective assumptions,
including the expected life of the stock-based payment awards
and stock price volatility. The assumptions used in calculating
the fair value of stock-based payment awards represent
management’s best estimates, but the estimates involve
inherent uncertainties and the application of management
judgment.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In accordance with the prospective transition method, the
Company’s financial statements for prior periods have not
been restated to reflect, and do not include, the impact of
SFAS No. 123(R). The amounts included in the
consolidated statements of operations for the fiscal year ended
January 31, 2007 relating to share-based payments are as
follows (in thousands):
Under SFAS 123R, compensation costs for options awarded to
employees and directors would have been determined using the
fair value amortized to expense over the vesting period of the
awards and the recorded net income would have been as follows
(in thousands):
Add stock-based employee
compensation expense included in net income
—
—
Deduct stock-based employee
compensation expense determined using the fair value of all
awards
(36
)
(99
)
Pro forma net loss
$
(3,050
)
$
(14,124
)
The Company’s pro forma calculations for 2005, and 2006
were made using the minimum value method with the following
weighted-average assumptions: expected life of five years; stock
volatility of 0%; risk-free interest rate of 3.0% in 2005 and
4.0% in 2006; and no dividend payments during the expected term.
Forfeitures are recognized as they occur.
The aggregate intrinsic value on this table was calculated based
on the positive difference between the calculated fair value of
the Company’s common stock on January 31, 2007 ($3.35)
and the exercise price of the underlying options.
Options Outstanding
Weighted
Options Exercisable
Average
Weighted
Weighted
Number of
Remaining
Average
Number of
Average
Exercise Price Range
Shares
Life in Years
Exercise Price
Shares
Exercise Price
$0.002
163,036
3.66
$
0.002
163,036
$
0.002
0.100
93,750
4.62
0.100
93,750
0.100
0.200
1,493,627
6.55
0.200
1,105,751
0.200
0.340
296,375
7.26
0.340
202,686
0.340
0.780
420,095
7.65
0.780
275,093
0.780
1.000
1,485,850
8.05
1.00
742,407
1.00
1.200
9,000
8.83
1.20
2,812
1.20
2.500
3,293,250
9.31
2.50
9,150
2.50
4.500
417,500
9.81
4.50
—
—
7,672,483
8.21
$
1.610
2,576,685
$
0.490
Stock options and warrants to purchase 1,290,410, 1,818,002 and
2,576,685 shares of common stock were exercisable as of
January 31, 2005, 2006 and 2007, respectively.
The above tables include 38,750 shares of unvested
restricted stock.
At January 31, 2007, the Company had available net
operating loss carryforwards for federal and state tax purposes
of approximately $29.2 million and $25.7 million,
respectively. These loss carryforwards may be utilized to offset
future taxable income and expire at various dates beginning in
2007 through fiscal 2027. At January 31, 2007the Company
had available net operating loss carryforwards for foreign
purposes of approximately $7.8 million, of which
$6.2 million may be carried forward indefinitely, and
$1.6 million expire beginning in fiscal 2011. The Company
also had available research and development credit carryforwards
to offset future federal and state taxes of approximately
$3.0 million and $2.3 million, respectively, which may
be used to offset future taxable income and expire at various
dates beginning in 2016 through fiscal 2027.
As required by SFAS No. 109,“Accounting for
Income Taxes,” management has evaluated the positive
and negative evidence bearing upon the realizability of the
Company’s deferred tax assets. Management has determined
that it is more likely than not that the Company will not
recognize the benefits of its federal deferred tax assets, and
as a result, a full valuation allowance has been established.
Under the Internal Revenue Code, certain substantial changes in
the Company’s ownership may result in an annual limitation
on the amount of net operating loss and tax credit carryforwards
that may be utilized in future years.
A reconciliation of the Company’s effective tax rate to the
statutory federal rate is as follows:
2005
2006
2007
Statutory federal tax rate
34.0
%
34.0
%
35.0
%
State taxes, net of federal taxes
2.9
3.1
2.4
Tax rate differential for
international jurisdictions
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
15.
