<PAGE>
As filed with the Securities and Exchange Commission on March 6, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
VENTRO CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 5169 77-0465496
(Primary Standard (I.R.S. Employer
(State or Other Industrial Identification Number)
Jurisdiction of Classification Code
Incorporation or Number)
Organization) ----------------
1500 Plymouth Street
Mountain View, CA 94043
(650) 567-8900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
James G. Stewart
Chief Financial Officer
Ventro Corporation
1500 Plymouth Street
Mountain View, CA 94043
(650) 567-8900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Daniel G. Kelly, Jr. Jeffrey R. Vetter
Davis Polk & Wardwell Fenwick & West LLP
1600 El Camino Real Two Palo Alto Square
Menlo Park, California 94025 Palo Alto, California 94306
(650) 752-2000 (650) 494-0600
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -----------------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class of to be Offering Price Offering Registration
Securities to be Registered Registered Per Share(2) Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, $0.0002
par value............. 2,098,750 shares(1) $216.63 $454,652,222 $120,029
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</TABLE>
(1) Includes 273,750 shares subject to the underwriters' over-allotment
option.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) of the Securities Act of 1933 and
based on the average of the high and low trading price on the Nasdaq
National Market on March 3, 2000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued March 6, 2000
1,825,000 Shares
[LOGO OF VENTRO]
COMMON STOCK
-----------
Ventro Corporation is offering 1,370,000 shares of common stock and the selling
stockholders are offering 455,000 shares of common stock.
-----------
Concurrent with this offering of common stock, we are conducting a separate
offering of convertible subordinated notes with an aggregate principal amount
of $300.0 million. This offering of common stock is not conditioned on the
completion of the offering of notes.
-----------
Ventro's common stock is listed on the Nasdaq National Market under the symbol
"VNTR." On March 3, 2000, the reported last sales price for our common stock on
the Nasdaq National Market was $220 per share.
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 6.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Price Underwriting Proceeds Proceeds to
to Discounts and to Selling
Public Commissions Ventro Stockholders
------ ------------- -------- ------------
<S> <C> <C> <C> <C>
Per Share............................ $ $ $ $
Total................................ $ $ $ $
</TABLE>
The selling stockholders have granted the underwriters the right to purchase up
to an additional 273,750 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
-----------
MORGAN STANLEY DEAN WITTER
ROBERTSON STEPHENS
CHASE H&Q
DEUTSCHE BANC ALEX. BROWN
PRUDENTIAL VOLPE TECHNOLOGY
a unit of Prudential Securities
, 2000
<PAGE>
[Inside front cover -- graphics and text]
[Artwork of screen shot illustrating the components of Ventro marketplace
companies]
Ventro Corporation
.Speed
.Technology
.Knowledge
Suppliers
Customers
Building and Operating B2B Vertical Marketplace Companies
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Special Note Regarding Forward-Looking Statements........................ 25
Use of Proceeds.......................................................... 26
Price Range of Common Stock.............................................. 26
Dividend Policy.......................................................... 26
Capitalization........................................................... 27
Dilution................................................................. 28
Selected Consolidated Financial Data..................................... 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
Business................................................................. 37
Management............................................................... 56
Related Party Transactions............................................... 66
Principal and Selling Stockholders....................................... 68
Description of Capital Stock............................................. 72
Shares Eligible for Future Sale.......................................... 73
Underwriters............................................................. 75
Experts.................................................................. 77
Change in Independent Accountants........................................ 77
Legal Matters............................................................ 77
Where to Find Additional Information..................................... 78
Index to Financial Statements............................................ F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of our common stock. In this prospectus, "we,"
"us" and "our" refer to Ventro Corporation.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and our common stock being sold in this offering and
our consolidated financial statements and related notes appearing elsewhere in
this prospectus.
We are a leading builder and operator of vertical business-to-business e-
commerce marketplace companies. Our platform of enabling technologies and
operating capabilities allows us to rapidly enter new markets while realizing
economies of scale. Our solutions benefit suppliers by permitting them to lower
sales and marketing costs as well as to improve inventory management and
product delivery. Customers enjoy a significantly enhanced purchasing system
that provides access to a broad range of basic and specialized products,
increased flexibility and a reduction in the cost of the procurement process.
We created Ventro in February 2000 to expand the scope of our marketplace
companies by leveraging the assets and experience that we gained in building
and operating Chemdex, our marketplace for life sciences research products. In
addition to Chemdex, we currently operate or are developing three additional
Ventro marketplaces: Promedix, for the specialty medical products market,
Broadlane, for the high-volume, hospital and medical supplies market, and
Industria Solutions, for the fluid processing market.
We provide a secure, Internet-based solution that enables us to buy products
from suppliers and resell them to customers while streamlining business
processes, increasing productivity and reducing costs through the supply chain.
Our companies employ a robust database architecture, advanced search engines
and transaction software that enable users to easily identify, locate and
purchase the products they need. We have entered into agreements with leading
companies in each of the Ventro marketplaces, including VWR, Tenet Healthcare
and DuPont. With our strategic relationships with Ariba, Commerce One, Concur
Technologies, IBM, and SAP, we offer customers and suppliers the ability to
directly connect their enterprise software to the marketplace. This extensive
system integration provides a key competitive advantage for Ventro companies,
as customers and suppliers can directly link their front and back offices to
the Ventro marketplace and increase the automation of their procurement and
order fulfilment processes. We also provide professional and implementation
services to enable market participants to take full advantage of our operating
capabilities.
Our strategy is to build and operate leading vertical business-to-business
e-commerce marketplace companies by:
. Leveraging Our Platform. We will use our technology architecture,
operating capability and marketplace experience, as well as our
strategic relationships to rapidly enter new vertical markets.
. Being the Market Leader in the Most Attractive Markets. We will target
large, fragmented markets where we believe the aggregation enabled by
our marketplace solution will provide significant value to customers and
suppliers.
. Scaling Operations Rapidly. In order to rapidly achieve scale and
reinforce our first mover advantage, we plan to pursue markets where we
can join with industry leaders or make acquisitions to build our
expertise and enhance our position.
. Expanding Internationally. The international scope of the Internet, the
global reach of many of our customers and suppliers and the worldwide
demand for the products in the markets we serve provides us with an
opportunity to grow our marketplaces internationally.
3
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered:
Shares offered by us.............................. 1,370,000 shares
Shares offered by the selling stockholders........ 455,000 shares
Total....................................... 1,825,000 shares
-----------------
Common stock to be outstanding after the offering.. 46,003,563 shares
=================
Over-allotment option.............................. 273,750 shares
Use of proceeds.................................... We anticipate using the
net proceeds from this
offering for working
capital and general
corporate purposes.
See "Use of Proceeds."
Dividend policy.................................... We do not anticipate
paying cash dividends.
Nasdaq National Market symbol...................... VNTR
Concurrent offering................................ We are offering for sale
through another prospectus
convertible subordinated
notes with an aggregate
principal amount of
$300,000,000, excluding
the over-allotment option.
</TABLE>
The 46,003,563 shares of our common stock to be outstanding immediately
after the offering is based on 44,633,563 shares outstanding at February 10,
2000. This number does not include:
. the issuance of 12,500 shares of common stock related to exercise of
options granted under our 1999 Directors' Stock Plan subsequent to
December 31, 1999 and prior to February 10, 2000;
. the repurchase of 28,386 shares of common stock subsequent to December
31, 1999 and prior to February 10, 2000;
. 5,277,952 shares of our common stock subject to options outstanding as
of February 10, 2000 with a weighted averaged exercise price of $29.16;
. 197,178 shares of common stock issuable upon the exercise of warrants
outstanding as of February 10, 2000 with a weighted average exercise
price of $4.94 per share;
. 5,549,685 shares of our common stock subject to options reserved for
future issuance under our stock plans at February 10, 2000; and
. the shares of common stock issuable upon conversion of the $300,000,000
of principal amount of convertible subordinated notes that we are
offering for sale through another prospectus.
Except as otherwise noted, all information in this prospectus assumes no
exercise of the underwriters' overallotment option.
Chemdex was incorporated in Delaware in September 1997 and in February 2000
changed its name to Ventro Corporation. Our principal executive offices are
located at 1500 Plymouth Street, Mountain View, California 94043, and our
telephone is (650) 567-8900. We maintain a world wide website at
www.Ventro.com. The information in our website is not incorporated by reference
into this prospectus.
Ventro, Ventro's logo, Ventro.com, Chemdex, the Chemdex Marketplace,
Promedix and the Promedix Marketplace are some of our trademarks. Each other
trademark, trade name or service mark of any other company appearing in this
prospectus is the property of its holder.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following historical consolidated statements of operations data and
consolidated balance sheet data are derived from our audited financial
statements. The unaudited pro forma consolidated statement of operations data
are derived from the Unaudited Pro Forma Combined Condensed Financial
Information and reflects our acquisitions of Promedix and SpecialtyMD as if
those acquisitions occurred on January 1, 1999.
<TABLE>
<CAPTION>
Historical
-----------------------------------
Period From
September 4, 1997 Year Ended Pro Forma
(Inception) December 31, Year Ended
Through ----------------- December 31,
December 31, 1997 1998 1999 1999
----------------- ------- -------- ------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net revenues................ $ -- $ 29 $ 30,840 $ 30,871
Operating loss.............. (404) (8,796) (51,568) (222,501)
Loss from continuing
operations................. (404) (8,488) (48,573) (219,827)
Basic and diluted loss from
continuing operations per
share...................... $(.24) $ (4.79) $ (3.17) $ (10.96)
Weighted average common
shares outstanding--basic
and diluted................ 1,704 1,772 15,322 20,050
</TABLE>
The actual column in the following table presents our actual historical
consolidated balance sheet data and is derived from our audited financial
statements. The unaudited pro forma consolidated balance sheet data are derived
from the Unaudited Pro Forma Combined Condensed Financial Information. The pro
forma column reflects the acquisitions of Promedix and SpecialtyMD as if those
acquisitions had occurred on December 31, 1999 and the issuance of an aggregate
of 11,870,800 shares of common stock subsequent to December 31, 1999. The pro
forma as adjusted column further reflects (1) our sale of 1,370,000 shares of
our common stock by us in this offering at an assumed public offering price of
$220.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses and (2) our sale of $300.0 million
principal amount of convertible subordinated notes in a concurrent offering
through another prospectus. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of December 31, 1999
--------------------------------
Historical Pro Forma
Actual Pro Forma As Adjusted
---------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments................................. $103,095 $109,545 $ 686,382
Working capital.............................. 82,130 86,283 663,120
Total assets................................. 163,933 585,009 1,171,846
Long-term debt and capital lease obligations,
net of current portion...................... 494 494 300,494
Total liabilities............................ 38,914 41,513 341,513
Total stockholders' equity................... 125,019 543,496 830,333
</TABLE>
5
<PAGE>
RISK FACTORS
An investment in our shares is extremely risky. You should carefully
consider the following risks, in addition to the other information presented
in this prospectus, in evaluating us and our business. Any of the following
risks, as well as other risks not mentioned here, could seriously harm our
business and prospects and cause the price of our common stock to decline,
which in turn could cause you to lose all or part of your investment.
Risks Related to Our Business
Our business model is not proven and may not be successful
Our business-to-business e-commerce model is based on our expansion into a
number of vertical marketplaces. This business model is new and not proven and
depends upon our ability, among other things, to:
. sell our purchasing solution to pharmaceutical and biotechnology
companies, hospitals and other healthcare providers and academic and
research institutions;
. achieve high rates of adoption by users within life sciences and
healthcare customers and among associated physicians;
. successfully identify and enter attractive vertical markets;
. maintain our current suppliers and enter into agreements with additional
suppliers;
. leverage our operational and technical expertise and our electronic
commerce platform;
. rapidly scale our operations;
. generate significant revenues from our vertical marketplaces; and
. obtain higher website traffic and transaction volumes and increase
productivity.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. The success of
this business model will require, among other things, that we develop and
market solutions with broad market acceptance by our customers, suppliers,
users and strategic partners. We cannot be certain that business-to-business
electronic commerce generally, or our purchasing and product information
solution, services and brand in particular, will achieve broad market
acceptance. For example, purchasers may continue obtaining product information
and purchasing products through their existing methods and may not adopt an
Internet-based purchasing solution because of their comfort with existing
information gathering and purchasing habits and direct supplier relationships,
the costs and resources required to switch purchasing methods, the need for
products and product information not offered through our vertical
marketplaces, security and privacy concerns, general reticence about
technology or the Internet or the failure of the market to develop the
necessary infrastructure for Internet-based communications, such as wide-
spread Internet access, high-speed modems, high-speed communication lines and
computer availability.
We have focused on the life sciences industry and our efforts to expand to
other industries may not succeed
To date, we have focused our business on providing an online marketplace
for the life sciences industry and our primary offering has been the Chemdex
Marketplace. However, we intend to develop marketplaces for other vertical
markets, including the healthcare industry, through Promedix as well as
through Broadlane, as well as to the fluid processing industry, through
Industria Solutions. Businesses may be less likely to use our marketplaces in
industries outside of the life sciences industry. Even if they do, we may need
to develop additional expertise or industry-specific knowledge which we may
not be able to do in a timely manner. Therefore, we may not succeed in
establishing successful marketplaces for industries outside of the life
sciences industry. We may also experience difficulties that could delay or
prevent the successful development, introduction or marketing of new or
enhanced marketplaces for other industries in the future. In addition, those
marketplaces may not meet the requirements of the particular vertical market
and therefore, may not achieve market acceptance.
6
<PAGE>
We will need to manage our growth, and to a certain extent the growth of
our joint ventures, and may also need to manage additional integration
challenges
Since inception, we have experienced expansion of our operations that has
placed significant demands on our administrative, operational and financial
resources. We expect the demands on our resources to intensify as a result of
our recent acquisitions and joint ventures and our strategy to pursue
additional acquisitions and joint ventures in the future. As of February 15,
2000, we had grown to 354 employees. We expect to hire a significant number of
new employees to support our business.
To manage future growth, we must improve our financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage our work force. We cannot assure you that we will be able to
perform these actions successfully. We intend to continue to invest in
improving our financial systems and controls in connection with higher levels
of operations. Managing acquired businesses and joint ventures entails
numerous operational and financial risks, including difficulties in
assimilating acquired operations, diversion of management's attention to other
business concerns, amortization of acquired intangible assets and potential
loss of key employees or customers of acquired operations. We cannot assure
you that we will be able to effectively achieve growth, or manage any growth,
and failure to do so could seriously harm our operating results.
We may need to make acquisitions in order to pursue our vertical market
strategy, and our business may be harmed as a result of any of these future
acquisitions.
In order to pursue our strategy of establishing marketplaces in additional
vertical markets, we may find it necessary to acquire additional businesses,
products or technologies. We may not be able to locate suitable acquisition
candidates in markets that we would like to enter. If we do identify an
appropriate acquisition candidate, we may not be able to negotiate the terms
of the acquisition successfully, finance the acquisition, or integrate the
acquired business, products or technologies into our existing business and
operations. Further, completing a potential acquisition and integrating an
acquired business will cause significant diversions of management's time and
resources.
We have in the past and intend in the future to pay for some of our
acquisitions by issuing additional common stock, which would dilute our
stockholders. We may also use cash to buy companies or technologies, and we
may need to incur debt to pay for these acquisitions. Acquisition financing
may not be available on favorable terms or at all. In addition, we may be
required to amortize significant amounts of goodwill and other intangible
assets in connection with future acquisitions, which would materially increase
our operating expenses. For example, as a result of our acquisitions of
Promedix and Specialty MD, we will record for the first quarter of 2000
approximately $431.7 million of goodwill and intangible assets, which will
result in noncash charges to our operations over the next two to three years.
We have a history of losses and anticipate continued losses for the
foreseeable future
We, as well as our recently-acquired companies, have had substantial losses
since inception. We incurred net losses of approximately $48.6 million in
1999, Promedix incurred net losses of approximately $16.2 million in 1999 and
SpecialtyMD incurred net losses of approximately $4.3 million in 1999. We
expect our losses to increase in the future and we cannot assure you that we
will ever achieve or sustain profitability. The extent of these losses in the
future will be contingent, in part, on the amount of growth in our revenue.
The extent of these losses in the future will also be contingent, in part, on
the amount of growth in our operating expenses, which we plan to increase as
we continue to enter new vertical markets. As of December 31, 1999, we had an
accumulated deficit of approximately $57.5 million. If our revenues fail to
grow at anticipated rates or operating expenses increase without a
commensurate increase in revenues, or we fail to adjust operating expense
levels accordingly, the imbalance between revenues and operating expenses will
negatively affect our business, revenues, results of operations and financial
condition. Our historical financial information is of limited value in
projecting future operating results because of the lack of our operating
history as a combined organization and the emerging nature of our markets.
7
<PAGE>
To date, we have derived revenues primarily from product sales through our
Chemdex Marketplace. The Promedix businesses has had minimal revenues, and
neither Industria Solutions nor Broadlane has had any significant revenues. In
order to increase our revenues, we must, among other things:
. attract new enterprise customers to and retain existing enterprise
customers in each of our vertical marketplaces;
. encourage users employed by our enterprise customers to adopt our
Internet-based purchasing solution and to use it frequently;
. increase the breadth of our product offering by adding and maintaining
supplier and content partner relationships; and
. develop new sources of revenues and expand into other vertical markets
beyond our existing revenue sources and vertical markets.
If we are unable to accomplish one or more of these objectives, our
revenues may not grow and our business, revenues, financial condition and
results of operations will be negatively affected. We may not be able to build
on our current sources of revenues by adding additional products or services
or expanding into additional vertical markets. Even if we do add additional
products or services or expand into additional vertical markets, there are
economic, legal, regulatory and other risks associated with adding these new
revenue sources. For example, we may post advertisements on our website to
generate advertising revenue. However, our supplier relationships may be
harmed if our suppliers associate advertisements posted on our website with a
bias in our offering of life sciences research products or specialty
healthcare products.
Our gross margins are low and we will have to increase productivity in our
business to be profitable
Our gross margin for 1999 was approximately 5.0%. We negotiate price
discounts we receive from our suppliers, and thus we are vulnerable to any
decrease in these discount rates. Any decrease would have a significant
negative impact on our financial results. Our gross margins on sales of life
sciences research products are small relative to the margins earned by
traditional distributors of life sciences research products. We expect that
our gross margins in our other vertical marketplaces will be similar to those
in the Chemdex Marketplace. If we do not increase the discounts that we
negotiate from suppliers, substantially increase our revenues and scale our
business in a manner that generates increased productivity, including further
automation of our purchasing solution, we may never achieve profitability.
In addition, due to our low gross margins, unexpected costs or expenses we
incur would substantially affect our ability to achieve or maintain operating
profits. For example, in our Chemdex Marketplace we generally bear the risks
of the loss of products upon shipment by our suppliers to our customers, of
product returns and refunds to our customers and of non-collection of accounts
receivable. Although we maintain insurance for claims for damages to our
customers or others caused by our products, we do not have insurance coverage
for product returns or uncollectible accounts receivable or have adequate
insurance coverage for the costs of products lost during shipment.
We have a limited operating history, which makes it difficult for you to
evaluate our combined business and prospects
We were founded as Chemdex Corporation in September 1997. We changed our
name to Ventro and announced our vertical market strategy in February 2000.
Promedix was founded in December 1996 and for its first two years provided
website design and hosting services for specialty medical manufacturing
clients. Promedix's current strategy of providing a Java-based product
research and purchasing system is being developed, has not been commercially
released and has yet to generate any significant revenue. The SpecialtyMD
business was founded in May 1998; however, we do not intend to continue
SpecialtyMD as a separate business.
8
<PAGE>
Therefore, we have a limited operating history under our current business
model. As such, we will face risks and difficulties as an early stage company
in new and rapidly evolving markets. Some of these specific risks and
difficulties include the following:
. we may be unable to significantly increase and maintain customer
adoption and use of our Internet-based product information and
purchasing solutions;
. we depend substantially on product information and purchasing solutions
that have been present in the market for a limited time and may not be
successful;
. we may be unable to develop and enhance the Ventro, Chemdex and Promedix
brands or those of Broadlane and Industria Solutions;
. we may be unable to maintain existing or establish new relationships
with suppliers of life sciences research products and specialty medical
products;
. we may be unable to establish relationships with suppliers, customers or
other key participants in other markets;
. we will depend substantially on revenues from product sales, and we may
be unable to significantly increase revenues from product sales or
generate revenues from other sources;
. we may be unable to significantly increase revenues from product sales
or generate revenues from supplier sponsorship of clinical content,
supplier payment for placement of additional product support information
or from other sources;
. we may be unable to adapt to rapidly changing technologies and
developing markets;
. we may be unable to effectively manage our rapidly expanding operations
and the increasing use of our services;
. we may be unable to attract, retain and motivate qualified personnel,
particularly people who understand specialized life sciences research
products, specialty healthcare products, the process of specialty
product selection or the life sciences and healthcare industries, or
other vertical markets that we may pursue;
. we may be unable to compete in a highly competitive market dominated by
larger, more established companies with substantial financial resources
and significant customer relationships; and
. we may be unable to comply with applicable laws and regulations to
economically compete in a highly competitive market.
Due to our limited operating history under our current business model, we
believe that period-to-period comparisons of our revenues and results of
operations are not meaningful. As a result, you should not rely on revenues or
results of operations for any prior period as an indication of future
performance or prospects.
The unpredictability of our quarterly results may negatively affect the
trading price of our common stock
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
. demand for and market acceptance of our Internet-based purchasing
solutions, services and marketplaces;
. introduction of new and enhanced purchasing solutions and services by us
or our competitors;
. budgeting cycles of customers and users;
. loss of one or more of our key suppliers, content partners, customers or
strategic relationships;
9
<PAGE>
. changes in our pricing policy or those of our competitors or suppliers;
. amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
. timing and number of new hires;
. ability to comply with applicable laws and regulations or obtain
necessary permits and licenses to sell or ship products to customers;
. timing and success in entering new vertical markets;
. technical difficulties with our website or Internet-based purchasing
solution;
. level of activity and funding in the life sciences and specialty medical
products industries or other vertical markets; and
. general economic conditions.
We may from time to time make pricing, service or marketing decisions or
enter into strategic business combinations that could have a negative effect
on our business, revenues, financial condition or results of operations for
any number of quarterly periods. For example, we intend to significantly
expand our development and engineering expenses to improve our Internet-based
purchasing solution. In addition, in order to accelerate the promotion of our
brand names, we intend to increase our marketing budget significantly. These
increases in expenses may negatively affect our results of operations for a
number of quarterly periods and we cannot assure that these measures will
increase our revenues.
Due to our relatively short operating history, our recent acquisitions and
relatively new business model, we have limited meaningful historical financial
data upon which to base our planned operating expenses. Accordingly, our
expense levels are based in part on our expectations as to future revenues
from new customers and are relatively fixed in the short term. We cannot be
certain that we will be able to accurately predict our revenues, particularly
in light of our limited operating history, the intense competition in the life
sciences and specialty medical products industries, and the resulting
uncertainty as to the success of our business model. If we fail to accurately
predict revenues in relation to fixed expense levels and we are unable to
adjust our operating expenses in a timely manner in response to lower-than-
expected revenues, our results of operations and financial condition could be
negatively affected.
New accounting rules could be proposed that might require us to report
substantially lower revenues
Based on generally accepted accounting principles, we include in our net
revenues the gross revenues from sales of products and related shipping fees,
net of discounts and provisions for sales returns and other allowances as we
are acting as a principal in purchasing products from our suppliers and
reselling them to our customers. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in
Financial Statements, which summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In addition, the Emerging Issues Task Force may prepare new guidance in this
area. If any guidance is proposed and subsequently implemented, these
initiatives may limit the ability of Internet businesses to include in
revenues the gross value of product sales between buyers and sellers. We
cannot predict at this time whether any initiatives will be proposed or
adopted or whether they will require us to change our method of recognizing
revenues for financial reporting purposes. If we are required to change our
accounting policies, we may in the future report substantially lower revenues,
and we may be required to restate the results from earlier periods. This could
cause the market price of our common stock to fall significantly.
If we do not successfully integrate the operations of our recently-acquired
businesses into our operations, our business may be harmed
Our recent mergers involve the integration of two companies into us. The
continued integration of the operations of Promedix and SpecialtyMD into our
operations will require the dedication of management
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resources. We may not be able to overcome any difficulties that we may
encounter in integrating their operations into our operations. The
difficulties of combining these companies into our operations are exacerbated
by the necessity of coordinating geographically-separated organizations,
integrating personnel with disparate business backgrounds and combining
different corporate cultures. The process of integrating operations could
cause an interruption of, or loss of momentum in, our business activities,
including the businesses acquired in the mergers.
We have a significant amount of debt that we may be unable to service or
repay
In connection with the sale of the notes, we will incur $300.0 million of
indebtedness, $345.0 million if the over-allotment option is exercised in
full, which will result in our having as of December 31, 1999 a ratio of long-
term debt to total pro forma capitalization (including the acquisitions of
Promedix and SpecialtyMD) of approximately 26.6%, 29.4% if the over-allotment
option is exercised in full. The annual interest payments on the notes offered
will be $ million, which we expect to fund from cash flow from operations.
We will need to generate substantial amounts of cash from our operations to
fund interest payments and to repay the principal amount of debt when it
matures, while at the same time funding capital expenditures and our other
working capital needs. If we do not have sufficient cash to repay our debts as
they become due, we may be unable to refinance our debt on reasonable terms or
at all. For example, the notes could be declared immediately due and payable
if we do not make timely payments. If we cannot meet our debt obligations from
the cash generated by our business, we may not be able to develop and sell new
products, respond to changing business or economic conditions adequately, make
acquisitions or otherwise fund our business.
If we cannot build a critical mass of suppliers and customers, we will not
be able to increase our product offering and draw more customers
Our business model depends in large part on our ability to build a critical
mass of products and suppliers in each of our vertical marketplaces. To
attract and maintain suppliers, we must attract a critical mass of customers.
However, customers must perceive value in each of our marketplaces which, in
part, depends upon the breadth of our product offerings from our suppliers. If
we are unable to increase the number of suppliers and draw more customers to
each of our marketplaces, we will not be able to benefit from any network
effect in the marketplace, where the value to each participant in a
marketplace increases with the addition of each new participant. As a result,
the overall value of our marketplaces and our purchasing solutions would be
harmed, which would negatively affect our business, revenues, financial
condition and results of operations.
Our ability to increase the number of suppliers and products offered on our
current and future marketplaces might also be limited by several factors,
including:
. consolidation among suppliers;
. reluctance of suppliers to offer products and product information in an
online marketplace that potentially includes their competitors;
. perceptions by suppliers that preferred treatment is given to other
suppliers; and
. exclusive or preferential arrangements signed by suppliers with our
competitors.
If our current suppliers, or other suppliers we are trying to include in our
marketplaces, agree not to include their products in our marketplaces, our
business could suffer.
The success of our business depends on maintaining and expanding our
supplier base
Our future success depends in large part upon our ability to offer and
deliver a broad and deep product offering to our customers in each of our
marketplaces. We rely on independent suppliers and manufacturers for products
offered through our marketplaces. To increase the breadth of our product
offerings, including related products that we do not currently offer such as
medical devices and laboratory equipment and supplies, we must establish
relationships with additional suppliers. Some potential suppliers may view us
as detrimental to their
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business, since suppliers compete with one another and with us for sales and
customers. Our agreements with suppliers are typically for one-year terms and
we cannot assure you that these agreements will be renewed beyond the initial
term. In addition, these suppliers are not required to accept purchase orders
from us. If we fail to secure products from our suppliers or if a significant
number of suppliers do not renew their agreements with us, the breadth and
depth of products that we can offer users would be decreased. In addition,
there are significant costs, difficulties and risks associated with adding new
products in related markets, such as the difficulty of signing up new
suppliers, obtaining necessary permits, complying with governmental
regulation, pressures on margins, new competition and integration of these new
products into our marketplaces. These events could result in decreased
adoption and use of our purchasing solution and decreased revenues, which
could have a negative effect on our business, results of operations and
financial condition.
Our cost of revenues includes the cost of the goods we buy from our
suppliers. We cannot assure you that our suppliers will enter into or renew
agreements with us on the same or similar terms as those currently in effect
or that the cost of goods payable to our suppliers will remain the same. Less
favorable terms will make it difficult for us to achieve profitable
operations. Any decreases in our already low gross margins will have a
significant negative effect on our results of operations and financial
condition.
Our supplier agreements are nonexclusive and many of our suppliers sell
their products directly to our customers through other channels. In addition,
the growing reach and use of the Internet has further intensified competition
in our industry. Some suppliers provide customers with direct access to
products, and if suppliers, including our current suppliers, provide products
to enterprise customers and their users at a cost lower than ours, our
revenues, results of operations and financial condition could be negatively
affected.
If we cannot timely and accurately add supplier product data to our
databases we may lose sales and customers, which would adversely affect our
revenues
Currently, we are responsible for loading supplier product information into
the database for our Chemdex Marketplace and categorizing the information for
search purposes. We expect to use a similar process for Promedix, Industria
Solutions, Broadlane and any of our future vertical marketplaces. This process
entails a number of risks, including dependence on our suppliers to provide us
in a timely manner with accurate, complete and current information about their
products, and to promptly update this information when it changes. We will not
derive revenue from these products until these data are loaded in our system.
Timely loading of these products in our database depends upon a number of
factors, including the file formats of the data provided to us by suppliers
and our ability to further automate and expand our operations to accurately
load these data in our product database, any of which could delay the actual
loading of these products beyond the dates estimated by us. We may in the
future use an independent company to input some or all of the data provided by
suppliers. If this company fails to accurately input the data accurately, our
reputation might suffer and we could lose customers.
In addition, we are generally obligated under our supplier agreements to
load updated product data onto our database for access through our
marketplaces within a specified period of time following their delivery from
the supplier. Our current supplier data backlog could make it difficult for us
to meet these data update obligations to our suppliers. While we intend to
further automate the loading and updating of supplier data on our system, we
cannot assure you that we will be able to do so in a timely manner, in part
because achieving a higher level of automation depends upon our suppliers'
automating their delivery of product data to us. If our suppliers do not
provide us in a timely manner with accurate, complete and current information
about the products we offer, our database may be less useful to our customers
and users and may expose us to liability. Although we screen our suppliers'
information before we make it available to our customers and users, we cannot
guarantee that the product information available in our marketplaces will
always be accurate, complete and current, or comply with governmental
regulations. This could expose us to liability or result in decreased adoption
and use of our Internet-based purchasing solution, which could reduce our
revenues and therefore have a negative effect on our results of operations and
financial condition.
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If our third-party carriers do not provide timely and professional delivery
of products to our customers, our business will be harmed
We rely on third-party carriers for shipments to and from customers. We are
therefore subject to the risks, including employee strikes and inclement
weather, associated with our carriers' ability to provide delivery services.
If carriers do not deliver the products to our customers in a professional,
safe and timely manner, then our services will not meet customer expectations
and our reputation and brand names will be damaged. In addition, deliveries
that are nonconforming, late or are not accompanied by information required by
applicable law or regulations, could expose us to liability or result in
decreased adoption and use of our marketplaces, which could have a negative
effect on our business, results of operations and financial condition.
Further, in our Chemdex Marketplace, we, and not our suppliers, typically bear
the responsibility for product refunds and returns and the risk of non-
collectibility of accounts receivable from our customers.
