e424b4
Filed
Pursuant to Rule 424(b)(4)
Registration No. 333-141522
9,000,000 Shares
Netezza Corporation
Common Stock
This is the initial public offering of shares of our common
stock. We are selling 9,000,000 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 $12.00 per share. Our common stock has been approved
for listing on NYSE Arca under the symbol NZ.
Investing in our common stock involves risks. See
Risk Factors beginning on page 7.
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Underwriting
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Discounts and
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Proceeds to
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Price to Public
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Commissions
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Netezza Corporation
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Per Share
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$12.00
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$0.84
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$11.16
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Total
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$108,000,000
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$7,560,000
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$100,440,000
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We have granted the underwriters the right to purchase up to an
additional 1,350,000 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
July 24, 2007.
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Credit
Suisse |
Morgan Stanley |
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Needham &
Company, LLC |
Thomas
Weisel Partners LLC |
July 18, 2007
TABLE OF
CONTENTS
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Page
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7
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107
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107
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F-1
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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 August 13, 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 dealers obligation to deliver a
prospectus when acting as an underwriter and with respect to
unsold allotments or subscriptions.
i
PROSPECTUS
SUMMARY
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.
From our inception through April 30, 2007, we have sold
over 230 of our data warehouse appliances worldwide to 101
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. Some of our more well-known
customers include Ahold, Amazon.com, American Red Cross, AOL,
Blue Cross Blue Shield of Rhode Island, Catalina Marketing, CNET
Networks, CompuCredit Corporation, Epsilon, LoanPerformance,
Marriott, the NASD, Neiman Marcus Group, Nielsen Company, Orange
UK, Premier Inc., Restoration Hardware, Ross Stores, Ryder
System, Source Healthcare Analytics, Inc., a Wolters Kluwer
Health company, the United States Army Corps of Engineers and
the United States Department of Veterans Affairs. Each of the
companies listed is a current customer who has purchased at
least $300,000 worth of products or services from us. 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%. We have not been
profitable in any fiscal period since we were formed. We
incurred net losses of approximately $10.0 million in
fiscal 2004, $3.0 million in fiscal 2005,
$14.0 million in fiscal 2006 and $8.0 million in
fiscal 2007. As of April 30, 2007, our accumulated deficit
was approximately $83.0 million.
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
1
intelligence within the enterprise, the increasing volume and
sophistication of their queries and the need for real-time data
availability.
Our
Solution
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 system typically
requires 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
2
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, Massachusetts
01702, 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.
3
THE
OFFERING
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Common stock offered |
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9,000,000 shares |
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Over-allotment option |
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1,350,000 shares |
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Common stock to be outstanding after this offering |
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55,631,079 shares |
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Use of proceeds |
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We intend to use the net proceeds 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
repay approximately $9.9 million 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.
See Use of Proceeds for more information. |
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Risk factors |
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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. |
The number of shares of our common stock to be outstanding after
this offering is based on 46,631,079 shares of our common
stock outstanding as of April 30, 2007. This number
includes all issued and outstanding shares of unvested
restricted common stock and excludes:
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8,678,473 shares of our common stock issuable upon the
exercise of stock options outstanding as of April 30, 2007;
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2,451,838 shares of our common stock reserved as of
April 30, 2007 for future issuance under our stock
compensation plans; and
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312,781 shares of our common stock issuable upon the
exercise of warrants outstanding as of April 30, 2007.
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Unless otherwise indicated, the information in this prospectus
assumes the following:
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a
one-for-two
reverse split of our common stock effected in June 2007;
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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;
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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
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no exercise by the underwriters of their over-allotment option.
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4
SUMMARY
FINANCIAL DATA
You should read the following financial information together
with the more detailed information contained in Selected
Consolidated Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
the related notes appearing elsewhere in this prospectus. The
following consolidated statement of operations data for the
three months ended April 30, 2006 and April 30, 2007
and consolidated balance sheet data as of April 30, 2007
have been derived from our unaudited consolidated financial
statements and related notes appearing elsewhere in this
prospectus. The unaudited consolidated financial statements have
been prepared on a basis consistent with our audited
consolidated financial statements contained in this prospectus
and include, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for
the fair presentation of our financial position and results of
operations for these periods. 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.
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Three Months Ended April 30,
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Fiscal Year Ended January 31,
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2007
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2005
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2006
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2007
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2006
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(restated)(2)
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(Unaudited)
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(In thousands, except share, per share
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and other operating data)
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Consolidated Statement of
Operations Data:
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Revenue
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Product
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$
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30,908
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$
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45,508
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$
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64,632
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$
|
8,889
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|
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$
|
20,577
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Services
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5,121
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|
|
|
8,343
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|
|
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14,989
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|
|
|
3,109
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|
|
|
4,765
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Total revenue
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36,029
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53,851
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79,621
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11,998
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25,342
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Cost of revenue
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Product
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8,874
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18,941
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26,697
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|
|
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3,565
|
|
|
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8,395
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Services
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1,640
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|
|
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3,491
|
|
|
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5,403
|
|
|
|
1,325
|
|
|
|
1,648
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|
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Total cost of revenue
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10,514
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22,432
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32,100
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4,890
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10,043
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Gross profit
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25,515
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31,419
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47,521
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7,108
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15,299
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Operating expenses
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Sales and marketing
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14,783
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25,626
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32,908
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6,373
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9,669
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Research and development
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11,366
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16,703
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18,037
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4,226
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5,484
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General and administrative
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2,500
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3,124
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4,827
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852
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1,755
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Total operating expenses
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28,649
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45,453
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55,772
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11,451
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16,908
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Operating loss
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(3,134
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)
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(14,034
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)
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(8,251
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)
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(4,343
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)
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(1,609
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)
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Interest income
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206
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487
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414
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|
120
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22
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Interest expense
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121
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|
173
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|
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|
765
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|
92
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|
|
213
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Other income (expense), net
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35
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(87
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)
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627
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|
|
185
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|
|
|
169
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|
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|
|
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Loss before income taxes and
cumulative effect of change in accounting principle
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(3,014
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)
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(13,807
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)
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(7,975
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)
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(4,130
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)
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(1,631
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)
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Income tax provision
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|
|
|
|
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|
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(274
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)
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|
|
|
|
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Loss before cumulative effect of
change in accounting principle
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|
|
(3,014
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)
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|
(13,807
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)
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|
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(7,975
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)
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|
|
(4,130
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)
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|
|
(1,905
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)
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Cumulative effect of change in
accounting principle
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(218
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)
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|
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|
|
|
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Net loss
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$
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(3,014
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)
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|
$
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(14,025
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)
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|
$
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(7,975
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)
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|
$
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(4,130
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)
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|
$
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(1,905
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)
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Accretion to preferred stock
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|
|
(4,096
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)
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|
|
(5,797
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)
|
|
|
(5,931
|
)
|
|
|
(1,483
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)
|
|
|
(1,483
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)
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(7,110
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)
|
|
$
|
(19,822
|
)
|
|
$
|
(13,906
|
)
|
|
$
|
(5,613
|
)
|
|
$
|
(3,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss per share attributable to
common stockholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
$
|
(0.50
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.25
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion to preferred stock
|
|
|
(0.67
|
)
|
|
|
(0.88
|
)
|
|
|
(0.81
|
)
|
|
|
(0.21
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to
common stockholders basic and diluted
|
|
$
|
(1.17
|
)
|
|
$
|
(2.99
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
6,077,538
|
|
|
|
6,635,274
|
|
|
|
7,319,231
|
|
|
|
7,186,776
|
|
|
|
7,786,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per
share basic and diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common
shares outstanding (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
46,094,078
|
|
|
|
|
|
|
|
46,561,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of customers
|
|
|
15
|
|
|
|
46
|
|
|
|
87
|
|
|
|
52
|
|
|
|
101
|
|
Number of full-time employees
|
|
|
140
|
|
|
|
179
|
|
|
|
225
|
|
|
|
181
|
|
|
|
233
|
|
5
|
|
|
(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. Please refer to
page F-17
in the notes to our consolidated financial statements for
additional information about the calculation of the weighted
average number of common shares outstanding.
|
|
(2)
|
|
See Note 2 to our consolidated
financial statements with regard to the restatement of our
consolidated financial statements as of and for the three months
ended April 30, 2007 for stock-based compensation and
preferred stock warrant valuation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2007
|
|
|
|
Actual
|
|
|
|
|
|
Pro Forma
|
|
|
|
(restated)(3)
|
|
|
Pro Forma(1)
|
|
|
As Adjusted(2)
|
|
|
|
(In thousands) (Unaudited)
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,080
|
|
|
$
|
6,080
|
|
|
$
|
94,348
|
|
Working capital
|
|
|
26,212
|
|
|
|
26,212
|
|
|
|
120,984
|
|
Total assets
|
|
|
69,706
|
|
|
|
69,706
|
|
|
|
157,974
|
|
Note payable to bank, including
current portion
|
|
|
9,922
|
|
|
|
9,922
|
|
|
|
|
|
Convertible redeemable preferred
stock
|
|
|
98,614
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
(83,656
|
)
|
|
|
15,980
|
|
|
|
114,170
|
|
|
|
|
(1) |
|
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 from this offering at the initial public offering price
of $12.00 per share, after deducting underwriting discounts
and commissions and estimated offering expenses payable by us
and giving effect to the repayment of approximately
$9.9 million of outstanding indebtedness. |
|
|
|
(3) |
|
See Note 2 to our consolidated financial statements with
regard to the restatement of our consolidated financial
statements as of and for the three months ended April 30,
2007 for stock-based compensation and preferred stock warrant
valuation. |
6
RISK
FACTORS
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, $8.0 million in fiscal 2007 and
$1.9 million in the first three months of fiscal 2008.
As of April 30, 2007, our accumulated deficit was
$83.0 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; for instance,
five customers each accounted for greater than 5% of our total
revenues during fiscal 2007 and our ten largest customers
accounted for approximately 45% of our revenues in fiscal 2007;
|
|
|
|
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;
|
7
|
|
|
|
|
the length of our product sales cycle;
|
|
|
|
the productivity and growth of our salesforce;
|
|
|
|
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 recipients 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.
|
8
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.
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.
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.
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.
9
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.
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 alternate 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
10
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.
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 protocols 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
11
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 April 30, 2007, the
number of our employees increased from 140 to 233 and our
installed base of customers grew from 15 to 101. In addition,
during that time period our number of office locations has
increased from 3 to 13. 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 U.S. federal government agencies is
subject to evolving laws and policies that could have a material
adverse effect on our growth prospects and operating results,
and our contracts with the U.S. federal government may
impose requirements that are unfavorable to us.
In fiscal 2007, we derived approximately 5% of our revenue from
U.S. federal government agencies. The demand for data warehouse
products and services by federal government agencies may be
affected by laws and policies that might restrict agencies
collection, processing, and sharing of certain categories of
information. Our ability to profitably sell products to
government agencies is also subject to changes in agency funding
priorities and contracting procedures and our ability to comply
with applicable government regulations and other requirements.
12
The restrictions on federal government data management include,
for example, the Privacy Act, which requires agencies to
publicize their collection and use of personal data and
implement procedures to provide individuals with access to that
information; the Federal Information Security Management Act,
which requires agencies to develop comprehensive data privacy
and security measures that may increase the cost of maintaining
certain data; and the
E-government
Act, which requires agencies to conduct privacy assessments
before acquiring certain information technology products or
services and before initiating the collection of personal
information or the aggregation of existing databases of personal
information. These restrictions, any future restrictions, and
public or political pressure to constrain the governments
collection and processing of personal information may adversely
affect the governments demand for our products and
services and could have a material adverse effect on our growth
prospects and operating results.
Federal agency funding for information technology programs is
subject to annual appropriations established by Congress and
spending plans adopted by individual agencies. Accordingly,
government purchasing commitments normally last no longer than
one year. The amounts of available funding in any year may be
reduced to reflect budgetary constraints, economic conditions,
or competing priorities for federal funding. Constraints on
federal funding for information technology could harm our
ability to sell products to government agencies, 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 government agencies may subject us to certain
risks and give the government rights and remedies not typically
found in commercial contracts, including rights that allow the
government to, for example:
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terminate contracts for convenience at any time without cause;
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obtain detailed cost or pricing information;
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receive most favored customer pricing;
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perform routine audits;
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impose equal employment and hiring standards;
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require products to be manufactured in specified countries;
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restrict
non-U.S.
ownership or investment in our company; and
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pursue administrative, civil or criminal remedies for
contractual violations.
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Moreover, some of our contracts allow the government to use, or
permit others to use, patented inventions that we developed
under those contracts, and to place conditions on our right to
retain title to such inventions. Likewise, some of our
government contracts allow the government to use or disclose
software or technical data that we develop or deliver under the
contract without constraining subsequent uses of those data.
Third parties authorized by the government to use our patents,
software and technical data may emerge as alternative sources
for the products and services we offer to the government and may
enable the government to negotiate lower prices for our products
and services. If we fail to assert available protections for our
patents, software, and technical data, our ability to control
the use of our intellectual property may be compromised, which
may benefit our competitors, reduce the prices we can obtain for
our products and services, and harm our financial condition.
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:
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difficulties in staffing and managing our foreign offices and
the increased travel, infrastructure and legal and compliance
costs associated with multiple international locations;
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13
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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;
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longer payment cycles for sales in foreign countries and
difficulties in enforcing contracts and collecting accounts
receivable;
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additional withholding taxes or other taxes on our foreign
income, and tariffs or other restrictions on foreign trade or
investment;
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imposition of, or unexpected adverse changes in, foreign laws or
regulatory requirements, many of which differ from those in the
United States;
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increased length of time for shipping and acceptance of our
products;
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difficulties in repatriating overseas earnings;
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increased exposure to foreign currency exchange rate risk;
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reduced protection for intellectual property rights in some
countries;
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costs and delays associated with developing products in multiple
languages; and
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political unrest, war, incidents of terrorism, or responses to
such events.
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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 channel 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
sales 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
14
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 agreements 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 vendors 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 customers
data being misappropriated, unavailable, lost or corrupted could
have significant adverse consequences, including:
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loss of customers;
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negative publicity and damage to our reputation;
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diversion of our engineering, customer service and other
resources;
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increased service and warranty costs; and
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loss or delay in revenue or market acceptance of our products.
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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 managements 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
lines 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:
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develop or enhance our products;
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support additional capital expenditures;
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respond to competitive pressures;
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fund operating losses in future periods; or
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take advantage of acquisition or expansion opportunities.
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15
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
16
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:
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the purchase price we pay could significantly deplete our cash
reserves, impair our future operating flexibility or result in
dilution to our existing stockholders;
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we may find that the acquired company, assets or technology do
not further improve our financial and strategic position as
planned;
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we may find that we overpaid for the company, asset or
technology, or that the economic conditions underlying our
acquisition have changed;
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we may have difficulty integrating the operations and personnel
of the acquired company;
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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;
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the acquisition may be viewed negatively by customers, financial
markets or investors;
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we may have difficulty incorporating the acquired technologies
or products with our existing product lines;
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we may encounter difficulty entering and competing in new
product or geographic markets;
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we may encounter a competitive response, including price
competition or intellectual property litigation;
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we may have product liability, customer liability or
intellectual property liability associated with the sale of the
acquired companys products;
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we may be subject to litigation by terminated employees or third
parties;
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we may incur debt, one-time write-offs, such as acquired
in-process research and development costs, and restructuring
charges;
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we may acquire goodwill and other intangible assets that are
subject to impairment tests, which could result in future
impairment charges;
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our ongoing business and managements attention may be
disrupted or diverted by transition or integration issues and
the complexity of managing geographically or culturally diverse
enterprises; and
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our due diligence process may fail to identify significant
existing issues with the target companys product quality,
product architecture, financial disclosures, accounting
practices, internal controls, legal contingencies, intellectual
property and other matters.
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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.
17
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.
18
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:
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undelivered elements for which we do not have vendor-specific
objective evidence of fair value;
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requirements that we deliver services for significant
enhancements and modifications to customize our software for a
particular customer; or
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material acceptance criteria.
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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 NYSE Arca 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 NYSE Arca. 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.
19
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 was 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:
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changes in operating performance and stock market valuations of
other technology companies generally or those that sell data
warehouse solutions in particular;
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actual or anticipated fluctuations in our operating results;
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the financial guidance that we may provide to the public, any
changes in such guidance, or our failure to meet such guidance;
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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;
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the publics response to our press releases or other public
announcements by us, including our filings with the SEC;
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announcements by us or our competitors of significant technical
innovations, customer wins or losses, acquisitions, strategic
partnerships, joint ventures or capital commitments;
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introduction of technologies or product enhancements that reduce
the need for our products;
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the loss of key personnel;
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the development and sustainability of an active trading market
for our common stock;
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lawsuits threatened or filed against us;
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future sales of our common stock by our officers or
directors; and
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|
|
other events or factors affecting the economy generally,
including those resulting from political unrest, war, incidents
of terrorism or responses to such events.
|
20
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
managements 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 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
$9.95 per share in pro forma net tangible book value per
share from the price they paid, at the initial public offering
price of $12.00 per share. In addition, investors who
purchase shares in this offering will contribute approximately
59.0% of the total amount of equity capital raised by us through
the date of this offering, but such investors will only own
approximately 16.2% 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
21
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 by-laws 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 by-laws
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:
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establish a classified board of directors so that not all
members of our board are elected at one time;
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|
provide that directors may only be removed for cause;
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|
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;
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|
eliminate the ability of our stockholders to call special
meetings of stockholders;
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|
prohibit stockholder action by written consent, which has the
effect of requiring all stockholder actions to be taken at a
meeting of stockholders;
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|
provide that the board of directors is expressly authorized to
make, alter or repeal our by-laws; and
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|
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 39.8% 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.
22
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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, although we have no reason to believe that the data
is not reliable. 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.
23
USE OF
PROCEEDS
We estimate that the net proceeds to us from this offering will
be approximately $98.2 million, based on the initial public
offering price of $12.00 per share, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
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. Currently, we expect to fund a significant portion of
our working capital and other general corporate purposes with
funds generated from the sale of our products, and as a result,
we do not have a specific plan, timeline or budget for the
allocation of the net proceeds from this offering among
potential general corporate purposes. We also intend to use a
portion of the net proceeds to us to repay our outstanding debt
under two loan agreements. As of April 30, 2007 we had
$5.9 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 $15.0 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 at April 30, 2007
was 7.25%. As of April 30, 2007, we had $4.0 million
outstanding under this revolving credit facility.
We may use a portion of the net proceeds 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.
DIVIDEND
POLICY
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 Banks prior written consent.
24
CAPITALIZATION
The following table sets forth our capitalization as of
April 30, 2007:
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on an actual basis;
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|
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
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on a pro forma as adjusted basis to give effect to the issuance
and sale by us of 9,000,000 shares of our common stock in
this offering at the initial public offering price of
$12.00 per share, and after deducting underwriting
discounts and commissions and estimated offering expenses
payable by us and giving effect to the repayment of
approximately $9.9 million of outstanding indebtedness.
|
You should read the following table together with our
consolidated financial statements and the related notes
appearing elsewhere in this prospectus and
Managements Discussion and Analysis of Financial
Condition and Results of Operations and other financial
information appearing elsewhere in this prospectus.
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As of April 30, 2007
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Actual
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Pro Forma
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(restated)(1)
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Pro Forma
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as Adjusted
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(Unaudited)
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(In thousands, except share and
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per share data)
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Cash and cash equivalents
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$
|
6,080
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|
|
$
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6,080
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|
|
$
|
94,348
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|
|
|
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|
|
|
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|
|
|
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Note payable to bank, net of
current portion
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$
|
3,418
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|
$
|
3,418
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|
$
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|
|
Convertible redeemable preferred
stock, par value $0.001 per share
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|
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|
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|
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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
|
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|
12,978
|
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|
|
|
|
|
|
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|
Series B convertible
redeemable preferred stock, 29,425,622 shares authorized,
29,389,622 shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma and pro forma as
adjusted
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35,752
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Series C convertible
redeemable preferred stock, 23,058,151 shares authorized,
issued and outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
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26,100
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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
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23,784
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|
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Stockholders equity (deficit):
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Common stock, par value
$0.001 per share, 150,000,000 shares authorized,
7,977,794 shares issued, actual; 500,000,000 shares
authorized, 46,752,641 shares issued, pro forma; and
500,000,000 shares authorized, 55,752,641 shares
issued, pro forma as adjusted
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8
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47
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56
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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
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Treasury stock, at cost
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(14
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)
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(14
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)
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(14
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)
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Other comprehensive income (loss)
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(611
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)
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|
(611
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)
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|
(611
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)
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Additional paid-in capital
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99,597
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197,778
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Accumulated deficit
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(83,039
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)
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|
|
(83,039
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)
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|
|
(83,039
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)
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Total stockholders equity
(deficit)
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(83,656
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)
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15,980
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114,170
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Total capitalization (including
note payable, net of current portion)
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$
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18,376
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$
|
19,398
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|
$
|
114,170
|
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|
|
|
|
|
|
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|
(1) |
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See Note 2 to our consolidated financial statements with
regard to the restatement of our consolidated financial
statements as of and for the three months ended
April 30, 2007 for stock-based compensation and preferred
stock warrant valuation. |
25
The table above excludes (on a pro forma and pro forma as
adjusted basis):
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8,678,473 shares of our common stock issuable upon the
exercise of stock options outstanding as of April 30, 2007,
at a weighted average exercise price of $2.78 per share;
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2,451,838 shares of our common stock reserved as of
April 30, 2007 for future issuance under our stock
compensation plans;
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312,781 shares of our common stock issuable upon the
exercise of warrants outstanding as of April 30, 2007, at a
weighted average exercise price of $1.31 per share; and
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17,500 shares of unvested restricted common stock.
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26
DILUTION
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 April 30, 2007, was $16.0 million, or
$0.34 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 9,000,000 shares
of our common stock in this offering at the initial public
offering price of $12.00 per share, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us, our pro forma net tangible book value as
of April 30, 2007 would have been approximately
$114.2 million, or $2.05 per share of our common
stock. This amount represents an immediate increase in our pro
forma net tangible book value of $1.71 per share to our
existing stockholders and an immediate dilution in our pro forma
net tangible book value of $9.95 per share to new investors
purchasing shares of our common stock in this offering at the
assumed initial public offering price.
The following table illustrates this dilution on a per share
basis:
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Initial public offering price per
share
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$
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12.00
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Pro forma net tangible book value
per share as of April 30, 2007
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$
|
0.34
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Increase per share attributable to
this offering
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$
|
1.71
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Pro forma net tangible book value
per share after this offering
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$
|
2.05
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|
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Dilution per share to new investors
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$
|
9.95
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To the extent any outstanding options or warrants are exercised,
new investors will experience further dilution.
The following table summarizes, as of April 30, 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 the initial public offering price of $12.00 per
share, before deducting 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.
