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PROSPECTUS
AUGUST 4, 2000
FILED PURSUANT TO RULE 424(b)(1)
REGISTRATION NO. 333-35106
[LOGO]
8,000,000 SHARES OF COMMON STOCK
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EXE TECHNOLOGIES, INC.: THE OFFERING:
- EXE Technologies, Inc. - We are offering 8,000,000 shares of
8787 Stemmons Freeway our common stock.
Dallas, Texas 75247 - The underwriters have an option to
(214) 775-6000 purchase an additional 1,200,000
shares of common stock from us to
SYMBOL & MARKET: cover over-allotments.
- EXEE/Nasdaq National Market - This is our initial public offering,
and no public market currently exists
for our common stock.
- A group of strategic investors has
indicated an interest in purchasing
up to 1,000,000 shares of common
stock in this offering.
- Closing: August 9, 2000.
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Per Share Total
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Public offering price: $8.00 $64,000,000
Underwriting fees: 0.56 4,480,000
Proceeds to EXE Technologies, Inc.: 7.44 59,520,000
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THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC DLJDIRECT INC.
<PAGE>
GRAPHIC
The graphic is titled "EXE's Software Allows Companies to Efficiently Manage
and Control the Flow of Inventory Throughout the Supply Chain." In the upper
left hand corner appears a graphic of a computer enclosed in a circle. The
circle is titled "The EXceed-TM- eFulfillment System."
In the center of the diagram is a graphic representation of a fulfillment
center. It is titled "Fulfillment Center." Within the Fulfillment Center graphic
includes graphics of boxes and text labels including "Receiving," "Returns,"
"Crossdocking," "Quality," "Stocking," "Picking," "Customization," "Packing" and
"Shipping."
To the left of the fulfillment center is a graphic of a manufacturing
facility. The graphic is titled "Manufacturer or Supplier." A blue arrow goes
from the "Manufacturer or Supplier" graphic back to the Fulfillment Center
graphic.
To the right of the Fulfillment Center graphic are vertically aligned
graphics of a retail store, office building and residential home. These graphics
are titled "Retail Store," "Business" and "Consumer" respectively. A blue arrow
goes from each vertically aligned graphic back to the Fulfillment Center
graphic.
Above the Fulfillment Center graphic is a picture of a cloud containing the
title "Internet." Yellow arrows connect the cloud graphic to the graphics of the
Retail Store and Manufacturer or Supplier.
At the bottom center is a key showing that blue arrows represent the flow of
goods and yellow arrows represent the flow of information.
The EXE logo appears on the inside flap of the fold-over page covering the
graphic.
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TABLE OF CONTENTS
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Prospectus Summary................... 1
Risk Factors......................... 4
Special Note Regarding
Forward-Looking Statements......... 14
Use of Proceeds...................... 15
Dividend Policy...................... 15
Company Information.................. 16
Capitalization....................... 17
Dilution............................. 18
Selected Consolidated Financial
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
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Business............................. 35
Management........................... 49
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Certain Transactions................. 59
Principal Stockholders............... 61
Description of Capital Stock......... 63
Shares Eligible for Future Sale...... 65
Underwriting......................... 67
Legal Matters........................ 71
Experts.............................. 71
Where You Can Find More Information.. 71
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SOME INFORMATION FROM THIS PROSPECTUS. THIS SUMMARY
MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING THE RISK FACTORS AND THE
FINANCIAL STATEMENTS. IN THIS PROSPECTUS, UNLESS THE CONTEXT INDICATES
OTHERWISE, "EXE TECHNOLOGIES, INC.," "WE," "US" AND "OUR" REFER TO EXE
TECHNOLOGIES, INC., A DELAWARE CORPORATION.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND
- GIVES EFFECT TO THE CONVERSION INTO COMMON STOCK, ON A ONE-FOR-ONE BASIS,
OF ALL OUR ISSUED AND OUTSTANDING SERIES A, SERIES B, SERIES C AND
SERIES D PREFERRED STOCK AND OUR CLASS B COMMON STOCK.
OUR BUSINESS
We are a leading provider of fulfillment, warehousing and distribution
software for e-commerce and traditional distribution channels. e-Commerce
fulfillment, or e-fulfillment, is the process of picking, configuring, packing
and shipping products ordered by customers over the Internet. Our software
allows companies to use the Internet and traditional communication methods to
efficiently manage and control the flow of inventory throughout the supply
chain. Companies use our software to reduce distribution costs and increase
customer loyalty and satisfaction. We provide global service and support for our
software from established facilities in North America, Europe, the Middle East,
Asia and Australia.
We sell our software through a direct sales force of 86 employees worldwide
and through strategic alliances with complementary software vendors and
consulting organizations, including Cap Gemini, i2 Technologies, IBM Global
Services, Microsoft, Oracle and PricewaterhouseCoopers. We target companies in
industries characterized by large product selections, high transaction volumes
and increasing demands for customer-specific order processing, including
traditional retailers, newly-created e-tailers, manufacturers and outsourced
e-commerce and third-party logistics providers. A representative sample of our
largest customers in these industries includes barnesandnoble.com, ConAgra,
Consolidated Freightways (Redwood Systems), Ford, Fritz Companies,
GroceryWorks.com, K-Mart, Safeway and Safeway(.com). Together, these customers
accounted for approximately 15.3% of our total revenue, with no single customer
accounting for more than 5% of our revenue in 1999.
Revenue from our e-fulfillment, or eFS, and predecessor 4000 warehouse
management system products, which includes versions 2.0 and 3.0 and their
successors, was $14.9 million for the three-month period ended March 31, 2000,
an 85.1% increase over the same period in 1999, accounting for 58.6% of our
total revenue of $25.5 million for the three-month period ended March 31, 2000.
In the three-month period ended March 31, 2000, our operating loss was
$2.4 million and our net loss was $2.9 million. Revenue from our e-fulfillment
software and predecessor 4000 warehouse management system products was
$41.2 million for 1999, a 109.2% increase over 1998, accounting for 42.6% of our
total revenue. In 1999, our operating loss was $24.1 million, and our net loss
was $26.1 million.
THE OPPORTUNITY
The rapid emergence of the Internet as a medium for commerce has shifted the
focus of logistics systems from warehouse management and distribution to
e-fulfillment. Many traditional retailers, who have historically relied on
warehouse management systems to replenish retail stores, are becoming e-commerce
retailers with the ability to transact directly with customers worldwide. Many
traditional manufacturers, who have historically relied on distributors and
retailers to transact with customers, are now selling directly to the
end-customer. In addition, many e-commerce companies are relying on third
parties to satisfy their fulfillment needs. We believe that traditional
warehouse management and distribution software has been designed to store and
distribute bulk products and is not flexible enough
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for these companies as they implement their Internet strategies. We believe that
these companies must invest in and rapidly deploy e-fulfillment systems to
respond to the specific needs of customers on a worldwide basis.
OUR SOLUTION
Our software manages the fulfillment of orders initiated through both
e-commerce and traditional sales channels and provides the following benefits to
our customers:
- REDUCED TIME TO ENTER NEW MARKETS. We believe our software provides all of
the functionality necessary for e-fulfillment in a single, packaged
solution and reduces the time it takes for companies to launch or enhance
e-commerce initiatives.
- CUSTOMER-SPECIFIC FULFILLMENT. Our software allows companies to treat each
transaction individually by automating and coordinating complex
customer-specific fulfillment, assembly, product configuration and
marketing campaigns.
- FLEXIBILITY AND RELIABILITY. Our software can be deployed using most major
computer systems and has been proven reliable in high volume businesses
that distribute through retail stores or sell directly to customers.
- VISIBILITY. Our software provides suppliers and customers an immediate
view of order status and fulfillment activities.
- GLOBAL CAPABILITY. Our software, which currently operates in 35 countries
and 15 different languages, can be installed and supported around the
world.
- ADAPTABILITY FOR COMPLEX BUSINESS MODELS. Our software is designed to
handle logistics situations where it is necessary to assemble, distribute
and bill for products owned by multiple companies.
OUR STRATEGY
Our goal is to be the leading provider of e-fulfillment, warehousing and
distribution software. We plan to:
- Take advantage of our experience and established market position;
- Use our international infrastructure to gain global market share;
- Expand our strategic alliances;
- Enhance our e-commerce solutions;
- Capture the growing opportunity created by electronic marketplaces; and
- Exploit the growing trend to outsource business processes and computer
services.
RECENT DEVELOPMENTS
Revenue from our eFS and predecessor 4000 warehouse management system
products was approximately $17.2 million for the three-month period ended
June 30, 2000, a 101.3% increase over the same period in 1999, and accounted for
61.4% of our total revenue of approximately $28.1 million for the three-month
period ended June 30, 2000.
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THE OFFERING
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Common stock offered...................... 8,000,000 shares
Common stock to be outstanding after this
offering................................ 41,977,463 shares
Use of proceeds........................... We intend to use the net proceeds from this offering to
repay indebtedness and for research and development,
working capital and other general corporate purposes,
including potential future acquisitions.
Nasdaq National Market symbol............. EXEE
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 2000. This number
does not include:
- an aggregate of 4,999,558 shares of common stock issuable upon exercise of
options outstanding as of March 31, 2000 at a weighted average exercise
price of $4.50 per share, of which 1,514,841 are fully vested at a
weighted average exercise price of $3.45 per share;
- an aggregate of 1,085,000 shares of common stock issuable upon the
exercise of warrants outstanding as of March 31, 2000 at a weighted
average exercise price of $4.16 per share, of which 755,000 are fully
vested at a weighted average exercise price of $4.23 per share;
- an additional 3,455,243 shares of common stock reserved as of March 31,
2000 for issuance under our equity-based compensation plans; and
- 1,200,000 shares subject to the underwriters' over-allotment option.
In addition, subsequent to March 31, 2000 we granted additional options to
executive officers and employees to acquire approximately 1,100,000 shares of
common stock at exercise prices ranging from $7.50 per share to the price per
share in this offering.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE PURCHASING
OUR COMMON STOCK. OUR MATERIAL RISKS AND UNCERTAINTIES ARE DESCRIBED BELOW. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE
OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR
INVESTMENT. ADDITIONAL RISKS AND UNCERTAINTIES, INCLUDING THOSE THAT ARE NOT YET
IDENTIFIED OR THAT WE CURRENTLY THINK ARE IMMATERIAL, MAY ALSO ADVERSELY AFFECT
OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
RISKS RELATING TO OUR BUSINESS
WE EXPECT TO CONTINUE TO INCUR LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
We have experienced quarterly and annual losses since the acquisition of
Dallas Systems in September 1997. We experienced net losses of $6.6 million for
1997, $19.6 million for 1998, $26.1 million for 1999 and $2.9 million for the
three-month period ended March 31, 2000. We may continue to incur losses on both
a quarterly and an annual basis, and we are uncertain if or when we will become
profitable. Moreover, we expect to continue to incur significant sales and
marketing and research and development expenses, and, as a result, we will need
to generate significant revenue to achieve and maintain profitability. We may
not achieve our planned growth or generate sufficient revenue to attain
profitability.
WE CAN GIVE YOU NO ASSURANCE THAT WE WILL BE ABLE TO GROW AND INCREASE OUR LEVEL
OF REVENUE OR
ACHIEVE PROFITABILITY IN THE FUTURE.
Our growth rates and, consequently, our future operating results may be
affected by any of the following factors:
- the overall growth rate of the markets in which we compete;
- the level of market acceptance of, and demand for, our software;
- our competitors' products and prices;
- our ability to establish strategic marketing relationships and to develop
and market new and enhanced products;
- our ability to successfully train alliance companies and consulting
organizations;
- our ability to control costs;
- changes in our products and services mix; and
- our ability to expand our direct sales force and indirect distribution
channels worldwide.
OUR REVENUE COULD DECLINE IF OUR CUSTOMERS DO NOT ACCEPT OUR NEW PRODUCTS,
INCLUDING
E-FULFILLMENT PRODUCTS, AS QUICKLY AS WE ANTICIPATE.
We expect to derive a majority of our product license revenue in the future
from our new e-fulfillment products and their components, which were launched in
1999. Our business depends on successful customer acceptance of these products
and the release, introduction and customer acceptance of new products, in
addition to the continued acceptance of our traditional products. We expect that
we will continue to depend on revenue from new and enhanced versions of our
e-fulfillment products, and our revenue could decline if our target customers do
not adopt and expand their use of these products and their components.
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OUR QUARTERLY OPERATING RESULTS DEPEND HEAVILY ON SOFTWARE LICENSE REVENUE,
WHICH IS DIFFICULT TO
FORECAST AND MAY FLUCTUATE.
Our quarterly software license revenue is difficult to forecast because our
sales cycles, from initial evaluation to delivery of software, vary
substantially from customer to customer. Revenue in any quarter is dependent on
orders received, contracts signed and products shipped in that quarter. We
typically recognize the majority of our revenue 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 license sales is difficult for us to predict,
and, in some cases, transactions are concluded later than anticipated. Since our
operating expenses are based on anticipated revenue levels and most of our
operating expenses, particularly personnel and facilities costs, are relatively
fixed in advance of any particular quarter, any revenue shortfall may cause
fluctuations in operating results in any particular quarter. We can give you no
assurance that revenue will grow in future periods, that revenue will grow at
historical rates or that we will achieve and maintain positive operating margins
in future quarters. If revenue falls below our expectations in a particular
quarter, our operating results could be harmed.
BECAUSE OUR SALES CYCLES ARE LENGTHY AND SUBJECT TO UNCERTAINTIES, IT IS
DIFFICULT TO FORECAST OUR SALES, AND THE DELAY OR FAILURE OF A SIGNIFICANT
SOFTWARE LICENSE TRANSACTION OR OUR INABILITY TO ANTICIPATE A DELAY COULD HARM
OUR OPERATING RESULTS.
Our software is used for critical division- or enterprise-wide purposes and
involves a significant commitment of resources by customers. A customer's
decision to license our software usually involves the evaluation of the
available alternatives by a number of personnel in multiple functional and
geographic areas, each often having specific and conflicting requirements.
Accordingly, we typically must expend substantial resources educating
prospective customers about the value of our 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 we may
have little or no control. As a result of the length and variability of the
sales cycle for our software products, our ability to forecast the timing and
amount of specific sales is limited, and the delay or failure to complete one or
more anticipated large license transactions could harm our operating results.
FAILURE TO EXPAND OUR ALLIANCE RELATIONSHIPS WITH CONSULTING FIRMS AND
COMPLEMENTARY SOFTWARE VENDORS AND TO ESTABLISH NEW STRATEGIC ALLIANCES MAY SLOW
ACCEPTANCE OF OUR SOFTWARE AND DELAY THE GROWTH OF OUR REVENUE.
To supplement our direct sales force and our implementation capabilities, we
have established strategic marketing alliances with consulting firms and
complementary software vendors, and we rely on them to recommend our software to
their customers and to periodically install and support our software for their
customers. To increase our sales and implementation capabilities, one of our key
strategies is to expand our existing relationships and establish new strategic
alliances with consulting firms and complementary software vendors. The loss of,
or failure to expand, existing relationships or our failure to establish new
strategic alliances could limit the number of transactions we may complete and
may result in our inability to recognize revenue.
OUR INTERNATIONAL OPERATIONS, WHICH WE PLAN TO EXPAND, ARE SUBJECT TO HEIGHTENED
RISKS. IF ANY OF THESE RISKS ACTUALLY OCCUR, OUR EARNINGS COULD DECLINE.
International revenue accounted for approximately 43% of our total revenue
during the three-month period ended March 31, 2000 and approximately 36% of our
total revenue during 1999. We expect international revenue to continue to
account for a significant percentage of total revenue in the future, and we plan
to continue to expand our international activities as part of our growth
strategy. This expansion will require significant financial resources and
management attention that could have a
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negative effect on our earnings. As our international operations continue to
develop, they may become increasingly subject to risks inherent in international
business activities, including:
- difficulty in staffing and managing geographically diverse operations;
- longer accounts receivable payment cycles in certain countries;
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements and overlap of different tax
structures;
- greater difficulty in safeguarding intellectual property;
- trade restrictions;
- changes in tariff rates and import and export licensing requirements; and
- general economic conditions in international markets.
Our earnings could decline if these or other factors affect international
operations.
BECAUSE MANY OF OUR CUSTOMERS PAY US IN FOREIGN CURRENCIES, WE MAY BE EXPOSED TO
EXCHANGE RATE RISKS AND OUR NET INCOME MAY SUFFER DUE TO CURRENCY TRANSLATIONS.
A majority of the revenue and expenses incurred by our international
operations are denominated in currencies other than the United States dollar. In
particular, our revenue and costs of operations in Japan and Singapore are
denominated in Japanese yen and Singapore dollars. In addition, with the
expansion of international operations, the number of foreign currencies in which
we 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, we can give you no
assurance that currency transaction losses will not harm our results of
operations in future periods.
FAILURE TO INTEGRATE NEW MEMBERS OF OUR MANAGEMENT TEAM MAY DIMINISH THE
EFFECTIVENESS OF OUR MANAGEMENT.
We have recently made additions to our senior management team, upon whom we
rely to support our anticipated growth. In August 1999, we hired Michael
Burstein, our Senior Vice President, Finance, Chief Financial Officer and
Treasurer, and in December 1999, we hired Frederick Gattelaro, our Senior Vice
President, Professional Services, Americas. Also, several members of our senior
management team have recently assumed new responsibilities or roles.
Accordingly, some members of our senior management team have been in place for
less than one year. Our success will depend on our ability to integrate new
members of our senior management into our operations.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL, IN
PARTICULAR PROFESSIONAL SERVICES PERSONNEL. IF WE ARE UNABLE TO ATTRACT THESE
PERSONNEL AND USE THEM EFFICIENTLY, OUR ABILITY TO IMPLEMENT OUR SOFTWARE COULD
BE HARMED.
We believe our success will depend significantly on our ability to attract,
motivate and retain additional highly skilled technical, managerial, consulting,
sales and marketing and, in particular, professional services, personnel. We
compete intensely for these personnel, and we may be unable to achieve our
personnel goals. Our failure to attract, motivate and retain such highly skilled
personnel could seriously limit our ability to expand our business.
Also, we believe our success will depend on our ability to productively
manage an increase in the number of our personnel. Our professional services
staff for our e-fulfillment and their predecessor products has increased since
1998, and we expect to continue to increase the number of our
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professional services staff following completion of this offering. This growth
may result in increased salary expenses and training costs in advance of any
resulting increase in revenue due to the typically lower productivity levels of
newer service personnel. Moreover, any growth in software license revenue will
likely generate the need for more professional services personnel to deploy and
implement software and to train customers. A shortage in the number of trained
personnel, either within our company or available from outside consulting firms,
could limit our ability to implement our software on a timely and cost-effective
basis. Our earnings will suffer if we generate insufficient revenue to cover
growth-related expenses, significantly strain management resources with
additional responsibilities, fail to successfully expand our relationships and
develop additional relationships with third party implementers or fail to have
sufficiently trained professional services personnel.
WE DEPEND ON THE SERVICES OF A NUMBER OF KEY PERSONNEL, AND A LOSS OF ANY OF
THESE PERSONNEL COULD DISRUPT OUR OPERATIONS AND RESULT IN REDUCED REVENUE.
Our success depends on the continued services and performance of our senior
management staff, in particular, Raymond Hood, our President and Chief Executive
Officer. The loss of the services of Mr. Hood or any of our other senior
management staff or key employees could seriously impair our ability to operate
and achieve our objectives, which could reduce our revenue. We have
$3.0 million of key man life insurance on Mr. Hood. This amount may not be
sufficient to compensate us for the loss of his services. We also have
employment agreements with Mr. Hood and with most of our executive officers.
However, these employment agreements do not prevent Mr. Hood, or other key
employees, from voluntarily terminating his or her employment with us.
IF WE ARE UNSUCCESSFUL IN IDENTIFYING, FINANCING AND INTEGRATING SUITABLE
ACQUISITION CANDIDATES, INCLUDING BUSINESSES, PRODUCTS AND TECHNOLOGIES, OUR
GROWTH COULD BE HARMED.
Due to the intense competition we face, we may not be able to identify
suitable acquisition candidates available for purchase at reasonable prices,
consummate any acquisition or successfully integrate any acquired business into
our 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.
We expect to finance any future acquisitions with cash on hand, which may
include the proceeds of this offering, as well as with possible debt financing
or the issuance of common or preferred stock. If we were to proceed with one or
more future acquisitions for cash, a substantial portion of our available cash
could be used to complete them. If we were to proceed with one or more
acquisitions for stock, our stockholders would suffer dilution of their
interests. We can give you no assurance that we would be able to arrange for any
needed debt financing on terms acceptable to us. Most of the businesses that
might be attractive acquisition candidates are likely to have significant
intangible assets, and acquisition of these businesses would typically result in
substantial goodwill amortization charges to us, reducing future earnings. For
example, in connection with Neptune's acquisition of Dallas Systems, we acquired
$18.1 million of goodwill, and $6.9 million of other intangible assets, which
are being amortized over three to six years and resulted in amortization expense
of $1.1 million for the three months ended March 31, 2000 and $4.8 million in
1999. In addition, acquisitions could involve acquisition-related charges, such
as one-time acquired research and development charges, reducing future earnings.
For example, we recorded a one-time research and development charge of
$2.7 million in 1997 in connection with Neptune's acquisition of Dallas Systems.
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THE LENGTH AND COMPLEXITY OF OUR IMPLEMENTATION CYCLE MAY RESULT IN
IMPLEMENTATION DELAYS, WHICH MAY CAUSE CUSTOMER DISSATISFACTION.
Due to the size and complexity of some of our software implementations, our
implementation cycle can be lengthy and may result in delays. These delays could
result in customer dissatisfaction, which could adversely affect our reputation.
Additional delays could result if we fail to attract, train and retain services
personnel, or if our alliance companies fail to commit sufficient resources
towards implementing our software. These delays and resulting customer
dissatisfaction could harm our reputation and cause our revenue to decline.
THE USE OF FIXED-PRICE SERVICE CONTRACTS SUBJECTS US TO THE RISK THAT WE MAY NOT
SUCCESSFULLY COMPLETE THESE CONTRACTS ON BUDGET.
We offer software implementation and related consulting services to our
customers. Although we typically provide services on a "time and material"
basis, we have from time to time entered into fixed-price service contracts, and
we expect that some customers will demand these contracts in the future. These
contracts specify certain milestones to be met by us regardless of actual costs
incurred in meeting those obligations. If we are unable to successfully complete
these contracts on budget, our earnings could suffer. For additional information
regarding our fixed-price service contracts, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview" on
page 23.
WE RELY ON SOFTWARE LICENSES THAT MAY BE TERMINATED OR UNAVAILABLE TO US ON
COMMERCIALLY REASONABLE TERMS.
We market and resell, under license, third-party software, including:
- software embedded in our products;
- software that enables our software to interact with other software systems
or databases; and
- software in conjunction with which our software operates.
We also license software tools used to develop our software and software for
internal systems. We cannot assure you that the third-party software or software
tools will continue to be available to us 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 harm our business.
WE MAY EXPERIENCE DELAYS IN THE SCHEDULED INTRODUCTION OF NEW OR UPGRADED
SOFTWARE, AND OUR SOFTWARE MAY CONTAIN UNDETECTED ERRORS OR "BUGS," RESULTING IN
LOSS OF REVENUE AND HARM TO OUR REPUTATION.
Historically, we have issued significant new releases of our software
periodically, with interim releases issued more frequently. Our software is
particularly complex, because it must perform in environments operating multiple
computer systems and respond to customer demand for high performance
e-fulfillment, warehousing and distribution applications and major new product
enhancements. Our software requires long development and testing periods before
it is commercially released. For example, the development cycle for the
introduction of our EXceed Crossdock component took approximately nine months.
If we experience delays in the scheduled introduction of new software or
software upgrades, our customers may become dissatisfied and our reputation and
operating results could be harmed.
Also, despite testing by us, our software may contain undetected errors or
"bugs." In the past, we have discovered software bugs in new versions of our
software after its release. We may experience software bugs in the future. These
bugs could result in a delay or loss of revenue, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
impaired
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market acceptance and sales of this software, any of which could harm our
operating results. For information about the financial effect software bugs have
had on us, see pages 26 and 28.
PRODUCT LIABILITY AND OTHER CLAIMS RELATED TO OUR CUSTOMERS' BUSINESS OPERATIONS
COULD RESULT IN SUBSTANTIAL COSTS.
Many of our installations involve projects that are critical to the
operations of our clients' businesses and provide benefits that may be difficult
to quantify. Any failure in a client's system or any intellectual property
infringement claims by third parties could result in a claim for substantial
damages against us, regardless of our responsibility for the failure or for the
alleged intellectual property infringement. We cannot assure you that our
customer contracts will protect us in the event of any such claim. In addition,
although we maintain general liability insurance coverage, including coverage
for errors or omissions, we cannot assure you that this 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.
The successful assertion of one or more large claims against us that exceeds
available insurance coverage or changes in our insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could result in substantial costs.
Four customers have recently requested defense and indemnification from us
for threatened patent claims against them by a third party relating to bar code
technology. For additional information about these requests, see
"Business--Intellectual Property" on page 48.
RISKS RELATING TO OUR INDUSTRY
WE FACE INTENSE COMPETITION FROM NUMEROUS COMPETITORS, SOME OF WHOM HAVE A
SIGNIFICANT COMPETITIVE ADVANTAGE OVER US. IF WE LOSE OUR COMPETITIVE POSITION,
OUR REVENUE COULD DECLINE.
The market for e-fulfillment solutions is intensely competitive, fragmented
and subject to rapid technological change. The principal competitive factors in
our market include:
- adherence to emerging Internet-based technology standards;
- comprehensiveness of applications;
- adaptability and flexibility;
- immediate, interactive capability with customer and other third-party
systems;
- global capability;
- ability to support requirements of diverse industries;
- ease of application use and deployment;
- speed of implementation;
- customer service and support; and
- initial price and total cost of ownership.
Because we offer both e-fulfillment and traditional supply chain software,
we consider a number of companies in different market categories to be our
competitors. Our competitors include companies and groups that:
- focus on providing e-fulfillment applications;
- offer fulfillment solutions for traditional supply chains;
9
<PAGE>
- offer enterprise platforms for order management and fulfillment; and
- service internal customers, such as internal information technology
groups.
We believe that the market for integrated e-fulfillment solutions is still
in its formative stage, and that no currently identified competitor represents a
dominant presence in this market.
We expect competition to increase as a result of software industry
consolidation. New competitors could emerge and rapidly capture market share. We
can give you no assurance that we can maintain our competitive position against
current and potential competitors, especially those with greater name
recognition, comparable or superior products, significant installed customer
bases, long-standing customer relationships or the ability to price products as
incremental add-ons to existing systems. If we lose our competitive position,
our revenue could decline.
ACCOUNTING RULES REGARDING THE RECOGNITION OF SOFTWARE REVENUE HAVE CHANGED, AND
THE UNCERTAINTY REGARDING THEIR INTERPRETATION COULD IMPACT OUR ABILITY TO
RECOGNIZE REVENUE.
Software license revenue for periods subsequent to December 31, 1997 is
recognized in accordance with the American Institute of Certified Public
Accountants' (AICPA) Statement of Position 97-2, "Software Revenue Recognition."
Under these rules, software license revenue is 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 management considers collection probable. As the
practice under these rules is relatively new, interpretations of these rules may
be issued by the AICPA or the SEC in the future which may change how these
software revenue recognition rules are to be applied. We can give you no
assurance that the application of any new interpretation of these rules will not
impact the timing of our revenue recognition in the future.
THE MARKET FOR OUR SOFTWARE IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. IF
WE FAIL TO RESPOND PROMPTLY AND EFFECTIVELY TO TECHNOLOGICAL CHANGE AND
COMPETITORS' INNOVATIONS, OUR GROWTH AND OPERATING RESULTS COULD BE HARMED.
The market for e-fulfillment, warehousing and distribution systems
experiences rapid technological change, changing customer needs, frequent new
product introductions and evolving industry standards that may render existing
products and services obsolete. Our growth and future operating results will
depend in part on our ability to enhance existing applications and develop and
introduce new applications or components. These new applications must:
- meet or exceed technological advances in the marketplace;
- meet changing customer requirements;
- respond to competitive products; and
- achieve market acceptance.
Our product development and testing efforts have required, and are expected
to continue to require, substantial investments. Also, we may be unable to
successfully identify new software opportunities and develop and bring new
software to market quickly and efficiently. Our software may not achieve market
acceptance and current or future products may not conform to industry standards
in the markets served. If we are unable to develop and introduce new and
enhanced software in a timely manner, our growth and operating results could be
harmed.
10
<PAGE>
IF THE E-COMMERCE MARKET DOES NOT CONTINUE TO DEVELOP, OR IF ITS DEVELOPMENT IS
DELAYED, OUR CUSTOMER BASE AND OUR REVENUE COULD DECLINE.
Our software addresses the e-commerce market. The failure of this market to
develop, or a delay in the development of this market, could cause a decline in
our customer base and our revenue. The success of e-commerce depends
substantially upon the widespread adoption of the Internet as a primary medium
for commerce and business applications. Critical issues concerning the
commercial use of the Internet, such as security, reliability, cost,
accessibility and quality of service, remain unresolved and may negatively
affect the growth of Internet use or the attractiveness of commerce and business
communications over the Internet.
CAPACITY CONSTRAINTS MAY RESTRICT THE USE OF THE INTERNET AS A COMMERCIAL
MARKETPLACE, RESULTING IN DECREASED DEMAND FOR OUR PRODUCTS.
The Internet infrastructure may not be able to support the demands placed on
it by increased usage or by the transmission of large quantities of data. Other
risks associated with commercial use of the Internet could slow its growth,
including:
- outages and other delays resulting from inadequate network infrastructure;
- slow development of enabling technologies and complementary products; and
- limited availability of cost-effective, high-speed access.
Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or increased
governmental regulation, could cause the Internet to lose its viability as a
means of communication among participants in the supply chain, resulting in
decreased demand for our products.
WE DEPEND ON INTELLECTUAL PROPERTY LAWS, WHICH MAY NOT FULLY PROTECT US FROM
UNAUTHORIZED USE OR MISAPPROPRIATION OF OUR PROPRIETARY TECHNOLOGIES.
We rely on intellectual property laws, confidentiality procedures and
contractual provisions to protect our proprietary rights in our products and
technology. These measures afford only limited protection to us, particularly on
an international basis. We may be unable to avoid infringement or
misappropriation claims regarding current or future technology, or unable to
adequately deter misappropriation or independent third party development of our
technology. In addition, policing unauthorized use of our products is difficult.
We are unable to determine the extent to which piracy of our software products
exists and software piracy could become a problem. Litigation to defend and
enforce our intellectual property rights could result in substantial costs and
diversion of resources, regardless of the final outcome of such litigation.
RISKS RELATING TO THIS OFFERING
WE EXPECT OUR RESULTS OF OPERATIONS TO FLUCTUATE, AND THE PRICE OF OUR COMMON
STOCK COULD FALL IF QUARTERLY RESULTS ARE LOWER THAN THE EXPECTATIONS OF
SECURITIES ANALYSTS.
Our operating results historically have fluctuated on a quarterly basis and
may continue to do so in the future. These fluctuations could cause our stock
price to fluctuate significantly or decline. Some of the factors which could
cause our operating results to fluctuate include:
- demand for our products and services;
- our competitors' products and prices;
- the timing and market acceptance of new product introductions and upgrades
by us or our competitors;
- our success in expanding our services, customer support and marketing and
sales organizations, and the timing of these activities;
- the mix of products and services sold;
11
<PAGE>
- 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;
- our ability to control costs;
- the timing of acquisitions; and
- general economic conditions.
A large portion of our expenses, including expenses for facilities,
equipment and personnel, is relatively fixed. Accordingly, if our revenue
declines or does not grow as anticipated, we may not be able to correspondingly
reduce our operating expenses in a timely manner. Failure to achieve anticipated
levels of revenue could therefore significantly harm our operating results for a
particular fiscal period.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO SPEND THE NET PROCEEDS OF THIS
OFFERING, AND MAY SPEND THE PROCEEDS IN WAYS WITH WHICH YOU DO NOT AGREE.