To attract customers and suppliers to our marketplaces, we must not favor
one supplier over another
The vertical markets in which we operate consist of complex sets of
relationships among manufacturers, suppliers, distributors and customers. We
believe that this will be true in other vertical markets we may enter in the
future. Adoption of our solution by suppliers and customers depends on their
perception that we provide a neutral, unbiased marketplace to purchase and
sell products. To the extent that we are perceived by our customers or
suppliers as favoring one supplier over another, customers and suppliers may
lose confidence in our marketplaces as fair and neutral marketplaces and
choose alternative solutions. Our relationship with VWR, including the fact
that VWR is a stockholder and is represented on our board of directors, may
compromise the perception that we provide a neutral and unbiased marketplace
for life sciences research products. Any bias, whether perceived or actual,
could have a negative impact on our ability to maintain or increase our
supplier base, which in turn may limit our ability to maintain or increase our
customer base. This would reduce revenues and therefore have a negative impact
on our business, results of operations and financial condition.
We face intense competition that could limit our ability to expand our base
of customers and users
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. We face competition from
four main areas: other companies with e-commerce offerings, traditional
suppliers and distributors of products in the vertical markets we serve,
companies that have developed their own purchasing solutions and enterprise
software companies that offer, or may develop, alternative purchasing
solutions. We may not be able to compete successfully against our current or
future competitors and competition could seriously harm our business, results
of operations and financial condition. Our competitors and potential
competitors may develop superior Internet purchasing solutions that achieve
greater market acceptance than our solution. In addition, substantially all of
our prospective customers have established long-standing relationships with
some of our competitors or potential competitors, including most of our
suppliers. Accordingly, we cannot be certain that we will be able to expand
our customer list and user base, or retain our current customers or suppliers.
Competition is likely to intensify as our markets mature and as we enter
additional vertical markets. As competitive conditions intensity, competitors
may:
. enter into strategic or commercial relationships with larger, more
established companies and content providers;
. secure services and products from suppliers on more favorable terms;
. devote greater resources to marketing and promotional campaigns;
. secure exclusive or preferential arrangements with purchasers or
suppliers that limit sales through our marketplaces; and
. devote substantially more resources to website and systems development.
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Many of our existing and potential competitors have longer operating
histories, greater name recognition, larger customer bases and greater
financial, technical and marketing resources than we do. As a result of these
factors, our competitors and potential competitors may be able to respond more
quickly to market forces, undertake more extensive marketing campaigns for
their brands and services and make more attractive offers to purchasers and
suppliers, potential employees and strategic partners. In addition, new
technologies may increase competitive pressures. We cannot be certain that we
will be able to maintain or expand our user base. We may not be able to
compete successfully against current and future competitors and competition
could result in price reductions, reduced sales, gross margins and operating
margins and loss of market share.
If we succeed in expanding into other vertical markets, we could also face
competition from many different larger and small companies.
Our solution and services are new and face rapid technological changes and
if we do not respond appropriately, we may lose customers
The markets for our solution are characterized by rapid technological
advances, evolving standards in the Internet and software markets, changes in
customer requirements and frequent new product and service introductions and
enhancements. As a result, our future success depends upon our ability to
enhance our current Internet-based purchasing solution and services, to
develop and introduce new solutions and services that will achieve market
acceptance, and where necessary to integrate our Internet-based purchasing
solution with our customers' enterprise resource planning systems. If we do
not adequately respond to the need to develop and introduce new solutions or
services, or to integrate with our customers' enterprise resource planning
systems, then our business, revenues, results of operations and financial
condition will be negatively affected. For example, we may lose market share
and ultimately revenue as our customers switch to our competitors' offerings
if:
. we are unable to develop technology that is a success in a particular
marketplace;
. our technology does not integrate with our customers' and suppliers'
systems; and
. our technology is surpassed by the superior technology of a competitor.
Further, we may incur significant expense to integrate our purchasing
solution with our customers' enterprise resource planning systems and business
rules, and to maintain this integration as our customers' enterprise resource
planning systems evolve. Failure to provide this integration may delay or
altogether dissuade the market or a particular customer from adopting our
Internet-based purchasing solution, which could negatively affect our revenues
and therefore have a material adverse effect on our business, results of
operations and financial condition.
We must devote significant resources toward attracting users in order to
grow our business
Recognition and positive perception of the Chemdex and Promedix brand names
in the life sciences and specialty medical products industries and the Ventro
brand name in general are important to our success. We have only recently
changed our name to Ventro and begun pursuing our vertical market strategy. We
intend to significantly expand our advertising and publicity efforts in the
near future. However, we may not achieve our desired goal of increasing the
awareness of our brand names. Even if recognition of our brand names
increases, it may not lead to an increase in the number of visitors to our
online marketplaces or websites or increase the number of users of our
services. In addition, as part of our brand building efforts, we intend to
undertake a number of promotional programs and these may not be successful.
We may not be able to determine or design the features and functionality
that our enterprise customers and users require or prefer
Our success depends upon our ability to accurately determine the features
and functionality that our customers require or prefer in an e-commerce
solution, and our ability to successfully design and implement
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purchasing solutions that include these features and functionality. If we are
unable to determine or design the features and functionality that our
customers require or prefer in an e-commerce solution, our business will be
negatively affected. We have designed our marketplaces based upon internal
development efforts and feedback from a relatively limited number of
enterprise and users. We cannot be certain, however, that the features and
functionality that we currently offer in our marketplaces, or those that we
may offer in future releases of our solution, will satisfy the requirements or
preferences of our current or potential customers.
We depend on our key personnel to manage our business effectively in a
rapidly changing market
Our performance substantially depends on the performance of our executive
officers and other key employees. We do not have any employment agreements
with our executive officers and key employees, except for certain agreements
with former Promedix and SpecialtyMD executives, although some of our
executives and employees have severance arrangements. Our failure to
successfully manage our personnel requirements would have a negative effect on
our business, revenues, financial condition and results of operations. We have
experienced difficulty from time to time in hiring the personnel necessary to
support the growth of our business, and we may experience similar difficulty
in hiring and retaining personnel in the future, especially in light of the
volatility and current market price of our common stock. Competition for
senior management, experienced sales and marketing personnel, software
developers, qualified engineers and other employees is intense, and we cannot
be certain that we will be successful in attracting and retaining our
personnel. The loss of the services of any of our executive officers or other
key employees could have a negative effect on our business. In particular, the
loss of services of David Perry, our President and Chief Executive Officer,
and Pierre Samec, our Chief Information Officer, would have a detrimental
effect on our business. Mr. Perry is one of the co-founders and is primarily
responsible for our vision and future direction, and Mr. Samec is responsible
for all of our technology systems and software.
Our current or any future joint ventures may not produce significant
revenues for us
We have only recently announced our Broadlane and Industria Solutions joint
ventures. These ventures target markets that have typically not utilized the
Internet or electronic commerce as means of purchasing supplies. Therefore,
these joint ventures, or any other joint ventures that we may enter into in
the future, may never achieve significant revenues. In addition, we anticipate
that in order to enter additional vertical markets, we may need to establish
joint ventures with key participants in the target market. We may not be
successful in attracting key participants for any future joint ventures.
Furthermore, these key participants could decide to develop a marketplace on
their own or with another third party, which could make it more difficult for
us to enter a new market. Even if we are able to enter into the joint ventures
with these participants, these entities may not devote sufficient resources to
the joint venture or the joint venture may never achieve commercial success.
Therefore, we cannot assure you that any future joint ventures will result in
significant revenues to us.
In addition, as part of our joint venture agreements, we could be required
to exclusively license our technology to the joint venture for a particular
market. If the venture is not commercially successful, we would not be able to
pursue other opportunities within that market.
We rely on a limited number of enterprise customers, and any loss of an
enterprise customer could have a negative effect on us
We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of enterprise customers.
Further, our enterprise customers are not obligated to use our purchasing
solution exclusively or for any minimum number of transactions or dollar
amounts. We currently do not offer all of the life science research and
specialty medical products required by our customers, and we expect that our
customers will continue to use multiple sources to meet their needs. In
addition, our contracts with our customers are for limited terms and our
customers may discontinue use of our marketplaces at any time upon short
notice and without penalty. If we lose any of our enterprise customers, or if
we are unable to add new enterprise customers, our revenues will not increase
as expected, we will lose access to the users employed by these enterprises,
we could lose a number of our product suppliers, and our brand names and
customer and supplier perceptions of our purchasing solution would be harmed.
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We expect to depend on our Chemdex Marketplace for substantially all of our
revenues for the foreseeable future
Revenues from our Chemdex Marketplace accounted for all of our net revenues
during the year ended December 31, 1999. We anticipate that revenues from the
Chemdex Marketplace will continue to account for a substantial majority of our
revenues for the foreseeable future. Consequently, a decline in demand for the
Chemdex Marketplace or its failure to achieve broader market acceptance, would
seriously harm our business.
We will significantly depend on our strategic relationship with VWR for the
foreseeable future
We entered into a strategic relationship agreement with VWR Scientific
Products Corporation to jointly market VWR laboratory products using the
Chemdex Marketplace. The agreement gives us the right to offer approximately
350,000 VWR-distributed products to our customers through the Chemdex
Marketplace. We and VWR also jointly developed an Internet purchasing solution
for VWR's existing and future customers that will provide access to three
categories of products:
. products distributed by VWR (VWR core products);
. products distributed by Ventro (Ventro core products); and
. products that are not distributed by either VWR or Ventro but are
purchased from third parties (third-party products).
Due to the extent to which the Chemdex Marketplace operations are
integrated with VWR, and because the Chemdex Marketplace accounts for the
substantial majority of our revenues, we will significantly depend on VWR for
the foreseeable future. We may experience technical or logistical difficulties
in integrating VWR's suppliers, products and services with the Chemdex
Marketplace. If we are unable to do so in a timely manner, our business,
revenues, financial condition and results of operations could be negatively
affected. In addition, our agreement with VWR is nonexclusive except as to the
purchase of third-party products by VWR and some other provisions and has a
limited term. We cannot be certain that VWR will not enter into a similar
relationship with one of our competitors, or that VWR will renew our agreement
at the end of its term.
We receive no fee for orders for VWR core products through the Chemdex
Marketplace from VWR's 40 largest customers and we receive a minimal fee for
all other orders for VWR core products forwarded to VWR. Under the terms of
the agreement, VWR provides some support services for purchasing third-party
products in exchange for a fee which approximates VWR's costs incurred.
Since we receive minimal gross margins for sales of third-party products,
our gross profit margins on these sales are lower than our margins on sales of
Chemdex core products. To the extent sales of VWR core products or third-party
products increase relative to, or displace our sales of Chemdex core products,
our revenues and gross margins will likely decline, which would make it more
difficult for us to achieve profitability.
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us. For example, we plan to provide the greatest number and
variety of products from the greatest number of suppliers possible; however,
our strategic relationship with VWR may deter other suppliers, particularly
those that offer products that compete directly with VWR products, from
entering into agreements with us. In addition, as noted above, our agreement
with VWR is nonexclusive, and it is possible that VWR could enter into similar
relationships with one or more of our competitors, or develop its own
purchasing solution that would compete with ours.
The Chief Executive Officer of VWR is a member of our board of directors,
which may lead to conflicts of interest that could be detrimental to us
Paul Nowak, the Chief Executive Officer of VWR, is a member of our board of
directors. This may lead to conflicts of interest, as VWR is one of the
laboratory supply industry's largest distributors and is a potential
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competitor of ours. In addition, VWR has entered into and may in the future
enter into relationships with our competitors, other suppliers or our
customers. Although we intend to have Mr. Nowak recuse himself from board
discussions that involve potential conflicts of interest, we cannot be sure
that this will minimize these conflicts of interests or that Mr. Nowak's
position as a member of our board of directors will not operate to our
detriment.
The time it takes to sell and implement our solution is long, which could
negatively affect our revenue growth, if any, and make it difficult to predict
our revenues and results of operations
A key element of our current strategy is to market our solutions directly
to the enterprise purchasing departments, the information technology groups
and the individual users of our Internet-based purchasing solution. The time
it takes to sell and implement our solution is long and we devote significant
sales, marketing and management resources to the sales process without any
assurance that the customer will use our marketplaces or websites. We are
generally required to provide a significant level of education to our
customers and potential customers regarding the use and benefits of our
Internet-based purchasing solution. Furthermore, potential enterprise
customers and a number of their departments typically engage in extensive
internal reviews and analyses before making purchasing decisions. The sale and
implementation of our solution are subject to delays due to our customers'
internal budgeting and procedures for approving capital expenditures and
deploying new technologies within their networks. These delays also could
impair our ability to generate revenue.
Even if enterprise customers adopt our purchasing solution, we may not
increase our revenues if users within these enterprises do not use our
marketplaces or websites
Our revenues have been, and for the foreseeable future will continue to be,
primarily derived from purchases of life sciences research products by
researchers, research assistants and other users within our enterprise
customers. These persons may not use our marketplaces to purchase their
research products. Even if we successfully maintain existing enterprise
customers and add new enterprise customers, we may not be able to increase
revenues if users within our enterprise customers do not adopt and use our
marketplaces. Once an enterprise customer adopts our Internet-based purchasing
solution, it takes time for researchers and other users within the enterprise
to become aware of, learn to use and begin using our marketplaces. The long
sales cycle and the time it takes for researchers and purchasing professionals
to begin using our Internet-based purchasing solution could negatively affect
our revenue growth and makes it difficult to predict our results of
operations. Also, our efforts to attract users to adopt and to increase their
use of our solution may not be successful, which would limit our ability to
generate revenues from these customers.
Reductions in the research and development budgets and government research
funding of our customers will negatively affect our revenues from the Chemdex
Marketplace
The Chemdex Marketplace is used by researchers and their assistants and
staff at pharmaceutical and biotechnology companies and academic and research
institutions. Changes in the research and development budgets of these
companies and institutions and the timing of spending under these budgets can
have a significant effect on the demand for life sciences research products.
These budgets are based on a wide variety of factors including the resources
available to make these expenditures, the spending priorities among various
types of research, and the policies regarding these expenditures during
recessionary periods. Any decrease in life sciences research and development
expenditures by these companies and institutions could have a negative effect
on our revenues.
A significant portion of Chemdex's sales are expected to be to research
scientists and entities whose funding is dependent on grants from government
agencies such as the U.S. National Institute of Health, or the NIH, and
similar domestic and international agencies. The funding associated with
approved NIH grants generally becomes available at particular times of the
year, as determined by the federal government, and may result in fluctuations
in our revenues and results of operations. Although NIH research funding has
increased during the past several years, grants have, in the past, been frozen
for extended periods or have otherwise become unavailable to various
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institutions, sometimes without advance notice. Furthermore, recent government
proposals designed to reduce or eliminate budgetary deficits have included
reduced allocations to the NIH and other government agencies that fund
research and development activities. If government funding, especially NIH
grants, were to become unavailable to researchers for any extended period of
time, or if overall research funding were to decrease, there could be a
negative effect on our business, revenues, results of operations and financial
condition.
Changes in the healthcare environment that affect the purchasing practices
and operation of healthcare organizations, or any consolidation in the
healthcare industry, could affect our revenues from the Promedix Marketplace
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Factors such as changes in
reimbursement policies for healthcare expenses, consolidation in the
healthcare industry and general economic conditions affect the purchasing
practices and operation of healthcare organizations. Changes in regulations
affecting the healthcare industry, such as any increased regulation by the
Food and Drug Administration of the purchase and sale of medical products,
could require us to make unplanned enhancements to Promedix, or result in
delays or cancellations of orders or reduce demand for this service. Federal
and state legislatures have periodically considered programs to reform or
amend the U.S. healthcare system at both the federal and state level. These
programs may contain proposals to increase governmental involvement in
healthcare, lower reimbursement rates or otherwise change the environment in
which healthcare industry providers operate. We do not know what effect any
proposals would have on Promedix.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide services to industry
participants will become more intense and the importance of establishing a
relationship with each industry participant will become greater. These
industry participants may try to use their market power to negotiate fee
reductions of Promedix's services. If we were forced to reduce these fees, our
operating results could suffer if we cannot achieve corresponding reductions
in our expenses.
We are subject to government regulation that exposes us to potential
liability and negative publicity.
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping,
licensing, and other regulatory requirements applicable to our business during
the entire transaction. Our reliance on suppliers' regulatory due diligence
assessment of purchasers and the compliance by suppliers and purchasers with
applicable governmental regulations may not be sufficient if we are held to
need our own licenses. For example, if we are held to be seller or a
distributor of regulated products because we take legal title, we may have
inadvertently violated some governmental regulations by not having the
appropriate license or permit and may be subject to potentially severe civil
or criminal penalties and fines for each offense. We are aware that some of
our prior sales may have been made in the absence of our having the requisite
local, state, or federal license or permit. We may be subject to potentially
severe civil and criminal penalties and fines for each of these sales, which
could have a material adverse impact on our business, revenues, results of
operations and financial condition. In addition to these prior sales, we are
unable to verify that our suppliers have in the past complied, or will in the
future comply, with the applicable governmental regulatory requirements, or
that their actions are adequate or sufficient to satisfy all governmental or
other legal requirements that may be applicable to our sales. We could be
fined or exposed to significant civil or criminal liability, including
monetary fines and injunctions, and we could receive potential negative
publicity, if the applicable governmental regulatory requirements have not
been, or are not being, fully met by our suppliers or by us directly. Negative
publicity, fines and liabilities could also occur if an unqualified person, or
even a qualified customer, lacks the appropriate license or permits to sell,
use or ship, or improperly receives a dangerous or unlicensed product through
the Chemdex or Promedix marketplaces. We do not maintain any reserve for
potential liabilities resulting from government regulation. It is also
possible that a number of laws and regulations may be adopted or interpreted
in the United States and abroad with particular applicability to the Internet.
18
<PAGE>
We may be exposed to product liability claims
We face potential liability for claims based on the type and adequacy of
the information and data that we obtain from suppliers and make available, and
the nature of the products that we sell and distribute utilizing the Internet,
including claims for breach of warranty, product liability, misrepresentation,
violation of governmental regulations and other commercial claims. In
particular, we bear the risk of liability for product loss, spill, or release,
and resulting damages to persons and property during delivery by the supplier
to the customer and return by the customer to the supplier. We do not pass
through the manufacturers' warranties on the products we distribute. However,
we bear the risk of loss of revenue from the product sale if a purchaser does
not pay for a defective product. We also bear some risk if our suppliers have
not obtained appropriate approvals for products regulated by the U. S. Food &
Drug Administration, or do not comply with the requirements relating to those
approvals. The failure to obtain or comply with those approvals, or other
failures by these products themselves, could result in costly product recalls,
significant fines and judgments, civil and criminal liabilities, and negative
publicity. Although we maintain general liability insurance, our insurance may
not cover some claims, penalties, or spills, is subject to policy limits and
exclusions, and may not be adequate to fully indemnify us or our employees for
any civil, governmental or criminal liability that may be imposed.
Furthermore, this insurance may not be available at commercially reasonable
rates in the future. Any liability not covered by our insurance or in excess
of our insurance coverage could have a negative effect on our business,
results of operations and financial condition. Our liability is potentially
greater with respect to sales to users and others that are not affiliated with
an enterprise customer.
Because we facilitate the sale of many different life sciences and
specialty medical products by suppliers, and publish information about medical
products, we may become subject to legal proceedings regarding defects in
these products or the information provided. In addition, Promedix takes title
to certain products between the period of time after the supplier has
delivered the product but before the product has been accepted by the
customer. Any claims, with or without merit, could be time-consuming to
defend, result in costly litigation or divert management's attention and
resources.
We also seek to obtain indemnification from our suppliers against some of
these claims. However, the scope of the indemnification is limited, a few of
our suppliers have not agreed to indemnify us, and some suppliers may be
unable or unwilling to indemnify us in the future. In addition, we are not in
a position to monitor our suppliers' activities. Therefore, we are exposed to
liability and risk for these claims.
As we enter new vertical markets, including the healthcare and fluid
processing markets, which we have recently entered, we expect to face exposure
to similar product liability risks.
We may require additional capital for our operations, which could have a
negative effect on your investment
We currently anticipate that our existing borrowing arrangements and
available funds will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in the future in order to fund rapid
expansion, to pursue customer sales and implementation, to develop new or
enhanced solutions and services, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. Our joint
ventures, in particular, may require us to raise additional funds because we
may be responsible, at our own expense, for building and growing the
infrastructure that will be required to support the joint ventures.
If we raise additional funds through the issuance of equity or additional
convertible debt securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution and these
securities may have powers, preferences and rights that are senior to those of
the rights of our common stock. We cannot be certain that additional financing
will be available on terms favorable to us, if at all. If adequate funds are
not available or not available on acceptable terms, we may be unable to fund
our expansion, promote our brand identity, take advantage of unanticipated
acquisition opportunities, develop or enhance services or respond to
competitive pressures. Any inability to do so could have a negative effect on
our business, revenues, financial condition and results of operations.
19
<PAGE>
Our international expansion may make it more difficult to manage our
business
We have begun to enter the international market. We are in the process of
establishing international operations, hiring additional personnel and
establishing relationships with additional suppliers and partners. This
expansion will require significant management attention and financial
resources and could have a negative effect on our business, revenues,
financial condition and results of operations. We cannot assure you that we
will be able to create or sustain international demand for our Internet-based
purchasing solution and services. In addition, our international business may
be subject to a variety of risks, including applicable government regulation,
difficulties in collecting international accounts receivable, longer payment
cycles, increased costs associated with maintaining international marketing
efforts, the introduction of non-tariff barriers and higher duty rates and
difficulties in enforcement of contractual obligations and intellectual
property rights. We cannot assure you that these factors will not have a
negative effect on any future international sales and, consequently, on our
business, results of operations and financial condition.
We depend on our intellectual property rights and are subject to the risk
of infringement or loss of rights
Our intellectual property is important to our business, and we seek to
protect our intellectual property through copyrights, trademarks, trade
secrets, confidentiality provisions in our customer, supplier and strategic
relationship agreements, nondisclosure agreements with third parties, and
invention assignment agreements with our employees and contractors. We cannot
assure that measures we take to protect our intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Our
failure to protect against misappropriation of our intellectual property, or
claims that we are infringing the intellectual property of third parties could
have a negative effect on our business, revenues, financial condition and
results of operations.
We license some of the software for our websites from third party
developers. The use of this software is an integral part of our Internet
solution. A positive relationship with the third party developers is important
to maintaining our access to source code needed to operate the website.
Without the cooperation of these third party developers the functionality of
the Internet site would be impaired.
We will be licensing our technology to our joint venture partners,
frequently granting exclusive licenses to these joint ventures to use our
technology within the joint venture's vertical market, thus losing some
control over the use of our technology. Pursuant to our existing licenses, we
have made certain representations and warranties with respect to the
technology we have licensed to the joint ventures, and we have agreed to
defend and indemnify the joint ventures against claims of infringement. It is
possible we will have to do the same with future joint ventures. As such, we
may be exposed to a greater risk of liability for intellectual property
infringement claims by others, which could have a negative impact on our
business, revenues, financial condition and results of operation.
Risks Related to the Internet Industry
Our business will suffer if the life sciences, specialty medical products,
healthcare, fluid processing or other vertical industries do not accept
Internet solutions
Business-to-business e-commerce is a new and emerging business practice
that remains largely untested. Growth in the demand for our Internet-based
purchasing solutions, services and marketplaces depends on the adoption of e-
commerce and Internet solutions by life sciences, specialty medical products,
hospitals, medical supplies, fluid processing or other vertical industry
participants, which requires the acceptance of a new way of conducting
business and purchasing supplies. Our business could suffer dramatically if e-
commerce and Internet solutions are not accepted or not perceived to be
effective.
20
<PAGE>
The Internet may not prove to be a viable commercial marketplace for the
life sciences, specialty medical products healthcare, fluid processing
industries or other vertical industries for a number of reasons, including:
. inadequate development of the necessary infrastructure for Internet-
based communications within life sciences and specialty medical products
organizations and other vertical industries;
. security and confidentiality concerns of customers and suppliers;
. lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
. implementation of competing purchasing solutions;
. lack of human contact that current, traditional suppliers provide; and
. governmental regulation.
The accelerated growth and increasing volume of Internet traffic may cause
performance problems that may slow adoption of our Internet-based purchasing
and product information solution
The growth of Internet traffic to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This
decreased performance is caused by limitations inherent in the technology
infrastructure supporting the Internet and the internal networks of Internet
users. If Internet usage continues to grow rapidly, the infrastructure of the
Internet may be unable to support the demands of growing e-commerce usage, and
the Internet's performance and reliability may decline. If our existing or
potential enterprise and research customers experience frequent outages or
delays on the Internet, the adoption or use of our Internet-based, e-commerce
purchasing and product information solution may grow more slowly than we
expect or even decline. Our ability to increase the speed and reliability of
our Internet-based purchasing and product information solution is limited by
and depends upon the reliability of both the Internet and the internal
networks of our existing and potential customers. As a result, if improvements
in the infrastructure supporting both the Internet and the internal networks
of our enterprise customers and their users are not made in a timely fashion,
we may have difficulty obtaining new customers, or maintaining our existing
customers, either of which could reduce our potential revenues and have a
negative impact on our business, results of operations and financial
condition.
Security and disruption problems with the Internet or transacting business
over the Internet may inhibit the growth of our Internet-based purchasing
solution
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence in our marketplaces
and our product information websites. Customers generally are concerned with
security and privacy on the Internet and any publicized security problems
could inhibit the growth of the Internet, and therefore our purchasing and
product information solution, as a means of conducting transactions.
Substantial security breaches on our system could significantly harm our
business. A party that is able to circumvent our security systems could
misappropriate proprietary information or cause interruptions in our
operations. We incur substantial expense to protect against and remedy
security breaches and their consequences. Despite the implementation of
security measures, our networks may be vulnerable to unauthorized and illegal
access, computer viruses and other disruptive problems. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to users accessing our solution.
Internet service providers and online service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Although we intend to continue to
implement industry-standard security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
21
<PAGE>
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand names may be damaged
and we may be exposed to a risk of loss or litigation and possible liability.
Damage to our reputation and brand names could cause us to lose suppliers and
customers and negatively affect our business, results of operations and
financial condition. Our insurance policies may not be adequate to reimburse
us for losses caused by security breaches or service disruption.
System failure may cause interruption of our services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service, and attract and
retain customers, suppliers, users and strategic partners. Currently our
infrastructure and systems are located at one site at Exodus Communications in
Sunnyvale, California. We anticipate adding a mirror site at a different,
distant location. Until then, we depend on our single-site infrastructure and
any disruption to this infrastructure resulting from a natural disaster or
other event could result in an interruption in our service, fewer transactions
and, if sustained or repeated, could impair our reputation and the
attractiveness of our services.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and
similar events. We do not have a formal disaster recovery plan or alternative
provider of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any
failure on our part to expand our system or Internet infrastructure to keep up
with the demands of our customers and users, or any system failure that causes
an interruption in service or a decrease in responsiveness of our Internet-
based purchasing solution or website, could result in fewer transactions and,
if sustained or repeated, could impair our reputation and the attractiveness
of our brand names, which would harm our business, revenues, financial
condition and results of operations.
Regulation or taxation of the Internet or transacting business over the
Internet may inhibit the growth of our Internet-based purchasing solution
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that a number of taxes, laws and regulations may be adopted in
the U.S. and abroad with particular applicability to the Internet and e-
commerce transactions. It is possible that governments will adopt taxes and
enact legislation that may be applicable to us in areas such as content,
product distribution, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and re-transmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation and
personal privacy is uncertain. Taxes, laws or regulations may limit the growth
of the Internet, dampen e-commerce and reduce the number of transactions,
increase our cost of doing business or increase our legal exposure. Any of
these factors could have a negative effect on our business, revenues, and
results of operations and financial condition.
Significant credit card fraud could harm our net revenues
If we are unable to adequately prevent or detect fraudulent credit card
transactions, our net sales and results of operations would be harmed. Under
current credit card practices, we are liable for fraudulent credit card
transactions because we do not obtain a cardholder's signature.
Risks Related to the Offering
Officers and directors and their affiliates will continue to have
substantial control over us after the offering
Upon completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately 49.7% of the shares of
common stock. As a result, our officers, directors and their affiliates will
have the ability to influence the election of our board of directors and the
outcome of corporate actions requiring stockholder approval. This
concentration of ownership may have the effect of delaying or preventing a
change in control of Ventro. See "Principal and Selling Stockholders."
22
<PAGE>
We expect the price of our common stock to continue to be volatile
The market price of our common stock has fluctuated significantly since our
initial public offering and may continue to fluctuate significantly in
response to a number of factors, some which are beyond our control, including:
. quarterly variations in our operating results;
. changes in estimates of our financial performance by securities
analysts;
. changes in market valuation of Internet commerce companies generally;
. announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. loss of a major customer, supplier or strategic partner, or failure to
complete a sale of our purchasing solution to a significant customer;
. additions or departures of any of our key personnel;
. future sales of our common stock; and
. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources, which could have a negative effect on
our business, results of operations and financial condition.
The trading market price of our stock may decline as a result of
substantial sales of our common stock after the offering
Sales of a substantial number of shares of our common stock after the
offering could negatively affect the market price of our common stock and
could impair our ability to raise capital through the sale of additional
equity securities. Upon completion of this offering, we will have 46,003,563
shares of common stock outstanding. The 8,625,000 shares sold in our initial
public offering, the 2,357,697 of the shares issued in connection with our
acquisition of Promedix, the 1,825,000 shares sold in this offering and the
shares issuable upon conversion of the notes being sold concurrently with
this offering, will be freely tradable without restriction or further
registration under the federal securities laws unless purchased by our
"affiliates" as that term is defined in Rule 144. Of the remaining 33,195,866
shares of common stock outstanding upon completion of the offering
approximately 26,294,782 will be subject to lock up agreements restricting
their resale, 5,651,153 shares will be "restricted securities" as that term is
defined in Rule 144 and 1,249,931 shares issued in connection with our
acquisition of SpecialtyMD have restrictions on their resale.
Stockholders holding in the aggregate approximately 56% of the outstanding
common stock have executed lock-up agreements that limit their ability to sell
common stock. These stockholders and option holders have agreed not to sell or
otherwise dispose of any shares of common stock for a period of at least 90
days after the date of this prospectus without the prior written approval of
Morgan Stanley & Co. Incorporated. When the lock-up agreements expire, these
shares and the shares underlying the options will become eligible for sale, in
some cases only pursuant to the volume, manner of sale and notice requirements
of Rule 144. For a further discussion of the shares that will be freely
tradable after the date of this prospectus, please see "Shares Eligible for
Future Sale."
23
<PAGE>
Anti-takeover provisions may adversely effect our stock price and make it
more difficult for a third party to acquire us
Provisions of our charter documents may have the effect of delaying or
preventing a change in control of Ventro or its management, which could cause
the market price of our common stock to decline. These include provisions:
. eliminating the ability of stockholders to take actions by written
consent;
. limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving advance notice; and
. granting our board of directors authority to issue up to 2,500,000
shares of preferred stock and to fix the rights, preferences, privileges
and restrictions, including voting rights, of these shares without any
further vote or action by the stockholders.
24
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in
this prospectus include forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements include, but are not limited
to, statements concerning:
. Third parties and their statements relating to the growth of Internet
users and e-commerce;
. The size of the life sciences research products, fluids processing and
medical products market;
. The anticipated benefits and risks of our strategic partnerships,
business relationships and acquisitions;
. The anticipated size or trends of the vertical market segments in which
we compete and the anticipated competition in these markets; and
. Our future capital requirements and our ability to satisfy our capital
needs.