Commitments
and Contingencies
Lease
Obligations
The Company leases its office space and certain equipment under
noncancelable operating lease agreements. In February 2004, the
Company renegotiated the terms of its lease of its corporate
headquarters in Framingham, Massachusetts. This lease expires on
February 29, 2008 and the future minimum lease payments
under this noncancelable operating lease are $0.6 million
for the fiscal year ended January 31, 2008 and
$0.1 million for the fiscal year ended January 31,2009. As part of the noncancelable operating lease, the Company
was required to obtain a letter of credit of $0.3 million.
Total lease commitments for office space and equipment under
noncancelable operating leases are as follows (in thousands):
Operating
Fiscal Year Ended January 31,
Leases
2008
$
1,308.4
2009
196.2
2010
1.0
2011
1.0
2012
0.6
Thereafter
—
Total minimum lease payments
$
1,507.2
Total rent expense under the operating leases for the fiscal
years ended January 31, 2005, 2006 and 2007 was
$0.7 million, $1.6 million and $2.1 million,
respectively.
Guarantees
and Indemnification Obligations
The Company enters into standard indemnification agreements in
the ordinary course of business. Pursuant to these agreements,
the Company indemnifies and agrees to reimburse the indemnified
party for losses incurred by the indemnified party, generally
the Company’s customers, in connection with any patent,
copyright, trade secret or other proprietary right infringement
claim by any third party with respect to the Company’s
products. The term of these indemnification agreements is
generally perpetual any time after execution of the agreement.
Based on historical information and information known as of
January 31, 2007, the Company does not expect it will incur
any significant liabilities under these indemnification
agreements.
Warranty
The Company provides warranties on most products and has
established a reserve for warranty based on identified warranty
costs. The reserve is included as part of accrued expenses
(Note 8) in the accompanying balance sheets.
Activity related to the warranty accrual was as follows (in
thousands):
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
16.
Industry
Segment, Geographic Information and Significant
Customers
SFAS No. 131, “Disclosures About Segments of
an Enterprise and Related Information,” establishes
standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise
for which separate financial information is available and
evaluated regularly by the chief operating decision-maker, or
decision-making group, in deciding how to allocate resources and
in assessing performance. The Company is organized as, and
operates in, one reportable segment: the development and sale of
data warehouse appliances. Our chief operating decision-maker is
our Chief Executive Officer. Our Chief Executive Officer reviews
financial information presented on a consolidated basis,
accompanied by information about revenue by geographic region,
for purposes of evaluating financial performance and allocating
resources. The Company and its Chief Executive Officer evaluate
performance based primarily on revenue in the geographic
locations in which the Company operates. Revenue is attributed
by geographic location based on the location of the end customer.
Revenue, classified by the major geographic areas in which the
Company’s customers are located, was as follows (in
thousands):
In March 2007, the Company’s Board of Directors approved a
one-for-two reverse stock split of the Company’s common
stock (the “stock split”) to be effective upon the
filing of the restated certificate of incorporation before the
effectiveness of the registration statement filed in connection
with the Company’s
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
proposed initial public offering. All references to shares in
the consolidated financial statements and the accompanying
notes, including but not limited to the number of shares and per
share amounts, unless otherwise noted, have been adjusted to
reflect the stock split retroactively. Previously awarded
options and warrants to purchase shares of the Company’s
common stock and the shares of common stock issuable upon the
conversion of the convertible preferred stock have also been
retroactively adjusted to reflect the stock split.
The expenses (other than underwriting discounts and commissions)
payable by us in connection with this offering are as follows:
Amount
Securities and Exchange Commission
registration fee
$
3,070
National Association of Securities
Dealers Inc. fee
10,500
NASDAQ Global Market listing fee
Accountants’ fees and expenses
Legal fees and expenses
Blue Sky fees and expenses
Transfer Agent’s fees and
expenses
Printing and engraving expenses
Roadshow-related expenses
Miscellaneous
Total expenses
$
All expenses are estimated except for the Securities and
Exchange Commission fee and the National Association of
Securities Dealers Inc. fee.
Item 14.
Indemnification
of Directors and Officers.
Section 102 of the Delaware General Corporation Law permits
a corporation to eliminate the personal liability of its
directors or its stockholders for monetary damages for a breach
of fiduciary duty as a director, except where the director
breached his or her duty of loyalty, failed to act in good
faith, engaged in intentional misconduct or knowingly violated a
law, authorized the payment of a dividend or approved a stock
repurchase in violation of Delaware corporate law or obtained an
improper personal benefit. Our certificate of incorporation
provides that no director shall be personally liable to us or
our stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of
law imposing such liability, except to the extent that the
Delaware General Corporation Law prohibits the elimination or
limitation of liability of directors for breaches of fiduciary
duty.
