<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 1998
REGISTRATION NO. 333-59609
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
EXE TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 751719817
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
12740 HILLCREST ROAD
DALLAS, TEXAS 75230
(972) 233-3761
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
RAYMOND R. HOOD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXE TECHNOLOGIES, INC.
12740 HILLCREST ROAD
DALLAS, TEXAS 75230
(972) 233-3761
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
COPIES TO:
BARRY M. ABELSON, ESQUIRE KENNETH M. SIEGEL, ESQUIRE
MICHAEL P. GALLAGHER, ESQUIRE TAMARA G. MATTISON, ESQUIRE
CHRISTOPHER S. MILLER, ESQUIRE MICHELLE L. WHIPKEY, ESQUIRE
PEPPER HAMILTON LLP WILSON SONSINI GOODRICH & ROSATI, P.C.
1235 WESTLAKES DRIVE, SUITE 400 650 PAGE MILL ROAD
BERWYN, PA 19312 PALO ALTO, CA 94304
(610) 640-7800 (650) 493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 31, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
7,700,000 SHARES
EXE TECHNOLOGIES, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------------
Of the 7,700,000 shares of Common Stock offered, 6,160,000 shares are being
offered hereby in the United States and 1,540,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting".
Of the 7,700,000 shares of Common Stock offered, 6,850,000 shares are being
sold by the Company and 850,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering price
will be between $12.00 and $14.00 per share. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "EXET".
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
----------------- ----------------- ----------------- -----------------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total(3)............................ $ $ $ $
</TABLE>
- --------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $1,350,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 924,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 231,000 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting".
---------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York, on or about
, 1998, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
PIPER JAFFRAY INC.
---------------------
The date of this Prospectus is , 1998.
<PAGE>
EXE Technologies, Inc. is a leading provider of supply chain execution software.
WHAT IS SUPPLY CHAIN EXECUTION?
Supply chain execution encompasses the ordering, transporting, handling, storing
and delivering of inventory as it moves through the supply chain from
manufacturer to point of sale. The Company's software solution, EXceed, allows
businesses to optimize the operations of warehouses, distribution centers and
other supply chain nodes, and enhance the tracking and logistical control of
inventory throughout the supply chain.
Combining elements of traditional warehouse, transportation and order management
systems, EXceed is designed to provide companies with an enterprise-wide view of
inventory, regardless of its handling state or location.
WHO BUYS SUPPLY CHAIN EXECUTION SOFTWARE?
Companies that move large amounts of inventory are prime candidates for supply
chain execution software. EXceed allows businesses to improve inventory
turnover, reduce carrying costs and more efficiently satisfy customer demand by
delivering the right product to the right place at the right time. In addition,
EXceed is designed to enable businesses to reduce operating costs through more
efficient management of labor, materials, and other resources within warehouses
and distribution centers.
AMR research estimates that the market for supply chain execution software and
related services will reach $1.4 billion in 1998 and will continue to grow at a
compound annual rate of approximately 40% through 2002.
This Prospectus includes trademarks, service marks and trade names of
entities other than the Company, the mention of which in this Prospectus is with
due recognition of, and without intent to misappropriate their respective
trademarks, service marks, or trade names.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and to make available to its stockholders quarterly
reports containing unaudited interim financial information for the first three
fiscal quarters of each fiscal year of the Company.
------------------------
CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS
IN SUCH SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
EXE is a leading provider of supply chain execution software.
With eleven international offices, EXE Technologies provides sales and service
coverage to companies in various parts of the world. EXceed is designed to
provide inventory visibility across all inventory locations and handling states.
Key to EXE's solution is the intensive training offered to customers and
alliance partners by EXE University. Using its global execution methodology
(GEM), EXE facilitates successful implementation by its customers of its EXceed
suite of products, regardless of platform or location.
THE EXE SOLUTION: EXCEED
WHETHER A SUPPLY CHAIN STRETCHES ACROSS TOWN, ACROSS THE CONTINENT OR AROUND THE
WORLD, EXCEED ENABLES A HIGHER LEVEL OF DYNAMIC LOGISTICAL CONTROL AND
FLEXIBILITY THROUGHOUT THE SUPPLY CHAIN. EXCEED IS DESIGNED TO ENABLE BUSINESSES
TO ENHANCE REVENUE GROWTH AND REDUCE OPERATING COSTS BY IMPROVING THEIR ABILITY
TO MANAGE INVENTORY AND ADDRESS EVOLVING AND INCREASINGLY COMPLEX CUSTOMER
DEMANDS.
"BEST OF BREED" PRODUCT FUNCTIONALITY
The EXceed solution provides leading warehouse management functionality designed
to enable dynamic logistical control and optimization of warehouses and
distribution centers throughout the supply chain.
INTEGRATED, ENTERPRISE-WIDE SOLUTION
EXceed is designed to enable businesses to deploy an integrated, single-vendor,
enterprise-wide supply chain execution solution that reaches beyond the four
walls of a single facility, providing customers with a higher level of
logistical control and flexibility, improved inventory turnover, lower carrying
costs and an enhanced ability to rapidly and accurately fulfill customer demand.
ILLUSTRATED SUPPLY CHAIN OF A TYPICAL LARGE RETAIL OPERATION
EXceed software is able to cover the entire supply and distribution network.
Visibility extends everywhere that inventory resides; from factories,
distribution centers and air and container freight stations to consolidation
centers, trucks and retail stores.
VENDORS
Management/coordination of inbound parts and merchandise.
TRANSPORTATION
Enterprise view of inventory in transit.
VENDOR + REGIONAL DISTRIBUTION
Distribution center management, from receiving, labor and inventory control to
value-added services, picking and packing, staging and dock management.
[GRAPHICS CORRESPONDING TO ABOVE CAPTIONS]
<PAGE>
PACKAGED APPLICATION; LEADING TECHNOLOGY
EXceed employes an N-tier, component-based architecture that is designed for
rapid installation and deployment by a business. This architecture also allows
EXE to bring new EXceed products to market rapidly, while offering customers a
high performance, reliable and scalable application designed for
mission-critical supply chain activities.
MULTIPLE PLATFORM AVAILABILITY
EXE offers versions of EXceed for mainframe, UNIX and Windows NT environments,
allowing enterprises to leverage their existing computer system investments. In
addition, certain versions of EXceed include a sophisticated message broker that
allows applications to share information across architectural barriers.
COMPLEMENTARY TO APS AND ERP SYSTEMS
Because EXceed operates in conjunction with APS, ERP and legacy-systems, it can
enhance the effectiveness of such systems by providing feedback of real-time
inventory data to them.
GLOBAL PRESENCE AND CAPABILITIES
EXE has eleven offices worldwide, enabling it to rapidly meet the demands of
multinational customers. EXceed's user interfaces are available in numerous
languages, and each version, regardless of its user interface language, is
capable of fully interacting with other versions.
LOCAL DISTRIBUTION
Yard and transportation execution management, from equipment usage, load booking
and load diagramming to post-shipment management and conveyance track and trace.
RETAIL STORES
Demand tracking, inventory control and supply management.
[GRAPHICS CORRESPONDING TO ABOVE CAPTIONS]
<PAGE>
[LOGO]
EXE TECHNOLOGIES
Inventory under control-TM-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS, INCLUDING SHARE AND PER SHARE INFORMATION,
ASSUMES (I) THE CONVERSION OF ALL OUTSTANDING SHARES OF CLASS B COMMON STOCK,
SERIES A CONVERTIBLE PREFERRED STOCK, SERIES B CONVERTIBLE PREFERRED STOCK AND
SERIES C CONVERTIBLE PREFERRED STOCK INTO SHARES OF COMMON STOCK, (II) THE
RENAMING OF THE CLASS A COMMON STOCK TO COMMON STOCK AND (III) NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS. THE COMPANY COMMENCED OPERATIONS
FOLLOWING THE ACQUISITION OF DALLAS SYSTEMS CORPORATION, A TEXAS CORPORATION, BY
NEPTUNE SYSTEMS, INC., A PENNSYLVANIA CORPORATION, IN SEPTEMBER 1997 (THE
"ACQUISITION"). UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS
PROSPECTUS TO "EXE" OR THE "COMPANY" REFER TO, (I) WITH RESPECT TO ANY DATE OR
PERIOD PRIOR TO THE ACQUISITION, NEPTUNE SYTEMS, INC., AND (II) WITH RESPECT TO
ANY DATE OR PERIOD ON OR AFTER THE DATE OF THE ACQUISITION, EXE TECHNOLOGIES,
INC. REFERENCES IN THIS PROSPECTUS TO "NEPTUNE" REFER TO NEPTUNE SYSTEMS, INC.
REFERENCES IN THIS PROSPECTUS TO "DALLAS SYSTEMS" REFER TO DALLAS SYSTEMS
CORPORATION.
THE COMPANY
EXE is a leading provider of supply chain execution software. Supply chain
execution encompasses ordering, transporting, handling, storing and delivering
inventory as it moves through the supply chain from manufacturer to the point of
sale. The Company's software solution, EXceed, allows businesses to optimize the
operations of warehouses, distribution centers and other supply chain nodes and
to enhance the tracking and logistical control of inventory through the supply
chain. Combining elements of traditional warehouse, transportation and order
management systems, EXceed is designed to provide companies with Virtual
Inventory Management--an enterprise-wide view of inventory regardless of its
handling state or location. By enabling better visibility and logistical control
over inventory through the supply chain, EXceed allows businesses to improve
inventory turnover, reduce carrying costs and more efficiently satisfy customer
demand by delivering the right product to the right place at the right time. In
addition, EXceed is designed to enable businesses to reduce operating costs
through more efficient management of labor, materials and other resources within
warehouses and distribution centers.
Today's increasingly competitive business environment demands that
businesses improve their ability to move raw materials, components and finished
goods through the supply chain. A number of trends, however, have made it
increasingly difficult to satisfy these requirements, including: (i)
globalization of manufacturing, component sourcing and sales; (ii) expansion of
product variety; and (iii) increased reliance on real-time inventory management
and value-added distribution. Many enterprises are attempting to meet these
challenges either by improving their internal operations through the use of
information technology or by outsourcing such operations to third party
logistics ("3PL") providers. Enterprise resource planning ("ERP") and advanced
planning systems ("APS") have enabled businesses to improve their capabilities
in forecasting, scheduling and supply chain planning. These systems do not,
however, typically address the execution of the operational plans that they
generate. The Company believes that enterprises are now realizing that a supply
chain execution system, which focuses on the ordering, transporting, handling,
storing and delivering of product, represents a critical element in the effort
to optimize overall supply chain operations. AMR Research estimates that the
market for supply chain execution software and related services will reach $1.4
billion in 1998 and will continue to grow at a compound annual growth rate of
approximately 40% through 2002.
The Company currently focuses on providing solutions to three distinct, but
broad target markets: retail/wholesale, manufacturing/consumer packaged goods
("CPG") and 3PL. Since the Acquisition, the Company has provided products and
services to approximately 280 customers including American Stores Incorporated,
BAX Global Logistics, CompUSA, CVS, Inc., Ford Motor Company, General Motors
Corporation, Penske Logistics, Inc., Hewlett-Packard Company, Kmart Corporation,
Neiman-Marcus Group, Inc., Staples, Inc., USF Logistics, Inc. and Woolworths,
Ltd.
3
<PAGE>
EXE commenced operations in September 1997 following the acquisition of
Dallas Systems by Neptune. The Acquisition combined Neptune's leading Windows NT
technology, rapid implementation focus and packaged applications business model
with Dallas Systems' large installed base, vertical industry expertise and
experience designing and implementing mainframe and UNIX systems for high
transaction volume distribution environments. In addition, the Acquisition
provided international market leverage through the companies' complementary
strengths in Europe and Asia, and vertical market leverage, primarily in the
grocery, retail/wholesale and 3PL market segments.
The Company's headquarters are located at 12740 Hillcrest Road, Dallas,
Texas 75230, and its telephone number is (972) 233-3761. The Company also
operates from its various subsidiary and sales offices located in the United
States, Europe, Asia and Australia.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Company............... 6,850,000 shares
Common Stock offered by the Selling
Stockholders.................................... 850,000 shares
Common Stock to be outstanding after the
offerings....................................... 35,752,542 shares(1)
Use of Proceeds................................... To repay indebtedness and for working
capital and other general corporate
purposes, including potential future
acquisitions. See "Use of Proceeds".
Proposed Nasdaq National Market symbol............ EXET
</TABLE>
- ------------------------
(1) Excludes an aggregate of 4,772,851 shares of Common Stock issuable upon
exercise of options outstanding as of August 31, 1998 at exercise prices
ranging from $0.75 to $13.00 per share and with a weighted average exercise
price of $3.61 per share. Also excludes an additional 4,129,805 shares
reserved as of August 31, 1998 for issuance under the Company's equity-based
compensation plans. See "Management--Stock Option Plans".
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Dallas Systems The Company
------------------------------- --------------------------------------------------------
Eight and
One-half Year Ended
Year Ended Months Ended December 31, Six Months
December 31, September 15, -------------------------------------- Ended June 30,
---------------- ------------- 1997 Pro ---------------
1995 1996 1997 1995 1996 1997(1) Forma(2) 1997 1998
------- ------- ------------- ------ ------ -------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues............................ $27,243 $34,190 $33,103 $2,768 $8,414 $ 26,772 $59,875 $4,015 $45,928
Income (loss) from operations....... 25 1,750 79 442 1,377 (22,879) (3,167) (275) 987
Net income (loss)(3)................ (10) 1,109 (627) 274 840 (22,786) (2,866) (168) 580
Net income (loss) per
share--basic(3)(4)................ $ 0.03 $ 0.10 $ (2.03) $ (0.26) $(0.02) $ 0.04
Net income (loss) per
share--diluted(3)(4).............. $ 0.03 $ 0.10 $ (2.03) $ (0.26) $(0.02) $ 0.02
Shares used in computing net income
(loss) per share--basic(3)(4)..... 8,500 8,500 11,228 11,228 8,899 15,855
Shares used in computing net income
(loss) per share--diluted(3)(4)... 8,500 8,500 11,228 11,228 8,899 28,393
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
ACTUAL AS ADJUSTED(5)
--------- ---------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 1,110 $ 75,871
Working capital...................................................................... 14,065 88,826
Total assets......................................................................... 43,348 118,109
Long-term debt, less current portion................................................. 6,706 --
Stockholders' equity................................................................. 20,246 101,712
</TABLE>
- ----------------------------------
(1) EXE commenced operations on September 15, 1997, following the Acquisition,
which was accounted for as a purchase of Dallas Systems by Neptune. As such,
the historical financial statements of Neptune are presented as the
historical financial statements of the Company. The assets and liabilities
of Dallas Systems were recorded at fair value at the date of the
Acquisition. Included in 1997 consolidated results of operations is a
write-off of in-process research and development of $19.7 million at the
date of the Acquisition. The consolidated statements of operations data of
the Company for the periods presented are not strictly comparable due to the
significant impact the Acquisition had on the 1997 statements.
(2) Pro forma information for the Company reflects the Acquisition as if it had
taken place on January 1, 1997. This information is unaudited and does not
purport to represent the actual operating results had the Acquisition taken
place January 1, 1997, nor does it purport to be indicative of the results
that will be obtained in the future. See "Selected Unaudited Pro Forma
Financial Information".
(3) Effective February 1, 1997, Neptune changed its taxable status from an S
Corporation to a C Corporation. Accordingly, the consolidated statements of
operations data for the periods prior to February 1, 1997 reflect a pro
forma tax provision determined by applying the statutory tax rate to
historical pre tax income (loss) adjusted for permanent tax differences. Net
income (loss) and net income (loss) per share for periods prior to December
31, 1997 give effect to the pro forma tax provision.
(4) See Note 13 of Notes to Consolidated Financial Statements of the Company for
the determination of shares used in computing basic and diluted net income
per share.
(5) Adjusted to reflect the sale by the Company of 6,850,000 shares of Common
Stock in the offerings at an assumed offering price of $13.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization".
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A
SIGNIFICANT DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED BY THIS PROSPECTUS. WHEN
USED IN THIS PROSPECTUS, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS DISCUSSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
LIMITED COMBINED OPERATING HISTORY; INTEGRATION CHALLENGES
The Company commenced operations in September 1997 following the acquisition
of Dallas Systems (based in Dallas, Texas) by Neptune (based in Philadelphia,
Pennsylvania). Although Dallas Systems had been in existence for 18 years and
Neptune for five years, the Company has operated on a combined basis for less
than a year. The Company and its operations are subject to all of the risks
inherent in the establishment of a new business enterprise, especially one
resulting from a combination of two geographically and operationally diverse
companies. In addition, the Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in new
and rapidly evolving markets.
Prior to the Acquisition, Neptune and Dallas Systems operated under
different business models and offered products and services based upon different
technology platforms. Neptune focused on the Windows NT market by designing its
products to require limited services for installation. Dallas Systems provided
software and consulting services primarily for the mainframe-based systems
market. The Dallas Systems product required a significant level of services for
installation. Subsequent to the Acquisition, the Company has committed, and may
continue to commit, significant resources rationalizing the mainframe and UNIX
elements of the EXceed product line obtained from Dallas Systems, with the
Windows NT elements of the EXceed product line contributed by Neptune. The
integration of these distinct business models and product lines has been, and
continues to be, time intensive and costly. Accordingly, the Company remains
subject to the risks associated with the integration of two different
businesses, as well as the risks inherent in operating in rapidly evolving
markets.
Furthermore, although each of the Company and Dallas Systems has experienced
significant growth during the past five years, the Company does not believe that
prior growth rates are sustainable or indicative of future operating results.
The Company realized a reduction in overall gross margin as a result of the
Acquisition, primarily due to the historically lower gross margins realized by
Dallas Systems relative to Neptune. The Company has also recently hired a
significant number of new sales and marketing and professional services
personnel and intends to continue to invest significantly in its sales and
marketing infrastructure and research and development activities. Accordingly,
increases in operating expenses are expected to continue and may result in a
decrease in operating income and operating margin. There can be no assurance
that the Company will be able to increase its level of revenues or maintain
profitability in the future.
In light of the Company's limited combined operating history and integration
challenges, future operating results will depend on many factors, including,
without limitation: the overall growth rate of the markets in which the Company
competes; the level of market acceptance of, and demand for, the Company's
software products; the level of product and price competition; the Company's
ability to establish strategic marketing relationships, develop and market new
and enhanced products, and control costs; changes in the Company's products and
services mix; the Company's ability to expand its direct sales force and
indirect distribution channels both domestically and internationally; the
Company's ability to integrate acquired businesses; and the Company's ability to
attract, train and retain consulting, technical and other key personnel. See
"The Company Selected Consolidated Financial
6
<PAGE>
Data" and "The Company Management's Discussion and Analysis of Financial
Condition and Results of Operations".
POTENTIAL VARIABILITY OF QUARTERLY OPERATIONS AND FINANCIAL RESULTS; SEASONALITY
The Company's revenues and operating results have varied in the past and are
likely to vary substantially in the future. Among the factors that could cause
these potential variations are: fluctuations in the demand for the Company's
products and services; the level of product and price competition in the
Company's markets; the timing and market acceptance of new product introductions
and upgrades by the Company or its competitors; the Company's success in
expanding its services, customer support and marketing and sales organizations,
and the timing thereof; the size and timing of individual transactions; the mix
of products and services sold; delays in, or cancellations of, customer
implementations; customers' budget constraints; the level of research and
development expenditures; the size of recurring compensation charges; changes in
foreign currency exchange rates; the Company's ability to control costs; the
timing of acquisitions; and general economic conditions.
Quarterly software license revenues are difficult to forecast, in part,
because the Company's sales cycles, from initial evaluation to delivery of
software, vary substantially from customer to customer. Further, since software
products are typically shipped shortly after license agreements are signed,
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter. The Company typically recognizes a substantial amount of its
revenues in the last month of the quarter, frequently in the last week or even
days of the quarter. In addition, the timing of large individual licenses is
difficult for the Company to predict, and, in some cases, such licenses are
booked later than anticipated by the Company. Since the Company's operating
expenses are based on anticipated revenue levels and a substantial portion of
the Company's operating expenses, particularly personnel and facilities costs,
are relatively fixed in advance of any particular quarter, any revenue shortfall
may cause significant variations in operating results in any particular quarter.
In addition, the Company intends to continue to invest heavily in its sales and
marketing, professional services and research and development organizations. Any
of these activities may further limit the Company's ability to adjust spending
in response to fluctuations in revenue levels. Finally, the Company's ability to
increase its profitability is dependent upon its ability to increase the
operating efficiency of its professional services organization, through improved
utilization and/or billing rates. There can be no assurance that revenues will
grow in future periods, that they will grow at historical rates, or that the
Company will maintain positive operating margins in future quarters. If revenues
fall below the Company's expectations in a particular quarter, the Company's
operating results could be materially and adversely affected. See "-- Lengthy
and Variable Sales Cycles" and "The Company Management's Discussion and Analysis
of Financial Condition and Results of Operations".
In addition to quarterly fluctuations in operations, the Company experiences
seasonality, with a disproportionately greater amount of the Company's revenues
for any fiscal year being recognized in its fourth quarter and a
disproportionately lesser amount thereof being recognized in its third quarter.
As a result of the foregoing factors, the Company's operating results for
any future quarter may be above or below the expectations of public market
analysts and investors and are not indicative of any succeeding quarters or of
the year in question. Should the Company's revenues and operating results fall
below market expectations, the price of the Company's Common Stock could be
materially adversely affected. See "The Company Management's Discussion and
Analysis of Financial Condition and Results of Operations".
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ABILITY TO MANAGE GROWTH
The Company has rapidly and significantly expanded its operations and
anticipates that significant expansion will continue to be required in order to
address potential market opportunities. The Company's recent expansion has
resulted in substantial growth in the number of its employees and geographic
areas of its operations, resulting in increased responsibility for both existing
and new management personnel.
In particular, a significant portion of the Company's expansion has involved
opening operations in Europe and Asia, which are more difficult to manage and
are subject to additional risks associated with foreign operations. The Company
anticipates continuing to increase the size of its worldwide sales, support,
professional services, marketing and research and development operations
following the completion of the offerings. See "--Foreign Operations and
Currency Fluctuations".
The Company has hired a majority of its salespeople since the beginning of
1998 and its professional services staff has increased significantly since then.
The Company anticipates continuing to increase the size of its sales and
professional services organizations following completion of the offerings. Such
significant growth in the number of salespeople results in significant costs in
advance of sales generation by such personnel. Similarly, the significant growth
in professional services personnel results in increased salary and training
costs in advance of any corresponding revenues due to the typically lower
productivity levels of newer service personnel. Moreover, any growth in software
license revenues will likely generate the need for more professional services
personnel to deploy and implement such software and to train customers. There
can be no assurance that such expansion will be successfully completed, that the
Company will generate sufficient revenues to cover additional expenses incurred
in anticipation of such growth, that the added responsibility on management will
not cause a significant strain on management resources, or that such growth will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company has only recently begun the process of developing the management
and operational capabilities necessary to support the anticipated growth. For
example, the Company hired its current Senior Vice President of Professional
Services in October 1997, its current Senior Vice President of Sales and
Alliances in February 1998, and its current Senior Vice President of Research
and Development in March 1998. Accordingly, a significant portion of the
Company's senior management team has been in place for only a relatively short
period of time. The Company's success will depend to a significant extent on the
Company's ability to integrate such personnel into the Company's daily
operations, to gain the trust and confidence of the Company's other employees
and to work effectively as a team. Although other members of the Company's
management team have a longer history with Neptune or Dallas Systems, as the
case may be, they have limited experience operating a business of the size and
complexity of the Company. Such challenges are significantly more difficult in
light of the Company's recent growth in general, and in particular the growth of
its sales and marketing and professional services organizations and the
expansion of its foreign operations.
The ability of the Company to manage its growth, if any, will depend in
large part on its ability to generally improve and expand its operational and
sales and marketing capabilities, to develop the management skills of its
managers and supervisors, and to train, motivate and manage both its existing
employees and the additional employees that will be required if the Company is
to achieve its business objectives. In addition, in order to effectively manage
its operations, the Company must continuously evaluate the adequacy of its
management structure and its existing systems and procedures, including, among
others, its financial and internal controls. There can be no assurance that
management will adequately anticipate all of the demands that growth may impose
on the Company's systems, procedures and structure or that the Company will be
able to manage any future growth successfully. Any failure to adequately
anticipate and respond to such demands or manage its growth effectively would
have a material adverse effect on the Company's business, financial condition
and results of operations.
8
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See "Business--Strategy", "--Product Development", "--Services, Support and
Training", "--Sales and Marketing" and "Management".
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
The Company derived no revenues in 1995 from foreign operations and
approximately 10.8%, 30.9%, 41.8% and 27.8% of its total revenues from its
foreign operations in 1996, 1997 and the first six months of 1997 and 1998,
respectively. The Company believes that continued growth and profitability will
require expansion of its operations in international markets. Further
penetration of international markets will require the Company to, among other
things, expand its existing foreign operations, establish additional foreign
operations and translate its software and manuals into additional foreign
languages. This expansion will be costly and time-consuming and may not generate
returns for a significant period of time, if at all. To the extent that the
Company is unable to expand its international operations or translate its
software and manuals into foreign languages in a timely manner, the Company's
ability to further penetrate international markets would be adversely affected,
which could have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company's international operations are subject to risks inherent in
international business activities, including: difficulty in staffing and
managing geographically disparate operations; longer accounts receivable payment
cycles in certain countries; compliance with a variety of foreign laws and
regulations; unexpected changes in regulatory requirements; overlap of different
tax structures; greater difficulty in safeguarding intellectual property; import
and export licensing requirements; trade restrictions; changes in tariff rates;
and general economic conditions in international markets. In particular, the
recent weakness in the Asian economies, including Japan, have negatively
impacted the Company's ability to expand its sales in Asia. The Company
anticipates that its ability to grow sales in Asia will remain constrained in
the foreseeable future. There can be no assurance that the Company's business,
financial condition or results of operations will not be adversely affected by
these or other factors that may affect international operations.
To date, a significant portion of the Company's revenues from international
operations has been denominated in United States dollars. As a result, the
Company's revenues in international markets may be adversely affected by a
strengthening United States dollar. Certain revenues and the majority of the
expenses incurred by the Company's international operations are denominated in
currencies other than the United States dollar. In particular, the Company's
revenues and costs of operations in Japan and Singapore are denominated in the
Japanese yen and the Singapore dollar, respectively. In addition, with the
expansion of international operations, the number of foreign currencies in which
the Company must operate is likely to increase, resulting in increased exposure
to exchange rate fluctuations. Exchange rate fluctuations have caused and will
continue to cause currency transaction gains and losses. While such currency
transaction gains and losses have not been material to date, there can be no
assurance that currency transaction losses will not have a material adverse
effect on the Company's business, financial condition or results of operations
in future periods.
SUBSTANTIAL COMPETITION
The market for the Company's products is intensely competitive, highly
fragmented and characterized by rapid technological change. The Company's
competitors are numerous and diverse and offer a variety of solutions directed
at various aspects of the supply chain, as well as the enterprise as a whole.
Competitors tend to vary greatly depending on the customer's geographical
location and vertical market segment. The Company's existing competitors
include: (i) warehouse and transportation management software vendors such as
Catalyst International, Inc., HK Systems, Inc., Manhattan Associates, Inc. and
McHugh Software International, Inc.; (ii) ERP and APS vendors that offer
warehouse or transportation modules as part of their product suites, such as
J.D. Edwards & Company and SAP Aktiengesellschaft; (iii) smaller independent
companies that have developed or are attempting to develop warehouse and
transportation management software solutions; and (iv) corporate information
technology departments
9
<PAGE>
of potential customers capable of developing solutions internally. Many of the
Company's competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition, a
broader range of products to offer and a larger installed base of customers than
the Company, any of which could provide them with a significant competitive
advantage.
The Company expects to face increased competition in the future from its
current competitors. In addition, new competitors, or alliances among current
and new competitors, may emerge and rapidly gain significant market share. The
Company also may face increased competition in the future from business
application software vendors, such as ERP and APS providers, that may broaden
their product offerings to include supply chain execution software. To the
extent such vendors are able to offer systems with functionality comparable or
superior to the Company's products, their significant installed customer bases,
long-standing customer relationships, ability to offer a broad solution and
ability to price such products as incremental add-ons to existing systems could
provide them with a significant competitive advantage over the Company.
In order to succeed in the future, the Company must continue to respond
promptly and effectively to technological change and competitors' innovations.
There can be no assurance that current or potential competitors of the Company
will not develop products comparable or superior in terms of price and
performance features to those developed by the Company. In addition, no
assurance can be given that the Company will not be required to make substantial
additional investments in connection with its research, development, marketing,
sales and customer service efforts in order to meet any competitive threat, or
that the Company will be able to compete successfully in the future. Increased
competition could result in a reduction in market share and pressure for price
reductions (and related reductions in gross margins), any of which could
materially and adversely affect the Company's ability to achieve its financial
and business goals. There can be no assurance that in the future the Company
will be able to successfully compete against current and future competitors. See
"Business--Competition".
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued services of its Chairman, Chief
Executive Officer, Chief Financial Officer and other senior managers. There can
be no assurance that any of these individuals or any other key employee will not
voluntarily terminate his employment with the Company. The loss of the services
of any of the Company's executive officers could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company believes that its future success will also depend significantly
on its ability to attract, motivate and retain additional highly skilled
technical, managerial, consulting, sales and marketing, and, in particular,
professional services personnel. Competition for skilled personnel is intense,
and there can be no assurance that the Company will be successful in attracting,
motivating and retaining the personnel required to grow and operate profitably.
Failure to attract, motivate and retain such highly skilled personnel could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "--Dependence on Professional Services Personnel" and
"Business-- Employees".
ACCOUNTING AND MANAGEMENT INFORMATION SYSTEMS LIMITATIONS
Although the Company has recently completed implementation of an integrated
management information system in the United States, it currently does not have
an integrated worldwide management information system, particularly in the area
of financial reporting. The increasingly global nature of the Company's
operations makes the financial reporting and control function more complex and
reliant upon adequate and integrated worldwide systems and timely communication.
Although the Company expects to complete the implementation of a financial
reporting system covering most of its foreign operations by the end of 1998,
there can be no assurance that the implementation of the new management
information system will be completed when scheduled, that the Company will not
experience other difficulties in transitioning from its current system to the
new system or that the new system will perform
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<PAGE>
as expected. In addition, there can be no assurance that the Company's current
system will provide management with adequate information timely and accurately
for it to make proper decisions during the transition to the new system. The
failure of management to receive adequate, accurate and timely financial
information could inhibit management's ability to make effective and timely
business decisions, which could have a material adverse effect on the Company's
business, financial condition or results of operations.
LENGTHY AND VARIABLE SALES CYCLES
The Company's software is generally used for critical division- or
enterprise-wide purposes and involves a significant commitment of resources by
customers. A customer's decision to license the Company's software generally
involves the evaluation of the available alternatives by a significant number of
personnel in various functional and geographic areas, each often having specific
and conflicting requirements. Accordingly, the Company typically must expend
substantial resources educating prospective customers about the value of the
Company's solutions. For these and other reasons, the length of time between the
date of initial contact with the potential customer and the execution of a
software license agreement typically ranges from three to nine months, and is
subject to delays over which the Company may have little or no control. As a
result of the length and variability of the sales cycle for its software
products, the Company's ability to forecast the timing and amount of specific
sales is limited, and the delay or failure to complete one or more large license
transactions could have a material adverse effect on the Company's business,
financial condition or results of operations and cause the Company's operating
results to vary significantly from quarter to quarter.
RISKS ASSOCIATED WITH POSSIBLE ACQUISITIONS
The Company may in the future acquire other businesses, products or
technologies that are complementary to those of the Company. There can be no
assurance that the Company will be able to identify suitable acquisition
candidates available for purchase at reasonable prices, consummate any
acquisition or successfully integrate any acquired business into the Company's
operations. Further, acquisitions may involve a number of additional risks,
including diversion of management's attention, failure to retain key personnel
of the acquired businesses, unanticipated events or circumstances, legal
liabilities and amortization of acquired intangible assets, some or all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Problems with an acquired business could
have a material adverse effect on the performance of the Company as a whole. The
Company expects to finance any future acquisitions with cash on hand, which may
include the proceeds of the offerings, as well as with possible debt financing,
the issuance of equity securities (common or preferred stock) or combinations of
the foregoing. If the Company were to proceed with one or more significant
future acquisitions in which the consideration consisted of cash, a substantial
portion of the Company's available cash (possibly a portion of the proceeds of
the offerings) could be used to consummate the acquisitions. If the Company were
to consummate one or more significant acquisitions in which the consideration
consisted of stock, stockholders of the Company would suffer dilution of their
interests in the Company. There can also be no assurance that the Company would
be able to arrange adequate debt financing on acceptable terms, if required.
Many business acquisitions must be accounted for using the purchase method of
accounting, and the Company will be unable to consummate any business
acquisitions under the pooling-of-interests method of accounting at least until
September 1999. Most of the businesses that might become attractive acquisition
candidates for the Company are likely to have significant intangible assets, and
acquisition of these businesses, if accounted for as a purchase, would typically
result in substantial goodwill amortization charges to the Company, reducing
future earnings. In addition, such acquisitions could involve
acquisition-related charges, such as one-time acquired research and development
charges. For example, in connection with the Acquisition, in 1997 the Company
recorded a one-time research and development charge of $19.7 million. See "The
Company Management's Discussion and Analysis of Financial Condition and Results
of Operations".
11
<PAGE>
IMPLEMENTATION RISKS
Implementation of the Company's software often involves a significant
commitment of resources, financial and otherwise, by customers. The Company's
implementation cycle can be lengthy due to the size and complexity of its
implementations. The failure of the Company to attract and retain services
personnel, the failure of alliance partners to commit sufficient resources
towards implementing the Company's software or the delay in implementation of
the EXceed product line for any reason could result in dissatisfied customers
which could have a material adverse effect on the Company's reputation, which in
turn could adversely affect its business, financial condition or results of
operations. See "The Company Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Sales and Marketing".
PRODUCT CONCENTRATION
The Company currently derives all of its software license revenues from its
EXceed software, particularly the warehouse management solution. The Company
expects to continue to be dependent upon EXceed in the future, and any factor
adversely affecting the market for supply chain execution software in general,
or the Company's software in particular, would adversely affect the Company's
business, financial condition and results of operations. The market for supply
chain execution software is competitive, highly fragmented and characterized by
rapid technological change. The Company's future financial performance will
depend in large part on the successful development, introduction and customer
acceptance of new products and product enhancements in a timely and cost
effective manner. Subsequent to the Acquisition, the Company committed, and
expects to continue to commit, significant resources to harmonize the mainframe
and UNIX elements of the EXceed product line obtained from Dallas Systems with
the Windows NT elements of the EXceed product line contributed by Neptune. There
can be no assurance that the Company will achieve continued market acceptance of
the EXceed software, any new or enhanced versions of the EXceed software or
related products. In addition, there can be no assurance that the market for
such software will continue to grow. If this market fails to grow or grows more
slowly than the Company currently anticipates, the Company's business, financial
condition and results of operations would be materially adversely affected.
Since the Company's services and maintenance revenues are derived from
implementation and support services offered in conjunction with sales of EXceed
product licenses, any development that adversely affects sales of EXceed
licenses will also adversely affect the Company's services and maintenance
revenues. See "The Company Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business-- Strategy" and "--Product".
CUSTOMER CONCENTRATION
The Company's top five customers for the year ended December 31, 1997 and
six months ended June 30, 1998 in the aggregate accounted for 29.1% and 26.2%,
respectively, of the Company's revenues. In particular, Tru-Serve Corporation
accounted for 11.4% of total revenues during the year ended December 31, 1997.
The Company expects that a small number of customers will continue to account
for a substantial portion of revenues in any given quarter in the foreseeable
future. As a result, the inability of the Company to secure major customers
during a given period could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business--
Customers".
CHANGES IN SOFTWARE REVENUE RECOGNITION
Software license revenues for periods subsequent to December 31, 1997 are
recognized in accordance with the American Institute of Certified Public
Accountants' Statement of Position ("SOP") 97-2, "Software Revenue Recognition."
Under SOP 97-2, software license revenues are recognized upon execution of a
contract and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is
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<PAGE>
considered probable by management. For periods prior to December 31, 1997,
software license revenues were recognized in accordance with SOP 91-1, "Software
Revenue Recognition." Under SOP 91-1, software license revenues were recognized
upon execution of a contract and shipment of the software and after any customer
cancellation right had expired, provided that no significant vendor obligations
remained outstanding, amounts were due within one year and collection was
considered probable by management. The application of SOP 97-2 did not have a
material impact on the Company's consolidated financial statements for the
quarter ended June 30, 1998. As the practice under SOP 97-2 is relatively new,
and many practical questions regarding its application remain unresolved, there
can be no assurance that the application of SOP 97-2 will not have a material
impact upon the Company's revenue recognition in the future.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date field. Beginning in the year 2000,
these date fields will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. As a result, over the
next two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. The latest versions of the Company's software
are, or will be by December 1998, designed to be Year 2000 compliant. The
Company does not currently believe that the effects of any Year 2000
non-compliance in the Company's installed base of software will result in a
material adverse effect on the Company's business, financial condition or
results of operations. In addition, the Company believes that the adverse impact
of Year 2000 issues on its internal computer systems will not be material.
However, no assurance can be given that the Company will not be exposed to
potential business disruption or claims resulting from system problems
associated with the century change. There is no assurance that the Company's
software products or software used for internal purposes that are designed to be
Year 2000 compliant contain all necessary changes.
Management expects that the cost of additional modifications to the
Company's software to meet Year 2000 requirements will not be material. Factors
that could impact the Company's ability to make the necessary modifications or
replacements include, but are not limited to the availability and cost of
trained personnel and the ability of such personnel to locate and correct all
relevant computer codes. However, if such modifications are not completed on a
timely basis or are more costly to implement than currently anticipated, the
Company's business, financial condition or results of operations could be
materially adversely affected.
Failure to complete Year 2000 modifications could cause the Company or its
customers to suffer system failures or miscalculations, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, to send invoices or to engage in similar normal business
activities. The Company's business, financial condition or results of operations
could be materially adversely affected if systems that it operates or licenses
to third parties, or systems that are operated by other parties (E.G.,
utilities, telecommunications service providers, data providers) with which the
Company's systems interface, are not Year 2000 compliant in time.
Although the Company is not aware of any threatened claims related to the
Year 2000, the Company may be subject to litigation arising from such claims
and, depending on the outcome, such litigation could have a material adverse
affect on the Company. It is not clear whether the Company's insurance coverage
would be adequate to offset these and other business risks related to the Year
2000. Any of the foregoing could have a material adverse effect on the Company's
business, financial condition and results of operations. See "The Company
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of Year 2000".
In addition, the Company believes that the purchasing patterns of customers
and potential customers may be affected by Year 2000 issues in a variety of
ways. Many companies are expending significant
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<PAGE>
resources to correct or patch their current software systems for Year 2000
compliance. These expenditures may result in reduced funds available to purchase
software products such as those offered by the Company. Potential customers may
also choose to defer purchasing Year 2000 compliant products until they believe
it is absolutely necessary, thus potentially resulting in stalled sales within
the industry. Conversely, Year 2000 issues may cause other companies to
accelerate purchases, thereby causing an increase in short-term demand and a
consequent decrease in long-term demand for software products. Additionally,
Year 2000 issues could cause a significant number of companies, including
current Company customers, to reevaluate their current software needs and as a
result switch to other systems or suppliers. Any of the foregoing could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INCREASING USE OF FIXED-PRICE SERVICE CONTRACTS
The Company offers a combination of software implementation and related
consulting services to its customers. Although the Company typically provides
services on a "time and materials" basis, the Company has from time to time
entered into fixed-price service contracts, and it expects to increasingly enter
into such contracts in the future. These contracts specify certain milestones to
be met by the Company regardless of actual costs incurred in fulfilling those
obligations. The Company believes that fixed-price contracts may also
increasingly be offered by competitors to differentiate their product and
service offerings. There can be no assurance that the Company will successfully
complete these contracts on budget, and the Company's inability to do so could
have a material adverse effect on its business, financial condition and results
of operations.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company believes that the proceeds received by the Company from the
offerings, together with current cash balances, potential cash flows from
operations and available borrowings under its revolving credit facility will be
sufficient to meet its working capital requirements through December 1999. The
Company periodically reviews other companies and technologies for potential
acquisition. Any material acquisitions of complementary businesses, products or
technologies, or material joint ventures, could require the Company to obtain
additional financing before or after that time. There can be no assurance that
additional financing will be available to the Company on favorable terms, if at
all, to fund such acquisitions or the Company's working capital requirements
beyond December 1999. Moreover, additional financing may cause dilution to
existing stockholders.
DEPENDENCE ON PROFESSIONAL SERVICES PERSONNEL
The implementation of the Company's software requires the services of highly
trained professional services personnel working directly for the Company or for
independent consultants. Although the Company conducts extensive training
programs to qualify internal and external personnel to implement its software,
there can be no assurance that there will be a sufficient number of professional
services personnel to support the demand for such services. A shortage in the
number of trained personnel, either within the Company or available from
third-party consulting firms, could limit the Company's ability to implement its
software on a timely and cost-effective basis. Delayed or ineffective
implementation of the Company's software may limit the Company's ability to
expand its revenues and may result in customer dissatisfaction and damage the
Company's reputation, each of which could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business-- Services, Support and Training".
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL ADVANCES; NECESSITY OF DEVELOPING NEW
PRODUCTS
The market for supply chain execution systems is subject to rapid
technological change, changing customer needs, frequent new product
introductions and evolving industry standards that may render existing products
and services obsolete. The Company's growth and future operating results will
14
<PAGE>
depend in part upon its ability to enhance existing applications and develop and
introduce new applications or components that meet or exceed technological
advances in the marketplace, that meet changing customer requirements, that
respond to competitive products and that achieve market acceptance. The
Company's product development and testing efforts have required, and are
expected to continue to require, substantial investments by the Company. There
can be no assurance the Company will continue to possess sufficient resources to
make necessary investments in technology, particularly in light of the
substantial resources that have been, and will continue to be, devoted towards
integrating its software across UNIX, Windows NT and mainframe platforms. In
addition, there can be no assurance the Company will successfully identify new
software opportunities and develop and bring new software to market in a timely
and efficient manner, that the Company's software will achieve market
acceptance, or that the Company's current or future products will conform to
industry standards in the markets served. If the Company is unable, for
technological or other reasons, to develop and introduce new and enhanced
software in a timely manner, the Company's business, financial condition or
results of operations could be materially and adversely affected. See
"Business--Product Development".