In some cases, you can identify forward-looking statements by terminology
such as "may," "might," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "projects,"
"potential," or "continue" or the negative of these terms or other comparable
terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, growth rates,
levels of activity, performance or achievements. A description of risks that
could cause our results to vary appears under the caption "Risk Factors" and
elsewhere in this prospectus. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
We are under no duty to update any of the forward-looking statements after the
date of this prospectus to conform these statements to actual results.
25
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 1,370,000 shares of common stock
offered by us are estimated to be approximately $286.8 million, based on an
assumed public offering price of $220.00 per share and after deducting the
estimated underwriting discounts and commissions and the estimated offering
expenses. We will not receive any proceeds from the sale of shares of common
stock by the selling stockholders. In addition, we expect to receive net
proceeds of $290.0 million from the concurrent sale of the convertible
subordinated notes which are being offered under another prospectus, after
deducting the estimated underwriting discounts and commissions and the
estimated offering expenses.
We intend to use the net proceeds for general corporate purposes, including
working capital to fund anticipated operating losses, expenses associated with
our advertising campaigns, brand-name promotions and other marketing efforts
and capital expenditures. We have not yet determined the expected use of these
proceeds. The amounts and timing of these expenditures will vary depending on
a number of factors, including the amount of cash generated by operations,
competitive and technological developments and the rate of growth, if any, of
our business. We also could use a portion of the net proceeds to acquire or
invest in complementary businesses, technologies, products or services. The
amounts that we actually expend for working capital and other general
corporate purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate
from operations. Our management will have broad discretion in the application
of the net proceeds. Pending these uses, we intend to invest the net proceeds
from this offering in short-term, interest-bearing, investment-grade
securities.
PRICE RANGE OF COMMON STOCK
Our common stock was traded on the Nasdaq National Market under the symbol
"CMDX" starting on July 27, 1999 and has been traded under the current symbol
"VNTR" since March 1, 2000. Prior to that time, there was no public market for
our common stock.
<TABLE>
<CAPTION>
Common
Stock
Price
-------------
High Low
----- ----
<S> <C> <C>
Year Ended December 31, 1999
Third Quarter (from July 27, 1999).......................... $ 34 7/8 $15 1/8
Fourth Quarter.............................................. 143 29 7/16
Year Ending December 31, 2000
First Quarter (through March 3, 2000)....................... 243 1/2 72
</TABLE>
On March 3, 2000, the last reported sales price of our common stock on the
Nasdaq National Market was $220.00 per share. As of December 31, 1999, there
were approximately 12,000 stockholders of record of our common stock.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
our inception and do not expect to pay any cash dividends in the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business.
26
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999 on an actual, pro forma and pro forma as adjusted basis:
. The actual column sets forth our actual capitalization as of December
31, 1999 without any adjustments for subsequent or anticipated events;
. The pro forma column reflects our capitalization as of December 31,
1999, with adjustments to give effect to (1) the issuance of 10,775,588
shares of common stock related to the acquisition of Promedix and (2)
the issuance of 1,095,212 shares of common stock related to the
acquisition of SpecialtyMD; and
. The pro forma as adjusted column further reflects our pro forma
capitalization, with adjustments to give effect to (1) the receipt of
the net proceeds from the sale of our shares of common stock at an
assumed public offering price of $220.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses and (2) the receipt of the net proceeds from the sale by us of
$300 million principal amount in convertible subordinated notes after
deducting estimated underwriting discounts and commissions and estimated
offering costs. See "Use of Proceeds."
The information below should be read in conjunction with our financial
statements, and other financial information included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
% convertible subordinated notes due 2007... $ -- $ -- $ 300,000
Other long term debt.......................... 494 494 494
-------- -------- ----------
Total long-term debt, net of current
portion..................................... 494 494 300,494
Stockholders' equity:
Preferred stock, 2,500 authorized, no shares
issued or outstanding, actual and as
adjusted..................................... -- -- --
Common stock, $.0002 par value; 175,000 shares
authorized, 32,763 shares issued and
outstanding, actual; 175,000 shares
authorized, 44,634 shares issued and
outstanding, pro forma; 175,000 shares
authorized, 46,004 shares issued and
outstanding, as adjusted(1).................. 7 9 9
Additional paid-in capital.................... 189,842 608,317 895,154
Deferred compensation......................... (6,380) (6,380) (6,380)
Notes receivable from stockholders............ (985) (985) (985)
Accumulated deficit........................... (57,465) (57,465) (57,465)
-------- -------- ----------
Total stockholders' equity................... 125,019 543,496 830,333
-------- -------- ----------
Total capitalization......................... $125,513 $543,990 $1,130,827
======== ======== ==========
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1999, the
following table excludes:
. the issuance of 12,500 shares of common stock related to exercise of
options granted under our 1999 Directors' Stock Plan subsequent to
December 31, 1999 and prior to February 10, 2000;
. the repurchase of 28,386 shares of common stock subsequent to December
31, 1999 and prior to February 10, 2000;
. 5,277,952 shares of our common stock issuable on exercise of options
outstanding as of February 10, 2000, with a weighted average exercise
price of $29.16;
. 197,178 shares of our common stock issuable upon the exercise of
warrants outstanding as of February 10, 2000 with a weighted average
exercise price of $4.94 per share;
. 5,549,685 additional shares of our common stock subject to options
reserved for issuance under our stock plans; and
. the shares of common stock issuable upon conversion or redemption of the
$300,000,000 principal amount of convertible subordinated notes that we
are offering for sale through another prospectus.
See "Management--Employee Stock Plans" and Note 10 of Notes to Financial
Statements.
27
<PAGE>
DILUTION
The pro forma net tangible book value of Ventro as of December 31, 1999 was
$98.7 million, or $2.21 per share. Net tangible book value per share is equal
to our number of shares of common stock, after giving effect to the
acquisition of Promedix and SpecialtyMD divided into total tangible assets
less our total liabilities after giving effect to the acquisition of Promedix
and SpecialtyMD. Dilution per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the net tangible book value per share of common stock immediately after
completion of this offering. After giving effect to our sale of the 1,370,000
shares of common stock offered by us at an assumed public offering price of
$220.00 per share and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses, as well as the decrease in net
tangible book value as a result of the estimated issue costs of $10.0 million
related to the sale of convertible subordinated notes due in 2007 in the
aggregate principal amount of $300.0 million, the net tangible book value of
Ventro as of December 31, 1999 would have been approximately $375.6 million,
or $8.16 per share. This represents an immediate increase in net tangible book
value of $5.95 per share to existing stockholders and an immediate dilution of
$211.84 per share to new investors purchasing shares at the assumed public
offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $220.00
Pro forma net tangible book value per share as of December
31, 1999.................................................. $2.21
Increase in pro forma net tangible book value per share
attributable to new investors............................. 5.95
-----
Pro forma net tangible book value per share after the
offering.................................................... 8.16
-------
Dilution per share to new investors.......................... $211.84
=======
</TABLE>
The foregoing discussion and table above exclude:
. the issuance of 12,500 shares of common stock related to exercise of
options granted under our 1999 Directors' Stock Plan subsequent to
December 31, 1999 and prior to February 10, 2000.
. the repurchase of 28,386 shares of common stock subsequent to December
31, 1999 and prior to February 10, 2000.
. 5,277,952 shares of our common stock issuable on exercise of options
outstanding as of February 10, 2000, with a weighted average exercise
price of $29.16;
. 197,178 shares of our common stock issuable upon the exercise of
warrants outstanding as of February 10, 2000 with a weighted average
exercise price of $4.94 per share;
. 5,549,685 additional shares of our common stock subject to options
reserved for future issuance under our stock plans; and
. the shares of common stock issuable upon conversion or redemption of the
$300,000,000 of principal amount of convertible subordinated notes that
we are offering for sale through another prospectus.
See "Management--Employee Stock Plans" and Note 10 of Notes to Financial
Statements.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement
of operations data for the period from inception (September 4, 1997) through
December 31, 1997 and for the years ended December 31, 1998 and 1999, and the
consolidated balance sheet data at December 31, 1998 and 1999, have been
derived from audited consolidated financial statements included elsewhere in
this prospectus. The consolidated balance sheet data as of December 31, 1997
is derived from audited financial statements not appearing in this prospectus.
The historical results are not necessarily indicative of the operating results
expected in the future. See Note 2 of Notes to our consolidated financial
statements for an explanation of the determination of the shares used in
computing basic and diluted net loss per share.
<TABLE>
<CAPTION>
Period from
September 4,
1997
(Inception) Year Ended
Through December 31,
December 31, -----------------
1997 1998 1999
------------ ------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net revenues.................................. $ -- $ 29 $ 30,840
Cost of revenues.............................. -- 22 29,306
------ ------- --------
Gross profit.................................. -- 7 1,534
Operating expenses:
Research and development.................... 197 3,439 17,734
Sales and marketing......................... 86 3,247 23,024
General and administrative.................. 121 1,745 10,352
Amortization of deferred stock-based
compensation............................... -- 372 1,992
------ ------- --------
Total operating expenses...................... 404 8,803 53,102
------ ------- --------
Operating loss................................ (404) (8,796) (51,568)
Interest expense.............................. -- (2) (168)
Interest and other income..................... -- 310 3,163
------ ------- --------
Net loss...................................... $ (404) $(8,488) $(48,573)
====== ======= ========
Basic and diluted net loss per share.......... $ (.24) $ (4.79) $ (3.17)
====== ======= ========
Weighted average common shares outstanding--
basic and diluted............................ 1,704 1,772 15,322
====== ======= ========
<CAPTION>
As of December 31,
------------------------------
1997 1998 1999
------------ ------- --------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................. $1,346 $ 5,990 $103,095
Working capital............................... 1,116 4,489 82,130
Total assets.................................. 1,728 8,168 163,933
Long-term debt and capital lease obligations,
net of current portion....................... 6 -- 494
Total liabilities............................. 280 1,820 38,914
Total stockholders' equity.................... 1,448 6,348 125,019
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Ventro Corporation, formerly known as Chemdex Corporation, is a leading
builder and operator of vertical marketplace companies that enter into
transactions with enterprises, buyers and suppliers, enabling them to
streamline business processes, enhance productivity and reduce costs. Ventro
marketplace companies offer e-commerce solutions consisting of extensive
online marketplaces, electronic procurement, the systems integration needed to
interface with third party and back office systems and comprehensive services
and support. We were created in February 2000 to leverage the assets and
expertise from our Chemdex life sciences business.
We are currently operating or developing four Ventro marketplace companies
that are either wholly-owned by us or in which we own a minority interest.
Chemdex is a division of Ventro and is a leading provider of e-commerce
solutions to the life sciences research products market. Promedix, a wholly-
owned subsidiary of Ventro, will address the specialty medical products
marketplace. We have a joint venture with Tenet to form a new company called
Broadlane, which will provide e-commerce solutions for the high-volume,
hospital and medical supplies market, initially focusing on commodity hospital
supplies. Finally, we and DuPont formed Industria Solutions to provide e-
commerce solutions for the fluid processing industry. Broadlane and Industria
Solutions are currently in the development stage. We are a minority
shareholder in each of Broadlane and Industria Solutions.
Ventro acquired Promedix and SpecialtyMD on February 10, 2000. The
acquisitions will be accounted for under the purchase method of accounting.
The acquisition costs of Promedix and SpecialtyMD are estimated to be $325.3
million and $107.7 million, respectively. The intangible assets acquired in
the Promedix and SpecialtyMD acquisitions are estimated at $323.8 million and
$107.9 million, respectively. In addition, we expect to record $13.1 million
of compensation expense based on the 15 month vesting schedule of restricted
stock issued as part of the SpecialtyMD acquisition. The intangible assets
will be amortized over two to three years and the amortization expense is
estimated to be approximately $144.4 million per year, beginning February 10,
2000. Promedix had no revenue and a loss from continuing operations of $12.1
million for 1999. SpecialtyMD had $31,000 of revenue and a net loss of $4.3
million for 1999.
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most of our supplier agreements we are
acting as a principal in purchasing products from our suppliers and reselling
them to our customers so that we recognize net revenues equal to the amount
paid by our customers and cost of revenues equal to the amount we pay to our
suppliers for these products. Under our principal-based agreements, we are
responsible for selling the products, collecting payment from customers,
ensuring that the shipment reaches customers and processing returns. In
addition, we take title to products upon shipment and bear the risk of loss
for collection, delivery and merchandise returns from customers. Some of our
agreements with our suppliers treat us as an agent of the supplier, in which
case we receive a percentage fee on product sales. We recognize revenue from
product sales, net of any discounts, and from fees under agency-based supplier
agreements, when the products are shipped to customers. Products are shipped
directly to customers by suppliers based on customer deliver date
specifications.
30
<PAGE>
Results of Operations
The following table sets forth, for 1999, items from our consolidated
statement of operations expressed as a percentage of net revenues:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Net revenues....................................................... 100 %
Cost of revenues................................................... 95
----
Gross profit....................................................... 5
Operating expenses:
Research and development......................................... 58
Sales and marketing.............................................. 75
General and administration....................................... 33
Amortization of deferred stock-based compensation................ 6
----
Total operating expenses........................................ 172
----
Operating loss..................................................... (167)
Interest expense................................................... (1)
Interest income and other.......................................... 10
----
Net loss........................................................... (158)%
====
</TABLE>
Comparison of the Years Ended December 31, 1999 and 1998
Net Revenues. Net revenues increased to $30.8 million for 1999 from $29,000
for 1998. The increase in sales volume is primarily due to the increase in our
customer base and increased market acceptance of our procurement solution.
In the future, the level of our net revenues will depend on a number of
factors including, but not limited to, the:
. number of customers we are able to obtain;
. frequency of our customer's purchases;
. quantity and mix of products our customers purchase;
. quantity of the types of products we are able to offer for sale;
. price we charge for our products;
. amount we charge for shipping;
. extent of sales incentives we offer;
. level of customer returns we experience;
. seasonality that we may experience; and
. number of vertical marketplaces we enter.
Cost of Revenues. Cost of revenues increased to $29.3 million for 1999 from
$22,000 for 1998. Cost of revenues consists primarily of the costs of
acquiring products from our suppliers for sale to our customers and shipping
costs related to product purchased. During 1999, cost of revenues in absolute
dollars, increased consistent with the significant increases in revenues. Our
gross margin for 1999 was approximately 5%. Cost of revenues as a percentage
of net revenues will fluctuate based on a number of factors, including, but
not limited to, the following:
. the cost of our products and purchase discounts that we negotiate with
individual suppliers;
. our pricing strategy relative to the cost of our products;
31
<PAGE>
. the mix of products our customers purchase; and
. our price strategy for shipping relative to the cost of shipping.
Operating Expenses
Research and Development. Research and development expenses increased by
$14.3 million to $17.7 million for 1999 from $3.4 million for 1998. Research
and development expenses consist of personnel and other expenses associated
with developing, updating and enhancing the software used for the Chemdex
Marketplace. Our research and development expenses have increased each quarter
since inception, primarily due to increased staffing and associated costs
related to the design, development and maintenance of the Chemdex Marketplace,
as well as content and design expenses.
We expect that research and development expenses will increase in absolute
dollars in the future as we:
. continue to enhance and improve our Internet-based purchasing solution;
. add increasing amounts of supplier data to our databases;
. develop and introduce new solutions and services; and
. integrate our Internet-based purchasing system with our customers' and
suppliers' systems.
Sales and Marketing. Sales and marketing expenses increased by $19.8
million to $23.0 million for 1999 from $3.2 million for 1998. Sales and
marketing expenses consist primarily of advertising and promotion in support
of the development of our marketing strategy, payroll and related expenses for
personnel engaged in supplier relations, enterprise sales activities,
enterprise account management and amortization expenses related to our VWR and
BIO agreements. Sales and marketing expenses have increased since inception as
we have continued to expand our sales and marketing efforts primarily with
relation to our corporate marketing and branding strategy associated with our
name change. We expect sales and marketing expenses to increase in absolute
dollars as we continue to pursue our vertical market strategy and promote our
brands. In connection with our strategic relationship with VWR, Ventro issued
2,538,405 shares of common stock valued at $13.9 million. The fair value of
the stock is being amortized, on a straight-line basis, into sales and
marketing expense over four years, the estimated useful life of this
intangible asset.
General and Administrative. General and administrative expenses increased
by $8.6 million to $10.4 million for 1999 from $1.8 million for 1998. General
and administrative expenses consist primarily of administrative personnel
salaries, fees for professional services, travel and corporate facility
expenses. General and administrative expenses have increased primarily as a
result of the addition of finance and administrative personnel, costs of
leasing additional office space to support our growth and expenses related to
increased professional service fees. We expect our general and administrative
expenses to increase in absolute dollars as we expand our staff and incur
additional costs related to the anticipated growth of our business.
Amortization of Deferred Stock Based Compensation. We have recorded
aggregate deferred stock based compensation of $8.7 million in connection with
some of the stock options we granted through December 31, 1999. For 1998 and
1999, we expensed $372,000 and $2.0 million, respectively, related to the
amortization of deferred stock based compensation. The deferred stock based
compensation amounts are being amortized over the vesting period of the stock
options which is generally four years.
Interest Expense. Interest expense increased to $168,000 for 1999 from
$2,000 for 1998. Interest expense consists primarily of interest related to
financed equipment and other financing arrangements. We expect interest to
increase with the issuance of the $300 million convertible subordinated notes
we are offering concurrently with this offering.
32
<PAGE>
Interest Income and Other. Interest income and other, net increased by
$2.9 million to $3.2 million for 1999 from $310,000 for 1998. Interest income
and other, net has been derived primarily from earnings on investments in cash
equivalents and short-term investments. Interest during the second half of
1999 increased significantly due to increased cash, cash equivalents and
short-term investments resulting from the net proceeds of our initial public
offering on July 27, 1999.
Provision for Income Taxes. We incurred net losses and accordingly did not
record a provision for income taxes for any of the periods presented. At
December 31, 1999, we had federal and state net operating loss carryforwards
of approximately $54.0 million and $54.0 million, respectively. These net
operating loss carryforwards will expire at various dates beginning in 2002
through 2019 if not utilized. Certain future changes in our share ownership,
as defined in the Tax Reform Act of 1986 and similar state provisions, may
restrict the utilization of carryforwards. A valuation allowance has been
recorded for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset due to our lack of earnings history.
Comparison of the Period from September 4, 1997 (inception) through December
31, 1997 to the year ended December 31, 1998
From September 4, 1997, the date of our inception, through November 1998,
Ventro was in the development stage and had only nominal net revenues, cost of
revenues and operating expenses. As a result, our results of operations for
the period from September 4, 1997 to December 31, 1997 were immaterial.
Therefore, we believe that a comparison of the period from September 4, 1997
to December 31, 1997 to any period of 1998 is not meaningful.
33
<PAGE>
Quarterly Results of Operations
The following tables present our unaudited quarterly consolidated results
of operations for the eight quarters ended December 31, 1999. We have prepared
this information on a basis consistent with our audited consolidated financial
statements and, in the opinion of management, includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the results for these periods. The results of operations for
any particular quarter are not indicative of the results for any future
period.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------
June Sept. Dec. Mar. Sept.
Mar. 31, 30, 30, 31, 31, June 30, 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- ------- ------- ------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $ -- $ 3 $ -- $ 26 $ 165 $ 2,906 $ 8,490 $ 19,279
Cost of revenues............. -- -- -- 22 156 2,753 8,086 18,311
----- ------- ------- ------- ------- -------- -------- --------
Gross profit................. -- 3 -- 4 9 153 404 968
Operating expenses:
Research and development.... 364 414 1,026 1,635 2,293 3,462 5,643 6,336
Sales and marketing......... 219 297 710 2,021 3,188 5,224 6,903 7,709
General and administrative.. 190 422 489 644 1,015 3,611 2,572 3,154
Amortization of stock based
deferred compensation...... 22 44 104 202 352 547 546 547
----- ------- ------- ------- ------- -------- -------- --------
Total operating expenses.. 795 1,177 2,329 4,502 6,848 12,844 15,664 17,746
----- ------- ------- ------- ------- -------- -------- --------
Operating loss.............. (795) (1,174) (2,329) (4,498) (6,839) $(12,691) (15,260) (16,778)
Interest and other income,
net........................ 2 70 136 100 30 186 1,261 1,518
----- ------- ------- ------- ------- -------- -------- --------
Net loss.................... $(793) $(1,104) $(2,193) $(4,398) $(6,809) $(12,505) $(13,999) $(15,260)
===== ======= ======= ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As a Percentage of Net Revenues
-------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
-------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues................. 100 % 100 % 100 % 100 %
Cost of revenues............. 95 95 95 95
------ ---- ---- ---
Gross profit................. 5 5 5 5
Operating expenses:
Research and development.... 1,390 119 67 33
Sales and marketing......... 1,932 180 81 40
General and administrative.. 615 124 31 16
Amortization of deferred
stock-based compensation... 213 19 6 3
------ ---- ---- ---
Total operating expenses.. 4,150 442 185 92
------ ---- ---- ---
Operating loss.............. (4,145) (437) (180) (87)
Interest, other income,
net........................ 18 6 15 8
------ ---- ---- ---
Net loss.................... (4,127)% (431)% (165)% (79)%
====== ==== ==== ===
</TABLE>
Net revenues increased in each quarter beginning with the quarter ended
December 31, 1998, primarily due to the increase in our customer base and
increased market acceptance of our procurement solution.
Gross margins have fluctuated during the four quarters of 1999 from 4.8% to
5.8%. Gross margins will fluctuate based on a number of factors, including,
but not limited to, the following:
. the cost of our products and purchase volume discounts that we are able
to obtain from suppliers;
. our pricing strategy relative to the cost of our products;
. the mix of products our customers purchase; and
. our price strategy for shipping relative to the cost of shipping.
34
<PAGE>
Operating expenses increased in each of the last eight quarters primarily
due to increased headcount and additional costs related to the growth of our
business.
We believe that quarter-to-quarter comparisons of our operating results
will not be meaningful. You should not rely on our results for any quarter as
an indication of our future performance. Our operating results in future
quarters may be below public market analysts' or investors' expectations,
which would likely cause the price of our common stock to fall.
Liquidity and Capital Resources
Prior to our initial public offering in July 1999, we funded our operations
primarily by the private sale of our equity securities, through which we
raised approximately $45.0 million. In July 1999, we completed the initial
public offering of our common stock and realized net proceeds from the
offering of approximately $117.4 million. As of December 31, 1999, our
principal sources of liquidity included approximately $103.1 million of cash,
cash equivalents and short-term investments and $4.1 million in equipment
financing arrangements.
Net cash used in operating activities totaled $41.3 million and $6.8
million for the year ended December 31, 1999 and 1998, respectively. The net
cash used in operating activities during these periods was primarily due to
our net losses, which were partially offset by non-cash charges of
depreciation and amortization of deferred compensation, amortization of
intangible assets, and increases in accounts payable, accrued expenses and
accrued compensation.
Net cash used in investing activities totaled $90.5 million for 1999. We
had cash purchases of $9.3 million of computer equipment, computer software,
office furniture and leasehold improvements during 1999. In addition, during
1999 we had net purchases of $81.2 million of short-term investments. Net cash
used in investing activities for 1998 was $1.6 million and primarily related
to purchases of computer equipment, and office furniture.
Net cash provided by financing activities was $147.7 million for the fiscal
year end December 31, 1999 and $13.0 million for 1998. Net cash from financing
activities during 1998 resulted primarily from the sale of preferred stock.
Net cash provided by financing activities during 1999 resulted primarily from
the sale of preferred stock and proceeds from our initial public offering.
Following the consummation of the offering of the convertible subordinated
notes we are offering under another prospectus, we will have a ratio of long-
term debt to total pro forma capitalization (including the acquisitions of
Promedix and SpecialtyMD) at December 31, 1999 of approximately 26.6%, 29.4%
if the underwriters' over-allotment option is exercised in full. As a result
of this additional indebtedness, our principal and interest payment
obligations will increase substantially. The degree to which we will be
leveraged could materially and adversely affect our ability to obtain
financing for working capital, acquisitions or other purposes and could make
us more vulnerable to industry downturns and competitive pressures. We will
require substantial amounts of cash to fund scheduled payments of principal
and interest on our indebtedness, including the notes, future capital
expenditures and any increased working capital requirements. If we are unable
to meet our cash requirements out of cash flow from operations, we cannot
assure you that we will be able to obtain alternative financing.
We currently anticipate that cash, cash equivalents and short-term
investments at December 31, 1999, together with our equipment lease lines,
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. However, we may need to
raise additional funds in future periods through public or private financing,
or other arrangements to fund our operations and potential acquisitions, if
any, over a long-term basis until we achieve profitability, if ever. Any
additional financing, if needed, might not be available on reasonable terms or
at all. Failure to raise capital when needed could seriously harm our business
and results of operations. If additional funds are raised through the issuance
of equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences
or privileges senior to our common stock.
35
<PAGE>
Year 2000
To date, we have not experienced any year 2000 related problems with our
internally developed software or our third-party supplied software and
computer systems, and we are not aware of any failure of our systems or of our
third-party suppliers to be year 2000 compliant that could impact our business
or operations.
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
year ending December 31, 2001. This statement establishes a new model for
accounting for derivatives and hedging activities. FAS 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because we
currently hold no derivative financial instruments and do not currently engage
in hedging activities, adoption of FAS 133 is expected to have no material
impact on our financial condition or results of operations.
Based on generally accepted accounting principles, we include in our net
revenues the gross revenues from sales of products and related shipping fees,
net of discounts and provisions for sales returns and other allowances as we
are acting as a principal in purchasing products from our suppliers and
reselling them to our customers. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in
Financial Statements, which summarizes the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In addition, the Emerging Issues Task Force may prepare new guidance in this
area. If any guidance is proposed and subsequently implemented, these
initiatives may limit the ability of Internet businesses to include in
revenues the gross value of product sales between buyers and sellers. We
cannot predict at this time whether any initiatives will be proposed or
adopted or whether they will require us to change our method of recognizing
revenues for financial reporting purposes. If we are required to change our
accounting policies, we may in the future report substantially lower revenues,
and we may be required to restate the results from earlier periods. This could
cause the market price of our common stock to fall significantly.
36
<PAGE>
BUSINESS
Overview
We are a leading builder and operator of vertical business-to-business e-
commerce marketplace companies. Our platform of enabling technologies and
operating capabilities allows us to rapidly enter new markets while realizing
economies of scale. Our solutions benefit suppliers by permitting them to
lower sales and marketing costs as well as to improve inventory management and
product delivery. Customers enjoy a significantly enhanced purchasing system
that provides access to a broad range of basic and specialized products,
increased flexibility and a reduction in the cost of the procurement process.
We created Ventro in February 2000 to expand the scope of our marketplace
companies by leveraging the assets and experience that we gained in building
and operating Chemdex, our marketplace for life sciences research products. In
addition to Chemdex, we currently operate or are developing three additional
Ventro marketplaces: Promedix, for the specialty medical products market;
Broadlane, for the high-volume, hospital and medical supplies market; and
Industria Solutions, for the fluid processing market.
Industry Background
The Internet
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses communicate and share
information. According to International Data Corporation, the number of
commercial users employing the Internet in the normal course of operations is
expected to expand from 82 million at the end of 1999 to 250 million in 2003.
Forrester Research projects total business-to-business sales will increase
from $406 billion at the end of 2000 to $2.7 trillion in 2004. The growing use
of Internet-based solutions by firms has resulted in reduced barriers to entry
and the expansion of related opportunities, causing a considerable increase in
business-to-business e-commerce focused companies.
Traditional Procurement Processes
Purchasing methods in many industries are inefficient and costly. From the
perspective of purchasers, product orders are handled through an internal,
paper-based purchasing process that requires manual preparation of a purchase
order and written approval by a purchasing manager as well as manual order
tracking, billing and collection. As a result, purchasing activities are not
effectively controlled and monitored, preventing the firm from taking full
advantage of volume discounts or other benefits. In addition, for many
industries, fragmentation of suppliers and highly specialized product
offerings increase the time required to search for and compare products. In
many instances, customers may not even be aware of products that would suit
their needs.
From the perspective of suppliers, traditional purchasing methods present a
number of challenges in reaching customers with product information. In
fragmented markets, suppliers cannot cost-effectively manage frequent updates
and distribution of time-sensitive information. While some suppliers have
developed Internet websites to communicate with individual customers, few have
invested the significant time and money required to establish an effective e-
commerce channel. Small suppliers may have limited resources available to
support the growing challenge of marketing and selling to fragmented,
worldwide markets.
In contrast to these traditional approaches, business-to-business e-
commerce solutions frequently automate or otherwise change workflows or
processes that are fundamental to a company's operations by replacing paper-
based transactions with electronic communications. A business-to-business e-
commerce solution, however, must often be integrated with an enterprise's
existing information systems, a process that can be complex, time-
37
<PAGE>
consuming and, in some instances, expensive. Finally, personnel throughout the
enterprise must be trained to use the solution. Consequently, selection and
implementation of a business-to-business e-commerce solution represents a
significant commitment of capital, resources and time, which may make the cost
of switching high.
Business-to-Business E-commerce Markets
We believe the best e-commerce business-to-business market solutions will
be readily implemented and maintained while enabling multiple suppliers and
customers to conduct transactions in a cost-effective manner. To effectively
address the needs of customers and suppliers, it is important that the
solution also offer a neutral and fair marketplace with full catalog
descriptions of products and retail product pricing information.
Compared to traditional purchasing methods, we believe vertical e-commerce
marketplaces offer significant advantages and provide a much more flexible
medium in which to interact. For customers and suppliers, these marketplaces
can offer significant cost and time savings by streamlining processes and
providing access to comprehensive, up-to-date information.
For customers, vertical marketplaces can provide more efficient purchasing
processes, greater control and a better understanding of purchasing behavior.
They do this by offering large product databases, which aggregate offerings
from hundreds of suppliers in easy-to-use and searchable formats. In addition,
they provide applications that reduce the number of steps in the procurement
process while helping to enforce an enterprise's procurement policies. These
attributes allow customers to better understand their purchasing behavior to
take advantage of price discounts associated with specific purchasing volumes.
The customer also has more control and better information throughout the
procurement process through online status reports, shipment tracking, training
and better access to professional services.
For suppliers, vertical marketplaces can provide an additional method of
distribution at potentially lower costs. Suppliers may be able to reach a
broad base of customers aggregated in the online marketplace, who are not
practical to reach through traditional sales channels. Suppliers can also
become more efficient in communicating up-to-date pricing and product
description information to the marketplace at a lower cost than traditional
methods. Vertical marketplaces can also lower costs through simplified billing
and collection, improved order fulfillment and inventory management.
The Ventro Solution
We provide a secure, Internet-based solution that enables us to buy
products from suppliers and resell them to customers while streamlining
business processes, increasing productivity and reducing costs throughout the
supply chain. Our companies employ a robust database architecture, advanced
search engines and transaction software that enable users to easily identify,
locate and purchase the products they need. We have entered into agreements
with leading companies in each of the Ventro marketplaces, including VWR,
Tenet Healthcare and DuPont. With our strategic relationships with Ariba,
Commerce One, Concur Technologies, IBM, and SAP, we offer customers and
suppliers the ability to directly connect their enterprise software to the
marketplace. This extensive system integration provides a key competitive
advantage for Ventro companies, as customers and suppliers can directly link
their front and back offices to the Ventro marketplace and increase the
automation of their procurement and order fulfilment processes. We also
provide professional and implementation services to enable market participants
to take full advantage of our operating capabilities.