Our management will have broad discretion over the use of proceeds from this
offering. We intend to use the proceeds of this offering to repay all
indebtedness under our revolving credit facility, for research and development
activities and for increasing sales, marketing and consulting services
capabilities and for general and administrative personnel and systems costs. We
intend to use the remaining proceeds for working capital and general corporate
purposes, including acquisitions. Our management may allocate the net proceeds
among these purposes as it determines is necessary. In addition, market factors
may require our management to allocate all or portions of the net proceeds for
other purposes. Management may use the proceeds in ways with which you do not
approve. Accordingly, you will be relying on the judgment of our management with
regard to the use of proceeds from this offering.
FUTURE SALES OF OUR STOCK, OR THE PURCHASE OF SHARES BY STRATEGIC INVESTORS AND
ITS EFFECT ON OUR PUBLIC FLOAT, COULD CAUSE OUR STOCK PRICE TO DECLINE.
Sales of a substantial number of shares of our common stock in the public
market after this offering, or the perception that these sales may occur, could
cause the market price of our common stock to decline. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional common or preferred stock.
Substantially all of our common stock is subject to lock-up agreements that
limit our stockholders' and our optionholders' ability to sell common stock.
Unless the underwriters otherwise agree in writing, these holders cannot sell or
dispose of any shares of common stock for a period of:
- 180 days after the date of this prospectus, for executive officers,
directors and affiliates;
- 90 days after the date of this prospectus, for participants in our
directed share program who are not already subject to a 180 day lock-up
agreement; and
- 180 days after the date of this prospectus, for substantially all of the
strategic investors who have indicated an interest in purchasing an
aggregate of up to 1,000,000 shares of common stock in this offering.
If the strategic investors purchase all of the shares for which they have
indicated an interest, our public float will decrease from approximately
8,000,000 shares to approximately 7,000,000 shares of common stock for 180 days
after this offering. This decrease in our public float could depress the price
of our common stock.
When the lock-up agreements expire, 36,287,437 of the shares of common stock
and the shares underlying vested options will become eligible for sale, in many
cases only pursuant to volume, manner of sale and notice requirements of
Rule 144.
12
<PAGE>
THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK MAY HAVE THE EFFECT OF
DELAYING OR PREVENTING A CHANGE OF CONTROL OF US.
After this offering, our directors, executive officers and their affiliated
companies will beneficially own approximately 71% of our outstanding common
stock. As a result, these stockholders will have the ability to elect our
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 us. As a result, if these
stockholders voted as a group, they would have the ability to significantly
influence the outcome of corporate actions requiring stockholder approval.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT MAY DISCOURAGE A CHANGE OF
CONTROL.
Upon completion of this offering, our certificate of incorporation will
authorize the issuance of 20,000,000 shares of preferred stock. Our board of
directors will have the power to determine the price and terms of any preferred
stock. The ability of our board of directors to issue one or more series of
preferred stock without stockholder approval could deter or delay unsolicited
changes of control by discouraging open market purchases of our common stock or
a non-negotiated tender or exchange offer for our common stock. Discouraging
open market purchases may be disadvantageous to our stockholders who may
otherwise desire to participate in a transaction in which they would receive a
premium for their shares.
In addition, some provisions of our certificate of incorporation and by-laws
may also discourage a change of control by means of a tender offer, open market
purchase, proxy contest or otherwise. These provisions include:
- a board that is divided into three classes, each of which is elected to
serve staggered three year terms;
- provisions under which only the board of directors or our president or
secretary may call a special meeting of the stockholders;
- provisions which permit the board of directors to increase the number of
directors and to fill these positions without a vote of the stockholders;
- provisions under which no director may be removed at any time except for
cause and by a majority vote of the outstanding shares of voting stock;
and
- provisions under which stockholder action may be taken only at a
stockholders meeting and not by written consent of the stockholders.
These provisions may have the effect of discouraging takeovers and
encouraging persons seeking to acquire control first to negotiate with us.
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. These statements may
include words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In particular,
these include, among other things, statements relating to e-commerce strategy,
growth strategy, global expansion, use of proceeds, dividend policy, projected
capital expenditures, sales and marketing expenses, research and development
expenditures, other costs and expenses, revenue, profitability, liquidity and
capital resources, development and maintenance of alliances, the e-commerce and
e-fulfillment markets, market acceptance of the Internet, personnel expansion,
technological advancement, competition and the capabilities of our software.
Any or all of our forward-looking statements in this prospectus may turn out
to be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this prospectus, including the risks outlined under "Risk
Factors," will be important in determining future results. Actual future results
may vary materially.
Other factors besides those listed here could also adversely affect us. This
discussion is provided as permitted by the Private Securities Litigation Reform
Act of 1995.
This prospectus includes statistical data regarding us, the Internet and the
industry in which we compete. This data is based on our records or is taken or
derived from information published or prepared by various sources, including ARC
Advisory Group, Forrester Research and International Data Corporation.
14
<PAGE>
USE OF PROCEEDS
We will receive net proceeds of $58.5 million from this offering (after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us) at the initial public offering price of $8.00 per share. If the
underwriters exercise their over-allotment option in full, we estimate that we
will receive net proceeds of $67.4 million from this offering.
We intend to use a portion of the net proceeds from this offering to repay
all outstanding amounts under our loan agreement with Greyrock Capital, which as
of March 31, 2000 was $15.6 million. Greyrock Capital is a division of Banc of
America Commercial Finance Corporation. Both Banc of America Commercial Finance
Corporation and Banc of America Securities LLC, an underwriter in this offering,
are indirect, wholly-owned subsidiaries of Banc of America Corporation. Our loan
agreement with Greyrock provides for a revolving credit line of up to
$20.0 million and a term loan of $5.0 million, both of which are secured by our
assets. The interest rate under the loan agreement is adjusted monthly and is
computed as the highest LIBOR in effect each month plus 4.87% per year. The
interest rate may not be less than 8%, and the interest charged for each month
may not be less than $20,000. As of March 31, 2000, our average annual interest
rate for the current calendar year was 10.84%. We intend to terminate the loan
agreement upon closing of this offering.
We intend to use the remaining net proceeds of $42.9 million:
- to fund approximately $15.0 million of research and development activities
over the next 18 months;
- to increase our expenditures on sales, marketing and consulting services
capabilities by approximately $10.0 million;
- to fund an additional $2.0 million of expenditures for general and
administrative personnel and systems costs; and
- to fund approximately $15.9 million of working capital and other general
corporate costs, including possible acquisitions of, or investments in,
businesses and technologies that are complementary to our business and for
refinancing up to approximately $0.5 million in equipment lease
obligations.
We have no specific agreements, commitments or understandings to make new
acquisitions or investments. The amounts actually spent for each purpose may
vary significantly and are subject to change depending upon different factors,
including economic or industry conditions, changes in the competitive
environment and strategic opportunities that may arise, the amount of cash
generated by our operations and the rate of growth, if any, of our business.
Pending application of the net proceeds as described above, we intend to invest
the net proceeds of this offering in short-term, investment grade,
interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
anticipate that we will retain all future earnings and other cash resources for
investment in our business. Accordingly, we do not intend to declare or pay cash
dividends in the foreseeable future. Payment of any future dividends will be at
the discretion of our board of directors after taking into account many factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
15
<PAGE>
COMPANY INFORMATION
We were organized in July 1997 and commenced operations in September 1997
following the acquisition of Dallas Systems Corporation, based in Dallas, Texas,
by Neptune Systems, Inc., based in Philadelphia, Pennsylvania. Although Dallas
Systems had been in existence for 18 years and Neptune for five years, we have
operated on a combined basis as EXE Technologies, Inc. for less than three
years.
Our web site is www.exe.com. The information contained on our web site is
not included in and does not form a part of this prospectus.
"EXE," "EXE Technologies," the EXE Technologies logo, "EXceed," "GEM" and
"EXE University" are trademarks or service marks of EXE Technologies, Inc. Other
tradenames appearing in this prospectus are the property of their holders.
16
<PAGE>
CAPITALIZATION
The following table sets forth our cash and cash equivalents, short-term
debt and total capitalization as of March 31, 2000, and as adjusted to reflect
the application of our net proceeds from this offering, at the initial public
offering price of $8.00 per share, in the manner described in "Use of Proceeds"
and the conversion of our convertible preferred stock, Series A through D, and
our Class B common stock into common stock. You should read this table in
conjunction with our consolidated financial statements and notes which are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
-------------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 10,661 $53,598
======== =======
Revolving credit line and current portion of long term
debt...................................................... $ 10,918 $ 335
======== =======
Long-term debt, net of current portion...................... $ 5,271 $ 271
Stockholders' equity:
Convertible preferred stock, Series A through D, $.01 par
value: 22,000,000 shares authorized and 17,687,562
issued and outstanding at March 31, 2000, aggregate
liquidation value of $52,000,000, actual; and no shares
outstanding as adjusted................................. 52,000 --
Common stock, Class A voting, $.01 par value: 75,000,000
shares authorized and 16,766,529 shares issued, actual;
and 42,901,946 shares issued, as adjusted............... 167 429
Common stock, Class B non-voting, $.01 par value:
12,000,000 shares authorized and 447,855 shares issued
and outstanding, actual; and no shares issued, as
adjusted................................................ 4 --
Additional paid-in capital................................ 31,120 141,382
Treasury stock at cost, 924,483 shares of common stock,
actual and as adjusted.................................. (3,210) (3,210)
Accumulated deficit....................................... (55,233) (55,233)
Deferred compensation..................................... (4,538) (4,538)
Other comprehensive loss.................................. (836) (836)
-------- -------
Total stockholders' equity.............................. 19,474 77,994
-------- -------
Total capitalization.................................... $ 24,745 $78,265
======== =======
</TABLE>
--------------------------
The table does not include:
- an aggregate of 4,999,558 shares of common stock issuable upon exercise of
options outstanding as of March 31, 2000 at a weighted average exercise
price of $4.50 per share, of which 1,514,841 are fully vested at a
weighted average exercise price of $3.45 per share;
- an aggregate of 1,085,000 shares of common stock issuable upon the
exercise of warrants outstanding as of March 31, 2000 at a weighted
average exercise price of $4.16 per share, of which 755,000 are fully
vested at a weighted average exercise price of $4.23 per share;
- an additional 3,455,243 shares of common stock reserved as of March 31,
2000 for issuance under our equity-based compensation plans; and
- 1,200,000 shares subject to the underwriters' over-allotment option.
17
<PAGE>
DILUTION
The net tangible book value of our common stock as of March 31, 2000, after
giving effect to the conversion of all our issued and outstanding Series A,
Series B, Series C and Series D preferred stock and Class B common stock into
common stock, was $5,967,677, or $0.18 per share. Net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the common stock outstanding as of March 31, 2000. After giving
effect to our sale of 8,000,000 shares of common stock offered by us through
this prospectus at the initial public offering price of $8.00 per share and
application of the net proceeds from this offering, and after deducting the
underwriting discounts and estimated offering expenses payable by us, our net
tangible book value as adjusted, as of March 31, 2000, would have been
$64,487,677, or $1.54 per share. This represents an immediate increase in net
tangible book value as adjusted of $1.36 per share to existing stockholders, and
an immediate dilution in net tangible book value as adjusted of $6.46 per share
to new investors purchasing common stock in this offering.
The following table illustrates the per share dilution as described above:
<TABLE>
<S> <C> <C>
Anticipated initial public offering price................... $ 8.00
Net tangible book value before this offering.............. $0.18
Increase attributable to new investors in this offering... 1.36
-----
Net tangible book value as adjusted after this offering..... 1.54
------
Dilution to new investors................................... $ 6.46
======
</TABLE>
The following table summarizes, on an as adjusted basis, as of March 31,
2000, the number of shares of common stock purchased in this offering, the
aggregate cash consideration paid and the average price per share paid by
existing stockholders for common stock and by new investors to purchase common
stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 33,977,463 80.9% $55,024,713 46.2% $ 1.62
New investors........................... 8,000,000 19.1 64,000,000 53.8 $ 8.00
---------- ----- ------------ -----
Total............................... 41,977,463 100.0% $119,024,713 100.0% $ 2.84
========== ===== ============ =====
</TABLE>
The table does not include:
- an aggregate of 4,999,558 shares of common stock issuable upon exercise of
options outstanding as of March 31, 2000 at a weighted average exercise
price of $4.50 per share, of which 1,514,841 are fully vested at a
weighted average exercise price of $3.45 per share;
- an aggregate of 1,085,000 shares of common stock issuable upon the
exercise of warrants outstanding as of March 31, 2000 at a weighted
average exercise price of $4.16 per share, of which 755,000 are fully
vested at a weighted average exercise price of $4.23 per share;
- an additional 3,455,243 shares of common stock reserved as of March 31,
2000 for issuance under our equity-based compensation plans; and
- 1,200,000 shares subject to the underwriters' over-allotment option.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1997, 1998 and 1999 and the balance sheet
data as of December 31, 1998 and 1999 are derived from our audited consolidated
financial statements included elsewhere in this prospectus. The statement of
operations data for the years ended December 31, 1995 and 1996 and the balance
sheet data as of December 31, 1995, 1996 and 1997 are derived from our audited
financial statements for the years then ended, which are not included in this
prospectus. The statements of operations data for the three months ended
March 31, 1999 and 2000 and the balance sheet data at March 31, 2000 have been
derived from our unaudited interim consolidated financial statements. Our
unaudited interim consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which we believe are necessary
for a fair presentation of the results for the interim periods presented.
Operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2000.
We commenced operations on September 15, 1997, following the acquisition of
Dallas Systems by Neptune, which was accounted for as a purchase of Dallas
Systems by Neptune. As such, the historical financial statements of Neptune are
presented as our historical financial statements. The assets and liabilities of
Dallas Systems were recorded at the fair market value at the date of the
acquisition. We do not believe that our financial statements for the periods
prior to the acquisition are comparable to the periods after the acquisition due
to the significant impact of the acquisition.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license......................... $ 1,085 $ 4,326 $ 8,429 $ 22,418 $ 25,390 $ 6,391 $ 7,896
Services and maintenance................. 1,431 3,390 12,781 59,758 64,103 17,319 16,034
Resale software and equipment............ 252 698 5,562 9,114 7,307 1,905 1,548
------- ------- ------- -------- -------- -------- --------
Total revenue.......................... 2,768 8,414 26,772 91,290 96,800 25,615 25,478
Cost and expenses:
Cost of software licenses................ -- 206 749 234 254 62 79
Cost of services and maintenance......... 989 2,146 9,967 46,474 53,473 12,793 13,105
Cost of resale software and equipment.... 193 608 4,129 7,206 5,851 1,465 1,338
Sales and marketing...................... 555 1,258 6,721 23,664 24,464 6,458 5,972
Research and development................. -- 600 3,534 15,473 11,544 4,009 1,854
General and administrative............... 589 2,219 4,263 12,670 14,888 3,598 3,363
Amortization of intangibles.............. -- -- 1,430 4,452 4,819 1,205 1,140
Warrant and stock compensation expense... -- -- -- 285 3,321 53 1,065
Write-off of in-process research and
development............................ -- -- 2,700 -- -- -- --
Loss on lease abandonment................ -- -- -- 1,000 288 -- --
Restructuring costs...................... -- -- -- -- 1,952 -- --
------- ------- ------- -------- -------- -------- --------
Total costs and expenses............... 2,326 7,037 33,493 111,458 120,854 29,643 27,916
------- ------- ------- -------- -------- -------- --------
Operating income (loss)...................... 442 1,377 (6,721) (20,168) (24,054) (4,028) (2,438)
Other income (expense)....................... (11) (22) (208) (14) (2,030) (294) (450)
------- ------- ------- -------- -------- -------- --------
Income (loss) before minority interest and
taxes...................................... 431 1,355 (6,929) (20,182) (26,084) (4,322) (2,888)
Minority interest in subsidiary loss
(income)................................... -- 94 76 (30) -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes and pro
forma income taxes......................... 431 1,449 (6,853) (20,212) (26,084) (4,322) (2,888)
Provision (benefit) for income taxes and pro
forma income taxes......................... 157 609 (225) (578) -- -- --
------- ------- ------- -------- -------- -------- --------
Net income (loss)............................ $ 274 $ 840 $(6,628) $(19,634) $(26,084) $ (4,322) $ (2,888)
======= ======= ======= ======== ======== ======== ========
Net income (loss) per share-basic and
diluted.................................... $ 0.03 $ 0.10 $ (0.59) $ (1.24) $ (1.62) $ (0.27) $ (0.18)
Shares used in computing net income (loss)
per share-basic and diluted................ 8,500 8,500 11,228 15,885 16,096 15,993 16,256
Pro forma net loss per share-basic and
diluted(1)................................. -- -- -- -- $ (0.69) -- $ (0.08)
Pro forma shares used in computing net income
(loss) per share-basic and diluted(1)...... -- -- -- -- 35,758 -- 36,078
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 569 $1,804 $ 6,653 $ 780 $ 8,932 $10,661
Working capital......................................... 740 1,518 12,039 1,135 920 661
Total assets............................................ 2,234 5,208 40,249 57,063 67,670 68,523
Long-term debt (less current portion)................... 500 590 17 5,420 5,333 5,271
Stockholders' equity.................................... 816 2,034 21,607 24,824 21,233 19,474
</TABLE>
----------------------------------
(1) Our pro forma information reflects the conversion of all outstanding
convertible preferred stock and Class B common stock into Class A common
stock, as if the 17,687,562 shares of convertible preferred stock and
447,855 shares of Class B common stock converted at January 1, 1999, and the
application of a portion of the proceeds from the offering to repay all
outstanding amounts under the loan agreement with Greyrock Capital at the
beginning of the respective periods. We estimate that the proceeds from our
sale of 1,975,103 and 2,134,727 shares in this offering would be applied to
repay all outstanding amounts under the loan agreement with Greyrock Capital
at the beginning of the year ended December 31, 1999 and the three-month
period ended March 31, 2000, respectively. This loan repayment would reduce
our interest expense by $1,535,544 and $355,638 for the year ended
December 31, 1999 and the three-month period ended March 31, 2000,
respectively. Accordingly, the pro forma adjustment presented reflects the
issuance of these additional shares.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
OUR FORMATION
We began operations following the acquisition of Dallas Systems by Neptune
in September 1997. For accounting purposes the acquisition was accounted for as
a purchase of Dallas Systems by Neptune. Prior to the acquisition, Neptune was
focused on delivering packaged supply chain execution software solutions
primarily for manufacturing and third-party logistics companies. Dallas Systems
was focused on the development and sale of supply chain execution software
solutions, primarily for retail companies, capable of operating in complex
business environments. Dallas Systems also provided implementation and
consulting services.
DEVELOPMENT OF OUR EFS PRODUCTS
Upon completion of the acquisition, we began to focus our efforts on
developing a flexible, expandable and rapidly deployable software application
capable of running on most hardware and software platforms and supporting
numerous databases. This product, our 4000 warehouse management system
(version 3.0), or 4000 WMS, was the successor to our previously released 4000
WMS (version 2.0). The 4000 WMS (version 3.0) became the core of our EXceed eFS
Fulfill Suite. The 4000 WMS was designed to be usable by a wider variety of
businesses than our traditional EXceed 2000 warehouse management system and to
be more easily adaptable to new and emerging technologies. This product has
undergone numerous revisions and several releases as it has gained market
acceptance. We also focused on expanding our sales and marketing efforts
internationally by establishing offices in Japan, Korea and the United Arab
Emirates, and expanding our existing operations in Western Europe, China and
Southeast Asia.
We initially entered into software license agreements with several customers
for the 4000 WMS (version 3.0) product during the second quarter of 1998. Due to
the fact that the 4000 WMS (version 3.0) was a new technology, we experienced
significant delays in product implementation. This was partially attributable to
the fact that our personnel required substantial training in order to fully
comprehend the new technology and successfully implement the software.
Additionally, we detected bugs in the software and identified the need for
additional functional enhancements for this product. We subsequently released an
upgraded version of the 4000 WMS (version 3.0) to correct many of these errors
and added the required functional enhancements to make this product available
for general release. This upgraded version was made available for general
release in the third quarter of 1999. Prior to the general release of this
product, we did not recognize software license revenue until we obtained a
written acceptance letter from the customer.
During the second half of 1998, with the growing acceptance of the Internet
as a serious competitor to the traditional commerce markets, we began to focus
on meeting the fulfillment needs of e-commerce companies and began to develop
our EXceed eFulfillment System, or eFS, products, which are based upon our 4000
WMS and related products. Our focus was not only on existing and startup
e-commerce companies, but also on traditional businesses looking to implement
e-commerce strategies.
During the third quarter of 1999, we released additional components such as
EXceed Value, EXceed Dock and EXceed Crossdock which, along with the
EXceed 4000 WMS, are key components of our EXceed eFS Fulfill Suite. Our new
products began to gain market acceptance in the fourth quarter of 1999. We also
released our eFS Collaborate suite and in January 2000 started an aggressive
e-fulfillment marketing campaign targeting both traditional and e-commerce
distribution channels. As a result of the improvements made to our EXceed
4000 WMS, the release of additional e-fulfillment components, the packaging of
these components into the eFS Fulfill and eFS Collaborate Suites and
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our marketing campaign, this product line accounted for approximately 60% of our
software and services and maintenance revenue for the first quarter of 2000.
INITIAL PUBLIC OFFERING AND SERIES D PREFERRED STOCK FINANCING
In July of 1998, we filed a registration statement with the Securities and
Exchange Commission in respect of an initial public offering. Due to market
conditions during the first quarter of 1999, we withdrew this registration
statement. Following this withdrawal, we made additions to our senior management
team and several members of our senior management team assumed new
responsibilities and roles. We also experienced a significant liquidity
shortfall during the first half of 1999. Consequently, we focused our efforts on
raising capital through the private placement of equity in an effort to
alleviate this liquidity shortfall.
In September 1999, we successfully completed the private placement of our
Series D preferred stock and received a $19.0 million infusion of capital. This
capital was used to repay outstanding debt, realign operations and fund the
continued development and subsequent release and marketing of our eFS products.
REALIGNMENT OF OPERATIONS
During the third quarter of 1999, we realigned our operations, focused on
strategic alliances as additional sales channels and sources of additional
implementation personnel and reduced our workforce by approximately 14.0%. As a
result of our restructuring efforts, we were able to reduce operating expenses
in the third and fourth quarters of 1999 by approximately 9.5% as compared to
the first and second quarters of 1999. Software license revenue from our EXceed
eFS products and their predecessors increased from $9.1 million in 1998 to
$17.9 million in 1999 and overall revenue from our eFS products and their
predecessors increased from $19.7 million in 1998 to $41.2 million in 1999. We
anticipate that software license revenue will continue to grow as a result of
increased market acceptance of our eFS products, expansion into new geographical
markets, increased sales through our strategic alliances and an increase in the
size and productivity of our sales force. We also anticipate a decline in
revenue generated from our EXceed 2000 warehouse management system product as
demand continues to shift towards products with e-fulfillment capabilities. We
presently do not intend to stop enhancing, selling and supporting the EXceed
2000 warehouse management system, as we believe it continues to be a viable
product for some of our customers.
OUR REVENUE
We derive our revenue from:
- the sale of software licenses, which we recognize as software license
revenue;
- product related consulting, training, maintenance and support, which we
recognize as services and maintenance revenue; and
- the resale of hardware and software, which we recognize as resale software
and equipment revenue.
We recognize revenue under Statement of Position, or SOP, No. 97-2. Under
SOP No. 97-2, software license revenue is recognized upon execution of a
contract and delivery of the software, provided that the license fee is fixed
and determinable, no significant production, modification or customization of
the software is required and collection of the license fee is considered
probable by management. Prior to the adoption of SOP No. 97-2 on January 1,
1998, software license revenue was recognized in accordance with SOP No. 91-1,
"Software Revenue Recognition." Under SOP No. 91-1, software license revenue was
recognized upon execution of a contract and shipment of the software and
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after any customer cancellation right had expired, provided that no significant
vendor obligations remained outstanding, amounts were due within one year and
collection of license fees was considered probable by management. Product
related maintenance and support revenue is recognized ratably over the term of
the contract, which is typically one year, and revenue from product related
consulting and training is recognized as such services are performed.
In January 2000, we sold our mainframe services and maintenance practice to
an unrelated third party consulting firm in exchange for royalties that will be
received on future revenue generated by customers using this product. Services
and maintenance revenue associated with our mainframe products, as a percentage
of total services and maintenance revenue, represented 13.3%, 12.5%, 7.5%, 9.4%
and 3.1%, respectively, for the years ended December 31, 1997, 1998 and 1999 and
the three months ended March 31, 1999 and March 31, 2000. The royalties are a
declining percentage of the consulting firm's services and maintenance revenues
generated from customers using our mainframe product, subject to a maximum of
$425,000 per year. The percentages of revenue are: 20% for the first two years,
15% for the third year, 10% for the fourth and fifth years and 5% for each year
after the fifth year. The agreement is perpetual, but may be terminated at EXE's
option in the event of default by the consulting firm. We do not expect these
royalties to be a material portion of our future services and maintenance
revenues.
SOFTWARE PRICING AND PROFESSIONAL SERVICES
We offer a variety of pricing options, which allow our customers to purchase
our software for a single site, a business unit or an entire enterprise. We
market our software and services through our direct sales organization in North
America, Europe, the Middle East, Asia and Australia and through our strategic
alliance relationships. We intend to expand our international sales activities
by opening additional offices in Europe and South America in 2000 and by
expanding the size of our existing offices. In addition, we plan to expand
strategic relationships with industry leaders whose business offerings
complement our own.
We offer professional services that help facilitate the successful
implementation and integration of our products with our customers' existing
systems. Our professional services include installation, implementation project
management, on-site software training, operational engineering, industrial
engineering, software modification and supply chain consulting. Our professional
services are billed on a time and material basis or, when requested, on a fixed
fee basis. For the three-month period ended March 31, 2000, approximately 17.0%
of our total revenue was derived from fixed fee contracts. We expect this
percentage to decline in the future.
NON-CASH WARRANT AND STOCK COMPENSATION EXPENSES
We have recorded deferred compensation expense in connection with some stock
options we granted. The deferred compensation expense we recorded represented
the difference between the exercise price and the deemed fair value of our
Class B common stock on the date of grant of these options. For the years ended
December 31, 1998 and 1999 and the three-month period ended March 31, 2000, we
recorded deferred compensation expense of $0.8 million, $0.7 million and
$4.2 million, respectively, in connection with these options. The deferred
compensation expense is being amortized ratably over the vesting period of the
individual options, which is generally three to four years. Non-cash
compensation expense related to these options was $0.3 million, $0.3 million and
$0.6 million for the years ended December 31, 1998 and 1999 and the three-month
period ended March 31, 2000, respectively. We have also recorded non-cash
operating charges of approximately $2.0 million in connection with warrants
issued to an independent consultant in exchange for consulting services rendered
in the fourth quarter of 1999. We recorded additional non-cash charges of
approximately $1.0 million and $0.4 million for the year ended December 31, 1999
and the three-month period ended March 31, 2000, respectively. These charges
relate to warrants to purchase 660,000 shares
23
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of our Class B common stock issued in connection with a sales and marketing
agreement with an independent third party.
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data as a
percentage of total revenue for the three years ended December 31, 1999 and the
three months ended March 31, 1999 and 2000:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -----------------------
1997 1998 1999 1999 2000
<S> <C> <C> <C> <C> <C>
Revenue:
Software license................................. 31.5 % 24.6 % 26.2 % 25.0 % 31.0 %
Services and maintenance......................... 47.7 65.4 66.2 67.6 62.9
Resale software and equipment.................... 20.8 10.0 7.6 7.4 6.1
----- ----- ----- ----- -----
Total revenue.................................. 100.0 100.0 100.0 100.0 100.0
Cost and expenses:
Cost of software licenses........................ 2.8 0.3 0.3 0.2 0.3
Cost of services and maintenance................. 37.2 50.9 55.2 50.0 51.4
Cost of resale software and equipment............ 15.4 7.9 6.0 5.7 5.3
Sales and marketing.............................. 25.1 25.9 25.3 25.2 23.4
Research and development......................... 13.2 16.9 11.9 15.7 7.3
General and administrative....................... 15.9 13.9 15.4 14.0 13.2
Amortization of intangibles...................... 5.3 4.9 5.0 4.7 4.5
Warrant and stock compensation expense........... -- 0.3 3.4 0.2 4.2
Write-off of in-process research and
development.................................... 10.2 -- -- -- --
Loss on lease abandonment........................ -- 1.1 0.3 -- --
Restructuring costs.............................. -- -- 2.0 -- --
----- ----- ----- ----- -----
Total costs and expenses....................... 125.1 122.1 124.8 115.7 109.6
Operating loss..................................... (25.1) (22.1) (24.8) (15.7) (9.6)
Other expense...................................... (0.8) -- (2.1) (1.2) (1.7)
----- ----- ----- ----- -----
Loss before minority interest and taxes............ (25.9) (22.1) (26.9) (16.9) (11.3)
Minority interest in subsidiary loss (income)...... 0.3 -- -- -- --
----- ----- ----- ----- -----
Loss before income taxes and pro forma income
taxes............................................ (25.6) (22.1) (26.9) (16.9) (11.3)
Provision (benefit) for income taxes and pro forma
income taxes..................................... (0.8) (0.6) -- -- --
----- ----- ----- ----- -----
Net loss........................................... (24.8)% (21.5)% (26.9)% (16.9)% (11.3)%
===== ===== ===== ===== =====
</TABLE>
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999
REVENUE
TOTAL REVENUE. Total revenue decreased by $0.1 million, or 0.5%, to
$25.5 million for the three months ended March 31, 2000, from $25.6 million for
the three months ended March 31, 1999. International revenue accounted for 43.2%
of total revenue during the three months ended March 31, 2000 and 28.2% of total
revenue during the three months ended March 31, 1999. No single customer
accounted for more than 10.0% of total revenue during the three months ended
March 31, 2000 or 1999.
SOFTWARE LICENSE. Our license revenue increased $1.5 million, or 23.5%, to
$7.9 million for the three months ended March 31, 2000, from $6.4 million for
the three months ended March 31, 1999. This increase in license revenue was due
to continued growth in the sales of our eFS and predecessor products. Sales of
our eFS and predecessor products increased by $3.4 million for the three months
ended March 31, 2000, as compared to the three months ended March 31, 1999. This
increase was offset by a $1.9 million decline in license sales from our EXceed
2000 warehouse management system and mainframe products. Software license
revenue as a percentage of total revenue was 31.0% for the three months ended
March 31, 2000 versus 25.0% for the three months ended March 31, 1999. Our eFS
and predecessor products accounted for 89.7% of total software license revenue
during the three months ended March 31, 2000 and 57.3% of total software license
revenue during the three months ended March 31, 1999.
SERVICES AND MAINTENANCE. Services and maintenance revenue declined $1.3
million, or 7.4%, to $16.0 million for the three months ended March 31, 2000
from $17.3 million for the three months ended March 31, 1999. The decline was
primarily attributable to the increasing portion of our revenue derived from our
eFS products, which are more easily deployable and require less services and
maintenance personnel to install than our EXceed 2000 warehouse management
system, and from the disposition of a segment of our services business. Services
and maintenance revenue from our eFS and predecessor products increased $3.4
million, while services and maintenance revenue from our EXceed 2000 warehouse
management system declined $3.6 million, for the three months ended March 31,
2000. In addition, in January 2000 we sold our mainframe services and
maintenance practice in exchange for a royalty that will be received on future
revenue generated by these mainframe customers, which resulted in a $1.1 million
decline in services and maintenance revenue for the three months ended
March 31, 2000. Services and maintenance revenue as a percentage of total
revenue was 62.9% for the three months ended March 31, 2000 versus 67.6% for the
three months ended March 31, 1999. Our eFS and predecessor products accounted
for 48.9% of total services and maintenance revenue for the three months ended
March 31, 2000 versus 25.4% of total services and maintenance revenue for the
three months ended March 31, 1999.