Historically, the Company has issued significant new releases of its
software periodically, with interim releases issued more frequently. As a result
of the complexities inherent in software development, in particular for
multi-platform environments, and the broad functionality and performance
demanded by customers for supply chain execution applications, major new product
enhancements and new products can require long development and testing periods
before they are commercially released. There can be no assurance that the
Company will not experience delays in the scheduled introduction of new software
or software upgrades. See "Business--Product" and "--Product Development".
Complex software such as that offered by the Company frequently contains
undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. The Company has in the past
discovered software errors in new versions of its software after its release.
There can be no assurance that errors will not be found in the Company's
software or that such errors will not result in a delay or loss of revenues,
diversion of development resources, damage to the Company's reputation,
increased service and warranty costs, or impaired market acceptance of these
products, any of which could result in a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Product" and "--Product Development".
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trade secret, trademark,
service mark and trade dress laws, confidentiality procedures and contractual
provisions to protect its proprietary rights in its products and technology. The
Company believes, however, that the foregoing measures afford only limited
protection, and there can be no assurance that such measures will be adequate.
The Company also may be subject to additional risks as it enters into
transactions in countries where intellectual property laws are not well
developed or are poorly enforced. Legal protections of the Company's rights may
be ineffective in such countries. Despite the Company's efforts to safeguard and
maintain its proprietary rights both in the United States and abroad, there can
be no assurance that the Company will be successful in doing so, or that the
steps taken by the Company in this regard will be adequate to deter
misappropriation or independent third party development of the Company's
technology or to prevent an unauthorized third party from copying or otherwise
obtaining and using the Company's products or technology. In addition, policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy could become a problem. Litigation to defend and enforce
the Company's intellectual property rights could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition or results of operations, regardless of the final
outcome of such litigation.
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As the number of supply chain execution applications in the industry
increases and the functionality of these products further overlaps, software
development companies like the Company may become increasingly subject to claims
of infringement or misappropriation of the intellectual property rights of
others. There can be no assurance that third parties will not assert
infringement or misappropriation claims against the Company in the future with
respect to current or future products. Any claims or litigation, with or without
merit, could be time-consuming, result in costly litigation, diversion of
management's attention, cause product shipment delays or require the Company to
enter into royalty or licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms acceptable to the
Company, if at all, which could have a material adverse effect on the Company's
business, financial condition and results of operations. Such claims or
litigation, regardless of the final outcome, could have a material adverse
effect on the Company's business, financial condition or results of operations.
The Company recently received a notice from a third party that holds a patent on
a container monitoring software system and method asserting that certain
products or services offered by the Company may infringe on such patent, and
offering the Company a license to such patent. The Company is currently
investigating the matter. In addition, the Company may seek to obtain patents in
the future. The cost of litigation to uphold the validity and prevent
infringement of patents and to enforce licensing rights can be substantial.
The Company has in the past and may in the future, resell, under license,
certain third party software that enables the Company's software to interact
with other software systems or databases. In addition, the Company licenses
certain software tools used to develop the Company's software. There can be no
assurance that the third party software or software tools will continue to be
available to the Company on commercially reasonable terms. The loss or inability
to maintain any of these software licenses could result in delays or reductions
in product shipments until equivalent software could be identified and licensed
or compiled, which could adversely affect the Company's business, financial
condition or results of operations. See "Business--Proprietary Rights".
POTENTIAL PRODUCT LIABILITY
Many of the Company's installations involve projects that are critical to
the operations of its clients' businesses and provide benefits that may be
difficult to quantify. Any failure in a client's system could result in a claim
for substantial damages against the Company, regardless of the Company's
responsibility for such failure. Although the Company attempts to limit
contractually its liability for damages arising from negligent acts, errors,
mistakes or omissions, there can be no assurance the limitations of liability
set forth in its contracts will be enforceable in all instances or would
otherwise protect the Company from liability for damages. Although the Company
maintains general liability insurance coverage, including coverage for errors or
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim.
The successful assertion of one or more large claims against the Company
that exceed available insurance coverage or changes in the Company's insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could adversely affect the Company's business,
financial condition and results of operations.
SIGNIFICANT UNALLOCATED NET PROCEEDS
A substantial portion of the net proceeds to be received by the Company in
connection with the offerings is allocated to working capital and general
corporate purposes. Accordingly, management will have broad discretion with
respect to the expenditure of such proceeds for the foreseeable future. See "Use
of Proceeds".
16
<PAGE>
CONCENTRATION OF CONTROL
Upon completion of the offerings, the Company's directors, officers and
their affiliates will beneficially own approximately 65.6% of the Company's
outstanding Common Stock. As a result, these stockholders will have the ability
to elect the Company's directors and to determine the outcome of corporate
actions requiring stockholder approval. This concentration of ownership may have
the effect of delaying or preventing a change of control of the Company. See
"Management" and "Principal and Selling Stockholders".
BENEFITS OF OFFERINGS TO SELLING STOCKHOLDERS
In connection with the offerings, the Selling Stockholders, some of whom are
officers or directors of the Company, will receive substantial benefits
including significant proceeds from the offerings. The offerings also will
establish a public market for the Common Stock and provide increased liquidity
to all current stockholders for the shares of Common Stock they will own after
the offerings. Assuming an initial public offering price of $13.00 per share and
after deduction of estimated underwriting discounts and commissions, the
aggregate proceeds of the offerings to be received by the Selling Stockholders
will be approximately $10.3 million. See "Principal and Selling Stockholders"
and "Certain Transactions".
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offerings, the Company will have outstanding
35,752,542 shares of Common Stock (assuming no exercise of the underwriters'
overallotment options or options to purchase the Company's Common Stock
outstanding as of August 31, 1998). Of these shares, the 7,700,000 shares sold
in the offerings will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities Act")
unless such shares are purchased by "affiliates" of the Company, as such term is
defined in Rule 144 under the Securities Act (which sales would be subject to
certain limitations and restrictions described below). The remaining 28,052,542
shares held by existing stockholders are "restricted shares" as that term is
defined under Rule 144 (the "Restricted Shares"). Restricted Shares may be sold
in the public market only if registered under the Securities Act or pursuant to
an exemption from registration requirements under the Securities Act. As a
result of the Lock-Ups (defined below) and the provisions of Rules 144, 144(k)
and 701, the Restricted Shares will be available for sale in the public market
as follows: (i) 143,342 shares will become eligible for sale 90 days after the
date of this Prospectus, (ii) 25,847,534 shares will become eligible for sale
upon expiration of the Lock-Ups 180 days after the date of this Prospectus, and
(iii) the remaining 2,061,666 shares will become eligible for sale from time to
time thereafter. In addition, upon completion of the offerings, assuming no
exercise of options outstanding as of August 31, 1998, the Company will have
outstanding options to purchase 4,772,851 shares of Common Stock. If such
options are exercised when vested, as a result of Rule 701 and the Lock-Ups, the
shares underlying such options would be available for sale in the public market
as follows: (i) 491,887 shares will become eligible for sale 90 days following
the date of this Prospectus, (ii) 44,783 shares will become eligible for sale
from time to time between the 90th day and the 180th day after the date of this
Prospectus, (iii) 2,155,441 shares will become eligible for sale 180 days after
the date of this Prospectus, and (iv) the remaining 2,080,740 shares will become
eligible for sale from time to time thereafter. As soon as practicable after the
closing of the offerings, the Company intends to register for offer and sale
under the Securities Act the 8,696,750 shares of Common Stock issuable under the
Company's stock option plans.
Furthermore, after the consummation of the offerings, the holders of
approximately 27,909,200 shares of Common Stock, or their transferees, will be
entitled to certain demand and piggyback rights with respect to the registration
of such shares under the Securities Act. See "Description of Capital
Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting". Sales of a substantial number of shares of Common Stock in the
public market following the offerings, or the perception that such sales could
occur, could adversely affect the market price for the Company's Common Stock.
17
<PAGE>
All directors, executive officers and certain stockholders and option
holders of the Company who hold in the aggregate approximately 27,909,200 shares
of Common Stock and options to purchase an aggregate of 4,027,079 shares have
agreed, subject to certain exceptions, not to sell or otherwise dispose of any
of their shares or options for a period of 180 days after the date of this
Prospectus without the prior written consent of Goldman, Sachs & Co. (the
"Lock-Ups"). The Company has also agreed not to issue, sell or otherwise dispose
of any of its shares or grant any options (other than options granted or shares
issued in connection with the 1997 Plan and Directors Plan (each as defined
herein)) during such 180-day period. However, Goldman, Sachs & Co. may, in its
sole discretion and at any time without notice, release for public sale all or
any portion of the shares subject to such lock-up agreements. See
"Underwriting".
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offerings, there has been no public market for the Common
Stock. Although the Company has been approved for quotation on the Nasdaq
National Market, there can be no assurance that an active trading market will
develop or be sustained after the offerings. The initial public offering price
of the Common Stock offered hereby will be determined by negotiation between the
Company and the representatives of the U.S. Underwriters and the International
Underwriters and may bear no relationship to the market price of the Common
Stock after the offerings. The market price of the Common Stock could be subject
to significant fluctuations in response to variations in quarterly operating
results and other factors. In addition, the securities markets have experienced
significant price and volume fluctuations from time to time that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of the
Common Stock. See "Underwriting".
DILUTION
The purchasers of the Common Stock offered hereby will experience immediate
and significant dilution in the pro forma net tangible book value of the Common
Stock from the initial pubic offering price. See "Dilution".
NO CASH DIVIDENDS
It is anticipated that EXE will retain any future earnings to finance the
growth and development of its business and will not pay any cash dividends in
the foreseeable future. See "Dividend Policy".
CERTAIN ANTI-TAKEOVER PROVISIONS
Upon consummation of the offerings, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") will authorize
the issuance of up to 85,000,000 shares of Common Stock and 15,000,000 shares of
Preferred Stock, $0.01 par value per share (the "Preferred Stock"). The Board of
Directors will have the power to determine the price and terms under which any
such Preferred Stock may be issued and to fix the terms thereof. The ability of
the Board of Directors to issue one or more series of Preferred Stock without
shareholder approval, as well as certain applicable statutory provisions under
the Delaware General Corporation Law ("DGCL"), could deter or delay unsolicited
changes in control of the Company by discouraging open market purchases of the
Common Stock or a non-negotiated tender or exchange offer for such stock, which
may be disadvantageous to the Company's stockholders who may otherwise desire to
participate in such transaction and receive a premium for their shares.
In addition, certain provisions of the Company's Certificate of
Incorporation and Amended and Restated By-Laws (the "By-Laws"), may also
discourage or make more difficult the acquisition of control of the Company by
means of a tender offer, open market purchase, proxy contest or otherwise. Such
provisions include a Board of Directors that is divided into three classes, each
of which is elected to serve staggered three year terms, and provisions under
which only the Board of Directors or the
18
<PAGE>
President or the Secretary of the Company may call a special meeting of the
stockholders and which permit the Board of Directors to increase the number of
directors and to fill such positions without a vote of the stockholders.
Additionally, no director may be removed at any time except upon a finding of
cause as determined by the Board of Directors and affirmed by the holders of a
majority of the outstanding shares of voting stock. Also, stockholder action by
written consent requires unanimous consent of the stockholders. These provisions
may have the effect of discouraging certain types of takeover practices and
takeover bids and to encourage persons seeking to acquire control of the Company
first to negotiate with the Company. See "Description of Capital Stock--Delaware
Anti-Takeover Law and Certain Provisions of the Certificate of Incorporation and
By-Laws".
19
<PAGE>
THE COMPANY
EXE was incorporated on July 24, 1997 in anticipation of the acquisition of
Dallas Systems by Neptune. On September 15, 1997, the Acquisition was completed
by merging both Dallas Systems and Neptune into EXE, with EXE being the
surviving corporation.
The Company's headquarters are located in Dallas, Texas. The Company also
maintains U.S. operations in Eddystone, Pennsylvania and Los Angeles,
California. The Company currently has six subsidiaries: EXE Technologies, (UK)
PLC in the United Kingdom; EXE Technologies (SEA) in Singapore; EXE
Technologies, Inc. Sdn Bhd in Malaysia; EXE Technologies (China), LTD in China;
EXE Technologies-Middle East (FZE) in Dubai; and EXE Technologies KK-Japan in
Japan.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 6,850,000 shares of
Common Stock offered by the Company pursuant to the offerings are estimated to
be approximately $81.5 million (approximately $95.4 million if the Underwriters'
over-allotment options are exercised in full), assuming an initial public
offering price of $13.00 per share and after deducting estimated underwriting
discounts and estimated expenses payable by the Company in connection with the
offerings.
From the net proceeds of the offerings, the Company will repay amounts
outstanding under its existing line of credit with Wells Fargo Bank. This line
of credit has a variable borrowing base that is determined based upon the
Company's average cash flow for the previous four quarters, up to a maximum of
$13.5 million. As of June 30, 1998, the borrowing base was approximately $13.5
million, with an outstanding balance of approximately $6.7 million. The interest
rate on the line of credit, which was 8.0% per year at June 30, 1998, is the
lesser of (i) a fluctuating rate per year that is 1/2% below the prime rate,
(ii) a fixed rate per year based upon LIBOR and the ratio of the Company's
senior debt to cash flow, or (iii) the maximum rate of interest permitted by
law.
The remaining net proceeds will be used for working capital and other
general corporate purposes. Such purposes may include the funding of new product
development efforts, expanding sales, marketing and research and development
personnel and possible acquisitions of, or investments in, businesses and
technologies that are complementary to those of the Company. The Company has no
specific agreements, commitments or understandings with respect to any such
acquisitions or investments. The amounts actually expended for each purpose may
vary significantly and are subject to change at the Company's discretion
depending upon certain factors, including economic or industry conditions,
changes in the competitive environment and strategic opportunities that may
arise. Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds of the offerings in interest-bearing
securities. See "Risk Factors--Significant Unallocated Net Proceeds" and
"Business--Strategy".
In addition to the foregoing, the principal purposes of the offerings are to
increase the Company's equity capital and financial flexibility, create a public
market for the Common Stock, provide liquidity to existing stockholders,
facilitate future access by the Company to the public equity markets, and
enhance the Company's ability to use Common Stock for potential acquisitions and
as a means of attracting, retaining and providing incentives to employees.
DIVIDEND POLICY
Prior to February 1997, the Company had been treated as an S corporation. As
a result, it had been the Company's policy to distribute a substantial portion
of earnings to its stockholders, in part to permit them to pay income taxes
attributable to their allocable share of the Company's earnings. Distributions
to stockholders of $230,150 and $1,376,180 were paid during 1996 and 1997,
respectively.
Management anticipates that all future earnings and other cash resources of
the Company, if any, will be retained by the Company for investment in its
business. Accordingly, the Company does not intend to declare or pay cash
dividends in the foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual long-term debt and
capitalization of the Company at June 30, 1998, (ii) such debt and
capitalization after giving pro forma effect to certain financing transactions
that occurred subsequent to June 30, 1998 as if they had been completed as of
such date and (iii) such pro forma debt and capitalization as adjusted to
reflect (a) the sale by the Company of Common Stock offered by the Company in
the offerings at an assumed initial public offering price of $13.00 per share
and the application of the net proceeds thereof and (b) the conversion of
Preferred Stock to Common Stock in connection with the offerings. See "Use of
Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1998(1)
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
---------- ------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt, less current portion................................. $ 6,706 $ 6,706 $ --
Stockholders' equity:
Preferred Stock, $0.01 par value:
15,000,000 shares authorized, actual, pro forma, and pro forma as
adjusted; 11,337,562, 12,937,562 and -0- shares issued and
outstanding, actual, pro forma and pro forma as adjusted,
respectively................................................... 25,000 33,000 --
Common Stock, $0.01 par value:
50,000,000 shares authorized, actual, pro forma and pro forma as
adjusted; 16,637,795, 16,782,795 and 36,570,357 shares issued,
actual, pro forma and pro forma as adjusted, respectively...... 166 168 366
Additional paid-in capital......................................... 21,155 21,768 136,036
Treasury stock at cost, 904,425 shares of Common
Stock............................................................ (3,098) (3,098) (3,098)
Accumulated deficit................................................ (22,206) (22,206) (22,206)
Deferred compensation.............................................. (632) (632) (632)
Foreign currency translation adjustment............................ (140) (140) (140)
---------- ------------- ---------------
Total stockholders' equity..................................... 20,245 28,860 110,326
---------- ------------- ---------------
Total capitalization......................................... $ 26,951 $ 35,566 $ 110,326
---------- ------------- ---------------
---------- ------------- ---------------
</TABLE>
- ------------------------
(1) Excludes 3,849,120 shares of Common Stock issuable upon the exercise of
options outstanding at June 30, 1998 at a weighted average exercise price of
$2.10 per share. See "Management--Stock Option Plans" and Note 7 of Notes to
Consolidated Financial Statements of the Company.
(2) Gives pro forma effect to the issuance subsequent to June 30, 1998 of (i)
55,000 shares of Common Stock at an issuance price of $3.00 per share, (ii)
90,000 shares of Common Stock at an issuance price of $5.00 per share and
(iii) 1,600,000 shares of Series C Preferred Stock at an issuance price of
$5.00 per share, as if such issuances had occurred as of June 30, 1998. See
Note 12 of Notes to Consolidated Financial Statements of the Company.
(3) Upon completion of the offerings, the Company's authorized Common Stock will
consist of 85,000,000 shares.
21
<PAGE>
DILUTION
As of June 30, 1998, the net tangible book value of the Company was
approximately $22.0 million, or $.76 per share of Common Stock (after giving pro
forma effect to (i) the completion of certain financing transactions that
occurred subsequent to June 30, 1998 and (ii) the conversion of all Preferred
Stock into Common Stock as if such financings and conversion had taken place as
of June 30, 1998). Net tangible book value per share represents the amount of
the Company's total tangible assets less total liabilities, divided by the
number of shares of Common Stock outstanding after giving effect to the
financings and the conversion of Preferred Stock as described above. After
giving effect to the sale by the Company of the 6,850,000 shares of Common Stock
in the offerings at an assumed initial public offering price of $13.00 per share
and the application of the estimated net proceeds therefrom, after deducting the
estimated underwriting discount and estimated offering expenses, the pro forma
net tangible book value of the Company at June 30, 1998 would have been
approximately $103.5 million, or $2.90 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.14 per share
to existing stockholders and an immediate decrease in net tangible book value of
$10.10 per share to new investors. The following table illustrates this
unaudited per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 13.00
Pro forma net tangible book value per share as of June 30, 1998........ $ .76
Increase in net tangible book value per share attributable to new
investors............................................................ 2.14
---------
Pro forma net tangible book value per share as of June 30, 1998 after the
offerings.............................................................. 2.90
---------
Dilution per share to new investors...................................... $ 10.10
---------
---------
</TABLE>
The following table sets forth, as of June 30, 1998, the number of shares of
Common Stock previously issued by the Company (after giving pro forma effect to
(i) the completion of certain financing transactions that occurred subsequent to
June 30, 1998 and (ii) the conversion of all Preferred Stock into Common Stock
as if such financings and conversion had taken place as of June 30, 1998), the
total consideration reflected in the accounts of the Company and the average
price per share to the existing stockholders and new investors, assuming the
sale by the Company of 6,850,000 shares of Common Stock at an assumed initial
public offering price of $13.00 per share, and before deducting the estimated
underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- ----------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).......................... 28,815,932 80.8% $ 41,754,183 31.9% $ 1.45
New investors(1).................................. 6,850,000 19.2 89,050,000 68.1 13.00
------------- ----- ---------------- -----
Total........................................... 35,665,932 100.0% $ 130,804,183 100.0%
------------- ----- ---------------- -----
------------- ----- ---------------- -----
</TABLE>
- ------------------------
(1) Sales by Selling Stockholders will reduce the number of shares of Common
Stock held by existing stockholders to 27,965,932 shares, or approximately
78.4% of the total Common Stock outstanding after the offerings, and will
increase the number of shares held by new investors to 7,700,000 shares, or
21.6% of the total Common Stock outstanding after the offerings.
Assuming full exercise of the Underwriters' over-allotment options and
including sales by the Selling Stockholders as noted in footnote (1) above, the
percentage of shares held by existing stockholders would be 76.0% of the total
number of shares of Common Stock to be outstanding after the offerings, and the
number of shares held by new stockholders would be increased to 8,855,000
shares, or 24.0% of the total number of shares of Common Stock to be outstanding
after the offerings. See "Principal and Selling Stockholders".
The calculation of net tangible book value and the other computations above
assume no exercise of outstanding options. As of June 30, 1998, there were
options outstanding to acquire 3,849,120 shares at exercise prices ranging from
$0.75 to $5.00 per share at a weighted average exercise price of $2.10 per
share. The exercise of these options will cause further dilution to investors in
the offerings. See "Capitalization".
22
<PAGE>
THE COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company as of and for the five years ended December 31, 1997, and as of and for
the six-month periods ended June 30, 1997 and 1998. The selected consolidated
financial data of the Company should be read in conjunction with the
consolidated financial statements and the notes thereto and The Company
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The selected financial data for the
Company as of and for the year ended December 31, 1997 has been derived from the
consolidated financial statements of the Company included elsewhere in this
Prospectus which have been audited by Ernst & Young LLP, independent auditors.
The statement of operations data for the Company for the years ended December
31, 1995 and 1996, and the balance sheet data at December 31, 1996, have been
derived from the consolidated financial statements of the Company included
elsewhere in this Prospectus which have been audited by PricewaterhouseCoopers
LLP, independent accountants. The balance sheet data at December 31, 1994 and
1995 have been derived from the consolidated financial statements of the Company
not included herein which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The statements of operations data for the years ended
December 31, 1993 and 1994 and six-months ended June 30, 1997 and 1998 and the
balance sheet data at December 31, 1993 and June 30, 1998, have been derived
from the unaudited consolidated financial statements of the Company. The
unaudited interim consolidated financial statements of the Company reflect all
adjustments (consisting only of normal recurring adjustments) which, in the
opinion of the Company's management, are necessary for a fair presentation of
the results for the interim periods presented. Operating results for the
six-month period ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1998.
23
<PAGE>
THE COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------------------------------------------ JUNE 30,
1997 PRO ------------------
1993 1994 1995 1996 1997(1) FORMA(2) 1997(1) 1998
------ ------ ------ ------ -------- ------------ -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses................................. $ 436 $1,060 $1,085 $4,326 $ 8,429 $11,467 $ 2,259 $15,257
Services and maintenance.......................... 435 895 1,431 3,390 12,781 34,898 1,544 26,820
Resale software and equipment..................... -- 108 252 698 5,562 13,510 212 3,851
------ ------ ------ ------ -------- ------------ -------- -------
Total revenues.................................. 871 2,063 2,768 8,414 26,772 59,875 4,015 45,928
------ ------ ------ ------ -------- ------------ -------- -------
Cost and expenses:
Cost of software licenses......................... -- -- -- 206 749 749 125 153
Cost of services and maintenance.................. 366 725 989 2,146 9,967 26,931 881 19,876
Cost of resale software and equipment............. -- 98 193 608 4,129 9,797 188 2,901
Sales and marketing............................... 236 460 555 1,258 6,721 9,685 1,149 9,917
Research and development.......................... -- -- -- 600 3,534 7,351 826 6,840
General and administrative........................ 270 540 589 2,219 4,263 6,836 1,121 4,464
Amortization of intangibles....................... -- -- -- -- 588 1,693 -- 791
Write-off of in-process research and development.. -- -- -- -- 19,700 -- -- --
------ ------ ------ ------ -------- ------------ -------- -------
Total costs and expenses........................ 872 1,823 2,326 7,037 49,651 63,042 4,290 44,942
------ ------ ------ ------ -------- ------------ -------- -------
Operating income (loss)............................. (1) 240 442 1,377 (22,879) (3,167) (275) 986
Other income (expense).............................. 4 (65) (11) (22) (208) (2) 33 25
------ ------ ------ ------ -------- ------------ -------- -------
Income (loss) before minority interest and taxes.... 3 175 431 1,355 (23,087) (3,169) (242) 1,011
Minority interest in subsidiary loss (income)....... -- -- -- 94 76 76 (21) (74)
------ ------ ------ ------ -------- ------------ -------- -------
Income (loss) before income taxes and pro forma
income taxes(3)................................... 3 175 431 1,449 (23,011) (3,093) (263) 937
Provision (benefit) for income taxes and pro forma
income taxes(3)................................... 1 64 157 609 (225) (227) (95) 357
------ ------ ------ ------ -------- ------------ -------- -------
Net income (loss)................................... $ 2 $ 111 $ 274 $ 840 $(22,786) $(2,866) $ (168) $ 580
------ ------ ------ ------ -------- ------------ -------- -------
------ ------ ------ ------ -------- ------------ -------- -------
Net income (loss) per share--basic(3)............... $ 0.00 $ 0.01 $ 0.03 $ 0.10 $ (2.03) $ (0.26) $ (0.02) $ 0.04
------ ------ ------ ------ -------- ------------ -------- -------
------ ------ ------ ------ -------- ------------ -------- -------
Net income (loss) per share--diluted(3)............. $ 0.00 $ 0.01 $ 0.03 $ 0.10 $ (2.03) $ (0.26) $ (0.02) $ 0.02
------ ------ ------ ------ -------- ------------ -------- -------
------ ------ ------ ------ -------- ------------ -------- -------
Shares used in computing net income (loss) per
share--basic(4)................................... 8,500 8,500 8,500 8,500 11,228 8,899 15,855
Shares used in computing net income (loss) per
share--diluted(4)................................. 8,500 8,500 8,500 8,500 11,228 8,899 28,393
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................... $ 34 $ 93 $ 569 $1,804 $ 6,653 $ 2,357 $ 1,110
Working capital..................................... 771 726 740 1,518 12,039 3,045 14,065
Total assets........................................ 792 1,033 2,234 5,208 40,249 6,101 43,348
Long-term debt (less current portion)............... 500 500 500 590 17 556 6,706
Stockholders' equity................................ 287 385 816 2,034 21,607 3,573 20,246
</TABLE>
- ------------------------------
(1) EXE commenced operations on September 15, 1997, following the Acquisition,
which was accounted for as a purchase of Dallas Systems by Neptune. As such,
the historical financial statements of Neptune are presented as the
historical financial statements of the Company. The assets and liabilities
of Dallas Systems were recorded at fair value at the date of the
Acquisition. Included in the 1997 consolidated results of operations is a
write-off of in-process research and development of $19.7 million at the
date of acquisition. The financial statements of the Company for the periods
presented are not strictly comparable due to the significant impact the
Acquisition had on the 1997 statements.
(2) Pro forma information for the Company reflects the Acquisition as if it had
taken place on January 1, 1997. This information is unaudited and does not
purport to represent the actual operating results had the Acquisition taken
place January 1, 1997, nor does it purport to be indicative of the results
that will be obtained in the future. See "Selected Unaudited Pro Forma
Financial Information".
(3) Effective February 1, 1997, Neptune changed its taxable status from an S
Corporation to a C Corporation. Accordingly, the consolidated statements of
operations data for the periods prior to February 1, 1997 reflect a pro
forma tax provision determined by applying the statutory tax rate to
historical pre tax income (loss), adjusted for permanent tax differences.
Net income (loss) and net income (loss) per share for periods prior to
December 31, 1997 give effect to the pro forma tax provision.
(4) See Note 13 of Notes to Consolidated Financial Statements of the Company for
the determination of shares used in computing basic and diluted net income
per share.
24
<PAGE>
THE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY
SELECTED CONSOLIDATED FINANCIAL DATA AND DALLAS SYSTEMS SELECTED CONSOLIDATED
FINANCIAL DATA, DALLAS SYSTEMS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, THE COMPANY SELECTED UNAUDITED PRO FORMA
FINANCIAL INFORMATION AND THE FINANCIAL STATEMENTS OF THE COMPANY AND OF DALLAS
SYSTEMS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. CERTAIN
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" ARE FORWARD-LOOKING STATEMENTS THAT ENTAIL VARIOUS
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH IN THIS SECTION AS WELL AS THOSE DISCUSSED
UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
EXE is a leading provider of supply chain execution software. Supply chain
execution encompasses ordering, transporting, handling, storing and delivering
inventory as it moves through the supply chain from manufacturer to the point of
sale. The Company's software solution, EXceed, allows businesses to optimize the
operations of warehouses, distribution centers and other supply chain nodes and
to enhance the tracking and logistical control of inventory through the supply
chain. Combining elements of traditional warehouse, transportation and order
management systems, EXceed is designed to provide companies with Virtual
Inventory Management (VIM)--an enterprise-wide view of inventory regardless of
its handling state or location. By enabling better visibility and logistical
control over inventory through the supply chain, EXceed allows businesses to
improve inventory turnover, reduce carrying costs and more efficiently satisfy
customer demand by delivering the right product to the right place at the right
time. In addition, EXceed is designed to enable businesses to reduce operating
costs through more efficient management of labor, materials and other resources
within warehouses and distribution centers.
The Company commenced operations following the acquisition of Dallas Systems
by Neptune on September 15, 1997. For accounting purposes, the Acquisition was
accounted for as a purchase of Dallas Systems by Neptune. Pursuant to the
purchase method of accounting, the historical financial statements of the
Company exclude the assets and liabilities, results of operations and cash flows
of Dallas Systems for all periods ending at or prior to the date of the
Acquisition. The assets and liabilities of Dallas Systems were recorded at their
fair values at the Acquisition date. The fair value of Dallas Systems' research
and development efforts that had not reached final technological feasibility as
of the date of the Acquisition was determined by appraisal to be $19.7 million,
and was expensed at the date of the Acquisition.
Prior to the Acquisition, Neptune was focused on delivering packaged supply
chain execution software solutions capable of rapid deployment while Dallas
Systems' business model involved the development and sale of complex supply
chain execution software. In connection with its software, Dallas Systems
provided extensive implementation and consulting services. A primary goal of the
Acquisition was to combine Dallas Systems' distribution strength, large
installed base and expertise in mainframe and UNIX systems with Neptune's higher
margin, software license-based model, while at the same time leveraging
Neptune's Windows NT expertise and rapid deployment capabilities. In addition,
the Acquisition provided international market leverage through the companies'
complementary strengths in Europe and Asia, and vertical market leverage,
primarily in the grocery, retail/wholesale and 3PL markets.
The combination of the businesses of Neptune and Dallas Systems
substantially increased the Company's total revenues in the first six months of
1998 as compared to the same period in 1997, and
25
<PAGE>
contributed to the increase in total revenues in 1997 as compared to 1996. The
Company realized a reduction in its overall gross margin as a result of the
Acquisition, primarily due to the historically lower gross margins realized by
Dallas Systems relative to Neptune. Likewise, the Company experienced
significant increases in accounts receivable and deferred revenue in 1997 as
compared to 1996 primarily due to the Acquisition and Dallas Systems'
comparatively higher percentage of services and maintenance revenues relative to
Neptune. The Company typically extends net 30 days credit in connection with
sales of services and maintenance. See "Business--Customers". There can be no
assurance that the Company's revenues will increase at historical or current
rates or that gross margins will be maintained in future periods.
While both Neptune and Dallas Systems had traditionally maintained
relatively small and decentralized sales and marketing organizations, the
Company has integrated and begun to substantially expand these functions and, at
the same time, to rapidly expand its professional services staff to service the
anticipated growth in software license sales. As a result of these activities,
the Company has experienced increases in sales and marketing expenses and costs
of services and maintenance in the periods subsequent to the Acquisition. The
Company expects to continue to increase its sales and marketing and professional
services personnel and to incur additional associated costs in the foreseeable
future.
The Company reported an operating loss in 1997 of approximately $22.8
million, which was largely attributable to the $19.7 million write-off of
purchased research and development from Dallas Systems. In addition, the Company
recorded non-recurring charges related to the Acquisition of approximately $2.1
million, including approximately $1.0 million for the launch of new marketing
programs, the development of the Far East and Middle East markets, the
recruiting of sales and marketing management and staff, and additional ordinary
start-up costs. Although, the Company has continued to increase sales and
marketing expenses in the first six months of 1998, the Company has reported
operating income of $986,000 during such period. The Company expects sales and
marketing expenses for the last six months of 1998 to be at least as great as
the expenses incurred in the first six months of 1998. In addition, the recent
weakness in the Asian economies, including Japan, have negatively impacted the
Company's ability to expand its sales in Asia. The Company anticipates that its
ability to grow sales in Asia will remian constrained in the foreseeable future.
See Note 12 of Notes to Consolidated Financial Statements of the Company.
The sales cycle for the Company's products is typically three to nine
months, and is subject to delays over which the Company may have little or no
control. As the Company generally seeks to ship software shortly after receipt
of orders, the Company's license revenues for a particular quarter are
significantly impacted by orders received in that quarter. Furthermore, the
Company has experienced, and expects to continue to experience, significant
variation in the size of individual sales. Accordingly, any delay in the receipt
of orders, particularly significant orders, can have a material adverse effect
upon the Company's results of operations in a particular quarter. As a result of
these and other factors, the Company's quarterly results have varied
significantly in the past and are likely to be subject to significant
fluctuation in the future. In addition, the Company has experienced, and is
expected to continue to experience, seasonality in its business, particularly as
it relates to the timing of license revenues, with a disproportionately greater
amount of the Company's revenues for any fiscal year being recognized in its
fourth quarter and a disproportionately lesser amount thereof being recognized
in its third quarter. For the foregoing reasons, the Company believes that
quarter-to-quarter comparisons of its results of operations are not necessarily
indicative of the results to be expected for any future period and, more
specifically, that the results of operations for the quarter ended June 30, 1998
are not indicative of the results that may be achieved in 1998 as a whole. See
"Risk Factors--Potential Variability of Quarterly Operations and Financial
Results; Seasonality" and "--Lengthy and Variable Sales Cycles".
The Company recorded deferred compensation expense of $811,210 for the
difference between the exercise price and the deemed fair market value of
certain of the Company's common stock options granted during the six months
ended June 30, 1998. This amount is being amortized ratably over the
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<PAGE>
vesting period of the individual options, generally three to four years.
Compensation expense recognized in the six months ended June 30, 1998 totaled
$179,050 and at June 30, 1998 deferred compensation totaled $632,160.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, YEAR ENDED 30,
------------------------------------- DECEMBER 31, ------------------------
1995 1996 1997 1997 PRO FORMA 1997 1998
----------- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Software licenses.................... 39.2% 51.4% 31.5% 19.1% 56.3% 33.2%
Services and maintenance............. 51.7 40.3 47.7 58.3 38.4 58.4
Resale software and equipment........ 9.1 8.3 20.8 22.6 5.3 8.4
----------- ----------- ----------- ------ ----------- -----------
Total revenues..................... 100.0 100.0 100.0 100.0 100.0 100.0
----------- ----------- ----------- ------ ----------- -----------
Costs and expenses:
Cost of software licenses............ -- 2.4 2.8 1.2 3.1 0.3
Cost of services and maintenance..... 35.7 25.5 37.2 45.0 21.9 43.3
Cost of resale software and
equipment.......................... 7.0 7.2 15.4 16.4 4.7 6.3
Sales and marketing.................. 20.0 15.0 25.1 16.2 28.6 21.6
Research and development............. -- 7.1 13.2 12.3 20.6 14.9
General and administrative........... 21.3 26.4 15.9 11.4 27.9 9.7
Amortization of intangibles.......... -- -- 2.2 2.8 -- 1.7
Write-off of in-process research and
development........................ -- -- 73.6 -- -- --
----------- ----------- ----------- ------ ----------- -----------
Total costs and expenses........... 84.0 83.6 185.4 105.3 106.8 97.8
----------- ----------- ----------- ------ ----------- -----------
Operating income (loss)................ 16.0 16.4 (85.4) (5.3) (6.8) 2.2
Other income (expense)................. (0.4) (0.3) (0.8) -- 0.8 --
----------- ----------- ----------- ------ ----------- -----------
Income (loss) before minority interest
and taxes............................ 15.6 16.1 (86.2) (5.3) (6.0) 2.2
Minority interest in subsidiary loss
(income)............................. -- 1.1 0.3 0.1 (0.5) (0.2)
----------- ----------- ----------- ------ ----------- -----------
Income (loss) before income taxes and
pro forma income taxes............... 15.6 17.2 (85.9) (5.2) (6.5) 2.0
Provision (benefit) for income taxes
and pro forma income taxes........... 5.7 7.2 (0.8) (0.4) (2.3) 0.8
----------- ----------- ----------- ------ ----------- -----------
Net income (loss)...................... 9.9% 10.0% (85.1)% (4.8)% (4.2)% 1.2%
----------- ----------- ----------- ------ ----------- -----------
----------- ----------- ----------- ------ ----------- -----------
</TABLE>
The following table sets forth the cost of each component of revenues as a
percentage of the corresponding component of revenues:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Software licenses............... -- % 4.8% 8.9% 6.5% 5.5% 1.0%
Services and maintenance........ 69.1 63.3 78.0 77.2 57.1 74.1
Resale software and equipment... 76.6 87.1 74.2 72.5 88.7 75.3
</TABLE>
27
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 AND 1998
REVENUES
The Company's revenues consist of: revenues from the licensing of software
products; fees derived from implementation, training and maintenance services;
and revenues generated from the resale of database software and computer
equipment. Revenues increased from $4.0 million in the six months ended June 30,
1997 to $45.9 million in the six months ended June 30, 1998. This increase was
primarily the result of the acquisition of Dallas Systems' large base of
service, maintenance and resale revenues. In addition, the Company increased
sales of its packaged applications software. The Company also introduced a price
increase for all professional services in the first quarter of 1998. As a
percentage of total revenues, software license, service and maintenance and
resale revenues represented 56.3%, 38.4% and 5.3% in the first six months of
1997, compared to 33.2%, 58.4% and 8.4% in the first six months of 1998. The
Company expects software license revenues to become an increasingly larger
proportion of total revenues over time as the Company continues its shift toward
a packaged software licensing model.
SOFTWARE LICENSE REVENUES. Software license revenues are derived from
licensing the Company's packaged software to customers. Software license
revenues increased 575.4% from $2.3 million in the first six months of 1997 to
$15.3 million in the first six months of 1998. The increase in software license
revenues was due to approximately $9.2 million in revenues from mainframe and
UNIX software products acquired with the Acquisition. The remainder of the
increase is the result of the increase in the number of licenses of the Windows
NT product line sold during the first six months of 1998. The increase in
licenses sold resulted primarily from the substantially greater number of active
sales and marketing personnel during the first six months of 1998, both as a
result of combining the Dallas Systems and Neptune sales and marketing forces
and the hiring of additional personnel subsequent to the Acquisition, as well as
increased levels of sales and marketing activities conducted since the
Acquisition. In addition, the Company believes that it is benefitting from
continued growth in the demand for supply chain execution solutions, and growing
acceptance of the Company's EXceed product line. Software license revenues
represented 33.2% of total revenues for the first six months of 1998, compared
to 56.3% of total revenues for the first six months of 1997, due to the
inclusion of Dallas Systems' larger base of service and maintenance revenues.
Software license revenues for periods subsequent to December 31, 1997 are
recognized in accordance with the American Institute of Certified Public
Accountants' Statement of Position ("SOP") 97-2, "Software Revenue Recognition."
Under SOP 97-2, software license revenues are recognized upon execution of a
contract and delivery of software, provided that the license fee is fixed and
determinable, no significant production, modification or customization of the
software is required and collection is considered probable by management. For
periods prior to December 31, 1997, software license revenues were recognized in
accordance with SOP 91-1, "Software Revenue Recognition." Under SOP 91-1,
software license revenues were recognized upon execution of a contract and
shipment of the software, and after any customer cancellation right had expired,
provided that no significant vendor obligations remained outstanding, amounts
were due within one year and collection was considered probable by management.
The application of SOP 97-2 did not have a material impact on the Company's
consolidated financial statements for the six months ended June 30, 1998. As the
practice under SOP 97-2 is relatively new, and many practical questions
regarding its application remain unresolved, there can be no assurance that the
application of SOP 97-2 will not have a material impact upon the Company's
revenue recognition in the future.
SERVICE AND MAINTENANCE REVENUES. Service revenues are primarily derived
from fees for implementation, consulting and training services, and are
recognized as the services are performed. Maintenance revenues are derived from
customer support agreements generally entered into in connection with initial
license sales and subsequent renewals, and are recognized ratably over the term
of the
28
<PAGE>
maintenance period, which is typically one year. Payments for maintenance fees
are generally made in advance. Service and maintenance revenues increased from
$1.5 million in the first six months of 1997 to $26.8 million in the first six
months of 1998. The increase was primarily due to an additional $22.3 million of
revenues recognized during the first six months of 1998 from sales of mainframe
and UNIX software acquired through the Acquisition. Additionally, the Company
received approximately $3.0 million of revenues during the first six months of
1998 due to higher billing rates for professional services introduced by the
Company in the first quarter of 1998. Service and maintenance revenues
represented 58.4% of total revenues for the first six months of 1998, compared
to 38.4% in the prior year period due to the inclusion of Dallas Systems'
revenues, which generally consisted of a higher percentage of service and
maintenance revenues as a percentage of total revenues as compared to Neptune's
revenues. While the Company is continuing to expand its service organization and
seeks to have service revenues increase in absolute amount in future periods,
the Company's goal is to decrease the percentage of total revenues attributable
to services and maintenance as it continues to shift to a packaged software
licensing model.