38
<PAGE>
Growth Strategy
We intend to build and operate leading vertical business-to-business e-
commerce marketplace companies. In order to achieve this objective, our
strategy consists of the following:
Leverage Our Platform. We intend to leverage our technology architecture,
operating capability and marketplace experience from our Chemdex Marketplace
to create vertical markets in a variety of industries. We have created a
scalable and adaptable technology architecture and established a substantial
operating capability, including transaction processing and customer service.
We believe this platform allows us to rapidly enter targeted vertical markets
and provides customers and suppliers with substantial benefits over
traditional procurement methods. In order to optimize our technology
architecture and operating capability, and to promote widespread adoption of
our solution, we currently have, and intend to continue to pursue, strategic
relationships with industry leaders.
Be the Market Leader in the Most Attractive Markets. We target marketplaces
where we believe we can be the market leader. In addition, we have a
disciplined approach for identifying and entering only the most attractive
markets. Generally we target large, fragmented markets where we believe the
aggregation enabled by our vertical marketplace will provide significant value
to customers and suppliers. The purchasing decision for products within these
markets will also typically require a high level of information, which our
solution is specifically designed to provide.
Scale Operations Rapidly. We intend to rapidly grow our market share in
each new vertical marketplace that we develop. Because of the fixed cost of
technology and other infrastructure, we believe this expansion will provide us
economies of scale and help us quickly build a leadership position. We intend
to accelerate our entry into new markets by partnering with the leading
companies in the sector. We may initially enter a new vertical market by
acquiring companies with the necessary industry-specific expertise or by
establishing new companies that may be funded by us and by our industry,
strategic and financial partners. In all markets that we choose to enter, we
will seek to establish the leading brand.
Expand Internationally. We believe the international scope of the Internet,
the global reach of many of our customers and suppliers and the worldwide
demand for the products in markets we serve presents us with opportunities to
grow our marketplaces internationally. We intend to leverage our platform,
existing supplier relationships and marketplace expertise to expand first in
Europe, and later to other international markets where we believe there are
significant opportunities.
Markets
We continually evaluate opportunities in many vertical markets and are
currently pursuing opportunities in the following markets:
Life Sciences Research Products
According to the Laboratory Products Association, the North American life
sciences research products market was estimated to be approximately $9.4
billion in 1998. We believe there is also a significant opportunity in the
life sciences research products market outside of North America, particularly
in Europe and Japan. The growth in these markets is driven by increasing
research and development expenditures by pharmaceutical and biotechnology
companies as well as an increase in the level of research funding available
for grant by the National Institutes of Health, similar international
government agencies and private foundations. Research and development budgets
have been increasing as new discovery tools, such as genomics, combinatorial
chemistry and high-throughput screening are developed and utilized. These new
technologies allow researchers to experiment with thousands of chemical
compounds simultaneously, which requires extensive use of reagents and other
life sciences research products.
39
<PAGE>
The life sciences research products market is highly fragmented. There are
over 5,000 suppliers offering more than one million products, many of which
are highly specialized. Life sciences research products include reagents,
chemical compounds, specialty chemicals, consumables, research instruments and
other equipment. The primary purchasers and users of life sciences research
products are research scientists working in pharmaceutical and biotechnology
companies, and academic and research institutions.
Specialty and High Volume Medical Products
The global market for medical products exceeded $140 billion in 1998, with
a projected 6% to 7% annual growth rate. The U.S. accounts for approximately
40% of the total, or roughly $55 billion, according to the Medical &
Healthcare Marketplace Guide published by IDD Enterprises, 1998-1999.
Promedix focuses on the market for specialty medical products, which
represents approximately one-third of all healthcare purchases and which we
believe is not as well served by existing hospital group purchasing
organizations and industry distributors. Examples of specialty medical
products include surgical and laparoscopic instruments, blood and intravenous
filters, vascular access devices, and cardiac stents and catheters. Specialty
medical products are currently sold by a fragmented group of approximately
22,000 manufacturers and distributors, usually by telephone and fax, to
approximately 6,000 hospitals. Margins for these products vary significantly,
and we believe logistics are handled inefficiently.
Broadlane focuses on the high-volume, contracted products segment of the
market for healthcare products. This represents approximately two-thirds of
the $140 billion global market for medical products. These products are
generally purchased through group purchasing organizations in high volume
under contracts with one of five major distributors, usually in an electronic
fashion. Examples of these products include pharmaceuticals, X-ray film and
single-use surgical supplies.
Fluid Processing
The fluid processing market totals approximately $75 billion worldwide, and
includes companies from a broad range of industries, such as the chemical, oil
and gas, pulp and paper, power generation and pharmaceutical industries. This
market is highly fragmented, with over 2,000 manufacturers. Products used in
this market include pipes, valves, pumps, motors, compressors and other
materials and equipment required for processing fluids for industrial use.
These materials require detailed product information in order for buyers to
make informed purchasing decisions. Procurement of these products generally
falls into two categories: time sensitive purchases of products in connection
with an operating plant, often as a replacement for a key component that has
broken; and volume purchases in connection with construction or expansion of
an existing facility.
Ventro Marketplaces
We are currently operating or developing four Ventro marketplace companies
that we either wholly own or created through collaborations with leading
companies in specific industries. Chemdex is a leading provider of e-commerce
solutions to the life sciences research products market. Promedix was aquired
by Ventro in February 2000, and will address the specialty medical products
marketplace. We have entered into a joint venture with Tenet Healthcare, the
second largest U.S. for-profit hospital chain, to form a new company called
Broadlane, which will provide e-commerce solutions for the healthcare industry
initially focused on high volume, hospital and medical supplies. Industria
Solutions is a joint venture with DuPont to provide e-commerce solutions for
the fluid processing industry. The Promedix Marketplace is operational but has
not had any significant revenues to date and Broadlane and Industria Solutions
are currently in the development stage.
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The four marketplaces are described below in chronological order of their
creation. The description of the Chemdex Marketplace is the most detailed
since it accounts for substantially all of our revenue to date. Its
functionality and features are representative of those we expect to develop in
the other marketplaces.
Chemdex
Chemdex was the first Ventro marketplace company and is owned and operated
by Ventro. The Chemdex Marketplace utilizes a database of approximately
910,000 life sciences research stock keeping units, or SKUs, from over 2,200
suppliers. Chemdex has agreements with an additional 182 suppliers for
approximately 570,000 additional SKUs. As of February 29, 2000, Chemdex had
agreements to provide its purchasing solution to 95 enterprise customers and
had over 24,000 registered users.
To date, substantially all of our revenues have been derived from the
Chemdex Marketplace. The Chemdex Marketplace consists of a database of
approximately 1.5 million loaded and unloaded life sciences research products
and advanced search engine and transaction software that enable users to
easily identify, locate and purchase the products they need. Chemdex also
provides applications that enable its customers and suppliers to interface and
automate their information exchange with the Chemdex Marketplace. Chemdex also
provides professional and implementation services to enable its customers to
take full advantage of the capabilities of the Chemdex Marketplace. We believe
that the Chemdex business model, which is based on its buying products from
suppliers at a price discount negotiated with individual suppliers and
reselling products to customers, will further drive usage of the Chemdex
Marketplace. Moreover, our customer support and sales group helps customers
understand both the business and technical benefits of the Chemdex Marketplace
and provides customer education and training to increase user adoption.
The following chart summarizes the key services supported by the Chemdex
Marketplace and the features of these services.
<TABLE>
<CAPTION>
Services Supported Chemdex Features
- ----------------------------------------------------------------------------------------------
<C> <S> <C>
Enterprise . Purchasing system management . Interface to existing enterprise network
Customer and
ERP software
. Approval and purchase of life . Automated order approval process
sciences
research products . Summary invoicing and reporting
. Enforcement of business rules
. Enterprise specific pricing
. Comparative price/product shopping
- ----------------------------------------------------------------------------------------------
User . Identification, comparison and . One-stop shopping
purchase
of life sciences research products . Search engine to identify, locate and
compare products
. Current, detailed product information
. Automated order submission and status
. Recurring order form
- ----------------------------------------------------------------------------------------------
Supplier . Sale of life sciences research . Support integration with supplier sales
products order
flow
. Automated order submission and tracking
. Automated process for updating and adding
product/price information
. Customer support services
</TABLE>
How it works for the enterprise customer. The enterprise's interface with
the Chemdex Marketplace varies based upon the customer's existing information
technology systems. Our applications and services can be implemented as a
fully hosted stand-alone solution or can be integrated with existing systems
or other
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commercially available purchasing solutions. Our applications are designed to
be easily customized to match the workflow requirements and business rules of
the enterprise. We also provide access to the Chemdex Marketplace through our
website.
Our solution offers paperless automation, consolidation and monitoring of
the approval and invoicing process as well as the order placement and delivery
information for the enterprise. In addition to reducing the cost of
purchasing, our solution allows our enterprise customers to enforce their
particular business rules and aggregate purchases. Purchasing limits are most
often applied on an individual user or project basis, and the Chemdex
Marketplace interfaces with the enterprise's system to ensure compliance. The
Chemdex solution can be integrated with enterprise financial accounting
systems to further automate specific product purchase information and can
reflect enterprise specific pricing arrangements between the enterprise and
their underlying suppliers. We believe our purchasing solution requires
minimal investment of time and capital by our enterprise customers to install,
maintain and use. It has few support requirements beyond the initial
installation since the Chemdex Marketplace is entirely hosted on our servers,
and is accessible by standard browsers with all recurring product upgrades
managed and installed by us.
How it works for the user. Users within enterprises benefit from the
Chemdex Marketplace because it offers them convenient and easy one-stop
shopping. The typical user within a life science enterprise most often
interfaces with the Chemdex Marketplace by ordering specific products for
research experiments. If the user needs the same items on a regular basis, our
solution allows a user to personalize a list of "favorites" to facilitate
product selection and recurring orders. The Chemdex Marketplace also provides
robust product search capabilities that help users identify new products
needed to meet the specifications required for an experiment. Users access the
system with a password, and can easily process their recurring orders, as well
as orders for new
products. The system allows the user to identify the incremental shipping
costs for expedited processing, and provides for automated paperless
processing of an order once the product selection is complete. The user can
also track the status of individual orders within the system.
How it works for the supplier. We offer suppliers a cost-effective
opportunity to reach new customers by establishing or enhancing their Internet
presence and providing links to existing online or electronic catalogs.
Suppliers provide us with electronic versions of product catalogs, which we
convert into searchable data. This data is loaded into the Chemdex Marketplace
using a number of product loading algorithms. Our content engineering staff
then reviews the data to ensure proper classification for purposes of product
searches. The ability to process large volumes of complex catalog information
is an important core competency, which allows us to afford maximum flexibility
to our suppliers in loading data and updating information. We also provide
suppliers with the ability to readily update their product information to
include new product introductions or additional product details without being
limited by specific catalog publication cycles.
In many cases, the Chemdex Marketplace will appeal to suppliers as being
less costly than traditional distribution or representation arrangements. We
plan to provide tools to our suppliers that enable the online update and
modification of their product databases hosted on our servers, or to integrate
the Chemdex Marketplace directly with their systems. The Chemdex Marketplace
is neutral in that its search capability identifies products that meet the
researchers' search criteria, and provides an unbiased comparison of product
characteristics and pricing to allow the researcher to make a reasoned choice
based upon the information provided by suppliers.
Future Services. Chemdex anticipates that aggregated product purchasing and
sales information will ultimately be valuable to both suppliers and customers.
After accumulating significant historical data regarding buying patterns, we
intend to make non-confidential, aggregated information available to both
suppliers and customers as an additional service.
Promedix
We acquired Promedix in February 2000. The Promedix Marketplace provides
customers with the ability to purchase products from multiple specialty
medical product manufacturers with a single purchase order and
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offers integration capability with most of the major legacy systems currently
in use by healthcare institutions. We anticipate that the broad launch of the
Promedix Marketplace will occur in the second half of 2000. Promedix has also
entered into an eight-year agreement with Tenet under which Promedix will be
the exclusive business-to-business e-commerce supplier of specialty medical
products for entities where Tenet acts as a purchasing agent.
Broadlane
In December 1999, we and Tenet announced the formation of Broadlane to
provide business-to-business e-commerce solutions to the healthcare industry.
Broadlane will be an independent entity, with its own management team and
board of directors. Tenet, through its subsidiaries, owns and operates acute
care hospitals and provides numerous related health care services. Tenet will
provide Broadlane access to the existing buyer and supplier network of its
BuyPower group purchasing organization, which Tenet has advised us purchases
products for approximately 500 Tenet owned or affiliated hospitals. We are
licensing our technology to Broadlane for use within the healthcare industry
and will provide service and support functions at cost. Broadlane will offer
its e-commerce technology to other group purchasing organizations and their
members to support their own proprietary contracts. While Broadlane will
initially focus on the hospital market, it eventually plans to expand to the
long-term care and outpatient markets as well. Broadlane recently announced
the hiring of two key members of its management team, who were formerly
officers of Tenet. We have a minority equity interest in Broadlane.
Industria Solutions
In January 2000, we and DuPont announced the formation of Industria
Solutions, which focuses on the fluid processing market. Industria Solutions
will be an independent entity, with its own management team and board of
directors. We believe that DuPont will shift procurement of maintenance and
engineering materials to Industria Solutions over time. We are licensing our
technology to Industria Solutions for use within the fluid processing industry
and are providing service and support functions at cost. Industria Solutions
has also received funding from @Ventures, the venture capital arm of CMGI,
Inc., along with financial investments from DuPont, ourselves and IBM. We have
a minority equity interest in Industria Solutions.
Customers
Chemdex
Chemdex's target customers are pharmaceutical and biotechnology companies
and academic and research institutions. As of February 29, 2000, Chemdex had
entered into agreements to provide our purchasing solution to 95 enterprise
customers and had approximately 24,000 registered users. Sales to our top four
enterprise customers accounted for approximately 27%, 13%, 12% and 11%,
respectively, of our total revenue for 1999.
The following is a list of our largest customers as measured by revenue.
3M AHP
Biogen Bristol Meyer Squibb
DuPont Elan Pharmaceuticals
EOS Biotechnology Genentech
Genome Therapeutics Genzyme
Johnson & Johnson Maxygen
Monsanto Parke-Davis
Pharmacia Upjohn Proctor and Gamble
Rhone Poulenc Rorer Scios
Strominger Lab University of Rochester
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Chemdex also sells life sciences research products to registered users who
are not affiliated with enterprise customers through the Chemdex Marketplace
website. Because of the nature of some of the products we sell, we register
unaffiliated users of our website to ensure that they are associated with
pharmaceutical or biotechnology companies or academic or research
institutions.
Although we intend to increase our sales and marketing efforts for our
other marketplaces, we expect that we will continue to generate a substantial
majority of our revenue from the Chemdex marketplace. We also expect that we
will continue to generate a significant portion of our revenue from a limited
number of Chemdex customers for the foreseeable future. If we do not increase
the number of our customers, or if we lose any of our current customers or do
not generate as much revenue from them as we expect, our business would be
significantly harmed.
Promedix
Promedix has been testing the Promedix Marketplace in a controlled release
since August 1999, with five acute care hospitals. Promedix has not achieved
significant revenue to date.
Suppliers
Chemdex
We believe the value and benefit to our customers of our purchasing
solution is directly related to the breadth, depth and quality of products we
sell through our marketplaces. Through the Chemdex Marketplace, we currently
offer approximately 910,000 SKUs from approximately 2,200 suppliers. We have
agreements with an additional 182 suppliers for approximately 570,000
additional SKUs which we plan to add to the Chemdex Marketplace. The following
is a list of our most significant suppliers who have entered into agreements
as of February 29, 2000.
Amersham Pharmicia Bachem
Biotech BioWhittaker
Beckman Coulter CHEMICON International
Calbiochem Cole-Parmer
Clontech Laboratories Genome Systems
Eppendorf Scientific Greiner America
Forma Scientific HyClone
Hitachi Genetic Systems Molecular Probes
ICN Biomedicals Pierce Chemicals
Incyte Pharmaceuticals Savant E-C
PharMingen Thomas Scientific
Quidel Corporation United States Biologicals
We currently have 13 employees who are responsible for maintaining existing
relationships and establishing new relationships with suppliers.
Promedix
Promedix currently has relationships with approximately 500 specialty
medical product suppliers, representing over 325,000 SKUs.
Strategic Relationships
Through our relationships with industry leaders, we seek to optimize our
technology architecture and operating capability, promote the widespread
adoption of our system, and enable our marketplace companies to increase their
industry expertise and to reduce their time-to-market. The following is a
description of our key strategic relationships.
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Ventro
IBM. In November 1999, we entered into a strategic relationship with IBM to
provide Internet-based supply chain solutions to the pharmaceutical and
healthcare industries in the U.S. Under the terms of our alliance agreement,
we and IBM will collaborate and define an offering of products and services to
enable efficient supply chains for these industries. The alliance is intended
to accelerate the deployment of e-business applications by combining our
marketplace expertise with IBM's strengths in professional services and e-
business implementation and technology. The agreement also provides that we
will engage in joint sales and marketing activities for the combined offering.
This agreement is non-exclusive and has a term of two years, although it may
be terminated by either party at any time upon 30 days' prior notice.
MarketLink Programs. In November 1999, we introduced our MarketLink
Program, which is designed to provide a fully-configurable solution for large
enterprises that integrates online marketplaces with third-party business-to-
business e-commerce and ERP systems. We work with the industry's leading e-
commerce companies to provide the necessary integration between their systems
and the marketplaces of each of our companies. The program enables our vendors
of enterprise procurement applications and ERP systems to integrate with the
various Ventro marketplaces and provide enterprises with a complete e-commerce
solution. The current participants in the MarketLink Program are Ariba,
Commerce One, Concur Technologies, SAP and the Sun-Netscape Alliance.
Chemdex
VWR. In April 1999, we entered into a strategic relationship agreement with
VWR Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. VWR is one of the laboratory supply industry's
largest distributors. The agreement gives us the right to sell approximately
350,000 VWR-distributed SKUs to our customers through the Chemdex Marketplace
and Labpoint, a hosted, co-branded Internet purchasing solution for VWR's
existing and future customers that provides access to three categories of
products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third-party products).
With respect to sales of VWR core products, we act as an intermediary and
forward orders received through the Chemdex Marketplace to VWR for fulfillment
and customer service. We receive no fee for orders for VWR core products from
VWR's 40 largest customers and we receive a minimal fee for all other orders
for VWR core products forwarded to VWR. We are responsible for fulfillment and
customer service for all Chemdex core products and orders for third-party
products received from VWR customers through Labpoint. Under the terms of the
agreement, VWR provides support for the purchase of third-party products in
return for a fee which approximates VWR's costs incurred.
VWR and Chemdex jointly market VWR core products and Chemdex core products
to VWR's existing and new customers and jointly solicit several key existing
VWR suppliers to distribute, market and sell their products through Labpoint.
We believe the VWR strategic relationship will continue to enhance and broaden
the Chemdex Marketplace, and the availability of third-party products will
enable us to offer complete fulfillment capability to current and future VWR
customers through Labpoint. We believe the VWR strategic relationship will
facilitate adoption of the Chemdex Marketplace and Labpoint by VWR customers,
which include major U.S. pharmaceutical and biotechnology companies, and will
enable us to establish relationships with additional key suppliers and
customers.
As part of the strategic relationship, Jerrold Harris, the President and
Chief Executive Officer of VWR, joined our board. Jerrold Harris was
subsequently replaced by Paul Nowak, the current Chief Executive Officer
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of VWR. In addition, VWR received 2,538,405 shares of our common stock. VWR is
subject to contractual limits on their percentage ownership of our stock,
except in connection with the acquisition of our stock by specified companies.
BIO. In May 1999, we and Biotechnology Industry Organization, or BIO,
entered into a five-year, exclusive joint marketing agreement. As part of the
joint marketing agreement, we agreed to discount the fees we charge to BIO
members and contribute cash payments to a joint marketing fund, to be used in
connection with both parties' obligations under the joint marketing agreement.
In addition, we sold 187,500 shares of our common stock to BIO for a nominal
amount in consideration for BIO's participation in these joint marketing
activities.
Promedix and Broadlane
Tenet. Our strategic relationship with Tenet encompasses two Ventro
marketplaces. In December 1999, we and Tenet announced the formation of
Broadlane. Tenet will provide Broadlane access to the benefits of its existing
buyer and supplier contracts of its BuyPower organization, which serves as a
group purchasing organization for Tenet's hospitals and other members.
BuyPower, according to Tenet, manages over 400 vendor contracts that generate
more than $3 billion in annual purchases of total supplies, which are used by
Tenet as well as non-Tenet institutions, including 10 acute care hospitals,
531 non-acute facilities and approximately 45,000 physicians. Two key members
of Broadlane's management team were formerly officers of Tenet.
Concurrent with the formation of Broadlane, Tenet and Promedix entered into
an arrangement under which Promedix will be the exclusive supplier to entities
for which Tenet acts as a purchasing agent of business-to-business e-commerce
solutions for the purchase of specialty medical products for an eight-year
term.
We believe Tenet's network of customers and its purchasing power with
suppliers provide Broadlane and Promedix with an advantage in obtaining
critical mass within their respective marketplaces.
Industria Solutions
DuPont. In January 2000, we and DuPont announced the formation of Industria
Solutions. DuPont is one of the largest purchasers of maintenance and
engineering materials in the United States, and we believe that DuPont will
shift procurement of these materials to Industria Solutions over time. We
believe this purchasing power can provide Industria Solutions with the ability
to achieve scale rapidly. Industria Solutions will also benefit from DuPont's
industry expertise.
Technology
We have developed a purchasing solution that resides on our servers and is
accessible by standard browsers, requiring minimal software installation at
the customer site, and enabling rapid deployment of applications, enhancements
and updates. We call this a "marketplace" for each applicable vertical market.
For example, we refer to our solution for the life sciences industry as the
"Chemdex Marketplace." Our production data center is hosted at Exodus
Communication in Sunnyvale, California. This data center provides us with
conditioned space and high bandwidth Internet connectivity.
System Architecture. Our marketplaces include three layers of technology:
. Process and Communication Layer. This layer integrates our system with
our customers' client applications using Internet technology protocols
that can pass through an enterprise's network security wall, such as
http, ftp and EDI, to provide a seamless operation of the marketplace
and purchasing solution. This layer is implemented using standard web
servers, and supports standard Internet protocols such as http, ftp and
XML.
. Electronic Services Layer. This layer delivers all of our system's
functionality. The marketplace and purchasing solution uses existing and
proprietary software to deliver proprietary services including
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Internet catalog development and maintenance tools, search
functionality, workflow integration, product pricing and estimated
shipping, handling and freight charges.
. Enterprise Services Layer. This layer delivers some of the services
required to run our system, including financial services, development
and maintenance of the product master database, customer service systems
and the data warehouse. To meet our unique scale requirements for
product information management, we developed a proprietary data
warehouse system.
Customer Integration. Our purchasing solution can be configured and
integrated to meet an enterprise customer's needs, including:
. Customer View. The purchasing solution graphical user interface may be
tailored for each enterprise customer, allowing an enterprise customer
to select specific suppliers from our supplier list, and to customize
the user's view in accordance with business rules and policies
implemented by the purchasing department.
. Login and Authentication. For enterprises that do not have a single
authoritative directory services system enabling single login
functionality across the enterprise, our purchasing solution provides an
authoritative enterprise authentication and authorization list along
with the user roles, credit limits, and approval workflow. For
enterprises that have a single authoritative directory services system,
our purchasing solution directly integrates with the enterprise's
authoritative data source to maintain the current permitted user list,
and provides seamless access by the user and simple management for the
enterprise.
. Purchasing Application Integration. Our purchasing solution integrates
with commercial purchasing applications, such as Ariba, as well as
internally developed purchasing applications, through industry standard
protocols for Internet purchasing.
. Enterprise Specific Pricing. We have developed algorithms to support
enterprise specific pricing. This pricing can be implemented either by
(a) pricing contract tables that list specific prices or (b) direct
integration with the supplier systems to extract real time pricing and
availability information.
Search Services. Our search software leverages a combination of full text
search and relational technology to deliver a unique search tool customized to
a particular industry. For example, the search engine for the Chemdex
Marketplace is customized to 11 levels of specific search categories
associated with life sciences research products such as antibodies, enzymes,
or other compounds. Each of the product specific search levels also includes
parametric searching capabilities to search for products with specific
attributes, or ranges of attributes. Our acquisition of SpecialtyMD enhanced
our search capabilities by providing us with technology that more easily ties
specialized content to searches. This allows us to enable users to more
readily access relevant content, and to provide faster searches based upon the
parameters defined and the content accessed in prior searches.
Product Pricing Estimation. We have developed algorithms to estimate
shipping, handling and freight charges associated with any customer order.
These algorithms integrate customer requirements for shipping delivery time,
product weight, and product type, including requirements for hazardous
materials and product packaging such as blue ice. These algorithms provide
users of our marketplaces with estimated shipping, handling and freight cost,
and make appropriate decisions given their delivery timing requirements.
Workflow. We have developed simple workflow technology to implement each
enterprise customer's business rules and processes. These workflow rules
include credit limit checks, multilevel approval and e-mail based notification
of any order changes. This system streamlines the purchasing process by
automating approval routing, and enables real time customer service through
direct customer notification.
Technical Support. We offer technical support to respond to any customer
service disruption. In addition to off-the-shelf site instrumentation and
monitoring software, we have developed custom monitoring agents that measure
key application parameters. This software enables us to provide high quality
technical support.
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Marketing, Sales and Support
Ventro
Our marketing efforts for Ventro focus on building Ventro's brand identity.
We believe this will enhance our ability to enter into new vertical
marketplaces and partner with industry leaders. The goal of our marketing
efforts is to establish Ventro as the leading builder and operator of vertical
marketplace companies and as a technology leader.
Our marketing efforts address the attractiveness of business-to-business e-
commerce as an alternative to traditional methods, and the advantages in
particular of our solution. This educational process includes speaking
engagements and relationships with business press and industry analysts. We
believe the establishment of the Ventro brand will increase our ability to
enter into strategic relationships with industry leaders in attractive
vertical markets.
The Ventro marketing team supports our business development efforts with
respect to potential new vertical marketplaces, identifies key industry
players, evaluates the strengths of the target market, establishes a brand for
the new marketplace and launches marketing of the Ventro marketplace. We
anticipate that each of our marketplace companies will ultimately create its
own marketing teams.
Ventro Marketplace Companies
Chemdex and Promedix, have their own dedicated marketing efforts. We market
and sell the Chemdex Marketplace and the Promedix Marketplace and purchasing
solutions through a combination of our direct sales force, internal
telemarketing sales and strategic relationships with partners such as VWR,
Tenet and BIO. Since our potential customers and users fall within a defined
market segment, we are able to identify and target the purchasing decision
makers and potential users who will influence the decision to adopt a
purchasing solution.
Our sales and marketing approach is designed to help customers and
suppliers understand both the business and technical benefits of these
marketplaces and purchasing solutions, and to promote user adoption through
one-on-one education and training. Our field sales force focuses on large
pharmaceutical and biotechnology companies, large academic and research
institutions for Chemdex, and hospitals, acute care facilities and healthcare
professionals for Promedix. Our telephone sales group focuses on small
biotechnology companies, smaller research institutions, and smaller healthcare
facilities. We are building an experienced professional services organization
to facilitate the successful deployment of our purchasing solution, including
integration with any enterprise resource planning software and customization
with the enterprise's business rules. We intend to expand our direct sales
force and professional services organization and to establish additional sales
offices domestically and internationally. Competition for sales personnel is
intense, and we may not be able to attract, assimilate or retain additional
qualified personnel in the future.
We conduct a variety of marketing programs to educate our target market,
create awareness and attract customers to our marketplaces. To achieve these
goals, we leverage our existing customer base and engage in marketing
activities such as seminars, direct mailings, trade shows, speaking
engagements and web site marketing. We also conduct comprehensive public
relations programs that include establishing and maintaining relationships
with key trade press, business press and industry analysts. In addition, we
engage in marketing programs within our enterprise customers to educate,
convert and train users and purchasing agents to use our marketplaces for
their product orders.
We believe that we can establish and maintain long-term relationships with
our customers and suppliers, and encourage repeat visits and purchases by our
customers if, among other things, we have good account management, customer
support and service. Our customer support and service personnel handle general
customer inquiries and basic technical questions, answer customer questions
about the ordering process and investigate the status of orders, shipments and
payments. We have automated some of the tools used by our customer support and
service staff, such as tracking screens that let our support staff track a
transaction by any of a variety of
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information sources. At any time in the purchasing process, a customer can
access our support staff by fax or e-mail by following prompts located
throughout our web site or by calling our call center through our toll-free
telephone line.
As of February 15, 2000, we employed 123 individuals in our worldwide sales
and marketing group. These individuals are located at Chemdex headquarters,
Promedix headquarters, new customer sites, and in six regional offices, five
in the U.S. and one in the United Kingdom.
Research and Development
Our development organization is focused on developing and enhancing our
enterprise purchasing solution, developing applications for and supporting our
marketplaces, and maintaining and improving our technology, infrastructure and
database. The development group is supported by our quality assurance group.
As February 29, 2000, our research and development group was comprised of 134
employees responsible for software and system development and quality
assurance. We anticipate that we will be expanding our research and
development group to further develop our technology architecture and to
support new Ventro marketplace companies. Our agreements with Broadlane and
Industria Solutions provide that we will support their development and
enhancement of their respective purchasing solutions. In return, these
companies will reimburse us for our fully-burdened cost in providing this
support.
Research and development expenses were $197,000 in the period from
inception through December 31, 1997, $3.4 million in 1998 and $17.7 million in
1999. To date, substantially all software development costs have been expensed
as incurred. We believe that continued significant investments in research and
development are required to remain competitive.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect the proprietary aspects of our
technology. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. Finally, we
seek to avoid disclosure of our intellectual property by requiring employees
and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source
code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability
to license the infringed technology, our business and operating results would
be significantly harmed.
Competition
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. We believe that the critical success factors for
companies seeking to create Internet business-to-business e-commerce solutions
include the following:
. quality and reliability of the Internet purchasing solution;
. breadth and depth of product offerings;
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. brand recognition;
. installed base of customers; and
. ease of use and convenience.
We face competition from four main areas: other companies with e-commerce
offerings, traditional suppliers and distributors in vertical marketplaces,
companies that have developed their own purchasing solutions and enterprise
software companies that offer, or may develop, alternative purchasing
solutions. We could face further competition in the future from traditional
suppliers and distributors that enter into business-to-business e-commerce
over the Internet either on their own or by partnering with other companies.
Traditional enterprise software companies, such as SAP, IBM and Oracle, could
in the future develop and offer a competitive purchasing solution that our
customers could customize to link to their suppliers. Additionally, emerging
enterprise software companies such as Ariba and Commerce One offer purchasing
solutions that could be customized to link to suppliers within particular
industries. E-commerce sites such as VerticalNet, ProcureNet and Industry.Net
may also indirectly compete with us in any individual vertical marketplace.
Companies primarily focused on creating Internet purchasing solutions for
the life sciences industry include SciQuest.com and Anderson Unicom Group,
Inc. Traditional suppliers and distributors including Sigma Aldrich Corp.,
Fisher Scientific International, Inc., Merck KGaA Darmstaadt and VWR currently
sell life sciences research products through paper catalogs and web sites.