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Average
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Shares Purchased
|
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Total Consideration
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Price Per
|
|
|
|
Number
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|
Percent
|
|
|
Amount
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|
|
Percent
|
|
|
Share
|
|
|
Existing stockholders
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46,631,079
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|
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|
83.8
|
%
|
|
$
|
74,993,148
|
|
|
|
41.0
|
%
|
|
$
|
1.61
|
|
New investors
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|
|
9,000,000
|
|
|
|
16.2
|
|
|
|
108,000,000
|
|
|
|
59.0
|
|
|
|
12.00
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Total
|
|
|
55,631,079
|
|
|
|
100
|
%
|
|
$
|
182,993,148
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
The number of shares purchased from us by existing stockholders
is based on 46,631,079 shares of our common stock
outstanding as of April 30, 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 and includes all issued and outstanding shares
of unvested restricted common stock. This number excludes:
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|
|
|
|
8,678,473 shares of our common stock issuable upon the
exercise of stock options outstanding as of April 30, at a
weighted average exercise price of $2.78 per share;
|
|
|
|
2,451,838 shares of our common stock reserved as of
April 30, 2007 for future issuance under our stock
compensation plans; and
|
27
|
|
|
|
|
312,781 shares of our common stock issuable upon the
exercise of warrants outstanding as of April 30, 2007, at a
weighted average exercise price of $1.31 per share.
|
If all our outstanding stock options and outstanding warrants
had been exercised as of April 30, 2007, our pro forma net
tangible book value as of April 30, 2007 would have been
approximately $40.5 million or $0.73 per share of our
common stock, and the pro forma net tangible book value after
giving effect to this offering would have been $2.15 per
share, representing dilution in our pro forma net tangible book
value per share to new investors of $9.85.
28
SELECTED
CONSOLIDATED FINANCIAL DATA
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 following consolidated
statement of operations data for the three months ended
April 30, 2006 and April 30, 2007 and consolidated
balance sheet data as of April 30, 2007 have been derived
from our unaudited consolidated financial statements and related
notes appearing elsewhere in this prospectus. The unaudited
consolidated financial statements have been prepared on a basis
consistent with our audited consolidated financial statements
contained in this prospectus and include, in the opinion of
management, all adjustments necessary for the fair presentation
of our financial position and results of operations for these
periods. The financial data set forth below should be read
together with our consolidated financial statements, the related
notes and Managements 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
|
|
2007
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(restated)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
|
|
|
$
|
13,036
|
|
|
$
|
30,908
|
|
|
$
|
45,508
|
|
|
$
|
64,632
|
|
|
$
|
8,889
|
|
|
$
|
20,577
|
|
Services
|
|
|
|
|
|
|
597
|
|
|
|
5,121
|
|
|
|
8,343
|
|
|
|
14,989
|
|
|
|
3,109
|
|
|
|
4,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
13,633
|
|
|
|
36,029
|
|
|
|
53,851
|
|
|
|
79,621
|
|
|
|
11,998
|
|
|
|
25,342
|
|
Cost of
revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
|
|
|
|
4,017
|
|
|
|
8,874
|
|
|
|
18,941
|
|
|
|
26,697
|
|
|
|
3,565
|
|
|
|
8,395
|
|
Services
|
|
|
|
|
|
|
979
|
|
|
|
1,640
|
|
|
|
3,491
|
|
|
|
5,403
|
|
|
|
1,325
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
|
|
|
|
4,996
|
|
|
|
10,514
|
|
|
|
22,432
|
|
|
|
32,100
|
|
|
|
4,890
|
|
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
8,637
|
|
|
|
25,515
|
|
|
|
31,419
|
|
|
|
47,521
|
|
|
|
7,108
|
|
|
|
15,299
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,470
|
|
|
|
7,791
|
|
|
|
14,783
|
|
|
|
25,626
|
|
|
|
32,908
|
|
|
|
6,373
|
|
|
|
9,669
|
|
Research and development
|
|
|
9,162
|
|
|
|
8,643
|
|
|
|
11,366
|
|
|
|
16,703
|
|
|
|
18,037
|
|
|
|
4,226
|
|
|
|
5,484
|
|
General and administrative
|
|
|
2,557
|
|
|
|
2,010
|
|
|
|
2,500
|
|
|
|
3,124
|
|
|
|
4,827
|
|
|
|
852
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
15,189
|
|
|
|
18,444
|
|
|
|
28,649
|
|
|
|
45,453
|
|
|
|
55,772
|
|
|
|
11,451
|
|
|
|
16,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(15,189
|
)
|
|
|
(9,807
|
)
|
|
|
(3,134
|
)
|
|
|
(14,034
|
)
|
|
|
(8,251
|
)
|
|
|
(4,343
|
)
|
|
|
(1,609
|
)
|
Interest income
|
|
|
231
|
|
|
|
145
|
|
|
|
206
|
|
|
|
487
|
|
|
|
414
|
|
|
|
120
|
|
|
|
22
|
|
Interest expense
|
|
|
74
|
|
|
|
239
|
|
|
|
121
|
|
|
|
173
|
|
|
|
765
|
|
|
|
92
|
|
|
|
213
|
|
Other income (expense), net
|
|
|
|
|
|
|
(51
|
)
|
|
|
35
|
|
|
|
(87
|
)
|
|
|
627
|
|
|
|
185
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
cumulative effect of change in accounting principle
|
|
$
|
(15,032
|
)
|
|
$
|
(9,952
|
)
|
|
$
|
(3,014
|
)
|
|
$
|
(13,807
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,631
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
$
|
(15,032
|
)
|
|
$
|
(9,952
|
)
|
|
$
|
(3,014
|
)
|
|
$
|
(13,807
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(15,032
|
)
|
|
$
|
(9,952
|
)
|
|
$
|
(3,014
|
)
|
|
$
|
(14,025
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
Accretion to preferred stock
|
|
|
(2,482
|
)
|
|
|
(3,877
|
)
|
|
|
(4,096
|
)
|
|
|
(5,797
|
)
|
|
|
(5,931
|
)
|
|
|
(1,483
|
)
|
|
|
(1,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(17,514
|
)
|
|
$
|
(13,829
|
)
|
|
$
|
(7,110
|
)
|
|
$
|
(19,822
|
)
|
|
$
|
(13,906
|
)
|
|
$
|
(5,613
|
)
|
|
$
|
(3,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.25
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion to preferred stock
|
|
|
(0.45
|
)
|
|
|
(0.67
|
)
|
|
|
(0.67
|
)
|
|
|
(0.88
|
)
|
|
|
(0.81
|
)
|
|
|
(0.21
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to
common stockholders basic and diluted
|
|
$
|
(3.19
|
)
|
|
$
|
(2.41
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(2.99
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding
|
|
|
5,492,625
|
|
|
|
5,735,952
|
|
|
|
6,077,538
|
|
|
|
6,635,274
|
|
|
|
7,319,231
|
|
|
|
7,186,776
|
|
|
|
7,786,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per
share basic and diluted (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average common
shares outstanding (unaudited)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,094,078
|
|
|
|
|
|
|
|
46,561,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
(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. Please refer to page F-17 in the notes to our
consolidated financial statements for additional information
about the calculation of the weighted average number of common
shares outstanding.
|
|
(2)
|
|
See Note 2 to our consolidated
financial statements with regard to the restatement of our
consolidated financial statements as of and for the three months
ended April 30, 2007 for stock-based compensation and
preferred stock warrant valuation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30,
|
|
|
|
As of January 31,
|
|
|
2007
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
(restated)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,903
|
|
|
$
|
15,014
|
|
|
$
|
22,193
|
|
|
$
|
14,663
|
|
|
$
|
5,018
|
|
|
$
|
6,080
|
|
Working capital
|
|
|
9,371
|
|
|
|
19,387
|
|
|
|
28,708
|
|
|
|
20,329
|
|
|
|
25,899
|
|
|
|
26,212
|
|
Total assets
|
|
|
12,392
|
|
|
|
26,731
|
|
|
|
39,443
|
|
|
|
45,864
|
|
|
|
69,199
|
|
|
|
69,706
|
|
Note payable to bank, including
current portion
|
|
|
1,454
|
|
|
|
1,544
|
|
|
|
|
|
|
|
3,000
|
|
|
|
6,535
|
|
|
|
9,922
|
|
Convertible redeemable preferred
stock
|
|
|
37,279
|
|
|
|
61,156
|
|
|
|
80,904
|
|
|
|
91,200
|
|
|
|
97,131
|
|
|
|
98,614
|
|
Total stockholders deficit
|
|
|
(28,119
|
)
|
|
|
(41,977
|
)
|
|
|
(49,110
|
)
|
|
|
(67,932
|
)
|
|
|
(81,123
|
)
|
|
|
(83,656
|
)
|
|
|
|
(1)
|
|
See Note 2 to our consolidated
financial statements with regard to the restatement of our
consolidated financial statements as of and for the three months
ended April 30, 2007 for stock-based compensation and
preferred stock warrant valuation.
|
30
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. The amount of data that is
being generated and stored by organizations is exploding. 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. This increasing amount of
data and the importance of data analysis has led to a heightened
demand for data warehouses that provide the critical framework
for data-driven enterprise decision-making and business
intelligence. 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, 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.
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 alternate product offerings.
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. For fiscal 2007 and for the first three months of fiscal
2008, U.S. customers accounted for approximately 76% and
75% of our revenue, respectively.
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,
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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, $64.6 million in fiscal 2007 and
$20.6 million in the first three months of fiscal 2008. 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. However, for the first quarter of
fiscal 2008, one customer did account for more than 10% of our
revenue. Our future revenue growth will depend in significant
part upon further sales of our NPS appliances to our existing
customer base. As of April 30, 2007, 75% 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. In addition, the
market for our products is characterized by rapid technological
change, frequent new product introductions and evolving industry
standards. Our future revenue growth is dependent on the
successful development and introduction of new products and
enhancements. Such new introductions and enhancements could
reduce demand for our existing products and cause customers to
delay purchasing decisions until such new products and
enhancements are introduced. To address these risks we will seek
to expand our sales and marketing efforts, continue to pursue
research and development as well as acquisition opportunities to
expand and enhance our product offering.
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 product maintenance
services to our customers. In addition, we offer installation,
training and professional services to our customers. The
percentage of our total revenue derived from support services
was 14% in fiscal 2005, 15% in fiscal 2006 and 19% in each of
fiscal 2007 and the first three months of fiscal 2008. We
anticipate that maintenance 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
shipping, warehousing and logistics expenses, warranty reserves
and inventory write-downs to write down the carrying value of
inventory to the lower of cost or market. Shipping, warehousing
and logistics costs are recognized as incurred. Estimated
warranty costs are recorded when the related product revenue is
recognized.
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
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competitive and we expect this competition to intensify in the
future, especially as we move into additional vertical
industries. If our market share in such industries increases, we
expect pricing pressure to increase, which will 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 to 233 employees at
April 30, 2007 from 90 employees at January 31, 2004.
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
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 of approximately $825,000 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,
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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 $0.9 million of compensation
expense in connection with stock-based awards. During the first
three months of fiscal 2008, we granted stock options for
1,875,250 shares with an exercise price of $6.70 per share. In
June 2007, in connection with our proposed initial public
offering and after learning of the proposed initial public
offering price range recommended by our managing underwriters,
our board of directors decided to undertake a reassessment of
the fair market value of our common stock as of the
February 14, 2007 and February 28, 2007 grant dates.
As part of this reassessment, our board of directors took into
account not only the factors it originally considered in
connection with setting a fair market value of $6.70 per share
as of February 14, 2007, but also discussed and gave
further consideration to our strong financial performance in the
fourth quarter of fiscal 2007, our financial outlook for 2008,
and our prospects for an initial public offering.
Following this reassessment, our board of directors, with input
from management, determined that the fair market value of our
common stock as of February 14, 2007 and February 28,
2007 was $8.00 per share. As a result of this determination, the
exercise prices of stock option grants in the first three months
of fiscal 2008 were less than the respective fair values of our
common stock on the grant dates for accounting purposes. We have
therefore revised the Black-Scholes fair value of these stock
options to reflect the reassessed fair value of our common
stock. The table below details the original and revised values
associated with these grants.
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Black-Scholes
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Fair Value
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Black-Scholes
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Increase in
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Exercise Price
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as Determined
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Fair Value as
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Fair Value of
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Shares Granted
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Per share
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On Grant Date
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Revised
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Options Granted
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(In thousands)
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(In thousands)
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(In thousands)
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1,875,250
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$
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6.70
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$
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8,377
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$
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10,385
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$
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2,008
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The options granted in the first three months of fiscal 2008 are
stock options that are accounted for under SFAS 123R.
Pursuant to SFAS 123R, the Black-Scholes fair value of
these grants will be recognized as compensation expense on a
straight line basis over the vesting period of the options,
which is generally five years. For the first three months of
fiscal 2008, we recorded $0.9 million of compensation
expense in connection with stock-based awards based upon the
revised fair value of the stock options. Unrecognized
stock-based compensation expense of non-vested stock options of
$15.7 million, net of forfeitures, as of April 30,
2007, is expected to be recognized using the straight-line
method over a weighted average period of 4.4 years. We
expect to recognize $2.6 million in stock-based
compensation in the remaining three quarters of fiscal 2008,
excluding the impact of any grants made after April 30,
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.
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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. For the year ended
January 31, 2007 and for the three months ended
April 30, 2007, we recorded $0.2 million and
$0.3 million, respectively, of additional expense to
reflect the increase in fair value between February 1, 2006
and January 31, 2007 and during the three months ended
April 30, 2007, respectively. The pro forma effect of the
adoption of FSP
150-5 on our
results of operations for fiscal 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:
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revenue recognition;
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stock-based compensation;
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inventory valuation;
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warranty reserves; and
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accounting for income taxes.
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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:
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Evidence of an arrangement. We consider a
non-cancelable agreement signed by the customer and us to be
persuasive evidence of an arrangement.
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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.
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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
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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.
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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.
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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 and
during the first three months of fiscal 2008 based on an
analysis of reported data for a peer
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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% and during the
first three months of fiscal 2008 was 75%. 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
SECs Staff Accounting Bulletin, or SAB, No. 107,
Share-Based Payment. The expected life of options granted
during fiscal 2007 and during the first three months of fiscal
2008 was 6.5 years. For fiscal 2007, the weighted average
risk-free interest rate used ranged from 4.56% to 5.03% and for
the first three months of fiscal 2008, a risk-free interest rate
of 4.49% was used. 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 and in the first
three months of fiscal 2008 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:
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Contemporaneous valuation reports that we received from
Revolution Partners, an independent valuation firm, in February
2006, August 2006, November 2006 and February 2007. Each of the
independent valuations reported a valuation range for our common
stock based upon a combination of three different methodologies:
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Implied valuation based on comparable companies this
method uses direct comparisons to comparable public companies
and their valuations, trading and operating statistics to
estimate comparable valuation ranges. In applying this
methodology, Revolution Partners selected publicly traded
companies that were comparable to us in a variety of factors,
such as industry, business model, growth rates and size.
Companies included in the comparable company analysis were
similar to us with respect to some, but not necessarily all, of
these characteristics. For example, some of the companies were
chosen because they provide solutions to the data center
hardware sector and others because they operate in the
IT infrastructure industry. The valuation produced by this
methodology is not adjusted to compensate for any differences
between the companies included in this group and our company in
order to achieve comparability. A discount to the initial
valuation produced by this methodology is then applied based
upon the lack of marketability of our common stock to estimate
its fair value. The factors used in determining this illiquidity
discount include the companys stage of development,
operating history, size, likelihood of a liquidity event and
possible timing of a liquidity event. For early-stage technology
companies, Revolution Partners suggests an illiquidity discount
rate range of
30-60%. In
the initial valuation analysis for January 2006, Revolution
Partners applied a 20% illiquidity discount to the comparable
company analysis, which is lower than the early stage discount
rate range mentioned above because we (i) were a
well-established company with significant contracts and
customers, (ii) had been in business for over five years
and had nearly 200 employees, (iii) had over
$50 million of annual revenue, and (iv) had good
prospects for a timely liquidity event. In subsequent analyses,
Revolution Partners lowered the illiquidity discount to reflect
the progress we had made in our business and the greater
likelihood of an initial public offering. In August 2006,
November 2006 and February 2007, Revolution Partners used
illiquidity discount rates of 20%, 15% and 7.5%, respectively.
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Implied valuation based on precedent transactions
this method 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. The valuation analyses
provided by Revolution Partners did not directly factor in the
effect of significant value-creating milestones, because the
results of these milestones had already been factored into the
revenue projections provided to them by us. The Revolution
Partners valuations did not take into account any significant
value-creating milestones of the comparable companies,
independent of those reflected in their operating results.
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Implied valuation based upon projected discounted cash
flows this method applies a discount rate to our
long-term projected cash flows to produce an implied valuation
range. Revolution Partners applied a 20% discount rate in the
discounted cash flow analysis, which was determined by using a
weighted average cost of capital analysis of certain comparable
companies. The discount rate did not change over the course of
the valuation analyses.
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The implied valuation ranges yielded by these three
methodologies are then combined to produce a blended valuation
range. To determine the blended valuation range, Revolution
Partners relied predominantly on the valuation ranges provided
by the comparable company and precedent transaction analyses.
The process of determining a blended valuation begins by
determining the highest and lowest valuations of both the
comparable company and precedent transaction analyses. In
determining the blended valuation range, Revolution Partners
then chose a valuation range that fell within the middle of the
combined valuation range. Although the discounted cash flow
analysis, otherwise known as DCF, is the least relevant
methodology to determining the value of high-growth, early-stage
technology companies, Revolution Partners utilized the DCF
valuation as a benchmark to test the results of the blended
valuation. Revolution Partners adjusted the blended valuation
range if it substantially differed from the DCF valuation range.
For the January 2006, August 2006 and November 2006 analyses,
the valuation determined from the blended valuation range did
not substantially differ from the DCF valuation range so no
adjustments were made. In the February 2007 analysis, the
initial blended valuation range was nearly double the DCF
valuation range, and accordingly, Revolution Partners revised
the blended valuation range downward. As a last step, Revolution
Partners applied a common stock discount to the blended
valuation range. There are several factors that Revolution
Partners considered in determining the common stock discount,
including voting rights, observer rights, information rights,
rights to board seats, registration rights, rights of first
refusal, preemptive rights and the likelihood of an initial
public offering (where it is expected that preferred stock
automatically converts to common). The experience of Revolution
Partners suggests that a
30-50%
discount rate is appropriate for a typical early-stage
technology company, although the range can vary widely as each
company has unique circumstances. In our initial valuation
analysis in January 2006, Revolution Partners utilized a 40%
common stock discount that was applied to the value attributable
to common stock. In the judgment of Revolution Partners, a 40%
discount was appropriate for a company with our profile of
preferred rights and our potential for an initial public
offering in the near future. In subsequent analyses, the
discount rate was decreased as the likelihood of an initial
public offering increased. In August 2006, November 2006 and
February 2007, Revolution Partners used discount rates of 30%,
15% and 7.5%, respectively.
|
|
|
|
|
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 results of operations; and
|
|
|
|
The lack of liquidity of our common stock and the prospects for
a liquidity event.
|
38
Since the beginning of fiscal 2006, we granted stock options
with exercise prices as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
Number of
|
|
|
Price per
|
|
Stock Option Grant Dates
|
|
Options Granted
|
|
|
Share
|
|
|
February 1, 2005 -
November 7, 2005
|
|
|
699,000
|
|
|
$
|
1.00
|
|
November 8, 2005 -
December 18, 2005
|
|
|
9,000
|
|
|
$
|
1.20
|
|
January 1, 2006 -
February 20, 2006
|
|
|
1,184,250
|
|
|
$
|
2.50
|
|
May 9, 2006
|
|
|
476,750
|
|
|
$
|
2.50
|
|
August 10, 2006
|
|
|
1,672,250
|
|
|
$
|
2.50
|
|
November 15, 2006
|
|
|
347,000
|
|
|
$
|
4.50
|
|
December 19, 2006
|
|
|
80,500
|
|
|
$
|
4.50
|
|
February 14, 2007
|
|
|
1,825,250
|
|
|
$
|
6.70
|
|
February 28, 2007
|
|
|
50,000
|
|
|
$
|
6.70
|
|
Our board of directors determined that the fair market value of
our common stock had increased significantly in February 2006 as
compared to the most recent determination of value in late 2005.
The primary reasons for the February 2006 increase were the
valuation report from Revolution Partners, which, based upon
(i) a comparable companies valuation range of
$243 million to $323 million, (ii) a precedent
transaction valuation range of $233 million to
$303 million and (iii) a discounted cash flows
valuation range of $226 million to $302 million, and
after applying the common stock discount, yielded a blended
valuation range of $240 million to $313 million, or
$2.50 to $3.46 per share; and our financial performance in
the quarter and fiscal year ended January 31, 2006, in
which we recorded record quarterly revenues and a 49% increase
in annual revenue over the fiscal year ended January 31,
2005. Mitigating against a higher common stock valuation at that
time were the inherent risks in our financial projections, given
the early stage of our operating history, which formed an
integral part of the Revolution Partners valuation; the superior
rights and preferences of our preferred stock; and the absence
of any prospects at that time for an initial public offering.
Our board of directors determined in both May 2006 and August
2006 that the value of our common stock had not increased above
$2.50 per share. Those determinations were based primarily
on our operating results for the quarters ended April 30,
2006 and July 31, 2006, as our revenue in those two
quarters was less than, and approximately the same as, our
revenue in the quarter ended January 31, 2006, and our
operating loss in those two quarters was greater than our
operating loss in the quarter ended January 31, 2006. Our
board also took into account, in its August 2006 determination
of fair market value, an updated valuation report from
Revolution Partners, which indicated a lower valuation range
than its valuation report in early 2006.
In November 2006, our board of directors determined that the
fair market value of our common stock had increased to
$4.50 per share. This determination was based primarily on:
a contemporaneous valuation report from Revolution Partners,
which, based upon (i) a comparable companies valuation
range of $204 million to $294 million, (ii) a
precedent transaction valuation range of $234 million to
$334 million and (iii) a discounted cash flows
valuation range of $137 million to $198 million, and
after applying the common stock discount, yielded a blended
valuation range of $210 million to $310 million, or
$2.86 to $4.64 per share; our financial performance in the
quarter ended October 31, 2006, in which we recorded record
quarterly revenues of $23.2 million and a smaller operating
loss than in the prior two quarters; and the conclusion by our
board of directors and management that we should begin
preliminary work toward a potential initial public offering.