RESALE SOFTWARE AND EQUIPMENT REVENUES. Resale software and equipment
revenues are generated from the resale of a variety of third-party software and
hardware products that are integrated with the Company's software solution at
the customer's request. These products include relational database software,
computer hardware and radio frequency-based equipment. Resale software and
equipment revenues are recognized upon shipment. The Company generally purchases
software and equipment from its vendors only after receiving an order from a
customer. As a result, the Company generally does not maintain a significant
inventory of third-party products. Revenues from resale of software and
equipment increased from $213,000 in the first six months of 1997 to $3.9
million in the first six months of 1998. The increase in revenues from the
resale of software and equipment was principally due to the overall increase in
sales of EXceed products and the acquisition of Dallas Systems, which had a
larger base of customers that make periodic database software and computer
equipment purchases. Resale of software and equipment revenues as a percentage
of total revenues increased to 8.4% in the first six months of 1998 from 5.3% in
the prior year period as a result of the acquisition of Dallas Systems and its
higher level of reselling activity. While the Company is able to obtain
discounts from its suppliers' list prices and resell software and equipment at a
modest profit, the Company resells third-party software and equipment primarily
as an accommodation to its customers, and does not view this activity as a core
business opportunity for the Company.
COST OF REVENUES
COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of:
(i) the cost of royalties associated with tools used to develop the Company's
software products; (ii) the cost of reproduction and delivery of the software;
and (iii) the amortization of capitalized software development expenses. Cost of
software licenses represented 1.0% of software license revenues for the first
six months of 1998, down from 5.5% of such revenues in the prior year period.
The decrease in the cost of software licenses as a percentage of software
license revenues was primarily the result of the write-off of certain previously
capitalized software development costs related to products that had diminished
in value to the ongoing operations of the Company. The Company currently
expenses software development costs as such costs are incurred. The Company
expects the cost of software licenses as a percentage of software license
revenues to remain below 3% in future periods.
COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists
primarily of salaries of professional staff and costs associated with
implementation, consulting and training services. Cost of services and
maintenance also includes the cost of providing software maintenance to
customers such as hotline telephone support, new releases of software and
updated user documentation. Cost of services and maintenance represented 74.1%
of the related revenues for the first six months of 1998, up from 57.1% of such
revenues in the prior year period. The increase in the cost of services and
29
<PAGE>
maintenance as a percentage of the related revenues was due to the acquisition
of Dallas Systems, which added significant services revenues at margins that
were lower than Neptune's traditional margins on services revenues. This lower
margin on Dallas Systems' services and maintenance revenues is attributable to
the larger project size of the typical Dallas Systems services contract and the
multi-layered services delivery structure that was present at Dallas Systems.
The Company's goal is to reduce the cost of services and maintenance as a
percentage of the related revenues by streamlining and increasing the efficiency
of the Company's services and maintenance organization.
COST OF RESALE SOFTWARE AND EQUIPMENT. Cost of resale software and
equipment revenues consists of costs related to the purchase of software and
equipment that the Company resells to its customers. Cost of resale software and
equipment represented 75.3% of related revenues in the first six months of 1998,
down from 88.5% of such revenues in the prior year period. The decrease in the
cost of resale software and equipment revenues as a percentage of the related
revenues in the first six months of 1998 was due to the higher volume of
reselling activities and a resulting increased ability to obtain better pricing
from the Company's suppliers of such software and equipment.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses include salaries and
other personnel-related costs, sales commissions, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses were
$1.1 million, or 28.6% of total revenues, in the first six months of 1997, and
$9.9 million, or 21.6% of total revenues, for the first six months of 1998. The
increase of $8.8 million was due to (i) approximately $3.9 million attributable
to increased hiring of sales and marketing personnel and (ii) approximately $1.2
million attributable to increased sales commissions as a result of significantly
higher revenues, with the remainder primarily attributable to increased
marketing and promotional activities. The decrease in sales and marketing
expenses as a percentage of total revenues is a result of greater sales and
marketing efficiencies realized since the Acquisition. The Company plans to
continue to invest significantly in expanding its sales and marketing
organization worldwide in order to grow software license sales. As a result, the
Company expects sales and marketing expenses to continue to increase in absolute
amount, and to fluctuate somewhat as a percentage of total revenues, in future
periods. In particular, the Company expects sales and marketing expenses for the
last six months of 1998 to be at least as great as the expenses incurred in the
first six months of 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses principally
consist of salaries and other personnel-related costs for the Company's product
development activities. Research and development expenses were $826,000, or
20.6% of total revenues, in the first six months of 1997 and $6.8 million, or
14.9% of total revenues, in the first six months of 1998. The increase in
research and development expenses in the first six months of 1998 in absolute
amount resulted from the addition of research and development personnel
primarily as a result of the Acquisition.
Subsequent to the Acquisition, the Company has spent, and expects to
continue to spend, significant amounts to rationalize the mainframe and UNIX
elements of the EXceed product line obtained from Dallas Systems with the
Windows NT elements of the EXceed product line contributed by Neptune. In
addition, the Company intends to continue to add features and functionality to
the EXceed software running on all platforms in order to remain competitive.
Accordingly, the Company intends to invest in research and development
activities, and expects such expenses to fluctuate as a percentage of total
revenues in future periods.
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," software development costs
are expensed as incurred until technological feasibility has been established,
at which time such costs are capitalized until the product is available for
general release to customers. During 1997 and the first six months of 1998, the
establishment of
30
<PAGE>
technological feasibility of the Company's products and general release of such
software have substantially coincided. As a result, software development costs
qualifying for capitalization have been insignificant and, therefore, the
Company has expensed all software development costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related costs of the finance, human
resources, information systems, administrative and executive departments of the
Company, insurance costs and the fees and expenses associated with legal,
accounting and other administrative services. General and administrative
expenses were $1.1 million, or 27.9% of total revenues, for the first six months
of 1997 and $4.5 million, or 9.7% of total revenues, in the first six months of
1998. The increase in the absolute amount of general and administrative expenses
was primarily the result of increased staffing and related costs associated with
the growth of the Company's business following the Acquisition. The decrease in
these expenses as a percentage of total revenues was primarily due to the
substantial increase in total revenues and the Company's ability to leverage its
base of resources to support a larger organization. The Company expects that the
absolute amount of general and administrative expenses will continue to increase
in the foreseeable future, in part as a result of the additional expenses
associated with operating as a public company, and that these expenses will
fluctuate as a percentage of total revenues in the future.
AMORTIZATION OF INTANGIBLES. In connection with the Acquisition, the
Company recorded intangible assets as follows: $3.7 million of purchased
technology; $1.4 million attributed to an in-place work force; $1.8 million to
the purchased customer base; and $1.1 million to goodwill. The intangible
assets, excluding the assembled work force and goodwill, are being amortized
over six years based upon the estimated associated revenue stream. The assembled
work force and goodwill are being amortized on a straight-line basis over three
and six year periods, respectively. Amortization of intangibles resulted in an
expense of $791,000, or 1.7% of total revenues, in the first six months of 1998.
OTHER INCOME (EXPENSE)
Other income (expense) consists of interest income on short-term
investments, offset by interest expense on outstanding debt, and foreign
currency gains and losses realized. Other income (expense) was $33,000 in the
first six months of 1997 and $25,000 in the first six months of 1998. The
decline in other income was primarily a result of income from the sale of
investments during the first six months of 1997, which did not recur in the
first six months of 1998. The Company expects other income to increase after the
offerings as a result of the application of a portion of the offering proceeds
to retiring outstanding indebtedness of the Company and interest income on
excess offering proceeds.
MINORITY INTEREST IN SUBSIDIARY GAINS AND LOSSES
In 1996, the Company and a third party formed a joint venture to provide
supply chain execution licenses and related services in Asia. The Company owns a
majority of the joint venture. The minority interest in subsidiary reflects the
minority partner's share of the gains and losses of the joint venture, and were
immaterial in both periods. In August 1998, the Company purchased its joint
partner's interest in the joint venture at a price equal to the joint venture
partner's investment in the joint venture. As a result, the financial results of
the former joint venture will thereafter be fully consolidated with those of the
Company and its other subsidiaries, and there will be no further minority
interest in such results.
INCOME TAXES
The Company recorded a federal income tax benefit of $95,000 for the six
months ended June 30, 1997 and federal income tax expense of $357,000 for the
six months ended June 30, 1998. The amounts recorded differ from amounts
computed at the statutory rate primarily as a result of the impact of state
taxes.
31
<PAGE>
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
REVENUES
Total revenues increased 204.0% from $2.8 million in 1995 to $8.4 million in
1996 and 218.2% to $26.8 million in 1997. The increase in 1996 over 1995 was
primarily the result of the initial sales of Neptune's object-oriented, Windows
NT-based software product which was released in 1996. The increase in 1997 over
1996 was primarily the result of services and maintenance as well as resale
software and equipment revenues contributed by the Dallas Systems' operations
following the Acquisition in September 1997, combined with several significant
license sales during the fourth quarter.
SOFTWARE LICENSE REVENUES. Software license revenues increased 298.7% from
$1.1 million in 1995 to $4.3 million in 1996 and 94.8% to $8.4 million in 1997.
Software license revenues represented 39.2%, 51.4% and 31.5% of total revenues
in 1995, 1996 and 1997, respectively. The increase in software license revenues
in 1996 was primarily the result of the market acceptance of and initial sales
of Neptune's object-oriented, Windows NT-based software product which was
released in that year. In addition, the Company received license fees of $1.4
million in 1996 from a warehouse management systems competitor of the Company
for the license of technology underlying a discontinued version of its warehouse
management systems product, as compared to only $500,000 in 1995 in connection
with such license. The final payment of approximately $377,000 under this
license was paid in 1997. The increase in the amount of software license
revenues in 1997 was primarily the result of: (i) fourth quarter license
revenues totaling approximately $5.7 million, primarily attributable to several
large contracts; (ii) significant sales and marketing activities associated with
the announcement of the Acquisition; (iii) the continued strong market demand
for supply chain execution software; and (iv) a combination of an increase in
the size of the Company's sales and marketing staff, particularly following the
Acquisition, and a more focused selling effort in the Company's primary market
sectors. The decrease in software license revenues as a percentage of total
revenues was due to the significant services and maintenance revenues
contributed by Dallas Systems.
SERVICES AND MAINTENANCE REVENUES. Services and maintenance revenues
increased 136.9% from $1.4 million in 1995 to $3.4 million in 1996 and 277.0% to
$12.8 million in 1997. Service and maintenance revenues represented 51.7%, 40.3%
and 47.7% of total revenues in 1995, 1996 and 1997, respectively. The increase
in 1996 was primarily due to increased demand for installation and
implementation services associated with Neptune's object-oriented, Windows
NT-based software product, which was released in 1996. The increase in services
and maintenance revenues in 1997 was principally due to the inclusion of Dallas
Systems, which added significant capacity in the form of billable professional
services personnel to meet the increased demand for services resulting from the
increased sales of the Company's software products.
RESALE SOFTWARE AND EQUIPMENT REVENUES. Resale software and equipment
revenues increased 177% from $252,000 in 1995 to $698,000 in 1996 and 697.0% to
$5.6 million in 1997. Resale software and equipment revenues represented 9.1%,
8.3% and 20.8% of total revenues in 1995, 1996 and 1997, respectively. The
increase in 1996 over 1995 was due to higher levels of sales of radio frequency
computer equipment to both previous and new customers of the Company's software.
The increase in resale software and equipment revenues in 1997 was principally
due to the acquisition of Dallas Systems, which generally had a higher level of
reselling activity than did Neptune.
COST OF REVENUES
COST OF SOFTWARE LICENSES. Cost of software license revenues represented
4.8% and 8.9% of the related revenues in 1996 and 1997, respectively. The cost
of software license revenues in 1995 was immaterial. The increase in the cost of
software license revenues as a percentage of the related revenues in 1997 was
primarily the result of the write-off of previously capitalized software
development costs of $223,000 related to certain Neptune products that had
diminished value to the ongoing operations of the Company as a result of the
Acquisition.
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<PAGE>
COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance revenues
represented 69.1%, 63.3% and 78.0% of the related revenues in 1995, 1996 and
1997, respectively. The decrease in cost of services and maintenance revenues as
a percentage of the related revenues in 1996 was due to the Company's personnel
gaining experience and becoming more efficient at deploying its software. The
increase in the cost of services and maintenance revenues as a percentage of the
related revenues in 1997 was due to the acquisition of Dallas Systems, which
added significant services revenues at margins that were lower than Neptune's
traditional margins on services revenues.
COST OF RESALE SOFTWARE AND EQUIPMENT. Cost of resale software and
equipment revenues represented 76.6%, 87.1% and 74.2% of the related revenues in
1995, 1996 and 1997, respectively. The increase in such costs as a percentage of
the related revenues in 1996 compared to 1995 was a result of the higher
handling and administrative costs associated with the higher level of resale
activity in 1996 without commensurate pricing advantages. The decrease in the
cost of resale software and equipment revenues as a percentage of the related
revenues in 1997 was due to the higher volume of reselling activities and the
resulting increased ability to obtain better pricing from the Company's
suppliers of such software and equipment.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses were $555,000, or 20.0%
of total revenues, in 1995; $1.3 million, or 15.0% of total revenues, in 1996;
and $6.7 million, or 25.1% of total revenues, in 1997. The increase in sales and
marketing expenses in 1996 was a result of higher levels of sales and marketing
staff and activities than were experienced in the prior year. The decrease in
these expenses as a percentage of total revenues in 1996 represents increased
leverage as the Company's revenues grew significantly during 1996 over 1995. The
increase in sales and marketing expense in both absolute amount and as a
percentage of total revenues in 1997 was primarily attributable to: (i)
approximately $1.2 million attributable to increased marketing and promotional
activities, particularly in conjunction with, and subsequent to, the
Acquisition, (ii) approximately $750,000 attributable to increased sales
commissions as a result of higher revenues and (iii) the remainder attributable
to the increase in the sales and marketing staff and their associated travel
costs.
RESEARCH AND DEVELOPMENT. Research and development expenses were $600,000,
or 7.1% of total revenues, in 1996 and $3.5 million, or 13.2% of total revenues,
in 1997. During 1995, the Company capitalized all research and development
expenses as the projects had reached the state of technological feasibility but
were not yet ready for commercial release. The Company capitalized $309,000 in
research and development expenses in 1995 and $276,000 in 1996. Research and
development expenses incurred in 1996 were primarily related to the development
of Neptune's object-oriented Windows NT-based software product. The increase in
research and development expenses in 1997 in absolute amount resulted from the
addition of research and development personnel, primarily in connection with the
Acquisition, and the expensing of all such costs as incurred in 1997.
Significant product development efforts during 1997 included new releases for
both the EXceed UNIX and Windows NT-based product lines and the development of
integration features to rationalize the product lines of the Neptune and Dallas
Systems.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$589,000, or 21.3% of total revenues, in 1995; $2.2 million, or 26.4% of total
revenues in 1996; and $4.3 million, or 15.9% of total revenues, in 1997. The
increase in general and administrative expenses in both absolute amount and as a
percentage of total revenues in 1996 was due to increased administrative, legal
and accounting costs caused by the growth and the increasing complexity of the
Company's business. The increase in general and administrative expenses in
absolute amount in 1997 was primarily the result of increased staffing and
related costs associated with the growth of the Company's business after the
Acquisition. The decrease in such expenses as a percentage of total revenues in
1997 was primarily due to the substantial increase in total revenues and the
Company's ability to leverage its base of resources to support a larger
organization.
33
<PAGE>
AMORTIZATION OF INTANGIBLES. Amortization of intangibles expense was
$588,000, or 2.2% of total revenues, in 1997. The intangible assets amortized
during 1997 included purchased technology, in-place work force, customer base
and goodwill, all of which had been capitalized in connection with the
Acquisition. Amortization of intangibles expense in 1995 and 1996 was $0.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. In-process research and
development represents research and development efforts that have not reached
final technological feasibility. In connection with the Acquisition, the Company
wrote off the fair value attributable to in-process research and development
acquired from Dallas Systems. Based upon an appraisal obtained at the time of
the Acquisition, in-process research and development was valued at $19.7
million, or 73.6% of total revenues for 1997, and was expensed at the date of
the Acquisition. The Company did not experience similar write-offs in 1995 or
1996.
OTHER INCOME (EXPENSE)
Other expense was $11,000 in 1995, $22,000 in 1996, and $208,000 in 1997.
MINORITY INTEREST IN SUBSIDIARY
The Company's Asian joint venture was formed in 1996. The minority interest
in the income and losses of the joint venture were immaterial in both 1996 and
1997.
INCOME TAXES
Prior to the Acquisition, Neptune elected to be taxed pursuant to Subchapter
S of the Internal Revenue Code and, as a result, income tax benefits and
liabilities passed through the Company to its shareholders, and the Company did
not record federal or state income taxes on a historical basis for the periods
prior to the Acquisition. A provision for income taxes of $157,000 in 1995 and
$609,000 in 1996 was calculated on a pro forma basis as if the Company were
liable for federal and state income taxes by applying the statutory rate to
pretax income, adjusted for permanent tax differences. Effective with the
Acquisition, the Company became subject to federal and state income taxes. For
1997, the Company recorded an income tax benefit of $225,000. The recorded
benefit differs from the amount computed at the statutory rate primarily as a
result of non-deductible in-process research and development expense and merger
costs. See Note 6 of Notes to Consolidated Financial Statements.
34
<PAGE>
QUARTERLY FINANCIAL RESULTS; SEASONALITY
The following tables set forth unaudited consolidated statements of
operations data for the six quarters ended June 30, 1998, as well as such data
expressed as a percentage of the Company's total revenues for the periods
indicated. This data has been derived from unaudited interim consolidated
financial statements that, in the opinion of management, have been prepared on a
basis consistent with the Company's Consolidated Financial Statements contained
elsewhere herein and include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such information
when read in conjunction with such Consolidated Financial Statements and Notes
thereto. The operating results for any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses............................ $ 1,232 $ 1,027 $ 513 $ 5,657 $ 7,146 $ 8,111
Services and maintenance..................... 751 793 1,634 9,603 12,302 14,518
Resale software and equipment................ 140 72 692 4,658 1,157 2,694
----------- ----------- ----------- ----------- ----------- -----------
Total revenues............................. 2,123 1,892 2,839 19,918 20,605 25,323
----------- ----------- ----------- ----------- ----------- -----------
Cost and expenses:
Cost of software licenses...................... 65 60 415 209 72 81
Cost of services and maintenance............... 458 423 1,564 7,522 9,266 10,610
Cost of resale software and equipment.......... 134 54 661 3,280 819 2,082
Sales and marketing............................ 530 619 1,427 4,145 4,425 5,492
Research and development....................... 392 434 523 2,185 3,149 3,691
General and administrative..................... 623 498 597 2,545 2,234 2,230
Amortization of intangibles.................... -- -- 84 504 396 395
Write-off of in-process research and
development.................................. -- -- 19,700 -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses................... 2,202 2,088 24,971 20,390 20,361 24,581
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss).......................... (79) (196) (22,132) (472) 244 742
Other income (expense)........................... (4) 37 (34) (207) 75 (50)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interest and
taxes.......................................... (83) (159) (22,166) (679) 319 692
Minority interest in subsidiary loss (income).... (12) (9) 107 (10) 36 (111)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes................ (95) (168) (22,059) (689) 355 581
Provision (benefit) for income taxes............. (23) (72) (101) (29) 180 177
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)................................ $ (72) $ (96) $ (21,958) $ (660) $ 175 $ 404
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share--basic(1)............ $ (0.01) $ (0.01) $ (2.03) $ (0.04) $ 0.01 $ 0.03
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) per share--diluted(1).......... $ (0.01) $ (0.01) $ (2.03) $ (0.04) $ 0.01 $ 0.01
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Shares used in computing net income (loss) per
share--basic................................... 8,667 9,129 10,795 16,291 15,993 15,718
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Shares used in computing net income (loss) per
share--diluted................................. 8,667 9,129 10,795 16,291 27,964 28,823
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------------
(1) Each calculation of quarterly net income (loss) per share is computed
independently and therefore, the sum of the quarterly per share amounts may
not equal the net income (loss) per share reported for the annual period.
35
<PAGE>
AS A PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses.............................. 58.0% 54.3% 18.1% 28.4% 34.7% 32.0%
Software and maintenance....................... 35.4 41.9 57.5 48.2 59.7 57.4
Resale software and equipment.................. 6.6 3.8 24.4 23.4 5.6 10.6
----- ----- ----------- ----- ----- -----
Total revenues............................... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----------- ----- ----- -----
Cost and expenses:
Cost of software licenses...................... 3.1 3.2 14.6 1.0 0.3 0.3
Cost of services and maintenance............... 21.6 22.4 55.1 37.8 45.0 41.9
Cost of resale software and equipment.......... 6.3 2.9 23.3 16.5 4.0 8.2
Sales and marketing............................ 25.0 32.7 50.3 20.8 21.5 21.7
Research and development....................... 18.5 22.9 18.4 11.0 15.3 14.6
General and administrative..................... 29.3 26.3 21.0 12.8 10.8 8.8
Amortization of intangibles.................... -- -- 3.0 2.5 1.9 1.6
Write-off of in-process research and
development.................................. -- -- 694.0 -- -- --
----- ----- ----------- ----- ----- -----
Total costs and expenses..................... 103.7 110.4 879.6 102.4 98.8 97.1
----- ----- ----------- ----- ----- -----
Operating income (loss)........................ (3.7) (10.4) (779.6) (2.4) 1.2 2.9
Other income (expense)......................... (0.2) 2.0 (1.2) (1.0) 0.4 (0.2)
----- ----- ----------- ----- ----- -----
Income (loss) before minority interest and
taxes........................................ (3.9) (8.4) (780.8) (3.4) 1.6 2.7
Minority interest in subsidiary loss
(income)..................................... (0.6) (0.5) 3.8 (0.1) 0.2 (0.4)
Income (loss) before income taxes.............. (4.5) (8.9) (777.0) (3.5) 1.8 2.3
Provision (benefit) for income taxes........... (1.1) (3.8) (3.6) (0.1) 0.9 0.7
----- ----- ----------- ----- ----- -----
Net income (loss).............................. (3.4)% (5.1)% (773.4)% (3.3)% 0.9% 1.6%
----- ----- ----------- ----- ----- -----
----- ----- ----------- ----- ----- -----
</TABLE>
EXE commenced operations on September 15, 1997, following the acquisition of
Dallas Systems by Neptune. As such, the historical quarterly financial
statements of Neptune are presented as the historical financial statements of
the Company for periods prior to and through September 15, 1997. Included in the
consolidated results of operations for the quarterly period ended September 30,
1997 is a write-off of in-process research and development of $19.7 million
resulting from the Acquisition.
The Company's revenues and operating results have varied in the past and are
likely to vary substantially in the future. Among the factors that could cause
these potential variations are: fluctuations in the demand for the Company's
products and services; the level of product and price competition in the
Company's markets; the timing and market acceptance of new product introductions
and upgrades by the Company or its competitors; the Company's success in
expanding its services, customer support and marketing and sales organizations,
and the timing thereof; the size and timing of individual transactions; the mix
of products and services sold; delays in, or cancellations of, customer
implementations; customers' budget constraints; the level of research and
development expenditures; the size of recurring compensation charges; changes in
foreign currency exchange rates; the Company's ability to control costs; the
timing of acquisitions; and general economic conditions.
Quarterly software license revenues are difficult to forecast, in part,
because the Company's sales cycles, from initial evaluation to delivery of
software, vary substantially from customer to customer. Further, since software
products are typically shipped shortly after license agreements are signed,
36
<PAGE>
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter. In addition, the timing of large individual licenses is
difficult for the Company to predict, and, in some cases, such licenses are
booked later than anticipated by the Company. Since the Company's operating
expenses are based on anticipated revenue levels and a substantial portion of
the Company's operating expenses, particularly personnel and facilities costs,
are relatively fixed in advance of any particular quarter, any revenues
shortfall may cause significant variations in operating results in any
particular quarter. In addition, the Company intends to continue to invest
heavily in its sales and marketing, professional services and research and
development organizations. Any of these activities may further limit the
Company's ability to adjust spending in response to fluctuations in revenue
levels. Finally, the Company's ability to increase its profitability is
dependent upon its ability to increase the operating efficiency of its
professional services organization, through improved utilization and/or billing
rates. There can be no assurance that revenues will grow in future periods, that
they will grow at historical rates, or that the Company will maintain positive
operating margins in future quarters. If revenues fall below the Company's
expectations in a particular quarter, the Company's operating results could be
materially and adversely affected.
In addition to quarterly fluctuations in operations, the Company experiences
seasonality, with a disproportionately greater amount of the Company's revenues
for any fiscal year being recognized in its fourth quarter and a
disproportionately lesser amount thereof being recognized in its third quarter.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
OVERVIEW
In connection with the Acquisition, based on an appraisal obtained at the
time of the Acquisition, the Company allocated a portion of the purchase price
to in-process research and development totaling $19.7 million. This amount was
expensed as a non-recurring charge on the Acquisition date. This write-off was
necessary because the acquired technology had not yet reached technological
feasibility and had no future alternative use. The Company is developing the
acquired in-process research and development in an effort to: (i) offer
customers its integrated supply chain execution system regardless of their
computing infrastructure or database; and (ii) provide its customers increased
functionality through technology that provides for the optimization and
integration of components, including (a) warehouse management systems, (b)
transportation execution management, (c) discrete labor standards which measure
worker efficiency and (d) other less significant features and functions. The
Company released EXceed 2000 in the fourth quarter of 1997 as a result of these
efforts. The Company anticipates that other software using the acquired
in-process technology will be released during 1998, with additional releases in
1999. The Company expects that the remaining acquired in-process research and
development will be successfully developed; however, there can be no assurance
that commercial viability of these projects will be achieved.
The nature of the efforts required to develop the purchased in-process
technology into commercially viable software principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the software can be produced to
meet its design specifications, including functions, features and technical
performance requirements.
The value of the purchased in-process technology was determined by
estimating the projected net cash flows related to such software, including
costs to complete the development of the technology and the future revenues to
be earned upon commercialization of the software. These cash flows were
discounted back to their net present value. The resulting projected net cash
flows from such projects were based on management's estimates of revenues and
operating profits related to such projects.
If these projects to develop commercial product based on the acquired
in-process technology are not successfully completed, the sales and
profitability of the Company may be adversely affected in future periods.
Additionally, the value of other intangible assets may become impaired.
37
<PAGE>
The cost to complete the in-process development was originally estimated at
$1,116,000, with approximately $500,000 of costs to be incurred in the year
ended December 31, 1997 and the remaining $616,000 of costs to be incurred in
the year ending December 31, 1998. The Company has incurred approximately $2.1
million to date to develop the technology and expects to incur approximately
$1.3 million through the end of 1999 to complete development. These costs are
largely personnel costs for those involved in the planning, design, coding,
integration, testing and modification of software. The cost overruns from the
original estimates are attributable to enhancements and improvements to the
original design specifications, which the Company believes will result in better
software.
EXceed 2000 began generating revenues in the fourth quarter of 1997.
Revenues are expected to be generated from certain of the remaining projects in
the fourth quarter of 1998, and all other projects are expected to generate
revenues in the first half of 1999. The Company believes that the original
estimates of revenues from these projects will be increased by the improved
product design and are sufficient to cover the anticipated cost overruns.
Management continues to believe the projections used reasonably estimate the
future benefits attributable to the in-process technology. The Company does not
believe that there is significant risk in completing the successful development
of these technologies.
THE ESTIMATES OF FUTURE OPERATIONS AND OTHER PROSPECTIVE DATA INCLUDED IN
THE ANALYSIS WERE USED SOLELY FOR USE IN THE VALUATION ANALYSIS AND ARE NOT
INTENDED FOR USE AS FORECASTS OR PROJECTIONS OF FUTURE OPERATIONS. THE
PROSPECTIVE DATA WAS NOT EXAMINED IN ACCORDANCE WITH THE STANDARDS PRESCRIBED BY
THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, AND NO OPINION OR ANY
OTHER FORM OF ASSUANCE WAS EXPRESSED ON THE PROSPECTIVE DATA OR ASSUMPTIONS.
THERE WILL USUALLY BE DIFFERENCES BETWEEN ESTIMATED AND ACTUAL RESULTS BECAUSE
EVENTS AND CIRCUMSTANCES FREQUENTLY DO NOT OCCUR AS EXPECTED. BY DISCUSSING THE
VALUATION ANALYSIS HEREIN, THE COMPANY ASSUMES NO DUTY TO UPDATE SUCH ANALYSIS
OR THE PROSPECTIVE DATA OR ASSUMPTIONS.
LIQUIDITY AND CAPITAL RESOURCES
From inception through the Acquisition, the Company funded its operations
primarily through cash generated from operations and sales of securities and, to
a lesser extent, bank borrowings. In connection with the Acquisition, the
Company effected a private placement of securities generating net proceeds of
approximately $9.8 million. As of June 30, 1998, the Company had $1.1 million in
cash and cash equivalents.
Cash provided by operations was $971,000 and $1.3 million for the years
ended December 31, 1995 and 1996, respectively. For the year ended December 31,
1997 and the six months ended June 30, 1998, cash used by operations was $1.7
million and $6.4 million, respectively. Cash used in operations in 1997 included
the net loss of $1.3 million, net of depreciation, amortization and write-off of
in-process research and development costs. Much of this operating cash was used
to launch the new marketing programs for EXE and the EXceed product line,
recruit and hire additional executives, open offices in Malaysia, China and the
Middle East, and expand the sales and marketing organization worldwide.
Additionally, operating cash used in 1997 was largely attributed to the increase
in accounts receivable resulting from the increased sales of EXceed products in
the fourth quarter of 1997. This growth in receivables during the year ended
December 31, 1997 was largely offset by increased payables. The increase in
accounts payable was largely attributable to the increased volume of
expenditures resulting from the Acquisition and the timing of certain large
software database resale transactions that were payable at December 31, 1997.
The cash used by operations during the six months ended June 30, 1998, was
primarily attributed to a decrease in payables of $1.6 million due to payments
for the significant payables associated with the resale of software and
equipment, and an increase in receivables of $6.7 million primarily attributed
to the increase in sales volume and resale transactions that were closed at the
end of 1997. These uses were offset by income from operations net of
depreciation and amortization of $2.6 million during the six months ended June
30, 1998.
Cash used for investing activities was approximately $495,000 in 1995,
$966,000 in 1996, $481,000 in 1997 and $3.7 million during the six months ended
June 30, 1998. The Company used cash primarily
38
<PAGE>
for the purchase of capital equipment, such as computer equipment and furniture
and fixtures, to support the Company's growth. The capital expenditures in 1997
were offset by $1.6 million in cash acquired as a result of the acquisition of
Dallas Systems.
Cash provided from financing activities was $920,000 in 1996 and was
primarily the result of funds received from Neptune's joint venture partner to
establish EXE Technologies (SEA) Pte. Ltd. in Singapore to service Southeast
Asia and borrowings under the Company's credit line and equipment loan facility.
The cash provided from financing activities was $7.0 million in 1997. This
included net proceeds from the sale of Preferred Stock in connection with the
Acquisition of approximately $9.8 million, $5.3 million of which were used to
retire debt of Neptune and Dallas Systems. Additionally, during 1997 the Company
raised an additional $3.7 million of equity investment and paid a distribution
of $1.4 million prior to the Acquisition. The $4.6 million provided by financing
activities during the six months ended June 30, 1998 resulted from the issuance
of $952,000 in stock and $6.7 million in advances under the Company's revolving
line of credit. In order to fund the continued expansion of the business, the
Company sold 316,666 shares of its Class A Common Stock for an aggregate of
approximately $952,000 to certain senior executives and vendors of the Company.
Additionally, the funds provided by financing activities were used to repurchase
$3.1 million of stock from former employees of the Company and another
shareholder, fund operations and purchase property and equipment.
The Company has an existing $13.5 million line of credit with a commercial
bank to provide funds for working capital needs. The terms of this line of
credit specify that advances under the agreement are limited based upon a
multiple of cash flow, as defined in the agreement. At June 30, 1998, the
Company had $13.5 million available under the terms of this agreement of which
$6.7 million in borrowings were outstanding.
In July 1998, the Company also sold 1,600,000 shares of Preferred Stock for
an aggregate of $8.0 million and an aggregate of 90,000 shares of Common Stock
to an employee of the Company and two accredited investors for an aggregate
purchase price of $450,000. A portion of the net proceeds of these financing
activities was used to retire outstanding balances on the Company's revolving
line of credit. The Company intends to use the balance of the net proceeds from
these financings to fund working capital requirements. The Company believes that
the proceeds received by the Company from the offerings, together with current
cash balances, potential cash flows from operations and available borrowings
under its revolving credit facility, will be sufficient to meet its working
capital requirements through December 31, 1999. The Company also periodically
reviews other businesses and technologies for potential acquisition. Any
material acquisitions of complementary businesses, products or technologies, or
material joint ventures, could require the Company to obtain additional
financing before or after that time. There can be no assurance that such
additional financing would be available to the Company on favorable terms, if at
all. Moreover, additional financing may cause dilution to existing stockholders.
IMPACT OF YEAR 2000
Many currently installed computer systems and software products were coded
using two digits rather than four to define the applicable year. As a result,
these computer systems and software products have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year 2000. This
could cause a system failure or miscalculations, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, to send invoices, or to engage in similar normal business
activities. Finally, computer systems and software products devices may fail to
process accurately leap year logic associated with the Year 2000.
STATE OF READINESS
The Company believes that the adverse impact of Year 2000 issues on its
internal computer systems will not be material, because the suppliers of its
primary internal software have represented that such software is Year 2000
compliant and the Company has replaced almost all of its personal computers
within the last two years. The Company continues to test its internal software
for compliance. The
39
<PAGE>
Company does not expect continued testing or contingency planning to have a
material adverse effect on its liquidity, financial condition or results of
operations.
The Company's software sold to customers, on the other hand, is impacted by
two issues: the coding by the Company of its own software; and the effectiveness
of the Company's suppliers in correcting the software supplied to the Company
for resale. The Company has conducted a manual review of all of its software and
found the incidents of Year 2000 coding issues to be minimal in Exceed's Series
1000, Series 2000 and Series 4000. These Series have been corrected in releases
currently being shipped, and patches have been distributed to existing
customers. The Company expects to complete patches to the Series 3000 software
by December 1998 for distribution to customers shortly thereafter. Most of the
Company's suppliers of software for resale as part of EXceed have represented to
the Company that their software is Year 2000 compliant.
The Company has designed Year 2000 certification environments and test
scripts to test the combination of EXE's software with the software of its
suppliers using a test data window that simulates running the systems from
October 1999 through April 2000, to test year end, operation of first quarter
reporting and leap year logic. The Company intends to provide the same test
environment to customers. The Company has not used to date, and does not intend
to use, any independent verification companies to test EXceed.
COSTS OF YEAR 2000 COMPLIANCE
The Company expects upgrades and testing for Year 2000 issues of software
used on internal systems as well as EXceed will total approximately $1.4
million. Through June 30,1998, the Company had incurred approximately $700,000
of these expenses. The Company expects to complete its upgrades and testing by
the end of the first quarter of 1999. Continued testing of software used on
internal systems is being funded through the Company's management information
systems budget and performed by the Company's normal maintenance team. Continued
upgrade and testing of the Company's software products is being funded through
the Company's reseach and development budget. The Company estimates that, for
the final two quarters of 1998 and the first quarter of 1999 in the aggregate,
Year 2000 issues will represent less than 10% of the Company's combined research
and development budget and management information system budget. The Company
does not expect diversion of resources from other management information systems
or research and development projects will have a material adverse impact on the
Company.
RISKS OF YEAR 2000 NON-COMPLIANCE AND CONTINGENCY PLANS
In the event of a failure of any software or other electronic devices used
for the Company's internal systems, the Company believes any resulting business
disruption would not have a material adverse effect on the Company, because the
Company believes alternative, less technologically advanced, systems would be
available. With respect to the Company's software sold to customers, the Company
will provide to customers patches to software errors found, subject to the
license agreements between the Company and its customers. The Company does not
expect that the cost of this program will have a material adverse effect on the
Company. For additional discussion of risk factors associated with Year 2000,
see "Risk Factor--Impact of Year 2000".
The costs of the modifications and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. However,
there can be no guarantee that these estimates will be achieved, and actual
results could differ from those anticipated. Factors that might cause such
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer code, and similar uncertainties.
40
<PAGE>
DALLAS SYSTEMS CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
Dallas Systems as of and for the years ended December 31, 1995 and 1996, and as
of and for the eight and one-half month period ended September 15, 1997. The
following selected consolidated financial data of Dallas Systems should be read
in conjunction with the Consolidated Financial Statements of Dallas Systems
Corporation and the Notes thereto and the Dallas Systems Corporation
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The selected financial data for Dallas
Systems as of and for the years ended December 31, 1995 and 1996, and as of and
for the eight and one-half month period ended September 15, 1997 have been
derived from the Consolidated Financial Statements included elsewhere in this
Prospectus which have been audited by Ernst & Young LLP, independent auditors.
<TABLE>
<CAPTION>
EIGHT AND
ONE-HALF MONTH
YEAR ENDED DECEMBER PERIOD ENDED
31, SEPTEMBER 15,
-------------------- --------------
1995 1996 1997
--------- --------- --------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses..................................................... $ 5,591 $ 7,002 $ 3,038
Services and maintenance.............................................. 16,627 22,055 22,117
Resale software and equipment......................................... 5,025 5,133 7,948
--------- --------- --------------
Total revenues.................................................... 27,243 34,190 33,103
--------- --------- --------------
Cost and expenses:
Cost of licenses, services and maintenance............................ 14,399 17,926 17,039
Cost of resale software and equipment................................. 3,300 3,170 5,668
Sales and marketing................................................... 2,131 2,663 2,972
Research and development.............................................. 3,980 5,502 3,908
General and administrative............................................ 3,408 3,179 3,437
--------- --------- --------------
Total costs and expenses.......................................... 27,218 32,440 33,024
--------- --------- --------------
Operating income (loss)................................................. 25 1,750 79
Other income (expense).................................................. (131) (302) (191)
--------- --------- --------------
Income (loss) before income taxes....................................... (106) 1,448 (112)
Provision (benefit) for income taxes.................................... (96) 339 515
--------- --------- --------------
Net income (loss)....................................................... $ (10) $ 1,109 $ (627)
--------- --------- --------------
--------- --------- --------------
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents............................................... $ 183 $ 1,575 $ 1,580
Working capital......................................................... 1,307 3,835 3,716
Total assets............................................................ 12,165 14,778 17,414
Long-term debt (less current portion)................................... 1,649 2,595 419
Stockholders' equity.................................................... 5,350 6,536 6,018
</TABLE>
41
<PAGE>
DALLAS SYSTEMS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE DALLAS
SYSTEMS SELECTED CONSOLIDATED FINANCIAL DATA, THE COMPANY SELECTED CONSOLIDATED
FINANCIAL DATA, THE COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, THE COMPANY SELECTED UNAUDITED PRO FORMA
FINANCIAL INFORMATION AND THE FINANCIAL STATEMENTS OF THE COMPANY AND OF DALLAS
SYSTEMS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THE PROSPECTUS.
OVERVIEW
Dallas Systems was formed in 1980 to provide warehouse management systems
integration and implementation services and, in 1980, introduced its first
warehouse management software, which operated on the mainframe platform. In
1993, Dallas Systems began developing a version of its software for the UNIX
operating system, and introduced the UNIX version of its software in 1995.
Since its inception, Dallas Systems' revenues were derived primarily from
the licensing of its mainframe and UNIX software products, consulting,
implementation, training and maintenance services, and the resale of third party
software and computer equipment. In accordance with its original services-based
business approach, Dallas Systems was primarily focused on pursuing consulting
projects for its large professional services organization and using its services
relationships to introduce software products to customers. As a result, Dallas
Systems maintained a relatively small sales and marketing operation and did not
devote substantial resources to sales and marketing of its software. In
addition, Dallas Systems experienced seasonality in its business with a
disproportionately greater amount of its revenue for any fiscal year being
recognized in its fourth quarter and a disproportionately lesser amount therof
being recognized in its third quarter. Dallas Systems' separate existence ended
with completion of the Acquisition on September 15, 1997.
The following table sets forth operating data as a percentage of total
revenues represented for the periods indicated:
<TABLE>
<CAPTION>
EIGHT AND ONE-
YEAR ENDED DECEMBER HALF MONTHS
31, ENDED
-------------------- SEPTEMBER 15,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Software licenses....................................................... 20.5% 20.5% 9.2%
Services and maintenance................................................ 61.0 64.5 66.8
Resale software and equipment........................................... 18.5 15.0 24.0
--------- --------- -------
Total revenues...................................................... 100.0 100.0 100.0
--------- --------- -------
Cost and expenses:
Cost of licenses, services and maintenance.............................. 52.9 52.4 51.5
Cost of resale software and equipment................................... 12.1 9.3 17.1
Sales and marketing..................................................... 7.8 7.8 9.0
Research and development................................................ 14.6 16.1 11.8
General and administrative.............................................. 12.5 9.3 10.4
--------- --------- -------
Total costs and expenses............................................ 99.9 94.9 99.8
--------- --------- -------
Operating income (loss)................................................... 0.1 5.1 0.2
Other income (expense).................................................... (0.5) (0.9) (0.5)
--------- --------- -------
Income (loss) before income taxes......................................... (0.4) 4.2 (0.3)
Provision (benefit) for income taxes...................................... (0.4) 1.0 1.6
--------- --------- -------
Net income (loss)......................................................... 0.0% 3.2% (1.9%)
--------- --------- -------
--------- --------- -------
</TABLE>
42
<PAGE>
EIGHT AND ONE-HALF MONTHS ENDED SEPTEMBER 15, 1997, AND YEARS ENDED DECEMBER 31,
1996 AND 1995
REVENUES
Dallas Systems' revenues consisted of: revenues from the licensing of its
mainframe and UNIX software products; fees derived from consulting,
implementation, training and maintenance services; and revenues generated from
the resale of third party software and computer equipment. Total revenues
increased 25.5% to $34.2 million in 1996 from $27.2 million in 1995. Revenues
for the eight and one-half months ended September 15, 1997 (the "September 1997
Period") were $33.1 million.
SOFTWARE LICENSE REVENUES. Software license revenues were derived from
licensing Dallas Systems' mainframe and UNIX supply chain execution software.