RESALE SOFTWARE AND EQUIPMENT. Our resale software and equipment revenue
decreased $0.4 million, or 18.7%, to $1.5 million for the three months ended
March 31, 2000, from $1.9 million for the three months ended March 31, 1999.
This decline reflects the continued shift in demand to our eFS products, which
have a lower opportunity for resale of software and equipment than provided by
the EXceed 2000 warehouse management system and mainframe products. Resale
software and equipment revenue as a percentage of total revenue was 6.1% for the
three months ended March 31, 2000 and 7.4% for the three months ended March 31,
1999.
COST AND EXPENSES
COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of
the cost of royalties associated with tools used to develop our software
products and the cost of reproduction. Cost of
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software licenses represented 1.0% of software license revenue for the three
months ended March 31, 2000 and 1999.
COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists
primarily of salaries of professional staff, cost associated with
implementation, consulting, training services, hotline telephone support, new
releases of software, bug fixes and updated user documentation. Our cost of
services and maintenance increased $0.3 million, or 2.4%, to $13.1 million for
the three months ended March 31, 2000, from $12.8 million for the three months
ended March 31, 1999. The increase in cost of services and maintenance during
the three months ended March 31, 2000 was due to our increased training and use
of implementation partners primarily related to our expansion in Japan, Korea
and Europe. Training and use of implementation partners on installations of the
eFS product in these regions have resulted in approximately $1.4 million of
increased contractor costs during the three months ended March 31, 2000. These
cost increases were offset by a $1.0 million decline in services and maintenance
personnel cost caused by the decline in sales of licenses of the EXceed 2000
warehouse management system products and from the disposition of the mainframe
service and maintenance practice in January, 2000. As a percentage of services
and maintenance revenue, cost of services and maintenance increased to 81.7% for
the three months ended March 31, 2000, from 74.0% during the three months ended
March 31, 1999. Of the 7.7% increase in the cost as a percentage of services and
maintenance revenue, approximately 5.0% was attributable to the increased use of
contractors and 3.0% to the identification and resolution of software bugs.
COST OF RESALE SOFTWARE AND EQUIPMENT. Cost of resale software and
equipment consists primarily of the costs of the software and hardware we
purchase to resell to our customers. Our cost of resale software and equipment
decreased $0.1 million, or 8.7%, to $1.3 million during the three months ended
March 31, 2000, from $1.4 million during the three months ended March 31, 1999.
As a percentage of resale software and equipment revenue, cost of resale
software and equipment increased to 86.4% for the three months ended March 31,
2000, from 76.9% for the three months ended March 31, 1999. The increase in the
cost of resale software and equipment, as a percentage of resale software and
equipment revenue, is due to the shift in demand to our eFS products which
provide less opportunity for obtaining pricing discounts from suppliers of
software and equipment than the EXceed 2000 warehouse management system and
mainframe products provided.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, bonuses, recruiting costs, travel, marketing materials
and trade shows. Sales and marketing expenses decreased $0.5 million, or 7.5%,
to $6.0 million for the three months ended March 31, 2000, from $6.5 million for
the three months ended March 31, 1999. The decrease included a $1.4 million
decline in sales and marketing expenses attributed to a reduction of sales and
marketing staff and related staff expenses. This decline was offset by an
increase in promotional activities of approximately $0.9 million for the eFS
products during the three months ended March 31, 2000. As a percentage of total
revenue, sales and marketing expenses decreased to 23.4% during the three months
ended March 31, 2000, from 25.2% during the three months ended March 31, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other personnel-related costs for our product
development activities. Research and development expenses decreased
$2.1 million, or 53.8%, to $1.9 million for the three months ended March 31,
2000, from $4.0 million for the three months ended March 31, 1999. The decrease
in research and development expenses was related primarily to a reduction in the
number of outside contractors and employees used to develop our products. As a
percentage of total revenue, research and development expenses decreased to 7.3%
for the three months ended March 31, 2000 from 15.7% for the three months ended
March 31, 1999. This decline in spending for the three months ended March 31,
2000 was due to the completion of the initial releases and testing of the new
eFS product core. We expect to
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continue to invest in research and development activities to complete additional
modules and enhancements for the EXceed eFS Fulfill and EXceed eFS Collaborate
Suites.
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. Since our inception, the establishment of technological
feasibility of our products and general release of such software has
substantially coincided. As a result, software development costs qualifying for
capitalization have been insignificant and, therefore, we have expensed all
software development costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related costs of our finance, human
resources, information systems, administrative, legal and executive departments,
insurance costs and the costs associated with legal, accounting and other
administrative services. General and administrative expenses decreased
$0.2 million, or 6.5%, to $3.4 million for the three months ended March 31,
2000, from $3.6 million for the three months ended March 31, 1999. The decrease
in general and administrative expenses was related primarily to a decline in
outside financial, legal and information systems consulting services used during
the three months ended March 31, 2000. As a percentage of total revenue, general
and administrative expenses declined to 13.2% for the three months ended
March 31, 2000 from 14.0% for the three months ended March 31, 1999. The
percentage decline for the three months ended March 31, 2000 was due primarily
to the decline in outside consulting services for financial, legal and
information systems support. We expect that as a percentage of total revenue,
our general and administrative expenses will continue to decline because we
believe that we have the infrastructure in place to support our future growth.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles declined
$0.1 million to $1.1 million for the three months ended March 31, 2000, from
$1.2 million for the three months ended March 31, 1999. The amortization relates
to intangibles acquired in connection with the acquisition of Dallas Systems.
OTHER INCOME (EXPENSE) ITEMS
OTHER INCOME (EXPENSE). Other income (expense) consists of gains and losses
from currency fluctuations, interest expense and loan cost amortization on
outstanding debt offset by interest income on short-term investments. Other
expense increased $0.2 million to $0.5 million for the three months ended
March 31, 2000, from $0.3 million for the three months ended March 31, 1999. The
increase is primarily attributed to increased interest expense on debt due to
higher average balances outstanding at higher interest rates during the three
months ended March 31, 2000.
PROVISION (BENEFIT) FOR INCOME TAXES. No income tax benefit was recorded
during the three months ended March 31, 2000 and 1999 due to the uncertainty of
the timing and amount of future taxable income.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUE
TOTAL REVENUE. Total revenue increased $5.5 million, or 6.0%, to
$96.8 million for the year ended December 31, 1999, from $91.3 million for the
year ended December 31, 1998. International revenue accounted for 36.2% of total
revenue in 1999 and 27.5% of total revenue in 1998. No single customer accounted
for more than 10.0% of total revenue in 1999 or 1998.
SOFTWARE LICENSE. Our software license revenue increased $3.0 million, or
13.3%, to $25.4 million for the year ended December 31, 1999, from
$22.4 million for the year ended December 31, 1998. This increase was due to
increased volume as a result of market acceptance of our eFS and predecessor
27
<PAGE>
products and our expansion into Japan and Korea, offset by a decrease in volume
of our EXceed 2000 warehouse management system and mainframe products. Total
software license revenue from our eFS and predecessor products increased by
$8.8 million, while sales of our EXceed 2000 warehouse management system and
mainframe products decreased by $5.9 million. Software license revenue as a
percentage of total revenue was 26.2% for the year ended December 31, 1999
versus 24.6% for the year ended December 31, 1998. Our eFS and predecessor
products accounted for 70.6% of total software license revenue in 1999 and 40.5%
of total software license revenue in 1998.
SERVICES AND MAINTENANCE. Services and maintenance revenue increased
$4.3 million, or 7.3%, to $64.1 million for the year ended December 31, 1999,
from $59.8 million for the year ended December 31, 1998. This increase was
primarily due to increases in revenue generated in our Asia/Pacific and
Europe/Middle East regions as compared to the same period in 1998. A significant
portion of this increase was a result of a $4.0 million increase in revenue from
maintenance on initial license contracts and maintenance contract renewals.
Services and maintenance revenue as a percentage of total revenue was 66.2% for
the year ended December 31, 1999 versus 65.4% for the year ended December 31,
1998. Our eFS and predecessor products accounted for 36.5% of total services and
maintenance revenue in 1999 and 17.9% of total services and maintenance revenue
in 1998.
RESALE SOFTWARE AND EQUIPMENT. Our resale software and equipment revenue
decreased $1.8 million, or 19.8%, to $7.3 million for the year ended
December 31, 1999, from $9.1 million for the year ended December 31, 1998. This
decline was due to the shift in demand to our eFS products, which do not provide
the same opportunity to resell software and hardware as the EXceed
2000 warehouse management system product. Resale software and equipment revenue
as a percentage of total revenue was 7.6% for the year ended December 31, 1999
versus 10.0% for the year ended December 31, 1998.
COST AND EXPENSES
COST OF SOFTWARE LICENSES. Cost of software licenses represented 1.0% of
software license revenue in each of the years ended December 31, 1999 and
December 31, 1998.
COST OF SERVICES AND MAINTENANCE. Our cost of services and maintenance
increased $7.0 million, or 15.1%, to $53.5 million for the year ended
December 31, 1999, from $46.5 million for the year ended December 31, 1998. The
increase in cost of services and maintenance for the year ended December 31,
1999 was due primarily to the expansion in Japan and Korea and incremental costs
associated with providing new office space for services and maintenance
personnel. As a percentage of services and maintenance revenue, cost of services
and maintenance increased to 83.4% for the year ended December 31, 1999, from
77.8% for the year ended December 31, 1998. Of this 5.6% percent increase,
approximately 4.0% of the percentage increase was attributed to project delays
and implementation issues as we encountered, identified and fixed software bugs
associated with our eFS products, and approximately 1.0% of the change was
associated with training new and existing personnel on implementation of our eFS
products. In addition, we maintained more services and maintenance personnel for
our EXceed 2000 warehouse management system than we needed during 1999.
COST OF RESALE SOFTWARE AND EQUIPMENT. Our cost of resale software and
equipment decreased $1.3 million, or 18.8%, to $5.9 million for the year ended
December 31, 1999, from $7.2 million for the year ended December 31, 1998. The
decrease in cost of resale software and equipment for the year ended
December 31, 1999 was due primarily to a decrease in volume of reselling
activities. As a percentage of resale software and equipment revenue, cost of
resale software and equipment increased to 80.1% for the year ended
December 31, 1999, from 79.1% for the year ended December 31, 1998. The
percentage increase for the year ended December 31, 1999 was due primarily to
our lower volume of reselling activities and an inability to obtain better
pricing from our suppliers due to the decrease in sales volume.
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SALES AND MARKETING. Sales and marketing expenses increased $0.8 million,
or 3.4%, to $24.5 million for the year ended December 31, 1999, from
$23.7 million for the year ended December 31, 1998. The increase in sales and
marketing expenses was related primarily to the expansion of our office in Japan
and the opening of a new office in Korea. Although our office in Japan opened in
1998, we only incurred expenses for a portion of the 1998 year because the
office was opened during the second half of the year. As a percentage of total
revenue, sales and marketing expenses decreased to 25.3% for the year ended
December 31, 1999, from 25.9% for the year ended December 31, 1998. The
percentage decrease for the year ended December 31, 1999 was due primarily to
revenue increasing at a more rapid rate than sales and marketing expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased
$4.0 million, or 25.4%, to $11.5 million for the year ended December 31, 1999,
from $15.5 million for the year ended December 31, 1998. The decrease in
research and development expenses was related primarily to a 79.0% reduction in
the average number of outside contractors and a 15.9% reduction in the average
number of employees used to develop our products. As a percentage of total
revenue, research and development expenses decreased to 11.9% for the year ended
December 31, 1999 from 16.9% for the year ended December 31, 1998. The
percentage decrease for the year ended December 31, 1999 was due primarily to
the reduction in workforce and the decrease in allocation of overhead costs
related to a reduction in development efforts for our EXceed 2000 warehouse
management system and mainframe products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$2.2 million, or 17.5%, to $14.9 million for the year ended December 31, 1999,
from $12.7 million for the year ended December 31, 1998. The increase in general
and administrative expenses was related primarily to a 34.3% increase in the
number of employees in internal support functions worldwide and the incremental
costs associated with leasing a larger and more expensive headquarters facility.
As a percentage of total revenue, general and administrative expenses increased
to 15.4% for the year ended December 31, 1999 from 13.9% for the year ended
December 31, 1998. General and administrative expenses in 1998 included
$2.3 million in expenses associated with our initial public offering process,
which we did not complete.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
$0.4 million to $4.8 million for the year ended December 31, 1999, from
$4.4 million for the year ended December 31, 1998. The amortization relates to
intangibles acquired in connection with the acquisition of Dallas Systems.
LOSS ON LEASE ABANDONMENT. Loss on lease abandonment was $0.3 million for
the year ended December 31, 1999 and $1.0 million for the year ended
December 31, 1998. Loss on lease abandonment resulted from our decision to
vacate our old corporate headquarters and relocate to our current headquarters
in Dallas, Texas during 1998. During 1999, we reached an agreement with the
owner of the building we vacated, LAB Holdings, a company controlled by our
Chairman of the Board, at which time we recorded the additional $0.3 million
loss on abandonment.
RESTRUCTURING COSTS. In August 1999, we implemented a restructuring plan to
reduce costs and improve operating efficiency. In connection with this plan, we
recorded a charge of $2.0 million for the year ended December 31, 1999. The
restructuring charge included $0.7 million for severance and other employee
related costs for the termination of 97 services, sales, development and
administrative employees; $0.8 million for the abandonment of certain leased
office space less estimated sublease rentals for the corporate facility in
Dallas, Texas and a sales and service office in Australia; and $0.5 million for
the abandonment of leased equipment and disposal of other fixed assets. As of
December 31, 1999, cash charges of $1.3 million have been applied against the
original restructuring charge.
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OTHER INCOME (EXPENSE) ITEMS
OTHER INCOME (EXPENSE). Other income (expense) primarily consists of
interest expense and loan cost amortization on outstanding debt offset by
interest income on short-term investments and currency gains. Other expense
increased to $2.0 million for the year ended December 31, 1999. The increase was
due to interest expense on debt from increased borrowings under our
$20.0 million revolving credit line and $5.0 million term loan facility during
the year ended December 31, 1999.
PROVISION (BENEFIT) FOR INCOME TAXES. There was no income tax benefit
recorded in 1999. In 1998, a $0.6 million income tax benefit was recorded. The
recorded benefit differs from the amount computed at the statutory rate due to
operating losses generated in 1999 and 1998, for which no benefit was recorded
due to the uncertainty of the timing and amount of future taxable income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUE
TOTAL REVENUE. Total revenue increased $64.5 million, or 241.0%, to
$91.3 million for the year ended December 31, 1998, from $26.8 million for the
year ended December 31, 1997. No single customer accounted for more than 10.0%
of total revenue in 1998 and one customer accounted for approximately 11.0% of
our total revenue in 1997.
SOFTWARE LICENSE. Our software license revenue increased $14.0 million, or
166.0%, to $22.4 million for the year ended December 31, 1998, from
$8.4 million for the year ended December 31, 1997. This increase resulted from
the acquisition of Dallas Systems and the performance of a larger sales and
marketing group. Software license revenue as a percentage of total revenue was
24.6% for the year ended December 31, 1998 versus 31.5% for the year ended
December 31, 1997.
SERVICES AND MAINTENANCE. Our services and maintenance revenue increased
$47.0 million, or 367.6%, to $59.8 million for the year ended December 31, 1998,
from $12.8 million for the year ended December 31, 1997. This increase was due
to additional revenue recognized from services performed as a result of the sale
of licenses for the mainframe and EXceed 2000 warehouse management systems
software acquired through the acquisition of Dallas Systems. In addition,
revenue in 1998 represented a complete year of post-acquisition activity as
compared to 1997. Services and maintenance revenue as a percentage of total
revenue was 65.4% for the year ended December 31, 1998 versus 47.7% for the year
ended December 31, 1997.
RESALE SOFTWARE AND EQUIPMENT. Our resale software and equipment revenue
increased $3.5 million, or 63.9%, to $9.1 million for the year ended
December 31, 1998, from $5.6 million for the year ended December 31, 1997. This
increase was due to the overall increase in the sale of our products and the
acquisition of Dallas Systems and its customer base. Resale software and
equipment revenue as a percentage of total revenue was 10.0% for the year ended
December 31, 1998 versus 20.8% for the year ended December 31, 1997.
COST AND EXPENSES
COST OF SOFTWARE LICENSES. Our cost of software licenses decreased
$0.5 million, or 68.8%, to $0.2 million for the year ended December 31, 1998,
from $0.7 million for the year ended December 31, 1997. As a percentage of
software license revenue, cost of software licenses decreased to 1.0% for the
year ended December 31, 1998, from 8.9% for the year ended December 31, 1997.
The percentage decrease for the year ended December 31, 1998 was due primarily
to the write-off of certain software development costs previously capitalized in
1997 by Neptune prior to the acquisition of Dallas Systems relating to products
that had diminished in value to our ongoing operations.
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COST OF SERVICES AND MAINTENANCE. Our cost of services and maintenance
revenue increased $36.5 million, or 366.3%, to $46.5 million for the year ended
December 31, 1998, from $10.0 million for the year ended December 31, 1997. The
increase in cost of services and maintenance revenue for the year ended
December 31, 1998 was due primarily to the acquisition of Dallas Systems. As a
percentage of services and maintenance revenue, cost of services and maintenance
remained consistent at 77.8% for the year ended December 31, 1998 and 78.0% for
the year ended December 31, 1997.
COST OF RESALE SOFTWARE AND EQUIPMENT. Our cost of resale software and
equipment increased $3.1 million, or 74.5%, to $7.2 million for the year ended
December 31, 1998, from $4.1 million for the year ended December 31, 1997. The
increase in cost of resale software and equipment for the year ended
December 31, 1998 was due primarily to the 63.9% increase in resale software and
equipment revenue. As a percentage of resale software and equipment revenue,
cost of resale software and equipment revenue increased to 79.1% for the year
ended December 31, 1998, from 74.2% for the year ended December 31, 1997. The
percentage increase for the year ended December 31, 1998 was due primarily to
our inability to secure more favorable pricing than in the previous year and the
smaller proportion of higher margin products sold in 1998 versus 1997.
SALES AND MARKETING. Sales and marketing expenses increased $16.9 million,
or 252.1%, to $23.6 million for the year ended December 31, 1998, from
$6.7 million for the year ended December 31, 1997. The increase in sales and
marketing expenses was related primarily to the increased hiring of sales and
marketing personnel, the increase in sales commissions earned as a result of the
increase in revenue and the increase in marketing and promotional activities. As
a percentage of total revenue, sales and marketing expenses increased to 25.9%
for the year ended December 31, 1998 from 25.1% for the year ended December 31,
1997.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
$12.0 million, or 337.8%, to $15.5 million for the year ended December 31, 1998,
from $3.5 million for the year ended December 31, 1997. The increase in research
and development expenses was related primarily to the increase in personnel as a
direct result of the acquisition of Dallas Systems. As a percentage of total
revenue, research and development expenses increased to 16.9% for the year ended
December 31, 1998 from 13.2% for the year ended December 31, 1997.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$8.4 million, or 197.2%, to $12.7 million for the year ended December 31, 1998,
from $4.3 million for the year ended December 31, 1997. The increase in general
and administrative expenses was related primarily to increased staffing and
related costs associated with our growth following the acquisition of Dallas
Systems. During the year ended December 31, 1998, we incurred $2.3 million in
expenses associated with our originally planned initial public offering. These
expenses included fees for accounting, legal, valuation, printing and other
services related to that offering. That offering was withdrawn on March 17,
1999. As a percentage of total revenue, general and administrative expenses
decreased to 13.9% for the year ended December 31, 1998 from 15.9% for the year
ended December 31, 1997. The percentage decrease for the year ended
December 31, 1998 was due primarily to a substantial increase in total revenue
and our ability to leverage our base of resources to support a larger
organization.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
$3.0 million, or 211.2%, to $4.4 million for the year ended December 31, 1998,
from $1.4 million for the year ended December 31, 1997. The increase in
amortization of intangibles was related primarily to the amortization of
goodwill, purchased technology and work force as a result of our acquisition of
Dallas Systems.
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT. In 1997, we recorded a
write-off of in-process research and development of $2.7 million in connection
with the acquisition of Dallas Systems by Neptune. This acquisition was
accounted for as a purchase, and the total consideration paid by Neptune for
Dallas Systems was $30.2 million. We have allocated $2.7 million of the Dallas
Systems
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purchase price to in-process research and development costs at the date of
acquisition. This amount was expensed as a non-recurring charge on the
acquisition date because the acquired technology had not yet reached
technological feasibility and, as acquired, had no future alternative use. The
remaining purchase price was allocated to net tangible assets acquired of
$2.5 million and intangible assets acquired, including goodwill, of
$25.0 million.
The value attributable to the in-process technology was determined as follows:
- We evaluated the status at the acquisition date of the development of each
of the projects that were in-process and expressed that status as a
percentage of completion;
- We then estimated the revenue streams from the projects upon their
completion based upon assumptions as to the expected sales to existing and
new customers, historical retention rates for existing customers and our
experience with prior product releases;
- We then multiplied the percentage of completion of each in-process project
by the projected revenue streams associated with the in-process
technology;
- We then used the revised revenue streams to compute projected net cash
flows based on our estimates of operating profits related to such
projects; and
- Finally, we discounted these cash flows to their net present value using a
25.0% discount rate.
The in-process projects included one major project, which accounted for a
substantial amount of the $2.7 million write-off. We completed the development
of this project and several other projects in the second half of 1998 and the
first half of 1999, and, in January 1999, we launched the resulting products as
packaged components of the predecessors to our EXceed eFS Fulfill and eFS
Collaborate Suites. We incurred approximately $6.5 million in costs to complete
the in-process development and it took 12 months longer than we originally
anticipated. These costs were mainly for personnel involved in the planning,
designing, coding, integration, testing and modification of the software. The
original estimate to complete the in-process development at the time of the
acquisition was $0.8 million. The cost difference from the original estimate was
attributable to enhancements and improvements to the original design
specifications.
LOSS ON LEASE ABANDONMENT. During the year ended December 31, 1998, we
entered into a 15 year lease for corporate office space in Dallas, Texas. We
estimated that the loss from the abandonment of the old corporate headquarters
facility would be $1.0 million. Final resolution of the loss to be incurred as a
result of vacating this office space was not reached until August 1999.
OTHER INCOME (EXPENSE) ITEMS
PROVISION FOR INCOME TAXES. The recorded benefit differs from the amount
computed at the statutory rate in 1997 primarily as a result of non-deductible
in-process research and development expense. The recorded benefit differs from
the amount computed at the statutory rate in 1998 due to operating losses for
which no benefit was recorded due to the uncertainty of the timing and amount of
future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations through the issuance of our preferred and
common stock, bank borrowings and cash flow from operations. As of March 31,
2000, we had $10.7 million in cash and cash equivalents and $0.7 million in
working capital.
Net cash provided by operating activities was $0.7 million for the three
months ended March 31, 2000. Net cash used in operating activities was
$11.3 million for the year ended December 31, 1999, $14.7 million for the year
ended December 31, 1998 and $1.7 million for the year ended December 31,
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1997. The cash used for operating activities in each of these years reflects net
losses and increases in accounts receivable, offset by non-cash charges for
depreciation, amortization and the provision for losses on receivables, as well
as deferred revenue and accruals.
Net cash used in investing activities was $0.4 million for the three months
ended March 31, 2000, $5.3 million for the year ended December 31, 1999,
$7.5 million for the year ended December 31, 1998 and $0.5 million for the year
ended December 31, 1997. We used cash primarily for the purchase of capital
equipment, such as computer equipment and furniture and fixtures, to support our
growth.
Net cash provided by financing activities was $1.4 million for the three
months ended March 31, 2000, $24.8 million for the year ended December 31, 1999,
$16.3 million for the year ended December 31, 1998 and $7.0 million for the year
ended December 31, 1997. In 1997, we issued preferred and common stock for
$28.7 million, paid $15.0 million to acquire the common stock of Dallas Systems,
distributed $1.4 million to stockholders and repaid $5.3 million of debt. In
1998, we issued preferred and common stock for $9.9 million, received proceeds
from the issuance of debt of $9.5 million, and purchased treasury stock of
$3.1 million. In 1999, we issued preferred and common stock for $19.5 million
and received net proceeds from the issuance of debt of $5.3 million.
We have a loan agreement in place which provides for a revolving credit line
and a $5.0 million term loan. Borrowings under the loan agreement may not exceed
$25.0 million in the aggregate. The loan agreement is subject to a specified
advance rate and is secured by all of our assets. The interest rate under the
loan agreement is adjusted monthly and is computed as the highest LIBOR in
effect each month plus 4.87% per year. The interest rate may not be less than
8.0%, and the interest charged for each month may not be less than $20,000. As
of March 31, 2000, our average annual interest rate for the current calendar
year was 10.84%. As of March 31, 2000 we had $10.6 million outstanding under the
revolving credit line and $5.0 million outstanding under the term loan. The loan
agreement restricts the declaration and payment of dividends and a merger or
consolidation. We intend to use $15.6 million of the proceeds from this offering
to repay all outstanding amounts under the loan agreement and to terminate the
loan agreement.
We expect to experience significant growth in our operating expenses. In
particular, over the next 18 months, as we expand our operations in new and
existing markets and we make additional investments in the development of
complementary products and improvements in our existing products, we expect to
invest $15.0 million in research and development activities, increase spending
for our sales, marketing and consulting services capabilities by $10.0 million
and increase spending for general and administrative personnel and systems by
$2.0 million. As a result, we expect to continue to generate operating losses.
In addition, we may use our cash to fund acquisitions, purchase new
technologies, acquire complementary businesses or refinance up to approximately
$0.5 million in equipment lease obligations. We have no specific agreements,
commitments or understandings to make new acquisitions or investments. We
believe that the net proceeds of this offering, together with our existing
working capital immediately prior to this offering, will be sufficient to fund
our operations for the next 18 months. However, there can be no assurance that
we will not require additional financing in the future. We cannot be sure that
we will be able to obtain this additional financing or that, if we can, the
terms will be acceptable to us.
We have established strategic alliances and relationships with consulting
services companies and other software and hardware vendors. In general, these
relationships are governed by short-term, non-exclusive, renewable written or
oral contracts, with no or limited up-front financial commitments.
IMPACT OF YEAR 2000
In late 1999, we completed the preparation and testing of our systems for
Year 2000 issues. As a result of those efforts, no significant disruptions in
our systems were observed, and the systems responded successfully to the
Year 2000 change. Expenses for preparing our systems were minimal
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during the year ended December 31, 1999. Additionally, no material Year 2000
issues arose, either with our products or internal systems or products and
services provided by third parties. We will continue to monitor our computer
applications and those of suppliers and vendors throughout the year to ensure
that we are in a position to address any latent Year 2000 issues.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. SFAS 133, as
amended, is effective for all quarters in fiscal years beginning after June 15,
2000. We do not currently use derivative financial instruments. Therefore, we do
not expect that the adoption of SFAS 133 will have a material impact on our
results of operations or financial position.
In December 1998, the AICPA issued SOP 98-9, "Software Revenue Recognition
with Respect to Certain Arrangements." This SOP requires recognition of revenue
using the "residual method" in a multiple element arrangement when fair value
does not exist for one or more of the delivered elements in the arrangement.
Under the "residual method," the total fair value of the undelivered elements is
deferred and subsequently recognized in accordance with SOP 97-2. We do not
expect to have a material change to our accounting for revenue as a result of
the provisions of SOP 98-9. We adopted the provisions of SOP 98-9 in January of
2000.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, Europe, the Middle East, Asia and Australia. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Some of our
revenue is denominated in currencies other than the U.S. dollar, in particular
the Japanese yen and the Singapore dollar. However, most of our sales are
currently made in U.S. dollars and a strengthening of the dollar could make our
products less competitive in foreign markets. We intend to use a portion of the
proceeds of this offering to repay and terminate our loan agreement and thus we
are not subject to any exposure based on fluctuations in interest rates.
Therefore, no quantitative tabular disclosures are required. To the extent that
we enter into a new credit facility in the future, future interest expense could
be subject to fluctuations based on the general level of U.S. interest rates.
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BUSINESS
THE FOLLOWING DESCRIPTION OF OUR BUSINESS SHOULD BE READ IN CONJUNCTION WITH
THE INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DESCRIPTION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We provide fulfillment, warehousing and distribution software for e-commerce
and traditional sales channels. Our software allows companies to efficiently
manage and control the flow of inventory throughout the supply chain using the
Internet and traditional communication methods. Companies use our software to
reduce distribution costs and increase customer loyalty and satisfaction. We
provide global service and support for our software from established facilities
in North America, Europe, the Middle East, Asia and Australia. Revenue from our
international operations for the three months ended March 31, 2000 was
approximately $11.0 million, or 43.2% of our total revenue, and for 1999 was
approximately $35.0 million, or 36.2% of our total revenue.
We sell our software worldwide through a direct sales force and through
strategic alliances with complementary software vendors and consulting
organizations. We target companies in industries characterized by large product
selections, high transaction volumes and increasing demands for
customer-specific order processing, including traditional retailers,
newly-created e-commerce retailers, manufacturers and outsourced e-commerce and
third-party logistics providers.
THE OPPORTUNITY
The Internet has emerged as a powerful global commerce and communications
medium, creating opportunities for companies to conduct business and interact
directly with their customers. Forrester Research predicts that the amount of
U.S. business-to-business, or B2B, commerce conducted over the Internet will
increase from approximately $400 billion in 2000 to approximately $2.7 trillion
in 2004. The United States has been the primary country driving the development
of the Internet and is one of the most advanced countries in the acceptance of
e-commerce. However, International Data Corporation predicts that over the next
several years the Western European market will experience substantial Internet
growth, with e-commerce spending estimated to increase from approximately
$49 billion in 2000 to approximately $430 billion in 2003. Similar growth is
anticipated in the Asia Pacific market, with e-commerce spending estimated to
increase from approximately $4 billion in 2000 to approximately $28 billion in
2003.
As a result of the dramatic growth in B2B and business-to-consumer, or B2C,
e-commerce, companies that conduct business over the Internet face the challenge
of not only attracting customers to their marketplaces and web sites, but also
of delivering goods once an order has been placed. The Internet economy and the
new relationships created between buyer and seller, especially in the B2B
market, are driving a fundamental change in order execution and fulfillment.
Because competitive information is easily accessible over the Internet,
companies are finding it increasingly difficult to differentiate their offerings
solely on product, location or price. Accordingly, we believe that companies
must distinguish their product and service offerings by providing reliable
delivery and value-added services during the fulfillment process according to
the consumers' individual preferences.
E-FULFILLMENT IS MORE COMPLEX THAN TRADITIONAL FULFILLMENT
Traditional warehouse management and distribution solutions were primarily
intended for replenishing "bricks-and-mortar" establishments, such as retail
stores and distributors, where orders are typically large, undifferentiated and
not shipped directly to the consumer. The majority of these
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traditional solutions were designed before the widespread commercial use of the
Internet, and were not intended for large scale, Internet-based, customer-driven
transactions.
We believe the challenges of e-fulfillment, which are confronted by both B2B
and B2C companies, are more complex than those associated with traditional
warehouse management distribution. These challenges include:
- Supporting business models, such as electronic exchanges where multiple
buyers and sellers can trade products;
- Facilitating visibility of inventory, delivery and order status to both
customers and suppliers;
- Providing personalized service during fulfillment, including value-added
services such as customer-specific marketing, product assembly and product
configuration;
- Developing global fulfillment capabilities;
- Processing orders from multiple media, including the Internet, facsimile,
electronic data interchange and telephone;
- Handling significant and rapid increases in the volume of transactions;
- Determining optimal locations from which to ship and optimal methods of
how to ship inventory; and
- Processing returns.
In addition to these challenges, companies are faced with the task of
rapidly developing their e-fulfillment capabilities in response to the increased
competition for customers resulting from the evolution of the Internet.
B2B AND B2C COMPANIES MUST IMPLEMENT E-FULFILLMENT SOLUTIONS
The rapid evolution and acceptance of the Internet has dramatically shifted
the focus of warehouse management distribution systems to fulfillment systems.