On February 14, 2007, our board of directors determined
that the fair market value of our common stock had increased to
$6.70 per share. The primary factors underlying this
determination were: a contemporaneous valuation report from
Revolution Partners, which, based upon (i) a comparable
companies valuation range of $303 million to
$433 million, (ii) a precedent transaction valuation
range of $363 million to $463 million and (iii) a
discounted cash flows valuation range of $156 million to
$229 million, and after applying the common stock discount,
yielded a blended valuation range of $300 million to
$400 million, or $4.84 to $6.76 per share; our
financial performance in the quarter ended January 31,
2007, in which we again recorded record quarterly revenues and a
significantly smaller operating loss; and our selection of
managing underwriters for our initial public offering and the
formal commencement of work toward this offering in early
February 2007.
39
In June 2007, in connection with our proposed initial public
offering and after learning of the proposed initial public
offering price range recommended by our managing underwriters,
our board of directors decided to undertake a reassessment of
the fair market value of our common stock as of the
February 14, 2007 and February 28, 2007 grant dates.
As part of such reassessment, our board of directors took into
account not only the factors it originally considered in
connection with setting a fair market value of $6.70 per share
as of February 14, 2007, but also discussed and gave
further consideration to our strong financial performance in the
fourth quarter of fiscal 2007 and our financial outlook for
fiscal 2008. In particular, our board concluded that, given the
fact that the proposed initial public offering price range of
$9.00-$11.00 per share was fixed relatively soon after the
February 2007 determination that the fair market value was $6.70
per share, in retrospect it did not assign sufficient weight to
the following factors that were relevant to the February fair
market value determination:
|
|
|
|
|
Our pending initial public offering. As of
February 14, 2007, we had engaged our managing underwriters
and formally begun work toward an initial public offering. An
initial public offering will both create a liquid trading market
for our common stock and eliminate, through the automatic
conversion of our preferred stock into common stock, the
superior rights and preferences of our preferred stock which
have a negative impact on the value of our common stock. In
connection with the reassessment, our board concluded that it
underestimated both the likelihood and the impact of the initial
public offering in its original determination of fair market
value in February 2007.
|
|
|
|
|
|
Our recent financial performance. We generated record quarterly
revenue of $26.7 million in the quarter ended
January 31, 2007. More importantly, for the first time in
our history, we were close to break-even on an operating basis
in the quarter ended January 31, 2007. Our board of
directors, at the time of its initial fair market value
determination in February 2007, placed more emphasis on our
revenue performance than our break-even operating performance.
In retrospect, based in part on input from our managing
underwriters and the importance of bottom-line performance as a
public company, our board regarded our fourth quarter operating
performance as a watershed event for us, and accorded that more
weight in its reassessment of the fair market value of our
common stock in February 2007.
|
|
|
|
Our 2008 Outlook. In the fourth quarter of fiscal
2007, we noted several trends that caused us to reevaluate our
business prospects for fiscal 2008, including the successful
release of a new product enhancement which we expect to continue
to be well-received by customers during fiscal 2008, a trend
towards increased order size on a per-customer basis, and an
increase in the productivity of our sales force.
|
Following this reassessment, our board of directors, with input
from our management, determined that the fair market value of
our common stock as of February 14, 2007 and
February 28, 2007 was $8.00 per share. As a result of this
determination, the exercise prices of the stock options granted
by us in February 2007 were less than the reassessed fair market
value of our common stock of $8.00 per share as of the date of
grant for accounting purposes. Consequently, the grant date fair
value of the stock options granted by us in February 2007,
calculated using the Black-Scholes option pricing model pursuant
to SFAS No. 123(R), increased to $10.4 million
from $8.4 million. These amounts will be recorded as
stock-based compensation expense over the vesting period of the
options, which is generally five years.
While the reassessed February 2007 fair market value of $8.00
per share is in excess of the fair market value of $4.50 per
share determined in November 2006, there are several
factors that explain this increase. First, the
November 2006 valuation is supported by an independent
valuation by Revolution Partners, a firm expert in performing
such valuation analyses. Second, our initial public offering was
much more likely in February 2007 than it was in
November 2006, as we had engaged managing underwriters and
begun formal work on this process; and, as noted above, the
liquid trading market for our common stock and the elimination
of our preferred stock resulting from the initial public
offering has a very significant positive impact on the value of
our common stock. Third, also as noted above, we consider our
strong financial performance in the quarter ended
January 31, 2007 to be a significant milestone for us.
Finally, we noted certain business developments in the fourth
quarter of 2007 caused us to reevaluate our business prospects
for fiscal 2008, including the successful release of a new
product enhancement which we expect to continue to be
well-received by customers during fiscal 2008, a trend towards
increased order size on a per-customer basis, and an increase in
the productivity of our sales force.
40
While the reassessed February 2007 fair market value of
$8.00 per share is below the proposed initial public offering
price range of $9.00 to $11.00 per share, there are several
factors that explain this discrepancy. First, the
February 2007 fair market value determination was based on
information available at the beginning of the first quarter of
fiscal 2008, whereas the proposed initial public offering price
range was not definitively set until after the completion of the
first quarter. Moreover, our operating results in the first
quarter of fiscal 2008 represented a significant improvement
over the operating results in the first quarter of fiscal 2007
and exceeded our internal operating plan, factors which were
known at the time the proposed initial public offering price
range was definitively set but which were not known in February
2007. The strong first quarter results also gave us and our
managing underwriters greater confidence that we would achieve
our financial forecast for fiscal 2008 as a whole. Furthermore,
the proposed initial public offering price range, which
necessarily assumes that a public market for our common stock
has been created and that our preferred stock has converted into
common stock in connection with the initial public offering,
does not take into account any illiquidity discount for our
common stock and does not take into account the superior rights
and preferences of our preferred stock, which were appropriately
taken into account in the valuation analyses by Revolution
Partners and in our board of directors fair market value
determination. In addition, we believe that stock market
conditions in general and the initial public offering market in
particular are stronger now than in February 2007.
Inventory
Valuation
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 inventory
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.
During the fiscal years ended January 31, 2006 and 2007 and
the three months ended April 30, 2007, we recorded charges
of $0, $0.7 million and $0.1 million,
respectively, to write inventory down to the lower of cost or
market.
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,
$1.1 million and $1.0 million as of January 31,
2006, 2007 and April 30, 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
$6.2 million may be carried forward indefinitely and
$1.6 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.
41
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.
Results
of Operations
The following table sets forth our consolidated results of
operations for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(restated)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
30,908
|
|
|
$
|
45,508
|
|
|
$
|
64,632
|
|
|
$
|
8,889
|
|
|
$
|
20,577
|
|
Services
|
|
|
5,121
|
|
|
|
8,343
|
|
|
|
14,989
|
|
|
|
3,109
|
|
|
|
4,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
36,029
|
|
|
|
53,851
|
|
|
|
79,621
|
|
|
|
11,998
|
|
|
|
25,342
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
8,874
|
|
|
|
18,941
|
|
|
|
26,697
|
|
|
|
3,565
|
|
|
|
8,395
|
|
Services
|
|
|
1,640
|
|
|
|
3,491
|
|
|
|
5,403
|
|
|
|
1,325
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
10,514
|
|
|
|
22,432
|
|
|
|
32,100
|
|
|
|
4,890
|
|
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,515
|
|
|
|
31,419
|
|
|
|
47,521
|
|
|
|
7,108
|
|
|
|
15,299
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
14,783
|
|
|
|
25,626
|
|
|
|
32,908
|
|
|
|
6,373
|
|
|
|
9,669
|
|
Research and development
|
|
|
11,366
|
|
|
|
16,703
|
|
|
|
18,037
|
|
|
|
4,226
|
|
|
|
5,484
|
|
General and administrative
|
|
|
2,500
|
|
|
|
3,124
|
|
|
|
4,827
|
|
|
|
852
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,649
|
|
|
|
45,453
|
|
|
|
55,772
|
|
|
|
11,451
|
|
|
|
16,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,134
|
)
|
|
|
(14,034
|
)
|
|
|
(8,251
|
)
|
|
|
(4,343
|
)
|
|
|
(1,609
|
)
|
Interest income
|
|
|
206
|
|
|
|
487
|
|
|
|
414
|
|
|
|
120
|
|
|
|
22
|
|
Interest expense
|
|
|
121
|
|
|
|
173
|
|
|
|
765
|
|
|
|
92
|
|
|
|
213
|
|
Other income (expense), net
|
|
|
35
|
|
|
|
(87
|
)
|
|
|
627
|
|
|
|
185
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
cumulative effect of change in accounting principle
|
|
|
(3,014
|
)
|
|
|
(13,807
|
)
|
|
|
(7,975
|
)
|
|
|
(4,130
|
)
|
|
|
(1,631
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
|
(3,014
|
)
|
|
|
(13,807
|
)
|
|
|
(7,975
|
)
|
|
|
(4,130
|
)
|
|
|
(1,905
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,014
|
)
|
|
$
|
(14,025
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 to our consolidated financial statements with
regard to the restatement of our consolidated financial
statements as of and for the three months ended April 30,
2007 for stock-based compensation and preferred stock warrant
valuation. |
42
The following table sets forth our consolidated results of
operations as a percentage of revenue for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(restated)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
85.8
|
%
|
|
|
84.5
|
%
|
|
|
81.2
|
%
|
|
|
74.1
|
%
|
|
|
81.2
|
%
|
Services
|
|
|
14.2
|
|
|
|
15.5
|
|
|
|
18.8
|
|
|
|
25.9
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
24.6
|
|
|
|
35.2
|
|
|
|
33.5
|
|
|
|
29.7
|
|
|
|
33.1
|
|
Services
|
|
|
4.6
|
|
|
|
6.5
|
|
|
|
6.8
|
|
|
|
11.1
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
29.2
|
|
|
|
41.7
|
|
|
|
40.3
|
|
|
|
40.8
|
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
70.8
|
|
|
|
58.3
|
|
|
|
59.7
|
|
|
|
59.2
|
|
|
|
60.4
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
41.0
|
|
|
|
47.6
|
|
|
|
41.3
|
|
|
|
53.1
|
|
|
|
38.2
|
|
Research and development
|
|
|
31.6
|
|
|
|
31.0
|
|
|
|
22.7
|
|
|
|
35.2
|
|
|
|
21.6
|
|
General and administrative
|
|
|
6.9
|
|
|
|
5.8
|
|
|
|
6.1
|
|
|
|
7.1
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
79.5
|
|
|
|
84.4
|
|
|
|
70.1
|
|
|
|
95.4
|
|
|
|
66.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(8.7
|
)
|
|
|
(26.1
|
)
|
|
|
(10.4
|
)
|
|
|
(36.2
|
)
|
|
|
(6.3
|
)
|
Interest income
|
|
|
0.5
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
|
1.0
|
|
|
|
0.1
|
|
Interest expense
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
0.9
|
|
|
|
0.7
|
|
|
|
0.9
|
|
Other income (expense), net
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
|
|
0.8
|
|
|
|
1.5
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
cumulative effect of change in accounting principle
|
|
|
(8.4
|
)
|
|
|
(25.6
|
)
|
|
|
(10.0
|
)
|
|
|
(34.4
|
)
|
|
|
(6.4
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
|
(8.4
|
)
|
|
|
(25.6
|
)
|
|
|
(10.0
|
)
|
|
|
(34.4
|
)
|
|
|
(7.5
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(8.4
|
)%
|
|
|
(26.0
|
)%
|
|
|
(10.0
|
)%
|
|
|
(34.4
|
)%
|
|
|
(7.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 to our consolidated financial statements with
regard to the restatement of our consolidated financial
statements as of and for the three months ended April 30,
2007 for stock-based compensation and preferred stock warrant
valuation. |
Three
Months Ended April 30, 2007 Compared to Three Months Ended
April 30, 2006
Revenue
Total revenue increased $13.3 million, or 111%, to
$25.3 million in the three months ended April 30, 2007
from $12.0 million in the three months ended April 30,
2006. Total revenue related to new customer sales represented
54% of total revenue in the three months ended April 30,
2007 as compared to 52% in the three months ended April 30,
2006, while repeat business from the installed customer base
represented 46% of total revenue in the three months ended
April 30, 2007 as compared to 48% in the three months ended
April 30, 2006.
Product revenue increased $11.7 million, or 131%, to
$20.6 million in the three months ended April 30, 2007
from $8.9 million in the three months ended April 30,
2006. This increase was based on increased sales volume due
primarily to sales to new customers, as the number of sales to
new customers increased to 14 in the three months ended
April 30, 2007 from six in the three months ended
April 30, 2006. This increase was primarily driven by an
increase in the size of our sales force and the increased
experience and productivity of sales representatives hired
within the last year, as new sales representatives generally
take some time before becoming productive. Our new sales office
in Japan accounted for $1.5 million of revenue during the
first quarter of 2008. The number of sales and marketing
employees increased to 94 at April 30, 2007 from 67 at
April 30, 2006. In addition, at the end of fiscal
43
2007 we introduced an enhancement to one of our existing
products which accounted for approximately $9.0 million of
incremental revenue during the first quarter of fiscal 2008. Our
enhanced visibility and reputation in our industry, as our base
of referenceable customers has grown, was also an important
factor in generating additional sales. During this period,
competitive pressures did not cause us to change the pricing of
our products. In addition, no changes in the pricing of our
products had a material impact on our revenue in the three
months ended April 30, 2007.
Services revenue increased $1.7 million, or 53%, to
$4.8 million in the three months ended April 30, 2007
from $3.1 million in the three months ended April 30,
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. All of our customers to date have
purchased first-year annual maintenance and support services
and, during this period, substantially all of our customers
renewed their maintenance and support agreements. This was
driven, in part, by the success of our technical account manager
program.
Gross
Margin
Total gross margin increased to 60% in the three months ended
April 30, 2007 from 59% in the three months ended
April 30, 2006.
Product gross margin decreased to 59% in the three months ended
April 30, 2007 from 60% in the three months ended
April 30, 2006. This decrease was due to $0.5 million
of costs incurred in the three months ended April 30, 2007
to upgrade inventory on hand to meet current selling
specifications in conjunction with the release of a new product
line, which was partially offset by a reduction in the cost of
our hardware components.
Services gross margin increased to 65% in the three months ended
April 30, 2007 from 57% in the three months ended
April 30, 2006. This increase was a result of our services
revenue growth of 53% while services headcount only grew 27%
between April 30, 2006 and April 30, 2007.
Sales and
Marketing Expenses
Sales and marketing expenses increased $3.3 million, or
52%, to $9.7 million in the three months ended
April 30, 2007 from $6.4 million in the three months
ended April 30, 2006. As a percentage of revenue, sales and
marketing expenses decreased to 38% in the three months ended
April 30, 2007 from 53% in the three months ended
April 30, 2006. The number of sales and marketing employees
increased to 94 at April 30, 2007 from 67 at April 30,
2006 in order to expand our salesforce to provide better
geographic distribution and market penetration. Sales
commissions, salaries and employee benefits, sales and marketing
promotions and programs, and sales travel accounted for
$1.4 million, $1.0 million, $0.2 million and
$0.2 million, respectively, of the $3.3 million
increase. The remainder of the increase was attributable
primarily to additional sales office rent and office costs to
support the continued geographic expansion of the sales force
and to stock-based compensation expense included in sales and
marketing expenses which increased to $0.2 million in the
three months ended April 30, 2007 from approximately
$12,000 in the three months ended April 30, 2006.
Research
and Development Expenses
Research and development expenses increased $1.3 million,
or 30%, to $5.5 million in the three months ended
April 30, 2007 from $4.2 million in the three months
ended April 30, 2006. As a percentage of revenue, research
and development expenses decreased to 22% in the three months
ended April 30, 2007 from 35% in the three months ended
April 30, 2006. The number of research and development
employees increased to 83 at April 30, 2007 from 72 at
April 30, 2006 in order to provide additional development
resources for new product enhancements. The offshore development
team from our contract engineering firm increased to
55 people at April 30, 2007 from 50 people at
April 30, 2006 in order to provide additional support as we
sought to increase the efficiency of our quality assurance
process. Salaries and benefits and offshore consulting costs
accounted for $0.8 million and $0.1 million,
respectively, of the $1.3 million increase. The remainder
of the increase was attributable to recruiting fees for new
hires, higher allocated facilities expenses and travel expenses
totaling $0.2 million and stock-based compensation expense
included in research and development expenses which increased to
$0.1 million in the three months ended April 30, 2007
from approximately $20,000 in the three months ended
April 30, 2006.
44
General
and Administrative Expenses
General and administrative expenses increased $0.9 million,
or 106%, to $1.8 million in the three months ended
April 30, 2007 from $0.9 million in the three months
ended April 30, 2006. As a percentage of revenue, general
and administrative expenses were 7% in both of the three months
ended April 30, 2007 and 2006. The number of general and
administrative employees increased to 18 at April 30, 2007
from 14 at April 30, 2006. Salaries and benefits and
stock-based compensation accounted for $0.4 million and
$0.4 million, respectively, of the $0.9 million
increase. Stock-based compensation expense included in general
and administrative expenses increased to $0.4 million in
the three months ended April 30, 2007 from approximately
$34,000 in the three months ended April 30, 2006.
Interest
Income (Expense), Net
We incurred $0.2 million of interest expense, net in the
three months ended April 30, 2007 as compared to
approximately $28,000 of interest income, net in the three
months ended April 30, 2006. This increase was due to an
increase in our average debt balance during the three months
ended April 30, 2007. The increase in the average debt
balance was primarily attributable to $3.4 million in net
debt drawdowns during the three months ended April 30, 2007.
Other
Income (Expense), Net
We incurred other income, net of $0.2 million in both the
three months ended April 30, 2007 and the three months
ended April 30, 2006. The components of other income, net,
for the three months ended April 30, 2007 are transaction
gains for activities in our foreign subsidiaries, primarily the
United Kingdom, and was partially offset by $0.3 million
from the mark-to-market adjustments on preferred stock warrants.
Provision
for Income Taxes
We recorded a provision for income taxes of $0.3 million in
the three months ended April 30, 2007 as compared to $0 in
the three months ended April 30, 2006 due to a change in
our effective income tax rate to 17% in the first quarter of
fiscal 2008 as compared with 0% in the first quarter of fiscal
2007. The increase in the effective rate was primarily
attributable to federal alternative minimum tax, state income
taxes and tax on the earnings of certain foreign subsidiaries.
Fiscal
2007 Compared to Fiscal 2006
Revenue
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 based on increased sales volume
due primarily to sales to new customers, as the number of
customers increased to 87 from 46, or 89%, during the year. This
increase in product sales was primarily driven by our
introduction of a dedicated sales force outside of the United
States and an increase in the size and productivity of our sales
force in the United States. The number of sales and marketing
employees increased to 85 at January 31, 2007 from 67 at
January 31, 2006. In addition, we opened four new sales
offices during this period, of which two were located outside of
the United States. Our enhanced visibility and reputation in our
industry, as our base of referenceable customers has grown, was
also an important factor in generating additional sales. During
this period, competitive pressures did not cause us to change
the pricing of our products. In addition, no changes in the
pricing of our products had a material impact on our revenue in
the fiscal year ended January 31, 2007.
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, especially outside of the United States, and accompanying
sales of new maintenance and support contracts combined with the
renewal of maintenance and support contracts by existing
customers. All of our customers to date have purchased
first-year annual maintenance and
45
support services and during this period, substantially all of
our customers renewed their maintenance and support agreements.
This was driven, in part, by the success of our technical
account manager program.
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 80% 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 in order to support our geographic
expansion, particularly outside of the United States. 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 continued geographic expansion of our direct selling
operations in Europe, Asia and throughout North America.
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 in order to help us broaden and
improve the development of new technology and product
enhancements. 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 in order to ensure we had appropriate
infrastructure to support the growth of our organization in
46
response to the growing market. 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 to increased sales volume,
primarily to sales to new customers, as the number of customers
increased to 46 from 15, or 207%, during the year. The increase
was primarily driven by an increase in the size and productivity
of our sales force and the success of our marketing efforts. The
number of sales and marketing employees increased to 67 at
January 31, 2006 from 46 at January 31, 2005. There
were no pricing changes to our products during fiscal 2006.
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
in order to support our desire to provide 100% customer
referenceability in order to differentiate ourselves from our
competitors. 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
47
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 as we sought to establish our
core direct sales force in order to respond to market demand for
our products. Salaries and employee benefits, sales commissions,
sales and marketing travel, 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 continued geographic expansion of
our direct selling operations in Europe, Asia and throughout
North America.
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 in order to take advantage of the cost efficiencies
associated with offshore research and development resources.
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 25%, 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 between fiscal 2006 and fiscal 2005, 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.