Dallas Systems' software license revenues were generally recognized upon
delivery of software product, receipt of a signed license agreement and after
any customer cancellation right had expired, provided no significant vendor
obligations remained outstanding and collection was deemed probable. Software
license revenues increased 25.2% from $5.6 million in 1995 to $7.0 million in
1996, and were $3.0 million in the September 1997 Period. Software license
revenues constituted 20.5% of total revenues in 1995 and 1996, and 9.2% of total
revenues in the September 1997 Period. The increase in the absolute amount of
such revenues in 1996 compared to 1995 was primarily a result of additional
sales in 1996 of Dallas Systems' UNIX-based software. Software license revenues
in the September 1997 Period declined as a percentage of total revenues
primarily due to the absence of results for the fourth quarter of 1997, which
was typically Dallas Systems' strongest quarter in terms of license revenues.
SERVICES AND MAINTENANCE REVENUES. Services revenues were primarily derived
from fees for consulting, implementation and training services and were
recognized as the services were performed. Maintenance revenues were derived
from customer support agreements generally entered into in connection with
initial license sales and subsequent renewals and were recognized ratably over
the term of the maintenance period, which was typically one year. Payments for
maintenance fees were generally made in advance. Services and maintenance
revenues increased 32.7% from $16.6 million in 1995 to $22.1 million in 1996,
and were $22.1 million in the September 1997 Period. Services and maintenance
revenues constituted 61.0%, 64.5% and 66.8% of total revenues in 1995, 1996 and
the September 1997 Period, respectively. The increase in services and
maintenance revenues in absolute amount and as a percentage of total revenues in
1996 compared to 1995 was primarily a result of increased demand for Dallas
Systems' services in connection with higher levels of sales of UNIX-based
software. Services and maintenance revenues increased as a percentage of total
revenues in the September 1997 Period as compared to the prior periods as a
result of continued demand for services associated with Dallas Systems'
UNIX-based software. The higher level of services activity in 1996 and the
September 1997 Period was due in part to the relatively higher level of
consulting requested by customers to implement the relatively newer UNIX-based
software.
RESALE SOFTWARE AND EQUIPMENT REVENUES. Resale software and equipment
revenues were generated from the resale of a variety of third-party software and
hardware products that were integrated with Dallas Systems' software solution at
the customers' request. These products included relational database software,
computer hardware and radio frequency-based equipment. Resale software and
equipment revenues were recognized upon shipment. Resale software and equipment
revenues were essentially unchanged in absolute amount between 1995 and 1996,
having increased from $5.0 million in 1995 to $5.1 million in 1996, and were
$7.9 million in the September 1997 Period. Resale software and equipment
revenues constituted 18.5%, 15.0% and 24.0% of total revenues in 1995, 1996 and
the September 1997 Period, respectively. The decrease in resale software and
equipment revenues as a percentage of total revenues in 1996 as compared to 1995
was due to the growth in service and maintenance revenues as a percentage of
total revenues. The increase in resale of software and equipment revenues in the
September 1997 Period as a percentage of total revenues over the prior
43
<PAGE>
periods was primarily a result of customers accelerating their purchases of
certain database software in anticipation of price increases by the database
software vendor.
COST OF REVENUES
COST OF LICENSES, SERVICES AND MAINTENANCE. Cost of licenses, services and
maintenance consisted primarily of salaries of professional staff and costs
associated with consulting, implementation and training services. Cost of
licenses, services and maintenance also included the cost of reproducing
software and user documentation, which was immaterial in all periods, and the
cost of providing software maintenance such as hotline telephone support, new
releases of software and updated user documentation. Cost of licenses, services
and maintenance represented 86.6%, 81.3% and 77.0% of the licenses, services and
maintenance revenues in 1995, 1996 and the September 1997 Period, respectively.
The decrease in cost of licenses, services and maintenance as a percentage of
the licenses, services and maintenance revenues in 1996 and the September 1997
Period compared to prior periods was primarily a result of improved efficiency
in the consulting and implementation services provided to customers.
COST OF RESALE SOFTWARE AND EQUIPMENT. Cost of resale software and
equipment revenues consisted of costs related to the purchase of software and
equipment that the Company resold to its customers. Cost of resale software and
equipment represented 65.7%, 61.8% and 71.3% of the related revenues in 1995,
1996 and the September 1997 Period, respectively. The decrease in the cost of
resale software and equipment revenues as a percentage of the related revenues
in 1996 was due to the higher volume of reselling activities and a resulting
increased ability to obtain better pricing from the Company's suppliers of such
software and equipment. The increase in such costs as a percentage of the
related revenues in the September 1997 Period was primarily a result of a change
in the mix of such products sold to a greater proportion of lower margin
products.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses included salaries and
other personnel-related costs, sales commissions, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses were
$2.1 million, or 7.8% of total revenues, in 1995; $2.7 million, or 7.8% of total
revenues, in 1996; and $3.0 million, or 9.0% of total revenues, in the September
1997 Period. The increase in sales and marketing expenses in absolute amount in
each period reflects the generally higher level of business activities. Sales
and marketing expenses as a percentage of total revenues in 1996 remained
constant with the 1995 level as a result of the more rapid growth in revenues
from period to period. The increase in sales and marketing expenses as a
percentage of total revenues for the September 1997 Period reflects the timing
of certain marketing activities which generally had a delayed impact on
revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses principally
consisted of salaries and other personnel-related costs for Dallas Systems'
product development activities. Research and development expenses were $4.0
million, or 14.6% of total revenues, in 1995; $5.5 million, or 16.1% of total
revenues, in 1996; and $3.9 million, or 11.8% of total revenues in the September
1997 Period. Research and development expenses increased in absolute amount in
1996 as a result of continued development efforts devoted to enhancing the
functionality of Dallas Systems' UNIX-based software. The increase of such
expenses as a percentage of total revenues in 1996 reflected the significant
investments necessary to refine and enhance the features of the UNIX-based
software following its launch in 1995. The lower level of research and
development expenses as a percentage of total revenues in the September 1997
Period reflects the reduced investment level required to enhance the base
functionality of Dallas Systems' UNIX-based software.
44
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses consisted
primarily of salaries and other personnel-related costs of the finance, human
resources, information systems, administrative and executive departments of the
Company, insurance costs, and the fees and expenses associated with legal,
accounting and other administrative services. General and administrative
expenses were $3.4 million, or 12.5% of total revenues, in 1995; $3.2 million,
or 9.3% of total revenues, in 1996; and $3.4 million, or 10.4% of total revenues
in the September 1997 Period. The decrease in general and administrative
expenses as a percentage of total revenues in 1996 was primarily due to the
increase in total revenues and the Company's ability to leverage its base of
resources to support a larger organization. The increase in such expenses as a
percentage of total revenues in the September 1997 Period was primarily the
result of increased staffing and related costs associated with the growth of the
Dallas Systems business and additional legal and accounting expenses incurred in
connection with the Acquisition.
OTHER EXPENSE
Other expense consisted of interest expenses on outstanding debt net of
interest income on short-term investments. Other expense was $131,000 in 1995,
$302,000 in 1996 and $191,000 in the September 1997 Period, and represented less
than 1% of total revenues in each period.
INCOME TAXES
Dallas Systems recorded an income tax benefit of $96,000 in 1995 and
provisions for income taxes of $339,000 and $515,000 for the year ended December
31, 1996 and the September 1997 Period, respectively. The effective tax rate in
1995 and 1996 differs from the statutory rate principally as a result of
research and development credits. The effective tax rate for the September 1997
Period differs from the statutory rate as a result of the $632,000 tax liability
resulting from the gain for tax purposes associated with the transfer of the
Dallas Systems corporate headquarters to its principal shareholder. This amount
was partially offset by research and development credits.
45
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of the Company for
the year ended December 31, 1997 has been derived from the audited financial
statements of the Company for the year ended December 31, 1997 and the audited
financial statements of Dallas Systems for the eight and one-half months ended
September 15, 1997, all included herein. The unaudited pro forma financial
information for the Company reflects the Acquisition as if it had taken place on
January 1, 1997. The Company was formed as a result of simultaneous transactions
through which the stockholders of Neptune and Dallas Systems exchanged their
stock in Neptune and Dallas Systems for stock in EXE. The Acquisition included a
$15 million purchase by an investment group of shares of the Company's Preferred
Stock which was used to acquire 50% of the equity interest of former Dallas
Systems shareholders. The $30 million value of the Acquisition was based upon
the $15 million paid for 50% of the former equity interest of Dallas Systems.
The merger was accounted for as a purchase of Dallas Systems by Neptune. The
unaudited pro forma condensed consolidated financial information set forth below
reflects certain adjustments including (i) the amortization of purchased
intangible assets as though the business had been combined for the full period,
(ii) the elimination of the one time write-off of in-process research and
development, and (iii) the elimination of certain non-recurring merger-related
costs. The information set forth below should be read in conjunction with the
other information contained in The Company Selected Consolidated Financial Data,
Dallas Systems Selected Financial Data, The Company Management's Discussion and
Analysis of Financial Condition and Results of Operations, Dallas Systems
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements of the Company and Dallas
Systems and Notes thereto included elsewhere in this Prospectus. This
information is unaudited and does not purport to represent the actual operating
results had the Acquisition taken place January 1, 1997, nor does it purport to
be indicative of the results that will be obtained in the future.
46
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DALLAS PRO FORMA
EXE SYSTEMS ADJUSTMENTS PRO FORMA
-------- ------- ------------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Software licenses......................................... $ 8,429 $ 3,038 $ -- $11,467
Services and maintenance.................................. 12,781 22,117 -- 34,898
Resale software and equipment............................. 5,562 7,948 -- 13,510
-------- ------- ------------ -----------
Total revenues.......................................... 26,772 33,103 -- 59,875
-------- ------- -----------
Costs and expenses:
Cost of software licenses................................. 749 -- -- 749
Cost of services and maintenance.......................... 9,967 17,039 (75)(a) 26,931
Cost of resale software and equipment..................... 4,129 5,668 -- 9,797
Sales and marketing....................................... 6,721 2,972 (8)(a) 9,685
Research and development.................................. 3,534 3,908 (91)(a) 7,351
General and administrative................................ 4,263 3,437 (864)(a) 6,836
Amortization of intangibles............................... 588 -- 1,105(b) 1,693
Write-off of in-process research and development.......... 19,700 -- (19,700)(c) --
-------- ------- ------------ -----------
Total costs and expenses................................ 49,651 33,024 (19,633) 63,042
-------- ------- ------------ -----------
Operating income (loss)..................................... (22,879) 79 19,633 (3,167)
Other income (expense):
Interest income........................................... 177 28 -- 205
Interest expense.......................................... (158) (239) 397(d) --
Other..................................................... (227) 20 -- (207)
-------- ------- ------------ -----------
Total other income (expense)................................ (208) (191) 397 (2)
-------- ------- ------------ -----------
Loss before minority interest and taxes..................... (23,087) (112) 20,030 (3,169)
Minority interest in subsidiary loss........................ 76 -- -- 76
-------- ------- ------------ -----------
Loss before taxes........................................... (23,011) (112) 20,030 (3,093)
Provision (benefit) for income taxes........................ (225) 515 (517)(e) (227)
-------- ------- ------------ -----------
Net loss.................................................... $(22,786) $ (627) $ 20,547 $(2,866)
-------- ------- ------------ -----------
-------- ------- ------------ -----------
Net loss per share.......................................... $ (0.26)(f)
Shares used in computing net loss per share................. 11,228(f)
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statement
of operations.
47
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
The accompanying Unaudited Pro Forma Condensed Consolidated Statement of
Operations of the Company for the year ended December 31, 1997 reflect the pro
forma adjustments associated with the Acquisition as if it had taken place on
January 1, 1997.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations gives
effect to the following unaudited pro forma adjustments:
(a) Represents the (i) elimination of expenses totaling $458,000 associated
with legal, consulting and travel expenses related to the Acquisition which were
not capitalizable as part of the purchase price, (ii) elimination of expenses
totaling $443,000 associated with severance costs incurred related to the
termination of former Dallas Systems employees prior to and as a negotiated
component of the Acquisition and related recruiting costs incurred by EXE
related to costs to identify and recruit new members of the management team to
replace certain managers (iii) elimination of other expenses consisting
principally of the elimination of depreciation associated with the allocation of
purchase price to acquired computer equipment totaling $137,000.
(b) Represents amortization of intangible assets totaling $1,105,000
resulting from the Acquisition. The estimated value of the intangibles will be
amortized over periods ranging from three to six years.
(c) Represents the elimination of the write-off of the in-process research
and development associated with the Acquisition.
(d) Represents the elimination of interest expense totaling $397,000
eliminated as a result of the repayment of certain Dallas Systems and Neptune
debt with the funds available as a result of the Acquisition.
(e) Represents the elimination of the tax provision of Dallas Systems
totaling $632,000 associated with the sale of a building to the former major
shareholder of Dallas Systems as part of the Acquisition transaction and the tax
effect of the pro forma adjustments.
(f) Pro forma basic and diluted net loss per share is computed by dividing
pro forma net loss by the weighted average outstanding common shares of the
Company.
48
<PAGE>
BUSINESS
OVERVIEW
EXE is a leading provider of supply chain execution software. Supply chain
execution encompasses ordering, transporting, handling, storing and delivering
inventory as it moves through the supply chain from manufacturer to the point of
sale. The Company's software solution, EXceed, allows businesses to optimize the
operations of warehouses, distribution centers and other supply chain nodes and
to enhance the tracking and logistical control of inventory through the supply
chain. Combining elements of traditional warehouse, transportation and order
management systems, EXceed is designed to provide companies with Virtual
Inventory Management (VIM)--an enterprise-wide view of inventory regardless of
its handling state or location. By enabling better visibility and logistical
control over inventory through the supply chain, EXceed allows businesses to
improve inventory turnover, reduce carrying costs and more efficiently satisfy
customer demand by delivering the right product to the right place at the right
time. In addition, EXceed is designed to enable businesses to reduce operating
costs through more efficient management of labor, materials and other resources
within warehouses and distribution centers. AMR Research estimates that the
supply chain execution market will reach $1.4 billion in 1998 and continue to
grow at a compound annual growth rate of approximately 40% through 2002.
EXE commenced operations in September 1997 following Neptune's acquisition
of Dallas Systems. The transaction combined Neptune's leading Windows NT
technology, rapid implementation focus and packaged applications business model
with Dallas Systems' large installed base, vertical industry expertise and
experience in designing and implementing mainframe and UNIX systems for high
transaction volume distribution environments. In addition, the Acquisition
provided international market leverage through the companies' complementary
strengths in Europe and Asia, and vertical market leverage, primarily in the
grocery, retail/wholesale and 3PL market segments.
INDUSTRY BACKGROUND
Today's increasingly competitive business environment demands that
businesses continuously improve manufacturing and distribution efficiency,
product quality and customer service. To address these challenges, businesses
have been forced to enhance their ability to move raw materials, components and
finished goods through the supply chain in order to deliver the right product to
the right place at the right time at a competitive cost. A number of trends,
however, have made it increasingly difficult to satisfy these demands,
including: (i) globalization of manufacturing, component sourcing and sales;
(ii) expanded product variety leading to the proliferation of stock keeping
units ("SKUs"); and (iii) increased reliance on just in time, vendor managed and
continuous replenishment inventory management practices. Further complicating
the matter, enterprises are increasingly utilizing strategies such as
manufacturing postponement and value-added distribution, which require
traditional warehouses to evolve into complex work centers capable of providing
value-added services such as product assembly and customized packaging. In
addition, the growth of electronic commerce and the emergence of the Internet
have resulted in new distribution models and increased customer expectations for
rapid order fulfillment. Many enterprises are attempting to meet these
challenges either by improving their internal logistics operations through the
use of information technology or by outsourcing such operations to 3PL
companies.
Enterprise resource planning ("ERP") systems and advanced planning systems
("APS") have enabled businesses to improve their capabilities in forecasting,
scheduling and supply chain planning. These systems, however, typically do not
address the execution of the operational plans that they generate. The Company
believes that enterprises are now realizing that a supply chain execution
system, which focuses on ordering, transporting, handling, storing and
delivering product, represents a critical element in the effort to optimize
overall supply chain operations. Supply chain execution systems
49
<PAGE>
can also enhance the effectiveness of APS and ERP systems by providing feedback
of real-time data about the handling state and location of inventory to such
systems.
Companies have traditionally addressed supply chain execution challenges
with disparate, heterogeneous software systems, deployed at single locations
within the supply chain and focused separately on warehouse, transportation and
order management activities. These solutions are generally not well-integrated
with one another or with other enterprise software systems, restricting the flow
of information across the supply chain. As a result, such solutions are limited
in their ability to enable enterprise-wide inventory management and to optimize
overall supply chain execution. In addition, these point solutions are often
based on legacy computing architectures, require extensive and costly
customization to meet customer needs and are often difficult to upgrade.
Furthermore, many of these systems historically have not been able to scale to
accommodate the high transaction volume requirements of large, distribution-
intensive enterprises.
THE EXE SOLUTION
The Company believes its EXceed software solution offers a fundamentally new
approach to supply chain execution by addressing many of the limitations
inherent in traditional systems. The EXceed product line combines elements of
the functionality of warehouse, transportation and order management systems to
offer an integrated platform for supply chain logistics optimization. EXceed's
component architecture, which includes core functionality in a base system and
optional modules for additional capabilities, provides a scalable,
multi-platform solution that companies can efficiently adapt to their specific
supply chain execution needs. EXceed is designed to enable businesses to enhance
revenue growth and reduce operating costs by improving their ability to manage
inventory and address evolving and increasingly complex customer demands. Key
elements of the EXE solution include:
"BEST-OF-BREED" PRODUCT FUNCTIONALITY. The EXceed solution provides leading
warehouse management functionality designed to enable dynamic logistical control
and optimization of warehouses and distribution centers throughout the supply
chain. In addition to the base warehouse management system, EXE also offers a
number of functional modules including labor management, transportation
management, performance monitoring and specific functionality targeted toward
3PL providers.
INTEGRATED, ENTERPRISE-WIDE SOLUTION. EXceed is designed to enable
businesses to deploy an integrated, single-vendor, enterprise-wide supply chain
execution solution that reaches beyond the four walls of a single facility. EXE
offers a full suite of products designed to blend traditional warehouse,
transportation and order management solutions and provide VIM--inventory
visibility across all locations and handling states. As a result, customers are
afforded a higher level of logistical control and flexibility, enabling improved
inventory turnover, lower carrying costs and enhanced ability to rapidly and
accurately fulfill customer demand. The EXceed platform also provides the
enterprise-wide scalability necessary to address increasingly complex and
distributed logistics environments.
PACKAGED APPLICATION. In a market which has been characterized by software
systems requiring significant customization and a lengthy implementation
process, EXceed is designed for rapid installation and deployment. The product
architecture offers the customer the flexibility to add additional features to
the base system, while still maintaining a standardized upgrade path for future
versions. In addition, EXceed incorporates a broad set of application program
interfaces ("APIs") that simplify integration with other enterprise software
systems and facilitate product upgrades.
MULTIPLE PLATFORM AVAILABILITY. EXE offers versions of EXceed for
mainframe, UNIX and Windows NT environments. Accordingly, the Company is able to
deliver its solutions to customers regardless of their computing infrastructure,
allowing enterprises to leverage their existing computer system investments.
Moreover, certain versions of EXceed include a sophisticated message broker that
allows applications to share information across architectural barriers.
50
<PAGE>
COMPLEMENTARY TO APS AND ERP SYSTEMS. EXceed operates in conjunction with
APS, ERP and legacy systems by executing planning or other operational
instructions generated by such systems. EXceed can also enhance the
effectiveness of such systems by providing feedback of real-time inventory data
to them.
GLOBAL PRESENCE AND CAPABILITIES. The Company has established a substantial
international presence, including eleven offices worldwide, enabling it to
rapidly meet the demands of multinational customers that maintain global supply
chains. The EXceed product line includes versions in English, French, German,
Spanish, Japanese, Chinese, Arabic, Thai and Malaysian, all of which are capable
of interacting with one another.
STRATEGY
The Company's objective is to be the leading provider of supply chain
execution software. The following outlines the Company's strategy for achieving
this objective:
EXPAND GLOBAL DISTRIBUTION. The Company intends to continue to make
significant investments in the expansion of its worldwide sales and marketing
organization and alliance efforts in order to capitalize on the substantial
growth opportunities in the global supply chain execution market. The Company
has established a presence in Europe, Asia and the Middle East and intends to
expand aggressively in these regions, as well as to launch operations in Latin
America.
EXTEND PRODUCT OFFERINGS AND TECHNOLOGY LEADERSHIP. The Company intends to
leverage EXceed's component architecture by continuing to add differentiating
features and functionality to its product offerings. For example, the Company
has a number of software modules under development, including modules that
address warehouse optimization and Virtual Inventory Management.
EXPAND AND ENHANCE VERTICAL MARKET FOCUS. The Company has tailored its
products and services to address the requirements of participants in the
retail/wholesale, manufacturing/CPG and 3PL markets. The Company intends to
deepen penetration into these broad markets by offering focused product, sales
and service packages designed to address their unique requirements. Targeted
market segments within these broader categories include such areas as automotive
parts, pharmaceuticals and electronics.
STRENGTHEN AND EXTEND STRATEGIC ALLIANCES. The Company intends to
supplement its professional service capabilities by attracting additional
partners to its Global Consulting Alliance Program. This program is intended to
provide additional leverage to the Company's product implementation and sales
and marketing activities through agreements with consulting firms. The Company
also maintains, and intends to build upon, strategic relationships with a number
of enterprise software providers, including i2 Technologies, Inc., Manugistics
Group, Inc., and Oracle Corporation.
INCREASE SALES TO EXISTING CUSTOMER BASE. The Company has a significant
installed base of customers, many of which use only the warehouse management
system and selected associated modules. The Company intends to intensify its
efforts to sell additional modules, as well as upgrades, to its existing
customer base.
DELIVER WORLD CLASS SERVICE, SUPPORT AND TRAINING. The Company intends to
continue to standardize its service offerings in order to provide consistent,
high quality service, support and training. The Company has launched a branding
effort to develop and promote its service, support and training offerings as
products, thus providing the same awareness and leverage that characterizes its
packaged software applications. In particular, the Company intends to expand EXE
University, its global training organization, in order to offer enhanced
training capabilities to the Company's customers and alliance partners.
51
<PAGE>
PRODUCT
EXceed is a flexible, integrated supply chain execution solution available
for single sites or global enterprise-wide supply chains. EXceed consists of a
core warehouse management system, which includes order management functionality,
and a number of separately-priced optional components which can be
interchangeably packaged as needed. EXceed is available for deployment on the
Windows NT platform (the EXceed 1000 Series, formerly referred to as EXceed.cs),
UNIX platform (the EXceed 2000 Series, formerly referred to as EXceed.ux) and
mainframe platforms (the EXceed 3000 Series, formerly referred to as EXceed.mn)
and on multiple open systems platforms (the EXceed 4000 Series). The most recent
version of the EXceed 1000 Series was introduced in February 1998, of the EXceed
2000 Series in March 1998, and of the EXceed Series 4000 in June 1998. To date,
the Company has sold the EXceed 3000 Series on a customer by customer basis
without a formal release program. The Company has committed to a formal release
program for future versions of the EXceed 3000 Series.
The core warehouse management system offers the following:
- Real-time control and optimization of warehouses and distribution centers.
- Receiving, putaway, quality control, replenishment, cycle counting,
physical inventory, picking, shipping and other traditional warehouse
functions.
- Electronic data interchange, order wave planning, and order allocation,
along with other order management activities.
The following chart sets forth a brief description of the features and
functions of EXceed's optional components (functionality of components varies
among platforms).
<TABLE>
<CAPTION>
COMPONENT DESCRIPTION
- --------------------------------------------------------------------------------------------
<S> <C> <C>
WAREHOUSE MANAGEMENT COMPONENTS
RADIO FREQUENCY SERVER - Provides real time data collection and task dispatching through
AND CLIENT hand carried or vehicle mounted computers connected to a wireless
network
- Supports receiving, put-away, quality control, replenishment,
cycle counting, picking and shipping
LABOR MANAGEMENT - Provides for development and use of discrete labor standards for
task management and measurement of worker efficiency
- Enables linking with productivity-based incentive pay plans
THIRD PARTY LOGISTICS - Provides components to meet the unique needs of 3PL providers
including billing and product expediting modules
- Enables bar code labeling, consolidation, and transmission of
advanced shipment notifications ("ASNs") in work centers such as
air and container freight stations
CROSS DOCK & FLOW - Automates the process by which a warehouse receives and tranships
THROUGH product when product destination is known at receipt time (cross
docking)
- Provides built-in flexibility to react to changes in requirements
at product or order level when final destination is not known at
receipt time (flow through)
KEY PERFORMANCE - Serves as a "dash board" application that collects, measures and
INDICATOR MONITOR presents detailed statistics on the performance of a single
warehouse facility
- Provides notification when certain thresholds are crossed
- --------------------------------------------------------------------------------------------
TRANSPORTATION EXECUTION COMPONENTS
YARD & DOCK - Provides a link between the warehouse and transportation
components
- Controls dock scheduling and coordinates facility availability
with equipment in the yard
TRANSPORTATION - Enables shipping releases
EXECUTION MANAGEMENT - Provides shipping request entry, routing, trip scheduling,
tracking, accounting and analysis features
- Integrates with transportation planning packages from third party
software vendors
</TABLE>
52
<PAGE>
Revenues from the sale of licenses for EXceed from the Acquisition through
June 30, 1998 were as follows: $8.4 million for Exceed 1000 Series, $2.4 million
for EXceed 2000 Series, $9.8 million for EXceed 3000 Series and $426,000 for
EXceed 4000 Series.
The Company also engages in the resale of hardware and software primarily
for the convenience of its customers, and in support of its core licensing and
services business. Hardware resale items are composed mainly of servers and
radio frequency data collection units. Resale software consists primarily of
relational databases.
PRODUCT DEVELOPMENT
The following table describes EXceed components currently under development
by the Company:
<TABLE>
<CAPTION>
COMPONENT DESCRIPTION
- --------------------------------------------------------------------------------------------
<S> <C> <C>
WAREHOUSE OPTIMIZATION COMPONENTS
SUCCEED--WAREHOUSE OPTIMIZER - Optimizes stocking patterns based on product
(ANTICIPATED RELEASE DATE: LATE attributes, order patterns, facility information and
1998) labor attributes
- Transfers movement instructions directly to the
systems task manager allowing workers to optimize
warehouse layout during slow periods
- Assists in the design of new warehouses and re-design
of existing facilities
- Integrates with task management functionality of third
party software
- --------------------------------------------------------------------------------------------
VIRTUAL INVENTORY MANAGEMENT COMPONENTS
SUPPLY CHAIN EVENT MONITOR - Defines supply chain events and responses, such as
(ANTICIPATED RELEASE DATE: EARLY automatic notification or order initiation
1999)
SUPPLY CHAIN INVENTORY - Receives and accepts messages regarding inventory
VISIBILITY MONITOR location, handling state and quantity from EXE or
(ANTICIPATED RELEASE DATE: FIRST third party systems throughout the supply chain
HALF 1999)
</TABLE>
Ongoing product development efforts are focused on broadening the
functionality of EXceed to more fully address various aspects of supply chain
execution, in particular those that target specific market segments, such as
automotive parts, pharmaceuticals and electronics. There can be no assurance
that the Company will be successful in developing these or any other new
components or products, will not experience difficulties that could delay or
prevent successful development, or will successfully identify new opportunities
and develop and bring new components or products to market on a timely and
efficient manner or that its software will achieve market acceptance.
The Company's research and development expenses for the years ended December
31, 1996 and 1997 were $600,000 and $3.5 million, respectively. For the six
months ended June 30, 1998, the Company expensed approximately $6.8 million on
research and development activities. The Company intends to continue to invest
in product development in the future.
TECHNOLOGY
EXceed employs an N-tier, component-based architecture that was designed
using object-oriented development tools, and features a CORBA-compliant message
broker and application interfaces to systems provided by ERP, warehouse,
transportation and order management and APS vendors. This architecture provides
the flexibility to assemble products rapidly for new vertical markets, in
addition to offering high performance, reliability and scalability for
mission-critical supply chain activities. The N-tier architecture also allows
for separate data and application servers with a thin, low maintenance client
layer. The object-oriented development environment and component architecture
enable EXE to bring
53
<PAGE>
major new functions to market quickly and allow customers to add such
functionality with minimal adjustment to their existing systems. EXceed's
connectivity layer, which is a CORBA-compliant message broker, enables EXE to
add new modules to both the current base architecture and EXE's legacy
architectures, allowing customers to capitalize on their investment in purchases
of prior EXE solutions. Through the use of the message broker, EXE has designed
API's to ERP, APS and warehouse, transportation and order management systems, as
well as to customer legacy systems, which enable complete integration of the
supply chain. The design of these interfaces not only permits the Company to
rapidly release and install upgrades, but also allows customers and consultants
to develop interfaces to customer-built systems and packages that are not
supported as "off the shelf" interfaces from EXE.
[GRAPHIC: DEPICTION OF EXE ARCHITECTURE]
SERVICES, SUPPORT AND TRAINING
The Company believes that a high level of customer service and support
provides differentiation in the marketplace and is critical to the successful
implementation of its products. Accordingly, the Company is committed to
expanding its professional services group that is responsible for implementation
services and consulting, training and product maintenance, response center
support and upgrades.
PROFESSIONAL SERVICES AND CONSULTING. The Company offers an array of
services to facilitate successful implementation of EXceed and integration with
the customers' existing systems. Services include implementation project
management, on-site software training, operational engineering, industrial
engineering, software customization and supply chain consulting. Professional
services and consulting are generally billed on a time and materials basis,
although the Company expects fixed price contracts to represent a growing
percentage of its services business in the future.
The Company utilizes a standardized implementation methodology, known as GEM
(Global Execution Methodology), which enables the Company and its alliance
partners to provide a consistent, high quality level of implementation services.
GEM includes a globally deployed application that provides planning, change
management and quality control of system implementations. The application
enables customers, EXE personnel and alliance partners to access project
information on a global basis, allowing for centralized quality checks and
project monitoring.
The Company also believes that a strong alliance program with third-party
consulting and service providers is an important component of its strategy to
expand its professional implementation and service business and support growth
in licensing revenues. Through the Global Consulting Alliance Program, the
Company works with providers of complementary consulting and implementation
services. The Global Consulting Alliance Program reduces the need for the
Company to increase its internal professional services organization in support
of the Company's growing software licensing business.
TRAINING. The Company offers intensive education and training for its
customers, employees and third party implementation providers, either at Company
locations or at customer sites, through the EXE University. Students who are
certified by EXE University are qualified to implement the Company's products.
EXE University also offers an accreditation program for those who wish to train
others. The Company currently offers training in North America, Europe and Asia.
MAINTENANCE AND SUPPORT. The Company provides a comprehensive maintenance
program under which subscribing customers receive upgrades to licensed software
components and are entitled to support services. The Company has the ability to
remotely access the customer's system in order to perform diagnostics, on-line
assistance and software upgrades. The Company also runs a response center in
Dallas 24 hours, 7 days a week, 365 days per year, with additional support
centers in the United Kingdom, Singapore and Australia. The Company offers a
standard annual maintenance option providing for customer telephone support
during normal business hours for 15% of the current software license fee and 24
hour maintenance for 20% percent of the current software license fee.
54
<PAGE>
CUSTOMERS
The Company's customers fall primarily into three broad market segments:
retail/wholesale, manufacturing/CPG and 3PL. Since the Acquisition, the Company
has provided products and services to approximately 280 customers, each of which
is currently licensing software from the Company. The following table sets forth
a list of the Company's customers who purchased over $300,000 of software
licenses and/or services in the period from September 15, 1997 through June 30,
1998.
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------- ------------------------ --------------------------------
RETAIL/WHOLESALE MANUFACTURING/CPG THIRD PARTY LOGISTICS
Ahold Information Services National Grocers Ford Motor Company BAX Global Logistics
American Stores Incorporated Co., Ltd. General Motors BOC Distribution Services
CompUSA Neiman-Marcus Corporation Caliber Logistics
Consolidated Stores Group, Inc. Hewlett-Packard Fritz Companies
Corporation PetsMart, Inc. Company International Logistics, Ltd.
CVS, Inc. Provigo Kintetsu World Express, Inc.
Dairy Farm Company Limited Distribution, Inc. (KWE)
Davids Holdings Pty, Limited Publix Super Markets, Penske Logistics, Inc.
Fabri-Centers of America, Inc. TNT Canada, Inc.
Inc. Roundy's, Inc. USF Logistics, Inc.
Foodstuffs Co-operative Selco Warehouse Zero Mountain, Inc.
Society Limited Shoppers Drug Mart
Hannaford Bros. Co. Sobeys Enterprise-
Harris Teeter, Inc. wide Systems
Hy-Vee, Inc. Staples, Inc.
Integrated Systems Solution Star Markets Company,
Corporation Inc.
IPC Communication Services Tru-Serve
Kmart Corporation Corporation
Metro Richilieu, Inc. Woolworths, Ltd.
</TABLE>
The Company's top five customers for the year ended December 31, 1997 and
six months ended June 30, 1998 in the aggregate accounted for 29.1% and 26.2%,
respectively, of the Company's revenues. No single customer accounted for more
than 10% of total revenues during the year ended December 31, 1997, except for
Tru-Serve Corporation, which accounted for 11.4% of total revenues during such
period.
The Company's policy is to require significant deposits against the purchase
of software licenses, with the balance payable on delivery of the licensed
product. The Company typically extends net 30 day payment terms for its
professional services.
SALES AND MARKETING
The Company generates most of its revenues through its direct sales force.
The Company's direct sales organization consists of geographically-based
business development managers supported by sales consultants with particular
experience in industries such as retail/wholesale, manufacturing/CPG and 3PL.
The Company currently employs sales personnel at key locations in North America,
Europe and Asia. The Company conducts comprehensive marketing programs that
include advertising, public relations, trade shows, direct mail, joint marketing
and an ongoing customer communication program.
The Company has developed a global sales support system that provides status
information on sales prospects and a complete global report of the Company's
sales process, which it believes offers an important competitive advantage in
its sales efforts. The sales support system is accessible to each of the
Company's business development managers and sales consultants in real-time.
The sales cycle for the Company's products typically begins with the
generation of a sales lead or the receipt of a request for proposal from a
prospective customer. The Company follows a strict methodology for
qualification, tracking and closing of the prospect and has deployed a return on
investment tool that is used by all sales staff to present the Company's value
proposition to potential
55
<PAGE>
customers. The sales cycle can vary substantially from customer to customer but
typically requires three to nine months.
COMPETITION
The market for the Company's products is intensely competitive, highly
fragmented and characterized by rapid technological change. The Company believes
the principal competitive factors affecting the market for the Company's
products include product architecture, functionality and features, ease and
speed of implementation, return on investment, product quality, price and
performance, level of support, geographical location, vendor and product
reputation and alliance partner relationships. The Company's competitors are
numerous and diverse and offer a variety of solutions directed at various
aspects of the supply chain, as well as the enterprise as a whole. Competitors
tend to vary greatly depending on the customer's geographical location or
vertical market segment. The Company's existing competitors include: (i)
warehouse and transportation software vendors such as Catalyst International,
Inc., HK Systems, Inc., Manhattan Associates, Inc. and McHugh Software
International, Inc.; (ii) ERP and APS vendors that offer warehouse or
transportation modules as part of their suites, such as J.D. Edwards & Company
and SAP Aktiengesellschaft; (iii) smaller independent companies that have
developed or are attempting to develop warehouse and transportation management
software solutions; and (iv) corporate information technology departments of
potential customers capable of internally developing solutions. Many of the
Company's competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources, greater name recognition, a
broader range of products to offer and a larger installed base of customers than
the Company, any of which could provide them with a significant competitive
advantage.
The Company expects to face increased competition in the future from its
current competitors. In addition, new competitors, or alliances among current
and new competitors, may emerge and rapidly gain significant market share. The
Company also may face increased competition in the future from business
application software vendors, such as ERP and APS providers, that may broaden
their product offerings to include supply chain execution software. To the
extent such vendors develop or acquire systems with functionality comparable or
superior to the Company's products, their significant installed customer bases,
long-standing customer relationships, ability to offer a broad solution and
ability to price such products as incremental add-ons to existing systems could
provide a significant competitive advantage over the Company.
In order to succeed in the future, the Company must continue to respond
promptly and effectively to technological change and competitors' innovations.
There can be no assurance that current or potential competitors of the Company
will not develop products comparable or superior in terms of price and
performance features to those developed by the Company. In addition, no
assurance can be given that the Company will not be required to make substantial
additional investments in connection with its research, development, marketing,
sales and customer service efforts in order to meet any competitive threat, or
that the Company will be able to compete successfully in the future. Increased
competition could result in reductions in market share, selling price reductions
and related reductions in gross margins, any of which could materially and
adversely affect the Company's ability to achieve its financial and business
goals. There can be no assurance that in the future the Company will be able to
successfully compete against current and future competitors.
PROPRIETARY RIGHTS
The Company relies on a combination of copyright, trade secret, trademark,
service mark and trade dress laws, confidentiality procedures and contractual
provisions to protect its proprietary rights in its products and technology. The
Company generally enters into confidentiality agreements with its employees,
consultants, clients and potential clients and limits access to, and
distribution of, its proprietary information. The Company restricts its
customer's use of the licensed products to internal purposes
56
<PAGE>
without the right to sublicense, and, at times, licenses EXceed to its customers
in source code format. In certain foreign markets, the Company utilizes hardware
based locks to control the number of sites and users that can access the
software. Failure to have the hardware lock disables the software.
The Company believes, however, that the foregoing measures afford only
limited protection and there can be no assurance that such measures will be
adequate. The Company also may be subject to additional risks as it enters into
transactions in countries where intellectual property laws are not well
developed or are poorly enforced. Legal protections of the Company's rights may
be ineffective in such countries. Despite the Company's efforts to safeguard and
maintain its proprietary rights both in the United States and abroad, there can
be no assurance that the Company will be successful in doing so or that the
steps taken by the Company in this regard will be adequate to deter
misappropriation or independent third party development of the Company's
technology or to prevent an unauthorized third party from copying or otherwise
obtaining and using the Company's products or technology. In addition, policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exist, software piracy could become a problem. Litigation to defend and enforce
the Company's intellectual property rights could result in substantial costs and
diversion of resources and could have a material adverse effect on the Company's
business, financial condition or results of operations, regardless of the final
outcome of such litigation.
As the number of supply chain execution applications in the industry
increases and the functionality of these products further overlaps, software
development companies, like the Company, may become increasingly subject to
claims of infringement or misappropriation of the intellectual property rights
of others. There can be no assurance that third parties will not assert
infringement or misappropriation claims against the Company in the future with
respect to current or future products. Any claims or litigation, with or without
merit, could be time-consuming, result in costly litigation, divert management's
attention, cause product shipment delays or require the Company to enter into
royalty or licensing arrangements. Such royalty or licensing arrangements, if
required, may not be available on terms acceptable to the Company, if at all,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Such claims or litigation, regardless of
the outcome, could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company has recently received
a notice from a third party that holds a patent on a container monitoring
software system and method asserting that certain products or services offered
by the Company may infringe such patent, and offering the Company a license to
such patent. The Company believes that its products and services do not infringe
on such patent. The Company is currently investigating this matter. In addition,
the Company may seek to obtain patents in the future. The cost of litigation to
uphold the validity and prevent infringement of patents and to enforce licensing
rights can be substantial.
The Company has in the past and may in the future, resell, under license,
certain third party software that enables the Company's products to interact
with other software systems or databases. In addition, the Company licenses
certain software tools used to develop the Company's software products. There
can be no assurance that the third party software or software tools will
continue to be available to the Company on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software could be
identified and licensed or compiled, which could adversely affect the Company's
business, financial condition or results of operations.
EMPLOYEES
As of June 30, 1998 the Company had 614 full-time employees. None of the
employees of the Company is covered by a collective bargaining agreement. The
Company considers its relations with its employees to be good.
57
<PAGE>
The Company believes its future success will depend in large part on its
ability to recruit and retain qualified employees, especially experienced
software engineering personnel. The competition for such personnel is intense,
and there can be no assurance that the Company will be successful in retaining
or recruiting key personnel. See "Risk Factors--Ability to Manage Growth" and
"--Dependence on Key Personnel".
PROPERTIES
The Company maintains three offices in the United States and international
offices located in London, Dubai, Tokyo, Hong Kong, Kuala Lumpur, Singapore,
Melbourne and Sidney. The Company's principal administrative, sales, marketing,
support, and research and development facility is located in approximately
65,000 square feet of office space in Dallas, Texas. The Company leases this
facility from an entity owned and controlled by Lyle Baack, the Company's
Chairman, under a lease agreement that expires in August 2002 and which provides
for a monthly rental payment of $86,569. Mr. Baack has signed a definitive
agreement to sell the premises covered by the lease, subject to certain
conditions, and the Company intends to vacate this space to move to a 120,000
square foot facility also located in Dallas. The Company has entered into an
agreement with Mr. Baack pursuant to which the Company's obligations under its
lease will terminate upon the sale of the premises by Mr. Baack; provided that
the Company has vacated the premises by December 1, 1998. Following the sale of
the premises, the Company has the option to remain on the premises through
February 28, 1999 for an aggregate cost of $435,000. If the premises are not
sold, the Company will remain obligated under the lease. See "Certain
Transactions".
LEGAL PROCEEDINGS
The Company from time to time is a party to litigation arising in the
ordinary course of its business. Except as set forth below, the Company is not a
party to any pending material litigation.
Gary D. Canales, a former employee, filed a lawsuit against the Company and
Raymond Hood, the Company's President and Chief Executive Officer, and Adam
Belsky, the Company's Senior Vice President and Chief Financial Officer, on
April 30, 1998, in the District Court of Dallas County, Texas, M-298th Judicial
District, no. DV98-03467 alleging tortious interference with contract and
prospective business relationships, breach of contract, fraud and defamation.
Mr. Canales is seeking compensatory damages in excess of $18,000,000, plus
unspecified exemplary damages. The Company is vigorously defending the lawsuit
and believes that Mr. Canales's claims are without merit.