We believe that the ability of e-fulfillment systems to facilitate value-added,
customer-specific order completion on a global scale will be a critical success
factor for both e-commerce and traditional businesses as they implement their
Internet strategies. Many traditional retailers, who have historically relied on
warehouse management and replenishment solutions, are evolving into e-commerce
retailers with the capability to transact directly with customers worldwide
through multiple channels. In addition, many traditional manufacturers, who have
historically relied on distributors and retailers to transact with customers,
are now directly fulfilling customer orders or looking to use third-party
logistics providers or industry-specific marketplaces to manage their supply
chain. We believe that many electronic exchanges, will evolve into supply chain
managers and must provide, either directly or through alliance companies,
visibility to the logistics process and guaranteed product delivery.
Many companies that implemented traditional warehouse management systems
have discovered that their existing systems do not allow them to provide
value-added, customer-specific order completion on a global scale. e-Fulfillment
solutions offer new opportunities for companies to engage in customer-specific
fulfillment for the benefit of both buyers and sellers. Buyers benefit since
products can be assembled, configured and personalized to meet their individual
needs. At the same time, sellers benefit since they are able to pursue targeted
marketing campaigns, where promotions, customer loyalty programs and other
retention enhancement strategies can be pursued quickly and effectively.
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A NEW GENERATION OF E-FULFILLMENT SOFTWARE IS REQUIRED
We believe B2B and B2C companies must now invest in and rapidly deploy new
e-fulfillment software to meet the specific requirements of their individual
customer bases. To date, we believe that businesses have focused the majority of
their Internet-related investments on marketing and have overlooked the
strategic complexity of delivering goods through the supply chain. We believe
that the success of many e-commerce initiatives will lie in effective
implementation and profitable management of new e-fulfillment processes and
meeting stringent customer service requirements. Many companies launching
e-commerce initiatives must invest in and rapidly deploy advanced,
Internet-enabled technologies that offer efficient control of physical
fulfillment processes, are adaptable to meet the needs of a growing business and
are reliable. This e-fulfillment software must also capitalize on the ability of
the Internet to interact directly with suppliers, customers, customer
relationship management systems and advanced planning systems, so suppliers and
customers share a common view of customer fulfillment activity.
THE EXE SOLUTION
Our software manages the fulfillment of orders initiated through both
e-commerce and traditional sales channels. Our software provides customers and
suppliers with an immediate view of customer fulfillment and provides the basis
for developing improved procurement, logistics and distribution processes and
personalized customer-specific order fulfillment. In addition, we complement our
software with a global professional services organization, which facilitates
implementation, integration and modification of our software to meet the
specific needs of our customers.
We provide the following benefits to our customers:
- REDUCED TIME TO ENTER NEW MARKETS. We believe our software provides all of
the functionality necessary for e-fulfillment in a single, packaged
solution. Our easy-to-install applications reduce the time it takes for
companies to launch or enhance e-commerce initiatives, while
simultaneously automating their traditional supply chains.
- CUSTOMER-SPECIFIC FULFILLMENT. Our software allows companies to treat each
transaction individually by automating and coordinating complex
fulfillment, assembly, product configuration and customer-specific
marketing campaigns across multiple sales channels. Through the
personalization of each customer order, companies are able to enhance
customer interaction and maximize customer retention.
- FLEXIBILITY AND RELIABILITY. Our software has the flexibility to be
deployed across most major computer systems and can be operated in a
hosted environment. Our software is expandable to meet growing client
needs which is increasingly critical in e-commerce fulfillment
environments, as well as in broader enterprise environments that support
multiple sales channels. Our software has been proven reliable in high
volume businesses that distribute through retail stores or sell directly
to customers.
- VISIBILITY. Our software provides an immediate view of customer
fulfillment activities and order status across multiple channels and
platforms. This allows suppliers to track orders and to implement targeted
marketing campaigns at strategic times during the fulfillment cycle.
- GLOBAL CAPABILITY. Our software currently operates in 15 languages and is
designed to accommodate rapid translations of product upgrades. In
addition, we provide local service and support from established facilities
in North America, Europe, the Middle East, Asia and Australia. We believe
that our global presence benefits our customers by providing localized
service and global customer support.
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- ADAPTABILITY FOR COMPLEX NEW BUSINESS MODELS. Our software is designed to
handle complex logistics situations. This adaptability is increasingly
critical to third party logistics providers and exchanges where the
ability to handle products owned by multiple companies is fundamental to
their success.
STRATEGY
Our goal is to be the leading global provider of fulfillment software to
companies offering products and services through both e-commerce and traditional
sales channels. To achieve this goal, we plan to:
- TAKE ADVANTAGE OF OUR EXPERIENCE AND ESTABLISHED MARKET POSITION. We
intend to continue to leverage our market position, our strategic
relationships and our brand recognition from the traditional warehouse
management and distribution market to grow our share of the e-fulfillment
market. We intend to accomplish this by providing comprehensive,
expandable and flexible solutions for our customers as they develop
e-commerce initiatives and integrate them with traditional sales channels.
- USE OUR INTERNATIONAL INFRASTRUCTURE TO GAIN GLOBAL MARKET SHARE. We
believe there is significant demand for our software solutions in
international markets and have established a global infrastructure to
target leading businesses worldwide. We provide sales, service and support
from locations in North America, Europe, the Middle East, Asia and
Australia. Our software is installed in 35 countries and currently
operates in 15 languages, including Chinese, French, German, Japanese and
Spanish. We intend to continue to invest in our infrastructure and
increase our sales and marketing efforts in Europe, Asia and South
America.
- EXPAND OUR STRATEGIC ALLIANCES. We have established strategic alliances
with industry-leading consultants and software systems implementors,
including Cap Gemini, IBM Global Services and PricewaterhouseCoopers, to
supplement our direct sales force and professional services organization.
These alliances help extend our market coverage and provide us with new
business leads and access to trained implementation personnel, which we
believe are crucial to the deployment of complex software solutions. We
also have alliances with complementary software vendors, such as i2
Technologies and Microsoft, which allow us to offer a comprehensive
solution for e-commerce fulfillment and supply chain execution, which
includes ordering, transporting, handling, storing and delivering
inventory as it moves from manufacturer to the end customer. We will
continue to seek to expand the number of companies with which we work to
further penetrate our global market.
- ENHANCE OUR E-COMMERCE SOLUTIONS. Since their introduction in 1998, we
have enhanced our Internet-enabled products by releasing upgrades and
introducing value-added modular components. We believe our customers will
continue to demand greater breadth and depth from e-commerce solutions. We
intend to broaden our product offerings to integrate additional
functionality and new technologies. We are beginning to incorporate
additional order entry and processing capabilities that will allow us to
manage the entire order process and we intend to incorporate additional
components by the fourth quarter of 2000. Our ability to easily add
software modules allows us to rapidly introduce new product features and
functionality and to penetrate accounts that are in different stages of
developing and implementing their e-commerce strategies.
- CAPTURE THE GROWING OPPORTUNITY CREATED BY ELECTRONIC MARKETPLACES. Our
experience with third party logistics providers has helped us create
software well suited for fulfillment and distribution centers with
multiple tenants and service models. We believe that exchanges that deal
in physical goods will need to provide, either directly or through their
alliances, physical settlement of the business transaction. We intend to
use our technology to provide the software and process infrastructure for
them to offer these services to their market participants.
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- EXPLOIT THE GROWING TREND TO OUTSOURCE BUSINESS PROCESSES AND COMPUTER
SERVICES. We intend to pursue additional relationships with third party
providers that will deliver our solution as an outsourced, externally
hosted service to be packaged with their differentiated service and
technology offerings. We believe there is a significant need for
e-commerce companies to outsource their business processes, including
their e-fulfillment needs. By using an outsourced service, a company can
improve the time it takes to begin operations without making the
investment in technology and staff necessary to support a complex
e-commerce solution. We believe our relationships with logistics
outsourcers will enable our hosted solutions to become more broadly
available and increase our market reach to companies outside our target
markets, especially small- and medium-sized companies.
EXE SOFTWARE
Our EXceed eFulfillment System, or EXceed eFS software, was launched in
January 1999. EXceed eFS allows companies to deploy integrated e-commerce order
fulfillment solutions across the Internet and multiple computer systems. The
software includes functionality for:
- operating fulfillment centers;
- creating customer-specific fulfillment services;
- integrating fulfillment centers to web sites and planning engines;
- optimizing fulfillment center layout; and
- connecting multiple centers with each other and other e-commerce and
enterprise systems.
Our EXceed eFS software is designed to run on the most widely used hardware,
operating system and database platforms, generating a consistent display of the
data to all concurrent users. Depending on our customers' specific needs, EXceed
eFS software can be deployed on UNIX, Windows NT/2000, IBM O/S 390 with Oracle,
SQL Server or DB2 as the database engine.
Our EXceed eFS software includes two software suites:
- EXceed eFS Fulfill -- manages and controls operations within the
fulfillment center, including receiving, stocking, picking, product
configuration, packing, shipping, crossdocking, quality assurance,
inventory control and reporting.
- EXceed eFS Collaborate -- allows users, suppliers and customers to share
information across our applications, third-party applications and networks
of fulfillment centers.
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The table below describes the components and functionality of the EXceed eFS
Fulfill and eFS Collaborate Suites:
<TABLE>
<CAPTION>
EXCEED EFS FULFILL SUITE
<S> <C>
COMPONENTS FUNCTIONALITY
------------------------------- ------------------------------------------------------------
EXCEED 4000 WMS Provides core functionality for fulfillment center or
warehouse management, including order management,
receiving, stocking, replenishment, picking, labor
control, radio frequency support and task management.
EXCEED VALUE Automates customer-specific marketing activities and other
more complex make-to-order operations.
EXCEED CROSSDOCK Merges inbound products shipped directly from suppliers with
inventoried products in a high speed fashion.
EXCEED BILLING Generates activity-based charges for storage and labor to
charge to customers or divisions.
EXCEED OPTIMIZE Simulates and optimizes the attributes of a fulfillment
center.
EXCEED MANIFEST Coordinates with third-party software to perform shipping
functions such as rating, routing, best-way shipping,
carrier tender, carrier labeling and consolidation.
EXCEED RETURNS Controls the disposition of returned items, including
reprocessing product, repackaging, return to stock and
other operations.
EXCEED QUALITY Manages inbound and outbound quality control processes and
activities associated with reprocessing product for future
sale or disposal.
EXCEED DOCK Schedules and coordinates shipping and receiving functions
with transportation.
EXCEED EFS COLLABORATE SUITE
<CAPTION>
COMPONENTS FUNCTIONALITY
---------- -------------
EXCEED CONNECT Connects EXceed application components among themselves and with
<S> <C>
third-party applications.
EXCEED ALERT Sends electronic notifications of fulfillment activity and
issues to e-mail, pagers, fax or other media.
EXCEED TRACKER Provides customer "self help" order tracking over the Internet.
EXCEED SUPPLIER PORTAL Coordinates with third party software to link suppliers to
fulfillment centers over the Internet, allowing them to
perform vendor managed inventory activities.
EXCEED CUSTOMER PORTAL Coordinates with third party software to link customers to
fulfillment centers over the Internet, allowing them to manage
their orders through the entire fulfillment process.
</TABLE>
In addition to these offerings, our EXceed 2000 warehouse management system,
launched in 1995, continues to address the traditional fulfillment needs of
high-volume retail distribution centers. Our EXceed 2000 warehouse management
system was designed and positioned as a pre-packaged UNIX-based solution and
delivers fulfillment solutions to traditional sales channels. We continue to
enhance and support this product.
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EXCEED EFS FULFILL SUITE COMPONENTS
EXCEED 4000 WMS
EXceed 4000 WMS manages complex fulfillment center activities for a wide
variety of scenarios including the customer-specific fulfillment required by B2B
and B2C e-commerce and for traditional supply chain activities. EXceed 4000 WMS
provides full functionality, including order management, receiving, stocking,
replenishment, picking, shipping, labor control, radio frequency support and
task management. EXceed 4000 WMS has proven adaptable to small- and large-scale
enterprise environments, supports multiple operating systems and databases and
provides user access through personal computers, workstations running browser
applications and mobile radio frequency devices. The product was designed to
operate in multiple languages within the same environment.
EXCEED VALUE
EXceed Value is a component designed to automate fulfillment centers that
perform customer-specific marketing activities, add value to existing
commodities or combine component commodities into finished good commodities or
sub-assemblies. EXceed Value lets companies leverage the customer data they
collect through the Internet to execute targeted marketing activities including
promotions, cross-selling and other programs. EXceed Value is an essential part
of our clients' inventory management strategies, whether it be mass
customization, make-to-order or deferred manufacturing.
EXCEED CROSSDOCK
EXceed Crossdock is a component that directs received goods to the shipping
dock without placing them in storage. EXceed Crossdock allows businesses to
offer a large range of products without taking inventory ownership. Instead,
in-transit inventory can be merged on an as-needed basis with owned inventory to
reduce costs.
EXCEED BILLING
EXceed Billing provides data for activity-based costing and charge back for
fulfillment center operations. EXceed Billing gives outsourced e-fulfillment
providers, such as third party logistics providers, the revenue and costing
tools needed to run their operations. Large enterprises with divisional
structures can also benefit by having proper costing applied to product line
fulfillment.
EXCEED OPTIMIZE
EXceed Optimize is a fulfillment center optimization and simulation tool.
Using product and order volume information along with capital, labor and
equipment costs, EXceed Optimize builds a model of the planned or existing
facility and optimizes facility layout, product placement and labor routing.
EXceed Optimize works for both new sites and existing facilities and can be used
in combination with our EXceed 4000 WMS and EXceed 2000 warehouse management
system to facilitate optimization moves as part of a continuous improvement
process.
EXCEED MANIFEST
EXceed Manifest is designed for customer-specific fulfillment environments
utilizing parcel carriers. EXceed Manifest coordinates with third-party software
to perform carrier selection, rating, routing, load tender, labeling and
consolidation functions.
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EXCEED RETURNS
EXceed Returns controls the disposition of returned items including
reprocessing product, repackaging, return to stock and other operations. EXceed
Returns adds value by increasing the usability of returned products and
minimizing the labor associated with returns processing.
EXCEED QUALITY
EXceed Quality enforces quality control processes and associated activities
for reprocessing product on inbound and outbound order and other processes.
EXCEED DOCK
EXceed Dock schedules and coordinates shipping and receiving functions in
multiple transportation settings, including air, ship and rail. Using
customer-specific restrictions, such as type of load or equipment, EXceed Dock
can set appointments for shipping and receiving from multiple points within a
distribution center or one central department.
EXCEED EFS COLLABORATE SUITE COMPONENTS
EXCEED CONNECT
EXceed Connect allows EXceed application components to connect among
themselves and with third-party applications. Connect provides integration,
visibility and interfaces to popular e-commerce, advanced planning systems
(software that uses specialized algorithms to determine production and
distribution requirements) and enterprise resource planning systems (software
that tracks product through the manufacturing process).
EXCEED ALERT
EXceed Alert provides automated notification of events that occur during the
e-fulfillment life cycle. For example, a page, an e-mail, or other modes of
personal communication can be sent in real-time when on-the-spot management is
necessary. Some example "events" which might trigger an alarm include customer
order acceptances, fill and shipment notifications, carrier arrivals with
critical inventory, an on-hand quantity passing a minimum threshold or
order-fill service levels dropping below a target.
EXCEED TRACKER
EXceed Tracker allows organizations to empower their customers through
web-based, self-help functions such as detailed order status and delivery.
Customers can see where their order is throughout the entire fulfillment cycle,
from "ordered" to "reserved" to "on the floor" to "picked, packed and shipped"
through a specific carrier with estimated time of arrival.
EXCEED SUPPLIER PORTAL
EXceed Supplier Portal coordinates with third-party software to provide
access to a network of EXceed fulfillment centers for vendor-managed inventory
activities. Suppliers accessing the EXceed Supplier Portal can monitor inventory
status, generate re-stock orders, create and manage advanced shipping notices
and prepare product for crossdocking. EXceed Supplier Portal allows e-businesses
to integrate their suppliers into their supply chain, thus extending their
merchandise offerings while minimizing inventory costs.
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<PAGE>
EXCEED CUSTOMER PORTAL
EXceed Customer Portal coordinates with third party software to provide
access to a network of EXceed fulfillment centers for customer-managed order
activities. Customers can create and manage their orders, issue change requests,
generate re-orders and create and approve all shipping documentation. EXceed
Customer Portal is targeted at B2B and trading exchange environments where
complex goods and rapidly changing requirements require cooperation between the
fulfillment center and the end customer.
EXE PRODUCT PACKAGING AND PRICING
We offer a variety of packaging options for our software. These options
allow us to market our technology to companies in different stages of executing
their fulfillment strategies. For example, customers seeking an enterprise
e-fulfillment solution may license our EXceed eFS Fulfill and eFS Collaborate
Suites, including all associated components. Companies pursuing less
comprehensive e-commerce initiatives may license our EXceed 4000 WMS and EXceed
Connect as stand alone applications, with additional software components to be
added later. Flexible packaging options allow our customers to make investments
in our technology without committing to a larger enterprise platform.
We offer a variety of pricing options, which allow our customers to purchase
our software for a single site, a business unit or an entire enterprise. License
fees for our products typically range from approximately several hundred
thousand dollars to several million dollars. Recently, we have introduced
additional pricing options which we believe may allow us to expand our market
presence. For example, we have entered into an agreement with a third-party
provider that hosts and licenses our software to small- and medium-sized
businesses. Our license revenue under this agreement will be determined by the
number of users who contract to use the system. In addition, we offer
transaction-based pricing that ties the overall cost of our software to the
value provided to the customer.
PROFESSIONAL SERVICES
We offer a range of professional services that help facilitate the
successful implementation and integration of our software with our customers'
existing systems. Our professional services include implementation project
management, on-site software training, operational engineering, industrial
engineering, software modification and supply chain consulting. Our professional
services are billed on a time and material basis or, when requested, on a fixed
fee basis.
Our internally developed Global Execution Methodology, or GEM, is a nine
step uniform process for implementing our software. GEM is supported by a
globally deployed software application that aids in planning, change management
and quality control during system implementation. The application allows our
professional services staff, customers and alliance companies to access project
information on a global basis.
Our professional services personnel typically have extensive experience in
the deployment of fulfillment systems. When we assist companies in the
implementation of our software, we help them determine how to use our technology
in a way that fits their individual fulfillment strategy. We can, if requested,
adapt the software to specific customer business practices.
We believe that the use of outside consulting and service providers is an
important component of our strategy to expand our professional services business
and support the growth in our software license revenue. We currently intend to
expand our relationships with and reliance on strategic alliance companies and
consultants. We also believe this will allow us to manage the growth of our own
professional services group without affecting other parts of our business.
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We provide a comprehensive support program through which our customers,
should they choose to participate, can receive upgrades to our licensed products
and access to our support center. These services are typically offered under
annual maintenance and support contracts or under separate annual support and
annual software upgrade contracts. Our support center is open year round, seven
days per week and twenty-four hours per day. Our support center can remotely
access the customers' systems and provide on-line assistance, diagnostics and
software upgrades.
We also offer an intensive education and training program for our customers,
employees and third-party service providers, either at our offices or at the
customer's site, through our EXE University. Students who are certified by EXE
University are qualified to implement our software. EXE University also offers
an accreditation program for those wishing to train others. We currently offer
training in North America, Europe and Asia.
SALES AND MARKETING
We have multi-disciplined sales teams that consist of sales, technical and
sales support professionals. Our senior management also takes an active role in
our sales efforts. We market and sell our software through our direct sales
force, which is located in North America, Europe, the Middle East, Asia and
Australia, and through our strategic alliances. In North America, our sales
organization is focused on our targeted vertical markets, with resources
assigned to e-commerce, retail, manufacturing and third party logistics. In
Europe and Asia, our sales organization is deployed by geographic region, but
targets the same vertical markets as in North America.
We have sales offices in the Dallas, Philadelphia, London, Paris, Amsterdam,
Dubai, Tokyo, Seoul, Hong Kong, Singapore, Kuala Lumpur and Melbourne
metropolitan areas. As of June 30, 2000, our worldwide sales organization
consisted of 86 employees. We also supplement our sales organization with our
Channel Sales Program. We use this program to sell to companies around the world
that we do not service directly and supplement our sales initiatives in certain
overseas markets.
Our marketing organization uses a variety of programs to support our sales
efforts, including:
- market and product research and analysis;
- product and strategy updates with industry analysts;
- public relations activities and speaking engagements;
- Internet-based and direct mail marketing programs;
- seminars and trade shows;
- brochures, data sheets and white papers; and
- web site marketing.
As of June 30, 2000, our marketing organization consisted of ten employees.
STRATEGIC ALLIANCES AND RELATIONSHIPS
Another key element of our growth strategy is the formation of strategic
relationships with industry leaders whose business offerings complement our own.
We believe that these relationships will allow us to scale our business rapidly
and effectively by enabling the expansion of our:
- global brand;
- source of qualified sales opportunities;
- capacity to implement effectively our software offerings for new and
existing customers; and
- ability to deliver enhanced value to our customers.
We have established relationships with large, international systems
integrators and consulting services companies, including Cap Gemini, IBM Global
Services and PricewaterhouseCoopers. Under
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<PAGE>
these relationships, we provide referrals for services work to these companies
or subcontract work to these companies in connection with the installation of
our software. These companies may provide referrals of potential licensees to
us. In general, the relationships are governed by short-term, non-exclusive,
renewable written or oral contracts, with no or limited up-front financial
commitments. Some of the contracts provide for compensation to the referring
party, typically in the form of a commission or finder's fee upon conclusion of
a transaction. We intend to expand these relationships and add new relationships
to increase our capacity to sell and implement our products on a global basis.
Our existing alliances have been aligned to coincide with our target vertical
markets. We will continue to pursue relationships that enhance our strategy in
industry-specific marketplaces.
We also have relationships with vendors of complementary software including
i2 Technologies, Microsoft and Oracle. For example, we have a resale agreement
with i2 Technologies under which we resell i2's transportation management,
transportation optimization and global visibility solutions, and i2 resells our
EXceed software suites. In connection with that agreement, we granted i2 a
warrant to purchase our common stock. However, in general, the relationships are
governed by short-term, non-exclusive, renewable contracts, with no or limited
up-front financial commitments. These relationships typically involve reseller
or marketing arrangements, or both, under which the reseller or marketer is
compensated by the vendor in the form of discounts or commissions. We intend to
pursue additional relationships with vendors of complementary software to
increase our ability to deliver enhanced value to our customers.
We also have alliance relationships with hardware vendors such as
Hewlett-Packard, IBM, Intermec, Sun Microsystems and Symbol Technologies. We act
as a marketer or reseller, or both, of their server and radio frequency
hardware. In general, the relationships are governed by short-term,
non-exclusive, renewable written or oral contracts, with no or limited up-front
financial commitments. We receive discounts or commissions as compensation for
sales under some of these relationships. On an ongoing basis, we intend to
pursue additional technology relationships that we believe will increase our
value to potential customers, expand our ability to offer integrated enterprise
solutions and increase our market opportunities.
CUSTOMERS
We have targeted and will continue to target selected vertical industries
characterized by large product selections, high transaction volumes and
increased demands for personalized fulfillment, including traditional retailers,
newly-created e-retailers, manufacturers and outsourced e-commerce and third
party logistics providers. The following is a list of our top customers by
revenue and industry to whom we have provided our products or services in 1999
or 2000. In 1999:
- the retail customers listed below accounted for 14.7% of our revenue;
- the third party logistics customers listed below accounted for 8.2% of our
revenue;
- the manufacturing customers listed below accounted for 10.3% of our
revenue; and
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<PAGE>
- the e-commerce customers listed below accounted for 3.4% of our revenues.
<TABLE>
<CAPTION>
RETAIL THIRD PARTY LOGISTICS
------ ---------------------
<S> <C>
CVS BAX
Integrated Systems Solutions (Eckerds) Consolidated Freightways (Redwood Systems)
K-Mart DSL Transportation Services
Publix Frans Maas
Rykoff-Sexton Fritz Companies
Safeway Kuehne & Nagel
Sherwood Food Public Warehousing
<CAPTION>
MANUFACTURING E-COMMERCE
------------- ----------
ConAgra Ambuca
<S> <C>
Ford barnesandnoble.com
General Motors (EDS) Grocery Gateway
Hewlett-Packard GroceryWorks.com
H.J. Heinz Safeway(.com)
Johnson & Johnson Somerfield
LG-EDS Systems, Inc. 3Re.com
</TABLE>
Our license agreements with our customers are typically perpetual in
duration. Our maintenance, support and upgrade services contracts ordinarily are
annual contracts, subject to renewal. Our professional services agreements are
relatively short in duration, lasting anywhere from a few months to a year,
depending on the project requirements.
RESEARCH AND DEVELOPMENT
As of June 30, 2000, we employed 51 people in research and development. This
team is responsible for product planning and design, development of
functionality within the EXceed eFS eFulfill and eFS eCollaborate Suites and
general release and quality assurance functions.
We have contracts with HCL Technologies America, Inc. and Span Systems
Corporation to provide software development and implementation services on an
outsourced basis. Under these arrangements, HCL and Span Systems provide project
dedicated software developers to develop products and application functionality
based on specifications provided by us and to provide implementation services to
our customers. The HCL agreement expires in November 2000, while the Span
Systems agreement does not have a defined termination date. We believe our
relationships with these firms provide us with access to a skilled labor pool,
more rapid development cycles and a cost-effective solution to our research and
development needs.
COMPETITION
The market for e-fulfillment solutions is intensely competitive, fragmented
and subject to rapid technological change. The principal competitive factors in
this market include:
- adherence to emerging Internet-based technology standards;
- comprehensiveness of applications;
- adaptability and flexibility;
- immediate, interactive capability with customer and partner systems;
- global capability;
- ability to support specific industry requirements;
- ease of application use and deployment;
- speed of implementation;
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- customer service and support; and
- initial price and total cost of ownership.
We believe that we compete favorably with competitors in terms of
comprehensiveness of our solutions and our global presence, as well as our
targeted vertical focus.
Because we offer both e-fulfillment solutions and solutions for traditional
supply chains, we consider a number of companies in different market categories
to be our competitors. These competitors include companies or groups that:
- focus on providing e-fulfillment applications, such as All-Points Systems,
McHugh Software International, Manhattan Associates and Yantra;
- offer fulfillment solutions for traditional supply chains, such as
Catalyst International and Manhattan Associates;
- offer enterprise platforms for order management and fulfillment, such as
IMI and SAP; and
- service internal customers, such as internal information technology
groups.
There are a substantial number of other companies focused on providing
Internet-enabled software applications for fulfillment or related supply chain
functions that may offer competitive products in the future. We believe that the
market for integrated e-fulfillment solutions is still in its formative stage,
and that no currently identified competitor represents a dominant presence in
this market.
We expect competition to increase as a result of software industry
consolidation. For example, a number of enterprise software companies have
acquired point solution providers to expand their product offerings. Our
competitors may also package their products in ways that may discourage users
from purchasing our products. Current and potential competitors may establish
alliances among themselves or with third parties or adopt aggressive pricing
policies to gain market share. In addition, new competitors could emerge and
rapidly capture market share.
INTELLECTUAL PROPERTY
Our intellectual property rights are significant and are critical to our
success and our ability to compete. We rely on intellectual property laws,
including copyright, trademark, trade secret and other laws, confidentiality
procedures and contractual provisions to protect our proprietary rights in our
products and technology. Under the terms of our agreements with our customers,
we usually own all modifications to our software that are implemented for a
customer. We believe, however, that these steps to protect our intellectual
property afford only limited protection to us, particularly on an international
basis. We do not currently have any patents issued or patent applications
pending. We give some of our customers, alliance companies, resellers and
development partners access to our software program instructions, or source
code, and other intellectual property in certain limited circumstances when
necessary to facilitate a project. In addition, our source code is held in
escrow to be released on specific events such as bankruptcy or failure to
provide support. Access to our source code may create a risk of disclosure or
other inappropriate use. Despite our contractual protections, this access could
enable a third party to use our intellectual property, including our source
code, to wrongfully develop and manufacture competing products. In addition,
policing unauthorized use of our products is difficult.
We cannot be certain that others will not independently develop
substantially equivalent intellectual property, gain access to our trade secrets
or intellectual property, or disclose our intellectual property or trade
secrets. We also conduct a substantial amount of business abroad, and the laws
of many foreign countries do not protect our intellectual property to the same
extent as the laws of the United States.
Also, we may desire or be required to renew or to obtain licenses from
others to enable us to develop and market commercially viable products and to
run our internal software systems, including
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financial reporting and other purposes. We can give you no assurances that any
necessary licenses will be available on reasonable terms, if at all.
From time to time, third parties may assert claims or initiate litigation
against us or our alliance companies alleging that our products infringe their
proprietary rights. As the number of e-fulfillment and supply chain execution
applications in the industry increases and products overlap, we may become
increasingly subject to claims of infringement or misappropriation of the
intellectual property rights of others. In addition, we may in the future
initiate claims or litigation against third parties for infringement of our
proprietary rights to determine the scope and validity of our proprietary
rights. Litigation claims, with or without merit, could be time-consuming and
costly, divert management's attention, cause product shipment delays, require us
to develop non-infringing technology or enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may not be available
on acceptable terms, if at all.
We have received notices from four customers requesting defense and
indemnification for patent claims in lawsuits brought or threatened against them
by a third party with respect to the use of bar code technology. We are
currently investigating these claims. We have become aware that several
manufacturers of bar code scanning equipment are challenging the underlying
patents in a separate lawsuit, and we continue to monitor the progress of this
litigation. Based on our investigation to date, we do not believe that we have
an obligation to defend or that we ultimately will have liability for the
indemnification requests of customers. However, if the various disputes are
resolved unfavorably to us, then they could have a material adverse effect on
our business, operations and financial condition. For example, we may be
required to modify our software, obtain additional licenses and defend and
indemnify our customers. Furthermore, our future customers may be required to
obtain additional licenses in order to use our software.
EMPLOYEES
As of June 30, 2000, we had a total of 625 employees, of which 51 were in
research and development, 96 were in sales and marketing, 104 were in finance
and administration and 374 were in professional services and support. None of
our employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
FACILITIES
Our corporate headquarters occupy approximately 136,000 square feet in
Dallas, Texas. Our lease for this facility expires in May 2014. Our facility in
Philadelphia, Pennsylvania currently occupies approximately 16,000 square feet.
Our lease for this facility expires in July 2006. We believe these existing
facilities will be adequate to meet our needs for the next 12 months. If our
growth continues, we may need larger facilities after that time. We also lease
offices in London, Paris, Amsterdam, Dubai, Tokyo, Seoul, Hong Kong, Singapore,
Kuala Lumpur and Melbourne. We also have 59,000 square feet of additional space
available to us in our Dallas headquarters under a sublease agreement that will
expire in July 2001.
FOREIGN OPERATIONS
In 1997, 1998 and 1999, the revenue from our foreign operations were
$8.3 million, $25.1 million and $35.0 million, respectively. In 1997, 1998 and
1999, the assets from our foreign operations were $8.2 million, $5.9 million and
$11.4 million, respectively.
LEGAL PROCEEDINGS
We are engaged in legal proceedings incidental to the normal course of
business. Although the ultimate outcome of our pending legal proceedings cannot
be determined, we believe that the final outcome of these matters will not
seriously harm our business. Information concerning asserted and potential
claims regarding our intellectual property is discussed above under
"Intellectual Property."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive officers
and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lyle A. Baack (a)..................... 57 Chairman of the Board
Raymond R. Hood (b)................... 40 President, Chief Executive Officer and Director
Adam C. Belsky (c).................... 40 Senior Vice President, Mergers & Acquisitions
and Director
David E. Alcala....................... 53 Senior Vice President, Business Development
Nigel R. Bahadur...................... 30 Senior Vice President, Research and Development
Michael A. Burstein................... 36 Senior Vice President, Finance, Chief Financial
Officer and Treasurer
Frederick S. Gattelaro................ 38 Senior Vice President, Professional Services,
Americas
Richard J. Sherman.................... 50 Senior Vice President, Marketing
Mark R. Weaser........................ 37 Senior Vice President, International Operations
Christopher F. Wright................. 40 Senior Vice President, Administration, General
Counsel and Secretary
Klaus P. Besier (b)................... 49 Director
J. Michael Cline (a).................. 40 Director
Steven A. Denning (b)................. 51 Director
Jay C. Hoag (a)....................... 42 Director
Jeffrey R. Rodek (c).................. 46 Director
</TABLE>
--------------------------
(a) Term as a director expires in 2002.