Within the healthcare products industry, Promedix's principal competitors
are large regional distributors such as Tri-anim and Primesource Surgical,
which represent products in several sub-specialities. Many manufacturers who
sell directly also have rudimentary e-commerce sites for their own products.
Indirect competitors of Promedix are large commodity distributors and group
purchasing organizations or GPOs. The largest medical distributor--Allegiance
Healthcare--has released an e-commerce site called ASAP E-Comm, designed to
sell the commodity products that Allegiance represents. Premier, Inc., the
largest group purchasing organization, has released Premier Select, a site
targeted to the physician and long-term care market, that contains only those
products that Premier has contracted with manufacturers to sell. Our principal
Internet competitors are NeoForma, Medibuy, MedAssets and to a lesser extent
Cimtek Medical and mrn.com. Specialty medical products are also sold in
limited quantities by smaller Internet companies, like Surgical911.com, and by
consumer-oriented sites, like Medsite.
Our current and potential competitors may develop superior Internet
purchasing solutions that achieve greater market acceptance than our solution.
Many of our existing and potential competitors, including large traditional
distributors, have longer operating histories in the life sciences research
products market, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
Such competitors can undertake more extensive marketing campaigns for their
brands, products and services, adopt more aggressive pricing policies and make
more attractive offers to customers, potential employees, distribution
partners, commerce companies and third-party suppliers.
In addition, substantially all of our prospective customers have
established long-standing relationships with some of our competitors or
potential competitors. Accordingly, we cannot be certain that we will be able
to expand our customer list and user base, or retain our current customers. We
may not be able to compete successfully against our current or future
competitors and competition could have a material adverse effect on our
business, results of operations and financial condition.
Government Regulation
In addition to regulations applicable to businesses generally, we are or
may be subject to direct regulation by governmental agencies listed below,
which includes numerous laws and regulations generally applicable to the
chemical, pharmaceutical, controlled substances, human and biological
reagents, medical and in vitro devices, nuclear chemical businesses, and
environmental spills, as well as U.S. import and export controls and import
controls of other countries.
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We have been and intend to continue relying upon our suppliers to
appropriately package and label and maintain records on the products according
to local, state and federal laws. We have been and also intend to continue
relying upon suppliers, and purchasers, if necessary, to hold all appropriate
licenses and approvals. We rely on the suppliers' regulatory staff to confirm
that the purchasers also have the appropriate governmental licenses and
permits and expertise needed to order, receive and use any regulated products.
We are unable to verify the accuracy of our suppliers' regulatory staff
determinations and their decisions whether or not to ship a product to a
purchaser.
Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are held to need our own
licenses. For example, if we are held by governmental agencies to be a seller
or a distributor of regulated products, for example, because we took legal
title, we may have inadvertently violated some governmental regulations by not
having the appropriate license or permit and may be subject to potentially
severe civil or criminal penalties and fines for each offense. A review of our
sales to date found that they were generally made to academic or commercial
purchasers and not to individuals. As described below, our suppliers have
indicated to us that they regularly check the requisite licenses of
purchasers. These facts could minimize the potential severity of any civil or
criminal penalties and fines that could be imposed on us for these sales.
We intend to continue to investigate our sales of regulated products and
have discussed with some governmental regulatory agencies whether these sales
required us, in addition to our suppliers, to obtain a license or permit. We
intend to continue to pursue these discussions. We may also seek clarification
of whether our prior sales of these products will subject us to any
governmental, civil or criminal penalties, including monetary fines and
injunctions or other enforcement action. No assurance can be given by us that
any penalties or fines will not result in a material adverse effect on our
business, results of operations, or financial condition. In addition, we may
discover that we had inadvertently sold other regulated products without a
requisite license or permit or failed to fully comply with other local, state,
or federal laws governing these sales.
In addition to reviewing our past sales, during the period from May through
July, 1999, we conducted interviews with those suppliers that accounted for
approximately 75% of prior sales. These suppliers were chosen as they are a
representative cross-section of our suppliers that we believe may sell
regulated products. Beginning in February of this year we updated and expanded
those interviews by conducting additional discussions with our six suppliers
in Canada. In both the domestic and foreign supplier interviews, we asked if
they verify that the purchasers have the necessary federal licenses before
making shipments and if they comply with applicable labeling and packaging
requirements. We also asked the suppliers whether they were aware of any
diversions or chemical spills, or of any past, pending, or threatened fines,
violations, penalties, litigation, complaints or investigations regarding
their shipment of products to our customers. In the course of these
discussions, the suppliers informed us that they have appropriate licenses and
permits, and they routinely, as a matter of practice, verify whether the
purchasers have the relevant licenses or permits, and comply with labeling and
packaging requirements. The suppliers also indicated that they are not aware
of any diversions, or past, pending or threatened fines, violations,
penalties, litigation, complaints, proceedings or investigations regarding
their shipment of products to our customers. However, some suppliers have had
small spills and been subject to fines for these spills and for failure to
provide information on hazards or health risks presented by products, but they
could not identify whether orders to Chemdex customers were involved.
Furthermore, we are unable to verify the accuracy of suppliers' statements
that they have in the past complied, or will in the future comply, with laws
applicable to these sales. In addition, we did not conduct investigations of
all suppliers in the Chemdex database, and we do not have any current plans to
do so. We could be significantly fined or exposed to significant civil or
criminal liability, or suffer negative publicity, if these licensing,
packaging, labeling, informational and other regulatory requirements have not
been fully met by our suppliers or by us directly.
During the period from May through July 1999, we also reviewed the list of
products in our current database to identify any products for which we may
need a license or permit to sell. We identified approximately 14,000 of those
products that may be regulated, and we have evaluated their status. They have
either been removed
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from our database, or been flagged so that we will not in the future sell
them, but instead will refer the purchasers of these flagged products directly
to suppliers. In some instances, we have sought or may in the future seek
appropriate licenses or registrations enabling us to return certain products
to the inventory. We cannot be sure that all regulated products requiring us
to have a license to sell have been removed from, or flagged in the database.
In addition, new products that require us to obtain governmental licenses or
permits may be inadvertently added to our database. However, we have
instituted new quality control procedures to routinely screen our growing
database, as well as increase the scrutiny of new products proposed to be
added to the database to eliminate those products for which we are required to
have licenses or permits to sell or distribute. Alternatively, we will
continue to apply for appropriate licenses, registrations, and exemptions, in
some instances, so certain products may be returned to the inventory. A
regulatory compliance officer has recently been hired to oversee these
matters, as well as the overall compliance of Ventro.
Regarding sales by Promedix, the company currently relies on suppliers to
meet the various regulatory requirements applicable to the sale of these
products, including specialty medical products regulated by the U.S. Food &
Drug Administration, or FDA. We have not verified that those suppliers have
met all regulatory requirements, or that their compliance is adequate or
sufficient to meet all governmental requirements. We could be subject to
significant penalties or fines, or significant civil or criminal liability, as
well as potential negative publicity, if these requirements have not been
fully met by these suppliers, by Promedix, or by us directly. We could also be
subjected to these fines and liabilities, as well as product and revenue loss
and recall costs, if the products are improperly manufactured, used, or
otherwise do not perform as expected. The events described above could have a
material adverse impact on our business, revenues, results of operations, and
financial condition.
The packaging, labeling, supply, sale, and distribution of medical devices
for clinical use are subject to direct governmental agency regulation, which
include the FDA laws and regulations generally applicable to medical supplies
and healthcare businesses, as well as U.S. export controls and import controls
of other countries, and including controls on the use and distribution of some
specialty medical products. FDA laws and regulations include requirements that
distributors of medical devices establish and maintain device complaint
records for any written, electronic, or oral complaint received pertaining to
such distributed medical devices. FDA laws and regulations also include the
requirement that distributors maintain records of distribution of certain
medical devices and provide reports to device manufacturers for the purpose of
tracking device distribution. Promedix continues to rely on suppliers to
obtain and report device complaints to FDA, but it may also be required to do
so itself. Promedix continues to rely on the due diligence of its suppliers to
confirm that purchasers hold all appropriate licenses needed to order, receive
and use medical devices and also that such purchasers are complying with
product labeling requirements and they are not otherwise diverting or using
such medical devices for purposes other than those set forth in any product
labeling.
Any failure to comply with applicable FDA laws and regulations could
subject us to civil and/or criminal liability. Regarding compliance with the
various statutory and regulatory requirements that relate to our involvement
in the sale of specialty medical products, there are, to our knowledge,
currently no investigations, inquiries, citations, fines, or allegations of
violations or noncompliance pending by government agencies or by third parties
against Promedix or us. It is possible that there may be investigations or
allegations in the future. We are currently reviewing applicable FDA
requirements with regard to present and continuing compliance, particularly
concerning various licensing and sales issues. There is a risk that FDA may
not accept Promedix's reliance on its suppliers to satisfy any or all of FDA's
requirements for device distributors, and the risk that any noncompliance may
occur in the future is currently unknown. As we expand our offering to other
products, we may be subject to additional government regulation. Although any
potential impact on us for noncompliance cannot be established, it could have
a material adverse impact on our business, financial condition and results of
operations, result in adverse publicity, and could result in civil or criminal
penalties and liabilities.
Under the terms of our agreement with VWR, VWR provides support for the
purchase of third-party, off-catalogue, products, where purchasers may order
products not listed in our database. A review of products
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previously sold under this arrangement is underway, but has not yet been
completed. The type and nature of these products cannot be anticipated. To
help avoid inadvertent future sales of products for which we would be required
to hold governmental licenses or permits, we are in the process of putting
limitations on VWR off-catalogue sales by removing certain regulated
categories of compounds and implementing a screening process to prevent
ordering of regulated products for which appropriate licenses and permits are
not available. For purchases of those products, we intend to refer the
purchaser directly to the suppliers, so that we are not involved in their
sale. We cannot be sure that we may not inadvertently sell or cause to be sold
and shipped products for which governmental licenses or permits are required.
We have also relied on our suppliers to comply with applicable local, state
and federal laws regarding the labeling and the dissemination of information
on any products sold that may be hazardous or present a health threat to the
user. If these suppliers have failed, or fail in the future, to adequately
comply with labeling and information dispensing requirements of local, state
or federal laws, then we may be held legally responsible, since we briefly
held title to these products, and could be subject to governmental penalties
or fines, as well as private lawsuits to enforce these laws.
Finally, we have relied upon our suppliers to obtain appropriate approvals
for products regulated by the FDA and to comply with the requirements relating
to those approvals and products. The failure to obtain or comply with those
approvals, or other failures by the products themselves, or the failure of
Promedix or Chemdex to keep regulatory records required by the FDA, such as
complaint files, could result in costly product recalls, significant fines and
judgments, civil and criminal liabilities, and negative publicity.
We intend to offer for sale products only to qualified purchasers. Unless
we have the necessary licenses, permits, authorizations, and approvals, or an
exemption or exclusion applies, we do not intend to offer for sale or cause to
be sold products that are, for example:
. prescription or over-the-counter human or animal drugs that are
regulated by the FDA;
. radioactive materials that are regulated by the Nuclear Regulatory
Commission or state and local governmental authorities unless we have
appropriate licenses or permits;
. biological products intended for the treatment of humans or animals, and
that are regulated respectively by the FDA and U.S. Department of
Agriculture, or USDA;
. pathogenic bacteria or viruses that may introduce any contagious or
infectious disease of man or animal and which are regulated by the
Centers for Disease Control and Prevention and USDA as Select Agents;
. controlled substances that are regulated by the Drug Enforcement Agency
and whose distribution requires a registration;
. products to be imported or exported (no products are currently exported)
that are regulated by the U.S. Department of Commerce or other
regulatory agencies;
. explosive materials for which a license, permit, or authorization is
required under Bureau of Alcohol, Tobacco and Firearms regulations; and
. ozone-depleting substances that are subject to production and
importation bans under the Federal Clean Air Act and the Montreal
protocol.
. certain polychlorinated biphenyls and asbestos-containing materials.
We intend to continue to sell products for which we do not need a license,
permit, authorization, or approval, or for which an exemption or exclusion
applies, and will seek to comply, either directly or through our supplier,
with applicable local, state and federal laws and regulations governing the
sale, packaging and labeling of these products, dispensing of information on
health risks and hazards about a chemical, and recordkeeping concerning these
products. However, our suppliers and we may inadvertently fail to comply with
applicable laws in the
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future. Noncompliance could have a materially adverse impact on our business,
and on our results of operations and financial condition because of civil or
criminal penalties and fines and negative publicity.
For sales of VWR core products under our agreement with VWR and under
agreements with a limited number of other suppliers, we act as a sales agent.
In these situations, we do not take title to, or have possession of these
suppliers' products. We rely on VWR and these other suppliers to comply with
all applicable local, state and federal laws. Although we are acting as a
sales agent for these suppliers and do not take legal title to, or possession
of, these products, we may still be held liable if we cause to be sold
regulated products to purchasers who lack required licenses to use, store and
receive these products and if the suppliers of these products have failed to
adequately comply with local, state or federal laws.
Researchers and others who are not affiliated with an enterprise customer
may register to purchase through our websites. Although we require
unaffiliated users to provide information about themselves, we do not
independently verify the accuracy of this information. Because we do not
generally meet unaffiliated users in person or visit their work sites, we are
even less able to gauge whether they have appropriate storage facilities,
permits or licenses, compared to enterprise customers with whom we generally
have some direct contact or knowledge of their reputations. Therefore, we
cannot be sure that we will not inadvertently sell, or cause to be sold or
delivered, products for which the purchasers lack appropriate local, state or
federal licenses or permits or expertise or experience to handle or use these
products. We may also be subject to significant civil or criminal penalties,
fines or monetary judgments as well as negative publicity, if purchasers
misuse or spill, or injure themselves or third parties with the products
purchased from us.
We are unaware of any current investigations, inquiries, citations, fines,
or allegations of violations or noncompliance pending by government agencies
or by third parties against us. It is possible that there may be
investigations or allegations we are not aware of or future investigations or
allegations. We are continually reviewing applicable requirements with regard
to past, present and continuing compliance, particularly concerning various
licensing and sales issues. The risk that any noncompliance may be discovered
in the future is currently unknown. Although any potential impact on us for
noncompliance cannot currently be established, it could result in significant
civil or criminal penalties, including monetary fines and injunctions, for
noncompliance and negative publicity, and have a material adverse impact on
our business, revenues, results of operations and financial condition.
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible, in addition to the above-listed examples of existing laws and
regulations, as well as new tax laws and regulations, that new laws and
regulations may be adopted or interpreted by the United States and foreign
governments, to address the sale and distribution of products utilizing the
Internet. In addition, it is possible that governments will enact legislation
that may be applicable to us in areas such as content, product distribution,
network security, encryption and the use of key escrow, data and privacy
protection, electronic authentication or "digital" signatures, illegal and
harmful content, access charges and re-transmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation, personal privacy, product
liability and environmental protection, as well as the necessity for
governmental permits, labeling, certifications and the need to supply
information to relevant parties, is uncertain. Most of these laws were adopted
before the widespread use and commercialization of the Internet and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Any export or import restrictions, new legislation or
regulation or governmental enforcement of existing regulations may limit the
growth of the Internet, increase our cost of doing business, or increase our
legal exposure. Any of these factors could have a negative effect on our
business, revenues, results of operations and financial condition.
Employees
As of February 15, 2000, we had 354 full-time employees, including 134 in
research and development, 123 in supplier relations, sales and marketing, 25
in professional services and customer support and 72 in general
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and administrative functions. We also employ independent contractors to
support our engineering, marketing, sales and support, and administrative
organizations.
Facilities
Our executive, administrative and operating offices are located in
approximately 94,000 square feet of leased office space located in Mountain
View, California under a lease expiring in February, 2005. We also have
approximately 10,000 square feet in Palo Alto, California pursuant to a lease
that expires in March 2003. In addition, we have approximately 63,000 square
feet in Salt Lake City, Utah, under two leases expiring in November 2000 and
October, 2005. We also maintain sales offices in Ann Arbor, Michigan,
Princeton, New Jersey, and the United Kingdom.
Legal Proceedings
Ventro is not a party to any legal proceedings which, if adversely decided,
would reasonably be expected to have a materially adverse effect on the
financial condition of the corporation.
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MANAGEMENT
Directors and Executive Officers
Set forth below is information regarding the directors and executive
officers of Ventro as of March 1, 2000.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David P. Perry............ 31 President, Chief Executive Officer and Director
Pierre V. Samec........... 36 Chief Information Officer
Robin A. Abrams........... 48 Chief Operating Officer
James G. Stewart.......... 47 Chief Financial Officer and Assistant Secretary
Neil E. de Crescenzo...... 38 President and General Manager, Chemdex
John Thorpe............... 50 President and General Manager, Ventro Europe
J. Barrie Keiser.......... 38 President and General Manager, Promedix
James S. Wambach.......... 46 Vice President, Worldwide Sales
David A. Weber............ 46 Vice President, Supplier Relations
Martha D. Greer........... 46 Vice President, Marketing
William C. Klintworth,
Jr. ..................... 48 Director
Charles R. Burke.......... 57 Director
Brook H. Byers............ 54 Chairman of the Board
Jonathan D. Callaghan..... 31 Director
Paul J. Nowak............. 45 Director
John A. Pritzker.......... 46 Director
Naomi O. Seligman......... 66 Director
L. John Wilkerson......... 56 Director
</TABLE>
David P. Perry co-founded Ventro in September 1997 and has served as our
President, Chief Executive Officer and a director since September 1997. From
December 1995 to April 1997, he co-founded and served in various positions,
including Chief Executive Officer, of Virogen, Inc., a biotechnology company.
Mr. Perry has also held various positions at Exxon Corporation, including as a
Refinery Operations Supervisor from January 1994 to May 1995, a financial
analyst from March 1993 to January 1994, a project manager from September 1992
to March 1993 and an engineer from September 1990 to March 1992. Mr. Perry
holds an M.B.A. from Harvard University and a B.S. in chemical engineering from
the University of Tulsa.
Pierre V. Samec joined us as our Chief Information Officer in July 1998.
Prior to joining us, Dr. Samec held various positions at Charles Schwab and
Co., Inc., a financial services company, including as its Senior Vice
President, Retail Technology from February 1998 to July 1998, its Vice
President, Software Engineering from July 1996 to January 1998 and its Vice
President and Architect from January 1996 to June 1996. From August 1993 to
December 1995 Dr. Samec also served as the Vice President, Software Engineering
of Quintus Corporation, a software company, Dr. Samec holds an engineering
degree from Ecole des Mines de Paris and an M.S. and Ph.D. in geophysics from
Stanford University.
Robin A. Abrams has served as our Chief Operating Officer since June 1999.
Prior to joining Ventro, Ms. Abrams served as the President of Palm Computing
Inc. and the Senior Vice President of 3Com Corporation from February 1999 to
June 1999. Ms. Abrams served as the President of VeriFone Inc., a secure
payment systems company and a subsidiary of Hewlett-Packard, from March 1998 to
February 1999, and as the Vice President of the Americas of VeriFone from
February 1997 to March 1998. From June 1996 to February 1997, Ms. Abrams was
the Senior Vice President of Apple Computer, Inc. and the President of Apple
Americas, and from December 1994 to June 1996, Ms. Abrams served as the Vice
President and General Manager of Apple Asia. Ms. Abrams holds a B.S. in
political science and history and a J.D. from the University of Nebraska.
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James G. Stewart joined us as our Chief Financial Officer in February 1999.
Previously, Mr. Stewart served as the Chief Financial Officer of CN
Biosciences, Inc., a chemical manufacturing and distribution company, from
June 1995 to March 1999, and the President of CN Corporation, the principal
operating division of CN Biosciences, Inc., from March 1998 to March 1999.
From April 1994 to April 1995, Mr. Stewart served as the Chief Financial
Officer of Fightertown Entertainment, Inc., a virtual reality entertainment
company. From November 1988 to April 1994, Mr. Stewart held various positions
at Verteq, Inc., a semiconductor equipment company, including most recently as
its Chief Financial Officer. Mr. Stewart was formerly an Audit Partner of
Arthur Young & Co. Mr. Stewart holds a B.S. in business from the University of
Southern California.
Neil E. de Crescenzo has served as our President and General Manager of
Chemdex since January 2000. Prior to joining us, Mr. de Crescenzo served as
Global Services Executive for IBM Global Services from August 1999 to December
1999. Mr. de Crescenzo served as Director of Global Strategy for IBM
Corporation's Public Sector business unit from January 1999 until August 1999,
and as Director of Global Marketing and Business Development for IBM
Corporation's Global Healthcare business unit from October 1996 until January
1999. From October 1994 to October 1996, Mr. de Crescenzo was a principal with
New Health Ventures, an operating unit of Blue Cross Blue Shield of
Massachusetts. Mr. de Crescenzo holds a B.A. in political science from Yale
University.
John Thorpe joined us in March 2000 as the President and General Manager of
Ventro Europe. Prior to joining Ventro, Mr. Thorpe held various positions at
GE Information Systems and was the Corporate Vice President and President of
Europe, the Middle East and Africa from 1997 to 1999, where he sat on the GE
Chief Executives Council for Europe. Mr. Thorpe served as the Managing
Director of International Network Services, a provider of solutions for
complex enterprise networks, from 1994 to 1995. Mr. Thorpe holds a B.A in
Business Studies from Portsmouth University, England.
J. Barrie Keiser joined us as the President of Promedix in February 2000.
Prior to joining us, Mr. Keiser served as the President and General Manager of
Promedix from August 1999 to February 2000. Prior to joining Promedix, Mr.
Keiser served as the Corporate Vice President of Allegiance Healthcare, a
provider of health-care products and cost-management services from July 1996
to August 1999. Mr. Keiser served as the Vice President, Integrated
Distributions Services of Baxter International from October 1994 to July 1996.
From April 1991 to October 1994, Mr. Keiser served as the Vice President,
General Manager of ValueLink Business Center. Mr. Keiser holds a B.S. from
Indiana University.
James S. Wambach has served as our Vice President, Worldwide Sales since
September 1998. Prior to joining us, Mr. Wambach served as the Senior Vice
President of North American Sales Operations of Forte Software, Inc., a
software company from January 1997 to June 1998. From January 1990 to December
1996, Mr. Wambach served in various positions at Sybase, Inc., a software
products and services company, including most recently as its Vice President
and General Manager from October 1995 to December 1996. Prior to that time,
Mr. Wambach has served in various positions at Oracle Corporation, a database
management and business applications company. Mr. Wambach holds a B.S. in
business administration from Ohio State University.
David A. Weber joined us in February 1999 as our Vice President, Supplier
Relations. Prior to joining us, Mr. Weber served as the Vice President,
Marketing at Amersham Pharmacia Biotech, a scientific services and tools
company, from October 1997 to February 1999. He also served as the Vice
President, Direct Marketing from May 1995 to October 1997 and as Area Director
from 1990 to 1995, of Pharmacia Biotech, a division of Pharmacia & Upjohn,
Inc. Mr. Weber holds a B.S. in biochemistry from Rutgers University.
Martha D. Greer joined us as our Vice President, Marketing in January 1999.
Previously, she served as Vice President, Merchandise Management of Onsale,
Inc., an online seller of computers and computer-related products, from
January 1997 to November 1998. Dr. Greer was employed as an independent
consultant from January to December 1996. From November 1992 to January 1996,
Dr. Greer served in various positions at PC Connection, a computer direct
marketing company, including as its Vice President, Product Management from
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September 1994 to January 1996, as its Vice President, Marketing from
September 1993 to September 1994, as its Director, Marketing from May 1993 to
September 1993 and as its Director, Business Development from November 1992 to
May 1993. Dr. Greer holds a B.A. in linguistics from Macalester College and a
Ph.D. in experimental psychology from Harvard University.
William C. Klintworth, Jr. has served as a director of Ventro since
February 2000. Mr. Klintworth served as Chairman and director of Promedix and
its Chief Executive Officer since January 1999. Prior to that, from May to
October 1998, he served as the Chief Development and Acquisition Officer of
HTD Corporation, a national medical specialty distribution company. From April
1997 to May 1998, he served as Chief Executive Officer of Triad Medical, a
medical products distributor. He served as Chief Executive Officer of Medical
Companies Alliance, a medical products distributor until March 1997. Mr.
Klintworth holds a B.S. in business administration from Southern Methodist
University.
Charles R. Burke has served as a director of Ventro since January 1998. Dr.
Burke has served as the President of Monument Partners, Inc., a consulting
firm, since January 1998. From January 1994 to December 1997, he served as the
Chief Executive Officer of Research Biochemicals Incorporated, a research
reagent supply company. Dr. Burke is also a director of Endogen, Inc. Dr.
Burke holds an A.B. in Chemistry from Cornell University, a M.A. with honors
in biology from Colgate University and a Ph.D. in biochemistry from the
University of Illinois.
Brook H. Byers has served as a director of Ventro since May 1998 and as
Chairman of the Board since March 1999. Mr. Byers is a general partner of
Kleiner Perkins Caufield & Byers, a venture capital firm which he joined in
1977. He was the founding president and chairman of four lifesciences
companies: Hybritech Inc., IDEC Pharmaceuticals Corporation, InSite Vision
Inc. and Ligand Pharmaceuticals Inc. Mr. Byers currently serves as a director
of drugstore.com and a number of privately-held technology companies. Mr.
Byers serves on the Board of Directors of the University of California, San
Francisco Foundation and the California Healthcare Institute. Mr. Byers holds
a B.S. in electrical engineering from Georgia Institute of Technology and an
M.B.A. from the Stanford Graduate School of Business.
Jonathan D. Callaghan has served as a director of Ventro since September
1997. Mr. Callaghan has been a general partner of CMG@Ventures, a venture
capital firm, since September 1997. Previously, from June 1991 to June 1995,
Mr. Callaghan was an associate of Summit Partners, a venture capital firm. Mr.
Callaghan also serves as a director of Vicinity Corporation. Mr. Callaghan
holds a B.A. in government from Dartmouth College and an M.B.A. with
distinction from Harvard University.
Paul J. Nowak has served as a director of Ventro since November 1999. Mr.
Nowak has served as the President and Chief Executive Officer of VWR
Scientific Products since August 1999. He also serves as a director of VWR.
Mr. Nowak has worked at VWR in various capacities for over 22 years, most
recently as Executive Vice President of Sales and Marketing from January 1998
to August 1999, as Senior Vice President of Sales from July 1995 to January
1998, and as Senior Vice President of Operations from January 1995 to July
1995.
John A. Pritzker has served as a director of Ventro since March 1998. Since
1988, Mr. Pritzker has served as President of the Red Sail Companies, sports,
retail and entertainment companies which he founded, Mandara Spa LLC, a spa
company which he founded, and Hyatt Ventures, Inc., a venture capital firm.
Mr. Pritzker served as a Divisional Vice President of Hyatt Hotels and Resorts
from 1984 to 1988. Mr. Pritzker served as director of Ticketmaster Group, Inc.
for five years. He holds an A.A. from Menlo College.
Naomi O. Seligman has served as a director of Ventro since June 1999. Ms.
Seligman is a co-founder and has served as a senior partner of the Research
Board, Inc., an information technology research group, since 1975. Ms.
Seligman currently serves as a director of The Dun and Bradstreet Corporation.
Ms. Seligman holds a B.A. in economics with high honors from Vassar College
and an M.B.A. from the London School of Economics.
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L. John Wilkerson has served as a director of Ventro since March 1999. Dr.
Wilkerson is a co-founder and has been a general partner of Galen Associates,
a venture capital firm, since May 1990, and has been a consultant to The
Wilkerson Group, a health care products consulting firm, since May 1996.
Previously, Dr. Wilkerson served as a Vice President of Smith Barney. He is
currently a director of British Biotech Plc, Stericycle, Inc. and TheraTX,
Incorporated. Dr. Wilkerson holds a B.S. in plant science from Utah State
University and an M.S. and Ph.D. in economics from Cornell University.
Board of Directors
Directors are elected annually at the annual meeting of our stockholders
and serve for the term for which they are elected and until their successors
are duly elected and qualified. Our bylaws currently provide for a board of
directors comprised of ten directors.
Board Committees
Ventro's board of directors has an audit committee and a compensation
committee. The audit committee of the board of directors consists of Messrs.
Burke and Wilkerson. The audit committee reviews Ventro's financial statements
and accounting practices and makes recommendations to the board of directors
regarding the selection of independent auditors. The compensation committee of
the Board of Directors consists of Messrs. Burke, Byers and Callaghan. The
compensation committee makes recommendations to the board of directors
concerning salaries and incentive compensation for Ventro's officers and
employees and administers Ventro's employee benefit plans. Mr. Byers is
chairman of the compensation committee.
Director Compensation
None of our directors are paid any fee or other compensation for acting as
a director, although directors are reimbursed for reasonable expenses incurred
in attending board or committee meetings. Directors who are employees of
Ventro are eligible to participate in Ventro's 1998 Stock Plan and participate
in Ventro's 1999 Employee Stock Purchase Plan.
In February 1998, we granted Charles Burke an option to purchase 7,500
shares of common stock under the 1998 Stock Plan at an exercise price of $.10
per share in February 1998 and in July 1998, an additional option to purchase
17,500 shares of common stock under the 1998 Stock Plan at an exercise price
of $.15 per share. These options vest over a four-year period. In July 1999,
we granted Messrs. Byers, Callaghan and Pritzker, Drs. Burke and Wilkerson and
Ms. Seligman 12,500 stock options each under the 1999 Directors' Stock Plan at
an exercise price of $15.00 a share. These options are fully vested. In
November 1999, we granted Mr. Nowak 12,500 options under the 1999 Directors'
Stock Plan at an exercise price of $56.50 a share. Mr. Nowak's options are
fully vested.
1999 Directors' Stock Plan
Our 1999 Directors' Stock Plan was adopted by the board of directors in May
1999 and was approved by the stockholders in July 1999. A total of 250,000
shares of common stock has been reserved for issuance under the Directors'
Plan. The Directors' Plan provides for the grant of nonstatutory stock options
to nonemployee directors of Ventro. The Directors' Plan is designed to work
automatically without administration; however, to the extent administration is
necessary, it will be performed by the board of directors. To the extent
conflicts of interests arise, it is expected that they will be addressed by
abstention of any interested director from both deliberations and voting
regarding matters in which this director has a personal interest.
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The Directors' Plan provides that each person who is or becomes a
nonemployee director of Ventro will be granted a nonstatutory stock option to
purchase 12,500 shares of common stock on the date on which the optionee first
becomes a nonemployee director of Ventro. On the date of our annual
stockholders meeting, each of our nonemployee directors will be granted an
additional option to purchase 5,000 shares of common stock if, on that date,
he or she has served on our board of directors for at least six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one non-employee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by the optionee. The
Directors' Plan provides that each option granted under the Directors' Plan
shall vest and become exercisable in full immediately upon grant of the
option. If a nonemployee director ceases to serve as a director for any reason
other than death or disability, he or she may, but only within 90 days after
the date he or she ceases to be a director of Ventro, exercise options granted
under the Directors' Plan. If he or she does not exercise the option within
this 90 day period, this option shall terminate. The exercise price of all
stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of Ventro's common stock on the date of grant of the
option. Options granted under the Directors' Plan have a term of ten years.
In the event of a sale of all or substantially all of our assets, our
merger with or into another corporation or any other reorganization of Ventro
in which more than 50% of our shares entitled to vote are exchanged, each
nonemployee director shall have the right to exercise each option immediately
prior to completion of the transaction. The board of directors may amend or
terminate the Directors' Plan; provided, however, that these actions may not
adversely affect any outstanding option. We will obtain stockholder approval
for any amendment to the extent required by applicable law. If not terminated
earlier, the Directors' Plan will have a term of ten years.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee has at any time since our
formation been one of our officers or employees. None of our executive
officers currently serves or in the past has served as a member of the board
of directors or the compensation committee of any entity that has one or more
executive officers serving on our board or compensation committee.