58
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
June 30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----------- ------------------------------------------------------
<S> <C> <C>
Lyle A. Baack(1)(a).......... 55 Chairman of the Board
Raymond R. Hood(2)(3)(b)..... 38 President, Chief Executive Officer and Director
Adam C. Belsky(3)(c)......... 37 Senior Vice President, Chief Financial Officer,
Treasurer and Director
David A. Alcala.............. 51 Senior Vice President, Industry Marketing
Thomas R. Cooper............. 39 Senior Vice President, Sales and Alliances
C. Donald Scales............. 42 Senior Vice President, Professional Services
George Van Ness.............. 49 Senior Vice President, Research & Development
Christopher F. Wright........ 38 Senior Vice President and General Counsel and
Corporate Secretary
Richard Morgan-Evans......... 52 Managing Director, Europe/Middle East/Africa
Kenichi Tsumura.............. 51 Managing Director, Japan
Mark R. Weaser............... 35 Managing Director, Asia/Pacific
Steven A. 49 Director
Denning(1)(2)(4)(b)..........
J. Michael 38 Director
Cline(1)(2)(4)(a)............
</TABLE>
- -------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Employee Stock Option Committee.
(4) Member of Executive Stock Option Committee.
(a) Term as director expires in 2001.
(b) Term as director expires in 2000.
(c) Term as director expires in 1999.
LYLE A. BAACK has served as the Company's Chairman of the Board since
September 1997. From August 1980 to September 1997, Mr. Baack served as
President and Chief Executive Officer of Dallas Systems, which he founded. Mr.
Baack holds a BS in Electrical Engineering from Colorado State University and an
MS in Computer Information and Control Engineering from the University of
Michigan.
RAYMOND R. HOOD has served as the Company's President, Chief Executive
Officer and a director since September 1997. From 1990 to September 1997, Mr.
Hood served as Chief Executive Officer of Neptune, which he co-founded. Mr. Hood
holds a BS in Economics from the Wharton School at the University of
Pennsylvania.
ADAM C. BELSKY has served as the Company's Senior Vice President, Chief
Financial Officer, Secretary and a director since September 1997. From 1990 to
September 1997, Mr. Belsky served as Chief Financial Officer of Neptune, which
he co-founded. Mr. Belsky holds a BS in Economics from the Wharton School at the
University of Pennsylvania and received a certified public accountant license in
1984.
DAVID A. ALCALA has served as the Company's Senior Vice President, Industry
Marketing since April 1998 after having served as the Company's Senior Vice
President, Sales and Marketing since September 1997. From January 1997 to
September 1997, Mr. Alcala served as the Senior Vice President and Chief
Operating Officer of Neptune. From July 1995 to November 1996, Mr. Alcala served
as Senior Vice President/General Manager of the Logistics Systems Division of HK
Systems, Inc., a materials handling equipment firm. From October 1993 to July
1995, Mr. Alcala served as President and Chief Executive Officer of MTA, Inc., a
management consulting firm.
59
<PAGE>
THOMAS R. COOPER has served as the Company's Senior Vice President, Sales
and Alliances since March 1998. From November 1994 to February 1998, Mr. Cooper
was Group Vice President of Major Accounts for Oracle Corporation, a database
software company. From January 1983 to November 1994, Mr. Cooper served in
various positions at Data General Corporation, a database software firm, the
most recent of which was Vice President, Worldwide Alliances. Mr. Cooper holds a
BS in Computer Science from Southwest Missouri State.
C. DONALD SCALES has served as the Company's Senior Vice President,
Professional Services since November 1997. From December 1995 to October 1997,
Mr. Scales was a Group Vice President for Services at Oracle Corporation. From
March 1994 to December 1995, Mr. Scales was a Vice President with A.T.
Kearney/EDS, a consulting company. From 1990 to March 1994, Mr. Scales was a
Vice President with Arthur D. Little, a consulting firm. Mr. Scales holds a BS
in Chemical Engineering, a BS in Mathematical Physics, and an M.Ch.E. in
Chemical Engineering from Rice University. He also holds an MBA degree from the
Harvard Business School.
GEORGE VAN NESS has served as the Company's Senior Vice President, Research
and Development since March 1998. From March 1996 to March 1998, Mr. Van Ness
was Vice President, Development for the Consumer Package Goods and Oil and Gas
Industries at Oracle Corporation. From May 1993 to March 1996, Mr. Van Ness was
Group Vice President for Central US Consulting at Oracle Corporation. Mr. Van
Ness holds a BS in Electrical Engineering from the University of Texas.
CHRISTOPHER F. WRIGHT has served as the Company's Senior Vice President and
General Counsel since July 1998. Prior thereto, Mr. Wright was a partner with
Pepper Hamilton LLP, which he joined as an associate in 1990. Pepper Hamilton
LLP currently provides legal services to the Company. Mr. Wright holds a JD from
the University of Pennsylvania and a BA from Brown University.
RICHARD MORGAN-EVANS has served as the Company's Managing Director,
Europe/Middle East/ Africa since April 1998. From 1995 to 1998, Mr. Morgan-Evans
was President of SSA Europe, a computer software firm, and served as its General
Manager and Sales Director from 1988 to 1995. Mr. Morgan-Evans is a graduate of
the Royal Military Academy, Sandhurst and the Graduate School of Languages in
London.
KENICHI TSUMURA has served as the Company's Managing Director, Japan since
April 1998. From 1992 to 1998, Mr. Tsumura was President of Fuji Logitech
America, a logistics firm. Mr. Tsumura holds a BS in Economics from Waseda
University.
MARK R. WEASER has served as the Company's Managing Director, Asia/Pacific
since September 1997 and served in the same position for Neptune since August
1996. From July 1995 to July 1996, he was the Asia Vice President for Telxon
Corporation, a radio frequency hardware supplier. From February 1993 to June
1995, Mr. Weaser was the Sales Director for American President Lines, a shipping
firm, in Hong Kong, Taiwan and Vietnam. Mr. Weaser holds a BS in Business
Administration from the University of Southern California.
STEVEN A. DENNING has served as a director of the Company since September
1997. Mr. Denning is a Managing Member of General Atlantic Partners, LLC, a
private equity fund. Mr. Denning has been with General Atlantic and its
predecessors since 1980. He holds a BS in Industrial Management from the Georgia
Institute of Technology, an MS in Management Science from the Naval Postgraduate
School, and an MBA from Stanford University. Mr. Denning also serves on the
board of directors of GT Interactive Software Corp. and several private
companies in the software and information technology industry.
J. MICHAEL CLINE has served as a director of the Company since September
1997. Mr. Cline is a Managing Member of General Atlantic Partners, LLC. Mr.
Cline has been with General Atlantic and its predecessors since 1989. He holds a
BS in Business from Cornell University and an MBA from Harvard
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<PAGE>
Business School. Mr. Cline also serves on the board of directors of Manugistics
Group, Inc. and several private companies in the software and information
technology industry.
CLASSIFIED BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes of
directors each containing, as nearly as possible, an equal number of directors.
Directors within each class are elected to serve three-year terms and
approximately one-third of the directors sit for election at each annual meeting
of the Company's stockholders. The year of expiration of the term of each of the
Company's directors is set forth above under the caption "Executive Officers and
Directors." A classified board of directors may have the effect of deterring or
delaying any attempt by any group to obtain control of the Company by a proxy
contest since such third party would be required to have its nominees elected at
two separate annual meetings of the Board of Directors in order to elect a
majority of the members of the Board of Directors. See "Description of Capital
Stock--Delaware Anti-Takeover Law and Certain Provisions of the Certificate of
Incorporation and By-Laws".
BOARD COMMITTEES
The Audit Committee, which was established in October 1997, currently
consists of Messrs. Hood, Cline and Denning. The Audit Committee recommends
independent auditors, reviews with the independent auditors the scope and
results of the audit engagement, monitors the Company's financial policies and
internal control procedures and reviews and monitors the provisions of non-audit
services by the Company's auditors. The Compensation Committee, which was also
established in October 1997, consists of Messrs. Baack, Cline and Denning. The
Compensation Committee reviews and recommends salaries, bonuses and other
compensation for the Company's officers. The Employee Stock Option Committee
consists of Mr. Hood and Mr. Belsky. The Employee Stock Option Committee grants
options, up to the aggregate number of shares authorized by the Board for grant
by such committee, to individuals who are neither covered employees pursuant to
Section 162(m) of the Internal Revenue Code nor directors, officers or principal
stockholders pursuant to Section 16 of the Securities Exchange Act of 1934, as
amended. The Executive Stock Option Committee consists of Mr. Cline and Mr.
Denning. The Executive Stock Option Committee grants options to individuals who
are covered employees pursuant to Section 162(m) of the Internal Revenue Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to October 1997, the Company had no compensation committee or other
committee of the Board of Directors performing similar functions. Decisions
concerning compensation of executive officers were made by the entire Board of
Directors. None of the members of the Compensation Committee was at any time
since the formation of the Company an officer or employee of the Company except
for Mr. Baack, who is chairman of the Company. No interlocking relationship
exists between the Company's executive officers or directors and the
compensation committee of any other entity.
DIRECTOR COMPENSATION
Directors currently do not receive any compensation for their services as
directors; however, directors are reimbursed for reasonable expenses incurred in
attending board and committee meetings. In the future, the Company intends to
grant stock options to the non-employee members of the Board of Directors under
its stock option plan for non-employee directors. See "--Stock Option Plans".
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by the
Company, Neptune and Dallas Systems in 1997 for its Chief Executive Officer and
the other four most highly compensated
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<PAGE>
executive officers of the Company, each of whose total annual salary and bonuses
determined for the year ended December 31, 1997 exceeded $100,000 (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ------------------------------------ ----------- ----------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Raymond R. Hood..................... $ 110,283 -- -- -- $ 1,044(1)
President, Chief Executive
Officer and Director
Lyle A. Baack....................... 321,668 -- -- -- 9,500(2)
Chairman of the Board
Adam C. Belsky...................... 113,589 -- -- -- 1,044(1)
Senior Vice President,
Chief Financial Officer and
Director
David E. Alcala..................... 163,156 200,000 -- 300,000 --
Senior Vice President,
Industry Marketing
Mark R. Weaser...................... 145,200(3) -- $ 63,600(4) 75,000 --
Managing Director,
Asia Pacific
</TABLE>
- ------------------------
(1) Represents premiums paid by the Company with respect to a life insurance
policy for the benefit of the referenced officer.
(2) Represents the amount contributed by the Company to the 401(k) account of
Mr. Baack.
(3) Includes a $31,200 cost of living adjustment.
(4) Represents a $15,600 automobile expense allowance and a $48,000 housing
expense allowance.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the stock options granted during 1997 to each
of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
----------------------------------------------- STOCK
NUMBER OF PERCENT OF PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#) FISCAL YEAR(1) PER SHARE($) DATE 5% 10%
- -------------------------------- ----------- ----------------- --------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Raymond R. Hood................. -- -- -- -- -- --
Lyle A. Baack................... -- -- -- -- -- --
Adam C. Belsky.................. -- -- -- -- -- --
David E. Alcala................. 300,000 25.9% $ 0.75 3/1/07 $ 156,547 $ 377,657
Mark R. Weaser.................. 75,000(3) 6.5 0.75 3/1/07 50,421 108,713
59,896(4) 5.2 2.00 9/16/07 90,383 209,982
</TABLE>
- ------------------------
(1) Based on an aggregate of 1,159,013 shares subject to options granted to
employees in 1997.
(2) Assumes stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date, as
mandated by the rules of the Securities and Exchange Commission and does not
represent the Company's estimate or projection of the future appreciation of
the Company's stock price. Actual gains, if any, are dependent upon the
timing of such exercise and the future performance of the Company's Common
Stock and may be greater or less than the potential realizable value set
forth in the table.
(3) This option was fully vested at the time of grant.
(4) This option is vested with respect to 34,896 shares. The remaining 25,000
shares vest annually in equal amounts over two years.
62
<PAGE>
On August 1, 1998, the Company granted options to purchase an aggregate of
500,000 shares of Common Stock at an exercise price of $13.00 per share to
Raymond Hood, the Company's President and Chief Executive Officer. These options
will vest in equal amounts annually over four years beginning on the first
anniversary of the date of the grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
No Named Executive Officer exercised any stock options during 1997. The
following table summarizes the value of the outstanding options granted by the
Company held by the Named Executive Officers at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-THE-
UNDERLYING MONEY
UNEXERCISED OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR-
YEAR-END END(1)
----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Raymond R. Hood...................................... -- -- -- --
Lyle A. Baack........................................ -- -- -- --
Adam C. Belsky....................................... -- -- -- --
David E. Alcala...................................... 300,000 -- $ 375,000 --
Mark R. Weaser....................................... 109,896 25,000 $ 93,750 --
</TABLE>
- ------------------------------
(1) Based on the fair market value of the Company's Common Stock as of December
31, 1997 of $2.00 per share (as determined by the Board of Directors), less
the exercise price payable upon exercise of such options.
STOCK OPTION PLANS
AMENDED AND RESTATED 1997 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN. On
September 15, 1997, the Company adopted the 1997 Incentive and Non-Qualified
Stock Option Plan (the "1997 Plan") which replaced all previous plans of the
predecessor companies. Under the 1997 Plan, as amended in August 1998, an
aggregate of 8,500,000 shares of Common Stock are authorized for issuance of
which 4,597,344 shares of Class B Common Stock and 3,902,656 shares of Class A
Common Stock may be subject to options. The 1997 Plan provides for the grant of
incentive stock options ("ISOs") to employees of the Company and nonqualified
stock options ("NQSOs") to employees or consultants. Exercise prices for ISOs
may not be less than fair market value on the date of grant, and exercise prices
for NQSOs must be at least $.01 per share. Options vest and become exercisable
as specified by the terms of an option agreement, and unless specified otherwise
in an option agreement, expire after 10 years.
The 1997 Plan is administered by the Board of Directors (the "Board"). The
Board has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the 1997 Plan generally and to interpret
the provisions thereof. The Board is responsible for establishing an annual
budget for the total number of options authorized for issuance under the 1997
Plan. The Employee Stock Option Committee is authorized to grant options, for
the aggregate number of shares authorized by the Board for grant by such
committee, to individuals who are neither covered employees pursuant to section
162(m) of the Internal Revenue Code nor directors, officers or principal
stockholders subject to Section 16 of the Securities Exchange Act of 1934, as
amended. The Executive Stock Option Committee grants options to individuals who
are covered employees pursuant to section 162(m) of the Internal Revenue Code.
The Board grants options to individuals who are directors, officers or principal
stockholders subject to Section 16 of the Securities Exchange Act of 1934, as
amended, provided that if such individual is also a covered employee pursuant to
section 162(m) of the Internal Revenue Code, the Executive Stock Option
Committee is the entity authorized to make grants to such individual. The Board
or applicable committee determines, with respect to each option grant, (i) the
number of shares of Common Stock issuable upon the exercise of options, (ii) the
exercise price, (iii) the vesting schedule and (iv) the duration of the options.
The 1997 Plan permits the payment of the exercise price of options to
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<PAGE>
be in the form of cash, check, or such other form of consideration and method of
payment as determined by the Board.
No award may be made under the 1997 Plan after September 15, 2007, but
awards previously granted may extend beyond that time. The Board of Directors
may at any time terminate the 1997 Plan. Any such termination will not affect
outstanding options.
In the event of a change in control of the Company (as defined in the 1997
Plan), the Board of Directors shall have the right, in its sole discretion, to
accelerate the vesting of all options that have not vested as of the date of the
change in control. In addition, in the event of a change in control of the
Company, the Board shall have the right, in its sole discretion, subject to and
conditioned upon a Sale of the Company (as defined in the 1997 Plan): (a) to
arrange for the successor company (or other entity) to assume all of the rights
and obligations of the Company under the 1997 Plan; or (b) to terminate the 1997
Plan and (i) to pay to all optionees cash with respect to those options that are
vested as of the date of the change in control in an amount equal to the
difference between the exercise price of each option and the fair market value
of a share of Common Stock (determined as of the date the 1997 Plan is
terminated) multiplied by the number of options that are vested as of the date
of the sale of the Company and are held by the optionee as of such date, (ii) to
arrange for the exchange of all options for options to purchase common stock in
the successor corporation, or (iii) to distribute to each optionee other
property in an amount equal to and in the same form as the optionee would have
received from the successor corporation if the optionee had owned the shares
subject to options that are vested as of the date of the Change in Control of
the Company rather than the option at the time of the Change in Control of the
Company. The form of payment or distribution to the optionees shall be
determined by the Board of Directors in its sole discretion.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. In September 1997, the
Company adopted the Stock Option Plan for Non-Employee Directors (the "Directors
Plan") and reserved an aggregate of 300,000 shares of Common Stock for issuance
thereunder. Members of the Board who are not employees of the Company are
eligible to participate in the Directors Plan. Under the Directors Plan, each
eligible director who is or becomes a member of the Board on or after the public
offering ("Effective Date") will automatically be granted an option for 20,000
shares on the later of the Effective Date or the date such director first
becomes a director. At each annual meeting of stockholders thereafter, each
eligible director who is re-elected for another term at such meeting will
automatically be granted an additional option to purchase 20,000 shares. All
options will vest as to 25% of the total shares on each of the first four
anniversaries of the date of grant. Any unvested options will terminate upon the
termination of the optionee's service as a director. Options will terminate at
the earliest of: (a) ten years after the date on which the option was granted;
(b) twelve months after the cessation of services resulting from the
individual's death or disability; or (c) three months after the cessation of
services resulting from any other reason. The exercise price of all options
granted under the Directors Plan will be the fair market value of the Common
Stock on the date of the grant.
401(K) PLAN
The Company maintains a 401(k) Plan (the "401(k) Plan") which is intended to
be a tax-qualified retirement plan under Section 401(k) of the Internal Revenue
Code (the "Code"). Pursuant to the 401(k) Plan, a participant may contribute,
subject to certain Code limitations, up to 15% of compensation, as defined in
the Code, to the 401(k) Plan. Employees are eligible to participate upon
completion of their first calendar month of employment. The Company will match
contributions made by employees pursuant to the 401(k) Plan at a rate of 100% of
the participant's contributions, up to 5% of the participant's aggregate
compensation, provided the participant is employed on the last day of the
calendar quarter for which the match is made, subject to certain Code
limitations. The Company may make an additional contribution to participants'
accounts each year at the discretion of the Board of Directors. All employees of
the Company who have completed one year of service with the Company
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<PAGE>
consisting of at least 1,000 hours of employment and are employed on the last
day of the plan year are eligible for the discretionary contribution. The
portion of a participant's account attributable to his or her own contributions
is 100% vested. The portion of the account attributable to Company contributions
(including matching and discretionary contributions) vests over two to five
years of service with the Company. Distributions from the 401(k) Plan may be
made in the form of an annuity or lump-sum cash payment.
EMPLOYMENT AGREEMENTS
DAVID ALCALA. In November 1996, Neptune entered into an employment
agreement with Mr. Alcala. The employment agreement's initial three year term
expires on December 31, 1999; however, the employment agreement automatically
renews for successive one year terms unless terminated by either party with at
least 180 days' prior written notice. Under the employment agreement, Mr. Alcala
is employed as the Company's Senior Vice President, Industry Marketing and
receives an annual base salary of $175,000 as well as certain other benefits
including term life insurance in the amount of $300,000. Mr. Alcala is also
eligible to participate in any incentive compensation plan for executive
officers of the Company that may be established in the future. Pursuant to the
employment agreement, the Company granted to Mr. Alcala: (i) options to purchase
300,000 shares of Common Stock at an exercise price of $0.75 per share, which
options vested in full upon the Acquisition; and (ii) fully vested options to
purchase 39,583 shares of Common Stock at an exercise price of $2.00 per share.
Notwithstanding the employment agreement, the Company may terminate Mr. Alcala's
employment, with or without cause, upon 90 days' written notice. If Mr. Alcala
is terminated without cause, he is entitled to receive a severance payment equal
to the greater of his remaining base salary for the term of his employment
agreement and $160,000. However, Mr. Alcala in his discretion may waive the
Company's obligation to make such severance payment for the right to terminate
all non-competition provisions in the employment agreement. If Mr. Alcala is
terminated for cause, his base salary and benefits and bonuses shall cease at
the date of such termination if the Company releases Mr. Alcala from certain
non-competition obligations contained in the employment agreement.
MARK WEASER. In July 1996, Neptune entered into an employment agreement
with Mr. Weaser. The employment agreement is for an unspecified term and is
terminable by either party upon two weeks' prior written notice. Under the
employment agreement, Mr. Weaser is employed as the Company's Managing Director,
Asia/Pacific and receives an annual base salary of $114,000 as well as certain
other benefits. Mr. Weaser is also eligible to participate in any incentive
compensation plan for executive officers of the Company that may be established
in the future. Pursuant to the Employment Agreement, the Company has granted to
Mr. Weaser: (i) options to purchase 75,000 shares of Common Stock at an exercise
price of $0.75 per share, which options vested in full upon the Acquisition;
(ii) fully vested options to purchase 9,896 shares of Common Stock at an
exercise price of $2.00 per share; and (iii) options to purchase 50,000 shares
of Common Stock at an exercise price of $2.00 per share, 25,000 of which vested
immediately and the remaining 25,000 of which will vest in two equal
installments on September 16, 1998 and 1999. If Mr. Weaser is terminated without
cause, the Company is obligated to pay him severance equal to six months' of his
total compensation.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
As permitted by the DGCL, the Company's Certificate of Incorporation
provides that, subject to certain limited exceptions, no director of the Company
shall be liable to the Company for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for the unlawful payment of dividends on or redemption of the
Company's capital stock, or (iv) for any transaction from which the director
derived an improper personal benefit. The effect of this provision is to limit
the ability of the Company and its
65
<PAGE>
stockholders (through stockholder derivative suits on behalf of the Company) to
recover monetary damages against a director for the breach of certain fiduciary
duties as a director (including breaches resulting from grossly negligent
conduct). In addition, the Company's Certificate of Incorporation and By-Laws
provide that the Company shall, to the full extent permitted by the DGCL,
indemnify all directors and officers of the Company and that the Company may, to
the extent permitted by the DGCL, indemnify employees and agents of the Company.
The Company intends to procure a directors' and officers' insurance policy
to afford officers and directors coverage for losses arising from claims based
on breaches of duty, negligence, error and other wrongful acts. The Company also
may enter into indemnification agreements with each director of the Company. See
"Certain Transactions".
CERTAIN TRANSACTIONS
During the year ended December 31, 1997, the Company advanced $923,432 to
Astrid Holdings, Inc. ("Astrid"), a company which was then owned by Messrs.
Hood, the Company's Chief Executive Officer, Belsky, the Company's Chief
Financial Officer, and Nigel Bahadur, a former principal shareholder of Neptune.
At December 31, 1997, these advances, which were the result of a $750,000 cash
advance and $173,432 in services and expense reimbursements provided by EXE,
remained outstanding. As part of the Acquisition, EXE was granted an option to
acquire Astrid for an aggregate purchase price of $1.5 million. On May 21, 1998,
Messrs. Hood, Belsky and Bahadur sold their entire interest in Astrid to Lexye
Sumantri, a stockholder otherwise unaffiliated with the Company, for a cash
payment of $120 and the assumption of approximately $120,000 of net liabilities,
based on the book value of Astrid. In connection with that transaction, Astrid's
outstanding obligations to the Company were satisfied and the Company's option
to purchase Astrid was terminated.
Immediately following the Acquisition, certain of the Company's stockholders
entered into a stockholders agreement. The agreement, which terminates by its
terms upon completion of this offering, provided for the nomination and election
of each of the Company's current directors.
On September 15, 1997, the Company issued 6,764,043 Series A Preferred Stock
and 4,573,519 shares of Series B Preferred Stock, for an aggregate purchase
price of $25 million, to two investment limited partnerships that are affiliates
of J. Michael Cline and Steven A. Denning, directors of the Company.
On September 15, 1997, the Company repurchased 6,763,513 shares of Common
Stock of the Company from Lyle Baack, the Company's Chairman, for an aggregate
purchase price of $14,788,421.
In June and July 1998, pursuant to certain commitments by the Company that
were approved by the Board of Directors on April 6, 1998, the Company sold an
aggregate of 83,333 shares of Common Stock to the following executive officers
of the Company: Thomas Cooper, Senior Vice President, Sales and Alliances
purchased an aggregate of 33,333 shares of Common Stock for an aggregate
purchase price of $99,999; Richard Morgan-Evans, Managing Director,
Europe/Middle East/Africa, purchased an aggregate of 33,333 shares of Common
Stock for an aggregate purchase price of $99,999; and Mark Weaser, Managing
Director, Asia Pacific purchased an aggregate of 16,667 shares of Common Stock
for an aggregate purchase price of $50,001.
In July 1998, the Company sold 10,000 shares to C. Donald Seales, Senior
Vice President, Professional Services, for an aggregate purchase price of
$50,000.
The Company currently leases office space in Dallas from an entity owned and
controlled by Lyle Baack, the Company's Chairman. This lease, which expires in
August 2002, provides for a current monthly rental payment of $86,569. Mr. Baack
has signed a definitive agreement to sell the premises covered by the lease,
subject to certain conditions, and the Company intends to vacate the premises by
December 1, 1998. The Company has entered into an agreement with Mr. Baack
pursuant to which the Company's obligations under the lease will terminate upon
the sale of the premises by Mr. Baack;
66
<PAGE>
provided that the Company has vacated the premises by December 1, 1998.
Following the sale of the premises, the Company has the option to remain on the
premises through February 28, 1999 for an aggregate cost of $435,000. If the
premises are not sold, the Company will remain obligated under the lease.
The Company considers the terms of the above-referenced transactions to be
at arm's length and reasonably equivalent to terms it could have obtained
through negotiations with unaffiliated third parties under similar economic
conditions. All future transactions, including loans, between the Company and
its officers, directors and principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
67
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 31, 1998, and as
adjusted to reflect the sale of Common Stock by the Company and the Selling
Stockholders in the offerings, with respect to: (i) each director of the
Company; (ii) each of the Named Executive Officers; (iii) each stockholder known
by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock; (iv) the Selling Stockholders; and (v) all executive officers and
directors as a group. Except as otherwise noted, the persons or entities named
in the table have sole voting and investment power with respect to all the
shares of Common Stock beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO NUMBER OF AFTER THE
THE OFFERINGS (2) SHARES OFFERINGS (2)(3)
--------------------------- BEING ---------------------------
NAME(1) SHARES PERCENTAGE OFFERED SHARES PERCENTAGE
- --------------------------------------------- ---------- --------------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Raymond R. Hood(4)........................... 3,612,500 12.5% 361,250 3,251,250 9.1%
Adam C. Belsky(5)............................ 3,612,500 12.5 361,250 3,251,250 9.1
Nigel Bahadur................................ 1,275,000 4.4 127,500 1,147,500 3.2
Lyle A. Baack................................ 5,002,188 17.3 -- 5,002,188 14.0
David E. Alcala(6)........................... 408,186 1.4 -- 408,186 1.1
Mark R. Weaser(7)............................ 212,240 * -- 200,636 *
J. Michael Cline(8).......................... 11,337,562 39.2 -- 11,337,562 31.7
Steven A. Denning(8)......................... 11,337,562 39.2 -- 11,337,562 31.7
General Atlantic Partners, LLC(8)............ 11,337,562 39.2 -- 11,337,562 31.7
Michael S. Dell(9)........................... 1,600,000 5.5 -- 1,600,000 4.5
All executive officers and directors as a
group (13 persons)(10)..................... 24,610,916 83.3 722,500 23,888,416 65.6
</TABLE>
- ------------------------
* Less than 1% of the Company's outstanding Common Stock.
(1) Except as set forth herein, the street address of the named beneficial owner
is c/o EXE Technologies, Inc., 12740 Hillcrest Road, Dallas, Texas 75230.
(2) For purposes of calculating the percentage beneficially owned, the number of
shares of Common Stock deemed outstanding prior to the offerings includes
(i) 28,902,542 shares outstanding as of August 31, 1998 and (ii) shares
issuable by the Company pursuant to options held by the respective person or
group which may be exercised within 60 days following August 31, 1998
("Presently Exercisable Options"). Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission that
deem shares to be beneficially owned by any person or group who has or
shares voting and investment power with respect to such shares. Presently
Exercisable Options are deemed to be outstanding and to be beneficially
owned by the person or group holding such options for the purpose of
computing the percentage ownership of such person or group but are not
treated as outstanding for the purpose of computing the percentage ownership
of any other person or group.
(3) Assumes no exercise of the Underwriters' over-allotment options.
(4) Includes 131,000 shares held by the Adam Belsky Irrevocable GST Exempt
Trust, of which Mr. Hood is the sole trustee. Mr. Hood disclaims beneficial
ownership of the shares held by such trust.
(5) Includes 131,000 shares held by the Raymond Hood Irrevocable GST Exempt
Trust, of which Mr. Belsky is the sole trustee. Mr. Belsky disclaims
beneficial ownership of the shares held by such trust.
(6) Includes 339,583 shares issuable upon the exercise of Presently Exercisable
Options. Also includes 57,760 shares that Mr. Alcala has the option to
purchase from General Atlantic Partners 41, L.P. ("GAP 41") and 10,843
shares that he has the option to purchase from GAP Coinvestment Partners,
L.P. ("GAPCO").
(7) Includes 121,500 shares issuable upon the exercise of Presently Exercisable
Options.
(8) Includes 9,544,746 shares of Common Stock held by GAP 41 and 1,792,816
shares of Common Stock held by GAPCO. The general partner of GAP 41 is
General Atlantic Partners, LLC ("GAP LLC"). The managing members of GAP LLC
are also the general partners of GAPCO. Each of Messrs. Steven A. Denning
and J. Michael Cline is a managing member of GAP LLC and
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<PAGE>
a general partner of GAPCO. Each of Messrs. Denning and Cline disclaims
beneficial ownership of the securities held by GAP 41 and GAPCO except to
the extent of his pecuniary interest therein. In addition, pursuant to the
Option Agreement, dated as of September 15, 1997, among GAP 41, GAPCO and
David Alcala, GAP 41 granted to Mr. Alcala an option to purchase 57,760
shares of Common Stock held by GAP 41, and GAPCO granted to Mr. Alcala an
option to purchase 10,843 shares of Common Stock held by GAPCO. The address
for each of Messrs. Denning and Cline and GAP LLC is c/o General Atlantic
Service Corporation, 3 Pickwick Plaza, Greenwich, CT 06830.
(9) Includes an aggregate of 1,600,000 shares of Common Stock held by MSD
Capital L.P. ("MSD Capital"), Triple Marlin Investments LLC ("Triple
Marlin") and Rothko Investments LLC ("Rothko"), of which Mr. Dell disclaims
beneficial ownership of 400,000 shares. Mr. Dell is the general partner of
MSD Capital, which is a member of each of Triple Marlin and Rothko. The
address for Mr. Dell is c/o Dell Computer Corporation, One Dell Way, Round
Rock, Texas 78682.
(10) Includes an aggregate of 636,083 shares issuable upon the exercise of
Presently Exercisable Options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offerings, the Company's authorized capital stock
will consist of (i) 85,000,000 shares of Common Stock and (ii) 15,000,000 shares
of Preferred Stock, of which there will be 35,752,542 shares of Common Stock and
no shares of Preferred Stock outstanding. The following description of the
capital stock of the Company is a summary and is qualified in its entirety by
the provisions of the Company's Certificate of Incorporation and By-Laws, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
Upon the closing of the offerings, the Class A Common Stock will be renamed
to "Common Stock" and all outstanding shares of Class B Common Stock will
convert into shares of Common Stock on a one-for-one basis. The holders of
Common Stock are entitled to one vote per share. In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share proportionally in all assets of the Company, if any, remaining
after payment of the Company's liabilities and the liquidation preference of any
outstanding shares of Preferred Stock. The outstanding shares of Common Stock
are, and the shares of Common Stock offered by the Company hereby when issued
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to any series of Preferred Stock that the
Company has issued or may issue in the future. The holders of Common Stock have
no preemptive or conversion rights (other than with respect to an initial public
offering as described above) and are not subject to future calls or assessments
by the Company.
PREFERRED STOCK
Upon the closing of the offerings, all outstanding shares of Preferred Stock
(the "Convertible Preferred") will be converted into shares of Common Stock and
there will be no shares of Preferred Stock outstanding. See Note 12 of Notes to
Financial Statements of the Company for a description of the Convertible
Preferred. The Board is authorized, subject to limitations prescribed by
Delaware law, to provide for the issuance of additional shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the powers, designations, preferences
and rights of the shares of each wholly unissued series and designate any
qualifications, limitations or restrictions thereon and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding) without any further vote or action by the
stockholders. The issuance of Preferred Stock could adversely affect the voting
power of the holders of Common Stock of the Company or have the effect of
deterring or delaying any attempt by a person, entity or group to obtain control
of the Company. See "Risk Factors--Certain Anti-takeover Provisions". The
Company has no current plan to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Registration Rights Agreement dated July
10, 1998 (the "Registration Rights Agreement") among GAP 41, GAPCO (together
with GAP 41, the "GAP Stockholders"), MSD Capital L.P. ("MSD Capital"), Triple
Marlin Investments LLC ("Triple Marlin"), Rothko Investments LLC ("Rothko," and
collectively with MSD Capital and Triple Marlin, the "Series C Investors"), Lyle
Baack ("Baack"), Nigel Bahadur, Adam Belsky and Raymond Hood (collectively, the
"Neptune Stockholders," and together with Baack, the "Major Stockholders"), each
of the GAP Stockholders, the Series C Investors and the Major Stockholders are
entitled to specific rights with respect to the registration under the
Securities Act, for resale to the public, of the shares of Common Stock owned by
them concurrently with and after the offerings.
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<PAGE>
The Registration Rights Agreement permits the Neptune Stockholders to
include in the offerings the 850,000 shares being offered by them in the
offerings (the "Neptune IPO Shares"), subject to certain limitations and
restrictions. These limitations and restrictions include the right of the
Underwriters to exclude all or a portion of the Neptune IPO Shares from the
offerings.
The Registration Rights Agreement permits the GAP Stockholders and the
Series C Investors, as a group, and the Major Stockholders, as a group, each to
twice require the Company, whether or not the Company proposes to register its
Common Stock for sale, to register all or part of the total number of shares of
Common Stock held by each such group for sale to the public under the Securities
Act, subject to certain conditions and limitations. The Company is required to
bear the expenses of such registrations and to use its best efforts to effect
such registrations, subject to certain conditions and limitations. In addition
to the demand registration rights described above, the Registration Rights
Agreement permits the GAP Stockholders and the Series C Investors, as a group,
and the Major Stockholders, as a group, to require the Company to register the
shares held by each group on a Form S-3 once the Company has qualified to use
Form S-3, subject to certain conditions and limitations. The Registration Rights
Agreement also provides that, after the offering and subject to certain
exceptions, in the event the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company for its own
account, each of the GAP Stockholders, the Series C Investors and the Major
Stockholders are entitled to include their shares in such registration, subject
to certain conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION
AND BY-LAWS
The Company is a Delaware corporation and consequently is subject to certain
anti-takeover provisions of the DGCL. The business combination provisions
contained in Section 203 of the DGCL ("Section 203") defines an interested
stockholder of a corporation as any person that (i) owns, directly or
indirectly, 15% or more of the outstanding voting stock of the corporation or
(ii) is an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder, and the affiliates
and the associates of such person, and defines business combination to include
certain mergers, consolidations, asset sales, transfers and other transactions
resulting in a financial benefit to the interested stockholder. Under Section
203, a Delaware corporation may not engage in any business combination with any
interested stockholder for a period of three years following the date such
stockholder became an interested stockholder, unless (i) prior to such date the
board of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon completion of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for determining the number of shares
outstanding, (a) shares owned by persons who are directors and also officers and
(b) employee stock plans, in certain instances), or (iii) on or subsequent to
such date the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by at least 66% of
the outstanding voting stock that is not owned by the interested stockholder.
The restrictions imposed by Section 203 will not apply to a corporation if
(i) the corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203 or (ii) the corporation by
the action of its stockholders holding a majority of outstanding stock adopts an
amendment to its certificate of incorporation or by-laws expressly electing not
to be governed by Section 203 (such amendment will not be effective until 12
months after adoption and shall not apply to any business combination between
such corporation and any person who became an interested stockholder of such
corporation on or prior to such adoption). The Company has not elected out of
71
<PAGE>
Section 203, and upon completion of the offering the restrictions imposed by
Section 203 will apply to the Company. Section 203 could under certain
circumstances make it more difficult for a third party to gain control of the
Company, deny stockholders the receipt of a premium on their Common Stock and
have a depressive effect on the market price of the Common Stock.
Upon completion of the offerings, the Company's Board of Directors will be
divided into three classes of directors each containing, as nearly as possible,
an equal number of directors. Directors within each class will be elected to
serve three-year terms and approximately one-third of the directors sit for
election at each annual meeting of the Company's stockholders. A classified
board of directors may have the effect of deterring or delaying any attempt by
any group to obtain control of the Company by a proxy contest since such third
party would be required to have its nominees elected at two separate annual
meetings in order to elect a majority of the members of the Board of Directors.
In addition, the Company's By-Laws allow the Board of Directors to increase the
number of directors from time to time and to fill any vacancies on the Board of
Directors, including vacancies resulting from an increase in the number of
directors.
The Company's By-Laws also provide that special meetings of the stockholders
may be called only by the Board or by the President or Secretary of the Company.
Stockholders are not generally permitted to call, or to require that the Board
of Directors call, a special meeting of stockholders. This provision may prevent
a stockholder from forcing stockholder consideration of a proposal over the
opposition of the Board of Directors by calling a special meeting of
stockholders prior to the time the Board believes such consideration to be
appropriate.
In addition, the Certificate of Incorporation and By-Laws also provide that
no director may be removed at any time except upon a finding of cause as
determined by the Board of Directors and affirmed by the holders of a majority
of the outstanding shares of voting stock. Also, stockholder action by written
consent requires unanimous consent of the stockholders.
The provisions of the Certificate of Incorporation and the By-Laws
summarized in the preceding paragraphs contain provisions that may have the
effect of delaying, deferring or preventing a non-negotiated merger or other
business combination involving the Company. These provisions are intended to
encourage any person interested in acquiring the Company to negotiate with and
obtain the approval of the Board of Directors in connection with the
transaction. Certain of these provisions may, however, discourage a future
acquisition of the Company not approved by the Board of Directors in which
stockholders might receive an attractive value for their shares or that a
substantial number or even a majority of the Company's stockholders might
believe to be in their best interest. As a result, stockholders who desire to
participate in such a transaction may not have the opportunity to do so. Such
provisions could also discourage bids for the Common Stock at a premium, as well
as create a depressive effect on the market price of the Common Stock. See "Risk
Factors--Certain Anti-takeover Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
StockTrans, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offerings, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect market prices prevailing from time to time. Furthermore, since only a
limited number of shares will be available for sale shortly after the offerings
because of certain contractual and legal restrictions on resale described below,
sales of substantial amounts of Common Stock of the Company in the public market
after the restrictions lapse could adversely affect the
72
<PAGE>
prevailing market price and the ability of the Company to raise equity capital
in the future. See "Risk Factors--Shares Eligible for Future Sale".
Upon completion of the offerings, the Company will have outstanding
35,752,542 shares of Common Stock (assuming no exercise of the underwriters'
over-allotment options or options to purchase the Company's Common Stock
outstanding as of August 31, 1998). Of these shares, the 7,700,000 shares sold
in the offerings will be freely tradable without restriction or further
registration under the Securities Act unless such shares are purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act (which sales would be subject to certain limitations and
restrictions described below). The remaining 28,052,542 shares held by existing
stockholders are Restricted Shares. Restricted Shares may be sold in the public
market only if registered under the Securities Act or pursuant to an exemption
from registration requirements under the Securities Act. As a result of the
Lock-Ups described below and the provisions of Rules 144, 144(k) and 701, the
Restricted Shares will be available for sale in the public market as follows:
(i) 143,342 shares will become eligible for sale 90 days after the date of this
Prospectus (ii) 25,847,534 shares will become eligible for sale upon expiration
of the Lock-Ups 180 days after the date of this Prospectus, and (iii) the
remaining 2,061,666 shares will become eligible for sale from time to time
thereafter.
Pursuant to the Lock-Ups signed by the officers, directors and certain
stockholders and option holders of the Company, the holders of 27,902,200 shares
and options to purchase 4,027,079 shares have agreed not to offer, pledge, sell,
offer to sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock (other than gifts subject to certain
restrictions) until 180 days after the date of this Prospectus without the prior
written consent of Goldman, Sachs & Co. The Company has also agreed not to sell,
grant any option to purchase or otherwise dispose of any shares of Common Stock
or any securities convertible into or exercisable or exchangeable for Common
Stock for a period of 180 days following the date of the Prospectus without the
prior written consent of Goldman, Sachs & Co. on behalf of the Underwriters,
subject to certain limited exceptions. See "Underwriting." Goldman, Sachs & Co.
in its sole discretion and without notice may earlier release for sale in the
public market all or any portion of the shares subject to the Lock-Ups.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for a least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (approximately 357,000 shares
immediately after the offerings) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144. Unless otherwise restricted,
"144(k) shares" may therefore be sold immediately upon the completion of the
offerings.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the offerings are entitled to sell such
shares 90 days after the closing of the offerings in reliance on Rule 144,
without having to comply with the holding period requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the volume
limitation or notice filing provisions of Rule 144. The Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the
73
<PAGE>
Exchange Act, along with the shares acquired upon exercise of such options
(including exercises after the date of the offerings). Upon completion of the
offerings, assuming no exercise of options outstanding as of August 31, 1998,
the Company will have outstanding options to purchase 4,772,851 shares of Common
Stock. If such options are exercised when vested, as a result of Rule 701 and
the Lock-Ups, the shares underlying such options would be available for sale in
the public market as follows: (i) 491,887 shares will become eligible for sale
90 days following the date of this Prospectus, (ii) 44,783 shares will become
eligible for sale from time to time between the 90th day and the 180th day after
the date of this Prospectus, (iii) 2,155,441 shares will become eligible for
sale 180 days after the date of this Prospectus, and (iv) the remaining
2,080,740 shares will become eligible for sale from time to time thereafter. As
soon as practicable after the completion of this offering, the Company intends
to file a Registration Statement on Form S-8 (the "Form S-8") under the
Securities Act to register the 8,696,750 shares of Common Stock reserved for
issuance under the 1997 Plan and the Directors Plan. After the date of such
filing, if not otherwise subject to a lock-up agreement, shares purchased
pursuant to such plans and options generally would be available for resale in
the public market. See "Management-- Stock Option Plans."