(b) Term as a director expires in 2003.
(c) Term as a director expires in 2001.
LYLE A. BAACK has served as the Chairman of our Board of Directors 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 our President, Chief Executive Officer and as
a director since September 1997. From 1990 to September 1997, Mr. Hood served as
chief executive officer of Neptune, which he co-founded with Adam Belsky.
Neptune was focused on delivering rapidly deployable packaged supply chain
execution software solutions primarily for manufacturers and third party
logistics providers. Prior to 1990, Mr. Hood was a partner at Microtek.
Mr. Hood holds a BS in Economics from the Wharton School at the University of
Pennsylvania.
ADAM C. BELSKY has served as our Senior Vice President, Mergers &
Acquisitions since November 1999 and as a director since September 1997. From
September 1997 to November 1999, Mr. Belsky served as our Senior Vice President,
Chief Financial Officer and Treasurer. From September 1997 to August 1998,
Mr. Belsky also served as our Secretary. From 1990 to September 1997,
Mr. Belsky served as chief financial officer of Neptune, which he co-founded
with Mr. Hood. 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.
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DAVID E. ALCALA has served as our Senior Vice President, Business
Development since August 1999. From April 1998 to August 1999, he served as our
Senior Vice President, Industry Marketing, and from September 1997 to
April 1998 he served as our Senior Vice President, Sales and Marketing. 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. From October 1993 to July 1995, Mr. Alcala
served as president and chief executive officer of MTA, Inc. Mr. Alcala attended
the University of Wisconsin.
NIGEL R. BAHADUR has served as our Senior Vice President, Research and
Development since February 2000. From September 1997 to February 2000,
Mr. Bahadur served as our Chief Technology Officer and Vice President of
Research and Development. From 1992 to September 1997, Mr. Bahadur held various
positions in Neptune Systems including vice president of research and
development prior to our formation. Mr. Bahadur attended the State University of
New York at Stonybrook where he studied computer engineering.
MICHAEL A. BURSTEIN has served as our Senior Vice President, Finance, Chief
Financial Officer and Treasurer since November 1999. From August 1999 to
November 1999, he served as our Director, Corporate Finance and Assistant
Treasurer. Prior to joining us, Mr. Burstein served as the chief financial
officer of Sequel Systems, Inc., from August 1998 to August 1999. From 1996 to
1998, Mr. Burstein served as the chief financial officer of Paradigm Geophysical
Ltd. From 1989 to 1996, Mr. Burstein served in a variety of capacities at
Occidental Chemical. Mr. Burstein holds a BS in Electrical Engineering and an
MBA from Southern Methodist University.
FREDERICK S. GATTELARO has served as our Senior Vice President, Professional
Services, Americas, since December 1999. From June 1999 to December 1999,
Mr. Gattelaro was APS supply chain manager at Arthur Andersen. From August 1998
to June 1999, Mr. Gattelaro served as our Vice President, Research and
Development. From November 1996 to August 1998, Mr. Gattelaro was the Mid-West
i2 program manager at PricewaterhouseCoopers. From February 1996 to
November 1996, Mr. Gatterlaro was a senior manager in the supply chain
management practice at Ernst & Young LLP. From March 1993 to February 1996, he
was a senior manager in the Financial Systems practice at Coopers & Lybrand.
Mr. Gattelaro holds a BS in Finance and Management Information Systems from the
State University of New York at Buffalo and an MBA from the University of
Rochester.
RICHARD J. SHERMAN has served as our Senior Vice President, Marketing since
July 1999. From March 1998 to July 1999, he was senior vice president, market
development for Syncra Systems. From October 1996 to March 1998, Mr. Sherman was
senior vice president, strategic research at Numetrix, Ltd. From June 1995 to
October 1996, he was director, supply chain management research at AMR Research.
From July 1993 to May 1995, Mr. Sherman was senior vice president, business
development, for the IRI Logistics division of Information Resources, Inc.
Mr. Sherman holds a BA in English/Social Sciences and an MA in Educational
Administration from the University of Notre Dame. He has also completed
Executive Development programs in logistics at Michigan State University and the
University of Tennessee.
MARK R. WEASER has served as our Senior Vice President, International
Operations since January 2000. From September 1997 to January 2000, he served as
our Managing Director of Asia/ Pacific 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. From February 1993 to June 1995, Mr. Weaser
was the sales director for American President Lines in Hong Kong, Taiwan and
Vietnam. Mr. Weaser holds a BS in Business Administration from the University of
Southern California.
CHRISTOPHER F. WRIGHT has served as our Senior Vice President,
Administration since November 1999 and as our General Counsel and Secretary
since July 1998. Prior to July 1998, Mr. Wright was a partner with the law firm
of Pepper Hamilton LLP, which he joined as an associate in 1990. Mr. Wright
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holds a BA in Applied Mathematics and Economics from Brown University and a JD
from the University of Pennsylvania.
KLAUS P. BESIER has served as our director since December 1998. Mr. Besier
has served as chairman of the board of directors of FirePond, Inc., a leading
global e-business software and services company, since October 1999. Mr. Besier
has served as president, chief executive officer and a director of FirePond
since July 1997. From 1996 to 1997, Mr. Besier was chairman, president and chief
executive officer of Primix Solutions, Inc., an Internet-enabled software firm.
From 1991 to 1996, Mr. Besier held various senior management positions,
including president and chief executive officer from 1994 to 1996, of SAP
America, Inc., a subsidiary of SAP AG, a leading provider of business
applications software. Mr. Besier is also a director of Intelligroup, a global
professional services firm.
J. MICHAEL CLINE has served as our director since September 1997. Since
December 1999, Mr. Cline has been the managing partner of Accretive Technology
Partners, a private investment company focused on business process outsourcing
and business-to-business e-commerce. From 1989 to 1999, Mr. Cline served as a
managing member of General Atlantic Partners, LLC. He holds a BS in Business
from Cornell University and an MBA from Harvard Business School. Mr. Cline also
serves on the board of directors of Manugistics Group, Inc. and several private
companies.
STEVEN A. DENNING has served as our director since September 1997. Since
1995, Mr. Denning has been the executive managing member of General Atlantic
Partners, LLC, a private equity investment firm focused exclusively on Internet
and information technology investments on a global basis. Mr. Denning was a
general partner of General Atlantic's predecessor, General Atlantic Partners,
from 1989 to 1993 and managing general partner of that entity from 1993 to 1995.
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
Eclipsys Corporation, GT Interactive Software Corp. and several private
companies.
JAY C. HOAG has served as our director since September 1999. Since
June 1995, Mr. Hoag has been a general partner of Technology Crossover Ventures,
a venture capital firm. From 1990 to 1994, Mr. Hoag served as managing director
at Chancellor Capital Management, Inc. From 1982 to 1990, he served in a variety
of capacities, including as vice president from 1987 to 1990 at Chancellor
Capital Management. Mr. Hoag holds a BA in Economics and Political Science from
Northwestern University and an MBA from the University of Michigan. Mr. Hoag
also serves on the board of directors of Autoweb.com, eLoyalty, iVillage and
several private companies.
JEFFREY R. RODEK has served as our director since October 1998. Since
August 1999, Mr. Rodek has served as chairman of the board and chief executive
officer of Hyperion Solutions Corporation. Prior to joining Hyperion, Mr. Rodek
served as president and worldwide chief operating officer of Ingram Micro Inc.
from December 1994 to August 1999. From July 1991 through September 1994, he
served as senior vice president, Americas and the Caribbean for Federal Express
Corporation. Mr. Rodek holds a BS in Mechanical Engineering and an MBA from Ohio
State University.
CLASSIFIED BOARD OF DIRECTORS
Our Board of Directors consists of nine positions, of which one is currently
vacant, and is divided into three classes of directors. We currently intend to
fill this vacancy prior to the end of 2000. Each class contains an equal number
of directors. Each year, the stockholders will elect the members of one of the
three classes to three-year terms of office. The year of expiration of the term
of each of our 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 us by a
proxy contest since the third party would be required to have its nominees
elected at two separate
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annual meetings of our stockholders in order to elect a majority of the members
of the Board of Directors.
BOARD COMMITTEES
The Audit Committee consists of Mr. Cline, Mr. Denning and Mr. Rodek. The
Audit Committee recommends independent auditors, reviews with the independent
auditors the scope and results of the audit, monitors our financial policies and
internal control procedures and reviews and monitors the provisions of non-audit
services by our auditors.
The Compensation Committee consists of Mr. Besier, Mr. Cline and Mr. Hoag.
The Compensation Committee reviews and recommends salaries, bonuses and other
compensation for our officers. The Compensation Committee also acts as the Stock
Option Committee and determines which employees should be granted options and
the terms and conditions of those option grants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to October 1997, we had no compensation committee and our entire Board
of Directors made decisions concerning compensation of executive officers.
Currently, no member of the Compensation Committee is serving as an officer. No
interlocking relationship exists between our executive officers or directors and
the compensation committee of any other entity.
COMPENSATION OF DIRECTORS
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. We have and will continue to grant stock
options to the non-employee members of our Board of Directors under our stock
option plan for non-employee directors.
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EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our Chief
Executive Officer and each of our four other most highly compensated executive
officers during the year ended December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION(S) SALARY BONUS OPTIONS COMPENSATION
<S> <C> <C> <C> <C>
Raymond R. Hood ...................................... $184,039 -- -- $114,881(1)
President, Chief Executive
Officer and Director
David E. Alcala ...................................... 175,008 $200,000(2) 50,000 9,000(2)
Senior Vice President,
Business Development
Mark R. Weaser ....................................... 152,219 88,651(3) 50,000 72,190(3)
Senior Vice President,
International Operations
Christopher F. Wright ................................ 180,250 3,750 80,000 20,225(4)
Senior Vice President,
Administration, General
Counsel and Secretary
Adam C. Belsky ....................................... 153,125 -- -- 93,233(5)
Senior Vice President, Mergers &
Acquisitions and Director
</TABLE>
--------------------------
(1) Includes housing payments and expenses of $55,019, automobile leasing
payments of $20,350, accounting and legal fees of $12,500 and $17,258,
respectively, 401(k) plan contributions of $9,202 and life insurance
premiums of $552.
(2) With respect to bonus, includes a bonus of $100,000 for commissions
Mr. Alcala would have otherwise received for meeting performance goals; with
respect to other annual compensation, consists of a car allowance.
(3) With respect to bonus, includes a bonus of $32,500 for commissions Mr.
Weaser would have otherwise received for meeting performance goals. With
respect to other annual compensation, includes housing payments of
approximately $50,000, an automobile allowance of $16,079, 401(k) plan
contributions of $5,396 and life insurance premiums of $715.
(4) Consists of automobile payments of approximately $10,500 and 401(k)
contributions of $9,725.
(5) Includes housing payments and expenses of $43,446, automobile leasing
payments of $9,457, accounting and legal fees of $14,864 and $17,258,
respectively, 401(k) plan contributions of $7,656 and life insurance
premiums of $552.
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OPTION GRANTS IN 1999
The following table presents stock option grants during 1999 to our Chief
Executive Officer and each of our four other most highly compensated executive
officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
NAME OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
---- GRANTED 1999(1) SHARE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Raymond R. Hood............................. -- -- -- -- -- --
David E. Alcala............................. 50,000(3) 2.6% $3.00 9/30/09 $ 94,500 $239,000
Mark R. Weaser.............................. 50,000(3) 2.6 3.00 9/30/09 94,500 239,000
Christopher F. Wright....................... 80,000(3) 4.2 3.00 9/30/09 151,200 382,900
Adam C. Belsky.............................. -- -- -- -- -- --
</TABLE>
--------------------------
(1) Based on an aggregate of 1,914,875 shares subject to options granted to
employees in 1999.
(2) Assumes stock price appreciation of 5% and 10% compounded annually from the
date of grant to the expiration date, as mandated by the rules of the
Securities and Exchange Commission and does not represent our estimate or
projection of the future appreciation of our stock price. Actual gains, if
any, are dependent on the timing of any exercises and the future performance
of our common stock and may be greater or less than the potential realizable
value set forth in the table. The amounts reflected in the table may not
necessarily be achieved.
(3) These options vest 25% on April 1, 2000 and 25% on each of October 1, 2000,
October 1, 2001 and October 1, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The following table presents the number and the value of options exercised
by our Chief Executive Officer and each of our four other most highly
compensated executive officers in 1999 and the outstanding options held by these
individuals as of December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AS
SHARES AS OF DECEMBER 31, 1999 OF DECEMBER 31, 1999(1)
NAME ACQUIRED ON VALUE --------------------------- ---------------------------
---- EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Raymond R. Hood....................... -- -- 125,000 375,000 -- --
David E. Alcala....................... -- -- 339,583 50,000 $2,412,498 $ 250,000
Mark R. Weaser........................ -- -- 137,396 57,500 918,126 295,000
Christopher F. Wright................. -- -- 40,000 120,000 120,000 520,000
Adam C. Belsky........................ -- -- -- -- -- --
</TABLE>
--------------------------
(1) Value is based on the difference between the option exercise price and
$8.00, the initial public offering price per share.
STOCK OPTION PLANS
AMENDED AND RESTATED 1997 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN. In
September 1997, we adopted the 1997 Incentive and Non-Qualified Stock Option
Plan which replaced all previous plans of our predecessor companies. Under our
1997 plan, as amended and restated in October 1998 and July 2000, an aggregate
of 12,000,000 shares of common stock is authorized for issuance. Our 1997 plan
provides for the grant of incentive stock options to our employees and
nonqualified stock options to employees or consultants. Exercise prices for
incentive stock options may not be less than fair market
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<PAGE>
value on the date of grant, and exercise prices for nonqualified stock options
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.
Our 1997 plan is administered by our board of directors. Our board of
directors has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to our 1997 plan generally and to interpret
the provisions thereof. Our board of directors is responsible for establishing
an annual budget for the total number of options authorized for issuance under
our 1997 plan. The board of directors or applicable committee determines, with
respect to each option grant:
- the number of shares of common stock issuable upon the exercise of
options;
- the exercise price;
- the vesting schedule; and
- the duration of the options.
Our 1997 plan permits the payment of the exercise price of options to be in
the form of cash, check or other form of consideration and method of payment as
determined by our board of directors.
No award may be made under the 1997 plan after September 15, 2007, but
awards previously granted may extend beyond that time. Our board of directors
may at any time terminate our 1997 plan. Any termination will not affect
outstanding options.
In the event we are subject to a change in control (as defined in our 1997
plan), our board of directors has 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 we are subject to a change in
control (as defined in our 1997 plan), our board of directors has the right,
subject to and conditioned upon a sale of the company (as defined in our 1997
plan) to:
- arrange for the successor entity to assume all of our rights and
obligations under our 1997 plan; or
- terminate our 1997 plan; and:
- pay to all optionees cash with respect to those options that are vested
as of the date of the sale in an amount equal to the difference between
the exercise price of each option and the fair market value of a share
of our common stock (determined as of the date our 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;
- arrange for the exchange of all options for options to purchase common
stock in the successor corporation; or
- distribute to each optionee other property in an amount equal to what
the optionee would have received from the successor entity if the
optionee had owned the shares subject to vested options at the time of
the sale. The form of distribution to the optionees shall be determined
by our board of directors.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. In September 1997, we adopted
the Stock Option Plan for Non-Employee Directors and reserved an aggregate of
300,000 shares of common stock for issuance under that plan. Members of the
board of directors who are not our employees are eligible to participate in this
directors plan, which was amended and restated in February 2000. Under our
directors plan, each eligible director is automatically granted an option for
25,000 shares on the date such director first becomes a director. In addition,
our board of directors has the discretion to grant additional options to
eligible directors. At the November 1999 meeting of the board of directors, the
board exercised its discretionary authority and granted an option to acquire
25,000 shares of common
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<PAGE>
stock to each of Mr. Rodek and Mr. Besier. At each annual meeting of
stockholders after this offering, each eligible director who is re-elected for
another term at such meeting will automatically be granted an additional option
to purchase 25,000 shares. Unless otherwise provided in the option agreements,
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:
- ten years after the date on which the option was granted;
- twelve months after the termination of services resulting from the
individual's death or disability; or
- three months after the termination of services resulting from any other
reason.
The exercise price of all options granted under our directors plan is the
fair market value of the common stock on the date of the grant.
401(K) PLAN
We maintain a 401(k) Plan which is intended to be a tax-qualified retirement
plan under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, a
participant may generally contribute up to 15% of compensation to the 401(k)
Plan. Employees are eligible to participate upon completion of their first
calendar month of employment. We 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 total compensation. To be eligible
for this matching, the participant generally must be employed on the last day of
the calendar quarter for which the match is made. Our Board of Directors has the
discretion to make an additional contribution to participants' accounts each
year. All of our employees who have completed one year of service with us
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 our contributions
(including matching and discretionary contributions) vests over two to five
years of service with us. Distributions from the 401(k) Plan may be made in the
form of an annuity or lump-sum cash payment.
PENSION PLAN
We maintain a defined contribution pension plan for our employees in the
United Kingdom. Pursuant to the plan, a participant may generally contribute up
to 15% of his or her compensation to the plan. The plan covers all employees
located in the United Kingdom who have completed six months of service. We will
match contributions made by employees pursuant to the plan, up to 5% of the
employee's contributions of eligible earnings.
EMPLOYMENT AGREEMENTS
We have entered into employment agreements with some of our executive
officers. Our employment agreements with these executive officers generally
provide for one-year terms of employment that are automatically renewable for
successive one-year terms, unless either party to the agreement gives the other
party prior written notice of non-renewal. Each agreement requires that the
officer protect our confidential information and generally prohibits the officer
from competing with us or soliciting our employees, customers or vendors for a
purpose competitive with our business for two years. Each agreement also
specifies the severance compensation payable by us if the officer's employment
with us terminates for specified reasons.
RAYMOND R. HOOD. Our employment agreement with Raymond Hood, our Chief
Executive Officer and President, was effective as of July 1, 2000. Mr. Hood
currently receives an annual base
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salary of $250,000, and is eligible to receive an additional annual bonus. We
previously loaned Mr. Hood $120,000, and this loan was renewed and the maturity
date was extended to July 2003 under his employment agreement. The employment
agreement also provides that Mr. Hood may borrow up to an additional $500,000
from us, which he is obliged to repay to us within three years. The loans bear
interest at an annual rate of 8.5%. If Mr. Hood borrows the additional $500,000
from us, he will pledge 77,500 shares of common stock as security for the entire
amount of his loans. Mr. Hood is also entitled to a housing allowance. The
initial term of Mr. Hood's employment agreement is three years and can be
renewed for successive one-year terms. Mr. Hood's employment may be terminated
with or without cause upon written notice from us. If we terminate Mr. Hood's
employment without cause, we will pay severance to Mr. Hood in the amount of one
year's base salary and bonus and a portion of his unvested stock options will
immediately vest. If we terminate Mr. Hood without cause or Mr. Hood terminates
the agreement for good cause within one year of a change of control, in addition
to the consideration in the preceding sentence, all of Mr. Hood's unvested stock
options will immediately vest, and all outstanding loans under the employment
agreement will be forgiven. Mr. Hood has agreed not to compete with us during
his employment and for a period of one year following the termination of his
employment.
DAVID E. ALCALA. Our employment agreement with David E. Alcala, our Senior
Vice President, Business Development, was entered into on November 18, 1996 and
was amended on September 11, 1997. Mr. Alcala currently receives an annual base
salary of $175,000 and an annual bonus of $100,000. Mr. Alcala receives a car
allowance of $9,000 per year. Notwithstanding the employment agreement, we 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 or $160,000. However, Mr. Alcala, in his discretion,
may waive our 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 termination if we release Mr. Alcala from the
non-competition obligations contained in the employment agreement.
MARK R. WEASER. Our employment agreement with Mark R. Weaser, our Senior
Vice President, International Operations, was entered into on December 7, 1996.
Mr. Weaser currently receives an annual base salary of $185,000 and an annual
cash bonus of one month's base salary. Mr. Weaser receives a housing allowance
of approximately $50,000 per year and a car allowance of approximately $16,000
per year. In the event of a termination of Mr. Weaser's employment without
cause, we will pay severance to Mr. Weaser in the amount of six month's base
salary at the date of termination. Mr. Weaser has agreed not to compete with us
and not to solicit our employees, customers or vendors for a period of six
months following his termination of employment.
CHRISTOPHER F. WRIGHT. Our employment agreement with Christopher F. Wright,
our Senior Vice President, Administration, General Counsel and Secretary, was
entered into on July 13, 1998. The Agreement has a three year initial term with
one year annual renewals. Mr. Wright currently receives an annual base salary of
$185,500, as well as benefits including life insurance equal to $50,000.
Mr. Wright receives a car allowance of $10,500 per year. Mr. Wright is not
permitted to compete with us for a period of two years after termination.
Notwithstanding the employment agreement, we may terminate Mr. Wright without
cause upon 90 days' written notice. Upon termination of this agreement for any
reason (including a change of control), Mr. Wright will receive severance equal
to one year's base salary. In the event of the termination of the agreement due
to death, disability or by us without cause or by a change of control, all of
Mr. Wright's options become immediately vested. If the employment agreement is
terminated for any reason and Mr. Wright chooses to return to the private
practice of law at any time during the year following his termination, we, at
Mr. Wright's option, will engage Mr. Wright's firm to perform legal services for
us for two years following the beginning of this engagement.
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LIMITATIONS OF LIABILITY
The Delaware General Corporation Law authorizes corporations to limit or
eliminate, subject to certain conditions, the personal liability of directors to
corporations and their stockholders for monetary damages for breach of their
fiduciary duties. Our certificate of incorporation and by-laws limit the
liability of our directors to the fullest extent permitted by Delaware law. Such
limitation of liability does not affect the availability of equitable remedies.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation and by-laws provide that we will indemnify
any of our directors and officers who, by reason of the fact that he or she is
one of our officers or directors, is involved in a legal proceeding of any
nature. We will repay expenses incurred by a director or officer in connection
with any civil or criminal action or proceeding, specifically including actions
by us or in our name (derivative suits). Indemnifiable expenses include
attorney's fees, judgments, civil or criminal fines, settlement amounts and some
other expenses customarily incurred in connection with legal proceedings. In
addition, we maintain directors and officers insurance to cover expenses
incurred in connection with legal proceedings. We have or will also enter into
indemnification agreements with each of our directors and officers that provide
that we will indemnify any director or officer if he is involved in a legal
proceeding relating to his duties as a director or officer.
This indemnification does not affect the availability of equitable remedies.
In addition, we have been advised that in the opinion of the SEC,
indemnification for liabilities arising under the Securities Act is against
public policy as expressed in the Securities Act and is therefore unenforceable.
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CERTAIN TRANSACTIONS
During 1997 and 1998, we advanced a total of $1,303,000 to Astrid
Holdings, Inc., a company which was then owned by Mr. Hood, our President and
Chief Executive Officer, Mr. Belsky, our Senior Vice President, Mergers &
Acquisitions, and Nigel Bahadur, a former principal shareholder of Neptune and
our Senior Vice President, Research and Development. As of May 21, 1998, these
advances, which included $950,000 in cash advances and $353,000 in services and
expenses, remained outstanding. As part of Neptune's acquisition of Dallas
Systems in September 1997, we were granted an option to acquire Astrid for an
aggregate purchase price of $1.5 million. On May 21, 1998, Mr. Hood, Mr. Belsky
and Mr. Bahadur sold their entire interest in Astrid to Lexye Sumantri, an
unaffiliated stockholder of our company, for a cash payment of $120 and the
assumption of all of Astrid's liabilities. In connection with that transaction,
we repurchased from Mr. Sumantri 487,037 shares of our Class A common stock
valued at $2,172,185 in exchange for a cash payment of $869,185 to
Mr. Sumantri, forgiveness of our $1,303,000 of advances to Astrid and
termination of our option to purchase Astrid. The value of the Class A common
stock was the subject of negotiation between us and Mr. Sumantri.
On September 15, 1997, we issued 6,764,043 shares of Series A preferred
stock and 4,573,519 shares of Series B preferred stock for an aggregate purchase
price of $25,000,000 to General Atlantic Partners 41, L.P. and GAP Coinvestment
Partners, L.P., two investment limited partnerships that are affiliated with one
of our directors, Steven A. Denning. Mr. Denning is the executive managing
member of General Atlantic Partners, LLC, which is a general partner of GAP41,
and is a general partner of GAPCO.
On September 15, 1997, as part of the merger between Dallas Systems and
Neptune and to provide him with some liquidity for his holdings, we purchased
6,763,513 shares of common stock of Dallas Systems from our Chairman of the
Board, Lyle Baack, for an aggregate purchase price of $14,788,421.
From August 1997 to October 29, 1999, we leased office space in Dallas from
LAB Holdings, an entity owned and controlled by Lyle Baack, our Chairman of the
Board. On October 27, 1999, the lease was terminated and we reached an agreement
with LAB Holdings under which we agreed to pay a total of $852,047 to LAB
Holdings. Our payments under this agreement will end in June 2000.
On July 10, 1998, we issued 1,600,000 shares of Series C preferred stock for
an aggregate purchase price of $8,000,000 to MSD Capital, L.P., Triple Marlin
Investments, LLC and Rothko Investments, LLC. These entities are affiliated with
one of our former directors, John C. Phelan. Mr. Phelan is the managing
principal of MSD Capital, which is a member of both Triple Marlin and Rothko.
On September 29, 1999, we issued an aggregate of 750,000 shares of Series D
preferred stock for an aggregate cash purchase price of $3,000,000 to General
Atlantic Partners 57, L.P. and GAP Coinvestment Partners II, L.P., two
partnerships that are affiliated with one of our directors, Steven A. Denning.
Mr. Denning is the executive managing member of General Atlantic Partners, LLC,
which is a general partner of GAP57, and is a general partner of GAPCOII.
On September 29, 1999, we also issued 3,437,750 shares of Series D preferred
stock to TCV III (Q), L.P., 155,679 shares of Series D preferred stock to TCV
III Strategic Partners, L.P., 129,341 shares of Series D preferred stock to TCV
III, L.P. and 27,230 shares of Series D preferred stock to TCV III (GP) for an
aggregate purchase price of $15,000,000. The purchase price consisted of
$12,200,000 in cash, the cancellation of a $2,566,853 bridge loan from TCV III
(Q), L.P., the cancellation of a $116,240 bridge loan from TCV III Strategic
Partners, L.P., the cancellation of a $96,575 bridge loan from TCV III, L.P. and
the cancellation of a $20,332 bridge loan from TCV III (GP). The TCV Funds are
affiliated with one of our directors, Jay C. Hoag. Mr. Hoag is a managing member
of Technology Crossover Management III, L.L.C., which is a general partner of
each of the TCV Funds.
On September 29, 1999, we also issued 250,000 shares of Series D preferred
stock to MSD Portfolio L.P.--Investments for a purchase price of $1,000,000,
consisting of $800,000 in cash and the cancellation of a $200,000 bridge loan
from MSD Portfolio. MSD Portfolio is affiliated with one of our
59
<PAGE>
former directors, John C. Phelan. Mr. Phelan is the managing principal of MSD
Capital, which is the general partner of MSD Portfolio.
All of our shares of Series D preferred stock were valued at $4.00 per share
for the transactions with the GAP entities, the TCV entities and the MSD
entities.
On September 29, 1999, we entered into an agreement with General Atlantic
Partners 57, L.P., GAP Coinvestment Partners II, L.P., TCV III (Q), L.P., TCV
III Strategic Partners, L.P., TCV III, L.P., TCV III (GP), and MSD Portfolio.
General Atlantic Partners 57, L.P. and GAP Coinvestment Partners II, L.P. are
affiliated with one of our directors, Steven A. Denning. Mr. Denning is the
executive managing member of General Atlantic Partners, LLC, which is a general
partner of GAP57, and is a general partner of GAPCOII. TCV III (Q), L.P., TCV
III Strategic Partners, L.P., TCV III, L.P. and TCV III (GP) are affiliated with
one of our directors, Jay C. Hoag. Mr. Hoag is a managing member of Technology
Crossover Management III, L.L.C., which is a general partner of each of the TCV
Funds. MSD Portfolio L.P.--Investments is affiliated with one of our former
directors, John C. Phelan. Mr. Phelan is the managing principal of MSD Capital,
which is the general partner of MSD Portfolio. Under this agreement, each of
these Series D stockholders had the right to purchase common stock offered in
this offering. The maximum number of shares that they could have purchased was
to be determined by dividing $10,000,000 by the mid-point of the range of the
price per share in the last preliminary prospectus circulated to investors. The
Series D purchasers could not have purchased more than 10% of the total shares
offered. The Series D purchasers have agreed to waive all of their rights under
this agreement with respect to this offering. Therefore, the Series D purchasers
will have no contractual right to purchase shares from us in this offering.
We entered into an Indemnification Agreement with Jay Hoag, one of our
directors, as a condition to closing the Series D round of financing, in which
we agreed to indemnify Mr. Hoag if he is involved in a legal proceeding relating
to his duties as a director. After completing the Series D financing, we decided
to enter into similar indemnification agreements with all of our directors and
officers.
Under our certificate of incorporation and other agreements, the Series A,
Series C and Series D stockholders (which are affiliated with Messrs. Denning,
Phelan and Hoag, existing or former directors) are entitled to a cash payment or
the right to receive additional shares of common stock if the midpoint of the
price range on our last distributed preliminary prospectus in this offering is
less than $11.00 per share. The cash payment (or the value of the corresponding
number of shares of common stock) for the Series A, Series C and Series D
stockholders is a maximum of $15.0 million, $3.0 million and $11.4 million,
respectively. Each of the Series A, Series C and Series D stockholders has
waived its rights to this cash payment and the receipt of additional shares of
common stock.
In December 1999, we loaned Raymond R. Hood, our President and Chief
Executive Officer, a total of $50,000. In February 2000, we loaned Mr. Hood
another $50,000. In May 2000, we loaned Mr. Hood an additional $20,000. The
interest rate on each of the loans is 8.5% per year. The aggregate $120,000 in
loans was renewed in connection with Mr. Hood's employment agreement and the
maturity dates were extended to July 2003. In addition, under the terms of
Mr. Hood's employment agreement, Mr. Hood has the right to receive an additional
loan of up to $500,000, at an annual interest rate of 8.5% per year, which must
be repaid by July 2003. If Mr. Hood borrows the additional $500,000 from us, he
will pledge 77,500 shares of common stock as security for the entire amount of
his loans.