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Executive Compensation
The following table sets forth information concerning compensation earned
in the fiscal year ended December 31, 1999 paid to our Chief Executive Officer
and our next four most highly compensated executive officers who were serving
as executive officers as of December 31, 1999. All options granted by the
board of directors prior to February 16, 1999 allowed for early exercise
subject to our right to repurchase. The number of securities underlying
options in the "Long-Term Compensation" column includes securities issued upon
the exercise of options subject to our right to repurchase at cost.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Number of
Securities
Salary Underlying
Name and Principal Position Year ($) Bonus Options (#)
--------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
David P. Perry............................... 1999 $192,551 $ -- --
President, Chief Executive Officer 1998 98,375 20,000 --
and Director 1997 14,088 -- --
David A. Weber............................... 1999 333,839 50,000 --
Vice President, Supplier Relations 1998 -- -- 200,000
1997 -- -- --
Pierre V. Samec.............................. 1999 235,060 100,000 75,000
Chief Information Officer 1998 83,333 150,000 225,000
1997 -- -- --
Martha D. Greer.............................. 1999 197,441 125,000 235,000
Vice President, Marketing 1998 -- -- --
1997 -- -- --
James S. Wambach............................. 1999 201,929 100,000 --
Vice President, Worldwide Sales 1998 47,584 50,000 225,000
1997 -- -- --
</TABLE>
Ms. Robin Abrams, our Chief Operating Officer, commenced employment with us
in June 1999. Ms. Abrams' salary on an annualized basis for 1999 was $300,000,
which does not include a signing bonus of $50,000 paid upon commencement of
employment with us or any quarterly cash bonuses of $20,000 payable upon the
achievement of performance goals.
Mr. Neil de Crescenzo, our President and General Manager, Ventro Life
Sciences, commenced employment with us in January 2000. Mr. de Crescenzo's
salary on an annualized basis for 2000 will be $275,000, which does not
include a signing bonus of $350,000 or an annual bonus of $150,000.
Stock Options
The following table sets forth information concerning the grant of stock
options to our Chief Executive Officer and our next four most highly
compensated executive officers, during the fiscal year ended December 31,
1999. The individual grants consist of options granted pursuant to our 1998
Stock Plan. We granted options to purchase 3,579,032 shares of common stock to
employees and consultants. The exercise price per share of each option was
equal to the fair market value of common stock on the date of grant as
determined by the board of directors. In determining the fair market value of
the common stock on each grant date, the board of directors considered, among
other things, our absolute and relative levels of revenues and operating
results, the state of our technology development, increases in operating
expenses and the intensely competitive nature of our markets and the
appreciation of stock values of generally comparable companies. The potential
realizable value is based on the assumption that our common stock appreciates
at the annual rate shown, compounded annually, from the date of
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<PAGE>
grant until the expiration of the ten-year term. These numbers are calculated
based on Securities and Exchange Commission requirements and do not reflect
Ventro's projections or estimates of future stock price growth. Potential
realizable values are computed by:
. multiplying the number of shares of common stock subject to a given
option by $111.00, the closing price per share of our common stock on
the Nasdaq National Market on December 31, 1999;
. assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. subtracting from that result the total option exercise price.
Option Grants in Fiscal Year ended December 31, 1999
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
Number of --------------------------------- Value At Assumed
Securities % of Annual Rates of Stock
Underlying Total Options Price Appreciation
Options Granted to Exercise Expiration for Option Term
Granted Employees in Price ---------- -----------------------
Name (#) Fiscal Year ($/Sh) Date 5% 10%
---- ---------- ------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- --% $ -- -- $ -- $ --
David A. Weber.......... 200,000 5.6 1.50 2/8/09 35,861,461 57,281,083
Pierre V. Samec......... 75,000 2.1 5.00 4/26/09 13,185,548 21,217,906
Martha D. Greer......... 225,000 6.6 1.50 1/27/09 40,344,143 64,441,218
10,000 .3 5.00 4/26/09 1,758,073 2,829,054
James S. Wambach........ -- -- -- -- -- --
</TABLE>
Mr. Samec was granted an additional option to purchase 75,000 shares of
common stock on February 1, 2000 pursuant to our 1998 Stock Plan at an
exercise price per share of the option is $90.75.
Ms. Abrams was granted an option to purchase 250,000 shares of common stock
on June 25, 1999 pursuant to our 1998 Stock Plan at an exercise price per
share of $10.00.
Mr. deCrescenzo was granted an option to purchase 190,000 shares of common
stock on January 6, 2000 pursuant to our 1998 Stock Plan at an exercise price
per share of $91.00.
Exercise of Options and Year-End Values
The following table sets forth information concerning the exercise of stock
options during 1999 by our Chief Executive Officer and our next four most
highly compensated executive officers, and the fiscal year-end value of
unexercised options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired on December 31, 1999 (#) at December 31, 1999 ($)
Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- $ -- -- -- $ -- $ --
David A. Weber.......... 200,000 300,000 -- -- -- --
Pierre V. Samec......... -- -- -- 75,000 -- 7,950,000
Martha D. Greer......... 225,000 337,500 -- 10,000 -- 1,060,000
James S. Wambach........ -- -- -- -- -- --
</TABLE>
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<PAGE>
Employee Stock Plans
1998 Stock Plan
General. Our 1998 Stock Plan provides for the granting of stock options and
stock purchase rights to eligible employees, officers, directors, including
non-employee directors and consultants of Ventro. Stock options granted under
the 1998 Stock Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code or nonstatutory stock options,
which are options not intended to qualify as incentive stock options. Stock
purchase rights granted under the 1998 Stock Plan allow a recipient to
purchase shares of common stock directly from Ventro. Incentive stock options
may be granted to employees, officers and employee directors of Ventro and
nonstatutory stock options and stock purchase rights may be granted to
employees, officers, directors and consultants.
As of February 10, 2000, an aggregate of 11,357,881 shares of common stock
had been reserved for issuance under the 1998 Stock Plan. As of February 10,
2000, 5,277,952 shares of common stock were issuable upon the exercise of
outstanding options granted under the 1998 Stock Plan at a weighted average
exercise price of $24.72. 2,161,996 shares of common stock have been issued
upon exercise of options or pursuant to stock purchase rights at exercise or
purchase prices ranging between $0.10 and $91.00, net of repurchases, and
5,424,685 shares of common stock remained available for future issuance under
the 1998 Stock Plan. The 1998 Stock Plan was originally adopted by the board
of directors in January 1998 and approved by the stockholders in March 1998.
The 1998 Stock Plan was amended by our board of directors in April 1999 to
increase the total number of shares reserved for issuance by 1,500,000 shares.
In May 1999, the board of directors amended the 1998 Stock Plan to increase
the total number of shares reserved for issuance by 1,250,000 shares plus an
automatic annual increase on the first day of each of January 1, 2000, 2001,
2002, 2003 and 2004 equal to the lesser of 1,250,000 shares, 3% of our
outstanding common stock on the last day of the preceding fiscal year or a
lesser number determined by our board of directors. In February 2000, the 1998
Stock Plan was amended to increase the total number of shares reserved for
issuance by 4,250,000 shares to an aggregate of 11,357,881 shares. Unless
terminated earlier by our Board of Directors, the 1998 Stock Plan will
terminate in January 2008.
Stock options granted under the 1998 Stock Plan may not have a term of more
than ten years and generally remain exercisable for a period of three months
following termination of the optionee's employment or consulting relationship
with Ventro, with longer periods applying in the event this termination occurs
as a result of death or disability. The exercise price of all incentive stock
options must be at least equal to the fair market value of the common stock at
the time of grant, except in the case of incentive stock options granted to
persons owning stock that represents more than 10% of the total combined
voting power of all classes of the outstanding capital stock of Ventro, in
which case the exercise price must equal at least 110% of the fair market
value of the common stock at the time of grant. The exercise price of
nonstatutory stock options will be determined by the administrator, except
that for grants to certain of our executive officers, the exercise price must
be at least 100% of the fair market value if the option is intended to qualify
as performance-based compensation under tax rules. Options granted under the
1998 Stock Plan are generally subject to vesting at a rate of 25% at the end
of the first year and 2.083% of the original number of shares subject to the
option per month thereafter. The Administrator has the authority to grant
options which are exercisable prior to vesting, in which case the unvested
portion of the exercised shares are subject to a right of repurchase in favor
of Ventro at the optionee's original cost. Options granted under the 1998
Stock Plan are generally not transferable, although the administrator has the
discretion to allow limited transferability of nonstatutory stock options. In
the event of the sale of all or substantially all of Ventro's assets or a
merger or consolidation of Ventro with or into another corporation where the
successor corporation issues its securities to our stockholders, each
outstanding option or stock purchase right shall be assumed or an equivalent
option or stock purchase right shall be substituted by the successor
corporation. If the successor corporation refuses to do an assumption or
substitution, each outstanding option and stock purchase right shall terminate
upon completion of the transaction. In the event of a proposed dissolution or
liquidation of Ventro, each outstanding option or stock purchase right granted
under the 1998 Stock Plan shall terminate. The administrator has the authority
to amend or terminate the 1998 Stock Plan provided that no action that impairs
the rights of any holder of an outstanding option may be taken without the
holders' consent. In addition, stockholder approval will be obtained for any
amendment to the extent required by applicable law.
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In addition to stock options, the administrator may issue stock purchase
rights under the 1998 Stock Plan to employees, directors and consultants. The
administrator determines the number of shares, price, term and condition and
restrictions related to a grant of stock purchase rights.
The purchase price of common stock purchased pursuant to stock purchase
rights granted under the 1998 Stock Plan will be the price determined by the
administrator. These shares of common stock are generally subject to a right
of repurchase in favor of Ventro at the holder's original purchase price,
which generally lapses at a rate of 25% percent at the end of the first year
and 2.083% of the original number of shares per month thereafter.
Administration. The 1998 Stock Plan may be administered by the Board of
Directors or a committee appointed by the Board of Directors to administer the
1998 Stock Plan. The administrator has the authority to grant options and
stock purchase rights and to determine the terms of these awards, provided
these grants are not inconsistent with the terms of the 1998 Stock Plan. In no
event, however, may an individual receive option and stock purchase right
grants for more than 5,000,000 shares under the 1998 Stock Plan in any fiscal
year. Decisions of the administrator are final and binding on all 1998 Stock
Plan participants.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan was adopted by the board of directors
in May 1999 and was approved by the stockholders in July 1999. A total of
750,000 shares of common stock was initially reserved for issuance under the
Purchase Plan, as well as an automatic annual increase on January 1, 2000,
2001, 2002, 2003 and 2004 equal to the lesser of 200,000 shares, .5% of our
outstanding common stock on the last day of the immediately preceding year or
a lesser number of shares determined by the board of directors. The Purchase
Plan was amended in February 2000 to increase the number of shares reserved
for issuance by 300,000 shares of common stock to an aggregate of 1,213,814
shares.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, is implemented by a series of overlapping offering periods of
approximately 24 months' duration, with new offering periods (other than the
first offering period) commencing on February 1st and August 16th of each
year. Each offering period generally consists of four consecutive purchase
periods of six months' duration, at the end of which an automatic purchase is
made by the participant. The initial offering period began on July 26, 1999
and ends on August 15, 2001; the initial purchase period ends on February 10,
2000. The Purchase Plan is administered by the compensation committee of the
board of directors, which is comprised of Messrs. Byers and Callaghan and Dr.
Burke, outside directors of Ventro who are not eligible to participate in the
Purchase Plan. Employees, including officers and employee directors, of
Ventro, or of any majority-owned subsidiary designated by the board of
directors, are eligible to participate in the Purchase Plan if they are
employed by us or any majority-owned subsidiary for at least 20 hours per week
and more than five months per year. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed 20% of an employee's compensation, at a price equal to the lower of 85%
of the fair market value of our common stock at the beginning of each offering
period or at the end of each purchase period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment. If not
terminated earlier, the Purchase Plan will have a term of 20 years.
An employee cannot be granted an option under the Purchase Plan if
immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock or stock of our subsidiaries, or if
this option would permit an employee to purchase stock under the Purchase Plan
at a rate that exceeds $25,000 of fair market value of this stock for each
calendar year in which the option is outstanding. In addition, no employee may
purchase more than 1,250 shares of common stock under the Purchase Plan in any
one purchase period. If the fair market value of the common stock on a
purchase date is less than the fair market value at the beginning of the
offering period, each participant in that offering period shall automatically
be withdrawn from the offering period as of the end of the purchase date and
re-enrolled in the new twenty-four month offering period beginning on the
first business day following the purchase date. In the event of our merger
with or into another corporation or a sale of all or
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<PAGE>
substantially all of our assets, each right to purchase stock under the
Purchase Plan will be assumed or an equivalent right substituted by the
successor corporation. However, the board of directors will shorten any
ongoing offering period so that participants' rights to purchase stock under
the Purchase Plan are exercised prior to the transaction in the event the
successor corporation refuses to assume each purchase right or to substitute
an equivalent right of the successor corporation. The board of directors has
the power to amend or terminate the Purchase Plan as long as the action does
not adversely affect any outstanding rights to purchase stock thereunder.
However, the board of directors may amend or terminate the Purchase Plan or an
offering period even if it would adversely affect outstanding options in order
to avoid our incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
As permitted by the Delaware General Corporation Law, we have included in
our certificate of incorporation a provision to eliminate the personal
liability of our officers and directors for monetary damages for breach or
alleged breach of their fiduciary duties as officers or directors,
respectively, subject to exceptions. In addition, our bylaws provide that we
are required to indemnify our officers and directors, including under
circumstances in which indemnification would otherwise be discretionary, and
we are required to advance expenses to our officers and directors as incurred
in connection with proceedings against them for which they may be indemnified.
We have entered into indemnification agreements with our officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require us, among other
things, to indemnify our officers and directors against liabilities that may
arise by reason of their status or service as officers and directors, other
than liabilities arising from willful misconduct of a culpable nature, to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. We have also obtained directors'
and officers' liability insurance.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of Ventro in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
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RELATED PARTY TRANSACTIONS
Equity Transactions
In March 1999 and April 1999, we issued and sold 5,299,951 shares of our
Series C preferred stock at a price of $5.716 per share, including:
. 1,749,474 shares to entities affiliated with Galen Associates, an entity
with which Dr. Wilkerson, a director of Ventro, is affiliated;
. 393,631 shares to entities affiliated with Kleiner Perkins Caufield &
Byers, an entity with which Mr. Byers, a director of Ventro, is
affiliated;
. 393,631 shares to Warburg, Pincus Ventures L.P., an entity with which
Mr. Lewis, a former director of Ventro, is affiliated;
. 393,631 shares to The Bay City Capital Fund I, L.P., an entity with
which Mr. Pritzker, a director of Ventro, is affiliated;
. 6,997 shares to Dr. Burke; and
. other private investors.
All of the outstanding shares of Series C preferred stock converted into
common stock upon consummation of Ventro's initial public offering in July
1999.
In addition, in March 1999, we issued warrants to purchase a total of
49,999 shares of common stock at an exercise price of $5.20 per share to
entities affiliated with Galen Associates, an entity with which Dr. Wilkerson,
one of our directors, is affiliated.
In March 1999, we entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. The agreement gives us the right to offer
approximately 350,000 VWR core products to our customers through the Chemdex
Marketplace. We are jointly developing with VWR a hosted, co-branded Internet
purchasing solution for VWR's existing and future customers that will provide
access to VWR core products, Ventro core products and products that are not
distributed by either VWR or Ventro, but are purchased from third parties. In
connection with the strategic relationship agreement, VWR transferred to us
information concerning VWR customers who purchased products from third party
suppliers outside VWR's primary product offering and, in exchange, we issued
2,538,405 shares of common stock valued at $13.9 million to VWR. VWR also
entered into a standstill agreement limiting its ownership in us to 10% of our
outstanding securities, including outstanding options and warrants. This
percentage can be exceeded if any one company from a specified list of
companies acquires more than 10% of our outstanding securities, including
outstanding options and warrants. Mr. Nowak, one of our directors of Ventro,
is President and Chief Executive Officer of VWR.
Agreements with Executive Officers and Directors
In January 1999, we entered into a Separation Agreement with Scott
Waterhouse. Mr. Waterhouse previously served as our Vice President, Supplier
Relations. Under this agreement, Mr. Waterhouse received severance benefits
upon the termination of his employment with Ventro.
Some of our officers, including Ms. Abrams, Ms. Greer, Mr. Samec, Mr.
Wambach and Mr. Weber, will receive six months of accelerated vesting of stock
then held in the event of their termination without cause. In addition, in the
event of a termination with or without cause, Ms. Greer will receive the
greater of six months of then-current salary or $100,000, Ms. Abrams and Mr.
Samec will receive six months of then-current salary,
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Mr. Stewart and Mr. Weber will receive the greater of six months of then-
current salary or an amount equal to salary for 15 months less the time we
employed them, and Mr. Wambach will receive the greater of six months of then-
current salary or $87,500. If Mr. Stewart is terminated without cause or
resigns due to pressing family concerns prior to March 2001, his stock will
vest in an amount equal to what he would have vested had he been employed
through February 2001.
In addition, we have entered into change of control agreements with Ms.
Abrams, Ms. Greer, Mr. de Crescenzo, Mr. Perry, Mr. Samec, Mr. Stewart, Mr.
Wambach, Mr. Weber and our other employees, where the shares held by these
employees shall become fully vested if (a) we are merged into another entity
or sold and (b) this employee is terminated by the surviving entity without
cause within twelve months of the closing of the transaction. Ventro has also
entered into a change of control agreement with Dr. Burke, under which any
options subject to vesting or shares subject to a right of repurchase by us
then held by Dr. Burke will become fully vested upon the closing of a merger
in which more than 50% of the total voting power of Ventro is transferred or a
sale of all or substantially all of our assets in a complete liquidation or
dissolution of Ventro.
Since inception, from time to time we have issued and sold shares of its
common stock and granted options to purchase common stock to its employees,
directors and consultants.
The following executive officers have executed full-recourse promissory
notes in the amounts set forth after their names in connection with their
purchases of shares of Ventro's common stock:
<TABLE>
<CAPTION>
Principal
Name Amount Rate Date
---- --------- ---- --------
<S> <C> <C> <C>
Martha D. Greer..................................... $337,455 4.71% 02/26/99
Pierre V. Samec..................................... 33,705 5.12 10/21/98
James S. Wambach.................................... 33,705 4.64 01/22/99
David A. Weber...................................... 299,970 4.71 02/26/99
</TABLE>
These notes become due in April 2000. They bear interest at the lowest rate
allowed under federal tax law to avoid the imputation of interest, compounded
annually.
Except for the forgiveness of $10,000 promissory note held by Mr. Perry,
the related transactions were on terms that are no more favorable than those
that would have been agreed upon by third parties on an arm's length basis.
Other Transactions
On January 24, 2000, we and DuPont announced the formation of a new
company, Industria Solutions, Inc., that will provide business-to-business e-
commerce solutions to the fluid processing market. Industria Solutions, will
receive initial cash funding of approximately $30 million, including
approximately $10 million from CMG@Ventures. Jon Callaghan is the general
partner of CMG@Ventures as well as a director of Ventro. CMGI@Ventures
beneficially owns 7,769,807 shares, or approximately 17.4%, of our common
stock.
In January 1999, we purchased 1,886,792 shares of preferred stock of Cognia
Corporation for the total purchase price of $1,000,000. Cognia Corporation is
engaged in the business of developing a business-to-business web enterprise
focusing on content, information and services directed to the medical
community and the pharmaceutical industry. Dr. Wilkerson is a director of
Cognia as well as a director of Ventro. Mr. Wilkerson and Galen Associates
hold 2,440,000 shares of common stock and preferred stock of Cognia.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table provides information regarding the beneficial ownership
of Ventro's common stock as of February 10, 2000 by:
. each person who is known by us to own beneficially 5% or more of our
common stock;
. each of our directors;
. our chief executive officer and each of our four other most highly
compensated executive officers who were serving as executive officers as
of December 31, 1999;
. all directors and executive officers as a group; and
. each selling stockholder.
The following tables set forth as of February 10, 2000, information with
respect to the beneficial ownership of our common stock. The percentage of our
shares beneficially owned before to the offering is based on 44,633,563 shares
of common stock outstanding as of February 10, 2000. The percentage of our
shares beneficially owned after the offering are based on 46,003,563 shares of
common stock outstanding. Unless otherwise indicated, the address for each
stockholder named below is c/o Ventro Corporation, 1500 Plymouth Street,
Mountain View, CA 94043. Entries denoted by an asterisk represent an amount
less than 1%.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Before Owned After
Offering Number Offering
----------------- of Shares -----------------
Officers, Directors and 5% Being
Stockholders: Number Percent Offered Number Percent
- -------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Entities affiliated with Kleiner
Perkins Caufield & Byers(1).... 3,072,797 6.9% -- 3,072,797 6.7%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with
Warburg, Pincus Ventures(2).... 3,060,297 6.9 -- 3,060,297 6.6
466 Lexington Avenue
New York, New York 10017-3147
The Bay City Capital Fund I,
L.P.(3)........................ 2,795,018 6.3 -- 2,795,018 6.1
750 Battery Street
San Francisco, CA 94104
Entities affiliated with
CMG@Ventures(4)................ 7,769,807 17.4 -- 7,795,507 16.9
3000 Alpine Road
Menlo Park, CA 94028
VWR Scientific Products
Corporation.................... 2,538,405 5.7 -- 2,538,405 5.5
1310 Goshen Parkway
West Chester, PA 19380
Entities affiliated with Galen
Associates(5).................. 1,799,473 4.0 -- 1,799,473 3.9
610 Fifth Avenue, 5th Floor
Rockefeller Center
New York, NY 10020
David P. Perry(6)............... 1,725,854 3.9 120,000 1,605,854 3.4
David A. Weber(7)............... 204,084 * -- 204,084 *
Pierre V. Samec(8).............. 225,141 * 32,794 192,347 *
Martha D. Greer(9).............. 216,250 * -- 216,250 *
James S. Wambach(10)............ 229,250 * -- 229,250 *
William C. Klintworth, Jr....... 2,497,311 5.6 120,000 2,377,311 5.0
Charles R. Burke(11)............ 75,284 * -- 75,284 *
Brook H. Byers(12).............. 3,072,797 6.9 -- 3,072,797 6.7
Jonathan D. Callaghan(13)....... 7,795,507 17.5 -- 7,795,507 16.9
Paul J. Nowak(14)............... 2,569,652 5.8 -- 2,569,652 5.6
John A. Pritzker(15)............ 2,814,385 6.3 -- 2,814,385 6.1
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
Beneficially Owned Number Beneficially Owned
Before Offering of Shares After Offering
------------------ Being ------------------
Number Percent Offered Number Percent
---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Naomi Seligman(16)............ 17,500 * % -- 17,500 * %
L. John Wilkerson(17)......... 1,811,973 4.1 -- 1,811,973 3.8
All executive officers and
directors as a group
(18 persons)(18)............. 23,364,666 52.2 305,908 23,058,759 50.0
Other Selling Stockholders:
- ---------------------------
Alza Corporation(19).......... 25,000 * 13,423 11,577 *
Biotechnology Industry
Organization................. 187,500 * 100,669 86,831 *
Robin A. Abrams............... 11,250 * 11,250 -- *
James G. Stewart(20).......... 98,428 * 21,864 76,564 *
Brad Bond..................... 758,943 * 35,000 723,943 *
</TABLE>
- --------
(1) Represents:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.;
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P.; and
. 159,135 shares held by KPCB VIII Founders Fund, L.P.
The general partner of Kleiner Perkins Caufield & Byers VIII, L.P. and KPCB
VIII Founders Fund is KPCB VIII Associates. The general partner of KPCB
Life Sciences Zaibatsu Fund II, L.P. is KPCB VII Associates. Brook H.
Byers, a director of Ventro, is a general partner of the Kleiner Perkins
Caufield & Byers funds. Mr. Byers disclaims beneficial ownership of the
shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB Life
Sciences Zaibatsu Fund II, L.P. and KPCB VIII Founders Fund, L.P., except
to the extent of his pecuniary interest in these entities arising from his
general partnership interest in these funds.
(2) Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus
Ventures, L.P., which is managed by E.M. Warburg, Pincus & Co., LLC.
Lionel I. Pincus is the managing partner of Warburg, Pincus & Co. and the
managing member of E. M. Warburg, Pincus & Co., LLC, and may be deemed to
control both entities.
(3) Certain trusts for the benefit of the lineal descendants of Nicholas J.
Pritzker, deceased, including John A. Pritzker, a director of Ventro, are
indirect investors in The Bay City Capital Fund I, L.P. Mr. Pritzker
disclaims any beneficial ownership in the shares held by The Bay City
Capital Fund I, L.P., except for 6,867 shares. Of the shares reported,
certain individuals, including Mr. Pritzker, have beneficial ownership of
60,397 shares. Subsequent to February 10, 2000 Bay City Capital
distributed 640,000 shares.
(4) Represents:
. 2,715,157 shares held by CMG@Ventures II, LLC;
. 3,036,648 shares held by @Ventures III LP;
. 911,033 shares held by @Ventrues Foreign Fund III LP;
. 1,005,871 shares held by CMG@Ventures III, LLC; and
. 101,098 shares held by @Ventures Investors LLC.
Johnathan D. Callaghan, a general partner of CMG@Ventures is a director of
Ventro. Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC except to the extent of his pecuniary interest in
these entities arising from his general partnership interest in these
funds.
(5) Represents:
. 1,598,260 shares and a warrant to purchase 45,678 shares of common stock
exercisable within 60 days of February 10, 2000 held by Galen Partners
III, L.P.;
. 144,670 shares and a warrant to purchase 4,134 shares of common stock
exercisable within 60 days of February 10, 2000 held by Galen Partners
International III, L.P.; and
. 6,544 shares and a warrant to purchase 187 shares of common stock
exercisable within 60 days of February 10, 2000 held by Galen Employee
Fund III, L.P.
Dr. Wilkerson, a co-founder of Galen Associates and a director of Ventro,
disclaims beneficial ownership of the shares held by Galen Partners III,
L.P., Galen Partners International III, L.P., and Galen Employee Fund III,
L.P., except to the extent of his pecuniary interest in these entities
arising from his general partnership interest in these funds.
69
<PAGE>
(6) Represents:
. 1,719,854 shares held by Mr. Perry; and
. 6,000 shares held by the 1999 David P. Perry Irrevocable Trust.
. Includes 107,866 shares subject to repurchase by Ventro as of February
10, 2000 in the event of a termination of employment with Ventro.
(7) Includes 150,000 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(8) Includes 140,625 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of his employment with Ventro.
(9) Includes 164,063 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(10) Includes 150,000 shares subject to repurchase by Ventro as of February
10, 2000 in the event of a termination of employment with Ventro.
(11) Represents:
. 14,011 shares held by Mr. Burke subject to repurchase by Ventro within
60 days of February 10, 2000 and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Includes 14,011 shares subject to repurchase by Ventro as of February 10,
2000 in the event of a termination of employment with Ventro.
(12) Represents:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.;
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P.;
. 159,135 shares held by KPCB VIII Founders Fund, L.P.; and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Mr. Byers, a Senior Partner of Kleiner Perkins Caufield & Byers, disclaims
beneficial ownership of the shares held by Kleiner Perkins Caufield & Byers
VIII, L.P., KPCB Life Sciences Zaibastsu Fund II, L.P. and KPCB VIII
Founders Fund, L.P., except to the extent of his pecuniary interest in
these entities arising from his general partnership interest in these
funds.
(13) Represents:
. 2,715,157 shares held by CMG@Ventures II, LLC;
. 3,036,648 shares held by @Ventures III LP;
. 911,033 shares held by @Ventrues Foreign Fund III LP;
. 1,005,871 shares held by CMG@Ventures III, LLC;
. 101,098 shares held by @Ventures Investors LLC; and
. 25,700 shares held by Mr. Callaghan, a General Partner of CMG@Ventures
and a director of Ventro.
Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC, except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(14) Represents:
. 2,538,405 shares held by VWR Scientific Products Corporation, of which
Mr. Nowak is the President and Chief Executive Officer; and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Mr. Nowak disclaims beneficial ownership of the shares held by VWR
Scientific Products Corporation, except to the extent of his pecuniary
interest therein.
(15) Includes 2,097,121 shares held by The Bay City Capital Fund I, L.P.
Certain trusts for the benefit of the lineal descendants of Nicholas J.
Pritzker, deceased, including John A. Pritzker, a director of Ventro, are
indirect investors in The Bay City Capital Fund I, L.P. Mr. Pritzker
disclaims any beneficial ownership in the shares held by The Bay City
Capital Fund I, L.P., except for 6,867 shares held directly by Mr.
Pritzker. Also includes 12,500 shares issuable under stock options that
are currently exercisable or exercisable within 60 days of February 10,
2000. Subsequent to February 10th Bay City Capital distributed 640,000
shares.
70
<PAGE>
(16) Includes 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
(17) Represents:
. 1,799,473 shares held by entities affiliated with Galen Associates, an
entity with which Dr. Wilkerson is affiliated; and
. 12,500 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
Dr. Wilkerson disclaims beneficial ownership of the shares held by entities
affiliated with Galen Associates, except to the extent of his pecuniary
interest in these entities arising from his general partnership interest in
these funds.
(18) Includes 135,936 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000. Includes
712,554 shares subject to repurchase by Ventro as of February 10, 2000 in
the event of a termination of employment with Ventro.
(19) Subsequent to February 10, 2000, Alza Corporation exercised a warrant to
purchase 25,000 shares at an exercise price of $15.00 per share.
(20) Includes 60,936 shares issuable under stock options that are currently
exercisable or exercisable within 60 days of February 10, 2000.
71
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this document, our authorized capital stock consists of
175,000,000 shares of common stock, $.0002 par value, and 2,500,000 shares of
undesignated preferred stock, $.0002 par value. The following description of
our capital stock is only a summary and may be more completely understood by
reading our certificate of incorporation and bylaws and the provisions of
applicable Delaware law.
Common Stock
As of February 10, 2000, there were 44,633,563 shares of our common stock
outstanding that were held of record by approximately 12,000 stockholders.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefore at
times and in amounts as the Board of Directors may determine. Each stockholder
is entitled to one vote for each share of common stock held on all matters
submitted to a vote of the stockholders. Cumulative voting is not provided for
in Ventro's amended and restated certificate of incorporation, which means
that the majority of the shares voted can elect all of the directors then
standing for election. The common stock is not entitled to preemptive rights
and is not subject to conversion or redemption. Upon the occurrence of a
liquidation, dissolution or winding-up, the holders of shares of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights of any outstanding
preferred stock. There are no sinking fund provisions applicable to the common
stock. The outstanding shares of common stock are, and the shares of common
stock to be issued upon completion of this offering will be, fully paid and
non-assessable.
Preferred Stock
The board of directors has the authority, within the limitations and
restrictions in the amended and restated certificate of incorporation, to
issue 2,500,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of any series, without further vote
or action by the stockholders. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of Ventro
without further action by the stockholders. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including voting rights, of the holders of common
stock. In some circumstances, this issuance could have the effect of
decreasing the market price of the common stock. Ventro currently has no plans
to issue any shares of preferred stock.