Holders of approximately 25,589,750 shares of Common Stock are currently
entitled to certain demand and piggyback registration rights with respect to
such shares. See "Description of Capital Stock--Registration Rights".
74
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by Pepper Hamilton LLP. Certain legal
matters in connection with the offerings will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The consolidated financial statements of EXE at December 31, 1997 and for
the year then ended, and the consolidated financial statements of Dallas Systems
at December 31, 1996 and for each of the two years in the period then ended, and
at September 15, 1997 and for the eight and one-half months then ended,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Neptune as of December 31,1996 and for each of
the two years in the period ended December 31, 1996 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Prior to the Acquisition, Neptune had retained Price Waterhouse LLP as its
independent accountants and Dallas Systems had retained Ernst & Young LLP as its
independent auditors. On July 17, 1997, the Company dismissed Price Waterhouse
LLP and retained Ernst & Young LLP as its independent auditors. During the two
years ended December 31, 1996 and through the date of change in accountants,
there were no disagreements between Neptune and Price Waterhouse LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Price Waterhouse LLP, would have caused them to make reference
thereto in their report on the financial statements for such years. The reports
of Price Waterhouse LLP on Neptune's financial statements as of December 31,
1995 and 1996 and for the years then ended did not contain an adverse opinion or
a disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. The change in independent accountants was
approved by the Board of Directors of the Company in connection with the
Acquisition.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete, and in each instance, reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N. W., Washington,
D.C. 20549, and at the following regional offices of the Commission:
75
<PAGE>
Seven World Trade Center, Room 1400, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N. W., Washington, D.C. 20549, Room 1024, at
prescribed rates. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The
Commission maintains a World Wide Web Site at HTTP://WWW.SEC.GOV that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
76
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
EXE Technologies, Inc. and Subsidiaries
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Report of Price Waterhouse LLP, Independent Accountants.............................. F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(Unaudited)........................................................................ F-4
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996,
and 1997 and the Six-Month Periods Ended June 30, 1997 and 1998 (Unaudited)........ F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1996, and 1997 and the Six-Month Period Ended June 30, 1998 (Unaudited)...... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996,
and 1997 and the Six-Month Periods Ended June 30, 1997 and 1998 (Unaudited)........ F-7
Notes to Consolidated Financial Statements........................................... F-9
Dallas Systems Corporation and Subsidiary
Report of Ernst & Young LLP, Independent Auditors.................................... F-28
Consolidated Balance Sheets as of December 31, 1996 and September 15, 1997........... F-29
Consolidated Statements of Operations for the Years Ended December 31, 1995 and 1996,
and the Eight and One-Half Month Period Ended September 15, 1997................... F-30
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995
and 1996, and the Eight and One-Half Month Period Ended September 15, 1997......... F-31
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and 1996,
and the Eight and One-Half Month Period Ended September 15, 1997................... F-32
Notes to Consolidated Financial Statements........................................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
EXE Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of EXE
Technologies, Inc. and Subsidiaries (the Company) as of December 31, 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EXE
Technologies, Inc. and Subsidiaries at December 31, 1997, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
July 10, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Neptune Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Neptune
Systems, Inc. and its subsidiary at December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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 the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
April 18, 1997
F-3
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------ JUNE 30,
1996 1997 1998
---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $1,803,589 $ 6,652,628 $ 1,109,810
Investments.............................................................. 235,428 -- --
Accounts receivable, net of allowance for doubtful accounts, returns and
adjustments of approximately $57,000 and $990,000 at December 31, 1996
and 1997, respectively, and approximately $1,284,000 at June 30,
1998................................................................... 1,245,194 17,622,538 24,020,529
Other receivables and advances........................................... 459,925 1,331,045 524,433
Deferred income taxes.................................................... -- 1,262,277 1,007,960
Prepaid and other current assets......................................... 57,952 1,200,126 1,342,037
---------- ------------ ------------
Total current assets....................................................... 3,802,088 28,068,614 28,004,769
Property and equipment, net.............................................. 693,412 4,313,194 7,040,301
Other assets............................................................. 230,938 496,948 1,474,287
Capitalized software, net of amortization of $102,000 at December 31,
1996................................................................... 481,535 -- --
Intangible assets, net of amortization of $588,000 at December 31, 1997
and $1,379,000 at June 30, 1998........................................ -- 7,370,097 6,829,029
---------- ------------ ------------
Total assets............................................................... $5,207,973 $ 40,248,853 $ 43,348,386
---------- ------------ ------------
---------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 622,835 $ 6,427,054 $ 4,789,381
Current portion of long-term debt........................................ 666,300 8,717 8,717
Accrued payroll and benefits............................................. 131,614 1,717,181 1,579,067
Deferred revenue......................................................... 731,773 4,913,404 5,197,357
Accrual for acquired contract obligations................................ -- 1,233,805 532,976
Income tax payable....................................................... -- 58,656 325,438
Accrued expenses......................................................... 131,783 1,670,639 1,506,720
---------- ------------ ------------
Total current liabilities................................................ 2,284,305 16,029,456 13,939,656
Long-term liabilities:
Long-term debt, net of current portion................................... 589,672 17,090 6,705,675
Deferred income taxes.................................................... -- 2,380,487 2,167,834
---------- ------------ ------------
Total long-term liabilities.............................................. 589,672 2,397,577 8,873,509
Commitments and contingencies
Minority interest........................................................ 300,323 215,153 289,387
Stockholders' equity:
Preferred stock, Series A, $.01 par value:
Issued and outstanding shares--none at December 31, 1996 and 6,764,043
at December 31, 1997 and June 30, 1998
Aggregate liquidation value--$15,000,000............................... -- 15,000,000 15,000,000
Preferred stock, Series B, $.01 par value:
Issued and outstanding shares--none at December 31, 1996 and 4,573,519
at December 31, 1997 and June 30, 1998
Aggregate liquidation value--$10,000,000............................... -- 10,000,000 10,000,000
Common stock, Class A voting, $.01 par value: Authorized
shares--45,000,000
Issued shares--8,500,000 at December 31, 1996, 16,318,254 at December
31, 1997 and 16,634,920 at June 30, 1998............................. 85,000 163,183 166,349
Common stock, Class B non-voting, $.01 par value: Authorized shares--
5,000,000: Issued and outstanding shares--none at December 31, 1996 and
1997 and 2,875 at June 30, 1998........................................ -- -- 29
Additional paid-in capital............................................... -- 19,395,389 21,155,278
Treasury stock, at cost, none and 4,177 shares of Class A at December 31,
1996 and 1997, respectively, and 904,425 at June 30, 1998.............. -- (9,262) (3,097,791)
Retained earnings (accumulated deficit).................................. 1,949,752 (22,785,842) (22,206,236)
Deferred compensation.................................................... -- -- (632,160)
Foreign currency translation adjustment.................................. (1,079) (156,801) (139,635)
---------- ------------ ------------
Total stockholders' equity................................................. 2,033,673 21,606,667 20,245,834
---------- ------------ ------------
Total liabilities and stockholders' equity................................. $5,207,973 $ 40,248,853 $ 43,348,386
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ -------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses...................... $ 1,085,253 $ 4,326,319 $ 8,428,538 $ 2,259,105 $ 15,257,370
Services and maintenance............... 1,430,965 3,389,989 12,781,016 1,543,690 26,820,473
Resale software and equipment.......... 251,982 697,860 5,561,963 212,640 3,850,615
------------ ------------ -------------- ------------ -------------
Total revenues........................... 2,768,200 8,414,168 26,771,517 4,015,435 45,928,458
Costs and expenses:
Cost of software licenses.............. -- 205,833 748,777 124,666 152,574
Cost of services and maintenance....... 988,654 2,145,992 9,966,923 881,227 19,875,935
Cost of resale software and
equipment............................ 192,932 607,997 4,128,525 188,142 2,900,795
Sales and marketing.................... 555,590 1,258,520 6,720,882 1,149,007 9,917,269
Research and development............... -- 600,219 3,533,875 826,357 6,840,181
General and administrative............. 588,781 2,218,642 4,263,402 1,120,833 4,463,954
Amortization of intangibles............ -- -- 588,343 -- 791,068
Write-off of in-process research and
development.......................... -- -- 19,700,000 -- --
------------ ------------ -------------- ------------ -------------
Total costs and expenses................. 2,325,957 7,037,203 49,650,727 4,290,232 44,941,776
------------ ------------ -------------- ------------ -------------
Operating income (loss).................. 442,243 1,376,965 (22,879,210) (274,797) 986,682
Other income (expense):
Interest and dividend income........... 27,329 64,750 177,250 30,571 80,306
Interest expense....................... (45,379) (86,808) (157,627) (48,999) (70,126)
Other.................................. 6,986 -- (227,085) 51,681 14,375
------------ ------------ -------------- ------------ -------------
Total other income (expense)............. (11,064) (22,058) (207,462) 33,253 24,555
------------ ------------ -------------- ------------ -------------
Income (loss) before minority interest
and taxes.............................. 431,179 1,354,907 (23,086,672) (241,544) 1,011,237
Minority interest in subsidiary loss
(income)............................... -- 93,571 75,729 (21,023) (74,536)
------------ ------------ -------------- ------------ -------------
Income (loss) before taxes............... 431,179 1,448,478 (23,010,943) (262,567) 936,701
Income tax provision (benefit)........... -- -- (225,101) (95,301) 357,095
------------ ------------ -------------- ------------ -------------
Historical net income (loss)............. $ 431,179 $ 1,448,478 $ (22,785,842) $ (167,266) $ 579,606
------------ ------------ -------------- ------------ -------------
------------ ------------ -------------- ------------ -------------
Historical net income (loss) per common
share--basic........................... $ 0.05 $ 0.17 $ (2.03) $ (0.02) $ 0.04
------------ ------------ -------------- ------------ -------------
------------ ------------ -------------- ------------ -------------
Historical net income (loss) per common
share--diluted......................... $ 0.05 $ 0.17 $ (2.03) $ (0.02) $ 0.02
------------ ------------ -------------- ------------ -------------
------------ ------------ -------------- ------------ -------------
Unaudited pro forma information:
Historical net income.................. $ 431,179 $ 1,448,478
Pro forma income taxes................. 157,596 608,576
------------ ------------
Pro forma net income................... $ 273,583 $ 839,902
------------ ------------
------------ ------------
Pro forma net income per common
share--basic......................... $ 0.03 $ 0.10
------------ ------------
------------ ------------
Pro forma net income per common
share--diluted....................... $ 0.03 $ 0.10
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK, CLASS A COMMON STOCK, CLASS B PREFERRED STOCK, PREFERRED STOCK,
SERIES A SERIES B
---------------------- -------------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1994............. 8,500,000 $ 85,000 -- $ -- -- $ --
Historical net
income............. -- -- -- -- -- --
--
--------- ----------- ----- --------- ---------- --------- ----------
Balances at December
31, 1995............. 8,500,000 85,000 -- -- -- --
Historical net
income............... -- -- -- -- -- --
Distributions to
shareholders......... -- -- -- -- -- --
Unrealized foreign
currency translation
loss................. -- -- -- -- -- --
--
--------- ----------- ----- --------- ---------- --------- ----------
Balances at December
31, 1996............. 8,500,000 85,000 -- -- -- --
Net loss............. -- -- -- -- -- --
Issuance of common
stock.............. 1,365,179 13,652 -- -- -- --
Distributions to
shareholders....... -- -- -- -- -- --
Reclassification of
retained earnings
to paid-in
capital............ -- -- -- -- -- --
The Acquisition
Transaction:
Net proceeds from
issuance of
preferred
stock............ -- -- 6,764,043 15,000,000 4,573,519 10,000,000
Acquisition of
Dallas........... 6,453,075 64,531 -- -- -- --
Purchase of treasury
stock.............. -- -- -- -- -- --
Unrealized foreign
currency
translation loss... -- -- -- -- -- --
--
--------- ----------- ----- --------- ---------- --------- ----------
Balances at December
31, 1997............. 16,318,254 163,183 6,764,043 15,000,000 4,573,519 10,000,000
Net income
(unaudited)........ -- -- -- -- -- --
Issuance of common
stock
(unaudited)........ 316,666 3,166 2,875 29 -- -- -- --
Purchase of treasury
stock
(unaudited)........ -- -- -- -- -- -- -- --
Deferred compensation
related to stock
options
(unaudited)........ -- -- -- -- -- -- -- --
Amortization of
deferred
compensation
(unaudited)........ -- -- -- -- -- -- -- --
Unrealized foreign
currency
translation gain
(unaudited)........ -- -- -- -- -- -- -- --
--
--------- ----------- ----- --------- ---------- --------- ----------
Balances at June 30,
1998 (unaudited)..... 16,634,920 $ 166,349 2,875 29 6,764,043 $15,000,000 4,573,519 $10,000,000
--
--
--------- ----------- ----- --------- ---------- --------- ----------
--------- ----------- ----- --------- ---------- --------- ----------
<CAPTION>
RETAINED FOREIGN
ADDITIONAL TREASURY STOCK EARNINGS CURRENCY
PAID-IN ----------------------- (ACCUMULATED DEFERRED TRANSLATION
CAPITAL SHARES AMOUNT DEFICIT) COMPENSATION ADJUSTMENT TOTAL
---------- ----------- ---------- -------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December
31, 1994............. $ -- -- $ -- $ 300,245 -- $ -- $ 385,245
Historical net
income............. -- -- -- 431,179 -- -- 431,179
---------- ----------- ---------- -------------- --------------- ----------- ----------
Balances at December
31, 1995............. -- -- -- 731,424 -- -- 816,424
Historical net
income............... -- -- -- 1,448,478 -- -- 1,448,478
Distributions to
shareholders......... -- -- -- (230,150) -- -- (230,150)
Unrealized foreign
currency translation
loss................. -- -- -- -- -- (1,079) (1,079)
---------- ----------- ---------- -------------- --------------- ----------- ----------
Balances at December
31, 1996............. -- -- -- 1,949,752 -- (1,079) 2,033,673
Net loss............. -- -- -- (22,785,842) -- -- (22,785,842)
Issuance of common
stock.............. 3,686,348 -- -- -- -- -- 3,700,000
Distributions to
shareholders....... -- -- -- (1,376,180) -- -- (1,376,180)
Reclassification of
retained earnings
to paid-in
capital............ 573,572 -- -- (573,572) -- -- --
The Acquisition
Transaction:
Net proceeds from
issuance of
preferred
stock............ -- -- -- -- -- -- 25,000,000
Acquisition of
Dallas........... 15,135,469 -- -- -- -- -- 15,200,000
Purchase of treasury
stock.............. -- 4,177 (9,262) -- -- -- (9,262)
Unrealized foreign
currency
translation loss... -- -- -- -- -- (155,722) (155,722)
---------- ----------- ---------- -------------- --------------- ----------- ----------
Balances at December
31, 1997............. 19,395,389 4,177 (9,262) (22,785,842) -- (156,801) 21,606,667
Net income
(unaudited)........ -- -- -- 579,606 -- -- 579,606
Issuance of common
stock
(unaudited)........ 948,679 -- -- -- -- -- 951,874
Purchase of treasury
stock
(unaudited)........ -- 900,248 (3,088,529) -- -- -- (3,088,529)
Deferred compensation
related to stock
options
(unaudited)........ 811,210 -- -- -- (811,210) -- --
Amortization of
deferred
compensation
(unaudited)........ -- -- -- -- 179,050 -- 179,050
Unrealized foreign
currency
translation gain
(unaudited)........ -- -- -- -- -- 17,166 17,166
---------- ----------- ---------- -------------- --------------- ----------- ----------
Balances at June 30,
1998 (unaudited)..... $21,155,278 904,425 $(3,097,791) $(22,206,236) $(632,160) $(139,635) $20,245,834
---------- ----------- ---------- -------------- --------------- ----------- ----------
---------- ----------- ---------- -------------- --------------- ----------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ---------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Historical net income
(loss)...................... $ 431,179 $1,448,478 $(22,785,842) $ (167,266) $ 579,606
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities, net of
the effect of the Dallas
acquisition:
Depreciation and
amortization.............. 74,660 303,981 1,800,198 215,217 1,977,757
Provision for losses on
receivables............... 20,721 368,948 634,449 -- 325,376
Amortization of deferred
compensation.............. -- -- -- -- 179,050
Deferred income taxes....... -- -- 768,766 (112,978) 41,664
Write-off of in-process
research and development.. -- -- 19,700,000 -- --
Minority interest........... -- (93,571) (85,170) 21,023 74,234
Changes in operating assets
and liabilities:
Accounts receivable....... (287,726) (793,968) (5,715,607) (238,393) (6,723,367)
Other receivables and
advances................ (12,110) (174,151) (239,208) (198,427) 806,612
Prepaids and other
assets.................. (25,338) (477,695) (205,228) (41,686) (141,911)
Accounts payable.......... 86,221 442,129 3,094,483 (280,456) (1,637,673)
Accrued payroll and
benefits................ 111,554 (5,885) 886,915 21,393 (138,114)
Deferred revenue and
accrual for acquired
contract obligations.... 520,011 211,762 2,531,525 (559,463) (416,876)
Income tax payable........ -- -- (1,169,491) 17,677 266,782
Accrued expenses.......... 52,038 52,081 (637,752) 70,690 (413,919)
Other..................... -- (1,079) (249,739) 238,672 (1,162,929)
--------- ---------- ------------ ----------- -----------
Net cash provided by (used in)
operating activities........ 971,210 1,281,030 (1,671,701) (1,013,997) (6,383,708)
</TABLE>
F-7
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
----------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- ---------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Investing Activities
Sales of investments.......... -- -- 235,428 235,428 --
Purchase of investments....... (16,089) (6,407) -- -- --
Purchases of property and
equipment................... (170,539) (683,913) (2,296,252) (340,551) (3,913,796)
Net proceeds from sale of
fixed assets................ -- -- -- -- 202,756
Additions to capitalized
software.................... (308,514) (275,859) -- -- --
Cash acquired in
Transaction................. -- -- 1,579,591 -- --
--------- ---------- ------------ ----------- -----------
Net cash used in investing
activities.................. (495,142) (966,179) (481,233) (105,123) (3,711,040)
Financing Activities
Issuance of preferred stock... -- -- 25,000,000 -- --
Issuance of common stock...... -- -- 3,700,000 1,975,000 951,874
Payments to acquire common
stock of Dallas Systems..... -- -- (15,000,000) -- --
Distributions to
shareholders................ -- (230,150) (1,376,180) (269,000) --
Payments on long-term debt.... -- -- (1,386,468) (33,333) --
Proceeds from long-term
debt........................ -- 755,972 -- -- 6,688,585
Payments on revolving line of
credit...................... -- -- (3,926,117) -- --
Purchase of treasury stock.... -- -- (9,262) -- (3,088,529)
Cash received from minority
interest.................... 393,891 -- -- --
--------- ---------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities........ -- 919,713 7,001,973 1,672,667 4,551,930
--------- ---------- ------------ ----------- -----------
Net increase (decrease) in
cash and cash equivalents... 476,068 1,234,564 4,849,039 553,547 (5,542,818)
Cash and cash equivalents at
beginning of year........... 92,957 569,025 1,803,589 1,803,589 6,652,628
--------- ---------- ------------ ----------- -----------
Cash and cash equivalents at
end of period............... $ 569,025 $1,803,589 $ 6,652,628 $ 2,357,136 $ 1,109,810
--------- ---------- ------------ ----------- -----------
--------- ---------- ------------ ----------- -----------
Supplemental Cash Flows
Information
Cash paid for interest........ $ 45,379 $ 91,672 $ 194,618 $ 34,416 $ 45,002
--------- ---------- ------------ ----------- -----------
--------- ---------- ------------ ----------- -----------
</TABLE>
See accompanying notes.
F-8
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EXE Technologies, Inc. (the Company or EXE), is a leading provider of supply
chain execution software. EXE was formed on September 15, 1997, by the merger of
Neptune Systems, Inc. (Neptune) and Dallas Systems Corporation (Dallas Systems)
into EXE. Both Neptune, which was incorporated in 1992, and Dallas Systems,
which was established in 1980, provided logistics solutions since their
inception. The Company operates from its headquarters located in Dallas, Texas
and through its various subsidiary and sales offices serving Asia Pacific and
the Middle East from Melbourne, Australia; Hong Kong, China; Dubai, United Arab
Emirates; Kuala Lumpur, Malaysia; and Europe from Bracknell, United Kingdom. In
addition, the Company has a 51% interest in a joint venture with Fuji
SystemHouse, a Japanese corporation, to operate EXE Technologies (SEA) Pte. Ltd.
(formed in 1996 and formerly known as Triton SystemHouse Pte. Ltd.), a Singapore
corporation which also is engaged in licensing software and providing services
for the logistics industry in Southeast Asia.
The consolidated financial statements of the Company include the accounts of
the Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. Minority interest relates to EXE
Technologies (SEA) Pte. Ltd. Sales and net income (loss) of this joint venture
were approximately $906,000 and ($191,000) for the year ended December 31, 1996,
$2,942,000 and ($155,000) for the year ended December 31, 1997, $1,678,000 and
$43,000 for the six months ended June 30, 1997, and $1,293,000 and $152,000 for
the six months ended June 30, 1998.
2. FORMATION OF EXE
EXE was formed as a result of simultaneous interdependent transactions (the
Transaction) through which ultimately the stockholders of Neptune and Dallas
Systems exchanged their stock in Neptune and Dallas Systems for stock in EXE and
an investment group made a capital investment in EXE. In the transactions, the
following steps occurred:
a. the former shareholders of Neptune received 9,819,444 shares of EXE
Common Stock, Class A in exchange for their subscribed and issued and
outstanding shares.
b. The former shareholders of Dallas Systems received $15 million in cash
and 6,453,075 shares (6,764,043 including outstanding options to purchase
common stock) of EXE Common Stock, Class A for their shares.
c. The investment group received 6,764,043 shares of Series A Convertible
Participating Preferred Stock (Series A Preferred Stock) for their $15
million investment in EXE.
d. The investment group then made an additional investment of $10 million
to purchase 4,573,519 shares of Series B Convertible Preferred Stock
(Series B Preferred Stock).
The transaction was accounted for as a purchase of Dallas Systems by
Neptune. As such, the financial statements of Neptune are presented as the
historical financial statements of the combined companies, and the assets and
liabilities of Dallas Systems have been recorded at fair value. The equity of
Neptune has been presented as the equity of the combined companies. All share
and per share amounts of Neptune have been retroactively restated to reflect the
par value of the new Class A Common Stock. The consolidated results of
operations and cash flows for EXE exclude the results of operations and cash
flows of Dallas Systems prior to the date of acquisition.
F-9
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
2. FORMATION OF EXE (CONTINUED)
The legal form of the transaction occurred through the following
simultaneous interdependent transactions. Initially, $15 million was received
from the investment group through the sale of 6,764,043 shares of Series A
Preferred Stock. EXE then used the $15 million to purchase 6,764,043 shares of
Common Stock from the Dallas Systems shareholders, substantially all of which
was acquired from the former President and Chief Executive Officer of Dallas
Systems, and also issued 6,453,075 shares (6,764,043 including outstanding
options to purchase Common Stock) of its Common Stock Class A, to acquire the
remaining Dallas shares.
The value of the consideration exchanged in the Transaction was based on the
capital transaction in which the investment group paid $15 million for 6,764,043
shares of Series A Preferred Stock of EXE. That $15 million was then used to
acquire 6,764,043 shares of Dallas and the remaining 6,746,043 Shares of Dallas
were acquired through the issuance of an equal number of EXE Common Stock Class
A. The breakdown of the consideration, including transaction costs, exchanged in
excess of the fair value of the net assets acquired is as follows:
<TABLE>
<CAPTION>
<S> <C>
Consideration exchanged:
Cash........................................................ $15,000,000
EXE Common Stock, Class A................................... 15,000,000
Transaction costs........................................... 200,000
-----------
$30,200,000
-----------
-----------
Fair value of tangible assets acquired, net of fair value of
liabilities assumed......................................... 2,541,560
-----------
Excess of consideration received over the fair value of
tangible net assets acquired................................ $27,658,440
-----------
-----------
Excess of consideration received over the fair value of net
tangible assets acquired, applied:
Purchased research and development.......................... $19,700,000
Intangible assets:
Developed technology...................................... 3,700,000
Assembled work force...................................... 1,350,000
Customer base............................................. 1,800,000
Goodwill.................................................. 1,108,440
-----------
$27,658,440
-----------
-----------
</TABLE>
Based on the results of an independent appraisal, $19.7 million of the
Dallas Systems purchase price was allocated to in-process research and
development costs at the date of acquisition and was recorded as an expense in
the Company's consolidated statement of operations for the year ended December
31, 1997. This write-off was necessary because the acquired technology had not
yet reached technological feasibility and had no future alternative use. The
Company is using the in-process research and development to develop new products
and additional functionality. The Company does not believe that there is
significant risk in completing the successful development of these technologies.
F-10
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
2. FORMATION OF EXE (CONTINUED)
The intangible assets, excluding assembled work force and goodwill,
resulting from the Transaction are amortized over six years based upon the
associated estimated revenue stream noted in the independent appraisal analysis.
Assembled work force and goodwill are amortized on a straight-line basis over a
three- and six-year period, respectively. The carrying value of intangible
assets will be reviewed if the facts and circumstances suggest that they may be
permanently impaired. If a comparison of the undiscounted cash flow method to
the carrying value of intangible assets indicates that the intangible assets
will not be recoverable, the asset will be reduced to its estimated recoverable
value. The carrying value of the goodwill was increased $250,000 during the six
months ended June 30, 1998 as a result of the accrual of certain preacquisition
liabilities not previously identified. The amortization of intangibles related
to the acquisition was $588,343 during the year ended December 31, 1997 and
$791,068 for the six months ended June 30, 1998.
The following table presents unaudited pro forma information for EXE as if
the merger had taken place on January 1, 1997. This information is unaudited and
does not purport to represent the actual operating results had the Transaction
taken place January 1, 1997, nor does it purport to be indicative of the results
that will be obtained in the future. The $19.7 million write-off of the
in-process research and development costs at the date of acquisition, as well as
certain other non-recurring transaction related costs of approximately
$1,038,000, have been excluded from the pro forma statement of operations since
they represent non-recurring charges against operations resulting directly from
the Transaction.
F-11
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
2. FORMATION OF EXE (CONTINUED)
Additionally, amortization of intangibles and interest expense have been
adjusted to reflect a full year of amortization expense and the use of proceeds
from the sale of the preferred stock to retire debt as if the Transaction took
place on January 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
<S> <C>
(UNAUDITED)
Revenues:
Software licenses......................................... $ 11,466,531
Services and maintenance.................................. 34,897,999
Resale software and equipment............................. 13,510,132
--------------
Total revenues.............................................. 59,874,662
Cost and expenses:
Cost of licenses.......................................... 748,777
Cost of services and maintenance.......................... 26,931,453
Cost of resale software and equipment..................... 9,797,026
Sales and marketing....................................... 9,684,679
Research and development.................................. 7,351,183
General and administrative................................ 6,835,808
Amortization of intangibles............................... 1,692,631
--------------
Total costs and expenses.................................... 63,041,557
Operating loss.............................................. (3,166,895)
Other expense............................................... (2,566)
--------------
Loss before minority interest and taxes..................... (3,169,461)
Minority interest in subsidiary loss........................ 75,729
--------------
Loss before taxes........................................... (3,093,732)
Income tax benefit.......................................... (227,256)
--------------
Net loss.................................................... $ (2,866,476)
--------------
--------------
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues consist of software license revenues, consulting
service revenues, maintenance revenues and revenues from the resale of software
and equipment. Software license revenues for periods subsequent to December
31,1997, are recognized in accordance with the American Institute of Certified
Public Accountants' Statement of Position (SOP) 97-2, "Software Revenue
Recognition." Under SOP 97-2, software license revenues are recognized upon
execution of a contract and delivery of software, provided that the license fee
is fixed and determinable, no significant production, modification or
customization of the software is required, and collection is considered probable
by management. For periods prior to December 31, 1997, software license revenues
were recognized in accordance with
F-12
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOP 91-1, "Software Revenue Recognition." Under SOP 91-1, software license
revenues were recognized upon execution of a contract and shipment of the
software and after any customer cancellation right had expired, provided that no
significant vendor obligations remained outstanding, amounts were due within one
year, and collection was considered probable by management. The application of
SOP 97-2 did not have a material impact on the Company's consolidated financial
statements for the six month period ended June 30, 1998.
Revenue from consulting services is recognized as the services are provided.
Maintenance revenue is recognized on a straight-line basis over the period of
the obligation. Revenue from resale software and equipment is recognized upon
receipt of a purchase order and shipment of the equipment to the customer
provided the following criteria are met for transactions subsequent to December
31, 1997, which are subject to SOP 97-2: payment terms are fixed and
determinable, no significant production, modification or customization is
required, and collection is considered probable by management. Revenue from
resale software and equipment is recognized upon receipt of a purchase order and
shipment of the equipment to the customer provided the following criteria are
met for transactions subject to SOP 91-1: customer cancellation rights have
expired, no significant vendor obligations remained outstanding, amounts are due
within one year, and collection was considered probable by management.
During 1996, the Company terminated an existing license/royalty agreement.
The Company received $1,431,000 and $377,000 in 1996 and 1997, respectively,
from this license/royalty agreement. The termination of this agreement gives the
licensee royalty free rights to a discontinued version of its warehouse
management product but no rights to any future versions.
The Company warrants that its products will function substantially in
accordance with the documentation provided to customers for periods ranging from
three to twelve months. As of December 31, 1997, the Company has not incurred
any expenses related to warranty claims.
During the year ended December 31, 1997, one customer represented
approximately 11% of total revenues. No single customer represented greater than
10% of total revenues during the years ended December 31, 1996 or 1995.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements as of June 30, 1998,
and for the six-months ended June 30, 1997 and 1998, have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. They do reflect all
adjustments (consisting only of normal recurring entries) which, in the opinion
of the Company's management, are necessary for a fair presentation of the
results for the interim periods presented.
The results of operations for the six-month period ended June 30, 1998, are
not necessarily indicative of the results that may be expected for any other
interim period or for the full year.
F-13
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair market value.
INVESTMENTS
The Company held investments in four mutual funds at December 31, 1996,
which are stated at market value based on quoted market prices. All such
investments are classified as trading securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" and accordingly unrealized changes in
value along with transaction gains and losses are reflected in the statements of
operations.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk principally consist of temporary cash investments
and accounts receivables, including receivables from license contracts. The
Company places temporary cash investments with financial institutions and limits
its exposure with any one financial institution. At December 31, 1997, one
customer represented approximately 11% of the total receivable balance. No
single customer represented greater than 10% of the total receivables balance at
December 31, 1996. The Company's billings are due upon receipt with collections
generally occurring within 30 to 60 days, and the Company does not require
collateral on accounts. A large portion of the Company's customer base is
composed of FORTUNE 1000 companies or foreign equivalents, which the Company
believes mitigates its credit risk. The Company maintains an allowance for
losses on receivables based upon the expected collectibility of all accounts
receivables. Writeoffs of receivables during the three years ended December 31,
1995, 1996 and 1997 were $124,255, $320,574 and $150,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. The
straight-line method of depreciation was adopted for all computer equipment
placed into service after January 1, 1997. For computer equipment acquired prior
to January 1, 1997, depreciation is computed using an accelerated method. All
other property and equipment is depreciated using the straight-line method. The
Company believes the new method will more appropriately reflect its financial
results by better allocating costs of computer equipment over the useful lives
of these assets. The effect of this change on net loss and net loss per share
for 1997 was not material.
The estimated useful lives of property and equipment are as follows:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment................................................... 3-5
Furniture and equipment.............................................. 5-7
Leasehold improvements............................................... 9-15
Other................................................................ 30
</TABLE>
F-14
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation expense for the years ended December 31, 1995, 1996, and 1997
was $74,660, $201,143, and $730,320, respectively. Depreciation expense for the
six-month periods ended June 30, 1997 and 1998, was $95,216 and $1,186,689,
respectively.
INCOME TAXES
Effective February 1, 1997, the Company changed its taxable status from an S
Corporation to a C Corporation. Prior to February 1, 1997, the Company was an S
Corporation under the provisions of the Internal Revenue Code of 1986, as
amended; therefore, the Company was not subject to federal income taxes. The
income or loss of the Company was included in the owners' individual federal and
state tax returns, and as such, no provision for income taxes has been recorded
on a historical basis in the accompanying statements of operations for the years
ended December 31, 1995 and 1996. Subsequent to January 31, 1997, the Company
accounts for income taxes using the liability method under the provisions of
SFAS 109, "Accounting for Income Taxes."
A provision for income taxes on a pro forma basis as if the Company were
liable for federal and state income taxes as a taxable corporate entity for the
years ended December 31, 1995 and 1996 is presented. The impact was not material
for 1997. The pro forma income tax provision has been computed by applying the
Company's anticipated statutory tax rate to pretax income, adjusted for
permanent tax differences. (See Note 6.)
SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS 86, "Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed," software development costs are
expensed as incurred until technological feasibility has been established, at
which time such costs are capitalized until the product is available for general
release to customers. Prior to the merger, Neptune incurred amortization expense
of $258,737 and $102,838 during the eight-and-one-half-month period ended
September 15, 1997 and the year ended December 31, 1996, respectively, utilizing
a straight-line method of amortization with a useful life of three years.
Subsequent to the merger, a revaluation of the technology associated with the
capitalization of software was conducted and the remaining unamortized software
cost of $222,798 was written off due to the diminished value the software would
have to the ongoing operations of the Company post merger. In general and during
the current year, the establishment of technological feasibility of the
Company's products and general release of such software have substantially
coincided. As a result, software development costs qualifying for capitalization
have been insignificant and, therefore, the Company has expensed all software
development costs.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans utilizing the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," because, as discussed in Note 7, the alternative fair
value accounting provided for under SFAS 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. However, SFAS 123 requires
disclosure of pro forma information
F-15
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
regarding net income and net income per share based on fair value accounting for
stock-based compensation plans.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign operations, where the local currency is the
functional currency, are translated using exchange rates in effect at period end
for assets and liabilities and average exchange rates during the period for
results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1996 balances to
conform with the 1997 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
DEFERRED REVENUE
Deferred revenue primarily represents amounts collected prior to complete
performance of maintenance services. Deferred revenue also consists of amounts
billed or received in advance of satisfying revenue recognition criteria.
EARNINGS PER SHARE
Basic net income (loss) per common share is computed using the weighted
average number of shares of common stock outstanding during each period. Diluted
net income (loss) per common share is computed using the weighted average number
of shares of common stock outstanding during each period and common equivalent
shares consisting of preferred stock and stock options (using the treasury stock
method).
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130
In 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements,
and was effective for the Company beginning January 1, 1998. For the periods
presented, the Company had unrealized foreign currency translation gains (loss),
which are components of comprehensive income, of $(1,079), $(155,722), $1,079,
and $17,166 for the years ended December 31, 1996 and 1997, and the six-month
periods ended June 30, 1997 and 1998, respectively.
F-16
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131
In 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997, and will be adopted by the
Company in connection with its 1998 annual financial statements. The Company is
still evaluating the impact of SFAS No. 131 on its reporting requirements.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which is required to be adopted in years
beginning after June 15, 1999. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
statement will have a significant effect on earnings or the financial position
of the Company.
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Computer equipment.................... $ 669,336 $ 3,965,746 7,351,774
Furniture and equipment............... 160,663 704,917 908,692
Leasehold improvements................ 171,894 389,091 556,051
Other................................. -- 274,522 350,303
---------- ----------- -----------
1,001,893 5,334,276 9,166,820
Accumulated depreciation.............. (308,481) (1,021,082) (2,126,519)
---------- ----------- -----------
$ 693,412 $ 4,313,194 7,040,301
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
5. DEBT
On December 1, 1997, the Company finalized a $13.5 million secured revolving
line of credit agreement (the Revolver) with a bank. At December 31, 1997 no
borrowings were outstanding under the Revolver, at June 30, 1998. The Company
had $13.5 million available under the terms of the agreement of which $6,692,854
in borrowings were outstanding. The Revolver's initial term is for thirty-six
months and is renewable annually with payments of interest monthly and any
principal due at maturity. Interest rates under the Revolver are at the bank's
prime rate less 1/2% or at the bank's LIBOR rate plus 1 1/2 to 2% LIBOR margin
points depending on the ratio achieved of debt to cash flow per a predefined
matrix in the agreement. The Revolver is secured by receivables and fixed
assets.
Advances under the Revolver are up to 2 1/2 times a rolling four quarter
calculation of cash flow (as defined by the agreement which includes adjustments
for depreciation, amortization, and other
F-17
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
5. DEBT (CONTINUED)
non cash expenses plus an allowance for cash expenses of $2 million in year one,
$1 million in year two and $500,000 in year three). The Revolver also includes
specific performance covenants which include minimum defined debt and interest
coverage ratios.
At December 31, 1996, the Company had a $500,000 note payable for working
capital needs with interest at 8% and $755,972 outstanding under a revolving
line of credit and equipment loan facility with interest at prime plus .5% and
prime plus .75%, respectively. All balances were paid during 1997.
6. INCOME TAXES
Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
--------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal............................ $ -- $ -- $(1,019,161) $ -- $ 36,445
State.............................. -- -- (1,406) -- 12,705
Foreign............................ -- -- 26,700 17,677 266,281
Deferred:
Federal............................ -- -- 683,027 (104,834) 37,516
State.............................. -- -- 85,739 (8,144) 4,148
Foreign............................ -- -- -- -- --
--------- --------- ----------- --------- ---------
Total................................ $ -- $ -- $ (225,101) $ (95,301) $ 357,095
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Expense (benefit) computed at federal $ 146,601 $ 492,483 $(7,828,811)
statutory rate........................
Non-deductible in-process research and -- -- 6,774,127
development expense and merger costs..
State income taxes, net of federal tax 5,608 48,940 33,324
effect................................
Net operating loss...................... -- -- 178,181
S Corporation loss...................... -- -- 88,093
Conversion from S Corporation to C -- -- 267,394
Corporation...........................
Increase in valuation allowance......... -- 64,791 87,128
Other, net.............................. 5,387 2,362 175,463
Income taxed directly to shareholders... (157,596) (608,576) --
--------- --------- -----------
Income tax provision (benefit).......... $ -- $ -- $ (225,101)
--------- --------- -----------
--------- --------- -----------
</TABLE>
F-18
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
The provision for income taxes for the six month periods June 30, 1997 and
1998 differ from the amounts computed at the federal statutory rate primarily as
a result of state income taxes.
Components of the provision (benefit) for income taxes on an unaudited
proforma basis for the years ended December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Current:
Federal............................................. $ 201,977 $ 330,748
State............................................... 15,824 43,845
Deferred:
Federal............................................. (52,877) 203,676
State............................................... (7,328) 30,307
--------- ---------
Total................................................. $ 157,596 $ 608,576
--------- ---------
--------- ---------
</TABLE>
The provision (benefit) for income taxes is reconciled with the federal
statutory rate on an unaudited proforma basis for the years ended December 31,
1995 and 1996 as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Benefit (expense) computed at federal statutory $ 146,601 $ 492,483
rate................................................
State income taxes, net of federal tax effect......... 5,608 48,940
Increase in valuation allowance....................... -- 64,791
Other, net............................................ 5,387 2,362
--------- ---------
Income tax provision (benefit)........................ $ 157,596 $ 608,576
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
<S> <C>
Deferred tax liabilities:
Identifiable intangible assets............................ $ (2,333,496)
--------------
Total deferred tax liabilities.............................. (2,333,496)
Deferred tax assets:
Bad debt reserves......................................... 332,730
Fixed assets.............................................. 26,558
Net operating losses...................................... 140,372
Accrued contract obligations.............................. 332,730
Accrued expenses.......................................... 370,453
Other, net................................................ 99,571
--------------
Total deferred tax assets................................... 1,302,414
Valuation allowance......................................... (87,128)
--------------
Total deferred tax assets, net.............................. 1,215,286
--------------
Deferred income tax liabilities, net of deferred income tax
assets.................................................... $ (1,118,210)
--------------
--------------
</TABLE>
At December 31, 1997, the Company had a federal net operating loss
carryforward and research and development credits of approximately $160,000 and
$50,000, respectively, both of which will expire in the year 2013. The Company
also had net operating loss carryforwards of approximately $250,000 in foreign
jurisdictions.
7. STOCK OPTIONS
On February 18, 1997, the Company adopted an incentive and non-qualified
stock option plan (the Plan). The Board of Directors, at their discretion, may
grant stock options to eligible participants, as defined. The options generally
vest over three years and the exercise price must be equal to or greater than
the market value of the Company's stock on the date of grant. The Company has
reserved 1,500,000 shares of the convertible Class B common stock for potential
distribution under the Plan, of which 557,650 shares were granted prior to the
Transaction.
In July 1997, Dallas adopted a non-qualified stock option plan (the Dallas
Plan) to permit certain key employees to purchase Class B common stock of
Dallas. Dallas recorded compensation expense of $139,000 for the difference
between the estimated fair market value of the Dallas stock and the grant price
related to certain grants prior to the Transaction. The options vested
immediately upon grant. No exercises, cancellations, or expirations occurred
preceding the Transaction. In connection with the Transaction, the options
outstanding under the Dallas Plan were converted into 310,967 options to
purchase shares of Class B Common Stock of the Company at substantially the same
terms and conditions, which were subsequently canceled and reissued at $2.00.
F-20
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
On September 16, 1997, the Company adopted the 1997 Incentive and
Nonqualified Stock Option Plan (the 1997 Plan) which replaced all previous plans
of Neptune and Dallas. Under the 1997 Plan, an aggregate of 4,500,000 shares of
Class B Common Stock are authorized for issuance. The 1997 Plan provides for the
grant of incentive stock options (ISOs) to employees of the Company and
nonqualified stock options (NQSOs) to employees or consultants. Exercise prices
for ISOs may not be less than fair market value and exercise prices for NQSOs
may be greater or less than fair market on the date of grant. The options vest
and become exercisable ratably over a four-year period and expire after 10 years
unless determined otherwise by the Board of Directors.