48
Quarterly
Results of Operations
The following table sets forth our unaudited quarterly
consolidated statements of operations data for the nine fiscal
quarters ended April 30, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
2007
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
(restated)(1)
|
|
|
|
(In thousands)
|
|
|
|
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
8,077
|
|
|
$
|
10,017
|
|
|
$
|
12,466
|
|
|
$
|
14,948
|
|
|
$
|
8,889
|
|
|
$
|
14,389
|
|
|
$
|
19,359
|
|
|
$
|
21,995
|
|
|
$
|
20,577
|
|
Services
|
|
|
1,631
|
|
|
|
2,152
|
|
|
|
1,824
|
|
|
|
2,736
|
|
|
|
3,109
|
|
|
|
3,395
|
|
|
|
3,812
|
|
|
|
4,673
|
|
|
|
4,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
9,708
|
|
|
|
12,169
|
|
|
|
14,290
|
|
|
|
17,684
|
|
|
|
11,998
|
|
|
|
17,784
|
|
|
|
23,171
|
|
|
|
26,668
|
|
|
|
25,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
2,984
|
|
|
|
4,974
|
|
|
|
5,255
|
|
|
|
5,727
|
|
|
|
3,565
|
|
|
|
6,046
|
|
|
|
8,127
|
|
|
|
8,959
|
|
|
|
8,395
|
|
Services
|
|
|
651
|
|
|
|
1,004
|
|
|
|
891
|
|
|
|
946
|
|
|
|
1,325
|
|
|
|
1,109
|
|
|
|
1,448
|
|
|
|
1,521
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
3,635
|
|
|
|
5,978
|
|
|
|
6,146
|
|
|
|
6,673
|
|
|
|
4,890
|
|
|
|
7,155
|
|
|
|
9,575
|
|
|
|
10,480
|
|
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,073
|
|
|
|
6,191
|
|
|
|
8,144
|
|
|
|
11,011
|
|
|
|
7,108
|
|
|
|
10,629
|
|
|
|
13,596
|
|
|
|
16,188
|
|
|
|
15,299
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
5,653
|
|
|
|
6,724
|
|
|
|
6,362
|
|
|
|
6,887
|
|
|
|
6,373
|
|
|
|
7,217
|
|
|
|
9,281
|
|
|
|
10,039
|
|
|
|
9,669
|
|
Research and development
|
|
|
4,429
|
|
|
|
3,578
|
|
|
|
3,721
|
|
|
|
4,976
|
|
|
|
4,226
|
|
|
|
4,321
|
|
|
|
4,667
|
|
|
|
4,823
|
|
|
|
5,484
|
|
General and administrative
|
|
|
1,073
|
|
|
|
763
|
|
|
|
754
|
|
|
|
533
|
|
|
|
852
|
|
|
|
1,247
|
|
|
|
1,135
|
|
|
|
1,591
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11,155
|
|
|
|
11,065
|
|
|
|
10,837
|
|
|
|
12,396
|
|
|
|
11,451
|
|
|
|
12,785
|
|
|
|
15,083
|
|
|
|
16,453
|
|
|
|
16,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,082
|
)
|
|
|
(4,874
|
)
|
|
|
(2,693
|
)
|
|
|
(1,385
|
)
|
|
|
(4,343
|
)
|
|
|
(2,156
|
)
|
|
|
(1,487
|
)
|
|
|
(265
|
)
|
|
|
(1,609
|
)
|
Interest income
|
|
|
113
|
|
|
|
103
|
|
|
|
168
|
|
|
|
103
|
|
|
|
120
|
|
|
|
99
|
|
|
|
136
|
|
|
|
59
|
|
|
|
22
|
|
Interest expense
|
|
|
|
|
|
|
13
|
|
|
|
52
|
|
|
|
108
|
|
|
|
92
|
|
|
|
196
|
|
|
|
215
|
|
|
|
261
|
|
|
|
213
|
|
Other income (expense), net
|
|
|
10
|
|
|
|
(144
|
)
|
|
|
(5
|
)
|
|
|
52
|
|
|
|
185
|
|
|
|
360
|
|
|
|
72
|
|
|
|
10
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
cumulative effect of change in accounting principle
|
|
|
(4,959
|
)
|
|
|
(4,928
|
)
|
|
|
(2,582
|
)
|
|
|
(1,338
|
)
|
|
|
(4,130
|
)
|
|
|
(1,893
|
)
|
|
|
(1,494
|
)
|
|
|
(457
|
)
|
|
|
(1,631
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
|
(4,959
|
)
|
|
|
(4,928
|
)
|
|
|
(2,582
|
)
|
|
|
(1,338
|
)
|
|
|
(4,130
|
)
|
|
|
(1,893
|
)
|
|
|
(1,494
|
)
|
|
|
(457
|
)
|
|
|
(1,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,959
|
)
|
|
$
|
(4,928
|
)
|
|
$
|
(2,800
|
)
|
|
$
|
(1,338
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,893
|
)
|
|
$
|
(1,494
|
)
|
|
$
|
(457
|
)
|
|
$
|
(1,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 to our consolidated financial statements with
regard to the restatement of our consolidated financial
statements as of and for the three months ended April 30,
2007 for stock-based compensation and preferred stock warrant
valuation. |
49
The following table sets forth our consolidated results of
operations as a percentage of revenue for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
2007
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
(restated)(1)
|
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
83.2
|
%
|
|
|
82.3
|
%
|
|
|
87.2
|
%
|
|
|
84.5
|
%
|
|
|
74.1
|
%
|
|
|
80.9
|
%
|
|
|
83.5
|
%
|
|
|
82.5
|
%
|
|
|
81.2
|
%
|
Services
|
|
|
16.8
|
|
|
|
17.7
|
|
|
|
12.8
|
|
|
|
15.5
|
|
|
|
25.9
|
|
|
|
19.1
|
|
|
|
16.5
|
|
|
|
17.5
|
|
|
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
30.7
|
|
|
|
40.9
|
|
|
|
36.8
|
|
|
|
32.4
|
|
|
|
29.7
|
|
|
|
34.0
|
|
|
|
35.1
|
|
|
|
33.6
|
|
|
|
33.1
|
|
Services
|
|
|
6.7
|
|
|
|
8.2
|
|
|
|
6.2
|
|
|
|
5.3
|
|
|
|
11.1
|
|
|
|
6.2
|
|
|
|
6.2
|
|
|
|
5.7
|
|
|
|
6.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
37.4
|
|
|
|
49.1
|
|
|
|
43.0
|
|
|
|
37.7
|
|
|
|
40.8
|
|
|
|
40.2
|
|
|
|
41.3
|
|
|
|
39.3
|
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
62.6
|
|
|
|
50.9
|
|
|
|
57.0
|
|
|
|
62.3
|
|
|
|
59.2
|
|
|
|
59.8
|
|
|
|
58.7
|
|
|
|
60.7
|
|
|
|
60.4
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
58.2
|
|
|
|
55.2
|
|
|
|
44.5
|
|
|
|
39.0
|
|
|
|
53.1
|
|
|
|
40.6
|
|
|
|
40.1
|
|
|
|
37.6
|
|
|
|
38.2
|
|
Research and development
|
|
|
45.6
|
|
|
|
29.4
|
|
|
|
26.0
|
|
|
|
28.1
|
|
|
|
35.2
|
|
|
|
24.3
|
|
|
|
20.1
|
|
|
|
18.1
|
|
|
|
21.6
|
|
General and administrative
|
|
|
11.1
|
|
|
|
6.3
|
|
|
|
5.3
|
|
|
|
3.0
|
|
|
|
7.1
|
|
|
|
7.0
|
|
|
|
4.9
|
|
|
|
6.0
|
|
|
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
114.9
|
|
|
|
90.9
|
|
|
|
75.8
|
|
|
|
70.1
|
|
|
|
95.4
|
|
|
|
71.9
|
|
|
|
65.1
|
|
|
|
61.7
|
|
|
|
66.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(52.3
|
)
|
|
|
(40.0
|
)
|
|
|
(18.8
|
)
|
|
|
(7.8
|
)
|
|
|
(36.2
|
)
|
|
|
(12.1
|
)
|
|
|
(6.4
|
)
|
|
|
(1.0
|
)
|
|
|
(6.3
|
)
|
Interest income
|
|
|
1.2
|
|
|
|
0.8
|
|
|
|
1.1
|
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.1
|
|
Interest expense
|
|
|
|
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
1.1
|
|
|
|
0.9
|
|
|
|
0.9
|
|
|
|
0.9
|
|
Other income (expense), net
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
0.2
|
|
|
|
1.5
|
|
|
|
2.0
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
cumulative effect of change in accounting principle
|
|
|
(51.1
|
)
|
|
|
(40.5
|
)
|
|
|
(18.1
|
)
|
|
|
(7.6
|
)
|
|
|
(34.4
|
)
|
|
|
(10.6
|
)
|
|
|
(6.4
|
)
|
|
|
(1.7
|
)
|
|
|
(6.4
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
(7.5
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(51.1
|
)%
|
|
|
(40.5
|
)%
|
|
|
(19.6
|
)%
|
|
|
(7.6
|
)%
|
|
|
(34.4
|
)%
|
|
|
(10.6
|
)%
|
|
|
(6.4
|
)%
|
|
|
(1.7
|
)%
|
|
|
(7.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 2 to our consolidated financial statements with
regard to the restatement of our consolidated financial
statements as of and for the three months ended April 30,
2007 for stock-based compensation and preferred stock warrant
valuation. |
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
50
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.
Liquidity
and Capital Resources
As of April 30, 2007, our principal sources of liquidity
were cash and cash equivalents of $6.1 million and accounts
receivable of $22.2 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 and a revolving credit facility with
Silicon Valley Bank. At April 30, 2007, we had a total of
$5.9 million under our term loan and $4.0 million
under our revolving credit facility outstanding.
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.
In the future we expect to 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
coverage.
The following table shows our cash flows from operating
activities, investing activities and financing activities for
the stated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
April 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Net cash used in operating
activities
|
|
$
|
(2,596
|
)
|
|
$
|
(9,760
|
)
|
|
$
|
(11,163
|
)
|
|
$
|
(3,336
|
)
|
|
$
|
(2,090
|
)
|
Net cash used in investing
activities
|
|
|
(4,311
|
)
|
|
|
(5,506
|
)
|
|
|
(1,477
|
)
|
|
|
(236
|
)
|
|
|
(149
|
)
|
Net cash provided by financing
activities
|
|
|
14,107
|
|
|
|
7,644
|
|
|
|
3,789
|
|
|
|
1,526
|
|
|
|
3,667
|
|
Cash
Used In Operating Activities
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. To date, we
have not encountered any collectibility problems with respect to
any of our major customers. However, we review our revenue
recognition policy annually to determine if any changes are
warranted based upon the nature of the transactions we entered
into during the prior fiscal year.
Net cash used in operating activities was $2.1 million in
the first three months of fiscal 2008. Net cash used in
operating activities in the first three months of fiscal 2008
primarily consisted of a net loss of $1.9 million, a use of
$8.8 million to fund our net increase in inventory
primarily used to provide additional evaluation units to our
increasing customer base and prospective customers, and a
decrease in accounts payable and accrued expenses of
$3.0 million. The uses of cash were partially offset by a
decrease in accounts receivable of $9.7 million, due
51
primarily to the receipt of customer payments during the first
three months of fiscal 2008. Other changes include depreciation
expense and stock-based compensation expense of
$0.7 million and $0.9 million, respectively.
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, a use of $15.5 million to fund our net
increase in inventory primarily used to provide additional
evaluation units to our increasing customer base and prospective
customers, and an increase in accounts receivable of
$17.9 million. The increase in accounts receivable resulted
from our seasonally significant fourth quarter product sales
that are invoiced and recorded as revenue but not collected as
of the end of the fiscal year. In the first nine days of fiscal
2008, we collected approximately $9.5 million of the
accounts receivable balance outstanding at January 31,
2007. The uses of cash 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 the purchases of
maintenance agreements which are paid for in advance but
recorded ratably throughout the term of the agreement. Of this
$14.8 million increase, a majority relates to the
prepayment of multi-year maintenance agreements which typically
have three-year terms. Of these multi-year maintenance
agreements, $9.8 million is classified as long term
deferred maintenance at January 31, 2007. The unamortized
balances of these new multi-year maintenance agreements were
broken down into short-term deferred revenue for that revenue
that will be recognized over the following
12-month
period, and long-term deferred revenue for the remaining revenue
beyond the initial
12-month
period. Other changes include depreciation expense of
$2.6 million, stock-based compensation expense of
$0.9 million, an increase in accounts payable of
$10.2 million due to the lag in payment of purchases,
primarily inventory, used to support increased sales activity
and net changes in our other operating assets and liabilities of
$1.4 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 $0.1 million in
the first three months of fiscal 2008 and consisted of the
purchase of computer equipment and software.
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 $2.0 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 $3.7 million
in the first three months of fiscal 2008. Net cash provided
by financing activities in the first three months of fiscal 2008
consisted of $3.4 million of net borrowings under our debt
facilities. These borrowings were used to fund losses and our
net increase in inventory. In addition, proceeds of
$0.3 million were received from the issuance of common
stock pursuant to the exercise of options under the 2000 Stock
Incentive Plan.
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
52
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 April 30, 2007, we had $5.9 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
April 30, 2007. As of April 30, 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
credit facility is 1% below the prime rate, and at
April 30, 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 April 30, 2007, we had
$4.0 million outstanding under this revolving credit
facility and $11.0 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. Our future
working capital requirements will depend on many factors,
including the rate of revenue growth, our introduction of new
products or enhancements, our expansion of sales and marketing
and product development activities. However, to the extent that
our cash and cash equivalents, our cash flow from operating
activities, borrowings under our bank lines of credit and the
net proceeds from this offering are insufficient to fund our
future activities, we may need to raise additional funds through
bank credit arrangements or public or private equity or debt
financings. 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
53
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 $6.1 million
at April 30, 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 April 30, 2007, we had $5.9 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 and $4.0 million under our
revolving credit facility which bears interest at a variable
rate based on the prime rate minus an applicable margin.
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 July 2006, the FASB Interpretation 48, Accounting
for Uncertainty in Income Taxes
(FIN No. 48), which clarifies the
accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
FAS No. 109, Accounting for Income
Taxes. FIN No. 48 prescribes a two-step
process to determine the amount of tax benefit to be recognized.
First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon external examination.
If the tax position is deemed more-likely-than-not
to be sustained, the tax position is then assessed to determine
the amount of benefit to recognize in the financial statements.
The amount of the benefit that may be recognized is the largest
amount that has a greater than 50 percent likelihood of
being realized upon ultimate settlement. We adopted FIN No. 48
effective February 1, 2007 and we had no changes to the
amount of our income tax payable as a result of implementing
FIN No. 48.
54
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.
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BUSINESS
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. 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:
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Fast data query response times through our proprietary
Intelligent Query Streaming technology.
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Massive scalability through our proprietary Asymmetric Massively
Parallel Processing, or AMPP, architecture.
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Simplicity of installation, operation and administration.
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Cost effectiveness through the use of industry-standard server
and storage components packaged in a single unified solution.
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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. From our inception through April 30,
2007, we have sold over 230 of our data warehouse appliances
worldwide to 101 data-intensive customers. Our customers span
multiple vertical industries and include data-intensive
companies and government agencies. Some of our more well-known
customers include Ahold, Amazon.com, AOL, American Red Cross,
Blue Cross Blue Shield of Rhode Island, Catalina Marketing, CNET
Networks, CompuCredit Corporation, Epsilon, LoanPerformance,
Marriott, the NASD, Neiman Marcus Group, Nielsen Company, Orange
UK, Premier Inc., Restoration Hardware, Ross Stores, Ryder
System, Source Healthcare Analytics, Inc., a Wolters Kluwer
Health company, the United States Army Corps of Engineers and
the United States Department of Veterans Affairs. Each of the
companies listed is a current customer who has purchased at
least $300,000 worth of products or services from us.
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:
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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,
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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.
In addition, companies are making analytic capabilities more
widely available to a broad range of users across the enterprise
for both strategic and tactical decision-making. 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 18% of organizations expect their largest data warehouse to
at least double in size during the next year, 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, and the queries being processed include a broader mix
of strategic and tactical analyses, 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. In addition
to traditional reporting and analysis on historical data for
past patterns, companies increasingly want to leverage their
data to predict future patterns and behavior. 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. As a
growing number of users from business units across the
enterprise analyze data for tactical, operational decisions,
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.
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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.
Limitations
of Traditional Data Warehouse Systems
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 todays 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.
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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
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appliance is flexible with regard to the layout and structure of
data models, so as new data is added and models are 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. Our vision is to enable users across the
enterprise to leverage the power of high-performance analytics,
simply and affordably, for better decision-making. 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, broaden the range of user and query
workloads we support, and take advantage of improvements in the
reliability, performance, cost, power and cooling attributes of
the hardware components integrated into our appliances. We also
plan to leverage our streaming processing capabilities to enable
new, faster ways of delivering advanced analytics. 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.
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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
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Smallest
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Largest
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Configuration
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Configuration
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(NPS 5200)
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(NPS 10800)
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Snippet Processing Units (SPUs)
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28
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User Data Capacity (Terabytes)
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3
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100
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Data Scan Rate (Terabytes/hour)
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6
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190
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Product Partnerships and Alliances. Through a
network of partnerships and alliances, we provide our customers
with integrated, high-quality 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.
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Our partnerships and alliances include the following software
providers:
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Business intelligence: Business Objects, Cognos, MicroStrategy
and SAP
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Data access and analytics: SAS Institute, SPSS and Unica
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Data integration: Ab Initio Software, IBM, Informatica and Oracle
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Data protection: Symantec
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Industry-specific solutions: Claraview, QuantiSense and Unica
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Technology
and Architecture
The architecture of the NPS appliance is based upon two guiding
principles:
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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.
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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.
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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:
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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.
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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.
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63
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.
64
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 April 30, 2007, we had 101
customers and had sold over 230 of our data warehouse
appliances. Our customers span multiple vertical industries and
include data-intensive companies and government agencies,
including the organizations listed below, each of which is a
current customer who has purchased at least $300,000 worth of
products or services from us:
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Vertical Segment
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Sample Customers
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Representative
Applications
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Telecommunications
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Orange UK
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CRM analysis; revenue assurance
and cost management; click stream analysis; fraud detection;
network management
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E-Business
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Amazon.com
CNET Networks
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Click stream analysis; CRM
analysis; market basket analysis; fraud detection
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Retail
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Ahold
Neiman Marcus Group
Restoration Hardware
Ross Stores
Ryder System
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CRM analysis; supply chain
analysis; click stream analysis; market basket analysis; loyalty
card analysis
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Financial Services
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LoanPerformance
The NASD
CompuCredit
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Campaign management; compliance
management
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Analytic Service Providers
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Catalina Marketing
Epsilon
Nielsen Company
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Database marketing and analytics
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Government
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The United States Army Corps of
Engineers
The United States Department of Veterans Affairs
American Red Cross
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Confidential
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Healthcare
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Blue Cross Blue Shield of Rhode
Island
Premier Inc.
Source Healthcare Analytics, Inc., a Wolters Kluwer Health
company
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Healthcare analytics; supply chain
analysis
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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:
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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
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65
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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.
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Orange UK, one of the UKs 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 Oranges 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.
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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 companys 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.
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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.
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AOL and Epsilon accounted for 49% and 12%, respectively, of our
total revenue in fiscal 2005. Acxiom accounted for 10% of our
total revenue in fiscal 2006. No customer accounted for greater
than 10% of our total revenue during fiscal 2007; however, five
customers accounted for greater than 5% of our total revenue
during fiscal 2007 and our ten largest customers accounted for
approximately 45% of our revenues during the same period. For
the first three months of fiscal 2008, MasterCard accounted for
20% of our total revenue.
Service
and Support
Through our 28 service and support employees as of
April 30, 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 hardware service
relationships that we have with Hewlett-Packard and its
affiliates. We have an agreement with no set term with Compaq
Computer Corporation, a subsidiary of Hewlett-Packard, under
which Compaq provides on-site hardware component replacement and
charges us fixed monthly fees on a per-system basis along with
hourly fees for services rendered. We issue individual purchase
orders for each system to be covered. We have an additional
service agreement with Hewlett-Packard Limited, or HP Ltd., an
affiliate of Hewlett-Packard, that renews automatically from
each year and under which HP Ltd.
66
provides support services directly to our customers. This
agreement requires individual purchase orders and provides for
fixed monthly fees along with hourly fees for services. However,
our agreement with HP Ltd. also provides for a minimum coverage
term of 12 months for any purchase order and requires
quarterly pre-payment of anticipated service charges. We have
the right to terminate the HP Ltd. master agreement for any
reason upon 30 days written notice, and HP Ltd. has
the right to terminate the agreement for any reason upon 60
days written notice. If this agreement were terminated by
HP Ltd., we believe we could make suitable substitute
arrangements.
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 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:
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Cognizant Technology Solutions
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Headstrong Corporation
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Infosys Technologies Limited
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Multi Threaded, Inc.
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NEC
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Systech Solutions, Inc.
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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 April 30, 2007, we had 94 sales and marketing
employees located in 13 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.
67
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:
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North America: Electronic Data Systems Corporation (EDS) and MSI
Systems Integrators
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EMEA: EDS, BizIntel and Keyrus
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Asia-Pacific: NEC, Unisys, Information Services
International-Dentsu and CTC
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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:
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Acxiom
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Epsilon (an affiliate of Alliance Data Systems Corporation)
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Merkle
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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
April 30, 2007 was comprised of 83 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. Under the
terms of our agreement with Persistent we pay monthly charges
based on the number of Persistent employees staffed on our
dedicated team. There is a fixed cap on the total amount of
monthly fees that can be charged to us and the size of the team
is subject to our approval. Our relationship with Persistent
Systems began in 2001, but is terminable by either party on
15 days notice. If we are required to change our
68
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.
Manufacturing
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 10 employees dedicated to manufacturing operations
as of April 30, 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. Under the terms of our agreement with Sanmina, we
commit to firm purchase orders based on our manufacturing
requirements for a certain rolling period. In addition, we
submit forecasts to Sanmina based on our requirements for an
additional rolling future period, for which we are only
responsible for the components purchased by Sanmina in reliance
on our forecast. Our forecasts are rolled into our firm purchase
orders as the manufacturing date approaches. Sanmina may accept
or reject any purchase order we submit. 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 renews automatically from each year and is
terminable by us for any reason upon 30 days written
notice or by Sanmina for any reason upon 90 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 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
The data warehouse industry has traditionally been dominated by
a small number of major providers. EMC, Hewlett-Packard, IBM,
Oracle, Sun Microsystems, Sybase and Teradata (a division of
NCR) are our principal competitors in the data warehouse
marketplace. Each of these companies provides several if not all
elements of a
69
data warehouse environment as individual products, including
database software, servers, storage and professional services;
however, they do not provide an integrated solution similar to
ours. 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.
Hewlett-Packard was incorporated in 1947 and in its most recent
annual report filed with the SEC reported that they had more
than 156,000 employees. Oracle refers to itself as the
worlds largest enterprise software company in its annual
report filed with the SEC and reported that it has more than
56,000 employees. Sun Microsystems reported that it has
approximately 78 sales and service offices in the United States
and an additional 145 sales and service offices in 47 other
countries, and employs independent distributors in over 100
countries. Each of EMC, Hewlett-Packard and Oracle reported
spending more than $1 billion on research and development;
in each case, significantly more than we have. 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, such as IBM
and Teradata, 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.
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. Our NPS data warehouse appliance has
demonstrated a performance advantage of 10 to 100 times greater
query speed, a reduction of overall operations oversight and
linear scalability in users and system capacity, while typically
requiring less floor space, electric power and cooling capacity
than the products provided by our major competitors. However,
there can be no assurance that our products will continue to
outperform those of our competitors or that our product
advantages will always lead to customers choosing our products
over those of our competitors.
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 April 30, 2007, we had 8 issued patents and
15 pending patent applications in the United States. As of
April 30, 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
70
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 April 30, 2007, we had 233 employees worldwide,
including 28 employees in service and support,
94 employees in sales and marketing, 83 employees in
research and development, 10 employees in manufacturing and
18 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 February 2008. We believe that our current
facilities are adequate to meet our needs until the expiration
of our operating lease in February 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.
71
MANAGEMENT
Executive
Officers and Directors
The following table sets forth information regarding our
executive officers and directors, including their ages as of
April 30, 2007.
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Name
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Age
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Position
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Jitendra S. Saxena
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|
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61
|
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Chief Executive Officer,
Co-founder and Chairman of the Board of Directors
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James Baum
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43
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President and Chief Operating
Officer, Director
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Patrick J. Scannell, Jr.
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53
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Senior Vice President, Chief
Financial Officer, Treasurer and Secretary
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Raymond Tacoma
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|
|
57
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Senior Vice President, Worldwide
Sales
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Patricia Cotter
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|
|
48
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|
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Vice President Worldwide Customer
Support & Manufacturing
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Sunil Dhaliwal
|
|
|
31
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|
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Director
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Ted R. Dintersmith(1)(2)
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|
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54
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|
|
Director
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Robert J. Dunst, Jr.(1)
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|
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46
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|
|
Director
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Paul J. Ferri(2)(3)
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68
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|
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Director
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Charles F. Kane(1)
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|
|
49
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|
|
Director
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Edward J. Zander(2)(3)
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|
|
60
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|
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Director
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|
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(1) |
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Member of the audit committee |
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(2) |
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Member of the compensation committee |
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(3) |
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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. He was elected as Chairman of the Board
of Directors in June 2007. 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.