Options
As of February 10, 2000, options to purchase a total of 5,277,952 shares of
our common stock were outstanding, and up to 5,549,685 additional shares of
common stock may be subject to options granted in the future under the 1998
Stock Plan.
Warrants
As of February 10, 2000, we had the following outstanding warrants:
warrants to purchase a total of 49,999 shares of common stock at an exercise
price of $5.20 that are held by entities affiliated with Galen Associates;
warrants to purchase a total of 25,000 shares of common stock at an exercise
price of $15.00 that are held by Alza Corporation; a warrant to purchase
105,000 shares of common stock at an exercise price of $1.50 that is held by
Comdisco, Inc. and warrants to purchase an aggregate of 17,179 shares of
common stock at an exercise price of $10.55 held by ten individual former
investors in SpecialtyMD. All of the warrants contain standard anti-dilution
provisions.
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices and our ability to raise
equity capital in the future.
Based on 44,633,563 shares outstanding on February 10, 2000, upon
completion of the offering, we will have outstanding 46,003,563 shares of
common stock. Of these shares, the 8,625,000 shares sold in our initial public
offering, 2,357,697 of the shares issued in connection with our acquisition of
Promedix, the 1,825,000 shares sold in the offering, and the shares
issuable upon conversion of the convertible subordinated notes we are offering
under a separate prospectus will be freely tradable without restriction under
the Securities Act, unless purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act.
The remaining shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act, which are summarized below. Sales of
the restricted securities in the public market, or the availability of these
shares for sale, could adversely affect the market price of the common stock.
The following shares will be eligible for sale in the public market at the
following times:
. as of February 10, 2000, the 8,625,000 shares sold in our initial public
offering and 2,357,697 of the shares issued in connection with our
acquisition of Promedix, are immediately available for sale in the
public market and 1,264,134 shares, of which 1,233,690 shares remain
subject to our right of repurchase, are eligible for sale pursuant to
Rule 144;
. upon completion of this offering, the 1,825,000 shares sold in this
offering and the shares issuable upon conversion of the convertible
subordinated notes we are offering under another prospectus will be
immediately available for sale in the public market;
. beginning 90 days after the date of this prospectus, approximately
26,294,782 shares will be eligible for sale upon expiration of the lock-
up agreements with the underwriters and approximately 3,464,172
additional shares will be eligible for sale pursuant to Rule 144;
. as of July 1, 2000, 985,691 of the shares issued in connection with our
acquisition of SpecialtyMD will be eligible for sale in the public
market; and
. as of February 10, 2001, 1,077,566 of the shares issued in connection
with our acquisition of Promedix and 109,521 of the shares issued in
connection with our acquisition of SpecialtyMD will be eligible for sale
in the public market.
Shares eligible to be sold by affiliates pursuant to Rule 144 are subject
to volume restrictions as described below.
Rule 144
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of our common
stock for at least one year would be entitled to sell 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 460,036 shares immediately after the offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with repect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information
about us.
73
<PAGE>
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
Ventro 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 these shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchases shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of our initial public offering is entitled to resell such
shares in reliance on Rule 144, without having to comply with the holding
period requirement or other restrictions contained in Rule 144.
The Securities and Exchange Commission has indicated that Rule 701 will
apply to typical stock options granted by an issuer before it becomes subject
to the reporting requirements of the Securities Exchange Act, along with the
shares acquired upon exercise of such options. Securities issued in reliance
on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, may be sold by persons other than "affiliates,"
as defined in Rule 144, subject only to the manner of sale provisions of Rule
144 and by "affiliates" under Rule 144 without compliance with its one-year
minimum holding period requirement.
Stock Options
As of February 10, 2000, there were a total of 5,277,952 shares of common
stock subject to outstanding options under our 1998 Stock Plan and 1999
Directors' Stock Plan. After the completion of our initial public offering, we
filed a registration statement on Form S-8 under the Securities Act to
register all of the shares of common stock issued or reserved for future
issuance under our 1998 Stock Plan, as amended, our 1999 Directors' Stock Plan
and our 1999 Employee Stock Purchase Plan. Shares purchased upon exercise of
options granted under the 1998 Stock Plan, as amended, 1999 Directors' Stock
Plan and 1999 Employee Stock Purchase Plan would be immediately available for
resale in the public market.
Warrants
As of February 10, 2000, we had outstanding warrants to purchase 197,178
shares of common stock. When these warrants are exercised and the exercise
price is paid in cash, the shares must be held for one year before they can be
sold under Rule 144.
Lock-up Agreements
Our officers, directors, 5% or greater stockholders and the selling
stockholders have agreed, subject to limited exceptions, not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, or enter into any
swap or other arrangement that transfers to another, in whole or in part, any
of the economic consequences of ownership of any shares of common stock or any
securities convertible into or exercisable or exchangeable for shares of
common stock for a period of 90 days after the date of this prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under Rules 144, 144(k) or 701, 26,294,782 shares subject
to these lock-up agreements will not be saleable until these agreements
expire.
Morgan Stanley & Co. Incorporated may in its sole discretion choose to
release some or all of the shares subject to the lockup restrictions described
above prior to the expiration of the 90-day period with or without prior
public notice, although it has no current intention to do so.
74
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, FleetBoston Robertson Stephens Inc.,
Chase Securities Inc., Deutsche Bank Securities Inc. and Prudential Securities
Inc. are acting as representatives, have severally agreed to purchase, and we
and the selling stockholders have agreed to sell to them, severally, the
respective number of shares of common stock set forth opposite the names of
the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
FleetBoston Robertson Stephens Inc.................................
Chase Securities Inc...............................................
Deutsche Bank Securities Inc.......................................
Prudential Securities Inc..........................................
---------
Total............................................................ 1,825,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and the selling stockholders and subject to
prior sale. The underwriting agreement provides that the obligations of the
several underwriters to pay for and accept delivery of the shares of common
stock offered by this prospectus are subject to the approval of legal matters
by their counsel and to other conditions. The underwriters are obligated to
take and pay for all of the shares of common stock offered by this prospectus
if any of these shares are taken. However, the underwriters are not required
to take or pay for the shares covered by the underwriters' over-allotment
option describe below.
The underwriters initially propose to offer part of the shares of the
common stock directly to the public at the public offering price listed on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriter may allow, and these dealers may reallow, a
concession not in excess of $ a share to other underwriters or to certain
other dealers. After the initial offering of the shares of common stock, the
offering price and other selling terms may from time to time be varied by the
representatives.
Selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of 273,750 additional shares of common stock at the public offering
price listed on the cover page of this prospectus, less underwriting discounts
and commissions. The underwriters may exercise this option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock offered by this prospectus. To the
extent this option is exercised, each underwriter will become obligated,
subject to conditions, to purchase about the same percentage of the additional
shares of common stock as the number listed next to the underwriter's name in
the preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be $ and
total proceeds to the selling stockholders would be $ .
Our common stock is traded on the Nasdaq National Market under the symbol
"VNTR."
Each of Ventro, our directors and officers, the selling stockholders and
other principal stockholders who hold in the aggregate approximately % of our
outstanding common stock, has agreed that, without the prior
75
<PAGE>
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 90 days after the date of
this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, 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
. enter into any swap or other agreement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock;
whether any transaction described above is to be settled by delivery of common
stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
. the sale of shares to the underwriters;
. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of this offering;
. the issuance by Ventro of shares of restricted stock awards under
Ventro's existing employee benefit plans or of common stock upon the
exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus; or
. the issuance by Ventro of shares of common stock in connection with
mergers and acquisitions.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
We and the selling stockholders, and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
Some of the underwriters from time to time perform various investment
banking services for Ventro, for which these underwriters receive customary
compensation.
An entity affiliated with Prudential Securities Inc. beneficially owns a
total of 17,495 shares of our common stock. Entities and an individual
affiliated with FleetBoston Robertson Stephens Inc. beneficially own a total
of 21,867 shares of our common stock. These entities and individual have
agreed that they will not sell, transfer, assign or hypothecate their shares
until July 26, 2000, except to officers or partners, but not to directors, of
the underwriters and members of the selling group of their officers or
partners.
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<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule as of December 31, 1998 and 1999, and for
the period from September 4, 1997 (inception) through December 31, 1997 and
for each of the two years in the period ended December 31, 1999, as set forth
in their report. We've included our financial statements and schedule in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited Promedix's financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999, as set forth in their report. Promedix's
financial statements are included in this prospectus and elsewhere in the
registration statement on Form S-1 in reliance on Ernst & Young LLP's report,
given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited SpecialtyMD's
financial statements as of December 31, 1998 and 1999 and for the period from
May 27, 1998 (inception) through December 31, 1998 and the year ended December
31, 1999, as set forth in their report. SpecialtyMD's financial statements are
included in this prospectus and elsewhere in the registration statement on
Form S-1 in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 2, 1998, Ernst & Young LLP was engaged as Ventro's
independent auditors and replaced other auditors who were dismissed as its
independent accountants on the same date. The decision to change auditors was
approved by Ventro's Board of Directors on September 2, 1998. Prior to
September 2, 1998, Ventro's former auditors issued a report on the period from
September 4, 1997 (inception) to December 31, 1997. The report of Ventro's
former auditors did not contain an adverse opinion or disclaimer of opinion
qualified or modified as to any uncertainty, audit scope or accounting
principle. In connection with the audit for the period from September 4, 1997
(inception) through December 31, 1997 and through September 2, 1998, there
were no disagreements with Ventro's former auditors on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
our former auditors, would have caused them to make reference thereto in their
report on the financial statements for such period. Ventro's former auditors
have not audited or reported on any of the financial statements or information
included in this prospectus. Prior to September 2, 1998, Ventro had not
consulted with Ernst & Young LLP on items that involved Ventro's accounting
principles or the form of audit opinion to be issued on our financial
statements.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Davis Polk & Wardwell, Menlo Park, California. The underwriters are
represented by Fenwick & West LLP, Palo Alto, California.
77
<PAGE>
WHERE TO FIND ADDITIONAL INFORMATION
Ventro files reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of these reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the Securities and Exchange Commission:
<TABLE>
<CAPTION>
Judiciary Plaza Citicorp Center Seven World Trade Center
<S> <C> <C>
450 Fifth Street, N.W. 500 West Madison Street 13th Floor
Room 1024 Suite 1400 New York, New York 10048
Washington, D.C. Chicago, Illinois 60661
</TABLE>
Copies of these materials also can be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities
and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange
Commission maintains a website that contains reports, proxy statements and
other information regarding Ventro. The address of the Securities and Exchange
Commission website is http://www.sec.gov.
This prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement are
omitted as provided by the rules and regulations of the Securities and
Exchange Commission. You may inspect and copy the registration statement at
any of the addresses listed above.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Combined Condensed Financial Statements
Summary.................................................................... F-2
Balance Sheet.............................................................. F-4
Statement of Operations.................................................... F-5
Notes to Financial Statements.............................................. F-6
Ventro Corporation
Report of Independent Auditors............................................. F-13
Consolidated Balance Sheets................................................ F-14
Consolidated Statements of Operations...................................... F-15
Consolidated Statements of Cash Flows...................................... F-16
Consolidated Statements of Stockholders' Equity............................ F-17
Notes to Consolidated Financial Statements................................. F-18
Promedix.com, Inc.
Report of Independent Auditors............................................. F-32
Balance Sheets............................................................. F-33
Statements of Operations................................................... F-34
Statements of Common Shareholders' Equity (Deficit)........................ F-35
Statements of Cash Flows................................................... F-36
Notes to Financial Statements.............................................. F-37
SpecialtyMD.com, Inc.
Report of Independent Auditors............................................. F-45
Balance Sheets............................................................. F-46
Statements of Operations................................................... F-47
Statement of Stockholders' Deficit......................................... F-48
Statements of Cash Flows................................................... F-49
Notes to Financial Statements.............................................. F-50
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA COMBINED SUMMARY CONDENSED FINANCIAL INFORMATION
The Ventro pro forma financial statements are based upon information set forth
in this prospectus and assumptions included in the accompanying notes.
The following unaudited pro forma combined financial information for Ventro
Corporation ("Ventro") gives effect to Ventro's acquisitions of Promedix.com
Inc. ("Promedix") and SpecialtyMD.com Corporation ("SpecialtyMD") through
mergers and exchanges of shares. The Promedix exchange ratio was determined by
dividing 12,057,298, the number of shares of Ventro common stock issued as a
result of this merger, by the number of shares of Promedix capital stock
outstanding (including all common stock and preferred stock) and the number of
shares of Promedix capital stock issuable upon exercise of outstanding
options, warrants and subordinated convertible notes to purchase Promedix
capital stock as of the closing date. The SpecialtyMD exchange rate was
determined by dividing 1,249,931, the number of shares of Ventro common shares
to be issued as a result of the merger by the number of shares of SpecialtyMD
capital stock (including all common stock, preferred stock, stock options and
warrants) outstanding. In addition, the pro forma financial statements give
effect to (i) the repayment and conversion of Promedix's subordinated
convertible notes, (ii) the sale of Promedix Series C preferred stock, (iii)
the completion of the sale of Pro Med Co. and (iv) the conversion of
Promedix's and SpecialtyMD's redeemable convertible preferred stock to common
stock.
The Unaudited Pro Forma Combined Condensed Statements of Operations for the
year ended December 31, 1999 reflects these transactions as if they had taken
place on January 1, 1999. The Unaudited Pro Forma Combined Condensed Balance
Sheet gives effect to these transactions as if they had taken place on
December 31, 1999.
The Unaudited Pro Forma Combined Condensed Statements of Operations combine
Ventro's historical results of operations for 1999, with Promedix historical
results of operations for the year ended December 31, 1999 and SpecialtyMD
historical results of operations for the year ended December 31, 1999.
The Ventro/Promedix and the Ventro/SpecialtyMD mergers were consummated on
February 10, 2000, and will be accounted for under the purchase method of
accounting. Accordingly, Ventro's cost to acquire Promedix is calculated to be
$325,272,000 using a Ventro common stock price of $26.125 per share, which is
the average of the closing price per share during the period beginning three
days before and ending three days after September 21, 1999, the day the merger
was announced. Ventro's cost to acquire SpecialtyMD was calculated to be
$107,706,000 using a Ventro common stock price of $93.48 per share, which is
the average of the closing price per share during the period beginning three
days before and ending three days after December 13, 1999, the day the merger
was announced. The costs to acquire Promedix and SpecialtyMD was allocated to
the assets acquired and liabilities assumed according to their respective fair
values, with the excess purchase price being allocated to goodwill. The
purchase price allocations and adjustments made in connection with the
development of the Ventro Pro Forma Financial Statements are made pursuant to
an independent valuation of the assets and liabilities of the respective
companies.
The $323,807,000 pro forma excess of purchase price over net tangible assets
acquired from Promedix as of December 31, 1999 is being amortized over a
period of two to three years at a rate of $108,269,000 per year. Goodwill is
being amortized over a three-year life which Ventro believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
The $107,855,000 pro forma excess of purchase price over net tangible
SpecialtyMD assets acquired as of December 31, 1999 is being amortized over a
period of two to three years at a rate of $36,102,000 per year. Goodwill is
being amortized over a three-year life which Ventro believes is responsive to
the rapid rate of change in the Internet industry and is consistent with other
recent mergers of a comparable nature.
F-2
<PAGE>
The Ventro Pro Forma Financial Statements should be read in conjunction with
the related notes included in this document and the audited financial
statements and notes of Ventro, Promedix and SpecialtyMD included elsewhere in
this document.
The Ventro Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1999, nor do they
purport to indicate results of future operations.
F-3
<PAGE>
VENTRO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Ventro
Ventro Promedix SpecialtyMD Adjustments Pro Forma
-------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 21,934 $ 312 $ 1,138 $ 5,000 (8) $ 28,384
-- (9)
Restricted cash........ -- -- 138 -- 138
Short-term
investments........... 81,161 -- -- -- 81,161
Accounts receivable,
net................... 12,414 -- 56 -- 12,470
Other current assets... 5,041 96 12 -- 5,149
Net current assets of
discontinued
operations............ -- 2,404 -- (2,404)(10) --
-------- -------- ------- -------- --------
Total current assets.. 120,550 2,812 1,344 2,596 127,302
Property and equipment,
net.................... 10,264 1,864 201 -- 12,329
Intangible and other
assets................. 33,119 61 36 323,807 (1) 445,378
107,855 (13)
(10,500)(12)
(4,000)(21)
(3,667)(11)
(1,333)(20)
Net non-current assets
of discontinued
operations............. -- 1,096 -- (1,096)(10) --
-------- -------- ------- -------- --------
Total assets.......... $163,933 $ 5,833 $1,581 $413,662 $585,009
======== ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 8,373 $ 718 $ 190 $ -- $ 9,281
Accrued compensation... 3,958 448 -- -- 4,406
Accrued expenses....... 25,720 1,036 162 -- 26,918
Deferred revenue....... -- -- 45 -- 45
Current portion of long
term liabilities...... 369 3,667 1,333 (3,667)(11) 369
(1,333)(20)
Subordinated
convertible notes..... -- 5,000 -- (5,000)(2) --
-------- -------- ------- -------- --------
Total current
liabilities.......... 38,420 10,869 1,730 (10,000) 41,019
Long term debt.......... 494 -- -- -- 494
Preferred stock......... -- 3,738 4,201 (3,738)(3) --
(4,201)(14)
Stockholders' equity:
Common stock........... 189,849 23,290 4,762 291,481 (4) 608,326
98,944 (15)
Deferred compensation.. (6,380) (15,745) (4,189) 15,745 (7) (6,380)
4,189 (17)
Notes receivable from
stockholders.......... (985) -- -- -- (985)
Accumulated deficit.... (57,465) (16,319) (4,923) 16,319 (5) (57,465)
4,923 (18)
-------- -------- ------- -------- --------
Total stockholders'
equity............... 125,019 (8,774) (4,350) 431,601 543,496
-------- -------- ------- -------- --------
Total liabilities and
stockholders'
equity............... $163,933 $ 5,833 $ 1,581 $413,662 $585,009
======== ======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-4
<PAGE>
VENTRO CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Ventro
Ventro Promedix SpecialtyMD Adjustments Pro Forma
-------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 30,840 $ -- $ 31 $ -- $ 30,871
Cost of revenues........ 29,306 -- -- 333 (6) 30,539
900 (16)
-------- -------- ------- --------- ---------
Gross profit.......... 1,534 -- 31 (1,233) 332
Operating Expenses:
Research and
development.......... 17,734 679 1,348 600 (6) 20,600
239 (16)
Sales and marketing... 23,024 1,933 1,458 1,200 (6) 27,723
108 (16)
General and
administrative....... 10,352 4,192 1,136 200 (6) 31,465
5,104 (16)
10,481 (19)
Amortization of
goodwill............. -- -- -- 105,936 (6) 135,688
29,752 (16)
Amortization of
deferred
compensation......... 1,992 5,013 352 -- 7,357
-------- -------- ------- --------- ---------
Total operating
expenses............. 53,102 11,817 4,294 153,620 222,833
-------- -------- ------- --------- ---------
Operating loss.......... (51,568) (11,817) (4,263) (154,853) (222,501)
Interest expenses....... (168) (348) (81) -- (597)
Interest income and
other, net............. 3,163 92 16 -- 3,271
-------- -------- ------- --------- ---------
Loss from continuing
operations............. $(48,573) $(12,073) $(4,328) $(154,853) $(219,827)
======== ======== ======= ========= =========
Basic and diluted loss
per share from
continuing operations.. $ (3.17) $ (3.46) $ (1.43) $ (10.96)
======== ======== ======= =========
Weighted average number
of shares outstanding.. 15,322 3,492 3,019 20,050
======== ======== ======= =========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements.
F-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The Ventro Pro Forma Statements are based upon the financial statements of
Ventro, Promedix, and SpecialtyMD, combined and adjusted to give effect to:
(i) Ventro's acquisition of Promedix capital stock through a merger, (ii) the
repayment and conversion of Promedix's subordinated convertible notes, (iii)
conversion of Promedix's redeemable convertible preferred stock to common
stock, (iv) the sale of Promedix Series C preferred stock on February 9, 2000,
(v) the completion of the sale of Pro Med Co., (vi) Ventro's acquisition of
SpecialtyMD capital stock through a merger, and (vii) the conversion of
SpecialtyMD's convertible preferred stock to common stock.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to these
transactions as if they had taken place on December 31, 1999 and reflects the
total purchase costs of the fair value of assets and liabilities based on an
independent valuation. The Unaudited Pro Forma Combined Condensed Statements
of Operations for 1999 reflect these transactions as if they had taken place
on January 1, 1999.
On September 21, 1999, Ventro and Promedix entered into an Agreement and Plan
of Merger, as amended as of December 21, 1999 pursuant to which 12,057,298
shares of Ventro common stock was issued in exchange for the shares of
Promedix capital stock (including all common stock and preferred stock)
outstanding and issuable upon exercise of outstanding options, warrants and
subordinated convertible notes to purchase Promedix capital stock as of the
date of the merger. The merger is being accounted for using the purchase
method of accounting. Accordingly, Ventro's cost to acquire Promedix is
calculated to be $325,272,000 using a Ventro common stock price of $26.125 per
share, which is the average of the closing price per share during the period
beginning three days before and ending three days after September 21, 1999,
the day the merger was announced. On December 10, 1999, Ventro entered into an
agreement to acquire SpecialtyMD pursuant to which 1,249,931 shares of Ventro
common stock was issued in exchange for the shares of SpecialtyMD capital
stock (including all common stock and preferred stock as converted)
outstanding and issuable upon exercise of outstanding options and warrants to
purchase SpecialtyMD capital stock as of the closing date. The merger is being
accounted for using the purchase method of accounting. Ventro's cost to
acquire SpecialtyMD is calculated to be $107,706,000 assuming a Ventro common
stock price of $93.48 per share, which is the average of the closing price per
share during the period beginning three days before and ending three days
after December 13, 1999, the day the merger was announced. Both the
Ventro/Promedix merger and the SpecialtyMD acquisition were approved on
February 10, 2000.
The costs to acquire Promedix and SpecialtyMD are being allocated to the
assets acquired and liabilities according to their respective fair values,
with the excess purchase price being allocated to goodwill. The fair values of
the acquired assets and liabilities is based upon an independent valuation.
The pro forma excess of purchase price over net tangible assets acquired as of
February 10, 2000 is being amortized over two to three years at a rate of
$144,371,000 per year. Goodwill is being amortized over a three-year life
which Ventro believes is responsive to the rapid rate of change in the
Internet industry and is consistent with other recent mergers of a comparable
nature.
The Ventro Pro Forma Financial Statements should be read in conjunction with
the related notes included in this document and the audited financial
statements and notes of Ventro, Promedix, and SpecialtyMD included elsewhere
in this document.
The Ventro Pro Forma Financial Statements are not necessarily indicative of
what the actual financial results of the combined company would have been had
the transactions described above taken place on January 1, 1999 or December
31, 1999 nor do they purport to indicate results of future operations.
F-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
1. Below is a table of the acquisition cost, purchase price allocation and
annual amortization of the intangible assets acquired from Promedix (dollars
in thousands):
<TABLE>
<CAPTION>
Years of Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Acquisition Cost:
Purchase Price....................... $314,772
Acquisition Expenses................. 10,500
--------
Total Acquisition Cost.............. $325,272
========
Purchase Price Allocation:
Net tangible assets of Promedix at
December 31, 1999 after repayment
and conversion of subordinated
convertible notes................... $ (7,273)
Conversion of redeemable preferred
stock............................... 3,738
Sale of Series C stock subsequent to
December 31, 1999................... 5,000
--------
Pro forma net tangible assets of
Promedix at December 31, 1999....... 1,465
Intangible assets acquired:
Assembled workforce.................. 2,000 2 $ 1,000
Customer relationships............... 1,900 3 $ 633
Supplier relationships............... 2,100 3 $ 700
Goodwill............................. 317,807 3 $105,936
--------
Total............................... $325,272
========
</TABLE>
The unaudited pro forma combined condensed financial statements give effect to
the following pro forma adjustments:
Application of purchase accounting to the Promedix merger, reflecting the
acquisition cost noted above and the issuance of Ventro common stock.
Components of the acquisition cost reflect the following:
<TABLE>
<CAPTION>
Promedix Ventro Fair Value
Shares Shares (in thousands)
--------- ---------- --------------
<S> <C> <C> <C>
Outstanding shares.................... 7,664,672 9,693,304 $253,238
Sales of Series C preferred stock .... 176,429 223,125 5,829
Stock options......................... 1,013,511 1,281,710 33,260
Warrants.............................. 333,334 421,558 11,013
Subordinated convertible notes........ 346,020 437,601 11,432
--------- ---------- --------
Totals.............................. 9,533,966 12,057,298 $314,772
========= ========== ========
</TABLE>
. Acquisition of Promedix capital stock through an exchange of 1.2647
shares of Ventro common stock for each share of Promedix capital stock
or approximately 9,693,304 shares of Ventro common stock in the
aggregate. The purchase price was based upon approximately 9,693,304
Ventro shares, multiplied by a per share price of $26.125, the average
of the closing price per share during the period beginning three days
before and ending three days after September 21, 1999, the day the
merger was announced. The merger agreement provides for the merger of
Promedix with a wholly-owned subsidiary of Ventro, resulting in Promedix
becoming a wholly-owned subsidiary of Ventro.
. Conversion of approximately 176,429 shares of Promedix Series C
preferred stock related to Tenet Healthcare Corporation's investment in
Promedix subsequent to December 31, 1999, or approximately 223,125
shares of Ventro common stock, after giving effect to the 1.2647
exchange ratio in the merger. The purchase price was based upon a Ventro
common stock price of $26.125 multiplied by the 223,125 shares.
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
. Conversion of approximately 1,013,511 outstanding and unexercised
options exercisable for shares of Promedix common stock into options
exercisable for an aggregate of approximately 1,281,710 shares of Ventro
common stock having the same terms and conditions as the Promedix
options, after giving effect to the 1.2647 exchange ratio in the merger.
The fair value of the options assumed is based on the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Chemdex common stock closing price on September 21,
1999, the day the merger was announced, and three days prior and
subsequent to such date......................................... $26.125
Expected years until exercise.................................... 4
Expected stock volatility........................................ 100%
Risk free interest rate.......................................... 6%
Expected dividend rate........................................... --
</TABLE>
. Exercise of warrants to purchase 333,334 shares of Promedix's preferred
stock through the retirement of $500,000 of subordinated convertible
notes, or approximately 421,558 shares of Ventro common stock, after
giving effect to the 1.2647 exchange ratio in the merger. The purchase
price was based upon a Ventro common stock price of $26.125 multiplied
by the 421,558 shares.
. Conversion of approximately $1,000,000 of subordinated convertible notes
into 346,020 shares of Promedix preferred stock or approximately 437,601
shares of Ventro common stock, after giving effect to the 1.2647
exchange ratio in the merger. The purchase price was based upon Ventro
common stock share price of $26.125 multiplied by the 437,601 shares.
Components of the purchase price allocation listed above and reflected in
the Ventro Pro Forma Financial Statements include the following:
Tangible assets of Promedix to be acquired principally include cash,
current and other assets and property and equipment. Liabilities of
Promedix assumed in the Promedix merger principally include accounts
payable, accrued compensation and accrued expenses.
The value of customer and supplier relationships was derived by
attributing historical costs incurred, excluding technology development
costs, to each of the two respective relationships based upon Promedix
management's estimation of proportionate resources that had been
devoted to the development of each of the respective relationships. The
analysis yielded a valuation of approximately $4,000,000. The asset is
being amortized on a straight line basis over a three year period.
The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting and
hiring costs and training costs for each category of employee. The
analysis yielded a valuation of approximately $2,000,000 for the
assembled workforce. The asset is being amortized on a straight line
basis over a two year period.
The goodwill allocation is approximately $317,807,000. Amortization of
goodwill will occur over three years. Ventro believes that a three-year
life is responsive to the rapid rate of change in the Internet industry and
is consistent with other recent mergers of a comparable nature.
2. Promedix repaid $3,500,000 of the $5,000,000 subordinated convertible notes
from proceeds received from the sale of Pro Med Co. In addition, $1,000,000 of
the subordinated convertible notes was converted to 346,020 shares of Promedix
preferred stock, and $500,000 of the subordinated convertible notes was used
to pay for the exercise of the warrants to purchase 333,334 shares of Promedix
preferred stock.
3. The pro forma adjustment to "Redeemable convertible preferred stock"
reflects the conversion of Promedix's redeemable convertible preferred stock
($3,738,000) to common stock.
F-8
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
4. The pro forma adjustment to "Common stock" reflects the conversion of
redeemable convertible preferred stock to Promedix common stock ($3,738,000),
the conversion of $1,000,000 of the subordinated convertible notes to
preferred stock, exercise of Promedix warrants for 333,334 shares of Promedix
preferred and a $500,000 reduction in the subordinated convertible notes to
pay for the exercise price of the warrants, the sale of Promedix Series C
preferred stock for $5,000,000, and the issuance of Ventro common stock
($314,772,000) and the elimination of Promedix common stock ($33,528,000).
5. The pro forma adjustment to "Accumulated deficit" reflects the elimination
of Promedix's accumulated deficit.
6. The pro forma adjustment is for the amortization of goodwill, customer and
supplier relationships and assembled workforce.
7. The pro forma adjustment is to eliminate deferred compensation related to
Promedix stock options.
8. Promedix sold 176,429 shares of Series C preferred stock on February 9,
2000 for $5,000,000.
9. Promedix received $3,500,000 of proceeds on the sale of Pro Med Co.
Promedix is repaying $3,300,000 of the subordinated convertible notes and is
offsetting $200,000 of notes receivable from officers of Pro Med Co. against
the subordinated convertible notes.
10. The pro forma adjustment is for the elimination of the net assets of
discontinued operations.
11. The pro forma adjustment is to eliminate the note receivable and payable
between Ventro and Promedix.
12. The pro forma adjustment is to eliminate the Ventro deferred acquisition
charges for Promedix.
13. Below is a table of the acquisition cost, purchase price allocation and
annual amortization of the intangible assets acquired from SpecialtyMD
(dollars in thousands):
<TABLE>
<CAPTION>
Years of Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Acquisition Cost:
Purchase Price..................... $ 103,706
Acquisition Expenses............... 4,000
---------
Total Acquisition Cost............ $ 107,706
=========
Purchase Price Allocation:
Net tangible assets of SpecialtyMD
at December 31, 1999.............. $ (4,350)
Conversion of redeemable preferred
stock............................. 4,201
---------
Pro forma net tangible assets of
SpecialtyMD at December 31, 1999.. (149)
Intangible assets acquired:
Assembled workforce................ 900 2 $ 450
Developed Technology............... 2,700 3 $ 900
Non-compete agreements............. 15,000 3 $ 5,000
Goodwill........................... 89,255 3 $29,752
---------
Total............................. $ 107,706
=========
</TABLE>
F-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The unaudited pro forma combined condensed financial statements give effect to
the following pro forma adjustments:
Application of purchase accounting to the SpecialtyMD merger, reflecting the
estimated acquisition cost noted above and the issuance of Ventro common
stock. Components of the estimated acquisition cost reflect:
The purchase price is determined as follows:
<TABLE>
<CAPTION>
SpecialtyMD Ventro Fair Value
Shares Shares (in thousands)
----------- --------- --------------
<S> <C> <C> <C>
Outstanding shares................ 9,243,253 954,914 $ 89,265
Restricted stock subject to
repurchase....................... 1,358,000 140,298 13,101
Stock options..................... 1,331,583 137,540 12,835
Warrants.......................... 166,310 17,179 1,606
---------- --------- --------
12,099,146 1,249,931 116,807
Less shares contingent on
service.......................... (1,358,000) (140,298) (13,101)
---------- --------- --------
Totals........................ 10,741,146 1,109,633 $103,706
========== ========= ========
</TABLE>
. Conversion of SpecialtyMD capital stock through an exchange of 0.1033
shares of Ventro common stock for each share of SpecialtyMD outstanding
shares of common stock or approximately 954,914 shares of Ventro common
stock in the aggregate. The purchase price was based upon the
approximately 954,914 Ventro shares, multiplied by a per share price of
$93.48, the average of the closing price per share during the period
beginning three days before and ending three days after December 13,
1999, the day the merger was announced. The merger agreement provides
for the merger of SpecialtyMD with a wholly-owned subsidiary of Ventro,
resulting in SpecialtyMD becoming a wholly-owned subsidiary of Ventro.