On September 16, 1997, the Company adopted the Non-Employee Directors Plan
(the Directors Plan). Under the Directors Plan, an aggregate of 300,000 shares
of Class B Common Stock are authorized for issuance. The Directors Plan provides
for the grant of a specified number of NQSOs to non-employee directors of the
Company as defined in the Directors Plan at exercise prices equal to the market
value of the Company's stock on the date of grant. The options vest over three
years. No grants were made under the Directors Plan.
Under the 1997 Plan, in the event of a change of control, the Board shall
have the right, in its sole discretion, to accelerate the vesting of all options
that have not vested as of the date of the change of control and/or establish an
earlier date for the expiration of the exercise of an option. In addition, in
the event of a change of control of the Company, the Board shall have the right,
in its sole discretion, subject to and conditioned upon a sale of the Company:
(a) to arrange for the successor company (or other entity) to assume all of the
rights and obligations of the Company under this Plan; or (b) to terminate this
Plan and (i) to pay to all optionees cash with respect to those options that are
vested as of the date of the sale of the Company in an amount equal to the
difference between the option price and the fair market value of a share of
common stock (determined as of the date the Plan is terminated) multiplied by
the number of options that are vested as of the date of the sale of the Company
which are held by the optionee as of the date of the sale of the Company, (ii)
to arrange for the exchange of all options for options to purchase common stock
in the successor corporation, or (iii) to distribute to each optionee other
property in an amount equal to and in the same form as the optionee would have
received from the successor corporation if the optionee had owned the shares
subject to options that are vested as of the date of the sale of the Company
rather than the option at the time of the sale of the Company. The form of
payment or distribution to the optionee pursuant to this section shall be
determined by the Board in its sole discretion.
F-21
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
Stock option transactions under the 1997 Plan for the year ended December
31, 1997 and the six months ended June 30, 1998, are summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
SHARES WEIGHTED
AVAILABLE FOR NUMBER OF AVERAGE
GRANT SHARES EXERCISE PRICE
------------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996
Authorized.................. 3,300,000 -- $ --
Grants...................... (1,239,013) 1,239,013 1.46
Transferred from the Dallas (310,967) 310,967 .66
Plan......................
Forfeitures................. 42,150 (42,150) .75
Canceled.................... 310,967 (310,967) .66
------------- ----------- -----
Balance at December 31, 2,103,137 1,196,863 1.48
1997........................
Authorized.................. 877,875 -- --
Grants...................... (2,808,758) 2,808,758 2.36
Exercised................... 2,875 (2,875) .75
Forfeitures................. 153,626 (153,626) 2.03
------------- ----------- -----
Balance at June 30,1998....... 328,755 3,849,120 $2.10
------------- ----------- -----
------------- ----------- -----
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1997, using a minimum value option pricing model was $.22 per
option resulting in pro forma net expense to the Company of approximately
$199,000 if the Company had accounted for its stock options granted in 1997
under the fair value method set forth in SFAS 123. At December 31, 1997, 913,363
shares are exercisable at the weighted average price of $1.39. The remaining
estimated contractual life of the 1,196,863 options outstanding is approximately
9.5 years at December 31, 1997.
As of July 8, 1998 the Company has reserved 4,500,000 shares of the Class B
Common Stock for potential distribution under the 1997 Plan, 300,000 shares of
the Class B Common Stock for potential distribution under the Directors Plan and
200,000 shares for other grants outside the plans. The Company has granted
102,656 options at $2.00 per share outside the plans to a former employee.
SFAS 123, ACCOUNTING FOR STOCK BASED COMPENSATION (SFAS 123), requires the
disclosure of pro forma net income and earnings per share information computed
as if the Company had accounted for its employee stock options granted under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
no volatility and the following weighted-average assumptions for 1997: a
risk-free interest rate ranging from 5.72% to 6.57%, no dividends, and an
expected life of three years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair
F-22
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
value estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. In addition, because options vest over several years and additional
option grants are expected, the effects of these hypothetical calculations are
not likely to be representative of similar future calculations.
The Company recorded deferred compensation expense of $811,210 for the
difference between the grant price and the deemed fair market value of certain
of the Company's common stock options granted during the three months ended
March 31, 1998. During this period the Company granted options to purchase
2,410,258 shares of Class B Common Stock with an exercise price of $2.00 per
share. Such exercise price was less than the deemed fair market value of the
Company's Class B Common Stock on the date of grant. The fair market value of
the Company's Class B Common Stock as determined by the Board of Directors on
the individual grant dates for these option grants ranged from $2.20 to $2.54.
The deferred compensation is being amortized ratably over the vesting period of
the individual options, generally three to four years. Compensation expense
recognized in the six months ended June 30,1998 totaled $179,050, and at June
30, 1998 deferred compensation totaled $632,160.
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, the Company advanced $923,432 to a
company which was owned by the former principal shareholders of Neptune. At
December 31, 1997, these advances, which were the result of a $750,000 cash
advance and $173,432 in services and expense reimbursements provided by EXE,
were outstanding. During 1998, the above amounts were paid in full. As part of
the Transaction, EXE was granted an option to acquire this entity for an
aggregate purchase price of $1.5 million. In May 1998, the former principal
shareholders of Neptune sold their entire interest in the company to the
company's primary shareholder at which time EXE repurchased 487,037 EXE common
shares for an aggregate price of $2,172,185 from the primary shareholder of the
company. In connection with that transaction, the company's outstanding
obligations to EXE were satisfied and EXE's option to purchase the company was
terminated.
The Company also loaned $200,000 to a shareholder at an interest rate of
8.5% and secured with EXE stock held by the shareholder. The note was repaid in
May 1998.
The Company also has various advances to officers and shareholders of the
Company. The total balance of these receivables at December 31, 1997 and June
30, 1998 was $52,574. Additionally, the Company has long-term notes receivable
from employees and shareholders which bear interest ranging from 7.8% to 8.5%
and have a remaining balance of $87,800 and $38,000 at December 31, 1997 and
June 30, 1998, respectively.
9. LEASE COMMITMENTS
The Company leases certain facilities and property and equipment for use in
operations. In May 1998, the Company entered into new ten and one-half year
leases of office space for the North American operations. The Company also
entered into a ten and one-half month sub-lease for the leases. The sub-lease is
with the original lessor of the facility. The leases provide for free rent
during the first six months and contain an escalation clause in year five of the
leases. The Company intends to recognize
F-23
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
9. LEASE COMMITMENTS (CONTINUED)
the total minimum lease payments as expense on the straight-line basis over the
lease term. The Company leases office space from a shareholder under a lease
which expires in August 2002 with monthly rental payments of $86,569. The
shareholder has a definitive agreement to sell the premises. The Company has
entered into an agreement with the shareholder pursuant to which the Company's
obligations under the lease will terminate upon the sale of the premises by the
shareholder, provided that the Company vacates the premises by December 1, 1998.
Following the sale of the premises, the Company has the option to remain on the
premises through February 28, 1999 for an aggregate cost of $435,000. If the
premises are not sold, the Company will remain obligated under the lease. The
minimum rental commitments under operating leases and the sub-lease, which
includes the new leases described above and the lease commitments with the
shareholder through November 30, 1998, and other leases with terms exceeding one
year are as follows:
<TABLE>
<CAPTION>
LEASE SUB-LEASE
EXPENSE INCOME
----------- ----------
<S> <C> <C>
1998.............................................. $ 2,196,526 $ --
1999.............................................. 3,648,748 218,016
2000.............................................. 4,730,541 421,524
2001.............................................. 4,551,253 421,524
2002.............................................. 4,505,095 421,524
Thereafter........................................ 25,866,440 2,831,472
----------- ----------
$45,498,603 $4,314,060
----------- ----------
----------- ----------
</TABLE>
Total rental expense was approximately $196,000, $401,000, and $1,264,000
for the years ended December 31, 1995, 1996, and 1997, respectively. Total rent
expense for the six month periods ended June 30, 1997 and 1998 was $283,000 and
$1,114,000, respectively. Included in rent expense is $297,514 and $255,012 paid
to a shareholder for facility rental in 1997 and 1998, respectively.
F-24
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
10. GEOGRAPHIC SEGMENT INFORMATION
Information about the Company's operations in different geographic areas as
of and for the years ended December 31, 1995, 1996 and 1997 and for the six
months ended June 30, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------ ------------------------
1995 1996 1997 1997 1998
---------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
North America............................................. $2,768,200 $7,508,464 $ 18,492,435 $2,337,431 $ 33,161,934
East Asia................................................. -- 905,704 3,136,032 1,678,004 3,075,202
Europe.................................................... -- -- 3,718,086 -- 6,297,000
Other..................................................... -- -- 1,424,964 -- 3,394,322
---------- ---------- ------------ ---------- ------------
Total....................................................... $2,768,200 $8,414,168 $ 26,771,517 $4,015,435 $ 45,928,458
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
Total assets:
North America............................................. $2,234,342 $3,692,010 $ 30,845,734 $4,248,931 $ 34,074,292
East Asia................................................. -- 1,515,963 1,480,914 1,852,493 3,094,047
Europe.................................................... -- -- 5,589,137 -- 4,496,750
Other..................................................... -- -- 2,333,068 -- 1,683,297
---------- ---------- ------------ ---------- ------------
Total....................................................... $2,234,342 $5,207,973 $ 40,248,853 $6,101,424 $ 43,348,386
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
Income (loss) before taxes:
North America............................................. $ 431,179 $1,639,440 $(22,980,135) $ (696,957) $ (1,005,167)
East Asia................................................. -- (190,962) (252,247) 434,390 (362,631)
Europe.................................................... -- -- 122,485 1,034,452
Other..................................................... -- -- 98,954 1,270,047
---------- ---------- ------------ ---------- ------------
Total....................................................... $ 431,179 $1,448,478 $(23,010,943) $ (262,567) $ 936,701
---------- ---------- ------------ ---------- ------------
---------- ---------- ------------ ---------- ------------
</TABLE>
Revenues of geographic areas are primarily comprised of the licensing of
software products; fees derived from implementation, training and maintenance
services; and revenue generated from the resale of database software and
computer equipment by the Company's operating subsidiaries. To date, a
significant component of the Company's revenues from international operations
have been denominated in United States dollars. Certain revenues and the
majority of the expenses incurred by the Company's international operations are
denominated in currencies other than the United States dollar. To date, the
Company has not experienced significant currency transaction gains and losses
and thus had not implemented strategies to hedge its foreign currency risk.
Identifiable assets of geographic areas are those assets related to the
Company's operations in each area. North American assets consist of all other
operating assets of the Company.
Income (loss) before taxes is determined by deducting from net revenues the
related costs and operating expenses attributable to the region. General
corporate expenses and research and development expenses have been included in
North American operations for purposes of computing income (loss) before taxes.
F-25
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
11. EMPLOYEE BENEFIT PLAN
As part of the Transaction, the Company assumed the obligations and adopted
the defined contribution plan of Dallas. The plan covers all employees located
in the United States who have completed one month of service and have attained
the age of twenty-one. The Company's contribution to the plan matches the first
5% of the employee's contributions of eligible earnings. Additionally,
discretionary contributions may also be made. The Company recognized expenses of
approximately $226,000 and $493,000 for the defined contribution plan during the
year ended December 31, 1997 and the six months ended June 30, 1998,
respectively.
12. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized a total of 15 million shares of Preferred Stock.
The Company sold preferred stock to an investment group in two separate
transactions. In the first transaction, the Company received $15 million in
exchange for 6,764,043 shares of Series A Preferred Stock, par value $.01 per
share. In the second transaction, the Company received $10 million in exchange
for 4,573,519 shares of Series B Preferred Stock, par value $.01 per share.
SERIES A PREFERRED STOCK
The Company has designated 7 million shares of its Preferred Stock as
"Series A Preferred Stock". These shares rank senior to all classes of common
stock and rank pari passu with Series B Preferred Stock. Each share of the
Series A Preferred Stock is convertible at the option of the holder into one
share of EXE common stock, subject to certain adjustments, and has voting rights
equal to the common shares. Any dividends paid to common stockholders shall also
be paid to these shareholders in the same amount and at the same time. These
shares have a liquidation preference at an amount equal to $2.21 per share plus
all outstanding dividends.
Upon occurrence of a "Trigger Event" (defined as a sale, merger, or initial
public offering), these shareholders are entitled to a participating payment
based upon the "Trigger Value" or market price of the shares as defined in the
agreement. If the Trigger Value is greater than five times the initial
investment price, no participation payment is required. If the Trigger Value is
less than four times the initial investment price, the participation payment
will be $15 million. If the Trigger Value is between four and five times the
initial investment price, the participation payment will be based on a pro rata
formula. The preferred shareholders retain their equity investment regardless of
any participation payment.
The holders of the Series A Preferred Stock have agreed to waive the
participation payment based upon the mid-point of the anticipated price range
per share of the shares of Common Stock of the Company to be offered in the
Company's initial public offering, as indicated in the Company's first
Registration Statement on Form S-1 filed with Securities and Exchange
Commission, being greater than or equal to $11 per share. The waiver terminates
under certain conditions including failure of the Registration Statement to
become effective by January 1, 1999.
The Company has reserved 6,764,043 shares of Class A common stock for
potential distribution upon the conversion of the Series A Preferred Stock.
F-26
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
SERIES B PREFERRED STOCK
The Company has designated 5 million shares of its Preferred Stock as
"Series B Preferred Stock". These shares rank senior to all classes of common
stock and rank pari passu with Series A Preferred Stock. Each share of the
Series B Preferred Stock is convertible at the option of the holder into one
share of EXE common stock, subject to certain adjustments, and has voting rights
equal to the common shares. Any dividends paid to common stockholders shall also
be paid to these shareholders in the same amount and at the same time. These
shares have a liquidation preference at an amount equal to $2.19 per share plus
all outstanding dividends.
The Company has reserved 4,573,519 shares of Class A Common Stock for
potential distribution upon the conversion of the Series B Preferred Stock.
SERIES C PREFERRED STOCK
On June 29, 1998, the Company designated 2 million shares of its Preferred
Stock as "Series C Preferred Stock" and on July 10, 1998, issued 1,600,000
shares at a price of $5 per share. These shares rank pari passu with Series A
and B Preferred Stock. Each share of the Series C Preferred Stock is convertible
at the option of the holder into one share of EXE common stock subject to
certain adjustments, and has voting rights equal to the common shares. Any
dividends paid to common stockholders shall also be paid to these shareholders
in the same amount and at the same time. These shares have liquidation
preference at a price equal to $5 per share plus all outstanding dividends.
In the event the Company pays a participation payment to the holders of
Series A Preferred Stock, in accordance with the Company's Certificate of
Incorporation, the Company will repay to the purchasers of the Series C
Preferred Stock a purchase price adjustment of up to $3 million. The total
amount of the purchase price adjustment owed to the purchasers of the Series C
Preferred Stock will be equal to 20% of the amount of the participation payment
actually received by the holders of the Series A Preferred Stock.
The holders of the Series C Preferred Stock have agreed to waive the
purchase price adjustment if the holders of the Series A Preferred Stock waive
their rights to the Participation Payment.
The Company has reserved 1.6 million shares of Class A Common Stock for
potential distribution upon the conversion of the Series C Preferred Stock.
CLASS B COMMON STOCK
The Company has authorized 5,000,000 shares of non-voting Class B Common
Stock. Each share outstanding and each outstanding stock option to purchase
Class B Common Stock will convert to Class A Common Stock or an option to
purchase Class A Common Stock, respectively, upon an initial public offering of
the Company's stock.
F-27
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS
ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED)
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except share and per share data):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income (loss) for basic and net
income (loss)--assuming
dilution.......................... $ 431,179 $1,448,478 $(22,785,842) $ (167,266) $ 579,606
---------- ---------- ------------ ---------- -----------
---------- ---------- ------------ ---------- -----------
Denominator:
Denominator for net income per
share--weighted average shares.... 8,500,000 8,500,000 11,228,407 8,899,376 15,855,315
Effect of dilutive securities:
Preferred Stock..................... -- -- -- -- 11,337,562
Employee stock options.............. -- -- -- -- 1,657,411
---------- ---------- ------------ ---------- -----------
Dilutive potential common shares.... -- -- -- -- 12,994,975
---------- ---------- ------------ ---------- -----------
Denominator for net income (loss)
per share--assuming
dilution--adjusted
weighted-average shares and
assumed conversion................ 8,500,000 8,500,000 11,228,407 8,899,376 28,393,317
---------- ---------- ------------ ---------- -----------
---------- ---------- ------------ ---------- -----------
Net income (loss) per common share.... $ 0.05 $ 0.17 $ (2.03) $ (0.02) $ 0.04
---------- ---------- ------------ ---------- -----------
---------- ---------- ------------ ---------- -----------
Net income (loss) per common share--
assuming dilution................... $ 0.05 $ 0.17 $ (2.03) $ (0.02) $ 0.02
---------- ---------- ------------ ---------- -----------
---------- ---------- ------------ ---------- -----------
</TABLE>
Upon the effectiveness of the proposed common stock offering, the Series A,
B and C Preferred Stock will convert to common stock. Supplemental basic
earnings per share as if the conversion of the Series A and B occurred would
equal net income per common share assuming dilution for the six months ended
June 30, 1998. The assumed conversion is antidilutive for the year ended
December 31, 1997.
14. CONTINGENCIES
On April 30, 1998, a former employee filed a lawsuit against the Company and
two of its officers alleging tortious interference with contract and prospective
business relationships, breach of contract, fraud and defamation. The former
employee is seeking compensatory damages in excess of $18,000,000. The Company
is vigorously defending the lawsuit and believes that the claim is without
merit.
The Company is involved in various other legal actions and claims which
arise in the normal course of business. In the opinion of management, the final
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
F-28
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Dallas Systems Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of Dallas
Systems Corporation and Subsidiary (the Company) as of December 31, 1996 and
September 15, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1995 and
1996 and the eight and one-half month period ended September 15, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dallas Systems
Corporation and Subsidiary at December 31, 1996 and September 15, 1997, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1995 and 1996 and the eight and one-half month period ended
September 15, 1997 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Dallas, Texas
July 10, 1998
F-29
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 1,574,604 $ 1,579,591
Accounts receivable, net of allowance for doubtful accounts
of $300,000 and $931,000 at December 31, 1996 and
September 15, 1997, respectively......................... 7,174,157 11,296,186
Prepaid and other current assets........................... 535,030 840,469
Deferred income taxes...................................... 192,965 977,441
-------------- --------------
Total current assets......................................... 9,476,756 14,693,687
Property and equipment, net................................ 4,897,091 2,397,035
Other assets............................................... 324,684 248,052
Intangible assets, net of amortization of $29,000 and
$33,000 at December 31, 1996 and September 15, 1997,
respectively............................................. 79,123 75,498
-------------- --------------
Total assets................................................. $ 14,777,654 $ 17,414,272
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 1,677,503 $ 3,637,852
Current portion of long-term debt.......................... 232,974 337,773
Revolving line of credit................................... 817,001 2,398,001
Accrued payroll and benefits............................... 951,117 698,652
Deferred revenue........................................... 915,980 1,598,221
Income tax payable......................................... 180,834 1,228,147
Accrued expenses........................................... 866,221 1,079,005
-------------- --------------
Total current liabilities.................................... 5,641,630 10,977,651
Long-term liabilities:
Long-term debt, net of current portion..................... 2,594,540 418,530
Other long-term liabilities................................ 5,426 --
-------------- --------------
Total long-term liabilities.................................. 2,599,966 418,530
Commitments and contingencies
Stockholders' equity:
Common stock, Class A voting--$0.0005 par value:
Authorized shares--1,000,000
Issued and outstanding shares--200,000................... 100 100
Common stock, Class B non-voting--$0.0005 par value:
Authorized shares--1,000,000
Issued shares--23,193 and 26,340 at December 31, 1996 and
September 15, 1997, respectively....................... 12 13
Additional paid-in capital................................. 485,781 1,333,000
Treasury stock, at cost, 1,492 and 1,902 shares of Class B
Common Stock at December 31, 1996 and September 15, 1997,
respectively............................................. (49,036) (87,146)
Retained earnings.......................................... 6,029,429 5,402,683
Foreign currency translation adjustment.................... 69,772 1,353
Less receivable from related party......................... -- (631,912)
-------------- --------------
Total stockholders' equity................................... 6,536,058 6,018,091
-------------- --------------
Total liabilities and stockholders' equity................... $ 14,777,654 $ 17,414,272
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes.
F-30
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT AND
ONE-HALF MONTH
DECEMBER 31 PERIOD ENDED
------------------------ SEPTEMBER 15,
1995 1996 1997
----------- ----------- --------------
<S> <C> <C> <C>
Revenues:
Software licenses.............................. $ 5,591,344 $ 7,001,880 $ 3,037,993
Services and maintenance....................... 16,627,131 22,054,630 22,116,983
Resale software and equipment.................. 5,024,871 5,133,473 7,948,169
----------- ----------- --------------
Total revenues................................... 27,243,346 34,189,983 33,103,145
Costs and expenses:
Cost of licenses, services and maintenance..... 14,398,584 17,926,481 17,039,193
Cost of resale software and equipment.......... 3,299,607 3,170,074 5,668,090
Sales and marketing............................ 2,131,074 2,662,638 2,972,020
Research and development....................... 3,980,004 5,502,176 3,908,150
General and administrative..................... 3,408,495 3,178,766 3,436,597
----------- ----------- --------------
Total costs and expenses......................... 27,217,764 32,440,135 33,024,050
----------- ----------- --------------
Operating income................................. 25,582 1,749,848 79,095
Other income (expense):
Interest expense............................... (218,450) (279,086) (238,695)
Interest income................................ 52,107 37,085 27,496
Other.......................................... 34,975 (59,454) 19,775
----------- ----------- --------------
Total other income (expense)..................... (131,368) (301,455) (191,424)
----------- ----------- --------------
Income (loss) before income taxes................ (105,786) 1,448,393 (112,329)
Provision (benefit) for income taxes............. (95,525) 339,395 514,417
----------- ----------- --------------
Net income (loss)................................ $ (10,261) $ 1,108,998 $ (626,746)
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
See accompanying notes.
F-31
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK,
CLASS A CLASS B ADDITIONAL TREASURY STOCK
---------------------- ---------------------- PAID-IN -----------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT
--------- ----------- --------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994......... 200,000 $ 100 22,023 $ 11 $ 454,593 227 $ (5,838)
Net loss.......................... -- -- -- -- -- -- --
Proceeds from sale of Class B
Common Stock.................... -- -- 1,170 1 31,188 -- --
Purchase of treasury stock........ -- -- -- -- -- 639 (23,145)
Unrealized foreign currency
translation loss................ -- -- -- -- -- -- --
--------- ----- --------- --- ------------ ----------- ----------
Balances, December 31, 1995......... 200,000 100 23,193 12 485,781 866 (28,983)
Net income........................ -- -- -- -- -- -- --
Purchase of treasury stock........ -- -- -- -- -- 626 (20,053)
Unrealized foreign currency
translation gain................ -- -- -- -- -- -- --
--------- ----- --------- --- ------------ ----------- ----------
Balances, December 31, 1996......... 200,000 100 23,193 12 485,781 1,492 (49,036)
Net loss.......................... -- -- -- -- -- -- --
Proceeds from sale of Class B
Common Stock.................... -- -- 3,147 1 76,307 -- --
Purchase of treasury stock........ -- -- -- -- -- 410 (38,110)
Stock option compensation
expense......................... -- -- -- -- 139,000 -- --
Contribution of capital........... -- -- -- -- 631,912 -- --
Unrealized foreign currency
translation loss................ -- -- -- -- -- -- --
Receivable from related party..... -- -- -- -- -- -- --
--------- ----- --------- --- ------------ ----------- ----------
Balances, September 15, 1997........ 200,000 $ 100 26,340 $ 13 $ 1,333,000 1,902 $ (87,146)
--------- ----- --------- --- ------------ ----------- ----------
--------- ----- --------- --- ------------ ----------- ----------
<CAPTION>
FOREIGN RECEIVABLE
CURRENCY FROM
RETAINED TRANSLATION RELATED
EARNINGS ADJUSTMENT PARTY TOTAL
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balances, December 31, 1994......... $ 4,930,692 $ (17,170) -- $ 5,362,388
Net loss.......................... (10,261) -- -- (10,261)
Proceeds from sale of Class B
Common Stock.................... -- -- -- 31,189
Purchase of treasury stock........ -- -- -- (23,145)
Unrealized foreign currency
translation loss................ -- (14,830) -- (14,830)
------------ ----------- ----------- ------------
Balances, December 31, 1995......... 4,920,431 (32,000) -- 5,345,341
Net income........................ 1,108,998 -- -- 1,108,998
Purchase of treasury stock........ -- -- -- (20,053)
Unrealized foreign currency
translation gain................ -- 101,772 -- 101,772
------------ ----------- ----------- ------------
Balances, December 31, 1996......... 6,029,429 69,772 -- 6,536,058
Net loss.......................... (626,746) -- -- (626,746)
Proceeds from sale of Class B
Common Stock.................... -- -- -- 76,308
Purchase of treasury stock........ -- -- -- (38,110)
Stock option compensation
expense......................... -- -- -- 139,000
Contribution of capital........... -- -- -- 631,912
Unrealized foreign currency
translation loss................ -- (68,419) -- (68,419)
Receivable from related party..... -- -- (631,912) (631,912)
------------ ----------- ----------- ------------
Balances, September 15, 1997........ $ 5,402,683 $ 1,353 $(631,912) $ 6,018,091
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT AND
ONE-HALF MONTH
DECEMBER 31 PERIOD ENDED
------------------------ SEPTEMBER 15,
1995 1996 1997
----------- ----------- ----------------
<S> <C> <C> <C>
Operating Activities
Net (loss) income................................. $ (10,261) $ 1,108,998 $ (626,746)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 1,193,982 1,292,608 834,450
Provision for losses on receivables............. 95,000 200,000 630,604
Gain on sale of equipment....................... -- -- (145,887)
Stock option compensation expense............... -- -- 139,000
Deferred income taxes........................... (96,516) (52,816) (784,476)
Changes in operating assets and liabilities:
Accounts receivable........................... 172,181 (1,426,510) (4,752,633)
Prepaids and other assets..................... (80,169) (293,949) (293,250)
Accounts payable.............................. 303,622 52,360 1,960,349
Accrued profit sharing and bonus.............. 51,083 734,396 (252,465)
Deferred revenue.............................. (429,762) (53,794) 682,241
Income tax payable............................ (230,095) (136,502) 1,047,313
Accrued expenses.............................. 131,144 (142,922) 212,784
Other......................................... (90,353) 84,938 (54,032)
----------- ----------- ----------------
Net cash provided by (used in) operating
activities...................................... 1,009,856 1,366,807 (1,402,748)
Investing Activities
Purchases of property and equipment............... (1,993,412) (810,228) (1,054,327)
Proceeds from asset deposits...................... -- -- 523,505
Increase in surrender value of life insurance..... (10,617) (10,277) --
----------- ----------- ----------------
Net cash used in investing activities............. (2,004,029) (820,505) (530,822)
Financing Activities
Borrowings (payments) on revolving line of
credit.......................................... 141,001 (24,000) 1,581,000
Proceeds from refinancing of building and land.... -- 1,119,845 --
Borrowings (payments) on long-term debt........... 131,771 (228,309) 324,785
Purchase of treasury stock........................ (23,145) (20,053) (38,110)
Proceeds from stock sale.......................... 31,189 -- 76,308
Refund of security deposits....................... (13,572) (1,735) (5,426)
----------- ----------- ----------------
Net cash provided by financing activities......... 267,244 845,748 1,938,557
----------- ----------- ----------------
Net increase (decrease) in cash and cash
equivalents..................................... (726,929) 1,392,050 4,987
Cash and cash equivalents at beginning of year.... 909,483 182,554 1,574,604
----------- ----------- ----------------
Cash and cash equivalents at end of year.......... $ 182,554 $ 1,574,604 $ 1,579,591
----------- ----------- ----------------
----------- ----------- ----------------
Supplemental Cash Flows Information
Cash paid for interest............................ $ 218,550 $ 284,323 $ 221,527
----------- ----------- ----------------
----------- ----------- ----------------
Cash paid for income taxes........................ $ 190,000 $ 305,000 $ 215,000
----------- ----------- ----------------
----------- ----------- ----------------
</TABLE>
See accompanying notes.
F-33
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 15, 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Dallas Systems Corporation and Subsidiary (the Company) is a leader in
providing integrated software products and consulting services addressing all
phases of the logistics process from manufacturing to consumer. The Company has
been providing software products and services to the logistics market since its
incorporation in 1980 and presently operates from its headquarters located in
Dallas, Texas, a sales office serving Asia Pacific from Melbourne, Australia,
and through its European Subsidiary, Dallas Systems Plc, located in Bracknell,
U.K.
The consolidated financial statements of the Company include the accounts of
the Company and its subsidiary. All significant intercompany transactions and
balances have been eliminated.
On July 31, 1997, the Company entered into a definitive agreement with
Neptune Systems, Inc. (Neptune) and an investment group to form EXE
Technologies, Inc. (EXE). EXE was formed as a result of a simultaneous
transaction (the Merger Transaction) in which the stockholders of Neptune and
the Company effectively exchanged their stock in the predecessor companies for
stock in EXE. The merger, which was completed September 15, 1997, was accounted
for pursuant to the purchase method of accounting as a reverse acquisition with
Neptune acquiring the Company. The consolidated financial statements of the
Company as of and for the eight and one-half month period ended September 15,
1997 do not reflect the Merger Transaction since the Company was the acquired
entity.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair market value.
REVENUE RECOGNITION
The Company's revenues consist of software license revenues, consulting
service revenues, maintenance revenues and revenues from the resale of software
and equipment. The Company recognizes revenue from software licenses upon the
delivery and acceptance of the software product to a customer, the receipt of a
signed license agreement, and after any customer cancellation right has expired,
provided no significant vendor obligations remain outstanding and collection is
probable. Revenue from consulting services is recognized as the services are
provided. Maintenance revenue is recognized on a straight-line basis over the
period of the obligation. Revenue from resale software and equipment is
recognized upon execution of a contract and shipment of the equipment to the
customer provided customer cancellation rights have expired, no significant
vendor obligations remain outstanding and collection is considered probable by
management.
The Company generally warrants that its products will function substantially
in accordance with the documentation provided to customers for periods ranging
from six to twelve months. As of September 15, 1997, the Company had not
incurred any expenses related to warranty claims.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk principally consist of temporary cash investments and accounts
receivable, including receivables from license contracts. The Company places
temporary cash investments with financial institutions and limits its
F-34
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
exposure with any one financial institution. At December 31, 1996 and September
15, 1997, one customer represented approximately 11% and 12%, respectively, of
the total receivable balance. The Company's billings are due upon receipt, with
collections generally occurring within 30 to 60 days, and the Company does not
require collateral on accounts. A large portion of the Company's customer base
is composed of Fortune 1000 companies or foreign equivalents, which the Company
believes mitigates its credit risk.
PROPERTY AND EQUIPMENT
Provisions are made for depreciation of property and equipment over the
estimated useful lives of the assets using an accelerated method. The estimated
useful lives of the assets range from 3 to 7 years. Depreciation expense for the
years ended December 31, 1995 and 1996, and the eight and one-half month period
ended September 15, 1997 was $1,188,544, $1,284,519, and $780,769, respectively.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a result,
software development costs qualifying for capitalization have been insignificant
and, therefore, the Company has not capitalized any software development costs.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plan utilizing the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," because, as discussed in Note 9, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. However, SFAS No. 123 requires
disclosure of pro forma information regarding net income based on fair value
accounting for stock-based compensation plans.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign operations, where the local currency is the
functional currency, are translated using exchange rates in effect at period end
for assets and liabilities and average exchange rates during the period for
results of operations.
The Company's European subsidiary had total assets, total net revenues, and
total net income (loss) of approximately $2,824,000, $5,562,000, and $(51,000)
for the year ended December 31, 1995, respectively, approximately $2,986,000,
$5,596,000, and $29,000 for the year ended December 31, 1996, respectively, and
approximately $3,116,000, $4,427,000, and $(552,000) for the eight and one-half
month period ended September 15, 1997, respectively.
F-35
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
-------------- --------------
<S> <C> <C>
Building and land........................... $ 2,039,968 $ --
Computer equipment.......................... 5,080,751 5,703,128
Furniture and equipment..................... 1,940,841 1,721,012
Leasehold improvements...................... 579,407 --
Townhouses.................................. 563,179 158,179
Other....................................... 238,665 321,750
-------------- --------------
10,442,811 7,904,069
Accumulated depreciation.................... (5,545,720) (5,507,034)
-------------- --------------
$ 4,897,091 $ 2,397,035
-------------- --------------
-------------- --------------
</TABLE>
During the eight and one-half month period ended September 15, 1997, the
Company sold a townhouse for $478,517 and recognized a gain of $138,561, which
has been included in other income on the statement of operations.
4. DEBT OBLIGATIONS
The Company's revolving line of credit (the Revolver) is secured by accounts
receivable and equipment. Interest, which is paid monthly, is charged at the
bank's prime rate plus 1/2%. The Revolver agreement expires March 21, 2000.
Under the agreement, the Company receives funds as needed for operations and is
limited to a defined advance rate on the underlying collateral up to a maximum
of $2,500,000. The Revolver requires compliance with certain financial covenants
for minimum current ratio, net worth, and debt and interest coverage ratios
which are defined by the agreement. As of December 31, 1996 and September 15,
1997, the balances outstanding on the revolving line of credit were $817,001 and
$2,398,001, respectively.
F-36
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DEBT OBLIGATIONS (CONTINUED)
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
-------------- --------------
<S> <C> <C>
Note payable to a bank, original amount of $750,000 with
$20,833 due monthly with interest at 1/2% above the bank
prime rate. Payment in full due by April 2005 and
collateral includes equipment and townhouses.............. $ -- $ 645,835
$2,700,000 mortgage note to a financial institution, payable
$25,414 monthly beginning May 1, 1996 to March 1, 2011.
Remaining principal and interest due in full April 1,
2011. Interest at 7.75% and collateral includes building
and improvements, leases, and deposits.................... 2,626,325 --
Note payable to a bank. Original amount of $215,000 with
$5,972 due monthly with interest at 1/4% above the bank
prime rate. Payment in full due by April 1998 and
collateral includes communications equipment.............. 95,560 47,784
Note payable to a bank. Original amount of $94,500 with
$2,625 due monthly with interest at 1/2% above the bank
prime rate. Payment in full due by October 1998 and
collateral includes computer equipment.................... 55,127 34,127
Note payable to a bank. Original amount of $300,000 with
$8,333 due monthly with interest at 1/2% above the bank
prime rate. Payment in full due by February 1997 and
collateral includes computer equipment.................... 16,667 --
Note payable to a financial institution with monthly
payments of $877 which includes interest at 8.25%. Final
payment due by September 2000, collateralized by an
automobile................................................ 33,835 28,557
-------------- --------------
2,827,514 756,303
Less current maturities..................................... 232,974 337,773
-------------- --------------
$ 2,594,540 $ 418,530
-------------- --------------
-------------- --------------
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Remainder of 1997................................................ $ 106,075
1998............................................................. 493,529
1999............................................................. 155,828
2000............................................................. 871
---------
$ 756,303
---------
---------
</TABLE>
The bank's prime rate at September 15, 1997, was 8.25%.
F-37
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
Components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
EIGHT AND
YEAR ENDED ONE-HALF MONTH
DECEMBER 31 PERIOD ENDED
-------------------- SEPTEMBER 15,
1995 1996 1997
--------- --------- --------------
<S> <C> <C> <C>
Current provision:
Federal............................................ $ 48,109 $ 381,004 $1,101,826
State.............................................. 3,012 32,717 9,846
Deferred tax benefit:
Federal............................................ (138,715) (41,232) (677,085)
State.............................................. (5,063) (25,138) (93,837)
Foreign tax expense.................................. (2,868) (7,956) 173,667
--------- --------- --------------
Total income tax provision (benefit)................. $ (95,525) $ 339,395 $ 514,417
--------- --------- --------------
--------- --------- --------------
</TABLE>
The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 PERIOD ENDED
-------------------- SEPTEMBER 15,
1995 1996 1997
--------- --------- --------------
<S> <C> <C> <C>
Provision computed at federal statutory rate........... $ (34,943) $ 496,341 $ (49,754)
Research and development tax credits................... (62,000) (166,000) (56,000)
State income taxes, net of federal tax effect.......... 1,354 5,002 (34,561)
Disposition of building................................ -- -- 631,912
Capitalized merger costs............................... -- -- 54,701
Other.................................................. 64 4,052 (31,881)
--------- --------- --------------
$ (95,525) $ 339,395 $ 514,417
--------- --------- --------------
--------- --------- --------------
</TABLE>
F-38
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 15,
1996 1997
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $ (13,554) $ --
-------------- --------------
Total deferred tax liabilities.............................. (13,554) --
Deferred tax assets:
Bad debt reserves......................................... 110,910 502,646
Accrued vacation.......................................... 86,367 124,083
Accrued bonus and profit sharing.......................... -- 260,136
Other, net................................................ 9,242 90,576
-------------- --------------
Deferred income tax assets.................................. 206,519 977,441
-------------- --------------
Deferred income tax assets, net of deferred income tax
liabilities............................................... $ 192,965 $ 977,441
-------------- --------------
-------------- --------------
</TABLE>
6. LEASE COMMITMENTS
The Company leases certain facilities and property and equipment for use in
operations. The minimum rental commitments under operating leases with terms
exceeding one year are as follows:
<TABLE>
<S> <C>
Remainder of 1997.............................................. $ 421,450
1998........................................................... 1,598,824
1999........................................................... 1,488,236
2000........................................................... 1,434,040
2001........................................................... 1,284,347
2002........................................................... 816,825
Thereafter..................................................... 307,838
----------
$7,351,560
----------
----------
</TABLE>
Total rental expense for the years ended December 31, 1995 and 1996, and the
eight and one-half month period ended September 15, 1997 was approximately
$353,000, $382,000, and $483,000, respectively.
7. RELATED PARTY TRANSACTION
In August 1997, the Company formed a wholly owned subsidiary, LAB Holdings,
Inc. (LAB), for the purpose of disposing of the Company's ownership of a
building and certain other property and equipment (the LAB Assets) and related
liabilities. An agreement was entered between the Company and LAB in advance of
the Merger Transaction whereby the LAB Assets were transferred in a tax free
exchange to LAB along with the associated mortgage payable. The net book value
of the LAB Assets and the associated mortgage payable on the date of transfer
was $2.4 million. Subsequent to the transfer to LAB, the stock of LAB was
distributed to the principal stockholder of the Company, which resulted in the
recognition of a $1.8 million gain for tax purposes and an associated $632,000
tax liability to the
F-39
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTION (CONTINUED)
Company. No gain or loss was recognized on the transaction for financial
reporting purposes. This tax liability was assumed by the principal stockholder
in connection with the Merger Transaction. As such, the Company has recognized a
$632,000 receivable from the principal stockholder for the tax liability, and an
associated capital contribution.
The Company subsequently signed a lease with LAB to rent the LAB Assets for
a period of five years at a rate of approximately $85,000 per month. The total
rent expense paid to the related party for the period from the date of the
disposition of the building to September 15, 1997, was approximately $85,000.
Additionally, the Company has long-term notes receivable from employees and
stockholders which bear interest ranging from 7.5% to 8.5% and have a remaining
balance of approximately $50,000.
8. EMPLOYEE STOCK PURCHASE PLAN
In connection with its Class B non-voting stock, the Company has initiated
the Employee Stock Purchase Plan (the Plan) in the United States. Under terms of
the Plan, employees with more than two years of service may designate from 15%
to 50% (depending upon length of service) of any bonus toward purchase of this
stock. The price of the stock is in inverse proportion to years of service and
varies as a percent of market valuation, as determined as of each December 31.
Employees purchased 1,170 shares during the year ended December 31, 1995. No
shares were purchased by employees during the year ended December 31, 1996.
Employees purchased 3,147 shares during the eight and one-half month period
ended September 15, 1997. The Company is required to buy back shares upon
termination, death, or request of employees at the fair market value, or cost,
depending on the length of time the shares were owned. During the years ended
December 31, 1995 and 1996, and the eight and one-half month period ended
September 15, 1997, the Company purchased 639, 626, and 410 shares at a cost of
$23,145, $20,053, and $38,110, respectively.
9. STOCK OPTIONS
In July 1997, the Company adopted a non-qualified stock option plan (the
Plan) to permit certain key employees to purchase Class B common stock of the
Company. Under the Plan, an aggregate of 5,286 shares of Class B common stock
are authorized for issuance, all of which were granted during 1997 at an
exercise price of $38.97. The options vested immediately upon grant. In
connection with the grant, $139,000 of compensation expense was recognized in
the consolidated financial statements. No exercises, cancellations, or
expirations occurred during the eight and one-half month period ended September
15, 1997. The Company has reserved 5,286 shares of the Class B common stock for
potential distribution under the Plan.
The weighted average fair value of options granted during 1997 using a
minimum value option pricing model was $32.87 per option; resulting in a pro
forma net expense to the Company of approximately $115,000 if the Company had
accounted for its stock options granted in 1997 under the fair value method set
forth in SFAS No. 123.
At September 15, 1997, options to purchase 5,286 shares were exercisable at
the weighted average price of $38.97 and the remaining estimated contractual
life is 9.8 years.
F-40
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan. The plan covers all employees
located in the United States who have completed six months of service, worked a
minimum of 1,000 hours, and attained the age of twenty-one. The Company made
contributions to this plan at a rate of 2% of eligible earnings until January 1,
1997, at which time contributions to the plan were made at a rate of 5% of
eligible earnings. Additionally, discretionary contributions may also be made.
The Company has expensed for the years ended December 31, 1995 and 1996, and the
eight and one-half month period ended September 15, 1997, approximately
$400,000, $516,000, and $369,000, respectively, for the defined contribution
plan.
Additionally, the Company's expenses for the years ended December 31, 1995
and 1996, and the eight and one-half month period ended September 15, 1997,
include a discretionary bonus of approximately $-0-, $575,000, and $425,000,
respectively, for its employees based upon a plan which rewards employees for
achievement of corporate and individual objectives.