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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 General 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 and since June 2006, serves as a private business
consultant. Prior to June 2006, Mr. Dunst was 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 was 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 October 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 Deans
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 boards business, provide
that:
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the boards principal responsibility is to oversee the
management of Netezza;
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a majority of the members of the board shall be independent
directors;
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the independent directors meet regularly in executive session;
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directors have full and free access to management and, as
necessary and appropriate, independent advisors;
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new directors participate in an orientation program and all
directors are expected to participate in continuing director
education on an ongoing basis; and
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at least annually, the board and its committees will conduct a
self-evaluation to determine whether they are functioning
effectively.
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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 NYSE Arca. 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:
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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;
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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
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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.
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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 committees 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 boards three standing committees
are independent as defined under the rules of the NYSE Arca,
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.
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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 committees responsibilities include:
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appointing, approving the compensation of, and assessing the
independence of our registered public accounting firm;
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overseeing the work of our registered public accounting firm,
including through the receipt and consideration of certain
reports from such firm;
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reviewing and discussing with management and the registered
public accounting firm our annual and quarterly financial
statements and related disclosures;
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monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct
and ethics;
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establishing policies regarding hiring employees from the
registered public accounting firm and procedures for the receipt
and retention of accounting related complaints and concerns;
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meeting independently with our internal auditing staff,
registered public accounting firm and management; and
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reviewing and approving or ratifying any related person
transactions.
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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:
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annually reviewing and approving corporate goals and objectives
relevant to chief executive officer compensation;
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determining our chief executive officers compensation;
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reviewing and approving, or making recommendations to our board
with respect to, the compensation of our other executive
officers;
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overseeing an evaluation of our senior executives;
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overseeing and administering our cash and equity incentive
plans; and
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reviewing and making recommendations to our board with respect
to director compensation.
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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 committees responsibilities include:
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identifying individuals qualified to become members of our board;
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recommending to our board the persons to be nominated for
election as directors and to each of our boards committees;
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reviewing and making recommendations to our board with respect
to management succession planning;
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developing and recommending to our board corporate governance
principles; and
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overseeing an annual evaluation of our board.
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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.
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Director
Compensation
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. Mr. Saxena
and Mr. Baum do not receive any cash or equity compensation
for their services as directors.
In August 2004, we granted to Mr. Zander a stock option for
80,000 shares of our common stock, at an exercise price of
$0.78 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 was 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.
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:
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to each new non-employee director upon his or her initial
election to our board, and
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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.
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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:
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to attract, retain and motivate executives who make important
contributions to the achievement of our business
objectives and
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to align the incentives of our executives with the creation of
value for our stockholders by providing equity incentives tied
to our long-term performance.
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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. In
setting executive compensation for fiscal 2008, the compensation
committee reviewed the executive compensation of a benchmark
group including Commvault, iRobot, Unica, which are all publicly
traded, as well as Egenera and Crossbeam, two private,
venture-backed companies, and relevant industry surveys.
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
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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.
Components
of our Executive Compensation Program
We compensate our executives through programs that emphasize
performance-based compensation. Executive compensation is tied
directly to the performance of the company and the
individuals efforts in helping us achieve corporate goals,
which connects our executives compensation with increasing
stockholder value. Our programs are structured to ensure that,
due to the dynamic nature of our business, there is an
appropriate balance between recognition of short- and long-term
performance. However, we do not have a specific policy regarding
the allocation of total compensation among these components. The
following elements comprise compensation paid to our executive
officers:
Base
Salary.
The base salaries that we pay to our executives, which are used
to provide a fixed amount of compensation to compensate an
executive adequately for the regular work performed during the
fiscal year, are based on the level of responsibility required
of each executive, and are set after consideration of the level
of base salary paid by comparable companies for similar
positions. Base salaries for our executives are fixed by our
compensation committee, with input from our Chief Executive
Officer. 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, and, based on each
executives performance of individual objectives during the
prior fiscal year, it may make merit-based adjustments to ensure
that salaries are aligned with our compensation objectives and
the compensation paid by comparable public companies. Individual
objectives may include achievement of company targets, attaining
hiring targets, growth and development of staff within certain
departments, achieving product delivery milestones, or
increasing the company profile and footprint in the market.
The following table sets forth information regarding the base
salary for fiscal 2007 and fiscal 2008 for our named executive
officers:
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Fiscal 2007
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Fiscal 2008
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Name
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Title
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Base Salary
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Base Salary
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Jitendra S. Saxena
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Chief Executive Officer
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$
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300,000
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$
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325,000
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James Baum
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President
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$
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300,000
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$
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300,000
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Patrick J. Scannell, Jr.
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Chief Financial Officer
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$
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215,000
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$
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250,000
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Raymond Tacoma
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Senior Vice President, Worldwide
Sales
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$
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225,000
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$
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225,000
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Patricia Cotter
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Vice President, Worldwide Customer
Support and Manufacturing
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$
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168,750
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$
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180,000
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The primary corporate performance factors considered by our
compensation committee in granting base salary increases to
Mr. Saxena, Mr. Scannell and Ms. Cotter were the
48% increase in our revenue from fiscal 2006 to fiscal 2007, the
addition of 41 new customers during fiscal 2007, and our
progress towards an initial public offering. The primary
individual performance factors considered by our compensation
committee, and by Mr. Saxena in making recommendations to
the compensation committee, were as follows:
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for Mr. Saxena, his contributions to the strategic
direction of the company, the building of our management team,
assistance with direct sales to key customers, and his
interactions with investors and the investment community;
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for Mr. Scannell, his contributions to the development and
oversight of our financial, accounting and internal control
functions, his effective management of our human resources and
information technologies groups, and his efforts in preparing
the company for operation as a public company and complying with
the public company regulatory environment; and
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for Ms. Cotter, the high degree of customer satisfaction
with our product, our success in developing a quick and
efficient process for customer installations, and her effective
management of our procurement process and our relationship with
Sanmina, our contract manufacturer.
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Mr. Baum, our President, was hired in mid-2007, and as a
result did not receive an increase in salary for fiscal 2008.
Mr. Tacoma serves as our Senior Vice President, Worldwide
Sales. As noted below, we believe the overall compensation of
Mr. Tacoma should be based primarily on our sales
performance (which is addressed through our annual incentive
bonus plan), and therefore Mr. Tacoma did not receive an
increase in his annual base salary. At the end of fiscal 2008,
the base salaries of our executive officers will again be
evaluated based upon both corporate and individual performance
during fiscal 2008, and may be adjusted upward or downward,
depending upon that performance.
The decisions concerning executive base salaries made by our
compensation committee, while taking into account the factors
described above, are subjective in nature. In fixing executive
base salaries, the compensation committee members take into
account their extensive collective experience in serving as
directors and executives of technology companies such as ours
and on their overall assessment of the executives
performance and importance to our company. However, the
compensation committee members do not necessarily base such
decisions on a specific set of performance objectives or ascribe
quantifiable weighting to the various factors they consider.
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. Annual
incentive awards are designed to reward short-term performance
and the achievement of designated strategic results. Our
compensation committee also reviews the target cash bonus with
base salary for each executive officer to ensure that the
effective total salary is competitive with other executives with
comparable roles, revenue targets and in comparable industries.
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:
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The executive officers other than Mr. Tacoma were assigned
a target bonus of approximately 40% of their annual base salary.
As we believe the overall compensation of Mr. Tacoma, who
serves as our Senior Vice President, Worldwide Sales, should be
based primarily on our sales performance, Mr. Tacoma was
provided the opportunity to earn a significant cash bonus based
on sales performance. As a result, he had a target bonus that
was slightly in excess of his annual base salary.
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For the executive officers other than Mr. Tacoma, 80% of
their target bonus was based upon our attainment of a specified
revenue target of $85.0 million 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 of
$789,000 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. Mr. Tacomas cash bonus incentive was
designed to maintain all of his focus on sustained sales success
and future growth of the business, which was consistent with the
companys intention to emphasize revenue growth and
increase our presence in the market. Bookings targets were
selected as bonus metrics for Mr. Tacoma to reward him for
achieving sustained sales success during the year and for
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. Our compensation
committee considered our goals for revenue growth and operating
income for fiscal 2007 and established target levels that it
considered challenging in that they required us to achieve
strong revenue growth as compared to prior years and, in
addition required increased revenue and reduced cost on a
per-employee basis, but would be attainable if we had what we
considered to be a successful year.
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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.
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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:
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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 again based on sales performance and is in excess of his
annual base salary.
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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 as with the targets for fiscal 2007 were set
at levels that were designed to be challenging in that they
require us to achieve strong revenue growth and, in addition,
require increased revenue and reduced cost on a per-employee
basis, but would be attainable if we had what we considered to
be a successful year.
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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.
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In establishing annual incentive bonus plans, the compensation
committee typically fixes target bonuses for our executive
officers based on a percentage of their annual base salary.
Accordingly, any changes in an executives base salary will
likely result in a corresponding change in his target bonus for
that fiscal year. In establishing the performance metrics upon
which bonuses are determined such as revenue,
adjusted operating income and bookings targets the
compensation committee takes into account changes in our
business from year to year, but seeks to establish targets each
fiscal year that have approximately the same likelihood of being
attained. As a result, any increases in incentive bonus
compensation would be based upon a combination of (i) the
same company and individual performance factors that resulted in
the establishment of the executives annual base salaries
and (ii) the performance of our company against the targets
established as part of the annual incentive bonus plan.
Long-Term
Equity Incentives.
Our equity grant program is a key component of our executive
compensation program, which is designed to provide both
short-term and long-term incentives for our executives. We
believe that the long-term performance of our business is
improved through the grant of stock-based awards which aligns
the interests of our executives with the creation of value for
our stockholders and helps us attract, motivate and retain a
successful management team. 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.
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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 primarily upon merit. Prior to the
close of the fiscal year, our committee reviews the current
status of each executives outstanding options awards,
particularly the unvested portion of the grants. Keeping the
status of these awards in mind, as well as the performance of
the executive during the fiscal year, the committee determines
the size of an annual equity award for each executive officer.
It is the committees intention to make equity awards so
that each executive has outstanding awards that are
approximately 4050% unvested in the aggregate.
Mr. Baum received a significant equity award in connection
with his hiring during the last fiscal year, and as a result his
annual award was slightly reduced. As Ms. Cotter was
appointed to an executive position at the end of this fiscal
year, her annual award was slightly increased to reflect her new
position.
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: 300,000 shares; Mr. Baum:
50,000 shares; Mr. Scannell: 200,000 shares;
Mr. Tacoma: 150,000 shares; and Ms. Cotter:
50,000 shares. We intend to make annual grants of equity
awards to executive officers, generally early in the fiscal year
following an evaluation of the executives 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 NYSE Arca 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
80
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 NYSE Arca 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 employees hire date. The exercise price of those
options will be at least equal to the closing price of our
common stock on NYSE Arca 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 executives 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 NYSE Arca 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 NYSE Arca 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-in-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.
Tax
Considerations
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.
81
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:
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|
|
|
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|
|
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Change in
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|
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|
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Pension
|
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|
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Value and
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Non-Equity
|
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Nonqualified
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All
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Incentive
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Deferred
|
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Other
|
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|
|
|
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Stock
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|
Option
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Plan
|
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|
Compensation
|
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Compen-
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Name and Principal
|
|
Fiscal
|
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Salary
|
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|
Bonus
|
|
|
Awards
|
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|
Awards
|
|
|
Compensation
|
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|
Earnings
|
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|
sation
|
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Total
|
|
Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Jitendra S. Saxena
|
|
|
2007
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
$
|
137,867
|
|
|
$
|
93,672
|
|
|
|
|
|
|
$
|
436
|
(3)
|
|
$
|
531,975
|
|
Chief Executive Officer and
Co-founder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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James Baum(4)
|
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|
2007
|
|
|
|
180,769
|
|
|
|
|
|
|
|
|
|
|
|
263,900
|
|
|
|
56,460
|
|
|
|
|
|
|
|
|
|
|
|
501,129
|
|
President and Chief Operating
Officer
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Patrick J. Scannell, Jr.
|
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|
2007
|
|
|
|
215,000
|
|
|
|
|
|
|
|
|
|
|
|
51,700
|
|
|
|
63,697
|
|
|
|
|
|
|
|
872
|
(3)
|
|
|
331,269
|
|
Senior Vice President and Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Raymond Tacoma
|
|
|
2007
|
|
|
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
51,700
|
|
|
|
258,047
|
|
|
|
|
|
|
|
720
|
(3)
|
|
|
535,467
|
|
Senior Vice President, Worldwide
Sales
|
|
|
|
|
|
|
|
|
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|
|
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|
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|
|
|
|
|
|
|
|
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|
Patricia Cotter
|
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|
2007
|
|
|
|
168,750
|
|
|
|
35,000(5
|
)
|
|
|
|
|
|
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,390
|
|
Vice President, Worldwide Customer
Support & Manufacturing
|
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|
(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 3 to our consolidated
financial statements and Managements 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 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
executives 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. |
82
|
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|
(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.
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All Other
|
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|
Grant
|
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|
Stock
|
|
|
All Other
|
|
|
|
|
|
Date Fair
|
|
|
|
|
|
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|
|
|
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|
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|
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|
|
|
|
|
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 3 to our consolidated
financial statements and Managements 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. |
Outstanding
Equity Awards at 2007 Fiscal Year End
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)
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
(9)
|
|
|
10,000
|
|
|
|
|
|
|
|
1.00
|
|
|
|
1/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
(5)
|
|
|
|
|
|
|
2.50
|
|
|
|
2/20/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
(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 executives
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. Please see
Agreements with Executives below for
additional information regarding these agreements. |
|
(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 $8.00, which represents the
reassessed fair market value of our common stock as of February
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. Baums 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 vested 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. |
|
|
|
(9) |
|
This option vested as to 25% of the shares on January 1,
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 1, 2009. |
Option
Exercises and Stock Vested
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. |
84
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 executives 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 general terms,
cause under this agreement means (a) breaching
a material obligation that would materially affect us without
curing it within a specified period, (b) gross or
persistent misconduct or (c) pleading guilty to or being
convicted of a felony, or a lesser crime if it is injurious to
us. Good reason means the occurrence of any of the
following without the executives written consent:
(a) a reduction in annual base salary by more than 15%,
(b) a significant reduction in the executives duties
and authority such that they are no longer executive in nature
and (c) relocation of the executives place of
employment to a location that is more than 30 miles further
away from the executives residence than the place of
employment is currently. In addition, if, following a
change in control (as defined in the agreement) of
Netezza, the executives 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. Change in control generally includes the
following: (a) the acquisition of our common stock that
results in an individual or entity owning 30% or more of our
then-outstanding shares of common stock, (b) a change of
the majority of our board of directors to individuals not
recommended or elected by continuing directors or (c) a
merger, acquisition, reorganization or sale of substantially all
of the assets of the company other than a transaction in which
our stockholders prior to the transaction continue to control
the surviving or acquiring company after the transaction.
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
|
|
|
$
|
4,393,200
|
|
James Baum
|
|
|
425,000
|
|
|
|
13,233
|
|
|
|
7,975,000
|
|
Patrick J. Scannell, Jr.
|
|
|
269,839
|
|
|
|
13,233
|
|
|
|
1,619,450
|
|
Raymond Tacoma
|
|
|
389,229
|
|
|
|
13,233
|
|
|
|
1,761,950
|
|
Patricia Cotter
|
|
|
200,000
|
|
|
|
4,394
|
|
|
|
259,375
|
|
|
|
|
(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 $8.00 over the
exercise price of the option or, in the case of restricted
stock, $8.00. $8.00 represents the reassessed fair market value
of our common stock as of February 2007. |
Stock
Option and Other Compensation Plans
2007
Stock Incentive Plan
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
|
85
|
|
|
|
|
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
optionees 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 recipients 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 April 30, 2007, there
were options and warrants to purchase 8,870,509 shares of
common stock outstanding under the 2000 Plan,
4,399,111 shares of common stock had been issued and are
outstanding pursuant to the grant of restricted stock and the
exercise of options granted under this plan, and
2,451,838 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
86
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 directors 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.
87
RELATED
PARTY TRANSACTIONS
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
16 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
|
88
|
|
|
|
|
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.
89
PRINCIPAL
STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of our common stock, as of April 30,
2007 by:
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all persons known by us to beneficially own more than 5% of our
common stock;
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each of our executive officers;
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each of our directors; and
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all of our directors and executive officers as a group.
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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 that 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 April 30, 2007 or within
60 days after April 30, 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
46,631,079 shares outstanding as of April 30, 2007,
any shares subject to options or warrants held by that
individual or entity that were exercisable on or within
60 days after April 30, 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.
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Percentage of Shares
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Name and Address of
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Number of Shares
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Beneficially Owned
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Beneficial Owner
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Beneficially Owned
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Before Offering
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After Offering
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5% Stockholders
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Matrix Partners(1)
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9,592,175
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20.57
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%
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17.24
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%
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1000 Winter Street
Suite 4500
Waltham, MA 02451
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Charles River Partnership XI,
LP
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9,055,225
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19.42
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%
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16.28
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%
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and affiliated entities(2)
1000 Winter Street
Suite 3300
Waltham, MA 02451
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Battery Ventures(3)
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7,773,940
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16.67
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%
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13.97
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%
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930 Winter Street
Suite 2500
Waltham, MA 02451
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Sequoia Capital(4)
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7,026,673
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15.07
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%
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12.63
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%
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3000 Sand Hill Road
Bldg. 4, Suite 180
Menlo Park, CA 94025
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Meritech Capital Partners(5)
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3,142,707
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6.74
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%
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5.65
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%
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245 Lytton Avenue
Suite 350
Palo Alto, CA 94301
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90
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Percentage of Shares
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Name and Address of
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Number of Shares
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Beneficially Owned
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Beneficial Owner
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Beneficially Owned
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Before Offering
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After Offering
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Directors and Executive
Officers
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Jitendra S. Saxena(6)
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2,320,696
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4.92
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%
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4.13
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%
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James Baum(7)
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290,000
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*
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*
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Patrick J. Scannell, Jr.(8)
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516,666
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1.10
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%
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*
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Raymond Tacoma(9)
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507,125
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1.08
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%
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*
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Patricia Cotter(10)
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179,687
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*
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*
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Sunil Dhaliwal
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Ted R. Dintersmith(11)
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9,055,225
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19.42
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%
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16.28
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%
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Robert J. Dunst, Jr.
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Paul J. Ferri(12)
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9,592,175
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20.57
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%
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17.24
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%
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Charles F. Kane(13)
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50,000
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*
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*
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Edward J. Zander(14)
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216,000
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*
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*
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All executive officers and
directors as a group (11 persons)
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22,727,574
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47.07
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%
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39.67
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%
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* |
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Represents beneficial ownership of less than one percent of our
outstanding common stock. |
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(1) |
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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. |
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(2) |
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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. Charles River XI GP, LP is the General
Partner of Charles River Partnership XI, LP. Charles River
XI GP, LLC is the General Partner of Charles River XI GP, LP,
Charles River Friends XI-A, LP and Charles River Friends XI-B,
LP. The Managing Members of Charles River XI GP, LLC are Izhar
Armony, Christopher Baldwin, Richard M. Burnes, Jr.,
Ted R. Dintersmith, Bruce I. Sachs, William P. Tai and
Michael J. Zak, each of whom disclaim beneficial ownership of
such shares, except to the extent of their pecuniary interest
therein, and none of whom has sole voting and dispositive power
with respect to such shares. |
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(3) |
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Consists of 7,462,983 shares held by Battery Ventures VI,
L.P. and 310,957 shares held by Battery Investment Partners
VI, LLC. The managing members of Battery Partners VI, LLC, the
general partners of Battery Ventures VI, L.P., are Thomas
J. Crotty, Oliver D. Curme, Richard D. Frisbie, Morgan M. Jones,
Kenneth P. Lawler, Mark H. Sherman, Scott R. Tobin, and
R. David Tabors who hold voting and dispositive power for
the shares held by Battery Ventures VI, L.P. Each of
Messrs. Crotty, Curme, Frisbie, Jones, Lawler, Sherman,
Tobin, and Tabors disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein. The
managers of Battery Investment Partners VI, LLC are Thomas J.
Crotty and Oliver D. Curme, who hold voting and dispositive
power for the shares held by Battery Investment Partners VI,
LLC. Each of Messrs. Crotty and Curme disclaims beneficial
ownership of these shares except to the extent of his pecuniary
interest therein. |
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(4) |
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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. SCX
Management, LLC is the general |
91
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partner of Sequoia Capital X and Sequoia Capital X Principals
Fund, L.L.C., and the Managing Member of Sequoia Technology
Partners X. Michael Moritz, Douglas Leone, Mark Stevens, Michael
Goguen and Mark Kvamme are the Managing Members of SCX
Management, LLC and exercise shared voting and investment power
of the shares held by these Sequoia entities. These Managing
Members disclaim beneficial ownership of the shares held by
these Sequoia entities except to the extent of their pecuniary
interests in these entities. |
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(5) |
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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. |
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(6) |
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Includes 1,788,571 shares held by Mr. Saxena and
532,125 shares of common stock subject to stock options. |
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(7) |
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Includes 290,000 shares of common stock subject to stock
options. |
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(8) |
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Includes 384,041 shares held by Mr. Scannell;
20,000 shares of common stock held by The Patrick J.
Scannell III Irrevocable Trust 1999 dtd
December 16, 1999 and 112,625 shares of common stock
subject to stock options. |
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(9) |
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Includes 507,125 shares of common stock subject to stock
options. |
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(10) |
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Includes 150,000 shares of common stock held by
Ms. Cotter and 29,687 shares of common stock subject
to stock options. |
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(11) |
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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. Charles River XI GP, LP is the General
Partner of Charles River Partnership XI, LP. Charles River
XI GP, LLC is the General Partner of Charles River XI GP, LP,
Charles River Friends XI-A, LP and Charles River Friends XI-B,
LP. The Managing Members of Charles River XI GP, LLC are Izhar
Armony, Christopher Baldwin, Richard M. Burnes, Jr., Ted R.
Dintersmith, Bruce I. Sachs, William P. Tai and Michael J. Zak,
each of whom disclaim beneficial ownership of such shares,
except to the extent of their pecuniary interest therein, and
none of whom has sole voting and dispositive power with respect
to such shares. |
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(12) |
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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. |
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(13) |
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Consists of 50,000 shares of common stock subject to stock
options. |
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(14) |
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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
80,000 shares of common stock subject to stock options. |
92
DESCRIPTION
OF CAPITAL STOCK
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 April 30, 2007, there were 46,631,079 shares of
our common stock outstanding and held of record by
172 stockholders. Based on the number of shares outstanding
on April 30, 2007, upon the closing of this offering, there
will be 55,631,079 shares of outstanding common stock. In
addition, as of April 30, 2007:
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8,678,473 shares of our common stock were issuable upon the
exercise of outstanding stock options;
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2,451,838 shares of our common stock were reserved for
future issuance under our stock compensation plans; and
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312,781 shares of our common stock were issuable upon the
exercise of outstanding warrants.