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 expenses (including
attorneys’ fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by the person in
connection with an action, suit or proceeding to which he or she
is or is threatened to be made a party by reason of such
position, if such person acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal action or
proceeding, had no reasonable cause to believe his or her
conduct was unlawful, except that, in the case of actions
brought by or in the right of the corporation, no
indemnification shall be made with respect to any claim, issue
or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or other adjudicating court determines that,
despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of
Chancery or such other court shall deem proper.
Our certificate of incorporation provides that we will indemnify
each person who was or is a party or threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of us) by
reason of the fact that he or she is or was, or has agreed to
become, our director or officer, or is or was serving, or has
agreed to serve, at our
request as a director, officer, partner, employee or trustee of,
or in a similar capacity with, another corporation, partnership,
joint venture, trust or other enterprise (all such persons being
referred to as an “Indemnitee”), or by reason of any
action alleged to have been taken or omitted in such capacity,
against all expenses (including attorneys’ fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or
proceeding and any appeal therefrom, if such Indemnitee acted in
good faith and in a manner he or she reasonably believed to be
in, or not opposed to, our best interests, and, with respect to
any criminal action or proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
Our certificate of incorporation also provides that we will
indemnify any Indemnitee who was or is a party to an action or
suit by or in the right of us to procure a judgment in our favor
by reason of the fact that the Indemnitee is or was, or has
agreed to become, our director or officer, or is or was serving,
or has agreed to serve, at our request as a director, officer,
partner, employee or trustee or, or in a similar capacity with,
another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses
(including attorneys’ fees) and, to the extent permitted by
law, amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding, and any
appeal therefrom, if the Indemnitee acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed
to, our best interests, except that no indemnification shall be
made with respect to any claim, issue or matter as to which such
person shall have been adjudged to be liable to us, unless a
court determines that, despite such adjudication but in view of
all of the circumstances, he or she is entitled to
indemnification of such expenses. Notwithstanding the foregoing,
to the extent that any Indemnitee has been successful, on the
merits or otherwise, he or she will be indemnified by us against
all expenses (including attorneys’ fees) actually and
reasonably incurred by him or her or on his or her behalf in
connection therewith. If we don’t assume the defense,
expenses must be advanced to an Indemnitee under certain
circumstances.
We have entered into indemnification agreements with our
directors and executive officers. In general, these agreements
provide that we will indemnify the director or executive officer
to the fullest extent permitted by law for claims arising in his
or her capacity as a director or officer of our company or in
connection with their service at our request for another
corporation or entity. The indemnification agreements also
provide for procedures that will apply in the event that a
director or executive officer makes a claim for indemnification
and establish certain presumptions that are favorable to the
director or executive officer.
We maintain a general liability insurance policy which covers
certain liabilities of our directors and officers arising out of
claims based on acts or omissions in their capacities as
directors or officers.
The underwriting agreement we will enter into in connection with
the offering of common stock being registered hereby provides
that the underwriters will indemnify, under certain conditions,
our directors and officers (as well as certain other persons)
against certain liabilities arising in connection with such
offering.
Item 15.
Recent
Sales of Unregistered Securities.
Set forth below is information regarding securities sold by us
within the past three years. Also included is the consideration
received by us for such securities and information relating to
the section of the Securities Act, or rule of the SEC, under
which exemption from registration was claimed. No underwriters
were involved in any such sales.
•
On December 22, 2004, the Registrant sold an aggregate of
5,719,942 shares of its Series D preferred stock to 13
purchasers at a purchase price of $2.55 per share for
aggregate proceeds of $14,585,852.10.
•
On January 19, 2005, the Registrant sold an aggregate of
417,975 shares of its Series D preferred stock to 2
purchasers at a purchase price of $2.55 per share for
aggregate proceeds of $1,065,836.25.
•
On June 15, 2005, the Registrant sold an aggregate of
1,764,044 shares of its Series D preferred stock to 16
purchasers at a purchase price of $2.55 per share for
aggregate proceeds of $4,498,312.20.