11. COMMON STOCK
At December 31, 1995 and 1996, and September 15, 1997, the Company had two
classes of common stock issued and outstanding, Class A voting shares and Class
B non-voting shares. Class B shares are issued in connection with the Plan and
are convertible one-for-one into Class A shares upon certain conditions as
defined by the Plan. All Class B shares are restricted from disposition or
transfer.
12. CONTINGENCIES
The Company is involved in various legal actions and claims which arise in
the normal course of business. In the opinion of management, the final
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
F-41
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom Goldman,
Sachs & Co., BancAmerica Robertson Stephens, BT Alex. Brown Incorporated and
Piper Jaffray Inc. are acting as representatives, has severally agreed to
purchase from the Company and the Selling Stockholders, the respective number of
shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Goldman, Sachs & Co........................................................................
BancAmerica Robertson Stephens.............................................................
BT Alex. Brown Incorporated................................................................
Piper Jaffray Inc..........................................................................
-----------
Total.............................................................................. 6,160,000
-----------
-----------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters of
the international offering (the "International Underwriters") providing for the
concurrent offer and sale of 1,540,000 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two offerings
will be identical. The closing of the offering made hereby is a condition to the
closing of the international offering, and vice versa. The representatives of
the International Underwriters are Goldman Sachs International, BancAmerica
Robertson Stephens, BT Alex. Brown Incorporated and Piper Jaffray Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any
U-1
<PAGE>
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
part of the distribution of the shares offered as part of the international
offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 924,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
6,160,000 shares of Common Stock offered. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
231,000 additional shares of Common Stock.
The Company and the Selling Stockholders have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company (other
than pursuant to employee stock option plans existing, or on the conversion or
exchange of convertible or exchangeable securities outstanding, on the date of
this Prospectus) which are substantially similar to the shares of the Common
Stock or which are convertible or exchangeable into securities which are
substantially similar to the shares of the Common Stock without the prior
written consent of the representatives, except for the shares of Common Stock
offered in connection with the concurrent U.S. and international offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to the offerings, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the Selling
Stockholders and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
In connection with the offerings, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offerings. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company and the Selling Stockholders in
the offerings. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the offerings for their account may be reclaimed by the
syndicate if such shares of Common
U-2
<PAGE>
Stock are repurchased by the syndicate in stabilizing or covering transactions.
These activities may stabilize, maintain or otherwise affect the market price of
the Common Stock, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
international offering, to persons located in the United States. Application
will be made to list the Common Stock on the Nasdaq National Market. The Company
and the Selling Stockholders have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company............................................................... 20
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
The Company Selected Consolidated Financial Data.......................... 23
The Company Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 25
Dallas Systems Corporation Selected Consolidated Financial Data........... 41
Dallas Systems Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 42
Selected Unaudited Pro Forma Financial Information........................ 46
Unaudited Pro Forma Condensed Consolidated Statement of Operations........ 47
Business.................................................................. 49
Management................................................................ 59
Certain Transactions...................................................... 66
Principal and Selling Stockholders........................................ 68
Description of Capital Stock.............................................. 70
Shares Eligible for Future Sale........................................... 72
Legal Matters............................................................. 75
Experts................................................................... 75
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................. 75
Additional Information.................................................... 75
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
7,700,000 SHARES
EXE TECHNOLOGIES, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------------
PROSPECTUS
---------------------
GOLDMAN, SACHS & CO.
BANCAMERICA ROBERTSON STEPHENS
BT ALEX. BROWN
PIPER JAFFRAY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 36,572
NASD and Blue Sky fees and expenses............................ 12,897
Nasdaq National Market listing fee............................. 95,000
Accountants' fees and expenses................................. 350,000
Legal fees and expenses........................................ 350,000
Transfer Agent's fees and expenses............................. 25,000
Printing and engraving expenses................................ 175,000
Miscellaneous.................................................. 5,531
----------
Total Expenses................................................. $1,050,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") permits
each Delaware business corporation to indemnify its directors, officers,
employees and agents against liability for each such person's acts taken in his
or her capacity as a director, officer, employee or agent of the corporation if
such actions were taken in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action, if he or she had no reasonable cause to
believe his or her conduct was unlawful. Section 9 of the Company's Certificate
of Incorporation and Article 8 of the Company's By-Laws provides that the
Company, to the full extent permitted by Section 145 of the DGCL, shall
indemnify all past and present directors or officers of the Company and may
indemnify all past or present employees or other agents of the Company. To the
extent that a director, officer, employee or agent of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Company's Certificate of Incorporation and By-Laws, or
in defense of any claim, issue or matter therein, he or she shall be indemnified
by the Company against actually and reasonably incurred expenses in connection
therewith. Such expenses may be paid by the Company in advance of the final
disposition of the action upon receipt of an undertaking to repay the advance if
it is ultimately determined that such person is not entitled to indemnification.
As permitted by Section 102(b)(7) of the DGCL, Section 8 of the Company's
Certificate of Incorporation provides that no director of the Company shall be
liable to the Company for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for the unlawful payment of dividends on or redemption of the
Company's capital stock, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company intends to obtain a policy insuring it and its directors and
officers against certain liabilities, including liabilities under the Securities
Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold the securities set forth
below which were not registered under the Securities Act:
II-1
<PAGE>
1. In March 1997, the Company sold an aggregate of 1,319,444 shares of
Common Stock to certain non-U.S. investors in a private placement exempt
from registration pursuant to Regulation S of the Securities Act, for an
aggregate offering price of $3,600,000.
2. On September 15, 1997, the Company issued an aggregate of 15,354,329
shares of Common Stock to the former stockholders of Neptune and Dallas
Systems for an aggregate offering price of $30.2 million. Simultaneously,
the Company sold an aggregate of 11,337,562 shares of Preferred Stock to GAP
41 and GAPCO, entities affiliated with GAP LLC, for an aggregate offering
price of $25 million.
3. In December 1997, the Company sold an aggregate of 45,735 shares of
Common Stock to a consultant of the Company for a purchase price of
$100,000.
4. In June and July 1998, the Company sold an aggregate of 371,666
shares of Common Stock to certain employees and consultants of the Company
for an aggregate purchase price of $1,114,998 pursuant to certain
commitments therewith, that were previously approved by the Company's Board
on April 6, 1998.
5. In July 1998, the Company sold 1,600,000 shares of Preferred Stock
to several accredited investors for an aggregate offering price of
$8,000,000.
6. In July 1998, the Company sold an aggregate of 90,000 shares of
Common Stock to an employee and to two accredited investors of the Company
for an aggregate purchase price of $450,000.
7. In November 1997 and February and June 1998, the Company issued an
aggregate of 2,875 shares of Class B Common Stock to four of its employees
upon exercise of stock options at a weighted average per share exercise
price of $0.75. These employees exercised the options in connection with the
termination of their employment with the Company.
8. In July 1998, the Company issued 100,000 shares of Class B Common
Stock to an officer upon exercise of a stock option granted in February 1998
at $2.00 per share.
The Company believes that the transaction described in paragraph 1 above was
exempt from registration under the Securities Act because the subject securities
were issued outside the United States in compliance with Regulation S under the
Securities Act. The issuances of the securities described in paragraphs 2, 3, 4,
5 and 6 were deemed to be exempt from registration under Section 3(b) or 4(2) of
the Securities Act because the subject securities were sold to a limited group
of persons, each of whom was believed to have been a sophisticated investor or
to have had a pre-existing business or personal relationship with the Company or
its management and to have been purchasing for investment without a view to
further distribution. The Company believes that the transactions described in
paragraph 7 were exempt from registration under Section 3(b) or 4(2) of the
Securities Act because the subject securities were issued pursuant to a
compensatory benefit plan pursuant to Rule 701 under the Securities Act. In
addition, the recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Company, to
information about the Company.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
1.1+ Form of U.S. Underwriting Agreement.
1.2+ Form of International Underwriting Agreement.
3.1a+ Certificate of Incorporation of the Registrant, as amended.
3.1b* Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2a+ By-Laws of the Registrant.
3.2b* Form of Amended and Restated By-Laws of the Registrant.
5.1* Opinion of Pepper Hamilton LLP, counsel to the Registrant, as to the legality of
the shares being registered.
10.1+ EXE Technologies, Inc. 1997 Incentive and Non-Qualified Stock Option Plan.
10.2* EXE Technologies, Inc. Stock Option Plan for Non-Employee Directors.
10.3+ Employment Agreement dated November 18, 1996 between Neptune Systems, Inc. and
David E. Alcala, as amended as of September 11, 1997 and April 1, 1998.
10.4+ Employment Agreement dated July 11, 1996 between Triton SystemHouse Pte. Ltd.
and Mark R. Weaser, as amended as of March 5, 1997 and September 12, 1997.
10.5+ Employment Agreement dated November 17, 1997 between the Company and C. Donald
Scales.
10.6+ Employment Agreement dated as of February 16, 1998 between the Company and
Thomas Cooper.
10.7+ Employment Agreement dated March 16, 1998 between the Company and George Van
Ness.
10.8+ Employment Agreement dated as of March 16, 1998 between the Company and Kenichi
Tsumura.
10.9+ Revolving Line of Credit Note dated December 1, 1997 between the Company and
Wells Fargo Bank (Texas), National Association.
10.10+ Credit Agreement dated December 1, 1997 between the Company and Wells Fargo Bank
(Texas), National Association.
10.11+ Office Lease dated May 21, 1998 between the Company and BLI-8787, Ltd.
10.12+ Office Lease dated May 21, 1998 between the Company and BLI-8787, Ltd.
10.13+ Sublease dated May 21, 1998 between the Company and BLI-8787, Ltd.
10.14+ Office Lease dated April 3, 1995 between Neptune Systems, Inc. and Baldwin
Towers Associates, as amended on July 6, 1995, June 17, 1996, June 26, 1996,
October 29, 1996, and March 23, 1997.
10.15+ Lease Agreement dated August 15, 1997 between Dallas Systems Corporation and LAB
Holdings, Inc., as amended by letter* dated February 10, 1998 and by letter
dated July 21, 1998.
10.16+ Office Building Lease dated July 26, 1994 between Neptune Systems, Inc. and MIP
Properties, Inc.
10.17+ Amended and Restated Registration Rights Agreement dated as of July 10, 1998
among the Company, General Atlantic Partners 41, L.P., GAP Coinvestment
Partners, L.P., MSD Capital L.P., Triple Marlin Investments LLC, Rothko
Investments LLC and the stockholders named therein.
10.18* Form of Indemnification Agreement.
10.19 Employment Agreement dated as of March 1, 1998 between the Company and Richard
Morgan-Evans.
10.20* Employment Agreement dated as of July 13, 1998 between the Company and
Christopher F. Wright.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------
<S> <C>
16.1+ Letter dated July 20, 1998, from PricewaterhouseCoopers LLP regarding change in
Certifying Accountant.
21.1+ List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3* Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
24.1+ Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreements
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas on
the 31st day of August, 1998.
<TABLE>
<S> <C> <C>
EXE TECHNOLOGIES, INC.
By: /s/ ADAM BELSKY
-----------------------------------------
Adam Belsky
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
</TABLE>
Pursuant to the requirements of the securities act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of The Board August 31, 1998
Lyle Baack
President, Chief Executive
* Officer and Director
- ------------------------------ (Principal Executive August 31, 1998
Raymond Hood Officer)
Senior Vice President,
/s/ ADAM BELSKY Chief Financial Officer,
- ------------------------------ Treasurer and Director August 31, 1998
Adam Belsky (Principal Financial and
Accounting Officer)
*
- ------------------------------ Director August 31, 1998
Steven Denning
*
- ------------------------------ Director August 31, 1998
J. Michael Cline
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ADAM BELSKY
-------------------------
Adam Belsky August 31, 1998
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1+ Form of U.S. Underwriting Agreement.
1.2+ Form of International Underwriting Agreement.
3.1a+ Certificate of Incorporation of the Registrant, as amended.
3.1b* Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2a+ By-Laws of the Registrant.
3.2b* Form of Amended and Restated By-Laws of the Registrant.
5.1* Opinion of Pepper Hamilton LLP, counsel to the Registrant, as to the legality of the shares being
registered.
10.1+ EXE Technologies, Inc. 1997 Incentive and Non-Qualified Stock Option Plan.
10.2* EXE Technologies, Inc. Stock Option Plan for Non-Employee Directors.
10.3+ Employment Agreement dated November 18, 1996 between Neptune Systems, Inc. and David E. Alcala, as
amended as of September 11, 1997 and April 1, 1998.
10.4+ Employment Agreement dated July 11, 1996 between Triton SystemHouse Pte. Ltd. and Mark R. Weaser, as
amended as of March 5, 1997 and September 12, 1997.
10.5+ Employment Agreement dated November 17, 1997 between the Company and C. Donald Scales.
10.6+ Employment Agreement dated as of February 16, 1998 between the Company and Thomas Cooper.
10.7+ Employment Agreement dated March 16, 1998 between the Company and George Van Ness.
10.8+ Employment Agreement dated as of March 16, 1998 between the Company and Kenichi Tsumura.
10.9+ Revolving Line of Credit Note dated December 1, 1997 between the Company and Wells Fargo Bank (Texas),
National Association.
10.10+ Credit Agreement dated December 1, 1997 between the Company and Wells Fargo Bank (Texas), National
Association.
10.11+ Office Lease dated May 21, 1998 between the Company and BLI-8787, Ltd.
10.12+ Office Lease dated May 21, 1998 between the Company and BLI-8787, Ltd.
10.13+ Sublease dated May 21, 1998 between the Company and BLI-8787, Ltd.
10.14+ Office Lease dated April 3, 1995 between Neptune Systems, Inc. and Baldwin Towers Associates, as
amended on July 6, 1995, June 17, 1996, June 26, 1996, October 29, 1996, and March 23, 1997.
10.15+ Lease Agreement dated August 15, 1997 between Dallas Systems Corporation and LAB Holdings, Inc., as
amended by letter dated February 10, 1998 and by letter dated July 21, 1998 (to be filed).
10.16+ Office Building Lease dated July 26, 1994 between Neptune Systems, Inc. and MIP Properties, Inc.
10.17+ Amended and Restated Registration Rights Agreement dated as of July 10, 1998 among the Company,
General Atlantic Partners 41, L.P., GAP Coinvestment Partners, L.P., MSD Capital L.P., Triple Marlin
Investments LLC, Rothko Investments LLC and the stockholders named therein.
10.18* Form of Indemnification Agreement.
10.19 Employment Agreement dated as of March 1, 1998 between the Company and Richard Morgan-Evans.
10.20* Employment Agreement dated as of July 13, 1998 between the Company and Christopher F. Wright.
16.1+ Letter dated July 20, 1998, from PricewaterhouseCoopers LLP regarding change in Certifying Accountant.
21.1+ List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
23.3* Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
24.1+ Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE>
THIS EMPLOYMENT AGREEMENT is made
BETWEEN
(1) EXE TECHNOLOGIES (UK) PLC, a company registered in England and Wales with
registered number 2007831 and having its registered office at Ocean
House, The Ring, Bracknell Berkshire RG12 1AH (the "Company"), and
(2) Richard Morgan-Evans of [Ponds House, Ponds Farm, Shere, Surrey, U.K. GU
59JL (the "Executive").
NOW IT IS HEREBY AGREED
1. DEFINITIONS AND INTERPRETATIONS
1.1 In this Agreement unless the context otherwise requires or except as
otherwise expressly provided:
"Associated Company" means a Subsidiary Company (as defined by the
Companies Act 1985) and any other company which is for the time being a
holding company (as defined by the Companies Act 1985) of the Company or
another subsidiary of any such holding company.
"Board" means the board of directors from time to time of the Company or
a duly authorised committee thereof;
"Calendar Year" means 1 January to 31 December.
"Employment" means the employment of the Executive pursuant to this
Agreement or, as the context requires, its duration;
"Intellectual Property" means patents, utility models, registered
designs, registered trade and service marks, registered copyright,
improvements and modifications to any of the foregoing and the right to
apply for protection for
1
<PAGE>
such registered rights anywhere in the world; inventions, discoveries,
copyright, design right, unregistered trade and service marks, brand
names, secret or confidential information, know how or any other
intellectual property; and any similar or equivalent rights whether
registerable or not arising or granted under the law of any country or
state;
"Managing Director" means any person or persons jointly holding such
office of the Company from time to time and includes any person(s)
exercising substantially the functions of a managing director or chief
executive officer of the Company;
"Termination" means the date the Employment terminates howsoever that
comes about;
1.2 Interpretation
1.2.1 Reference to statutes and other legislation shall include statutory
instruments and regulations issued under the legislation and shall, where
the context requires, include all amendments, re-enactments and
consolidations thereof and the provision of any earlier statute or other
legislation of which the said reference is itself an amendment,
re-enactment or consolidation;
1.2.2 words denoting one gender include all genders, words denoting individuals
or persons include corporations and trusts and vice versa, words denoting
the singular include the plural and vice versa, and words denoting the
whole include a reference to any part thereof;
1.2.3 clause and paragraph headings are inserted for ease of reference only and
shall not affect construction;
1.2.4 reference to a Party means a party to this Agreement;
2 APPOINTMENT
2
<PAGE>
2.1 The Company appoints the Executive and the Executive agrees to serve the
Company as Managing Director of the Company with responsibility for
overall management of the organisation or in such other appointment as
the Company may from time to time direct (PROVIDED THAT such other
appointment shall not be of a lower status than the Executive's original
appointment under this Agreement.) The Executive accepts that the
Company may at its discretion require him to perform other duties or
tasks not within the scope of his normal duties and the Executive agrees
to perform those duties or undertake those tasks as if they were
specifically required under this Agreement. The Executive's duties may be
performed by him solely or jointly with whomsoever the Company may
appoint.
3. DURATION
3.1 The Employment shall commence on April 23, 1998. For the purposes of
determining his period of continuous employment, the Employment
commenced on April 23, 1998.
3.2 No employment of the Executive prior to EXE Technologies (UK) Plc shall
count as part of the Executive's period of continuous employment with the
Company.
4. DUTIES
3
<PAGE>
4.1 The Executive shall during the Employment
a) devote the whole of his time, attention and ability to the Company
and/or any Associated Company both during the normal business hours
and during such additional hours (without further remuneration) as
the Company deems necessary for the benefit of the business of the
Company;
b) undertake such duties as the Company specifies and which are
consistent with his position within the Company;
c) promptly whenever required so to do will give a full account to the
Board or any person duly authorised by the Board of all matters with
which he is entrusted;
d) whenever so required for the proper fulfilment of his duties work
without further remuneration in excess of the normal hours of work of
the Company which are from 9.00 a.m. to 5.00 p.m. from Monday to
Friday;
e) obey all lawful and reasonable directions of the Board; and
f) use his best endeavours to promote the interests of the Company and
its Associated Company(ies).
4.2 The Company reserves the right to assign the Executive, wholly or in part
and for such period as it determines, to any Group company and/or require
that the Executive be based at any place in the world;
4.3 The Company reserves the right to require the Executive to accept the
office of Director of any Group company without additional remuneration;
4.4 The Executive shall have no contractual right to hold the office of
director of the Company or any Group company and shall resign any such
directorship immediately if requested to do so by the Company, without
claim for compensation. The Executive hereby irrevocably authorises the
Company, should he fail to do so, to appoint a person in his name and on
his behalf to sign
4
<PAGE>
any documents and do any thing (or things) necessary or requisite to
give effect to such resignation.
4.5 The Company may at any time require that the Executive does not perform
any duties and/or does not attend the Company's premises during any
period of suspension or whilst the Executive is under notice of
termination of his employment provided that the Executive continues to be
paid the salary and benefits to which he is entitled under this
Agreement.
5 PLACE OF WORK
5.1 The Executive's normal place of work is the Company's premises at
Bracknell, Berkshire. The Company reserves the right to change the
Executive's normal place of work.
5.2 The Executive's duties will involve travel to customer's locations and he
may be required to travel to such locations as is necessary for the
proper performance of his duties.
NOTE: WHILST THIS CLAUSE RESERVES THE CONTRACTUAL RIGHT TO REQUIRE THE EXECUTIVE
TO MOVE TO AN ALTERNATIVE LOCATION, THE COMPANY MUST NOT EXERCISE THIS RIGHT
ARBITRARILY OR UNREASONABLY.
6 SHARE DEALING
The Executive shall comply where relevant with every rule of law, every
regulation of the London Stock Exchange Limited and every regulation of
the Company from time to time in force in relation to dealings in shares,
debentures or other securities of the Company or any Associated Company
and unpublished price sensitive information affecting the shares,
debentures, or other securities of any other company PROVIDED THAT in
relation to overseas dealings the
5
<PAGE>
Executive shall also comply with all laws of the state and all
regulations of the stock exchange, market and dealing system in which
such dealings take place.
7 REMUNERATION
7.1 The Company shall pay to the Executive during the Employment a basic
salary of L300,000 per annum which shall accrue on a daily basis. This
will be payable by equal monthly instalments in arrears, after deduction
of tax, Social Security contributions and agreed deductions in accordance
with the Company's procedures from time to time in force (currently
payment is made on the 25th day of each month)
7.2 The Executive's remuneration includes any fees to which he may be
entitled as a director of the Company.
7.3 The Executive's basic salary shall be reviewed by the President and Chief
Executive Officer annually on the anniversary of the start of the
Employment, and the rate of basic salary may be increased by the Company
with effect from that date by such amount, if any, as it shall think fit.
7.4 The Executive shall immediately on demand repay to the Company any monies
owed by the Executive to the Company and reimburse the Company for the
cost of repairing any damage to the Company's property caused by the
Executive. The Company is hereby irrevocably authorised to deduct any
such amount, or part thereof, from the Executive's salary or from any
money owed to the Executive by the Company on or after the termination of
the Executive's employment [and such deductions shall be without
prejudice to the Company's right to seek repayment by the Executive of
any part still outstanding thereafter].
8 EXPENSES
6
<PAGE>
The Company shall reimburse on a monthly basis to the Executive during
the Employment (subject to the Executive complying with such guidelines
or regulations issued by the Company from time to time in this respect
and the production of receipts or other evidence of actual payment) all
expenses properly and reasonably incurred by him in the proper
performance of his duties under this Agreement.
9 INSURANCE
9.1 The Executive shall be entitled to benefit from the following:-
a) Private medical cover, subject always to the rules of such scheme[s]
for the time being in force and subject to the Executive's health or
age not being such as to prevent cover being provided without
exceptional conditions or unusually high premiums being imposed or
levied. Full details of the current scheme are available on request
from the Personnel Department.
b) Critical illness cover, subject always to the rules of such scheme[s]
for the time being in force and subject to the Executive's health or
age not being such as to prevent cover being provided without
exceptional conditions or unusually high premiums being imposed or
levied. Cover is intended to provide benefits to the Executive in
the event of disability arising from critical illness rendering the
Executive incapable of working. Full details of the current scheme
are available on request from the Personnel Department.
9.2 The Company reserves the right at any time to terminate its participation
of the schemes or to substitute them for alternative schemes.
9.3 The Company reserves the right to terminate the Executive's employment at
any time whether or not he is in receipt of any of the benefits detailed
in this Clause 9.
7
<PAGE>
10 CAR
Subject to the Executive holding a current full driving licence, the
Company shall provide the Executive with a monthly car allowance of
L1,900. The allowance provides for the use of a private car and all
expenses incurred associated with the use of the car.
11 INCAPACITY AND SICKNESS PAY
11.1 During any period of absence on medical grounds, the Executive shall be
entitled to full pay during the first 10 weeks of absence from the
Employment in any calendar year, to half pay during the following 10
weeks of such absence in the same calendar year and, for any such
subsequent absence in the same calendar year, to such pay as the Board
may deem appropriate, provided that the Executive complies with the
Company's sickness reporting procedures in force from time to time.
11.2 The foregoing provisions of this Clause are without prejudice to the
Executive's entitlement to Statutory Sick Pay ("SSP"), in accordance with
the Social Security Contributions and Benefits Act 1992, and social
security benefit PROVIDED THAT any payment made under this Agreement in
respect of a day of sickness will include the Executive's SSP payment for
that day and any sickness or other benefits obtained by the Executive
under any social security, national insurance or other legislation from
time to time in force, in respect of a day of sickness, will count
towards the payment to be made under this Agreement in respect of that
day. Monday to Friday (inclusive) in each week shall be "Qualifying
Days" for the purposes of the said Act.
11.3 The Executive shall observe in all material aspects the reasonable rules
and regulations from time to time laid down by the Company relating to
the payment of sick pay and the Company shall be entitled to cease
payment of the sums agreed to be paid under Clause [11.1] if the
Executive fails to observe such rules and regulations.
8
<PAGE>
11.4 The Company may require the Executive to undergo a medical examination by
the Company's medical adviser (or a doctor selected by the Company), or
to provide any such evidence of his medical condition as it may
reasonably require. The Company further reserves the right to require
the Executive to provide a medical certificate at any time to explain any
absence for medical reasons.
11.5 The Executive shall, in any event, during the Employment and at the
expense of the Company be entitled to receive an annual medical
examination by a registered medical practitioner nominated by the
Company.
12 HOLIDAYS
12.1 In addition to normal bank and public holidays in England, the Executive
shall be entitled during the Employment to a further 20 working days'
holiday in each full calendar year to be taken at such times as shall be
agreed between the Company and the Executive or, failing agreement, as
the Company may determine.
12.2 In the event of the Executive being employed for part only of a calendar
year, he shall be entitled to holiday proportional to the number of days
worked in that year.
12.3 Any holiday entitlement which has not been used by the end of the
calendar year will be forfeit and the Executive shall not be entitled to
receive holiday pay in respect of any holiday accrued but not taken.
12.4 Save in the case of Termination of the Employment resulting from the
Executive's gross misconduct, the Company will compensate the Executive
for any accrued but untaken holiday entitlement outstanding on the
Termination of the Employment at the rate of 1/365th of his basic salary
for each accrued but untaken day of holiday.
12.5 If the Executive has taken in excess of his accrued holiday entitlement
on Termination of the Employment the Executive must repay to the Company
the
9
<PAGE>
excess holiday pay paid to him at the rate of 1/365th of his basic salary
for each unaccrued but taken day of holiday.
12.6 The Company reserves the right to insist that the Executive take some,
all or none of any outstanding holiday entitlement during his notice
period.
13 PENSION
13.1 The Executive shall be eligible to participate in the Company's pension
scheme (The Scheme) subject to the rules for the time being in force, and
subject to the Executive's health or age not being such as to prevent
cover being provided without exceptional conditions or unusually high
premiums being imposed or levied. A booklet setting out brief details of
the current Scheme can be obtained from the Personnel Department. The
Company reserves the right at any time to terminate its participation in
the Scheme or to substitute it for another pension scheme.
13.2 There is no contracting out certificate in force in respect of the
Executive's employment.
14 TELEPHONE OR RADIO PAGERS AND/OR MOBILE TELEPHONES
14.1 The Executive may be required to hold either a pager or mobile telephone
for business purposes, so that he may be contacted by the Company or a
client during or outside normal business hours. The Executive does not
have the right to refuse to hold and/or use either a pager or a mobile
telephone.
14.2 Mobile telephones may only be used for essential personal calls. The
Company will pay for the cost of such essential personal calls, together
with other charges and expenses relating to the mobile telephone. All
such personal calls will be monitored by the Company and the Executive
may be called upon to endorse,
10
<PAGE>
against an itemised list, whether any call was a business or personal
call. In the event that the Company finds that the Executive has made
non-essential or excessive personal calls, the Company will require
the Executive to reimburse it for the cost of such calls, and the
Company reserves the right to recover from the Executive the cost of
any such calls made by deducting the relevant amount or amounts from
any sum payable to the Executive by the Company.
14.3 The Executive shall promptly, whenever requested to do so by the Company
and in any event when notice to terminate this agreement has been given
either by either Party, return to the Company the pager or mobile
telephone.
15 INVENTIONS AND INTELLECTUAL PROPERTY
(a) COPYRIGHT
The Copyright, Designs and Patents Act 1988 governs the ownership of
copyright in literary, artistic and other works created by the Executive
in the course of his employment. In relation to all such copyright the
Company (as the Executive's employer) is the owner
If during the Executive's Employment HE at any time (whether alone or with
any other person, whether during the course of his normal duties or other
duties specifically assigned to him (and whether or not during normal
working hours) originate any design (whether registerable or not) or
other work in which copyright may subsist, the Executive shall
immediately disclose it to the Company and, at the request and expense of
the Company, the Executive shall do all things necessary and desirable to
substantiate the rights of the Company in relation to that design or
other work.
(b) INVENTIONS
11
<PAGE>
The Patents Act 1977 provides that, subject to certain conditions, an
invention made by the Executive (as the Company's employee) will belong
to the Company if it is made in the course of his normal duties or in the
course of other duties specifically assigned to him.
If at any time during the Employment (whether or not whilst engaged in the
performance of his duties) the Executive discovers, makes or conceives,
either alone or in conjunction with others, any invention, discovery or
design which relates to the business of the Company (an "Invention") the
Executive shall:
(i) immediately communicate or explain in writing full particulars of
the Invention to the Company, whether the Executive considers the
Invention to be, by virtue of Section 39 of the Patents Act 1977,
his own property or the property of the Company; and
(i) where the Invention is the property of the Company, at the request
and expense of the Company, supply all such information, data and
drawings as may be necessary to enable the Company to exploit the
Invention to its best advantage and shall execute such documents
and do all such things as may be necessary or desirable for
obtaining patent or similar protection for the same in such part
or parts of the world as may be specified by the Company and for
vesting the same in the Company or as it may direct.
(c) MORAL RIGHTS
The Executive hereby irrevocably waives any rights he may have under Chapter IV
of Part I of the Copyright Designs and Patents Act 1988 ("Moral Rights")
and any foreign law assigning corresponding rights in respect of any acts
of the Company or done with the Company's authority in relation to all
copyright material generated by the Executive.
Rights and obligations under this Clause [15] in respect of all intellectual
property (including any copyright, Inventions or Moral Rights) shall
continue in force
12
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after the Termination of the Employment and shall be binding upon the
Executive's representatives.
13
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16 RECORDED MATERIAL
All notes, memoranda, designs, drawings or other recorded material,
whether in written or electronic form and all other materials which may
have been made or prepared by, or at the request of, the Executive or
have come into his possession or under his control in the course of the
Employment and which related in any way to the business (including
prospective business) or affairs of the Company or any Associated Company
or of any customer, supplier, agent, distributor or sub-contractor
thereof shall be deemed to be the property of the Company.
17 CONFIDENTIALITY AND STATEMENTS
17.1 Without prejudice to the obligations of the Executive arising by law
during the Employment or at any time thereafter, the Executive shall not,
except with the prior written authority of the Company or as required by
law, use for his own purposes or disclose to any unauthorised third party
and shall use his best endeavours to prevent the publication or
disclosure of any information relating to the business, prospective
business, technical products or processes, finances, designs, inventions,
price lists or lists of customers and suppliers of the Company or any
Associated Company (both current and those who were customers or
suppliers during the two years prior to commencement of the Employment)
which comes into his possession by virtue of the Employment, and which
the Company or any relevant Associated Company regards, or could
reasonably be expected to regard, as confidential.
17.2 The Executive shall not at any time make any untrue or misleading
statement in relation to the Company or any Associated Company.
18 POST TERMINATION RESTRICTIONS ON THE EXECUTIVE
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18.1 Within this Clause 18 the following words shall have the following
meanings:
"Competitive Business" shall mean any business or activity carried on
by the Company at the Termination Date in which the Executive shall
have been directly concerned at any time in the Employment;
"Contact Period" shall mean the 12 month period ending with the
Termination Date;
"Customer Connection" shall mean any person, firm, company or other
organisation who:
(a) was at any time in the Contact Period a client/customer or
supplier of the Company; or
(a) was at the Termination Date negotiating, or had been so
negotiating within the contact period, with the Company with a
view to dealing with the Company as a client/customer or supplier;
provided that this will only include suppliers where alternative sources
of supply on equivalent terms would not be generally available to the
Company or where the interference with any such supplier may be
anticipated to cause damage to the Company;
"Skilled Employee" shall mean any person who was:
(a) Employed by the Company; or
(b) Contracted to render services to the Company;
in the position of Director, Associate Director, Project Manager or
Salesman during the period and who was so engaged or contracted on the
Termination Date.
18.2 The Executive shall not for a period of twelve months after the
Termination Date, directly or indirectly, either on his own account or
otherwise, canvass or solicit business from any Customer Connection with
whom the Executive shall
15
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have been in the habit of dealing during the Contact Period in the
course of the Employment.
18.3 The Executive shall not, during the period of twelve months after the
Termination Date, directly or indirectly, either on his own account or
otherwise, deal with or in any other way do business with any Customer
Connection with whom the Executive shall have been in the habit of
dealing during the Contact Period in the course of the Employment.
18.4 The Executive shall not, during the period of twelve months after the
Termination Date, directly or indirectly, induce or seek to induce any
Skilled Employee, with whom the Executive shall have had material
dealings in the course of his duties hereunder in the Contact Period, to
leave the Company's employment whether or not this would be a breach of
contract on the part of such employee or offer employment or an
engagement to any such employee.
18.5 The Executive shall not, during the period of twelve months after the
Termination Date, carry on or be interested in Competitive Business in
competition with the Company whether as principal, agent, director,
partner, proprietor, employee or otherwise.
18.6 The Executive agrees that he will, at the request of the Company, enter
into a direct agreement or undertaking with any Associated Company
whereby he will accept restrictions corresponding to the restrictions
contained in this Clause 18 (or such of them as may be appropriate in the
circumstances) in relation to such products and services and such areas
and for such period as such Associated Company may reasonably require for
the protection of its legitimate interests.
18.7 Each of the restrictions contained in this Clause 18 are considered
reasonable by the Company and the Executive being no greater than is
required for the protection of the goodwill of the business of the
Company and the Associated Company and are intended to be separate and
severable. In the event that any of the said restrictions shall be held
void, but would be valid if part of the wording
16
<PAGE>
thereof were deleted, such restrictions shall apply with such deletion
as may be necessary to make it valid and effective.
19 SUSPENSION
In order to investigate any complaint against the Executive of misconduct
the Company is entitled to suspend the Executive on full pay and other
benefits for so long as may be necessary to carry out a proper
investigation and hold a disciplinary hearing.
20 TERMINATION
Provided notice is served after the completion of the Executive's
probationary period the Executive's employment may be terminated by
either party giving to the other not less than six months notice in
writing (to expire at any time).
21 Immediate Dismissal
21.1 Notwithstanding the provision of Clause 21 the Company may terminate the
Employment by written notice having immediate effect if the Executive:
a) commits any act of dishonesty or of gross misconduct or wilful
neglect of duty or which is in the opinion of the Company detrimental
to the Company or any Associated Company or repeats or continues
(after written warning) any breach of this Agreement other than a
breach which is capable of remedy and is remedied forthwith by the
Executive at the Company's request to the complete satisfaction of
the Company; or
b) is charged with a criminal offence (excluding an offence under the
road traffic legislation in the United Kingdom or elsewhere for which
he is not sentenced to any term of imprisonment whether immediate or
suspended);or
17
<PAGE>
c) is in the opinion of the Board incompetent in the performance of his
duties; or
d) has a bankruptcy order or a receiving order made against him or
enters into any arrangement or composition with his creditors
generally.
21.2 The Executive may be required by the Company not to attend at his place
of work at any time for such period of the notice or unexpired term of
the Employment and on such terms as the Company deems necessary PROVIDED
THAT the Executive shall be entitled to receive full pay and other
benefits during such period. The Executive accepts that in such an event
he is not permitted to work for any person, firm, client, corporation or
on his own behalf without the Company's prior written consent.
21.3 On the Termination the Executive shall, at the request of the Company
forthwith immediately deliver to the Company or to its order all books,
documents, papers (including copies thereof), materials including
computer disks or tapes, credit cards, keys and other property of or
relating to the business of the Company or an Associated Company (and in
such respect shall take steps to delete or destroy any information of the
Company or any Associated Company contained in computer storage media,
software or electronic storage devices which are the property of the
Executive). In the event that the Executive has retained company
property at his home address, the Company reserves the right to enter
into the Executive's property in order to recover such company property.
21.4 On termination of any directorship of the Company (or any Associated
company) held by the Executive, the Executive shall execute forthwith
stock transfer forms in favour of the Company (or any Associated company)
or such nominee or nominees as it (or they) shall appoint in respect of
any nominee shares held by the Executive on behalf of the Company (or any
Associated company).
21.5 The Company reserves the right to make a payment in lieu of notice or in
lieu of any unexpired part of any notice. For the avoidance of doubt this
right shall apply whether notice is given by the Executive or by the
Company.
18
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21.6 The expiration or termination of this Agreement and/or the Employment
however arising shall not operate to affect such of the provisions of
this Agreement as are expressed to operate or have effect after
Termination and shall be without prejudice to any accrued rights or
remedies of the Parties.
22. DISCIPLINARY RULES, GRIEVANCE PROCEDURES
AND HEALTH AND SAFETY
22.1 In the event that the Executive has a grievance relating to his
employment, he should in the first instance speak to President and Chief
Executive Officer. If the grievance is not then resolved to his
satisfaction the Executive should refer to the grievance procedures set
out in the staff handbook.
22.2 The provisions of the grievance procedure are not contractually binding
either upon the Company or upon the Executive. They are intended merely
as guidelines which may be helpful in particular circumstances.
22.3 The Executive is referred to the staff handbook for information about the
disciplinary and appeals procedure normally operated by the Company.
These provisions are not contractually binding either upon the Company or
upon the Executive.
22.4 The Executive is referred to the staff hand book for details of the
Company's Health and Safety policy.
23 SECURITY
23.1 The Company is conscious of the need to restrict access to the premises
and to maintain security at its places of business. Accordingly, the
Company reserves the right to require the Executive to submit to a
personal search. This right of search includes a right to conduct a
search of the Executive's person, a search of the Executive's desk and of
any personal items including the Executive's
19
<PAGE>
clothing, and of any packages, bags or briefcases which may be in the
Executive's possession, custody or control.
23.2 The search will be carried out by the Associate Director of Human
Resources or designee.
23.3 The Executive has the right to request that a search should be conducted
by an individual of the same sex as the Executive, in the presence of a
Manager of the same sex and the Executive will have the right to be
accompanied by a fellow employee of his choice.
23.4 Unreasonable refusal to submit to such a search will normally constitute
a disciplinary offence in respect of which disciplinary action may be
taken against the Executive.
23.5 All employees are issued with security passes which allow them access to
the Company premises. The Executive must take the utmost care of his
security pass and keycard and if such a pass or keycard is lost he must
immediately notify the Associate Director of Human Resources or designee
and a replacement will be issued. No employee may lend or give a pass or
keycard to someone who is not an employee of the Company. Breach of this
obligation constitutes a serious disciplinary offence in respect of
which, in appropriate cases, the Executive may be dismissed.
24 WARRANTY
The Executive represents and warrants that he is not a party to any
agreement, contract (whether of employment or otherwise) understanding or
obligation, including any obligation of confidentiality, which would in
any way restrict or prohibit him from undertaking or performing any of
the duties of the Employment in accordance with the terms and conditions
of this Agreement.
20
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25 WAIVER OF RIGHTS
If the Executive's employment is terminated by either party (including by
reason of the liquidation of the Company for the purpose of
reconstruction or amalgamation or otherwise) and the Executive is offered
employment by the Company [or by any Associated company] on terms
generally no less favourable than the terms of his employment under this
Agreement, the Executive shall have no claim against the Company in
respect of such termination.
26 NOTICES
Any notice required under this agreement shall be in writing and shall be
deemed served if it is personally delivered or sent by first class
registered post to the last known address of the other party. Any notice
so posted shall be deemed served upon the second day following that one
on which it was posted.
27 WHOLE AGREEMENT
This agreement and the documents referred to herein comprise the entire
agreement between the Parties relating to the employees employment. It
supersedes all other agreements, whether written or oral, between the
Company or any associated company, and the Executive relating to the
Executive's employment, and the Executive acknowledges and warrant to the
Company that the Executive is not entering into this agreement in
reliance upon any representation not expressly set out herein.
28 GENERAL
28.1 There are no collective agreements which directly affect the terms and
conditions of the Executive's employment.
21
<PAGE>
28.2 No variation or amendment of this agreement shall be valid unless in
writing and signed by or on behalf of each of the Parties.
28.3 No failure or delay by the Company in exercising any right, power or
privilege under this Agreement shall operate as a waiver thereof.
28.4 This agreement shall be governed by the laws of England and subject to
the non-exclusive jurisdiction of the English courts.
28.5 Headings are for ease of reference only and shall not be taken into
account in the construction of this agreement.
29 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which when executed shall constitute an original but all of which when
taken together shall constitute one and the same Agreement.
IF THE TERMS OF EMPLOYMENT AS DETAILED ABOVE ARE ACCEPTABLE, PLEASE SIGN
AND RETURN THE ENCLOSED COPY OF THIS AGREEMENT TO CONFIRM ACCEPTANCE OF
THE TERMS AND CONDITIONS.
I, Richard Morgan-Evans acknowledge that I have read the particulars of
my employment as detailed above and confirm my agreement that these
constitute my contract of employment with EXE Technologies (UK) Plc.
Signed
----------------------------
Dated
----------------------------
22
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 10, 1998 with respect to the financial
statements of EXE Technologies, Inc. for the year ended December 31, 1997 and
the financial statements of Dallas Systems Corporation for the years ended
December 31, 1995 and 1996 and for the eight and one-half month period ended
September 15, 1997 in Amendment No. 1 to the Registration Statement (Form S-1
No. 333-59609) and related Prospectus of EXE Technologies for the registration
of 8,855,000 shares of its common stock.
Ernst & Young LLP
Dallas, Texas
August 28, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 No. 333-59609 of our
report dated April 18, 1997, relating to the financial statements of Neptune
Systems, Inc. as of December 31, 1996 and for each of the two years in the
period ended December 31, 1996, which appears in such Prospectus. We also
consent to the references to us under the headings "Experts" and "Selected
Consolidated Financial Data" in such Prospectus. However, it should be noted
that PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Consolidated Financial Data."
PricewaterhouseCoopers LLP
Philadelphia, PA
August 28, 1998
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