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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
93
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 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 is
Computershare.
NYSE Arca
Exchange
Our common stock has been approved for listing on NYSE Arca
under the symbol NZ.
94
SHARES ELIGIBLE
FOR FUTURE SALE
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
55,631,079 shares of common stock, based on the number of
shares outstanding at April 30, 2007 and after giving
effect to the issuance of 9,000,000 shares of common stock
in this offering.
Of the shares to be outstanding after the closing of this
offering, the 9,000,000 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 46,631,079 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 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 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 such aforementioned transaction is to
be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the
intention to make any such offer, sale, pledge or disposition,
or to enter into any such transaction, swap, hedge or other
arrangement. 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.
In addition, certain of our stockholders are subject to
restrictions in their respective option agreements and
restricted stock agreements whereby they have agreed not to
sell, make short sale of, loan, grant any options for the
purpose of, or otherwise dispose of any shares of our common
stock (other than those shares included in the offering) without
our prior written consent or that of the underwriters managing
the offering for a period of 180 days from the effective
date of the registration statement, and to execute any agreement
reflecting these provisions as may be requested by us or the
managing underwriters at the time of the offering. Certain of
our stockholders are also subject to restrictions in an investor
rights agreement whereby they have agreed not to sell or
otherwise transfer or dispose of any of our securities for a
period of 180 days following the offering.
95
Approximately 46,508,579 of our shares will be subject to the
lock-up
arrangements described above. Of these shares,
45,775,266 shares will be subject to the
lock-up
agreements with the underwriters and 733,313 shares will be
subject only to the
lock-up
provisions contained in the stockholders option
agreements, restricted stock agreements, and the investor rights
agreement on the effective date of this offering. On the
effective date of this offering, there will be
122,500 shares that are not subject to
lock-up
restrictions and which will be eligible for sale pursuant to
Rule 144.
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:
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1% of the number of shares of our common stock then outstanding,
which limit will equal approximately 556,310 shares
immediately after this offering; or
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the average weekly trading volume in our common stock on NYSE
Arca 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.
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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:
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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
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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.
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Upon the expiration of the
180-day
lock-up
agreement described above, approximately 7,321,747 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 39,309,332 additional
shares of our common stock will be eligible for public resale,
subject to the volume limitations and other restrictions of
Rule 144.
Stock
Options
As of April 30, 2007, we had outstanding options to
purchase 8,678,473 shares of common stock, of which options
to purchase 2,747,096 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
96
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.
Registration
Rights
Following this offering, the holders of
41,019,972 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.
97
CERTAIN
U.S. FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
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:
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an individual who is a citizen or resident of the United States;
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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;
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an estate the income of which is includible in gross income
regardless of source; or
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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.
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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. Holders
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.
98
Dividends
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. Holders
tax basis in our common stock (with a corresponding reduction in
such
Non-U.S. Holders
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. Holders
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:
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the gain is U.S. trade or business income, as defined above;
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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
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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. Holders
holding period for our common stock.
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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 holders 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.
99
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. Holders
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.
100
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated July 18, 2007, we 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:
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Number
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Underwriter
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of Shares
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Credit Suisse Securities (USA) LLC
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3,780,000
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Morgan Stanley & Co.
Incorporated
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3,780,000
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Needham & Company, LLC
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765,000
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Thomas Weisel Partners LLC
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675,000
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Total
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9,000,000
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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.
We have granted to the underwriters a
30-day
option to purchase on a pro rata basis up to 1,350,000
additional shares 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 $0.504 per share. After the initial public
offering the underwriters may change the public offering price
and concession to broker/dealers.
The following table summarizes the compensation and estimated
expenses we will pay:
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Per Share
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Total
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Without
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With
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Without
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With
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Over-Allotment
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Over-Allotment
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Over-Allotment
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Over-Allotment
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Underwriting Discounts and
Commissions paid by us
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$
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0.84
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$
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0.84
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$
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7,560,000
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$
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8,694,000
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Expenses payable by us
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$
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0.25
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$
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0.22
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$
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2,250,000
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$
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2,250,000
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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.
The restrictions described above, however, do not apply to
(i) the sale of shares to the underwriters; (ii) the
filing with the SEC of registration statements on
Form S-8
101
with respect to any stock-based incentive plan described in this
prospectus; (iii) the issuance by us of shares of our
common stock upon the exercise of an option or a warrant or the
conversion of a security outstanding on the date of this
prospectus of which the underwriters have been advised in
writing; (iv) the grant of options to purchase common stock
or shares of our common stock to our officers, directors,
advisors or consultants pursuant to equity plans disclosed in
this prospectus; and (v) the issuance by us of up to
1,000,000 shares of common stock, in connection with any
acquisition, collaboration or other similar strategic
transaction.
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 (i) the transfer is a bona fide gift 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) or (ii) the stock to be transferred was acquired in
the open market after the completion of this offering, or
through the directed share program described below, provided
that in either case no filing by any party under the Securities
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 450,000 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.
Prior to this offering, there has been no public market of our
common stock. The initial public offering price will be
negotiated between us and the representatives of the
underwriters. In determining the initial public offering price
of our common stock, we and the representatives will consider:
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prevailing market conditions;
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our historical performance and capital structure;
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estimates of our business potential and earnings prospects;
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an overall assessment of our management; and
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the consideration of these factors in relation to market
valuation of companies in related businesses.
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We 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 been approved to list the shares of common stock on NYSE
Arca.
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.
102
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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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.
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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.
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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.
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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.
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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 NYSE Arca 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
103
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,
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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;
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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;
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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
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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.
Germany
Shares of our common stock may not be offered or sold or
publicly promoted or advertised by any underwriter in the
Federal Republic of Germany other than in compliance with the
provisions of the German Securities Prospectus Act
(Wertpapierprospektgestz WpPG) of June 22,
2005, as amended, or of any other laws applicable in the Federal
Republic of Germany governing the issue, offering and sale of
securities.
Italy
The offering of shares of our common stock has not been cleared
by the Italian Securities Exchange Commission (Commissione
Nazionale per le Società e la Borsa, or the CONSOB)
pursuant to Italian securities legislation and, accordingly,
shares of our common stock may not and will not be offered, sold
or delivered, nor may or will copies of this prospectus or any
other documents relating to shares of our common stock or the
offering be distributed in Italy other than to professional
investors (operatori qualificati), as defined in
Article 31, paragraph 2 of CONSOB
Regulation No. 11522 of July 1, 1998, as amended,
or Regulation No. 11522.
Any offer, sale or delivery of shares of our common stock or
distribution of copies of this prospectus or any other document
relating to shares of our common stock or the offering in Italy
may and will be effected in accordance with all Italian
securities, tax, exchange control and other applicable laws and
regulations, and, in particular, will be: (i) made by an
investment firm, bank or financial intermediary permitted to
conduct such activities in Italy in accordance with the
Legislative Decree No. 385 of September 1, 1993, as
amended, or the Italian Banking Law, Legislative Decree
No. 58 of February 24, 1998, as amended,
Regulation No. 11522, and any other applicable laws
and regulations; (ii) in compliance with Article 129
of the Italian Banking Law and the implementing guidelines of
the Bank of Italy; and (iii) in compliance with any other
applicable notification requirement or limitation which may be
imposed by CONSOB or the Bank of Italy.
Any investor purchasing shares of our common stock in the
offering is solely responsible for ensuring that any offer or
resale of shares of common stock it purchased in the offering
occurs in compliance with applicable laws and regulations.
104
This prospectus and the information contained herein are
intended only for the use of its recipient and are not to be
distributed to any third party resident or located in Italy for
any reason. No person resident or located in Italy other than
the original recipients of this document may rely on it or its
content.
In addition to the above (which shall continue to apply to the
extent not inconsistent with the implementing measures of the
Prospective Directive in Italy), after the implementation of the
Prospectus Directive in Italy, the restrictions, warranties and
representations set out under the heading European
Economic Area above shall apply to Italy.
Notice to
Investors in the United Kingdom
Each of the underwriters severally represents, warrants and
agrees as follows:
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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
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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.
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105
NOTICE TO
CANADIAN RESIDENTS
Resale
Restrictions
The distribution of the common stock in Canada is being made
only on a private placement basis exempt from the requirement
that we 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 and the dealer
from whom the purchase confirmation is received that:
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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,
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where required by law, that the purchaser is purchasing as
principal and not as agent,
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the purchaser has reviewed the text above under Resale
Restrictions, and
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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 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. 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 will have no
liability. In the case of an action for damages, we 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 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.
106
Taxation
and Eligibility for Investment
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.
LEGAL
MATTERS
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 78,955 shares of our common stock.
EXPERTS
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.
Revolution Partners, an independent valuation firm, has
performed valuations of our common stock. Revolution Partners
has consented to the references in this registration statement
to its valuation reports.
WHERE YOU
CAN FIND MORE INFORMATION
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 Commissions 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.
107
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Netezza
Corporation:
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, stockholders
equity (deficit) and 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 Companys 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 4 to the consolidated financial
statements, the Company adopted FASB Staff Position
150-5
(FSP
150-5),
Issuers 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 3 to the
consolidated financial statements, effective February 1,
2006, the Company adopted SFAS No. 123(R),
Share-Based Payment.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 22, 2007, except for footnote 19, as to which
the date is June 25, 2007
F-2
NETEZZA
CORPORATION
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April 30,
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Pro Forma
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January 31,
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2007
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April 30,
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2006
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2007
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(restated)
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|
2007
|
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|
|
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(Unaudited)
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(In thousands, except share and
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per share data)
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ASSETS
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Current assets
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|
|
|
|
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|
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|
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|
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|
Cash and cash equivalents
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|
$
|
14,663
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|
|
$
|
5,018
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|
|
$
|
6,080
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|
|
$
|
6,080
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|
Accounts receivable
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|
13,392
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|
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|
31,834
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|
|
|
22,236
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|
|
|
22,236
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Inventory
|
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10,729
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26,239
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|
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34,994
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|
34,994
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Other current assets
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|
|
1,176
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|
|
|
1,370
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|
|
|
2,128
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2,128
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|
|
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|
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Total current assets
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|
39,960
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64,461
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|
|
|
65,438
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65,438
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Property and equipment, net
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5,297
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|
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|
4,228
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|
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|
3,725
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|
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3,725
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Restricted cash
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|
|
379
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|
|
|
379
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|
379
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|
379
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Notes receivable from employees
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68
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|
|
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|
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|
|
|
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Other long-term assets
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|
|
160
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|
|
|
131
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|
|
|
164
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|
|
|
164
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total assets
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|
$
|
45,864
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$
|
69,199
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$
|
69,706
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|
$
|
69,706
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LIABILITIES, CONVERTIBLE
REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS EQUITY (DEFICIT)
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Current liabilities
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|
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Accounts payable
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$
|
2,502
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|
|
$
|
12,683
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|
|
$
|
10,721
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|
|
$
|
10,721
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Accrued expenses
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|
|
6,847
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|
|
|
8,678
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|
|
|
7,618
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|
|
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7,618
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Current portion of note payable to
bank
|
|
|
511
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|
2,436
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|
|
|
6,504
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|
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6,504
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|
Refundable exercise price for
restricted stock
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|
|
56
|
|
|
|
24
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|
|
|
18
|
|
|
|
18
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|
Deferred revenue
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|
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9,715
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|
|
|
14,741
|
|
|
|
14,365
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14,365
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|
|
|
|
|
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|
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|
|
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Total current liabilities
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19,631
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|
|
|
38,562
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|
|
|
39,226
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|
|
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39,226
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|
Long-term deferred revenue
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|
|
|
|
|
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9,765
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11,082
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|
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11,082
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|
Note payable to bank, net of
current portion
|
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2,489
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|
|
|
4,099
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|
|
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3,418
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|
|
|
3,418
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|
Preferred stock warrant liability
|
|
|
476
|
|
|
|
765
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|
|
|
1,022
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|
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|
|
|
|
|
|
|
|
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Total long-term liabilities
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2,965
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|
|
|
14,629
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|
|
|
15,522
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|
|
|
14,500
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|
|
|
|
|
|
|
|
|
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|
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|
|
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Total liabilities
|
|
|
22,596
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|
|
|
53,191
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|
|
|
54,748
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|
|
|
53,726
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|
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|
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|
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Commitments and contingencies
(Note 16)
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Convertible redeemable preferred
stock, par value $0.001 per share;
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Series A; 17,280,000 shares authorized;
17,200,000 shares issued and outstanding at
January 31, 2006 and 2007 and at April 30, 2007,
respectively (liquidation preference of $8,600 at April 30,
2007)
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12,117
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|
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|
12,805
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|
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|
12,978
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|
|
|
|
|
Series B;
29,425,622 shares authorized; 29,389,622 shares issued
and outstanding at January 31, 2006 and 2007 and at
April 30, 2007, respectively (liquidation preference of
$25,375 at April 30, 2007)
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33,214
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|
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|
35,245
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|
|
|
35,752
|
|
|
|
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|
Series C;
23,058,151 shares authorized, issued and outstanding at
January 31, 2006 and 2007 and at April 30, 2007,
respectively (liquidation preference of $20,001 at
April 30, 2007)
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24,100
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|
|
|
25,700
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|
|
|
26,100
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|
|
|
|
|
Series D;
8,147,452 shares authorized; 7,901,961 shares issued
and outstanding at January 31, 2006 and 2007 and at
April 30, 2007, respectively (liquidation preference of
$20,150 at April 30, 2007)
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21,769
|
|
|
|
23,381
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|
|
|
23,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible redeemable
preferred stock
|
|
|
91,200
|
|
|
|
97,131
|
|
|
|
98,614
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|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
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|
|
Stockholders equity (deficit):
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|
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|
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|
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|
Common stock, $0.001 par
value; 110,000,000, 150,000,000 and 500,000,000 shares
authorized at January 31, 2006 and 2007 and at
April 30, 2007 and pro forma 2007, respectively; 7,115,459,
7,542,372, 7,977,794 and 46,752,641 shares issued at
January 31, 2006 and 2007 and at April 30, 2007 and
pro forma 2007, respectively
|
|
|
7
|
|
|
|
8
|
|
|
|
8
|
|
|
|
47
|
|
Treasury stock, at cost;
139,062 shares at January 31, 2006 and 2007 and at
April 30, 2007 and pro forma 2007, respectively
|
|
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(14
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)
|
|
|
(14
|
)
|
|
|
(14
|
)
|
|
|
(14
|
)
|
Other comprehensive income
|
|
|
65
|
|
|
|
(284
|
)
|
|
|
(611
|
)
|
|
|
(611
|
)
|
Additional paid-in-capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,597
|
|
Accumulated deficit
|
|
|
(67,990
|
)
|
|
|
(80,833
|
)
|
|
|
(83,039
|
)
|
|
|
(83,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
(deficit)
|
|
|
(67,932
|
)
|
|
|
(81,123
|
)
|
|
|
(83,656
|
)
|
|
|
15,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, convertible
redeemable preferred stock and stockholders equity
(deficit)
|
|
$
|
45,864
|
|
|
$
|
69,199
|
|
|
$
|
69,706
|
|
|
$
|
69,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-3
NETEZZA
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share
|
|
|
|
and per share data)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
30,908
|
|
|
$
|
45,508
|
|
|
$
|
64,632
|
|
|
$
|
8,889
|
|
|
$
|
20,577
|
|
Services
|
|
|
5,121
|
|
|
|
8,343
|
|
|
|
14,989
|
|
|
|
3,109
|
|
|
|
4,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
36,029
|
|
|
|
53,851
|
|
|
|
79,621
|
|
|
|
11,998
|
|
|
|
25,342
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
|
8,874
|
|
|
|
18,941
|
|
|
|
26,697
|
|
|
|
3,565
|
|
|
|
8,395
|
|
Services
|
|
|
1,640
|
|
|
|
3,491
|
|
|
|
5,403
|
|
|
|
1,325
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
10,514
|
|
|
|
22,432
|
|
|
|
32,100
|
|
|
|
4,890
|
|
|
|
10,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
25,515
|
|
|
|
31,419
|
|
|
|
47,521
|
|
|
|
7,108
|
|
|
|
15,299
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
14,783
|
|
|
|
25,626
|
|
|
|
32,908
|
|
|
|
6,373
|
|
|
|
9,669
|
|
Research and development
|
|
|
11,366
|
|
|
|
16,703
|
|
|
|
18,037
|
|
|
|
4,226
|
|
|
|
5,484
|
|
General and administrative
|
|
|
2,500
|
|
|
|
3,124
|
|
|
|
4,827
|
|
|
|
852
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
28,649
|
|
|
|
45,453
|
|
|
|
55,772
|
|
|
|
11,451
|
|
|
|
16,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,134
|
)
|
|
|
(14,034
|
)
|
|
|
(8,251
|
)
|
|
|
(4,343
|
)
|
|
|
(1,609
|
)
|
Interest income
|
|
|
206
|
|
|
|
487
|
|
|
|
414
|
|
|
|
120
|
|
|
|
22
|
|
Interest expense
|
|
|
121
|
|
|
|
173
|
|
|
|
765
|
|
|
|
92
|
|
|
|
213
|
|
Other income (expense), net
|
|
|
35
|
|
|
|
(87
|
)
|
|
|
627
|
|
|
|
185
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
cumulative effect of change in accounting principle
|
|
$
|
(3,014
|
)
|
|
$
|
(13,807
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,631
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
$
|
(3,014
|
)
|
|
$
|
(13,807
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,014
|
)
|
|
$
|
(14,025
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
Accretion to preferred stock
|
|
|
(4,096
|
)
|
|
|
(5,797
|
)
|
|
|
(5,931
|
)
|
|
|
(1,483
|
)
|
|
|
(1,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
shareholders
|
|
$
|
(7,110
|
)
|
|
$
|
(19,822
|
)
|
|
$
|
(13,906
|
)
|
|
$
|
(5,613
|
)
|
|
$
|
(3,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to
common stockholders basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before cumulative effect of
change in accounting principle
|
|
$
|
(0.50
|
)
|
|
$
|
(2.08
|
)
|
|
$
|
(1.09
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.25
|
)
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion to preferred stock
|
|
|
(0.67
|
)
|
|
|
(0.88
|
)
|
|
|
(0.81
|
)
|
|
|
(0.21
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to
common stockholders basic and diluted
|
|
$
|
(1.17
|
)
|
|
$
|
(2.99
|
)
|
|
$
|
(1.90
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
6,077,538
|
|
|
|
6,635,274
|
|
|
|
7,319,231
|
|
|
|
7,186,776
|
|
|
|
7,786,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma net loss per
share basic and diluted (unaudited)
|
|
|
|
|
|
|
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma weighted average common
shares outstanding (unaudited)
|
|
|
|
|
|
|
|
|
|
|
46,094,078
|
|
|
|
|
|
|
|
46,561,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-4
NETEZZA
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Shares
|
|
|
Cost
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at January 31,
2004
|
|
|
5,886,586
|
|
|
$
|
5
|
|
|
|
126,562
|
|
|
$
|
(13
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(41,982
|
)
|
|
$
|
(41,990
|
)
|
Issuance of common stock upon
exercise of stock options
|
|
|
400,187
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
Vesting of restricted common stock
|
|
|
166,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Repurchase of restricted common
stock
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
Issuance of Series D
convertible redeemable preferred stock, including issuance costs
of $103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
Accretion of preferred stock to
redemption value, net of cumulative adjustment for change in
redemption preference
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,096
|
)
|
|
|
(4,096
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(10
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,014
|
)
|
|
|
(3,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31,
2005
|
|
|
6,453,023
|
|
|
|
6
|
|
|
|
139,062
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(49,092
|
)
|
|
|
(49,110
|
)
|
Issuance of common stock upon
exercise of stock options
|
|
|
502,436
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Vesting of restricted common stock
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
Stock options issued to consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Non-cash compensation to employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
815
|
|
|
|
|
|
|
|
|
|
|
|
815
|
|
Issuance of Series D warrants
in conjunction with debt agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
Issuance of Series D
convertible redeemable preferred stock, including issuance costs
of $6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Accretion of preferred stock to
redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,155
|
)
|
|
|
|
|
|
|
(4,642
|
)
|
|
|
(5,797
|
)
|
Reclassification of preferred stock
warrants to liability upon adoption of
FSP 150-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
(231
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
75
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,025
|
)
|
|
|
(14,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31,
2006
|
|
|
7,115,459
|
|
|
|
7
|
|
|
|
139,062
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
65
|
|
|
|
(67,990
|
)
|
|
|
(67,932
|
)
|
Issuance of common stock upon
exercise of stock options
|
|
|
304,413
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Vesting of restricted common stock
|
|
|
122,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
Stock options issued to consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
877
|
|
|
|
|
|
|
|
|
|
|
|
877
|
|
Accretion of preferred stock to
redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,063
|
)
|
|
|
|
|
|
|
(4,868
|
)
|
|
|
(5,931
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(349
|
)
|
|
|
|
|
|
|
(349
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,975
|
)
|
|
|
(7,975
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 31,
2007
|
|
|
7,542,372
|
|
|
|
8
|
|
|
|
139,062
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
(284
|
)
|
|
|
(80,833
|
)
|
|
|
(81,123
|
)
|
Issuance of common stock upon
exercise of stock options
|
|
|
414,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
|
|
|
|
|
|
|
|
|
|
279
|
|
Vesting of restricted common stock
|
|
|
21,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Stock options issued to consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Stock based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
879
|
|
|
|
|
|
|
|
|
|
|
|
879
|
|
Accretion of preferred stock to
redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,182
|
)
|
|
|
|
|
|
|
(301
|
)
|
|
|
(1,483
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(327
|
)
|
|
|
|
|
|
|
(327
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,905
|
)
|
|
|
(1,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2007
(unaudited and restated)
|
|
|
7,977,794
|
|
|
$
|
8
|
|
|
|
139,062
|
|
|
$
|
(14
|
)
|
|
$
|
|
|
|
$
|
(611
|
)
|
|
$
|
(83,039
|
)
|
|
$
|
(83,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-5
NETEZZA
CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,014
|
)
|
|
$
|
(14,025
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
Adjustments to reconcile net loss
to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,758
|
|
|
|
2,829
|
|
|
|
2,615
|
|
|
|
712
|
|
|
|
654
|
|
Noncash interest expense related to
issuance of warrants
|
|
|
14
|
|
|
|
27
|
|
|
|
71
|
|
|
|
1
|
|
|
|
|
|
Stock based compensation expense
|
|
|
5
|
|
|
|
839
|
|
|
|
914
|
|
|
|
70
|
|
|
|
897
|
|
Change in carrying value of
preferred stock warrant liability
|
|
|
|
|
|
|
218
|
|
|
|
198
|
|
|
|
|
|
|
|
257
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,182
|
|
|
|
(8,387
|
)
|
|
|
(17,853
|
)
|
|
|
(3,717
|
)
|
|
|
9,678
|
|
Inventory
|
|
|
(5,101
|
)
|
|
|
(2,823
|
)
|
|
|
(15,510
|
)
|
|
|
(4,565
|
)
|
|
|
(8,755
|
)
|
Other assets
|
|
|
(1,062
|
)
|
|
|
73
|
|
|
|
(275
|
)
|
|
|
826
|
|
|
|
(784
|
)
|
Accounts payable
|
|
|
99
|
|
|
|
2,006
|
|
|
|
10,176
|
|
|
|
2,422
|
|
|
|
(1,965
|
)
|
Accrued expenses
|
|
|
186
|
|
|
|
3,158
|
|
|
|
1,725
|
|
|
|
(1,172
|
)
|
|
|
(1,078
|
)
|
Deferred revenue
|
|
|
1,337
|
|
|
|
6,325
|
|
|
|
14,751
|
|
|
|
6,217
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(2,596
|
)
|
|
|
(9,760
|
)
|
|
|
(11,163
|
)
|
|
|
(3,336
|
)
|
|
|
(2,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,024
|
)
|
|
|
(5,498
|
)
|
|
|
(1,545
|
)
|
|
|
(236
|
)
|
|
|
(149
|
)
|
Increase in restricted cash
|
|
|
(287
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of notes receivable from
employees
|
|
|
|
|
|
|
60
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(4,311
|
)
|
|
|
(5,506
|
)
|
|
|
(1,477
|
)
|
|
|
(236
|
)
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from note payable
|
|
|
|
|
|
|
3,000
|
|
|
|
5,000
|
|
|
|
1,500
|
|
|
|
4,000
|
|
Repayment of note payable
|
|
|
(1,544
|
)
|
|
|
|
|
|
|
(1,361
|
)
|
|
|
|
|
|
|
(612
|
)
|
Proceeds from issuance of
Series D convertible redeemable preferred stock
|
|
|
15,548
|
|
|
|
4,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock
|
|
|
64
|
|
|
|
152
|
|
|
|
150
|
|
|
|
26
|
|
|
|
279
|
|
Proceeds from the sale of
restricted stock
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
14,107
|
|
|
|
7,644
|
|
|
|
3,789
|
|
|
|
1,526
|
|
|
|
3,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
(21
|
)
|
|
|
92
|
|
|
|
(794
|
)
|
|
|
(233
|
)
|
|
|
(366
|
)
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
7,179
|
|
|
|
(7,530
|
)
|
|
|
(9,645
|
)
|
|
|
(2,279
|
)
|
|
|
1,062
|
|
Cash and cash equivalents,
beginning of year
|
|
|
15,014
|
|
|
|
22,193
|
|
|
|
14,663
|
|
|
|
14,663
|
|
|
|
5,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of
year
|
|
$
|
22,193
|
|
|
$
|
14,663
|
|
|
$
|
5,018
|
|
|
$
|
12,384
|
|
|
$
|
6,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
223
|
|
|
$
|
125
|
|
|
$
|
656
|
|
|
$
|
119
|
|
|
$
|
188
|
|
See accompanying Notes to Consolidated Financial Statements
F-6
NETEZZA
CORPORATION
|
|
1.