We believe that all of the transactions described above were made on terms,
on the whole, no less favorable to us than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between us
and our officers, directors, principal stockholders and affiliates will be
approved by a majority of our board of directors, including a majority of our
independent and disinterested directors, and will be on terms no less favorable,
on the whole, to us than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 31, 2000, as adjusted to reflect the
sale of 8,000,000 shares of common stock in this offering and the conversion of
all outstanding shares of our Series A, Series B, Series C and Series D
preferred stock and our Class B common stock into shares of common stock, by:
- each person or group known to us who beneficially owns more than 5% of our
outstanding common stock;
- each of our directors and each named executive officer; and
- all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES OWNED PRIOR TO SHARES OWNED AFTER THE
THE OFFERING OFFERING
---------------------- ----------------------
BENEFICIAL OWNER(1)(2) SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
General Atlantic Partners, LLC(3)................. 12,087,562 35.6% 12,087,562 28.8%
Entities Associated with Technology Crossover
Ventures(4)...................................... 3,750,000 11.0 3,750,000 8.9
Michael S. Dell(5)................................ 1,850,000 5.4 1,850,000 4.4
DIRECTORS AND OFFICERS:
Steven A. Denning(3).............................. 12,087,562 35.6 12,087,562 28.8
Lyle A. Baack(6).................................. 5,002,188 14.7 5,002,188 11.9
Jay C. Hoag(4).................................... 3,750,000 11.0 3,750,000 8.9
Raymond R. Hood(7)................................ 3,737,500 11.0 3,737,500 8.9
Adam C. Belsky(8)................................. 3,612,500 10.6 3,612,500 8.6
Nigel Bahadur(9).................................. 1,275,000 3.8 1,275,000 3.0
David E. Alcala(10)............................... 420,686 1.2 420,686 1.0
Mark R. Weaser(11)................................ 243,136 * 243,136 *
Christopher F. Wright(12)......................... 60,000 * 60,000 *
Jeffrey R. Rodek(13).............................. 6,250 * 6,250 *
Klaus P. Besier(14)............................... 6,250 * 6,250 *
J. Michael Cline.................................. -- -- -- --
All executive officers and directors
as a group (15 persons)(15)...................... 30,214,969 86.9% 30,214,969 70.7%
</TABLE>
--------------------------
(1) Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission. Unless otherwise indicated, the persons
included in this table have sole voting and investment power with respect to
all shares beneficially owned, subject to community property laws, where
applicable. Shares of common stock subject to options currently exercisable
or exercisable within 60 days of March 31, 2000 are treated as outstanding
for the purpose of computing the percentage ownership of the persons holding
such options. However, these shares are not treated as outstanding for the
purposes of computing the percentage ownership of any other person.
Applicable percentage ownership in the above table prior to this offering is
based on 33,977,463 shares of common stock outstanding as of March 31, 2000,
after giving effect to the conversion of all outstanding shares of preferred
stock into common stock upon the closing of this offering.
(2) Unless otherwise indicated, the address of each of the named individuals is
c/o EXE Technologies, Inc., 8787 Stemmons Freeway, Dallas, Texas 75247. The
percentages in the "Shares Owned After this Offering" column assume that the
underwriters do not exercise their over-allotment option to purchase up to
1,200,000 shares.
(3) Includes 9,544,746 shares of common stock held by General Atlantic Partners
41, L.P. ("GAP 41"), 1,792,816 shares of common stock held by GAP
Coinvestment Partners, L.P. ("GAPCO"), 629,650 shares of common stock held
by General Atlantic Partners 57, L.P. ("GAP57") and 120,350 shares of common
stock held by GAP Coinvestment Partners II, L.P. ("GAPCOII"). General
Atlantic Partners, LLC ("GAPLLC") is the general partner of GAP41 and GAP57.
The managing members of GAPLLC are also the general partners of GAPCO
61
<PAGE>
and GAPCOII. Mr. Denning is the executive managing member of General
Atlantic Partners, LLC. Mr. Denning disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest in the shares. In
addition, pursuant to an 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, at the exercise price of $2.1865 per share, 57,760 shares held
by GAP 41, and GAPCO granted to Mr. Alcala an option to purchase, at the
exercise price of $2.1865 per share, 10,843 shares held by GAPCO. The
address for Mr. Denning and various GAP entities is c/o General Atlantic
Service Corporation, 3 Pickwick Plaza, Greenwich, Connecticut 06830.
(4) Includes 3,437,750 shares of common stock held by TCV III (Q), L.P., 155,679
shares of common stock held by TCV III Strategic Partners, L.P., 129,341
shares of common stock held by TCV III, L.P. and 27,230 shares of common
stock held by TCV III (GP). Mr. Hoag is a managing member of Technology
Crossover Management III, L.L.C., which is the general partner of each of
the TCV Funds. Mr. Hoag disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest in these shares. The address for
each of these persons and entities is c/o Technology Crossover Ventures, 575
High Street, Suite 400, Palo Alto, California 94301.
(5) Includes 1,200,000 shares of common stock held by MSD 1998 GRAT #6, 200,000
shares of common stock held by Triple Marlin Investments, LLC, 200,000
shares of common stock held by Rothko Investments, LLC and 250,000 shares of
common stock held by MSD Portfolio L.P.--Investments. Mr. Dell disclaims
beneficial ownership of the shares held by Triple Marlin and Rothko.
Mr. Dell is a member of the general partner of MSD Capital, L.P., which
shares voting and investment power over MSD 1998 GRAT #6, is a member of
each of Triple Marlin and Rothko and is the general partner of MSD
Portfolio. The address for Mr. Dell is c/o MSD Capital, L.P., 780 Third
Ave., 43rd Fl., New York, NY 10017.
(6) Includes 200,000 shares held by Baack Children's Trust. Mr. Baack disclaims
beneficial ownership of these shares.
(7) Includes 1,000,000 shares held by Hood Partnership, Ltd., 131,000 shares
held by the Adam Belsky Irrevocable GST Exempt Trust, of which Mr. Hood is
the sole trustee, 500,000 shares held by Mr. Hood's former spouse, over
which Mr. Hood retains voting power, and 125,000 shares of common stock
subject to currently exercisable options. Mr. Hood disclaims beneficial
ownership of the shares held by the trust and the shares held by his former
spouse.
(8) Includes 1,000,000 shares held by Belsky Partnership, Ltd. and 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 the trust.
(9) Includes 250,000 shares held by the N.R. Bahadur Partnership II, Ltd.
(10) Includes 339,583 shares of common stock subject to currently exercisable
options and 12,500 shares subject to options exercisable within 60 days of
March 31, 2000. Also includes 57,760 shares that Mr. Alcala has the option
to purchase from GAP41 and 10,843 shares that he has the option to purchase
from GAPCO.
(11) Includes 139,896 shares of common stock subject to options currently
exercisable and 12,500 shares of common stock subject to options exercisable
within 60 days of March 31, 2000.
(12) Includes 40,000 shares of common stock subject to options currently
exercisable and 20,000 shares of common stock subject to options exercisable
within 60 days of March 31, 2000.
(13) Includes 6,250 shares of common stock subject to currently exercisable
options. Mr. Rodek's address is c/o Hyperion Solutions Corporation, 1344
Crossman Avenue, Sunnyvale, California 94089.
(14) Includes 6,250 shares of common stock subject to currently exercisable
options. Mr. Besier's address is c/o Firepond, Inc., 890 Winter Street,
Waltham, Massachusetts 02451.
(15) Includes 736,979 shares of common stock subject to currently exercisable
options and 47,500 shares of common stock subject to options exercisable
within 60 days of March 31, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, we will be authorized to issue 150,000,000
shares of common stock and 20,000,000 shares of preferred stock, of which there
will be 41,977,463 shares of common stock and no shares of preferred stock
outstanding.
COMMON STOCK
Upon the closing of this offering, the Class A common stock will be renamed
"common stock", all outstanding shares of Class B common stock will convert into
shares of common stock on a one-for-one basis and our Class B common stock will
cease to exist. The holders of common stock are entitled to one vote per share.
In the event of a liquidation, dissolution or winding up of our affairs, holders
of the common stock will be entitled to share ratably in all our assets that are
remaining after payment of our liabilities and the liquidation preference of any
outstanding shares of preferred stock. All outstanding shares of common stock
are fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to any series of preferred stock that we
have 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 us.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our Series A,
Series B, Series C and Series D preferred stock will be converted into shares of
common stock on a one-for-one basis and there will be no shares of preferred
stock outstanding. Subject to Delaware law, the board of directors is authorized
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 and to increase or decrease the number of shares of
any series (but not below the number of shares of a 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 our
common stock or have the effect of deterring or delaying any attempt by a
person, entity or group to obtain control of us. We have no current plan to
issue any shares of preferred stock.
REGISTRATION RIGHTS
Under a Second Amended and Restated Registration Rights Agreement, dated
September 29, 1999, among:
- General Atlantic Partners 57, L.P., General Atlantic Partners 41, L.P.,
GAP Coinvestment Partners, L.P. and GAP Coinvestment Partners II, L.P.,
also called the GAP Stockholders;
- MSD 1998 GRAT #6, Triple Marlin Investments, LLC, Rothko Investments, LLC
and MSD Portfolio L.P.--Investments, also called the Dell Stockholders;
- TCV III (Q), L.P., TCV III Strategic Partners, L.P., TCV III, L.P., and
TCV III (GP), also called the TCV Stockholders;
- Nigel Bahadur, Adam Belsky and Raymond Hood, also called the Neptune
Stockholders; and
- Lyle Baack, and, when together with the Neptune Stockholders, also called
the Major Stockholders,
each of the GAP Stockholders, the Dell Stockholders, the TCV Stockholders and
the Major Stockholders is entitled to rights for registration under the
Securities Act, for resale to the public, of the shares of common stock owned by
them.
63
<PAGE>
Our registration rights agreement permits the Neptune Stockholders to offer
some of their shares in this offering, subject to limitations and restrictions,
including the right of the underwriters to exclude all or a portion of the
Neptune shares from this offering. The Neptune Stockholders have waived their
registration rights with respect to this offering.
Our registration rights agreement permits the GAP Stockholders, the Dell
Stockholders and the TCV Stockholders, as a group, and the Major Stockholders,
as a group, each to twice require us, whether or not we propose to register our
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 conditions and limitations. We are required to bear the expenses
of these registrations and to use our best efforts to effect these
registrations, subject to specified conditions and limitations. In addition to
the demand registration rights described above, our registration rights
agreement permits each of the GAP Stockholders, the Dell Stockholders, the TCV
Stockholders and the Major Stockholders, as a group, to require us to register
the shares held by each group on a Form S-3 once we have qualified to use
Form S-3, subject to specified conditions and limitations. Our registration
rights agreement also provides that, after this offering and subject to certain
exceptions, in the event we propose to file a registration statement under the
Securities Act with respect to an offering by us for our own account, each of
the GAP Stockholders, the Dell Stockholders, the TCV Stockholders and the Major
Stockholders are entitled to include their shares in a future registration,
subject to specified conditions and limitations.
As of May 31, 2000, we have granted to some of our service providers and
resellers warrants to acquire an aggregate of up to 815,000 shares of our
Class B common stock. These warrant holders are entitled to piggyback
registration rights with respect to offerings by us for our account, subject to
conditions and limitations. These piggyback registration rights are not
applicable to our initial public offering.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS
The provisions of Delaware law and of our certificate of incorporation and
by-laws discussed below could discourage or make it more difficult to accomplish
a proxy contest or other change in our management or the acquisition of control
by a holder of a substantial amount of our voting stock. It is possible that
these provisions could make it more difficult to accomplish, or could deter,
transactions that stockholders may otherwise consider to be in their best
interests or our best interests.
In addition, our certificate of incorporation and by-laws provide that no
director may be removed at any time except for cause and by the affirmative vote
of the holders of a majority of the outstanding shares of voting stock. Also,
stockholder action may be taken only at a stockholders meeting and not by
written consent of the stockholders.
Our certificate of incorporation and 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 us.
These provisions are intended to encourage any person interested in acquiring us
to negotiate with and obtain the approval of the board of directors in
connection with the transaction. Some of these provisions may, however,
discourage a future acquisition of us 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 our stockholders might believe to be in
their best interest. As a result, stockholders who desire to participate in this
type of transaction may not have the opportunity to do so. These provisions
could also discourage bids for our common stock at a premium, as well as create
a depressive effect on the market price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
64
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering (assuming no exercise of the underwriters'
over-allotment option), we will have 41,977,463 shares of common stock
outstanding, assuming no exercise of outstanding options. Of the total
outstanding shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares held by our affiliates, as that term is defined under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 as described below and any shares sold to our strategic investors will
be subject to a 180 day lock-up agreement.
SALES OF RESTRICTED SHARES
The remaining 33,977,463 shares of common stock held by existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. Of these shares, 33,270,366
will be subject to "lock-up" agreements providing that the stockholder will not,
subject to limited exceptions, offer, sell or otherwise dispose of any of the
shares of common stock owned by them for a period of time after the date of this
offering. Executive officers, directors and affiliates, and substantially all of
the strategic investors who have indicated an interest in purchasing shares of
common stock in this offering, will be subject to lock-up agreements for a
period of 180 days. Participants in our directed share program who are not
already subject to a 180 day lock-up agreement will be subject to lock-up
agreements for a period of 90 days. However, Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Smith Barney Inc. may, in their sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements. We have been advised that neither Donaldson,
Lufkin & Jenrette nor Salomon Smith Barney has any present intention to release
any shares subject to lock-up agreements. Upon expiration of the lock-up
agreements, 3,344,662 shares will become eligible for sale pursuant to
Rule 144(k), 30,173,022 shares will become eligible for sale under Rule 144,
subject to volume limitations and up to 323,644 shares will become eligible for
sale under Rule 701.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET(1)
(LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
<TABLE>
<CAPTION>
DATE NUMBER OF SHARES COMMENTS
<S> <C> <C>
At the effective date.................... 438,152 Shares saleable
90 days after the effective date......... up to 826,492 Shares saleable under Rule 701 and upon
expiration of lock-up agreements
180 days after the effective date........ up to 35,460,945 Shares saleable under Rule 144, 144(k) or
701 and upon expiration of lock-up
agreements
</TABLE>
--------------------------
(1) Includes shares issuable upon the exercise of vested options.
We intend to file a registration statement on Form S-8 under the Securities
Act 180 days after the completion of this offering to register all of the shares
of common stock reserved for future issuance under our stock option plans. Based
upon the number of shares subject to outstanding options and currently reserved,
this registration statement would cover approximately 12,000,000 shares. Shares
registered under the registration statement will generally be available for sale
in the open market immediately after the lock-up agreements expire.
65
<PAGE>
RULE 144
In general, under Rule 144 as currently in effect, a person including an
affiliate, who has beneficially owned shares of our common stock for at least
one year would be entitled to sell in "broker's transactions" or to market
makers, within any three-month period, a number of shares that does not exceed
the greater of:
- 1% of the number of shares of common stock then outstanding (which will
equal approximately 419,775 shares immediately after this offering); or
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current
public information about us.
RULE 144(k)
Under Rule 144(k), a person who is deemed to have not been our affiliate at
any time during the three months 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.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering are entitled to sell such shares 90 days after
the effective date of this offering 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 public information, volume
limitation or notice filing provisions of Rule 144. However, holders of shares
that would otherwise be saleable under Rule 701 are subject to the contractual
restrictions described above which restrict the sale or disposition of such
shares for 90 to 180 days following the effective date.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of up to 31,189,750 shares of
common stock will be entitled to various rights with respect to the registration
of these shares under the Securities Act. Registration of these shares under the
Securities Act would result in these shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of the
registration, except for shares purchased by affiliates. See "Description of
Capital Stock--Registration Rights" for a more complete description of these
registration rights.
STOCK OPTIONS
As of March 31, 2000, options to purchase a total of 4,999,558 shares of
common stock under our stock option plans were outstanding and 1,514,841 were
exercisable. As of the date of this offering, 1,110,561 of the shares issuable
upon the exercise of options are subject to lock-up agreements. An additional
5,927,518 shares of common stock were available for future option grants under
our stock plans.
Upon completion of this offering, we intend to file a registration statement
under the Securities Act covering all shares of common stock subject to
outstanding options or issuable pursuant to our stock option plans. Subject to
Rule 144 volume limitations applicable to affiliates, shares registered under
any registration statements will be available for sale in the open market,
except to the extent that the shares are subject to vesting restrictions with us
or the contractual restrictions described above.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated August 3, 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.,
Banc of America Securities LLC and DLJDIRECT Inc., have severally agreed to
purchase from us the number of shares of common stock set forth opposite their
names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS: SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... 2,468,000
Salomon Smith Barney Inc.................................... 2,468,000
Banc of America Securities LLC.............................. 1,234,000
DLJDIRECT Inc............................................... 110,000
Chase Securities, Inc....................................... 77,000
CIBC World Markets Corp..................................... 77,000
Deutsche Bank Securities Inc................................ 77,000
A.G. Edwards & Sons, Inc.................................... 77,000
FleetBoston Robertson Stephens Inc.......................... 77,000
Goldman, Sachs & Co......................................... 77,000
ING Barings LLC............................................. 77,000
Lazard Freres & Co. LLC..................................... 77,000
C.E. Unterberg, Towbin...................................... 77,000
Thomas Weisel Partners LLC.................................. 77,000
Adams, Harkness & Hill, Inc................................. 38,000
Robert W. Baird & Co. Incorporated.......................... 38,000
George K. Baum & Company.................................... 38,000
The Chapman Company......................................... 38,000
Crowell, Weedon & Co........................................ 38,000
Fahnestock & Co. Inc........................................ 38,000
First Southwest Company..................................... 38,000
J.J.B. Hilliard, W.L. Lyons, Inc............................ 38,000
Hoak Breedlove Wesneski & Co................................ 38,000
Investee Ernst & Company.................................... 38,000
Janney Montgomery Scott LLC................................. 38,000
Johnston, Lemon & Co. Incorporated.......................... 38,000
Kaufman Bros L.P............................................ 38,000
C.L. King & Associates, Inc................................. 38,000
Legg Mason Wood Walker, Incorporated........................ 38,000
McDonald Investments Inc., a KeyCorp Company................ 38,000
Morgan Keegan & Company, Incorporated....................... 38,000
Parker/Hunter Incorporated.................................. 38,000
Pennsylvania Merchant Group................................. 38,000
Raymond James & Associates, Inc............................. 38,000
The Robinson-Humphrey Company, LLC.......................... 38,000
Sanders Morris Harris....................................... 38,000
Sands Brothers & Co Ltd..................................... 38,000
Sutro & Co. Incorporated.................................... 38,000
Tucker Anthony Cleary Gull.................................. 38,000
----------
Total................................................... 8,000,000
==========
</TABLE>
67
<PAGE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock in
this offering are conditioned on approval by their counsel of legal matters
concerning this offering and satisfaction of conditions precedent by us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock in this offering, other than those shares covered by the
over-allotment option described below, if any are purchased.
The underwriters initially propose to offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares to dealers at the
initial public offering price less a concession not in excess of $0.34 per
share. The underwriters may allow, and those dealers may re-allow, to certain
other dealers a concession not in excess of $0.10 per share on sales to other
dealers. After the initial offering of the common stock to the public, the
representatives may change the public offering price and concessions. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
An electronic prospectus will be available on the web site maintained by
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. Other than the prospectus in electronic format, the information on
the DLJDIRECT web site relating to the offering is not part of this prospectus
and has not been approved or endorsed by us or the underwriters, and should not
be relied on by prospective investors.
The following table shows the underwriting fees to be paid by us in
connection with this offering. This information is presented assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share............................................ $ 0.56 $ 0.56
Total................................................ $4,480,000 $5,152,000
</TABLE>
We will pay the offering expenses, estimated to be approximately $1.0
million. We will pay to the underwriters underwriting discounts and commissions
in an amount equal to the public offering price per share of common stock less
the amount the underwriters pay to us for each share of common stock sold by us.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase up to 1,200,000 additional shares
of common stock at the initial public offering price less the underwriting
discounts and commissions. The underwriters may exercise this option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent the underwriters exercise this option, each underwriter will be
obligated, upon satisfaction of certain conditions, to purchase a number of
additional shares approximately proportionate to that underwriter's initial
purchase commitments.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
underwriters may be required to make in respect thereof.
For a period ending 180 days from the date of this prospectus, subject to
exceptions, we and our executive officers, directors and affiliates have agreed
not to, without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Smith Barney Inc.:
- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock; or
68
<PAGE>
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock,
regardless of whether any of the transactions described above is to be settled
by delivery of common stock or such other securities, in cash, or otherwise.
Similarly, substantially all of the strategic investors who purchase shares in
this offering will be subject to a 180 day lock-up agreement, while participants
in our directed share program who are not already subject to a 180 day lock-up
agreement will be subject to a 90 day lock-up agreement.
In addition, during the lock-up period, we have agreed not to file any
registration statement relating to, and each of our executive officers,
directors, affiliates and stockholders with registration rights have agreed not
to make any demand for, or exercise any right relating to, the registration of
any shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation and Salomon Smith Barney Inc.
Prior to this offering, no public market has existed for our common stock.
The initial public offering price for our common stock was determined by
negotiation with the representatives of the underwriters, and the price may not
reflect the market price for our common stock after this offering. The factors
considered in determining the initial public offering price include:
- the history of and prospects for our industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future operational results;
- the recent market prices of securities of generally comparable companies;
and
- the general conditions of the securities market at the time of this
offering.
Our common stock will be quoted on the Nasdaq National Market under the
symbol "EXEE."
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any shares of common
stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock in
any jurisdiction where that would not be permitted or legal.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may create a syndicate short
position by making short sales of our common stock and may purchase our common
stock on the open market to cover syndicate short positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares of common stock than they are required to purchase in the offering. Short
sales can be either "covered" or "naked." "Covered" short sales are sales made
in an amount not greater than the underwriters' over-allotment option to
purchase additional shares in the offering. "Naked" short sales are sales in
excess of the over-allotment option. A naked short position is more likely to be
created if the underwriters are concerned that there may be downward pressure on
the price of the common stock in the open market after pricing that could
adversely affect investors who purchase in the offering. The underwriters may
close out any covered
69
<PAGE>
short position by either exercising their over-allotment option or purchasing
shares in the open market. The underwriters must close out any naked short
position by purchasing shares in the open market. In determining the source of
shares to close out the covered short position, the underwriters will consider,
among other things, the price of shares available for purchase in the open
market as compared to the price at which they may purchase shares through the
over-allotment option. The underwriting syndicate may reclaim selling
concessions from syndicate members and selected dealers if they repurchase
previously distributed common stock in syndicate covering transactions, in
stabilizing transactions or otherwise, or if Donaldson, Lufkin & Jenrette
Securities Corporation or Salomon Smith Barney Inc. receives a report which
indicates that the clients of such syndicate members have "flipped" our common
stock. These activities may have the effect of raising or maintaining the market
price of our common stock or preventing or retarding a decline in the market
price of our common stock. As a result, the price of our common stock may be
higher than the price that might otherwise exist in the open market. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
We intend to use more than 10% of the net proceeds from the sale of our
common stock to repay indebtedness owed by us to Greyrock Capital, a division of
Banc of America Commercial Finance Corporation. Both Banc of America Commercial
Finance Corporation and Banc of America Securities LLC, an underwriter in this
offering, are indirect, wholly-owned subsidiaries of Banc of America
Corporation. Accordingly, the offering is being made in compliance with the
requirements of Rule 2710(c)(8) of the National Association of Securities
Dealers, Inc. Conduct Rules. This rule provides generally that if more than 10%
of the net proceeds from the sale of stock, not including underwriting
compensation, is paid to the underwriters or their affiliates, the initial
public offering price of the stock may not be higher than that recommended by a
qualified independent underwriter meeting certain standards. Donaldson,
Lufkin & Jenrette Securities Corporation is assuming the responsibilities of
acting as the qualified independent underwriter in pricing this offering and
conducting due diligence. The initial public offering price of the shares of
common stock is no higher than the price recommended by Donaldson, Lufkin &
Jenrette. We have agreed to pay $5,000 to Donaldson, Lufkin & Jenrette as
compensation for its services as qualified independent underwriter in this
offering. In addition, we have agreed to indemnify Donaldson, Lufkin & Jenrette
in its capacity as qualified independent underwriter.
A number of our strategic partners and customers, including
i2 Technologies, LG-EDS Systems, Mitsui & Co., Samsung, Sopia and Toyo Kanetsu
have indicated an interest in purchasing an aggregate of up to 1,000,000 shares
of common stock in this offering, representing approximately 12.5% of this
offering, at the initial public offering price. These strategic investors have
provided us only with oral, non-binding indications of interest, and we cannot
assure you that they will purchase shares of common stock in this offering.
These strategic investors must commit to purchase after the registration
statement has become effective but before the open of business on the following
business day. If the strategic investors purchase shares of common stock in this
offering, the underwriters will underwrite the sale of these shares.
Substantially all of the strategic investors have entered into 180-day lock-up
agreements. The number of shares available for sale to the general public will
be reduced to the extent these investors purchase shares.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5.0% (or 400,000 shares) of the common stock
offered by this prospectus for sale to our officers, directors, employees and
their family members and to business associates, including customers,
consultants and other friends. These persons must commit to purchase after the
registration statement has become effective but before the open of business on
the following business day. The participants in this directed share program will
be required to enter into 90-day lock-up agreements to participate in this
offering. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase the reserved shares.
70
<PAGE>
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, New York, New York, will provide us with an
opinion as to the validity of the common stock offered through this prospectus.
Akin, Gump, Strauss, Hauer & Feld, L.L.P. will pass upon certain legal matters
relating to this offering for the underwriters.
EXPERTS
The consolidated financial statements of EXE Technologies, Inc. as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999, and the consolidated financial statements of Dallas Systems
for the eight and one-half month period ended September 15, 1997, 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 in this prospectus, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered through this prospectus. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedule to the registration statement. For further information with respect to
us and our common stock, we refer you to the registration statement and to the
exhibits and schedule to the registration statement. Statements contained in
this prospectus as to the contents of any contract or any other document
referred to are not necessarily complete, and in each instance, we refer you to
the copy of the contract or other document filed as an exhibit to the
registration statement. Each of these statements is qualified in all respects by
this reference. You may inspect a copy of the registration statement without
charge at the SEC's principal office in Washington, D.C., and copies of all or
any part of the registration statement may be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of fees prescribed by the SEC. The SEC maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the website is
http://www.sec.gov. The SEC's toll free investor information service can be
reached at 1-800-SEC-0330. Information contained on the web site does not
constitute part of this prospectus. Our common stock will be listed on the
Nasdaq National Market.
Upon completion of this offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934 and we will file
reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information. To obtain a copy of these reports,
please contact our Chief Financial Officer at (214) 775-6000, 8787 Stemmons
Freeway, Dallas, Texas 75247.
71
<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
Consolidated Balance Sheets as of December 31, 1998 and 1999
and March 31, 2000........................................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998, and 1999 and the Three Months
Ended March 31, 1999 and 2000 (unaudited)................. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999 and the Three
Months Ended March 31, 2000 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999 and the Three Months
Ended March 31, 1999 and 2000 (unaudited)................. F-6
Notes to Consolidated Financial Statements.................. F-8
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
Report of Ernst & Young LLP, Independent Auditors........... F-31
Consolidated Statement of Operations for the Eight and
One-Half Months Ended September 15, 1997.................. F-32
Consolidated Statement of Stockholders' Equity for the Eight
and One-Half Months Ended September 15, 1997.............. F-33
Consolidated Statement of Cash Flows for the Eight and
One-Half Months Ended September 15, 1997.................. F-34
Notes to Consolidated Financial Statements.................. F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Management and Board of Directors
EXE Technologies, Inc.