All of these sales were made in reliance on the exemption
provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. The recipients of
securities in each of the above-referenced transactions
represented that they were accredited investors within the
meaning of the Securities Act and represented their intentions
to acquire the securities for investment purposes only and not
with a view to, or for sale in connection
with, any distribution thereof and appropriate legends were
affixed to the instruments representing the shares issued in
such transactions.
In the period from February 1, 2004 through
January 31, 2005 42 holders of options to purchase shares
of our common stock exercised those options for an aggregate of
360,187 shares, at a weighted average exercise price of
$0.14 per share.
In the period from February 1, 2005 through
January 31, 2006, 45 holders of options to purchase shares
of our common stock exercised those options for aggregate of
502,436 shares, at a weighted average exercise price of
$0.22 per share.
In the period from February 1, 2006 through
January 31, 2007, 50 holders of options to purchase shares
of our common stock exercised those options for aggregate of
304,413 shares, at a weighted average exercise price of
$0.38 per share.
In the period from February 1, 2007 through March 15,2007, 20 holders of options to purchase shares of our common
stock exercised those options for an aggregate of
92,636 shares at a weighted average exercise price of $0.64
per share.
On January 10, 2005 we issued and sold 80,000 shares
of our common stock to an employee pursuant to a restricted
stock agreement at a purchase price of $0.50 per share.
All of these sales were made pursuant to written compensatory
plans or arrangements with our employees, directors and
consultants and were made in reliance on the exemption provided
by Section 3(b) of the Securities Act and Rule 701
promulgated thereunder.
Amendment No. 1 to the Third
Amended and Restated Investor Rights Agreement among the
Company, the Founders and the Purchasers, dated as of
June 14, 2005
10
.13
Letter Agreement between the
Company and James Baum, dated June 1, 2006
10
.14
Form of Executive Retention
Agreement, for each of Jitendra S. Saxena, James Baum, Patrick
J. Scannell, Jr., Raymond Tacoma and Patricia Cotter
10
.15
Form of Indemnification Agreement
for each of Jitendra S. Saxena, James Baum, Patrick J.
Scannell, Jr., Raymond Tacoma, Patricia Cotter, Sunil
Dhaliwal, Ted R. Dintersmith, Robert J. Dunst, Paul J. Ferri,
Charles F. Kane and Edward J. Zander
10
.16
Term Loan and Security Agreement
among the Company, Silicon Valley Bank, as agent, and the
Lenders listed therein, dated June 14, 2005
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denomination and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
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 that:
(1) For purposes of determining any liability under the
Securities Act of 1933, 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 of 1933, 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.
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Framingham, Commonwealth of
Massachusetts, on this
22nd
day of March, 2007.
We, the undersigned officers and directors of Netezza
Corporation, hereby severally constitute and appoint Jitendra S.
Saxena, Patrick J. Scannell, Jr. and Patrick J. Rondeau,
and each of them singly (with full power to each of them to act
alone), our true and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution
in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration
statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933), and to file
the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said
attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite or necessary to
be done in and about the premises, as full to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said
attorneys-in-fact
and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities held on the dates indicated.
Signature
Title
Date
/s/ Jitendra
S. Saxena
Jitendra
S. Saxena
Chief Executive Officer and
Director (principal executive officer)
Amendment No. 1 to the Third
Amended and Restated Investor Rights Agreement among the
Company, the Founders and the Purchasers, dated as of
June 14, 2005
10
.13
Letter Agreement between the
Company and James Baum, dated June 1, 2006
10
.14
Form of Executive Retention
Agreement, for each of Jitendra S. Saxena, James Baum, Patrick
J. Scannell, Jr., Raymond Tacoma and Patricia Cotter
10
.15
Form of Indemnification Agreement
for each of Jitendra S. Saxena, James Baum, Patrick J.
Scannell, Jr., Raymond Tacoma, Patricia Cotter, Sunil
Dhaliwal, Ted R. Dintersmith, Robert J. Dunst, Paul J. Ferri,
Charles F. Kane and Edward J. Zander
10
.16
Term Loan and Security Agreement
among the Company, Silicon Valley Bank, as agent, and the
Lenders listed therein, dated June 14, 2005