|
Nature of
the Business
|
Netezza Corporation (the Company) is a leading
provider of data warehouse appliances. The Companys
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, 2007 and
for the three months ended April 30, 2007 of approximately
$3.0 million, $14.0 million, $8.0 million and
$1.9 million, respectively. The Company had an accumulated
deficit of approximately $83.0 million at April 30,
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 Companys current operating plan
and its current cash balances, the Company expects to have
sufficient cash to finance its operations through fiscal 2008.
The Companys 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.
|
Restated
Interim Financial Statements
|
The unaudited consolidated financial statements as of and for
the three months ended April 30, 2007 have been restated to
include a $0.1 million incremental compensation charge
resulting from an adjustment to the fair value of options that
were granted by the Company to its employees and directors in
the first three months of fiscal 2008 (see Note 3).
Subsequent to the initial issuance of its interim financial
statements for the three months ended April 30, 2007, the
Company reassessed the fair value of its common stock and
determined that the exercise prices of the stock options granted
in the first three months of fiscal 2008 were less than the
reassessed fair values of the Companys common stock at the
related date of grant for accounting purposes. The restated
aggregate fair value of these grants to be recognized over the
vesting period, which is generally five years, is
$10.4 million. The Company had previously assigned an
aggregate fair value of $8.4 million to these grants. In
addition, the unaudited consolidated financial statements as of
and for the three months ended April 30, 2007 have been
restated to include a $0.2 million incremental charge to
other expense resulting from an adjustment in the fair value of
warrants to purchase the Companys convertible preferred
stock (see Note 4).
F-7
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effect of the restatement is as follows for the three months
ended April 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
As previously
|
|
|
|
|
|
|
reported
|
|
|
As restated
|
|
|
Income Statement:
|
|
|
|
|
|
|
|
|
Cost of product revenue
|
|
|
8,391
|
|
|
|
8,395
|
|
Cost of services revenue
|
|
|
1,646
|
|
|
|
1,648
|
|
Sales and marketing expense
|
|
|
9,635
|
|
|
|
9,669
|
|
Research and development expense
|
|
|
5,468
|
|
|
|
5,484
|
|
General and administrative expense
|
|
|
1,701
|
|
|
|
1,755
|
|
Operating loss
|
|
|
(1,499
|
)
|
|
|
(1,609
|
)
|
Other income (expense), net
|
|
|
322
|
|
|
|
169
|
|
Net loss
|
|
|
(1,642
|
)
|
|
|
(1,905
|
)
|
Net loss per share
basic and diluted
|
|
$
|
(0.40
|
)
|
|
$
|
(0.44
|
)
|
Proforma net loss per
share basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
|
3.
|
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
Interim Financial Statements
The consolidated financial statements and related notes of the
Company for the three months ended April 30, 2006 and 2007,
respectively, are unaudited. Management believes the unaudited
consolidated financial statements have been prepared on the same
basis as the audited, consolidated financial statements and
include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial
position and results of operations in such periods. Results of
operations for the three months ended April 30, 2007 are
not necessarily indicative of the results that may be expected
for the year ended January 31, 2008.
Unaudited
Pro Forma Presentation
Upon the closing of the Companys 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 Companys 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 19). 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 April 30, 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
Companys common stock effective upon the assumed closing
of the Companys proposed initial public offering as if
such conversion had occurred at the date of original issuance.
F-8
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
Companys 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 $0.4 million at January 31,
2006 and 2007.
Revenue
Recognition
The Company derives revenue from the sale of its products and
related 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 Companys
contractual relationships with end users and resellers and the
manner in which these transactions are accounted.
The Companys 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. Customers may purchase a standard maintenance
agreement which typically commences upon product delivery. The
Company also provides a
90-day
standard product warranty.
The Companys services revenue consists of installation,
maintenance, training and professional services. Installation
and professional services are not considered essential to the
functionality of the Companys 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
F-9
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
services. 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. VSOE of the fair value of maintenance services may
also be determined based on a substantive maintenance renewal
clause, if any, within a customer contract. The Companys
current pricing practices are influenced primarily by product
type, purchase volume and maintenance term. The Company reviews
services revenue sold separately and maintenance renewal rates
on a periodic basis and update, when appropriate, the
Companys VSOE of fair value for such services to ensure
that it reflects the Companys recent pricing experience.
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. 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
regularly monitors inventory quantities on-hand and records
write-downs for excess and obsolete inventories based on the
Companys estimated demand for its products, potential
obsolescence of technology, product life cycles and whether
pricing trends or forecasts indicate that the carrying value of
inventory exceeds its estimated selling price. These factors are
impacted by market and economic conditions, technology changes,
and new product introductions and require estimates that may
include elements that are uncertain. If inventory is written
down, a new cost basis will be established that can not be
increased in future periods.
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:
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Estimated
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Useful Life
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Engineering test equipment
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1 to 3 years
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Computer equipment and software
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3 years
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Furniture and fixtures
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5 years
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Leasehold improvements
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Term of lease
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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.
F-10
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 Companys 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 Companys 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 Companys
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 at which time the liability will be
reclassified to stockholders equity (deficit). The
warrants expire upon the Companys initial public offering
of common stock if not exercised beforehand.
Research
and Development
Costs incurred in the research and development of the
Companys 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 softwares
available-for-sale
date have been insignificant.
Foreign
Currency Translation
The financial statements of the Companys foreign
subsidiaries are translated in accordance with
SFAS No. 52, Foreign Currency
Translation. The functional currency for the
Companys 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, 2007 and for the three months ended
April 30, 2007 were $35,000, $(0.1) million,
$0.6 million and $0.4 million, respectively and
recorded as other income (expense), net in the consolidated
statements of operations.
F-11
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 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 although no customer accounted for 10%
or greater of total revenue for the fiscal year ended
January 31, 2007, the Companys ten largest customers
accounted for approximately 45% of the Companys 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 Companys
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 Companys 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%, and for the three
months ended April 30, 2007 was 75%. 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 Companys 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.
F-12
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The expected life of options has been determined utilizing the
simplified method as prescribed by the SECs
Staff Accounting Bulletin No. 107, Share-Based
Payment. The expected life of options granted during
the fiscal year ended January 31, 2007 and the three months
ended April 30, 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%, and the rate of
4.49% was used for the three months ended April 30, 2007.
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
Companys historical policy under SFAS No. 123.
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 and for the three months
ended April 30, 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
Companys board of directors, with input from management.
The Companys board exercised judgment in determining the
estimated fair value of the Companys common stock on the
date of grant based on a number of objective and subjective
factors. Factors considered by the Companys board of
directors included the following:
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Contemporaneous valuation reports that the Company received from
Revolution Partners, an independent valuation firm, in February
2006, August 2006, November 2006 and February 2007. Each of the
independent valuations reported a valuation range for the
Companys common stock based upon a combination of three
different methodologies.
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Valuation based on comparable companies. Under this
method, the valuations of comparable companies are calculated as
a multiple of their recent and projected revenue and projected
EBITDA, and the resultant ranges applied to the Companys
recent and projected revenues and projected EBITDA to yield an
implied valuation range for the Company. In applying this
methodology, Revolution Partners selected publicly traded
companies who were comparable to the Company in a variety of
factors, such as industry, business model, growth rates and
size. Companies included in the comparable company analysis were
similar to the company with respect to some, but not necessarily
all, of these characteristics. For example, some of the
companies were chosen because they provide solutions to the data
center hardware sector and others because they operate in the IT
infrastructure industry. The valuation produced by this
methodology is not adjusted to compensate for any differences
between the companies included in this group and the Company in
order to achieve comparability. A discount to the initial
valuation produced by this methodology is then applied based
upon lack of marketability of the Companys common stock to
estimate its fair value. The factors used in determining this
illiquidity discount include, the companys stage of
development, operating history, size, likelihood of a liquidity
event and possible timing of a liquidity event. For early-stage
technology companies, Revolution Partners suggests an
illiquidity discount rate range of 30-60%. In the initial
valuation analysis for January 2006, Revolution Partners applied
a 20% illiquidity discount to the comparable company analysis,
which is lower than the early stage discount rate range
mentioned above because the Company (i) was a
well-established company with significant contracts and
customers, (ii) had been in business for over five years
and had nearly 200 employees, (iii) had over
$50 million of annual revenue, and (iv) had good
prospects for a timely liquidity event. In subsequent analyses,
Revolution Partners lowered the illiquidity discount to reflect
the progress the Company had made in its business and the
greater likelihood of an initial public offering. In August
2006, November 2006 and February 2007, Revolution Partners used
illiquidity discount rates of 20%, 15% and 7.5%, respectively.
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Valuation based on precedent transactions. Under this
method, the purchase prices paid in recent acquisitions of
comparable companies is surveyed, the range of purchase prices
as a multiple of those companies most recent and projected
revenue is calculated, and the resultant ranges applied to the
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F-13
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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Companys most recent and projected annual revenue to yield
an implied valuation range for the Company. The valuation
analyses provided by Revolution Partners did not directly factor
in the effect of significant value-creating milestones, because
the results of these milestones had already been factored into
the revenue projections provided by the Company. The Revolution
Partners valuation did not take into account any significant
value-creating milestones of the comparable companies,
independent of those reflected in their operating results.
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Valuation based on discounted cash flow. Under this
method, the long-term cash flows projected by the Companys
management is used and discount rates applied to produce an
implied current valuation range for the Company. Revolution
Partners applied a 20% discount rate in the discounted cash flow
analysis,which was determined by using a weighted average cost
of capital analysis of certain comparable companies. The
discount rate did not change over the course of the valuation
analyses.
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The implied valuation ranges yielded by these three
methodologies are then combined to produce a blended valuation
range. To determine the blended valuation range, Revolution
Partners relied predominantly on the valuation ranges provided
by the comparable company and precedent transaction analyses.
The process of determining a blended valuation begins by
determining the highest and lowest valuations of both the
comparable company and precedent transaction analyses. In
determining the blended valuation range, Revolution Partners
then chose a valuation range that fell within the middle of the
combined valuation range. Although the discounted cash flow
analysis (the DCF) is the least relevant methodology
to determining the value of high-growth, early-stage technology
companies, Revolution Partners utilized the DCF valuation as a
benchmark to test the results of the blended valuation.
Revolution Partners adjusted the blended valuation range if it
substantially differed from the DCF valuation range. For the
January 2006, August 2006 and November 2006 analyses, the
valuation determined from the blended valuation range did not
substantially differ from the DCF valuation range so no
adjustments were made. In the February 2007 analysis, the
initial blended valuation range was nearly double the DCF
valuation range, and accordingly, Revolution Partners revised
the blended valuation range downward. As a last step, Revolution
Partners applied a common stock discount to the blended
valuation range. There are several factors that Revolution
Partners considered in determining the common stock discount,
including voting rights, observer rights, information rights,
rights to board seats, registration rights, rights of first
refusal, preemptive rights and the likelihood of an initial
public offering (where it is expected that preferred stock
automatically converts to common). The experience of Revolution
Partners suggests that a
30-50%
discount rate is appropriate for a typical early-stage
technology company, although the range can vary widely as each
company has unique circumstances. In the Companys initial
valuation analysis in January 2006, Revolution Partners utilized
a 40% common stock discount that was applied to the value
attributable to common stock. In the judgment of Revolution
Partners, a 40% discount was appropriate for a company with the
Companys profile of preferred rights and its potential for
an initial public offering in the near future. In subsequent
analyses, the discount rate was decreased as the likelihood of
an initial public offering increased. In August 2006, November
2006 and February 2007, Revolution Partners used discount rates
of 30%, 15% and 7.5%, respectively.
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The
agreed-upon
consideration paid in arms-length transactions in the form of
convertible preferred stock.
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The superior rights and preferences of securities senior to the
Companys common stock at the time of each grant.
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Historical and anticipated results of operations.
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The lack of liquidity of the Companys common stock and the
prospects for a liquidity event.
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F-14
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fiscal year ended January 31, 2007 and the three
months ended April 30, 2007, the Company granted stock
options with exercise prices as follows:
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SFAS 123R
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Black-Scholes
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Number of
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Exercise
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Fair
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Option
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Options
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Price per
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|
Value
|
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Fair Value
|
Stock Award Grant Dates
|
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Granted
|
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Share
|
|
(restated)
|
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(restated)
|
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February 3, 2006
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5,000
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$
|
2.50
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$
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2.50
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$
|
1.88
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February 20, 2006
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1,166,500
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$
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2.50
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$
|
2.50
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|
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$
|
1.88
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May 9, 2006
|
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476,750
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$
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2.50
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$
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2.50
|
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$
|
1.86
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August 10, 2006
|
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1,672,250
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|
$
|
2.50
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|
$
|
2.50
|
|
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$
|
1.82
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November 15, 2006
|
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347,000
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|
$
|
4.50
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|
|
$
|
4.50
|
|
|
$
|
3.20
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|
December 19, 2006
|
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80,500
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|
|
$
|
4.50
|
|
|
$
|
4.50
|
|
|
$
|
3.20
|
|
February 14, 2007
|
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1,825,250
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$
|
6.70
|
|
|
$
|
8.00
|
|
|
$
|
5.90
|
|
February 28, 2007
|
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50,000
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|
|
$
|
6.70
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|
$
|
8.00
|
|
|
$
|
5.90
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|
The Companys board of directors determined that the fair
market value of the Companys common stock had increased
significantly in February 2006 as compared to the most recent
determination of value in late 2005. The primary reasons for the
February 2006 increase were the valuation report from Revolution
Partners, which, based upon (i) a comparable companies
valuation range of $243 million to $323 million,
(ii) a precedent transaction valuation range of
$233 million to $303 million and (iii) a
discounted cash flows valuation range of $226 million to
$302 million, and after applying the common stock discount,
yielded a blended valuation range of $240 million to
$313 million, or $2.50 to $3.46 per share; and the
Companys financial performance in the quarter and fiscal
year ended January 31, 2006, in which the Company recorded
record quarterly revenues and a 49% increase in annual revenue
over the fiscal year ended January 31, 2005. Mitigating
against a higher common stock valuation at that time were the
inherent risks in the Companys financial projections,
given the early stage of the Companys operating history,
which formed an integral part of the Revolution Partners
valuation; the superior rights and preferences of the
Companys preferred stock; and the absence of any prospects
at that time for an initial public offering.
The Companys board of directors determined in both May
2006 and August 2006 that the value of the Companys common
stock had not increased above $2.50 per share. Those
determinations were based primarily on the Companys
operating results for the quarters ended April 30, 2006 and
July 31, 2006, as the Companys revenue in those two
quarters was less than, and approximately the same as, the
Companys revenue in the quarter ended January 31,
2006, and the Companys operating loss in those two
quarters was greater than the Companys operating loss in
the quarter ended January 31, 2006. The Companys
board also took into account, in its August 2006 determination
of fair market value, an updated valuation report from
Revolution Partners, which indicated a lower valuation range
than its valuation report in early 2006.
In November 2006, the Companys board of directors
determined that the fair market value of the Companys
common stock had increased to $4.50 per share. This
determination was based primarily on: a contemporaneous
valuation report from Revolution Partners, which, based upon
(i) a comparable companies valuation range of
$204 million to $294 million, (ii) a precedent
transaction valuation range of $234 million to
$334 million and (iii) a discounted cash flows
valuation range of $137 million to $198 million, and
after applying the common stock discount, yielded a blended
valuation range of $210 million to $310 million, or $2.86
to $4.64 per share; the Companys financial performance in
the quarter ended October 31, 2006, in which the Company
recorded record quarterly revenues of $23.2 million and a
smaller operating loss than in the prior two quarters; and the
conclusion by the Companys board of directors and
management that the Company should begin preliminary work toward
a potential initial public offering.
F-15
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
On February 14, 2007, the Companys board of directors
determined that the fair market value of the Companys
common stock had increased to $6.70 per share. The primary
factors underlying this determination were: a contemporaneous
valuation report from Revolution Partners, which, based upon
(i) a comparable companies valuation range of
$303 million to $433 million, (ii) a precedent
transaction valuation range of $363 million to
$463 million and (iii) a discounted cash flows
valuation range of $156 million to $229 million, and
after applying the common stock discount, yielded a blended
valuation range of $300 million to $400 million, or
$4.84 to $6.76 per share; the Companys financial
performance in the quarter ended January 31, 2007, in which
the Company again recorded record quarterly revenues and a
significantly smaller operating loss; and the Companys
selection of managing underwriters for the Companys
initial public offering and the formal commencement of work
toward this offering in early February 2007.
In June 2007, in connection with the Companys proposed
initial public offering and after learning of the proposed
initial public offering price range recommended by the
Companys managing underwriters, the Companys board
of directors decided to undertake a reassessment of the fair
market value of the Companys common stock as of the
February 14, 2007 and February 28, 2007 grant dates.
As part of such reassessment, the Companys board of
directors took into account not only the factors it originally
considered in connection with setting a fair market value of
$6.70 per share as of February 14, 2007, but also discussed
and gave further consideration to the Companys strong
financial performance in the fourth quarter of fiscal 2007 and
the Companys financial outlook for fiscal 2008. In
particular, the Companys board concluded that, given the
proposed initial public offering price of $9.00-$11.00 per share
relatively soon after the February 2007 determination that the
fair market value was $6.70 per share, in retrospect it did not
assign sufficient weight to the following factors that were
relevant to the February fair market value determination:
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The Companys pending initial public offering. As of
February 14, 2007, the Company had engaged the managing
underwriters and formally begun work toward an initial public
offering. An initial public offering will both create a liquid
trading market for the Companys common stock and
eliminate, through the automatic conversion of the preferred
stock into common stock, the superior rights and preferences of
the preferred stock which have a negative impact on the value of
our common stock. The Companys board concluded that it
underestimated both the likelihood and the impact of the initial
public offering in its original determination of fair market
value in February 2007.
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The Companys recent financial performance. The Company
generated record quarterly revenue of $26.7 million in the
quarter ended January 31, 2007. More importantly, for the
first time in the Companys history, the Company was close
to break-even on an operating basis in the quarter ended
January 31, 2007. The Companys board of directors, at
the time of its initial fair market value determination in
February 2007, placed more emphasis on our revenue performance
than the break-even operating performance. In retrospect, based
in part on input from the Companys managing underwriters
and the importance of bottom-line performance as a public
company, the Companys board regarded the fourth quarter
operating performance as a watershed event for the Company, and
accorded that more weight in its reassessment of the fair market
value of the common stock in February 2007.
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Following this reassessment, the Companys board of
directors, with input from the Companys management,
determined that the fair market value of the Companys
common stock as of February 14, 2007 and February 28,
2007 was $8.00 per share. As a result of this determination, the
exercise prices of the stock options granted by the Company in
February 2007 were less than the reassessed fair market value of
the Companys common stock of $8.00 per share as of the
date of grant for accounting purposes. Consequently, the grant
date fair value of the stock options granted by the Company in
February 2007, calculated using the Black-Scholes option pricing
model pursuant to SFAS No. 123(R), increased from
$8.4 million to $10.4 million. These amounts will be
recorded as stock-based compensation expense over the vesting
period of the options, which is generally five years.
F-16
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with the prospective transition method, the
Companys 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 and the three months ended April 30,
2007, the Company recorded expense of $0.9 million and
$0.9 million, respectively, in connection with stock-based
awards. Unrecognized stock-based compensation expense of
non-vested stock options of $15.7 million, net of
forfeitures, as of April 30, 2007 is expected to be
recognized using the straight line method over a
weighted-average period of 4.4 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 Companys diluted net
loss per share calculations because to do so would be
anti-dilutive for all periods presented.