We have audited the accompanying consolidated balance sheets of EXE
Technologies, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EXE Technologies, Inc. and subsidiaries as of December 31, 1998 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
March 24, 2000
F-2
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
AS OF AS OF
AS OF DECEMBER 31, MARCH 31, MARCH 31,
--------------------------- ------------ ------------
1998 1999 2000 2000
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 779,896 $ 8,932,073 $ 10,660,991 $ 10,660,991
Accounts receivable, net of allowance for doubtful
accounts and adjustments of approximately $2,532,000 and
$5,534,000 at December 31, 1998 and 1999, respectively,
and approximately $6,636,000 at March 31, 2000.......... 23,365,324 30,617,523 31,331,353 31,331,353
Other receivables and advances............................ 390,148 757,140 183,148 183,148
Prepaid and other current assets.......................... 3,418,976 1,717,855 2,263,712 2,263,712
------------ ------------ ------------ ------------
Total current assets.................................. 27,954,344 42,024,591 44,439,204 44,439,204
Property and equipment, net................................. 8,556,410 9,996,453 9,387,913 9,387,913
Other assets................................................ 1,087,056 1,002,844 1,189,195 1,189,195
Intangible assets, net of accumulated amortization of
$5,883,000 and $10,701,000 at December 31, 1998 and 1999,
respectively, and $11,841,000 at March 31, 2000........... 19,465,080 14,646,410 13,506,581 13,506,581
------------ ------------ ------------ ------------
Total assets.......................................... $ 57,062,890 $ 67,670,298 $ 68,522,893 $ 68,522,893
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 5,770,641 $ 5,260,922 $ 6,829,976 $ 6,829,976
Accrued expenses.......................................... 4,778,165 8,673,369 9,208,475 9,208,475
Accrued payroll and benefits.............................. 3,352,571 3,459,531 2,951,281 2,951,281
Deferred revenue.......................................... 8,758,438 14,115,533 13,869,563 13,869,563
Revolving credit line and current portion of long-term
debt.................................................... 4,159,094 9,595,201 10,918,471 10,918,471
------------ ------------ ------------ ------------
Total current liabilities............................. 26,818,909 41,104,556 43,777,766 43,777,766
Long-term debt, net of current portion...................... 5,420,453 5,333,136 5,270,869 5,270,869
Commitments and contingencies............................... -- --
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A through D, $.01 par
value: shares authorized--22,000,000; shares issued and
outstanding--12,937,562 and 17,687,562 at December 31,
1998 and 1999, respectively, and 17,687,562 at
March 31, 2000 and none at March 31, 2000 pro forma;
aggregate liquidation value--$52,000,000 at
December 31, 1999 and March 31, 2000.................... 33,000,000 52,000,000 52,000,000 --
Common stock, Class A voting, $.01 par value: shares
authorized--75,000,000; shares issued--16,766,529 at
December 31, 1998 and 1999 and March 31, 2000 and
34,901,946 at March 31, 2000 pro forma.................. 167,665 167,665 167,665 349,020
Common stock, Class B non-voting, $.01 par value: shares
authorized--12,000,000; shares issued and
outstanding--127,875 and 380,022 at December 31, 1998
and 1999, respectively, and 447,855 at March 31, 2000
and none at March 31, 2000 pro forma.................... 1,279 3,800 4,479 --
Additional paid-in capital.............................. 22,092,993 26,355,416 31,120,066 82,943,190
Treasury stock, at cost, 906,777 shares and 924,071
shares of Class A at December 31, 1998 and 1999,
respectively, and 924,483 at March 31, 2000........... (3,115,439) (3,208,912) (3,210,214) (3,210,214)
Accumulated deficit..................................... (26,261,637) (52,345,661) (55,233,529) (55,233,529)
Deferred compensation................................... (525,960) (973,260) (4,538,160) (4,538,160)
Other comprehensive loss................................ (535,373) (766,442) (836,049) (836,049)
------------ ------------ ------------ ------------
Total stockholders' equity............................ 24,823,528 21,232,606 19,474,258 19,474,258
------------ ------------ ------------ ------------
Total liabilities and stockholders' equity............ $ 57,062,890 $ 67,670,298 $ 68,522,893 $ 68,522,893
============ ============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- ---------------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software license........................ $ 8,428,538 $ 22,417,541 $ 25,389,808 $ 6,391,659 $ 7,895,475
Services and maintenance................ 12,781,016 59,758,460 64,103,262 17,318,694 16,034,310
Resale software and equipment........... 5,561,963 9,114,495 7,307,199 1,904,703 1,548,402
----------- ------------ ------------ ------------ ------------
Total revenue....................... 26,771,517 91,290,496 96,800,269 25,615,056 25,478,187
COSTS AND EXPENSES:
Cost of software licenses............... 748,777 234,325 253,898 62,427 78,955
Cost of services and maintenance........ 9,966,923 46,474,254 53,473,619 12,793,578 13,105,715
Cost of resale software and equipment... 4,128,525 7,205,982 5,850,776 1,465,210 1,337,811
Sales and marketing..................... 6,720,882 23,663,539 24,464,339 6,457,637 5,972,423
Research and development................ 3,533,875 15,472,884 11,544,037 4,008,922 1,853,963
General and administrative.............. 4,263,402 12,670,111 14,888,095 3,597,682 3,362,785
Amortization of intangibles............. 1,430,472 4,452,069 4,818,670 1,204,666 1,139,829
Warrant and stock compensation expense
allocated to:
Cost of services and maintenance...... -- -- 25,487 -- 303,331
Sales and marketing................... -- 142,625 1,116,735 26,550 501,260
Research and development.............. -- -- -- -- 2,286
General and administrative............ -- 142,625 2,178,316 26,550 257,886
Write-off of in-process research and
development........................... 2,700,000 -- -- -- --
Loss on lease abandonment............... -- 1,000,000 288,022 -- --
Restructuring costs..................... -- -- 1,952,256 -- --
----------- ------------ ------------ ------------ ------------
Total costs and expenses............ 33,492,856 111,458,414 120,854,250 29,643,222 27,916,244
----------- ------------ ------------ ------------ ------------
Operating loss............................ (6,721,339) (20,167,918) (24,053,981) (4,028,166) (2,438,057)
----------- ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income........................... 177,250 105,588 147,049 5,715 105,319
Interest expense.......................... (157,627) (199,765) (1,877,297) (302,163) (411,808)
Other..................................... (227,085) 79,802 (299,795) 2,158 (143,322)
----------- ------------ ------------ ------------ ------------
Total other expense....................... (207,462) (14,375) (2,030,043) (294,290) (449,811)
----------- ------------ ------------ ------------ ------------
Loss before minority interest and taxes... (6,928,801) (20,182,293) (26,084,024) (4,322,456) (2,887,868)
Minority interest in subsidiary loss
(income)................................ 75,729 (30,119) -- -- --
----------- ------------ ------------ ------------ ------------
Loss before taxes......................... (6,853,072) (20,212,412) (26,084,024) (4,322,456) (2,887,868)
Income tax provision (benefit)............ (225,101) (578,746) -- -- --
----------- ------------ ------------ ------------ ------------
Net loss.................................. $(6,627,971) $(19,633,666) $(26,084,024) $ (4,322,456) $ (2,887,868)
=========== ============ ============ ============ ============
Net loss per common share--basic and
diluted................................. $ (0.59) $ (1.24) $ (1.62) $ (0.27) $ (0.18)
=========== ============ ============ ============ ============
Weighted average number of common shares
outstanding............................. 11,228,407 15,885,212 16,095,682 15,992,960 16,255,588
Pro forma net loss per common share--basic
and diluted (unaudited)................. $ (0.77) $ (0.09)
============ ============
Pro forma weighted average number of
common shares outstanding (unaudited)... 33,783,244 33,942,993
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK,
CLASS A CLASS B SERIES A
COMMON STOCK COMMON STOCK THROUGH D ADDITIONAL
---------------------- -------------------- ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1, 1997........... 8,500,000 $ 85,000 -- $ -- -- $ -- $ --
Net loss.............................. -- -- -- -- -- -- --
Issuance of common stock.............. 1,365,179 13,652 -- -- -- -- 3,686,348
Distributions to shareholders......... -- -- -- -- -- -- --
Reclassification of retained earnings
to paid-in capital.................. -- -- -- -- -- -- 573,572
The Dallas Systems acquisition........ -- -- -- -- -- --
Net proceeds from issuance of
Series A convertible preferred
stock............................. -- -- -- -- 6,764,043 15,000,000 --
Net proceeds from issuance of
Series B convertible preferred
stock............................. -- -- -- -- 4,573,519 10,000,000 --
Acquisition of Dallas Systems......... 6,439,684 64,397 -- -- -- -- 15,135,603
Purchase of treasury stock............ -- -- -- -- -- -- --
Foreign currency translation
adjustment.......................... -- -- -- -- -- -- --
---------- -------- ------- ------ ---------- ----------- -----------
Balance as of December 31, 1997......... 16,304,863 163,049 -- -- 11,337,562 25,000,000 19,395,523
Net loss.............................. -- -- -- -- -- -- --
Issuance of common stock.............. 461,666 4,616 -- -- -- -- 1,559,346
Purchase of treasury stock............ -- -- -- -- -- -- --
Net proceeds from issuance of
Series C convertible preferred
stock............................... -- -- -- -- 1,600,000 8,000,000 --
Exercise of stock options............. -- -- 127,875 1,279 -- -- 251,914
Deferred compensation related to stock
options............................. -- -- -- -- -- -- 811,210
Amortization of deferred
compensation........................ -- -- -- -- -- -- --
Issuance of warrants.................. -- -- -- -- -- -- 75,000
Foreign currency translation
adjustment.......................... -- -- -- -- -- -- --
---------- -------- ------- ------ ---------- ----------- -----------
Balance as of December 31, 1998......... 16,766,529 167,665 127,875 1,279 12,937,562 33,000,000 22,092,993
Net loss.............................. -- -- -- -- -- -- --
Purchase of treasury stock............ -- -- -- -- -- -- --
Net proceeds from issuance of
Series D convertible preferred
stock............................... -- -- -- -- 4,750,000 19,000,000 --
Exercise of stock options............. -- -- 252,147 2,521 -- -- 494,585
Deferred compensation related to stock
options............................. -- -- -- -- -- -- 729,000
Amortization of deferred
compensation........................ -- -- -- -- -- --
Issuance of warrants.................. -- -- -- -- -- -- 3,038,838
Foreign currency translation
adjustment.......................... -- -- -- -- -- --
---------- -------- ------- ------ ---------- ----------- -----------
Balance as of December 31, 1999....... 16,766,529 167,665 380,022 3,800 17,687,562 52,000,000 26,355,416
Net loss (unaudited).................. -- -- -- -- -- -- --
Purchase of treasury stock
(unaudited)......................... -- -- -- -- -- -- --
Exercise of stock options
(unaudited)......................... -- -- 67,833 679 -- -- 134,987
Deferred compensation related to stock
options (unaudited)................. -- -- -- -- -- -- 4,209,000
Amortization of deferred compensation
(unaudited)......................... -- -- -- -- -- -- --
Expense associated with warrants
issued for services (unaudited)..... -- -- -- -- -- -- 420,663
Foreign currency translation
adjustment (unaudited).............. -- -- -- -- -- -- --
---------- -------- ------- ------ ---------- ----------- -----------
Balance at March 31, 2000
(unaudited)......................... 16,766,529 $167,665 447,855 $4,479 17,687,562 $52,000,000 $31,120,066
========== ======== ======= ====== ========== =========== ===========
<CAPTION>
RETAINED
TREASURY STOCK EARNINGS OTHER
---------------------- (ACCUMULATED DEFERRED COMPREHENSIVE
SHARES AMOUNT DEFICIT) COMPENSATION LOSS
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1997........... -- $ -- $ 1,949,752 $ -- $ (1,079)
Net loss.............................. -- -- (6,627,971) -- --
Issuance of common stock.............. -- -- -- -- --
Distributions to shareholders......... -- -- (1,376,180) -- --
Reclassification of retained earnings
to paid-in capital.................. -- -- (573,572) -- --
The Dallas Systems acquisition........
Net proceeds from issuance of
Series A convertible preferred
stock............................. -- -- -- -- --
Net proceeds from issuance of
Series B convertible preferred
stock............................. -- -- -- -- --
Acquisition of Dallas Systems......... -- -- -- -- --
Purchase of treasury stock............ 4,176 (9,262) -- -- --
Foreign currency translation
adjustment.......................... -- -- -- -- (155,722)
------- ----------- ------------ ----------- ---------
Balance as of December 31, 1997......... 4,176 (9,262) (6,627,971) -- (156,801)
Net loss.............................. -- -- (19,633,666) -- --
Issuance of common stock.............. -- -- -- -- --
Purchase of treasury stock............ 902,601 (3,106,177) -- -- --
Net proceeds from issuance of
Series C convertible preferred
stock............................... -- -- -- -- --
Exercise of stock options............. -- -- -- -- --
Deferred compensation related to stock
options............................. -- -- -- (811,210) --
Amortization of deferred
compensation........................ -- -- -- 285,250 --
Issuance of warrants.................. -- -- -- -- --
Foreign currency translation
adjustment.......................... -- -- -- -- (378,572)
------- ----------- ------------ ----------- ---------
Balance as of December 31, 1998......... 906,777 (3,115,439) (26,261,637) (525,960) (535,373)
Net loss.............................. -- -- (26,084,024) -- --
Purchase of treasury stock............ 17,294 (93,473) -- -- --
Net proceeds from issuance of
Series D convertible preferred
stock............................... -- -- -- -- --
Exercise of stock options............. -- -- -- -- --
Deferred compensation related to stock
options............................. -- -- -- (729,000) --
Amortization of deferred
compensation........................ -- -- -- 281,700 --
Issuance of warrants.................. -- -- -- -- --
Foreign currency translation
adjustment.......................... -- -- -- -- (231,069)
------- ----------- ------------ ----------- ---------
Balance as of December 31, 1999....... 924,071 (3,208,912) (52,345,661) (973,260) (766,442)
Net loss (unaudited).................. -- -- (2,887,868) -- --
Purchase of treasury stock
(unaudited)......................... 412 (1,302) -- -- --
Exercise of stock options
(unaudited)......................... -- -- -- -- --
Deferred compensation related to stock
options (unaudited)................. -- -- -- (4,209,000) --
Amortization of deferred compensation
(unaudited)......................... -- -- -- 644,100 --
Expense associated with warrants
issued for services (unaudited)..... -- -- -- -- --
Foreign currency translation
adjustment (unaudited).............. -- -- -- -- (69,607)
------- ----------- ------------ ----------- ---------
Balance at March 31, 2000
(unaudited)......................... 924,483 $(3,210,214) $(55,233,529) $(4,538,160) $(836,049)
======= =========== ============ =========== =========
<CAPTION>
TOTAL
<S> <C>
Balance as of January 1, 1997........... $ 2,033,673
Net loss.............................. (6,627,971)
Issuance of common stock.............. 3,700,000
Distributions to shareholders......... (1,376,180)
Reclassification of retained earnings
to paid-in capital.................. --
The Dallas Systems acquisition........
Net proceeds from issuance of
Series A convertible preferred
stock............................. 15,000,000
Net proceeds from issuance of
Series B convertible preferred
stock............................. 10,000,000
Acquisition of Dallas Systems......... 15,200,000
Purchase of treasury stock............ (9,262)
Foreign currency translation
adjustment.......................... (155,722)
------------
Balance as of December 31, 1997......... 37,764,538
Net loss.............................. (19,633,666)
Issuance of common stock.............. 1,563,962
Purchase of treasury stock............ (3,106,177)
Net proceeds from issuance of
Series C convertible preferred
stock............................... 8,000,000
Exercise of stock options............. 253,193
Deferred compensation related to stock
options............................. --
Amortization of deferred
compensation........................ 285,250
Issuance of warrants.................. 75,000
Foreign currency translation
adjustment.......................... (378,572)
------------
Balance as of December 31, 1998......... 24,823,528
Net loss.............................. (26,084,024)
Purchase of treasury stock............ (93,473)
Net proceeds from issuance of
Series D convertible preferred
stock............................... 19,000,000
Exercise of stock options............. 497,106
Deferred compensation related to stock
options............................. --
Amortization of deferred
compensation........................ 281,700
Issuance of warrants.................. 3,038,838
Foreign currency translation
adjustment.......................... (231,069)
------------
Balance as of December 31, 1999....... 21,232,606
Net loss (unaudited).................. (2,887,868)
Purchase of treasury stock
(unaudited)......................... (1,302)
Exercise of stock options
(unaudited)......................... 135,666
Deferred compensation related to stock
options (unaudited)................. --
Amortization of deferred compensation
(unaudited)......................... 644,100
Expense associated with warrants
issued for services (unaudited)..... 420,663
Foreign currency translation
adjustment (unaudited).............. (69,607)
------------
Balance at March 31, 2000
(unaudited)......................... $ 19,474,258
============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- -------------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.............................. $(6,627,971) $(19,633,666) $(26,084,024) $(4,322,456) $(2,887,868)
Adjustments to reconcile net loss to
net cash used in operating
activities, net of the effect in
1997 of the Dallas Systems
acquisition:
Depreciation and amortization....... 2,642,327 7,323,683 8,602,458 2,006,984 2,148,945
Provision for losses on
receivables....................... 634,449 2,252,000 6,973,886 1,592,806 2,226,818
Amortization of deferred
compensation...................... -- 285,250 281,700 53,100 644,100
Deferred income taxes............... 768,766 (1,118,210) -- (56,751) --
Issuance of warrants for services... -- -- 3,038,838 -- 420,663
Write-off of in-process research and
development....................... 2,700,000 -- -- -- --
Minority interest................... (85,170) 30,119 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable............... (5,715,607) (7,994,786) (14,226,085) (7,835,629) (2,940,648)
Other receivables and advances.... (239,208) 940,897 (366,992) (61,226) 573,992
Prepaids and other assets......... (205,228) (2,218,850) 1,701,121 (1,724,580) (545,857)
Other long term assets............ (17,958) (590,108) 84,212 (57,676) (186,351)
Accounts payable.................. 3,094,483 (656,413) (509,719) 1,209,470 1,569,054
Accrued payroll and benefits...... 886,915 1,635,390 106,960 603,466 (508,250)
Deferred revenue and accrual for
acquired contract obligations... 2,531,525 2,611,229 5,357,095 2,992,447 (245,970)
Income tax payable................ (1,169,491) (58,656) 496,887 (1,090,116) 5,697
Accrued expenses.................. (637,752) 3,107,526 3,398,317 3,164,880 529,409
Other............................. (231,781) (580,711) (175,614) (32,607) (103,733)
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in)
operating activities........ (1,671,701) (14,665,306) (11,320,960) (3,557,888) 700,001
CASH FLOW FROM INVESTING ACTIVITIES:
Sales of investments.................. 235,428 -- -- -- --
Purchases of property and equipment... (2,296,252) (7,259,900) (5,380,184) (2,683,998) (366,450)
Net proceeds from sale of fixed
assets.............................. -- 202,756 100,898 48,089 --
Purchase of minority interest in
subsidiary.......................... -- (490,000) -- -- --
Cash acquired in the Dallas Systems
acquisition......................... 1,579,591 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net cash used in investing
activities.................. (481,233) (7,547,144) (5,279,286) (2,635,909) (366,450)
</TABLE>
F-6
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ------------------------
1997 1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of preferred stock.......... 25,000,000 8,000,000 19,000,000 $ -- $ --
Issuance of common stock............. 3,700,000 1,892,155 497,106 94,276 135,666
Payments to acquire common stock of
Dallas Systems..................... (15,000,000) -- -- -- --
Distributions to shareholders........ (1,376,180) -- -- -- --
Payments on long-term debt........... (1,386,468) -- (5,087,317) (1,414,592) (62,267)
Payments on Bridge Loan.............. -- -- (3,000,000) -- --
Proceeds from long-term debt......... -- 9,553,740 5,000,000 -- --
Proceeds from Bridge Loan............ -- -- 3,000,000 -- --
Proceeds (payments) on revolving line
of credit.......................... (3,926,117) -- 5,436,107 8,131,138 1,323,270
Purchase of treasury stock........... (9,262) (3,106,177) (93,473) -- (1,302)
------------ ------------ ------------ ---------- -----------
Net cash provided by
financing activities....... 7,001,973 16,339,718 24,752,423 6,810,822 1,395,367
------------ ------------ ------------ ---------- -----------
Net increase (decrease) in cash and
cash equivalents................... 4,849,039 (5,872,732) 8,152,177 617,025 1,728,918
Cash and cash equivalents at
beginning of year.................. 1,803,589 6,652,628 779,896 779,896 8,932,073
------------ ------------ ------------ ---------- -----------
Cash and cash equivalents at end of
period............................. $ 6,652,628 $ 779,896 $ 8,932,073 $1,396,921 $10,660,991
============ ============ ============ ========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............... $ 194,618 $ 248,489 $ 1,801,264 $ 289,053 $ 342,212
============ ============ ============ ========== ===========
Cash paid for income taxes........... $ -- $ 289,486 $ -- $ -- $ --
============ ============ ============ ========== ===========
NON-CASH ACTIVITIES:
Issuance of EXE common stock in
acquisition of Dallas Systems...... $ 15,200,000 $ -- $ --
============ ============ ============
Lease abandonment.................... $ -- $ 1,000,000 $ 288,000
============ ============ ============
Issuance of warrants with debt....... $ -- $ 75,000 $ --
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EXE Technologies, Inc. (the Company or EXE) is a leading provider of
fulfillment, warehousing and distribution software for e-commerce and
traditional sales channels. EXE commenced operations 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, were providers of supply chain
execution software and services.
The Company operates from its headquarters located in Dallas, Texas, and
through its various subsidiary and sales offices serving North America, Europe,
the Middle East, Asia and Australia. In addition, through July 31, 1998, the
Company had 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. During August 1998, the Company acquired the
remaining 49% interest in the joint venture for a cash payment of $490,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenue consists of software license revenue, services and
maintenance revenue and revenue from the resale of software and equipment. For
periods prior to December 31, 1997, software license revenue was recognized in
accordance with the American Institute of Certified Public Accountants'
Statement of Position (SOP) 91-1, "Software Revenue Recognition." Under
SOP 91-1, software license revenue was recognized upon execution of a contract
and shipment of the software and after any customer cancellation rights had
expired, provided that no significant vendor obligations remained outstanding,
amounts were due within one year, and collection was considered probable by
management.
Effective January 1, 1998, software license revenue is recognized in
accordance with SOP 97-2, "Software Revenue Recognition." Under SOP 97-2,
software license revenue is 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; vendor-specific objective evidence of fair value exists to allow for
the allocation of the total fee to elements of the arrangement; and collection
is considered probable by management.
Revenue from services is recognized as the services are provided. The
Company's standard service arrangement limits the customer's remedy and the
Company's liability to the underlying service fees specified in the separate
service arrangement. If disputes arise with a customer, a provision is recorded
based on the specific customer situation and the Company's assessment of the
potential outcome of that situation. 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 transactions 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
F-8
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expired, no significant vendor obligations remained outstanding, amounts are due
within one year, and collection was considered probable by management.
The Company's standard license arrangements specify that the customer
accepts the software under the arrangement when the software is shipped and that
the license fees under the arrangement are not refundable. The Company
periodically enters into arrangements which do not have standard acceptance and
warranty provisions. Such contracts are analyzed and timing of revenue
recognition is determined based upon specific facts and circumstances. If
warranty and acceptance criteria differs from the Company's standard criteria,
revenue recognition is deferred until acceptance is obtained or the warranty
period lapses. The Company's standard license arrangement 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, 1999, 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 revenue. No single customer represented greater than
10% of total revenue during the years ended December 31, 1998 and 1999.
In January 2000, the Company sold its mainframe services and maintenance
practice to an unrelated third party consulting firm in exchange for royalties
that will be received on future revenue generated by customers using this
product. Services and maintenance revenue associated with this product as a
percentage of total services and maintenance revenue represented 13.3%, 12.5%,
7.5%, 9.4% and 3.1%, respectively, for the years ended December 31, 1997, 1998
and 1999, and the three months ended March 31, 1999 and 2000. The royalties are
a declining percentage of the consulting firm's services and maintenance
revenues generated from customers using our mainframe product, subject to a
maximum of $425,000 per year. The percentages of revenue are: 20% for the first
two years, 15% for the third year, 10% for the fourth and fifth years and 5% for
each year after the fifth year. The agreement is perpetual, but may be
terminated at EXE's option in the event of default by the consulting firm. The
Company does not expect the royalties resulting from the sale of its mainframe
services and maintenance practice to be a material portion of its future service
and maintenance revenues.
SOFTWARE DEVELOPMENT
In accordance with Statement of Financial Accounting Standards (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. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
the Company and its subsidiaries. All significant intercompany transactions and
balances have been eliminated.
F-9
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF 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.
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. Foreign currency transaction gains (losses) were not
material for all periods presented.
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.
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 exposure with any one financial institution. At December 31, 1997, one
customer represented approximately 11% of the total receivable balance. At
December 31, 1998 and 1999, no single customer represented greater than 10% of
the total receivable balance. 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
receivable. Write-offs of receivables during the three years ended December 31,
1997, 1998 and 1999 were $150,000, $710,000, and $3,972,000, respectively.
During the three months ended March 31, 1999 and 2000, write-offs of receivables
were approximately $1,425,000 and $1,125,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. All
property and equipment is depreciated using the straight-line method.
The estimated useful lives of property and equipment are as follows (in
years):
<TABLE>
<S> <C>
Computer equipment.......................................... 3-5
Furniture and equipment..................................... 5-7
Leasehold improvements...................................... 9-15
Other....................................................... 3-7
</TABLE>
LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets under SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recognized for
long-lived assets used in operations when
F-10
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
indicators of impairment are present and when the future estimated undiscounted
cash flows generated by those assets are not sufficient to recover the assets'
carrying amount.
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.
FINANCIAL INSTRUMENTS
The Company's financial instruments, including accounts receivable, accounts
payable and its revolving credit line, approximate fair value due to their
short-term nature. Based on prevailing interest rates at December 31, 1999,
management believes that the fair value of long-term debt approximates its book
value.
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." Distributions made to shareholders
while the Company was an S Corporation were recorded as dividends. On the date
of transformation from an S Corporation to a C Corporation, the remaining
undistributed earnings were recorded in Additional Paid-In Capital.
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 No. 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 No. 123
requires disclosure of pro forma information regarding net income (loss) and net
income (loss) per share based on fair value accounting for stock-based
compensation plans.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were approximately
$1,369,000, $3,793,000 and $3,071,000 for the years ended December 31, 1997,
1998 and 1999. For the three months ended March 31, 1999 and 2000 advertising
expenses were $484,000 and $1,381,000, respectively.
EARNINGS PER SHARE
The Company computes net income per share in accordance with the provisions
of SFAS No. 128, "Earnings per Share." Basic net income (loss) per common share
is computed using the weighted
F-11
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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), if dilutive. Diluted loss per share is the same as basic loss per share
for all periods presented since the dilutive effect of 4,999,558 shares of
common stock resulting from the exercise of stock options, 1,085,000 shares of
common stock resulting from the exercise of stock warrants and the conversion of
17,687,562 shares of Convertible Preferred Stock, Series A through D, were not
included in the computation of diluted earnings per share because they are
anti-dilutive for all periods presented.
The Company's pro forma information reflects the conversion of all
outstanding convertible preferred stock and Class B common stock into Class A
common stock, as if the 17,687,562 shares of convertible preferred stock and
447,855 shares of Class B common stock converted to Class A common stock at
January 1, 1999.
COMPREHENSIVE LOSS
For the periods presented, the Company had unrealized foreign currency
translation losses, which are components of its comprehensive loss, of $155,722,
$378,572 and $231,069 for the years ended December 31, 1997, 1998 and 1999,
respectively. Unrealized foreign currency translation losses for the three
months ended March 31, 1999 and 2000, were $205,893 and $69,607, respectively.
The total comprehensive loss was $6,783,693, $20,012,238 and $26,315,093 for the
years ended December 31, 1997, 1998 and 1999, respectively. For the three months
ended March 31, 1999 and 2000, the total comprehensive loss was $4,528,349 and
$2,957,475, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition with
respect to Certain Transactions." SOP 98-9 requires the use of the residual
method when vendor specific objective evidence of fair value does not exist for
one or more delivered elements in an arrangement but there is vendor specific
objective evidence of the fair values of all undelivered elements in a multiple
element arrangement. The Company does not expect SOP 98-9 to materially impact
its future results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for quarters beginning after June 15, 2000. The Company does not
currently utilize derivative financial instruments. Therefore, the Company does
not expect that the adoption of the new statement will have a material impact on
its results of operations or financial position.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements as of March 31,
2000, and for the three-months ended March 31, 1999 and 2000, 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 three-month period ended March 31, 2000,
are not necessarily indicative of the results that may be expected for any other
interim period or for the full year.
F-12
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
3. 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 Transaction, the
following steps occurred:
a. The former shareholders of Neptune received one share of EXE Class A
common stock in exchange for each share of Neptune stock for a total of
9,819,444 shares of EXE Class A Common Stock;
b. The former shareholders of Dallas Systems received $15 million in cash
and 6,439,684 shares (6,750,652 including 310,967 outstanding options to
purchase common stock valued at approximately $2.22 per share) of EXE
Class A Common Stock valued at approximately $2.22 per share for their
shares;
c. The investment group received 6,764,043 shares of Series A Convertible
Preferred Stock (Series A Preferred Stock) for its $15 million investment
in EXE; and
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, which occurred in September 1997, 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-13
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
3. FORMATION OF EXE (CONTINUED)
The breakdown of the consideration, including transaction costs, exchanged
in excess of the fair value of the net assets acquired is as follows:
<TABLE>
<S> <C>
Consideration exchanged:
Cash...................................................... $15,000,000
EXE Class A Common Stock.................................. 15,000,000
Legal and other 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 net
tangible assets
acquired.................................................. $27,658,440
===========
Excess of consideration received over the fair value of net
tangible assets acquired, applied:
Purchased research and development...................... $ 2,700,000
Intangible assets:
Developed technology.................................. 3,700,000
Assembled work force.................................. 1,350,000
Customer base......................................... 1,800,000
Goodwill.............................................. 18,108,440
-----------
$27,658,440
===========
</TABLE>
The Company determined that $2.7 million of the Dallas Systems purchase
price was to be allocated to in-process research and development costs at the
date of acquisition and such amount, therefore, was recorded as an expense in
the Company's consolidated statement of operations for the year ended
December 31, 1997. This write-off was recorded because the acquired technology
had not yet reached technological feasibility and had no future alternative use.
The Company has used the in-process research and development to develop new
products and additional functionality.
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 assets will be reduced to their estimated
recoverable value. The amortization of intangibles related to the Transaction
was $1,430,472, $4,452,069 and $4,818,670, respectively, during the years ended
December 31, 1997, 1998 and 1999, and $1,204,666 and $1,139,829 during the three
months ended March 31, 1999 and 2000, respectively.
F-14
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
3. FORMATION OF EXE (CONTINUED)
The following table presents unaudited pro forma information for EXE as if
the Transaction had taken place on January 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
(UNAUDITED)
<S> <C>
Total revenue............................................... $59,874,662
Net loss.................................................... (5,699,809)
Net loss per common share--basic and diluted................ (0.51)
</TABLE>
The $2.7 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
resulting directly from the Transaction.
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31,
------------------------- -----------
1998 1999 2000
<S> <C> <C> <C>
Computer equipment...................................... $ 8,906,041 $ 9,905,530 $10,151,523
Furniture and equipment................................. 1,076,849 4,768,973 4,734,869
Leasehold improvements.................................. 1,488,805 1,977,428 2,092,963
Other................................................... 383,885 456,702 465,668
----------- ----------- -----------
11,855,580 17,108,633 17,445,023
Less accumulated depreciation........................... (3,299,170) (7,112,180) (8,057,110)
----------- ----------- -----------
$ 8,556,410 $ 9,996,453 $ 9,387,913
=========== =========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1998 and 1999,
was approximately $730,000, $2,872,000 and $3,784,000, respectively.
Depreciation expense for the three months ended March 31, 1999 and 2000, was
approximately $802,000 and $1,009,000, respectively.
F-15
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
5. DEBT
The Company's debt consists of the following:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, ------------
------------------------ MARCH 31,
1998 1999 2000
<S> <C> <C> <C>
$13.5 million revolver......................... $4,149,631 $ -- $ --
$5 million, 12.16% term loan, net of
discount..................................... 4,925,000
$25 million revolver and term loan
Revolving line of credit..................... -- 9,418,251 10,583,504
$5 million term loan......................... -- 5,000,000 5,000,000
Capital lease obligations...................... 487,825 502,458 435,587
Auto notes and foreign overdraft facility...... 17,091 7,628 170,249
---------- ----------- -----------
Total borrowings............................... 9,579,547 14,928,337 16,189,340
Less revolving credit line and current portion
of long-term debt............................ 4,159,094 9,595,201 10,918,471
---------- ----------- -----------
Long-term debt, net of current portion......... $5,420,453 $ 5,333,136 $ 5,270,869
========== =========== ===========
</TABLE>
On December 1, 1997, the Company finalized a $13.5 million secured revolving
line of credit agreement (the Revolver) with a bank. Interest rates under the
Revolver were 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 was secured by
receivables and fixed assets.
On December 1, 1998, the Company finalized a $5.0 million three year term
loan (the Term Loan) with a bank. Interest on the Term Loan was at 12.16% per
annum. In connection with obtaining the Term Loan, the Company issued warrants
to the bank to acquire up to 50,000 shares of common stock (Note 11).
On May 10, 1999, the Company finalized a Loan and Security Agreement (the
Loan Agreement) with a bank. In connection with finalizing the Loan Agreement,
all borrowings under the Revolver and Term Loan were paid off and the Revolver
and Term Loan financing agreements were terminated.
The Loan Agreement provides for a revolving credit line and a $5 million
term loan. Borrowings under the Loan Agreement may not exceed $25 million in
aggregate. Advances under the revolving credit line are subject to a specified
advance rate as defined in the Loan Agreement and are secured by the Company's
assets. The Company had available $10,581,749 and $9,416,496 for future
borrowings as of December 31, 1999 and March 31, 2000, respectively under its
$25 million facility. The Loan Agreement restricts, in certain circumstances,
the declaration and payment of dividends and a merger or consolidation of the
Company without prior written consent of the bank.
The interest rate on borrowings under the Loan Agreement is adjusted monthly
and is computed as the highest LIBOR rate in effect during each month plus 4.87%
per annum, subject to certain limitations and adjustments as follows: 1) The
interest rate in effect in each month shall not be less than 8% per annum; and
2) the interest charged for each month shall not be less than $20,000. Interest
on borrowings under the Loan Agreement are payable on the last day of each
month.
F-16
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
5. DEBT (CONTINUED)
The Loan Agreement shall continue in effect until January 31, 2001 (the
Maturity Date). On the Maturity Date, all borrowings under the Loan Agreement
are due in full. The $5 million term loan may not be renewed prior to the
Maturity Date.
On August 31, 1999 and September 2, 1999, the Company received bridge loans
(the "Bridge Loans") totaling $3 million from entities associated with
Michael S. Dell and Technology Crossover Ventures. The Bridge Loans were issued
in five separate convertible promissory notes with the principal and all accrued
interest on each note due on the earlier of February 28, 2000 or, at the payee's
demand, any time after September 30, 1999. Each note's interest rate was 10% per
annum. The Bridge Loans were cancelled on September 29, 1999 as partial
consideration for the issuance of the $19 million of Series D Preferred Stock
(See Note 11).
6. INCOME TAXES
Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Current:
Federal................................................... $(1,019,161) $ (92,042) $ --
State..................................................... (1,406) (4,965) --
Foreign................................................... 26,700 636,472 --
Deferred:
Federal................................................... 683,027 (976,882) --
State..................................................... 85,739 (141,329) --
----------- --------- -----------
Total................................................... $ (225,101) $(578,746) $ --
=========== ========= ===========
</TABLE>
F-17
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Benefit computed at federal statutory rate.................. $(2,330,044) $(6,872,220) $(9,129,408)
Non-deductible in-process research and development expense
and goodwill amortization................................. 1,275,360 1,108,977 1,097,486
State income taxes, net of federal benefit.................. 33,324 (93,277) (143,852)
Foreign taxes............................................... -- 376,738 --
Foreign tax credit.......................................... -- (403,293) --
Net operating loss.......................................... 178,181 -- --
S Corporation loss.......................................... 88,093 -- --
Conversion from S Corporation to C Corporation.............. 267,394 -- --
Increase in valuation allowance............................. 87,128 5,223,604 8,066,386
Other, net.................................................. 175,463 80,725 109,388
----------- ----------- -----------
Income tax provision (benefit).......................... $ (225,101) $ (578,746) $ --
=========== =========== ===========
</TABLE>
The significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------
1998 1999
<S> <C> <C>
Deferred tax liabilities:
Identifiable intangible assets............................ $(1,816,619) $ (1,179,459)
Fixed assets.............................................. (95,025) --
----------- ------------
Total deferred tax liabilities........................ (1,911,644) (1,179,459)
Deferred tax assets:
Bad debt reserves......................................... 781,853 1,694,471
Fixed assets.............................................. -- 259,622
Net operating losses...................................... 4,739,073 10,567,914
Accrued contract obligations.............................. 1,006,337 976,888
Accrued expenses.......................................... 114,607 --
Foreign tax credits....................................... 462,905 696,084
Research and development credits.......................... 167,290 381,012
Other, net................................................ (49,689) (19,414)
----------- ------------
Total deferred tax assets............................. 7,222,376 14,556,577
Valuation allowance......................................... (5,310,732) (13,377,118)
----------- ------------
Total deferred tax assets, net........................ 1,911,644 1,179,459
----------- ------------
Deferred income tax liabilities, net of deferred
income tax assets................................... $ -- $ --
=========== ============
</TABLE>
At December 31, 1999, the Company had a federal net operating loss
carryforward and research and development credits of approximately $21,700,000
and $381,000, respectively, both of which will begin to expire in the year 2013.
The Company also had net operating loss carryforwards of approximately
$4,000,000 in foreign jurisdictions. The Company has established a valuation
allowance
F-18
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
to reserve its net deferred tax assets at December 31, 1998 and 1999 due to the
uncertainty of the timing and amount of future taxable income.
7. STOCK OPTIONS
In connection with the Transaction, stock options outstanding under a
non-qualified stock option plan adopted by Dallas Systems (the "Dallas Plan")
were converted into 310,967 options (the Replacement Options) to acquire shares
of the Company's Class B Common Stock with substantially the same terms and
conditions as the options granted under the Dallas Plan. The newly issued
options were immediately exercisable and fully vested. The Replacement Options
were inadvertantly granted with an exercise price of $0.66 per share. The
parties to the Transaction intended that the Replacement Options be granted with
an exercise price equal to the fair value of the Company's common stock on the
date of the Transaction. Therefore, these options were subsequently cancelled
and were reissued with exercise prices of $2.00 per share during 1997. The
holders of these options received no consideration in connection with their
receipt of Replacement Options. None of the Replacement Options had been
exercised prior to being cancelled and reissued.
In October 1997, the Company adopted the 1997 Incentive and Nonqualified
Stock Option Plan (the 1997 Plan) which replaced all previous plans of Neptune
and Dallas Systems. Under the 1997 Plan, an aggregate of 8,500,000 shares of
Class A and 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 as determined by the Board of
Directors in the absence of a public market and exercise prices for NQSOs may be
greater or less than fair market value on the date of grant. The options vest
and become exercisable ratably over a four-year period and expire after ten
years unless determined otherwise by the Board of Directors.
In October 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 fair
market value of the Company's stock on the date of grant. The options vest over
four years. At December 31, 1999 and March 31, 2000, 150,000 and 125,000 options
were outstanding respectively, under the Directors Plan, which have respective
weighted average exercise prices of $5.33 and $5.80 per share. As of
December 31, 1999 and March 31, 2000, 12,500 of these options were exercisable
at a weighted average exercise price of $10.00 per share.
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 the 1997 Plan or (b) to terminate
the 1997 Plan and (i) 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 1997 Plan is
F-19
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
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) arrange for the exchange of all options for options to
purchase common stock in the successor corporation, or (iii) 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 by the Board in its sole discretion.
Stock option transactions under the 1997 Plan for the years ended
December 31, 1997, 1998 and 1999, and the three months ended March 31, 2000, are
summarized as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
<S> <C> <C> <C>
Balance at January 1, 1997
Authorized................................................ 3,300,000 -- $ --
Grants.................................................... (1,239,013) 1,239,013 1.46
Transferred from Dallas Systems........................... (310,967) 310,967 0.66
Forfeitures............................................... 42,150 (42,150) 0.75
Canceled.................................................. 310,967 (310,967) 0.66
---------- ---------- -----
Balance at December 31, 1997................................ 2,103,137 1,196,863 1.48
Authorized................................................ 5,200,000 -- --
Grants.................................................... (4,255,008) 4,255,008 5.14
Exercised................................................. -- (127,875) 1.98
Forfeitures............................................... 295,276 (295,276) 2.79
---------- ---------- -----
Balance at December 31, 1998................................ 3,343,405 5,028,720 4.49
Grants.................................................... (1,914,875) 1,914,875 4.13
Exercised................................................. -- (149,491) 1.95
Forfeitures............................................... 2,472,129 (2,472,129) 4.23
---------- ---------- -----
Balance at December 31, 1999................................ 3,900,659 4,321,975 4.56
Grants.................................................... (1,034,098) 1,034,098 3.52
Exercised................................................. -- (67,833) 2.00
Forfeitures............................................... 413,682 (413,682) 3.47
---------- ---------- -----
Balance at March 31, 2000................................... 3,280,243 4,874,558 $4.47
========== ==========
</TABLE>
The weighted average grant-date fair value of options granted under the 1997
Plan during the year ended December 31, 1997, 1998 and 1999 using a minimum
value option pricing model was $0.22, $0.94 and $0.71 per option. At
December 31, 1999, 1,542,070 shares are exercisable at the weighted average
exercise price of $3.22. The remaining estimated contractual life of the
4,321,975 options outstanding at December 31, 1999, is 8.8 years. Options
outstanding at December 31, 1999 have exercise prices ranging from $0.75 to
$13.00.
F-20
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
As of December 31, 1999, the Company has reserved 505,000 shares of Class A
Common Stock and 7,995,000 shares of the Class B Common Stock for potential
distribution under the 1997 Plan and 300,000 shares of the Class B Common Stock
for potential distribution under the Directors Plan. Additionally, during 1998,
the Company granted 102,656 options to purchase Class B Common Stock at $2.00
per share, outside the plans to a former employee. The employee exercised these
options in 1999.
SFAS No. 123, "Accounting for Stock Based Compensation" (SFAS No. 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 No. 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, 1998 and 1999: a risk-free interest rate of 6.15% in 1997,
5.33% in 1998 and 6.00% in 1999, no dividends, and an expected life of three
years. Pro forma net loss and loss per share for 1997, 1998 and 1999 would have
been $6,826,971 ($0.42 per share), $20,147,026 ($1.27 per share) and $26,833,186
($1.67 per share), respectively, determined as if the Company had accounted for
its stock options granted in 1997, 1998 and 1999 under the fair value method set
forth in SFAS No. 123.
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 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 approximately
$0.8 million for the difference between the exercise price and the deemed fair
value of the Company's common stock on the grant date for certain options
granted during 1998. The Company granted options to purchase 2,517,758 shares of
Class B common stock with an exercise price ranging from $2.00 to $5.00 per
share during 1998. Such exercise price was less than the deemed fair value of
the Company's Class B common stock on the date of grant. The deemed fair 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 $7.50.
The Company recorded additional deferred compensation expense of approximately
$0.7 million in 1999 for differences between the exercise price and the deemed
fair value of the Company's common stock on the grant date for certain options
granted during 1999. The Company granted options to purchase 280,250 shares of
Class B common stock, with exercise prices of $3.00 in 1999. Such exercise price
was less than the deemed fair value of the Company's common stock on the date of
grant. The deemed fair value of the Company's Class B common stock on the
individual grant dates ranged from $4.96 to $7.02. The Company recorded
additional deferred compensation expense of approximately $4.2 million during
the three-month period ended March 31, 2000 for the difference between the
exercise price and the deemed fair value of the Company's common stock on the
date of grant. The Company granted options to purchase 1,034,098 shares of
Class B common stock with exercise prices ranging from $3.00 to $4.50. Such
exercise prices were less than the deemed fair value
F-21
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
of the Company's common stock on the date of grant. The deemed fair value of the
Company's Class B common stock on the individual grant dates ranged from $7.75
to $8.16.
The deferred compensation is being amortized ratably over the vesting period
of the individual options, generally three to four years. Compensation expense
recognized in 1998 and 1999 totaled $285,250 and $281,700, respectively. For the
three months ended March 31, 1999 and 2000, compensation expense was $53,100 and
$644,100, respectively.
8. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1998, the Company advanced
$1,112,172 and $190,328, respectively, to a company which was owned by the
former principal shareholders of Neptune. In May 1998, the former principal
shareholders of Neptune sold their entire interest in the company to a
shareholder of EXE. In connection with that transaction, EXE repurchased 487,037
shares of Class A common stock valued at $2,171,685 from this shareholder of EXE
in exchange for $869,185 in cash and forgiveness of the $1,302,500 of the
advances made by EXE to the company that had been owned by the former principal
shareholders of Neptune.
The Company also has various advances to officers and shareholders of the
Company. The total balance of these receivables at December 31, 1998 and 1999
and March 31, 2000 was $59,214. 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 $238,475 and $246,475 at December 31,
1998 and 1999, respectively, and $296,475 at March 31, 2000.
9. LEASE COMMITMENTS
The Company leases certain facilities and property and equipment for use in
operations. In May 1998, the Company entered into leases with terms of
ten-and-one-half-years for office space for its North American operations. The
leases provided for free rent during the first six months and contain an
escalation clause in year five. In March 1999, the Company amended the lease
agreements such that the leases were extended to fifteen year terms. The Company
intends to recognize the total minimum lease payments as expense on the
straight-line basis over the lease term. The leases have two five-year renewal
options which are at a rate not less than 95% of the then-prevailing market rate
for comparable premises.
The Company leased office space from a shareholder under a lease which was
to expire in August 2002, with monthly rental payments of $86,569. During 1998,
in connection with the move to new office space for the North American
operations, the Company decided to vacate the office space leased from the
shareholder. The Company recorded a $1,000,000 loss on abandonment related to
the office space in 1998 for the estimated loss to be incurred as a result of
vacating the office space. In 1999, the Company finalized an agreement with the
shareholder and recorded an additional $288,022 loss related to this
abandonment. The total paid to the shareholder during the year ended
December 31, 1999 and the three months ended March 31, 2000 for lease
abandonment was $872,047 and $270,000, respectively.
F-22
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
9. LEASE COMMITMENTS (CONTINUED)
The minimum rental commitments under operating leases and the minimum
rentals to be received under subleases and other leases with terms exceeding one
year, are as follows:
<TABLE>
<CAPTION>
LEASES SUBLEASES
<S> <C> <C>
2000........................................................ $ 7,042,372 $1,015,016
2001........................................................ 5,977,682 871,383
2002........................................................ 5,037,941 --
2003........................................................ 4,783,708 --
2004........................................................ 4,620,465 --
Thereafter.................................................. 38,894,804 --
----------- ----------
$66,356,972 $1,886,399
=========== ==========
</TABLE>
Total rent expense was approximately $1,264,000, $3,395,000 and $4,736,000
(net of sublease income of $0, $0 and $146,000) for the years ended
December 31, 1997, 1998 and 1999, respectively. For the three months ended
March 31, 1999 and 2000, rent expense was approximately $1,170,000 and
$1,083,000 (net of sublease income of $0 and $154,000), respectively. Included
in rent expense is $297,514, $1,038,828 and $259,707 paid to a shareholder for
facility rental in 1997, 1998 and 1999, respectively.
10. EMPLOYEE BENEFIT PLAN
As part of the Transaction, the Company assumed the obligations and adopted
the defined contribution plan of Dallas Systems. The plan covers all employees
located in the United States who have completed one month of service and have
attained the age of 21. 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, $1,147,000 and $931,000 for the defined contribution
plan during the years ended December 31, 1997, 1998 and 1999, respectively. For
the three months ended March 31, 1999 and 2000, the Company recognized expenses
of $270,000 and $236,000, respectively, for this plan.
The Company also sponsors a defined contribution plan for its employees in
the United Kingdom. The plan covers all employees located in the United Kingdom
who have completed six months of service. The Company's contribution to the plan
matches the first 5% of the employee's contributions of eligible earnings. The
Company recognized expenses of approximately $193,000, $234,000 and $343,000 for
the defined contribution plan during the years ended December 31, 1997, 1998 and
1999, respectively. For the three months ended March 31, 1999 and 2000, the
Company recognized expenses of $90,000 and $68,000, respectively, for this plan.
11. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In connection with the Transaction, the Company sold preferred stock to an
investment group affiliated with one of our directors, Steven A. Denning, in two
separate transactions. In the first transaction, the Company received
$15 million in exchange for 6,764,043 shares of Series A Preferred
F-23
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Stock, par value $0.01 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 $0.01 per share.
On July 10, 1998, the Company sold 1,600,000 shares of Series C Preferred
Stock, par value $0.01 per share, to a group of private investors affiliated
with one of our former directors, John C. Phelan, for $5 per share.
On September 29, 1999, the Company sold 4,750,000 shares of Series D
Preferred Stock, par value $0.01 per share, to a group of private investors for
$4 per share. The shares were sold to entities affiliated with two of our
directors, Mr. Denning and Jay C. Hoag, and a former director, Mr. Phelan. The
purchase price of the Series D Preferred Stock consisted of an aggregate
$19 million, including cancellation of the $3 million Bridge Loans (Note 5) from
entities associated with each of Michael S. Dell and Technology Crossover
Ventures.
SERIES A CONVERTIBLE PREFERRED STOCK
The Company has designated 7,000,000 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, C and D Preferred Stock. Each share of
the Series A Preferred Stock is convertible at the option of the holder, and
mandatorily upon a sale, merger or initial public offering with at least
$30 million in gross proceeds (with each event as further defined in the
Company's certificate of incorporation), into one share of EXE Class A common
stock, subject to certain adjustments. Each share of Series A Preferred Stock
has voting rights equal to the Class A common stock, and any dividends paid to
common stockholders shall also be paid to these stockholders in the same amount
per share and at the same time. These shares have a liquidation preference at an
amount equal to $2.22 per share, subject to certain adjustments, plus all
outstanding dividends.
Upon occurrence of a "Trigger Event" (defined as a sale, merger, or initial
public offering, as each is further defined in the Company's certificate of
incorporation), these stockholders are entitled to a participation adjustment in
shares of common stock (or, at the Company's option, in cash) based upon the
"Trigger Price", or market price of the shares in the Trigger Event, as Trigger
Price is defined in the Company's certificate of incorporation. If the Trigger
Price is equal to or greater than $11.00 per share, no participation adjustment
or payment is required. If the Trigger Price is equal to or less than $9.00 per
share, the participation adjustment or payment will be the equivalent in common
stock of $15 million or, at the Company's option, $15 million in cash. If the
Trigger Price is between $9.00 per share and $11.00 per share, the participation
adjustment or payment will be based on a pro rata formula. The preferred
stockholders retain their equity investment regardless of any participation
adjustment or payment. In July 2000, subject to the completion of the Company's
initial public offering, the holders of the Series A Preferred Stock waived
their right to receive a participation adjustment or payment.
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-24
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
SERIES B CONVERTIBLE 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, C and D Preferred Stock. Each share of
the Series B Preferred Stock is convertible at the option of the holder, and
mandatorily upon a sale, merger or initial public offering with at least
$30 million in gross proceeds (with each event as further defined in the
Company's certificate of incorporation), into one share of EXE Class A common
stock, subject to certain adjustments. Each share of Series B Preferred Stock
has voting rights equal to the Class A common stock, and any dividends paid to
common stockholders shall also be paid to these stockholders in the same amount
per share and at the same time. These shares have a liquidation preference at an
amount equal to $2.19 per share, subject to certain adjustments, 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 CONVERTIBLE PREFERRED STOCK
The Company has designated 2 million shares of its preferred stock as
"Series C Preferred Stock." These shares rank senior to all classes of common
stock and rank pari passu with Series A, B and D Preferred Stock. Each share of
the Series C Preferred Stock is convertible at the option of the holder, and
mandatorily upon a sale, merger or initial public offering with at least
$30 million in gross proceeds (with each event as further defined in the
Company's certificate of incorporation), into one share of EXE Class A Common
Stock, subject to certain adjustments. Each share of Series C Preferred Stock
has voting rights equal to the Class A Common Stock, and any dividends paid to
common stockholders shall also be paid to these stockholders in the same amount
per share and at the same time. These shares have a liquidation preference at an
amount equal to $5 per share, subject to certain adjustments, plus all
outstanding dividends.
Upon the occurrence of a "Trigger Event" (defined as a sale, merger, or
initial public offering, as each is further defined in the Company's certificate
of incorporation), these stockholders are entitled to a purchase price
adjustment that will be equal to no more than 20% of the cash value of the
participation adjustment on payment actually received by the holders of the
Series A Preferred Stock, not to exceed $3 million. However, if the holders of
Series A Preferred Stock waive their rights to any Participation Adjustment or
Cash Participation Payment (as defined in the Company's certificate of
incorporation) then the holders of Series C Preferred Stock irrevocably waive
all rights to the purchase price adjustment unless the Trigger Price (as defined
in the Company's certificate of incorporation) is less than $5 per share. The
Trigger Price in an initial public offering is the midpoint of the price per
share range on the cover of the red herring last distributed to potential
investors. In July 2000, subject to the completion of the Company's initial
public offering, the holders of the Series A Preferred Stock (and, consequently,
the holders of the Series C Preferred Stock) waived their right to receive a
participation adjustment or payment subject to the completion of the Company's
initial public offering.
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.
F-25
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
SERIES D CONVERTIBLE PREFERRED STOCK
On September 21, 1999, the Company designated 7 million shares of its
preferred stock as "Series D Preferred Stock" and, on September 29, 1999, issued
4,750,000 shares at a price of $4 per share. These shares rank senior to all
classes of common stock and rank pari passu with Series A, B, and C Preferred
Stock. Each share of the Series D Preferred Stock is convertible at the option
of the holder, and mandatorily upon a sale, merger or initial public offering
with at least $30 million in gross proceeds (with each event as further defined
in the Company's certificate of incorporation), into one share of EXE Class A
Common Stock, subject to certain adjustments. Each share of Series D Preferred
Stock has voting rights equal to the Class A Common Stock, and any dividends
paid to common stockholders shall also be paid to these stockholders in the same
amount per share and at the same time. These shares have a liquidation
preference at an amount equal to $4 per share, subject to certain adjustments,
plus all outstanding dividends.
Upon occurrence of a "Trigger Event" (defined as a sale, merger, or initial
public offering, as each is further defined in the Company's certificate of
incorporation), these stockholders are entitled to a participation adjustment in
shares of common stock (or, at the Company's option, in cash) based upon the
"Trigger Price", or market price of the shares in the Trigger Event, as Trigger
Price is defined in the Company's certificate of incorporation. The Trigger
Price in an initial public offering is the midpoint of the price per share range
on the cover of the red herring last distributed to potential investors. If the
Trigger Price is equal to or greater than $11.00 per share, no participation
adjustment or payment is required. If the Trigger Price is equal to or less than
$9.00 per share, the participation adjustment or payment will be the equivalent
in common stock of $11.4 million or, at the Company's option, $11.4 million in
cash. If the Trigger Price is between $9.00 per share and $11.00 per share, the
participation adjustment or payment will be based on a pro rata formula. The
preferred stockholders retain their equity investment regardless of any
participation adjustment or payment. In July 2000, subject to the completion of
the Company's initial public offering, the holders of the Series D Preferred
Stock waived their right to receive a participation adjustment or payment.
The Company has reserved 4.75 million shares of Class A Common Stock for
potential distribution upon the conversion of the Series D Preferred Stock.
CLASS B COMMON STOCK
The Company has authorized 12,000,000 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.
WARRANTS
In December 1998, and in connection with obtaining the Term Loan (Note 5),
the Company issued warrants to acquired up to 50,000 shares of the Company's
Class A common stock. The warrants have an exercise price of $7.50 share, are
exercisable upon issuance and expire the later of December 31, 2001, or two
years after the completion of an initial public offering of the Company's common
stock
F-26
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
but in no event later than December 31, 2002. The warrants were valued at
$75,000, which was recorded as additional interest expense over the term of the
Term Loan.
In March 1999, the Company entered into a two year sales and marketing
agreement with an independent third party. The Company and the third party each
have a non-exclusive right to market and resell the other party's products. As
part of the agreement, the Company issued warrants to purchase the Company's
Class B common stock with an exercise price of $4 per share, of which, 330,000
of the warrants were immediately vested, exercisable and nonforfeitable. The
remaining 330,000 of the warrants were to vest at a rate of 110,000 warrants for
each $2,000,000 of net license revenue the Company recognizes on sales of the
Company's products by the third party. The fair value of $640,000 in respect of
the 330,000 warrants, which were immediately vested, is being amortized to
operating expense over the term of the agreement. Through June 2000, the 330,000
warrants which vest over time were marked to fair value at the end of each
accounting period and the remeasured value was amortized to operating expense on
a straight-line basis over the term of the agreement. Subsequent to March 31,
2000, warrants to purchase 110,000 shares of the Company's Class B common stock
had vested as a result of the Company recognizing $2,000,000 of net license
revenue from sales of the Company's products sold by the third party. In June
2000, the Company and the third party amended the sales and marketing agreement
such that the unvested warrants to purchase 220,000 shares of the Company's
Class B common stock were canceled. The Company recorded expense of
approximately $988,000 and $421,000 for the warrants during the year ended
December 31, 1999 and three months ended March 31, 2000, respectively. The fair
value of the warrants was calculated using a Black-Scholes option pricing model
with the following assumptions for 1999 and 2000 respectively: risk-free
interest rate of 4.60% and 5.16%; dividend yield of zero; volatility of 85%; and
a warrant life of five years.
In October 1999, the Company entered into a consulting agreement with an
independent third party. The Company issued 375,000 warrants to purchase the
Company's Class B common stock to the third party for consulting services
rendered. The warrants were immediately vested, exercisable and non-forfeitable
and have an exercise price of $4 per share. The fair value of the warrants of
approximately $2,051,000 was recorded as expense in 1999. The fair value of the
warrants was calculated using a Black-Scholes option pricing model with the
following assumptions: risk-free interest rate of 5.11%; dividend yield of zero;
volatility of 85%; and a warrant life of three years.
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.
13. RESTRUCTURING
In August 1999, the Company implemented a restructuring plan to reduce costs
and improve operating efficiency. The Company recorded a pretax charge of
$1,952,256 for its restructuring plan. The Company recorded liabilities
associated with the restructuring in the amounts of approximately $709,000 for
severance and other employee related costs for the termination of 97 services,
sales, development and administrative employees, $803,000 for the abandonment of
certain leased office space less estimated sublease rentals at the Company's
North American and Australian facilities,
F-27
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
13. RESTRUCTURING (CONTINUED)
$179,000 for the abandonment of leased equipment and $261,000 for the disposal
of other fixed assets. The Company recorded approximately $1,325,000 of cash
charges against the original restructuring reserve during the year ended
December 31, 1999. The remaining liability at December 31, 1999, is
approximately $624,000 and is expected to be paid out through the end of 2003.
14. SHARES RESERVED FOR FUTURE ISSUANCE
The Company has reserved common shares for issuance as of March 31, 2000 as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON
SHARES SHARES
<S> <C> <C>
Conversion of Series A through D preferred stock............ 17,687,562 --
Exercise of stock options................................... 505,000 7,949,801
Exercise of warrants........................................ 50,000 1,035,000
---------- ---------
18,242,562 8,984,801
========== =========
</TABLE>
15. SEGMENT INFORMATION
The Company is engaged in the design, development, marketing and support of
fulfillment, warehousing and distribution software for e-commerce and
traditional sales channels. All financial information is reviewed on a
consolidated basis with additional information by geographic region used
F-28
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
15. SEGMENT INFORMATION (CONTINUED)
to make operating decisions and assess the results of the Company. The Company's
geographic information as of and for the years ended December 31, 1997, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
EUROPE
UNITED AND THE ASIA
STATES MIDDLE EAST PACIFIC ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
December 31, 1997
Revenue............................. $ 18,432,550 $ 3,718,086 $ 4,620,881 $ -- $ 26,771,517
Amortization of intangibles......... 1,430,472 -- -- -- 1,430,472
Write-off of in-process research and
development....................... 2,700,000 -- -- 2,700,000
Operating income (loss)............. (6,758,537) 46,173 (8,975) -- (6,721,339)
Property and equipment, net......... 3,290,351 493,990 528,853 -- 4,313,194
Total assets........................ 49,629,126 4,542,682 3,706,860 (1,471,944) 56,406,724
December 31, 1998
Revenue............................. 66,168,055 15,843,179 9,279,262 -- 91,290,496
Amortization of intangibles......... 4,452,069 -- -- -- 4,452,069
Loss on lease abandonment........... 1,000,000 -- -- -- 1,000,000
Operating income (loss)............. (16,872,813) (557,885) (2,737,220) (20,167,918)
Property and equipment, net......... 6,357,983 1,000,437 1,197,990 -- 8,556,410
Total assets........................ 54,128,526 4,840,421 1,103,474 (3,009,531) 57,062,890
December 31, 1999
Revenue............................. 61,793,501 19,187,242 15,819,526 -- 96,800,269
Amortization of intangibles......... 4,818,670 -- -- -- 4,818,670
Warrant and stock compensation
expense........................... 3,320,538 -- -- -- 3,320,538
Loss on lease abandonment........... 288,022 -- -- -- 288,022
Restructuring costs................. 1,795,713 -- 156,543 -- 1,952,256
Operating income (loss)............. (20,965,782) (328,696) (2,759,503) -- (24,053,981)
Property and equipment, net......... 7,841,274 987,103 1,168,076 -- 9,996,453
Total assets........................ $ 59,523,158 $ 8,855,736 $ 2,535,546 $(3,244,142) $ 67,670,298
</TABLE>
F-29
<PAGE>
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE INFORMATION SUBSEQUENT TO AND AS OF MARCH 31, 2000 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
15. SEGMENT INFORMATION (CONTINUED)
The Company's geographic information as of and for the three months ended
March 31, 1999 and 2000 is as follows:
<TABLE>
<CAPTION>
EUROPE
UNITED AND THE ASIA
STATES MIDDLE EAST PACIFIC ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
(unaudited)
Revenue............................. $ 18,397,026 $ 4,331,538 $ 2,886,492 $ -- $ 25,615,056
Amortization of intangibles......... 1,204,666 -- -- -- 1,204,666
Operating income (loss)............. (2,749,024) (394,877) (884,265) -- (4,028,166)
Property and equipment, net......... 8,211,076 924,212 1,196,781 -- 10,332,069
Total assets........................ 61,709,394 5,426,596 1,925,225 (2,782,604) 66,278,611
Three months ended March 31, 2000
(unaudited)
Revenue............................. 14,475,763 6,093,025 4,909,399 -- 25,478,187
Amortization of intangibles......... 1,139,829 -- -- -- 1,139,829
Warrant and stock compensation
expense........................... 1,064,763 -- -- -- 1,064,763
Operating income (loss)............. (2,279,227) (4,518) (154,312) -- (2,438,057)
Property and equipment, net......... 7,277,294 948,992 1,161,627 -- 9,387,913
Total assets........................ $ 58,596,547 $10,481,204 $ 2,619,598 $(3,174,456) $ 68,522,893
</TABLE>
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Management and Board of Directors
Dallas Systems Corporation and Subsidiary
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows, of Dallas Systems Corporation and
Subsidiary for 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 audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 results of Dallas Systems Corporation
and Subsidiary's operations and cash flows for the eight and one-half month
period ended September 15, 1997, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
July 10, 1998
F-31
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT AND
ONE-HALF
MONTH
PERIOD ENDED
SEPTEMBER 15,
1997
<S> <C>
REVENUE:
Software license.......................................... $ 3,037,993
Services and maintenance.................................. 22,116,983
Resale software and equipment............................. 7,948,169
-----------
Total revenues........................................ 33,103,145
COSTS AND EXPENSES:
Cost of licenses, services and maintenance................ 17,039,193
Cost of resale software and equipment..................... 5,668,090
Sales and marketing....................................... 2,972,020
Research and development.................................. 3,908,150
General and administrative................................ 3,436,597
-----------
Total costs and expenses.............................. 33,024,050
-----------
Operating income............................................ 79,095
Interest expense.......................................... (238,695)
Interest income........................................... 27,496
Other..................................................... 19,775
-----------
Loss before income taxes.................................... (112,329)
Benefit for income taxes.................................... 514,417
-----------
Net loss.................................................... $ (626,746)
===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-32
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT 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>
Balance as of January 1, 1997............. 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........... -- -- -- -- -- -- --
------- ---- ------ --- ---------- ----- --------
Balance as of 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>
Balance as of January 1, 1997............. $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)
---------- -------- --------- ----------
Balance as of September 15, 1997.......... $5,402,683 $ 1,353 $(631,912) $6,018,091
========== ======== ========= ==========
</TABLE>
SEE ACCOMPANYING NOTES.
F-33
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT AND
ONE-HALF MONTH
PERIOD ENDED
SEPTEMBER 15,
1997
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $ (626,746)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 834,450
Provision for losses on receivables....................... 630,604
Gain on sale of equipment................................. (145,887)
Stock option compensation expense......................... 139,000
Deferred income taxes..................................... (784,476)
Changes in operating assets and liabilities:
Accounts receivable..................................... (4,752,633)
Prepaids and other assets............................... (293,250)
Accounts payable........................................ 1,960,349
Accrued profit sharing and bonus........................ (252,465)
Deferred revenue........................................ 682,241
Income tax payable...................................... 1,047,313
Accrued expenses........................................ 212,784
Other................................................... (54,032)
-----------
Net cash used in operating activities................. (1,402,748)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (1,054,327)
Proceeds from asset deposits................................ 523,505
Increase in surrender value of life insurance............... --
-----------
Net cash used in investing activities................. (530,822)
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit...................... 1,581,000
Borrowings on long-term debt................................ 324,785
Purchase of treasury stock.................................. (38,110)
Proceeds from stock sale.................................... 76,308
Refund of security deposits................................. (5,426)
-----------
Net cash provided by financing activities............. 1,938,557
-----------
Net increase in cash and cash equivalents................... 4,987
Cash and cash equivalents at beginning of period............ 1,574,604
-----------
Cash and cash equivalents at end of period.................. $ 1,579,591
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 221,527
===========
Cash paid for income taxes.................................. $ 215,000
===========
</TABLE>
SEE ACCOMPANYING NOTES.
F-34
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 revenue consists of software license revenue, services and
maintenance revenue and revenue 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 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
F-35
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
its exposure with any one financial institution. At September 15, 1997, one
customer represented approximately 12% of the total receivable balance. 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 three to seven years. Depreciation expense
for the eight and one-half month period ended September 15, 1997 was $780,769.
SOFTWARE DEVELOPMENT COSTS
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. 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 net revenue and total net (loss)
of approximately $4,427,000 and $(552,000) for the eight and one-half month
period ended September 15, 1997, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-36
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
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.
The bank's prime rate at September 15, 1997, was 8.25%.
5. INCOME TAXES
The Company accounts for income taxes using the liability method under the
provisions of SFAS No. 109, "Accounting for Income Taxes."
Components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
EIGHT AND
ONE-HALF
MONTH PERIOD
ENDED
SEPTEMBER 15,
1997
<S> <C>
Current provision:
Federal................................................... $1,101,826
State..................................................... 9,846
Deferred tax benefit:
Federal................................................... (677,085)
State..................................................... (93,837)
Foreign tax expense......................................... 173,667
----------
Total income tax provision............................ $ 514,417
==========
</TABLE>
The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 15,
1997
<S> <C>
Provision computed at federal statutory rate................ $ (49,754)
Research and development tax credits........................ (56,000)
State income taxes, net of federal tax effect............... (34,561)
Disposition of building..................................... 631,912
Capitalized merger costs.................................... 54,701
Other....................................................... (31,881)
----------
$ 514,417
==========
</TABLE>
F-37
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 the eight and one-half month period ended
September 15, 1997 was approximately $483,000.
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 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 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,
F-38
<PAGE>
DALLAS SYSTEMS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
or cost, depending on the length of time the shares were owned. During the eight
and one-half month period ended September 15, 1997, the Company purchased 410
shares at a cost of $38,110.
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.
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 eight and one-half month period ended
September 15, 1997, approximately $369,000 for the defined contribution plan.
Additionally, the Company's expenses for the eight and one-half month period
ended September 15, 1997, include a discretionary bonus of approximately
$425,000 for its employees based upon a plan which rewards employees for
achievement of corporate and individual objectives.
11. COMMON STOCK
At 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-39
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AUGUST 4, 2000
[LOGO]
8,000,000 SHARES OF COMMON STOCK
----------------
P R O S P E C T U S
-----------------
DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC DLJDIRECT INC.
----------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made under this prospectus after the date of this prospectus shall create
an implication that the information contained in this prospectus or the affairs
of EXE Technologies, Inc. have not changed since the date of this prospectus.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Until August 29, 2000 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as an underwriter in this offering or when selling
previously unsold allotments or subscriptions.
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