The components of the net loss per share attributable to common
stockholders were as follows (in thousands except share and per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
2007
|
|
|
2005
|
|
2006
|
|
2007
|
|
2006
|
|
(restated)
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Net loss attributable to common
stockholders
|
|
$
|
(7,110
|
)
|
|
$
|
(19,822
|
)
|
|
$
|
(13,906
|
)
|
|
$
|
(5,613
|
)
|
|
$
|
(3,388
|
)
|
Basic and diluted shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to
compute basic and diluted net loss per share
|
|
|
6,077,538
|
|
|
|
6,635,274
|
|
|
|
7,319,231
|
|
|
|
7,186,776
|
|
|
|
7,786,366
|
|
Net loss per share attributable to
common stockholders basic and diluted
|
|
|
(1.17
|
)
|
|
|
(2.99
|
)
|
|
|
(1.90
|
)
|
|
|
(0.78
|
)
|
|
|
(0.44
|
)
|
The following convertible preferred stock, warrants to purchase
outstanding convertible preferred stock, and options and
warrants to purchase common stock have been 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. The Company has excluded the convertible
preferred stock from the basic earnings per share calculation as
the preferred shareholders do not have a contractual obligation
to share in the losses of the Company.
F-17
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
Three Months Ended April 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Convertible preferred stock upon
conversion to common stock
|
|
|
37,892,845
|
|
|
|
38,774,847
|
|
|
|
38,774,847
|
|
|
|
38,774,847
|
|
|
|
38,774,847
|
|
Warrants to purchase convertible
preferred stock
|
|
|
116,000
|
|
|
|
202,275
|
|
|
|
241,490
|
|
|
|
214,040
|
|
|
|
241,490
|
|
Warrants to purchase common stock
|
|
|
192,036
|
|
|
|
192,036
|
|
|
|
192,036
|
|
|
|
192,036
|
|
|
|
192,036
|
|
Options to purchase common stock
|
|
|
4,471,594
|
|
|
|
4,352,658
|
|
|
|
7,480,447
|
|
|
|
5,342,768
|
|
|
|
8,695,973
|
|
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 Companys
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).
|
|
|
|
|
|
|
Three Months
|
|
|
Ended
|
|
|
April 30,
|
|
|
2007
|
|
|
(restated)
|
Numerator
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(3,388
|
)
|
Add: Accretion to preferred stock
|
|
|
1,483
|
|
Add: change in value associated
with preferred stock warrants
|
|
|
257
|
|
Pro forma net loss
|
|
|
(1,648
|
)
|
Denominator
|
|
|
|
|
Weighted average common shares
used to compute basic and diluted net loss per share
|
|
|
7,786,366
|
|
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
|
|
|
46,561,213
|
|
Pro forma net loss per share:
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.04
|
)
|
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.
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.
F-18
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive
Income (Loss)
Comprehensive income (loss) 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30,
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
|
|
2007
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Net loss
|
|
$
|
(3,014
|
)
|
|
$
|
(14,025
|
)
|
|
$
|
(7,975
|
)
|
|
$
|
(4,130
|
)
|
|
$
|
(1,905
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustment
|
|
|
(10
|
)
|
|
|
75
|
|
|
|
(349
|
)
|
|
|
(132
|
)
|
|
|
(327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(3,024
|
)
|
|
$
|
(13,950
|
)
|
|
$
|
(8,324
|
)
|
|
$
|
(4,262
|
)
|
|
$
|
(2,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 Companys 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. 48,
Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109
(FIN No. 48). FIN No. 48
clarifies the accounting for uncertainty in income taxes
recognized in an enterprises financial statements in
accordance with FAS No. 109, Accounting for
Income Taxes. FIN No. 48 prescribes a two-step
process to determine the amount of tax benefit to be recognized.
First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon external examination.
If the tax position is deemed more-likely-than-not
to be sustained, the tax position is then assessed to determine
the amount of benefit to recognize in the financial statements.
The amount of the benefit that may be recognized is the largest
amount that has a greater than 50 percent likelihood of
being realized upon ultimate settlement. The Company adopted
FIN No. 48 on February 1, 2007 and the adoption
did not have an effect on its consolidated results of operations
and 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
F-19
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys
consolidated financial statements upon adoption.
|
|
4.
|
Change in
Accounting Principle
|
On June 29, 2005, the FASB issued Staff Position
150-5,
Issuers 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 Companys 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. In the three
months ended April 30, 2007, the Company recorded
$0.3 million of additional expense to reflect the increase
in fair value between February 1, 2007 and April 30,
2007 (restated).
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
Companys results of operations for 2004 and 2005, if
applied retroactively as if FSP
150-5 had
been adopted in those years, was not material.
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 16).
F-20
NETEZZA
CORPORATION
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 16).
Inventory consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
As of April 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Raw materials
|
|
$
|
1,197
|
|
|
$
|
2,032
|
|
|
$
|
2,455
|
|
Finished goods
|
|
|
9,532
|
|
|
|
24,207
|
|
|
|
32,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,729
|
|
|
$
|
26,239
|
|
|
$
|
34,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
As of April 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Engineering test equipment
|
|
$
|
7,543
|
|
|
$
|
7,822
|
|
|
$
|
7,822
|
|
Computer equipment and software
|
|
|
2,463
|
|
|
|
3,194
|
|
|
|
3,319
|
|
Furniture and fixtures
|
|
|
54
|
|
|
|
60
|
|
|
|
60
|
|
Leasehold improvements
|
|
|
263
|
|
|
|
266
|
|
|
|
266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,323
|
|
|
|
11,342
|
|
|
|
11,467
|
|
Less: accumulated depreciation and
amortization
|
|
|
5,026
|
|
|
|
7,114
|
|
|
|
7,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,297
|
|
|
$
|
4,228
|
|
|
$
|
3,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Depreciation and amortization expense for the three months ended
April 30, 2007 was $0.7 million. 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.
|
|
8.
|
Notes Receivable
from Employees
|
During the fiscal years ended January 31, 2002 and 2003,
the Company received notes from two employees of the Company in
the amount of $0.1 million. During the fiscal years ended
January 31, 2006 and 2007, the notes were fully repaid.
F-21
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
As of April 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Sales commissions
|
|
$
|
1,093
|
|
|
$
|
2,456
|
|
|
$
|
1,398
|
|
Warranty costs
|
|
|
690
|
|
|
|
1,093
|
|
|
|
1,015
|
|
Vacation
|
|
|
1,017
|
|
|
|
1,048
|
|
|
|
1,270
|
|
Bonus
|
|
|
449
|
|
|
|
834
|
|
|
|
722
|
|
Inventory items
|
|
|
1,096
|
|
|
|
132
|
|
|
|
59
|
|
Other
|
|
|
2,502
|
|
|
|
3,115
|
|
|
|
3,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,847
|
|
|
$
|
8,678
|
|
|
$
|
7,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 12).
In June 2005, the Company entered into a credit line agreement
with an outside party. Under this agreement, the Company was
able to 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 April 30, 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 12). As of
January 31, 2006 and 2007 and April 30, 2007, there
was $3.0 million, $6.5 million and $5.9 million,
respectively, outstanding under the line of credit. Interest
expense on the line of credit of $0.1 million,
$0.7 million and $0.2 million was incurred for the
fiscal years ended January 31, 2006 and 2007 and the three
months ended April 30, 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 and
April 30, 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
F-22
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
EITF Issue
No. 95-22,
Balance Sheet Classification of Borrowings Outstanding
under revolving Credit Agreements that include both a Subjective
Acceleration Clause and a Lock-Box Arrangement.
The Company borrowed $4.0 million as of April 30,
2007. The interest rate is fixed for the term of the loan at the
time of the advance and is 7.25% as of April 30, 2007. As
of January 31, 2007 and April 30, 2007, there was $0
and $4.0 million, respectively, outstanding under the line
of credit. Interest expense on the line of credit of $0 and
approximately $33,000, was incurred for the year ended
January 31, 2007 and the three months ended April 30,
2007, respectively.
|
|
11.
|
Convertible
Redeemable Preferred Stock
|
The Companys outstanding Series A, Series B,
Series C and Series D preferred stock is comprised of
the following (in thousands, except share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
As of April 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Series A;
17,280,000 shares authorized, 17,200,000 shares issued
and outstanding at January 31, 2006 and 2007 and
April 30, 2007, respectively (liquidation preference of
$8,600 at April 30, 2007)
|
|
$
|
12,117
|
|
|
$
|
12,805
|
|
|
$
|
12,978
|
|
Series B;
29,425,622 shares authorized; 29,389,622 shares issued
and outstanding at January 31, 2006 and 2007 and
April 30, 2007, respectively (liquidation preference of
$25,375 at April 30, 2007)
|
|
|
33,214
|
|
|
|
35,245
|
|
|
|
35,752
|
|
Series C;
23,058,151 shares authorized, issued and outstanding at
January 31, 2006 and 2007 and April 30, 2007,
respectively (liquidation preference of $20,001 at
April 30, 2007)
|
|
|
24,100
|
|
|
|
25,700
|
|
|
|
26,100
|
|
Series D;
8,147,452 shares authorized; 7,901,961 shares issued
and outstanding at January 31, 2006 and 2007 and
April 30, 2007, respectively (liquidation preference of
$20,150 at April 30, 2007)
|
|
|
21,769
|
|
|
|
23,381
|
|
|
|
23,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible redeemable
preferred stock
|
|
$
|
91,200
|
|
|
$
|
97,131
|
|
|
$
|
98,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
F-23
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 April 30, 2007 cumulative unpaid dividends were
$4.4 million, $10.4 million, $6.1 million and
$3.6 million on Series A, Series B, Series C
and Series D preferred stock, respectively, and are payable
upon redemption.
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 April 30, 2007.
|
|
12.
|
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 $0.6817 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.
F-24
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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 expire upon the Companys
initial public offering of common stock if not exercised
beforehand. 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 Companys
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 expire upon the Companys
initial public offering of common stock if not exercised
beforehand. 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 Companys
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 expire upon the Companys
initial public offering of common stock if not exercised
beforehand. 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 Companys
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 expire upon the
Companys initial public offering of common stock if not
exercised beforehand. 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 Companys
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%
F-25
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 expire upon the Companys initial public offering
of common stock if not exercised beforehand. 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 Companys
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 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 expire upon
the Companys initial public offering of common stock if
not exercised beforehand. These warrants were outstanding at
January 31, 2007.
Warrants outstanding at January 31, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Term
|
|
|
Preferred
|
|
|
Exercise
|
|
|
Shares Outstanding
|
|
|
Fair Value at
|
|
Issue Date
|
|
(Years)
|
|
|
Stock
|
|
|
Price
|
|
|
Under Warrant
|
|
|
January 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
August 2001
|
|
|
7
|
|
|
|
Series A
|
|
|
$
|
0.6817
|
|
|
|
80,000
|
|
|
$
|
266
|
|
September 2002
|
|
|
7
|
|
|
|
Series B
|
|
|
$
|
0.8634
|
|
|
|
36,000
|
|
|
|
111
|
|
June 2005 June 2006
|
|
|
10
|
|
|
|
Series D
|
|
|
$
|
2.5500
|
|
|
|
125,490
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,490
|
|
|
$
|
765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 4, 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 and Series B preferred stock into common upon the
closing of a qualifying initial public offering (see Note 11),
the preferred stock warrants will become warrants for such
number of shares of common stock into which the underlying
preferred stock was converted.
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
Companys 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.
As of January 31, 2007, the Companys common stock
reserved for future issuances included the following:
|
|
|
|
|
Redeemable convertible preferred
stock
|
|
|
38,774,847
|
|
Warrants to purchase redeemable
convertible 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
F-26
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
F-27
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$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.
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.
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 Companys 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 Companys 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 Companys 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
F-28
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
managements best estimates, but the estimates involve
inherent uncertainties and the application of management
judgment.
In accordance with the prospective transition method, the
Companys 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 and the three months ended April 30,
2007 relating to share-based payments are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Three Months Ended
|
|
|
|
January 31, 2007
|
|
|
April 30, 2007
|
|
|
|
|
|
|
(Unaudited and restated)
|
|
|
Cost of product
|
|
$
|
12
|
|
|
$
|
22
|
|
Cost of services
|
|
|
19
|
|
|
|
26
|
|
Sales and marketing
|
|
|
207
|
|
|
|
249
|
|
Research and development
|
|
|
160
|
|
|
|
148
|
|
General and administrative
|
|
|
479
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
877
|
|
|
$
|
879
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
|
2005
|
|
|
2006
|
|
|
Reported net loss
|
|
$
|
(3,014
|
)
|
|
$
|
(14,025
|
)
|
Add stock-based employee
compensation expense included in net loss
|
|
|
|
|
|
|
|
|
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 Companys 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.
F-29
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity under the Plan for the fiscal years ended
January 31, 2005, 2006 and 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Life in Years
|
|
|
Value(1)
|
|
|
Outstanding at January 31,
2004
|
|
|
3,429,786
|
|
|
$
|
0.184
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,891,250
|
|
|
$
|
0.814
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(566,437
|
)
|
|
$
|
0.520
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(90,969
|
)
|
|
$
|
0.486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31,
2005
|
|
|
4,663,630
|
|
|
$
|
0.434
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
720,750
|
|
|
$
|
1.030
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(662,436
|
)
|
|
$
|
0.230
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(177,250
|
)
|
|
$
|
0.436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31,
2006
|
|
|
4,544,694
|
|
|
$
|
0.548
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,748,000
|
|
|
$
|
2.728
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(426,913
|
)
|
|
$
|
0.352
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(193,298
|
)
|
|
$
|
1.354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31,
2007
|
|
|
7,672,483
|
|
|
$
|
1.610
|
|
|
|
8.21 years
|
|
|
$
|
39.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 31,
2007
|
|
|
2,576,685
|
|
|
$
|
0.490
|
|
|
|
6.90 years
|
|
|
$
|
16.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The aggregate intrinsic value on this table was calculated based
on the positive difference between the calculated fair value of
the Companys 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
|
|
|
|
724,407
|
|
|
|
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.
The Company recorded no income tax expense for the fiscal years
ended January 31, 2005, 2006, and 2007.
For the three months ended April 30, 2006 and 2007, the
provision for income taxes was based on the estimated annual
effective tax rate in compliance with SFAS 109 and other
related guidance. The Company updates the estimate of its annual
effective tax rate at the end of each quarterly period. The
Companys estimate takes into
F-30
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
account estimations of annual pre-tax income, the geographic mix
of pre-tax income and its interpretations of tax laws and the
possible outcomes of current and future audits.
The following table presents the provision and benefit for
income taxes and the effective tax rates for the three months
ended April 30, 2006 and 2007 (in thousands except for
effective tax rate):
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended April 30,
|
|
|
|
|
|
|
2007
|
|
|
|
2006
|
|
|
(restated)
|
|
|
|
(Unaudited)
|
|
|
Loss before income taxes
|
|
$
|
(4,130
|
)
|
|
$
|
(1,631
|
)
|
Income tax provision
|
|
|
|
|
|
|
(274
|
)
|
Effective tax rate
|
|
|
|
|
|
|
(17
|
)%
|
The provision for income taxes for the three months ended
April 30, 2007 of $0.3 million related primarily to
the federal alternative minimum tax, state income taxes and tax
on the earnings of certain foreign subsidiaries.
The components of net deferred tax assets were as follows at
January 31, 2006 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
Net operating loss carryforwards
|
|
$
|
12,387
|
|
|
$
|
13,954
|
|
Research and development credit
carryforwards
|
|
|
5,206
|
|
|
|
4,503
|
|
Capitalized research and
development expenses
|
|
|
5,344
|
|
|
|
3,581
|
|
Depreciation
|
|
|
514
|
|
|
|
427
|
|
Stock-based compensation
|
|
|
18
|
|
|
|
19
|
|
Accrued expenses and other
|
|
|
845
|
|
|
|
3,306
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
24,314
|
|
|
|
25,790
|
|
Deferred tax valuation allowance
|
|
|
(24,314
|
)
|
|
|
(25,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007 the 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
Companys 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 Companys 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.
F-31
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the Companys 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
|
|
|
(0.8
|
)
|
|
|
(0.6
|
)
|
|
|
0.1
|
|
Federal tax credits
|
|
|
16.1
|
|
|
|
12.6
|
|
|
|
9.3
|
|
State tax credits
|
|
|
8.2
|
|
|
|
6.4
|
|
|
|
4.7
|
|
Permanent items
|
|
|
(1.1
|
)
|
|
|
(3.3
|
)
|
|
|
(5.5
|
)
|
Change in valuation allowances
|
|
|
(59.3
|
)
|
|
|
(52.2
|
)
|
|
|
(46.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are recognized based on the
expected future tax consequences, using current tax rates, of
temporary differences between the financial statement carrying
amounts and the income tax basis of assets and liabilities. A
valuation allowance is applied against any net deferred tax
asset if, based on the weighted available evidence, it is more
likely than not that some or all of the deferred tax assets will
not be realized. The Company records liabilities for income tax
contingencies if it is probable that the Company has incurred a
tax liability and the liability or the range of loss can be
reasonably estimated.
In June 2006, the FASB published FASB Interpretation
(FIN) No. 48, Accounting for Uncertain
Tax Positions, or FIN No. 48. This
interpretation seeks to reduce the significant diversity in
practice associated with recognition and measurement in the
accounting for income taxes. It would apply to all tax positions
accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes.
FIN No. 48 requires that a tax position meet
a more likely than not threshold for the benefit of
the uncertain tax position to be recognized in the financial
statements. This threshold is to be met assuming that the tax
authorities will examine the uncertain tax position.
FIN No. 48 contains guidance with respect to the
measurement of the benefit that is recognized for an uncertain
tax position, when that benefit should be derecognized, and
other matters. The Company has adopted the provisions of
FIN No. 48 effective February 1, 2007.
The Company has an unrecognized tax benefit of approximately
$250,000 which did not change significantly during the three
months ended April 30, 2007. The application of
FIN No. 48 would have resulted in a decrease in
retained earnings of $250,000, except that the decrease was
fully offset by the application of a valuation allowance. In
addition, future changes in the unrecognized tax benefit of
$250,000 will have no impact on the effective tax rate due to
the existence of the valuation allowance. The Company estimates
that the unrecognized tax benefit will not change significantly
within the next twelve months.
The future utilization of the Companys net operating loss
carryforwards to offset future taxable income may be subject to
an annual limitation as a result of ownership changes that may
have occurred previously or that could occur in the future. The
Company is in the process of conducting a Section 382 study
to determine whether such an ownership change has occurred.
However, until the study is completed and any adjustment is
known, no amounts are being presented as an uncertain tax
position under FIN 48.
The Companys practice is to recognize interest
and/or
penalties related to income tax matters in income tax expense.
The Company had no accrual for interest or penalties on the
Companys balance sheets at January 31, 2007 and at
April 30, 2007, and has not recognized interest or
penalties in the statement of operations for the first quarter
of 2008. The Company is not currently under federal, state or
foreign income tax examination.
The major domestic tax jurisdictions that remain subject to
examination are: U.S. Federal
2004-2006
and U.S. states
2004-2006.
We are no longer subject to IRS examination for years prior to
2004, although carryforward attributes that were generated prior
to 2004 may still be adjusted upon examination by the IRS
if they either have been or will be used in a future period.
There are currently no state audits in progress. Within
F-32
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
limited exceptions, we are no longer subject to state or local
examinations for years prior to 2003, however, carryforward
attributes that were generated prior to 2003 may still be
adjusted upon examination by state or local tax authorities if
they either have been or will be used in a future period. The
major international tax jurisdictions that remain subject to
examination are: UK
2004-2006,
Japan 2006 and Australia
2005-2006.
|
|
16.
|
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
|
|
2009
|
|
|
196
|
|
2010
|
|
|
1
|
|
2011
|
|
|
1
|
|
2012
|
|
|
1
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
1,507
|
|
|
|
|
|
|
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 Companys customers, in connection with any patent,
copyright, trade secret or other proprietary right infringement
claim by any third party with respect to the Companys
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.
F-33
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Activity related to the warranty accrual was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
April 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance at beginning of period
|
|
$
|
|
|
|
$
|
235
|
|
|
$
|
690
|
|
|
$
|
1,093
|
|
Provision
|
|
|
652
|
|
|
|
565
|
|
|
|
1,737
|
|
|
|
433
|
|
Warranty usage
|
|
|
(417
|
)
|
|
|
(110
|
)
|
|
|
(1,334
|
)
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
235
|
|
|
$
|
690
|
|
|
$
|
1,093
|
|
|
$
|
1,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
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
Companys customers are located, was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Fiscal Year Ended January 31,
|
|
|
April 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
North America
|
|
$
|
31,906
|
|
|
$
|
49,857
|
|
|
$
|
62,282
|
|
|
$
|
8,372
|
|
|
$
|
20,764
|
|
International
|
|
|
4,123
|
|
|
|
3,994
|
|
|
|
17,339
|
(1)
|
|
|
3,626
|
|
|
|
4,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,029
|
|
|
$
|
53,851
|
|
|
$
|
79,621
|
|
|
$
|
11,998
|
|
|
$
|
25,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the fiscal year ended January 31, 2007, the UK
subsidiary comprised 18% of total revenue. |
The following table summarizes the Companys total assets,
by geographic location (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31,
|
|
|
As of April 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
North America
|
|
$
|
43,391
|
|
|
$
|
56,179
|
|
|
$
|
62,431
|
|
International
|
|
|
2,473
|
|
|
|
13,020
|
|
|
|
7,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,864
|
|
|
$
|
69,199
|
|
|
$
|
69,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
NETEZZA
CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
18.
|
Quarterly
Information (unaudited and in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
Revenue
|
|
$
|
9,708
|
|
|
$
|
12,169
|
|
|
$
|
14,290
|
|
|
$
|
17,684
|
|
Gross profit
|
|
|
6,073
|
|
|
|
6,191
|
|
|
|
8,144
|
|
|
|
11,011
|
|
Net loss
|
|
|
(4,959
|
)
|
|
|
(4,928
|
)
|
|
|
(2,800
|
)
|
|
|
(1,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarter Ended
|
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
Revenue
|
|
$
|
11,998
|
|
|
$
|
17,784
|
|
|
$
|
23,171
|
|
|
$
|
26,668
|
|
Gross profit
|
|
|
7,108
|
|
|
|
10,629
|
|
|
|
13,596
|
|
|
|
16,188
|
|
Net loss
|
|
|
(4,130
|
)
|
|
|
(1,893
|
)
|
|
|
(1,494
|
)
|
|
|
(457
|
)
|
In March 2007, the Companys Board of Directors approved a
one-for-two reverse stock split of the Companys common
stock (the stock split) which became effective upon
the filing of the restated certificate of incorporation on
June 25, 2007. 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 Companys 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.
F-35