. Conversion of approximately 1,358,000 shares of SpecialtyMD restricted
common stock subject to repurchase for an aggregate of approximately
140,298 shares of Ventro restricted common stock subject to repurchase,
under the same terms and conditions under the SpecialtyMD shares, after
giving effect to the 0.1033 exchange ratio in the merger. The fair value
of assumed shares of restricted stock subject to repurchase is based on
the Black-Scholes option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Ventro common stock closing price on December 13, 1999,
the day the merger was announced, and three days prior and
subsequent to such date.......................................... $93.48
Expected years until repurchase right lapse....................... 4
Expected stock volatility......................................... 100%
Risk free interest rate........................................... 6%
Expected dividend rate............................................ --
</TABLE>
F-10
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
. Conversion of approximately 1,331,583 outstanding and unexercised
options exercisable for shares of SpecialtyMD common stock into options
exercisable for an aggregate of approximately 137,540 shares of Ventro
common stock having the same terms and conditions as the SpecialtyMD
options, after giving effect to the 0.1033 exchange ratio in the merger.
The fair value of the options assumed is based on the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Ventro common stock closing price on December 10, 1999,
the day the merger was announced, and three days prior and
subsequent to such date.......................................... $93.48
Expected years until exercise..................................... 4
Expected stock volatility......................................... 100%
Risk free interest rate........................................... 6%
Expected dividend rate............................................ --
</TABLE>
. Conversion of approximately 166,310 outstanding and unexercised warrants
for shares of SpecialtyMD Series B preferred stock into warrants
exercisable for an aggregate of approximately 17,179 shares of Ventro
common stock having the same terms and conditions as the SpecialtyMD
warrants, after giving effect to the 0.1033 conversion ratio. The fair
value of the warrants assumed is based on the Black-Scholes option
pricing model using the following assumptions.
<TABLE>
<S> <C>
The fair value of the underlying shares, calculated by taking the
average Ventro common stock closing price on December 10, 1999,
the day the merger was announced, and three days prior and
subsequent to such date.......................................... $93.48
Expected years until exercise..................................... 10
Expected stock volatility......................................... 100%
Risk free interest rate........................................... 6.6%
Expected dividend rate............................................ --
</TABLE>
. Under EITF 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in an Purchase Business
Combination," this arrangement is, in substance, compensation for post-
combination services rather than additional purchase price. The
President and Vice President of Business Development of SpecialtyMD are
exchanging 1,358,000 shares of outstanding common stock for 140,298
shares of Ventro common stock that will be subject to a repurchase
option in favor of Ventro in the event of termination of employment. The
repurchase option will be released over a fifteen-month period.
Components of the purchase price allocation listed above and reflected in
the Ventro Pro Forma Statements include the following:
Tangible assets of SpecialtyMD to be acquired principally include cash,
current and other assets and property and equipment. Liabilities of
SpecialtyMD assumed in the SpecialtyMD merger principally include
accounts payable and accrued expenses.
The value of the developed technology was derived by attributing
historical costs incurred, for all existing technology, taking into
account risks related to the characteristics and applications of the
technology, future markets, and assessments of the life cycle stage of
technology based upon SpecialtyMD management's estimation of
proportionate resources that had been devoted to the development of the
technology. The analysis yielded a valuation of approximately
$2,700,000 for technology which has reached technological feasibility
and therefore was capitalizable. The asset is being amortized on a
straight line basis over a three year period.
The value of the assembled workforce was derived by estimating the
costs to replace the existing employees, including recruiting and
hiring costs and training costs for each category of employee.
F-11
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS--(Continued)
The analysis yielded a valuation of approximately $900,000 for the
assembled workforce. The asset is being amortized on a straight line
basis over a two year period.
The value of the non-compete agreement was derived from a discounted
cash flow valuation with and without non-compete agreements. The
analysis yielded a valuation of approximately $15,000,000 which is
being amortized over a three year period.
The goodwill allocation is approximately $89,255,000. Amortization of
goodwill will occur over three years. Ventro believes that a three-year
life is responsive to the rapid rate of change in the Internet industry
and is consistent with other recent mergers of a comparable nature.
14. The pro forma adjustment to "Redeemable convertible preferred stock"
reflects the conversion of SpecialtyMD's redeemable convertible preferred
stock ($4,201,000) to common stock.
15. The pro forma adjustment to "Common stock" reflects the conversion of
redeemable convertible preferred stock to SpecialtyMD common stock
($4,201,000), the issuance of Ventro common stock ($103,706,000) and the
elimination of SpecialtyMD common stock ($8,963,000), includes the
redeemable preferred stock converted into common stock.
16. The pro forma adjustment is for the amortization of goodwill, developed
technology, non-compete agreements and assembled workforce.
17. The pro forma adjustment is to eliminate deferred compensation related
to SpecialtyMD stock options.
18. The pro forma adjustment to "Accumulated deficit" reflects the
elimination of SpecialtyMD's accumulated deficit.
19. The pro forma adjustment is to record the compensation expense related
to the vesting of the restricted stock over the 15 month period the
repurchase option lapses beginning January 1, 1999.
20. The pro forma adjustment is to eliminate the note receivable and
payable between Ventro and SpecialtyMD.
21. The pro forma adjustment is to eliminate the Ventro deferred
acquisition charges for SpecialtyMD.
F-12
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Ventro Corporation
We have audited the accompanying consolidated balance sheets of Ventro
Corporation (formerly "Chemdex Corporation") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for the years ended December 31, 1999 and 1998 and for the
period from inception (September 4, 1997) through December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ventro
Corporation at December 31, 1998 and 1999, and the results of its operations
and its cash flows for the years ended December 31, 1998 and 1999 and for the
period from inception (September 4, 1997) through December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young
LLP
San Jose, California
February 7, 2000, except for
Note 18, as to which the date is
February 10, 2000 and
Note 19, as to which the date is March 1, 2000
F-13
<PAGE>
VENTRO CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 21,934 $ 5,990
Short-term investments.................................... 81,161 --
Accounts receivable, net of allowances for doubtful
accounts of $664 and $2 in 1999 and 1998, respectively... 12,414 32
Other current assets...................................... 5,041 287
-------- -------
Total current assets.................................... 120,550 6,309
Property and equipment, net................................. 10,264 1,558
Intangible and other assets, net............................ 33,119 301
-------- -------
Total assets............................................ $163,933 $ 8,168
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 8,373 $ 543
Accrued compensation...................................... 3,958 512
Accrued expenses.......................................... 25,720 760
Current obligations under capital lease................... -- 5
Current portion of notes payable.......................... 369 --
-------- -------
Total current liabilities............................... 38,420 1,820
Notes payable, less current portion......................... 494 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, 2,500 authorized; none outstanding....... -- --
Convertible preferred stock, $.0002 par value; none and
34,075 shares authorized as of December 31, 1999 and
1998; none and 11,446 shares issued and outstanding as of
December 31, 1999 and 1998............................... -- 2
Common stock, $.0002 par value; 175,000 shares authorized
as of December 31, 1999; 32,763 and 3,922 shares issued
and outstanding as of December 31, 1999 and 1998......... 7 1
Additional paid-in capital................................ 189,842 18,379
Deferred compensation..................................... (6,380) (2,992)
Notes receivable from stockholders........................ (985) (150)
Accumulated deficit....................................... (57,465) (8,892)
-------- -------
Total stockholders' equity.............................. 125,019 6,348
-------- -------
Total liabilities and stockholders' equity............ $163,933 $ 8,168
======== =======
</TABLE>
See accompanying notes to the financial statements.
F-14
<PAGE>
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
Inception
(September 4,
December 31, 1997) through
----------------- December 31,
1999 1998 1997
-------- ------- -------------
<S> <C> <C> <C>
Net revenues.................................. $ 30,840 $ 29 $ --
Cost of revenues.............................. 29,306 22 --
-------- ------- ------
Gross profit................................ 1,534 7 --
Operating expenses:
Research and development(1)................. 17,734 3,439 197
Sales and marketing(2)...................... 23,024 3,247 86
General and administrative(3)............... 10,352 1,745 121
Amortization of deferred stock based
compensation............................... 1,992 372 --
-------- ------- ------
Total operating expenses.................. 53,102 8,803 404
-------- ------- ------
Operating loss................................ (51,568) (8,796) (404)
Interest expense.............................. (168) (2) --
Interest income and other, net................ 3,163 310 --
-------- ------- ------
Net loss...................................... $(48,573) $(8,488) $ (404)
======== ======= ======
Basic and diluted net loss per share.......... $ (3.17) $ (4.79) $(0.24)
======== ======= ======
Weighted average shares of common stock used
in computing basic and diluted net loss per
share........................................ 15,322 1,772 1,704
======== ======= ======
</TABLE>
- --------
(1) Excluding $737,000 and $138,000 in amortization of deferred stock based
compensation in 1999 and 1998, respectively.
(2) Excluding $916,000 and $171,000 in amortization of deferred stock based
compensation in 1999 and 1998, respectively.
(3) Excluding $339,000 and $63,000 in amortization of deferred stock based
compensation in 1999 and 1998, respectively.
See accompanying notes to the financial statements.
F-15
<PAGE>
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
Inception
Year Ended (September 4,
December 31, 1997) through
------------------ December 31,
1999 1998 1997
--------- ------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss..................................... $ (48,573) $(8,488) $ (404)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... 1,749 301 7
Amortization of deferred compensation and
fair value of warrants..................... 4,884 372 --
Loss on disposition of property and
equipment.................................. -- 8 --
Issuance of common stock for services....... 637 -- --
Changes in operating assets and liabilities:
Accounts receivable........................ (12,382) (32) --
Other current assets....................... (4,124) (244) (43)
Other assets............................... (19,712) (240) (67)
Accounts payable........................... 7,830 361 182
Accrued compensation....................... 3,446 480 32
Accrued expenses........................... 24,960 706 54
--------- ------- ------
Net cash used in operating activities...... (41,285) (6,776) (239)
--------- ------- ------
Investing activities:
Sales of short-term investments.............. 20,410 6,593 --
Purchases of short-term investments.......... (101,571) (6,593) --
Purchases of property and equipment.......... (9,323) (1,614) (256)
Proceeds on sale of property and equipment... -- 25 --
Purchase of other assets..................... -- -- (10)
--------- ------- ------
Net cash used in investing activities...... (90,484) (1,589) (266)
--------- ------- ------
Financing activities:
Principal payments on capital lease
obligations................................. (5) (7) (1)
Principal payments on notes payable.......... (269) -- --
Net proceeds from issuance of preferred
stock....................................... 30,198 12,975 1,851
Issuance of common stock..................... 117,405 41 1
Payments of stockholders' notes receivable... 9 -- --
Proceeds from exercise of options............ 375 -- --
--------- ------- ------
Net cash provided by financing activities.. 147,713 13,009 1,851
--------- ------- ------
Net increase in cash and cash equivalents.... 15,944 4,644 1,346
Cash and cash equivalents at beginning of
period...................................... 5,990 1,346 --
--------- ------- ------
Cash and cash equivalents at end of period... $ 21,934 $ 5,990 $1,346
========= ======= ======
Supplemental disclosures of noncash
activities:
Issuance of shares in exchange for
stockholders' notes receivable, net......... $ 844 $ 150 $ --
========= ======= ======
Equipment purchased under capital lease or
note payable................................ $ 1,132 $ -- $ 13
========= ======= ======
Issuance of common stock for intangible
assets...................................... $ 15,692 $ -- $ --
========= ======= ======
Issuance of warrants......................... $ 936 $ -- $ --
========= ======= ======
Supplemental disclosures of cash flow
information:
Cash paid for interest....................... $ 117 $ 3 $ --
========= ======= ======
Cash paid for taxes.......................... $ -- $ 2 $ --
========= ======= ======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
VENTRO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock Common Stock Additional Total
--------------- ------------- Paid-In Deferred Notes Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Receivable Deficit Equity
------- ------ ------ ------ ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
preferred stock at
$0.6994 per share, net
of issuance costs...... 2,696 $ 1 -- $ -- $ 1,850 $ -- $ -- $ -- $ 1,851
Issuance of common stock
to founders on
incorporation.......... -- -- 2,570 1 -- -- -- -- 1
Net loss................ -- -- -- -- -- -- -- (404) (404)
------- ---- ------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1997................... 2,696 1 2,570 1 1,850 -- -- (404) 1,448
Issuance of Series A
preferred stock at
$0.6994 per share, net
of issuance costs...... 100 -- -- -- 45 -- -- -- 45
Issuance of Series B
preferred stock at
$1.50 per share, net of
issuance costs......... 8,650 1 -- -- 12,929 -- -- -- 12,930
Exercise of stock
options, net of
repurchases............ -- -- 1,352 -- 191 -- (150) -- 41
Deferred compensation
relating to stock
options................ -- -- -- -- 3,364 (3,364) -- -- --
Amortization of deferred
compensation relating
to stock options....... -- -- -- -- -- 372 -- -- 372
Net loss................ -- -- -- -- -- -- -- (8,488) (8,488)
------- ---- ------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1998................... 11,446 2 3,922 1 18,379 (2,992) (150) (8,892) 6,348
Issuance of Series C
preferred stock at
$5.716 per share, net
of issuance costs...... 5,300 1 -- -- 30,197 -- -- -- 30,198
Conversion of preferred
shares into common
stock upon Initial
Public Offering........ (16,746) (3) 16,746 3 -- ---- -- -- --
Issuance of shares upon
Initial Public
Offering, net of
issuance costs......... -- -- 8,625 2 117,403 -- -- -- 117,405
Issuance of common
stock.................. -- -- 2,726 1 15,691 -- -- -- 15,692
Exercise of stock
options, net of
repurchases............ -- -- 744 -- 1,856 -- (844) -- 1,012
Deferred compensation
relating to stock
options................ -- -- -- -- 5,380 (5,380) -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- 1,992 -- -- 1,992
Issuance of warrants.... -- -- -- -- 936 -- -- -- 936
Payment on notes
receivable............. -- -- -- -- -- -- 9 -- 9
Net loss................ -- -- -- -- -- -- -- (48,573) (48,573)
------- ---- ------ ---- -------- ------- ----- -------- --------
Balance at December 31,
1999................... -- $ -- 32,763 $ 7 $189,842 $(6,380) $(985) $(57,465) $125,019
======= ==== ====== ==== ======== ======= ===== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Description of Business
Ventro Corporation ("the Company," "Ventro" or "we"), formerly known as
Chemdex Corporation, is a leading builder and operator of vertical marketplace
companies that transact with enterprises, buyers and suppliers to enable them
to streamline business processes, enhance productivity and reduce costs.
Ventro marketplace companies offer complete e-commerce solutions consisting of
extensive online marketplaces, electronic procurement, the systems integration
needed to interface with third party and back office systems, and
comprehensive services and support. Ventro was incorporated as Chemdex
Corporation in Delaware on September 4, 1997. Ventro was created in February
2000 to leverage the corporate assets originally developed in our Chemdex life
sciences business.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include all the accounts of the Company
and those of its wholly-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
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.
Revenue Recognition
Net revenues includes gross revenues from sales of products and related
shipping fees, net of discounts and provisions for sales returns and other
allowances. We generally refund all or a portion of the selling price,
including related shipping fees, if applicable, in the event the customer is
not satisfied with the product purchased Sales returns and allowances have not
been significant to date.
Ventro generally acts as a principal when we purchase products from suppliers
and resell them to customers. Our products are shipped directly to customers
using third party carriers. Under principal based agreements, we obtain and
validate a customers order, purchase the product from a manufacturer or
supplier at a negotiated price, arrange for shipment of products, establish
the total purchase price of our products and shipping fees, collect payment
from customers, ensure that products reach customers, and process returns. In
addition, we contractually take title to products upon shipment and bear the
risk of loss for collection, delivery and product returns from customers.
To date, an insignificant amount of our revenue is derived from agreements
with supplies for which we act as an agent and simply facilitate a customer's
order. Under agency based agreements with suppliers and distributors, we
recognize a percentage share of revenues generated when products are shipped
to customers.
For 1999 sales to four significant customers accounted for approximately 27%,
13%, 12% and 11%, respectively. There were no sales to customers outside the
United States since inception through December 31, 1999.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of debt and equity securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date. Marketable securities are
F-18
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
classified as available-for-sale and are carried at fair value with material
unrealized gains and losses, if any, included in stockholders' equity.
Realized gains and losses on available-for-sale securities are included in
interest income.
Capitalized Software
The Company expenses costs related to the research and development of new
software products and enhancements to existing software products as incurred
until technological feasibility (in the form of a working model) of the
product has been established, at which time such costs are capitalized,
subject to expected recoverability. To date, Ventro has not capitalized any
development costs related to software products since the time period between
technological feasibility and general release of a product has not been
significant and related costs incurred during that time period have not been
material.
Internal Use Software
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued SOP 98-1, Accounting for Costs of Computer Software Developed or
Obtained for Internal Use, ("SOP 98-1"). SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use, including the requirements to capitalize specified costs and
amortization of these costs. The Company adopted SOP 98-1 on January 1, 1999.
Property and Equipment
Ventro records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of three to five
years. Property under capital leases is depreciated over the lesser of the
useful lives of the assets or lease term.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB 25, compensation
expense is recognized over the vesting period based on the difference, if any,
on the date of grant between the deemed fair value for accounting purposes of
the Company's stock and the exercise price on the date of grant. The Company
accounts for stock issued to non-employees in accordance with the provisions
of SFAS No. 123 and Emerging Issues Task Force ("EITF") 96-18.
Advertising Costs
Advertising costs are charged to expense when incurred. Advertising expense
was $5,465,000 and $787,000 for the years ended December 31, 1999 and 1998,
respectively. No advertising expense was incurred for the period from
September 4, 1997 (inception) through December 31, 1997.
Accumulated Other Comprehensive Income
SFAS No. 130 Reporting Comprehensive Income, establishes standards of
reporting and display of comprehensive income and its components of net income
(loss) and "Other Comprehensive Income" in a full set of general purpose
financial statements. "Other Comprehensive Income" refers to revenues,
expenses, gains and losses that are not included in net income (loss) but
rather are recorded directly in stockholders' equity. Comprehensive loss is
the same as net loss.
F-19
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Segment Information
During the year ended December 31, 1998 we adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131"). FAS 131 changes the way companies report
selected segment information in annual financial statements and requires
companies to report selected segment information in interim financial reports
to stockholders.
Ventro operates solely in one operating segment, the development and marketing
of an online marketplace for the purchase and sale of products and, therefore
there is no impact to Ventro's financial statements of adopting FAS 131.
Net Loss Per Share
Net loss per share is presented in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (FAS
128) which requires dual presentation of basic earnings per share ("EPS") and
diluted EPS.
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares and potentially
dilutive shares outstanding during the period. If Ventro had reported net
income, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as an additional 2.1 million,
0.5 million and no common share equivalent related to the outstanding options
and warrants (determined using the treasury stock method) for the period ended
December 31, 1999 and 1998, and the period from inception (September 4, 1997)
through December 31, 1997, respectively. These options and warrants could
potentially dilute basic earnings per share in the future but have not been
included in the computation of diluted net loss per share as the impact would
have been antidilutive for the periods presented.
The following table presents the calculation of basic and diluted net loss per
common share as of December 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Net loss............................................ $(48,573) $(8,488) $ (404)
======== ======= ======
Basic and diluted:
Weighted-average shares of common stock
outstanding...................................... 17,446 3,243 2,570
Less: weighted-average common shares subject to
repurchase....................................... (2,124) (1,471) (866)
-------- ------- ------
Weighted-average shares used in computing basic and
diluted net loss per common share.................. 15,322 1,772 1,704
======== ======= ======
Basic and diluted net loss per common share......... $ (3.17) $ (4.79) $(0.24)
======== ======= ======
</TABLE>
Recent Accounting Pronouncement
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Because the Company does not currently hold any derivative instruments and
does not engage in hedging activities, the Company expects the adoption of
SFAS No. 133 will not have a material impact on its financial position,
results of operations or cash flows. The Company will be required to adopt
SFAS No. 133 in 2001 in accordance with SFAS No. 137, which delayed the
required implementation of SFAS No. 133 for one year.
F-20
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
3. Concentration of Credit Risk and Other Risks
Financial instruments that potentially subject Ventro to credit risk consist
primarily of uninsured cash and cash equivalents. Cash and cash equivalents
are deposited with a federally insured commercial bank in the United States.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. Ventro analyzes the need for reserves for
potential credit losses and records reserves when necessary. These losses have
been within management's expectations. To date, the Company has not had
significant write-offs of bad debt.
4. Investments
The following is a summary of available for sale securities as of December 31,
1999 (in thousands):
<TABLE>
<S> <C>
Commercial paper.................................................. $52,441
Corporate notes................................................... 28,720
-------
Total short-term investments.................................... $81,161
=======
</TABLE>
5. Property and Equipment
Property and equipment consisted of the following as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Computer equipment and purchased software................. $ 6,751 $1,042
Furniture and equipment................................... 951 299
Purchased software........................................ 2,746 456
Leased equipment and software............................. 1,145 13
Leasehold improvements.................................... 706 34
------- ------
12,299 1,844
Less accumulated depreciation and amortization............ (2,035) (286)
------- ------
$10,264 $1,558
======= ======
</TABLE>
6. Intangible and Other Assets
Intangible and other assets were comprised of the following as of December 31,
(in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
Deposits and other............................................... $ 512 $301
VWR related intangible, net of accumulated amortization of $2,318
in 1999 ........................................................ 11,592 --
BIO related intangible, , net of accumulated amortization of $267
in 1999......................................................... 1,515 --
Notes receivable from Promedix and Specialty MD.................. 5,000 --
Deferred acquisition costs....................................... 14,500 --
------- ----
Total intangible and other assets.............................. $33,119 $301
======= ====
</TABLE>
F-21
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
7. Accrued Expenses
Accrued expenses were comprised of the following as of December 31, (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------- ----
<S> <C> <C>
Accrued acquisition costs.................................... $14,500 $ --
Accrued marketing expenses................................... 2,630 200
Other accrued liabilities.................................... 8,590 560
------- ----
Total accrued expenses..................................... $25,720 $760
======= ====
</TABLE>
8. Commitments and Contingencies
Ventro leases its office facilities under non-cancelable operating leases
expiring through 2005. Minimum annual operating lease commitments as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<S> <C>
2000.............................................................. $ 4,607
2001.............................................................. 4,910
2002.............................................................. 5,048
2003.............................................................. 5,199
2004.............................................................. 4,123
Thereafter........................................................ 703
-------
Total minimum lease payments.................................... $24,590
=======
</TABLE>
In November 1999, the Company entered in a new facilities sublease agreement
for its former headquarters. The sublease term commenced on December 1, 1999
and will end on December 31, 2003. Sublease receipts for the Company will be
received on an escalating basis with the total future minimum sublease
receipts amounting to approximately $4,580,000 over the lease term. The
sublease receipts are not included in the above table.
Rental expense for the years ended December 31, 1999 and 1998 and for the
period from inception through December 31, 1997, was $1,488,000, $343,000 and
$14,000, respectively.
In August 1999, the Company established three letters of credit to secure our
facility rental agreement with a lending company for $160,000, $625,000, and
$1,875,000. The $160,000 letter of credit expires on August 16, 2000. The
$625,000 and $1,875,000 letters of credit are automatically renewed each July
31 until they expire on July 31, 2004.
The Company was and continues to be involved in certain legal matters.
Although litigation is subject to inherent uncertainties and the ultimate
outcome of these proceedings cannot be determined at this time, management,
including internal counsel, does not believe that the ultimate outcome will
have a material adverse effect on Ventro's financial position or overall
trends in results of operations.
9. Financing Arrangements
In January 1999, Ventro entered into a $3,000,000 equipment lease line
agreement with a financial institution for a term of 48 months, with interest
imputed at 13.02% per year. At December 31, 1998 and 1999, Ventro had no
outstanding borrowings under the equipment lease line.
In February 1999, Ventro entered into a financing arrangement in the amount of
$1,132,000 for the purchase of certain computer software and related support.
This arrangement provides for 12 equal quarterly payments of the financed
amount commencing May 1, 1999, with interest imputed at 13.24% per year.
F-22
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
As of December 31, 1999, aggregate future minimum payments under the one
financing agreement which has been drawn upon are (in thousands):
<TABLE>
<S> <C>
2000................................................................ $ 369
2001................................................................ 369
2002................................................................ 125
-----
Total Payments.................................................... 863
Less Current portion................................................ (369)
-----
Long-term portion................................................... $ 494
=====
</TABLE>
10. Stockholders' Equity
Preferred Stock
The Board of Directors has the authority, within the limitations and
restrictions in the amended and restated certificate of incorporation, to
issue 2,500,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of any series, without further vote
or action by the stockholders.
Warrants
In January 1999, in connection with an equipment lease line, Ventro issued a
fully vested warrant that entitles the holder to purchase 105,000 shares of
the Ventro's Series B preferred stock at an exercise price of $1.50 per share.
This warrant is exercisable through January 2006. The fair value of this
warrant, approximately $353,000 is being expensed as a cost of financing over
the four year period of the lease line. The fair value of this warrant was
calculated using the Black-Scholes option pricing model.
In March 1999, Ventro issued a fully vested, non-forfeitable warrant in
exchange for consulting services. The warrant entitles the holder to purchase
49,999 shares of Ventro's common stock at an exercise price of $5.20 per
share. This warrant is exercisable through July 27, 2001. The fair value of
this warrant, approximately $208,000, was expensed over the six month period
of the consulting agreement. The fair value of this warrant was calculated
using the Black-Scholes option pricing model.
In July 1999, the Company issued a fully-vested, non-forfeitable warrant that
entitles the holder to purchase 25,000 shares of Ventro's common stock at an
exercise price of $15.00 per share, in connection with a lease agreement. This
warrant is exercisable until July 2004. The fair value of this warrant,
approximately, $375,000, is being expensed over the term of the lease. The
fair value of this warrant was calculated using the Black-Scholes option
pricing model.
Common Stock
As of December 31, 1999 and 1998, 1,514,000 and 1,943,000 shares,
respectively, were subject to repurchase. The stock vests over a period of
four years.
On July 27, 1999 the Company completed an initial public offering in which it
sold 7,500,000 shares of common stock, at $15.00 per share. On August 17,
1999, the underwriters' exercised their over-allotment option to
F-23
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
purchase an additional 1,125,000 shares. The Company received $117.4 million
in proceeds, net of underwriting discounts, commissions and other offering
costs. Upon the closing of the offering, all of the Company's preferred stock,
par value $.0002 per share, automatically converted into an aggregate of
16,745,593 shares of Common Stock.
Stock Option Plans
1998 Stock Plan
General. Our 1998 Stock Plan provides for the granting of stock options and
stock purchase rights to eligible employees, officers, directors, including
non-employee directors, and consultants of Ventro. Stock options granted under
the 1998 Stock Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended, or non-
statutory stock options, which are options not intended to qualify as
incentive stock options. Stock purchase rights granted under the 1998 Stock
Plan allow a recipient to purchase shares of common stock directly from
Ventro. Incentive stock options may be granted to employees, officers and
employee directors of Ventro and nonstatutory stock options and stock purchase
rights may be granted to employees, officers, directors and consultants.
As of December 31, 1999, 2,693,000 shares of common stock were issuable upon
the exercise of outstanding options granted under the 1998 Stock Plan at a
weighted average exercise price of $17.30. For the fiscal year ended December
31, 1999, 839,000 shares of common stock have been issued upon exercise of
options or pursuant to stock purchase rights at exercise or purchase prices
ranging between $1.50 and $66.50, net of repurchases, and 1,241,766 shares of
common stock remained available for future issuance under the 1998 Stock Plan.
The 1998 Stock Plan was originally adopted by the Board of Directors in
January 1998 and approved by the stockholders in March 1998. In May 1999 the
Board of Directors authorized an automatic annual increase on the first day of
each of our fiscal years beginning in 2000, 2001, 2002, 2003, and 2004 equal
to the lesser of 1,250,000 shares, 3% of our outstanding common stock on the
last day of the preceding fiscal year or a lesser number determined by our
Board of Directors. Unless terminated earlier by our Board of Directors, the
1998 Stock Plan will terminate in January 2008.
1999 Directors' Stock Plan
Our 1999 Directors' Stock Plan was adopted by the Board of Directors in May
1999 and was approved by the stockholders in July 1999. The directors' Plan
provides for the grant of nonstatutory stock options to non-employee directors
of Ventro.
The Directors' Plan provides that each person who is or becomes a non-employee
director of Ventro will be granted a non-statutory stock option to purchase
12,500 shares of common stock on the later of the date on which the optionee
first becomes a non-employee director of Ventro or the effective date of the
registration statement for this offering. Thereafter, on the date of Ventro's
Annual Stockholders Meeting each year, each non-employee director of Ventro
will be granted an additional option to purchase 5,000 shares of common stock
if, on that date, he or she has served on Ventro's Board of Directors for at
least six months.
The Directors' Plan provides that each option granted under the directors'
Plan shall vest and become exercisable in full immediately upon grant of the
option. The exercise price of all stock options granted under the Directors'
Plan shall be equal to the fair market value of a share of Ventro's common
stock on the date of grant of the option. Options granted under the Directors'
Plan have a term of ten years.
F-24
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The Board of Directors may amend or terminate the Directors' Plan; provided,
however, that none of these actions may not adversely affect any outstanding
option. The Company will obtain stockholder approval for any amendment to the
extent required by applicable law. If not terminated earlier, the Directors'
Plan will have a term of ten years.
As of December 31, 1999 100,000 shares of common stock were issuable upon the
exercise of outstanding options granted under the 1999 Stock Plan at a
weighted average exercise price of $20.19 per share. During 1999 25,000 shares
of common stock were exercised at a weighted average exercise price of $15.00
per share. As of December 31, 1999, 125,000 shares of common stock remained
available for future issuance under the 1999 Directors' Stock Plan.
1999 Employee Stock Purchase Plan
Ventro's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors in May 1999 and was approved by the stockholders in July 1999. A
total of 750,000 shares of common stock was initially reserved for issuance
under the purchase plan, as well as an automatic annual increase on the first
day of each of Ventro's fiscal years beginning in 2000, 2001, 2002, 2003 and
2004 equal to the lesser of 200,000 shares, or 1/2% of Ventro's outstanding
common stock on the last day of the immediately preceding fiscal year. No
shares have been issued under the 1999 Employee Stock Purchase Plan as of
December 31, 1999.
The Purchase Plan permits eligible employees to purchase common stock through
payroll deductions. Employees may end their participation in the offering at
any time during the offering period, and participation end automatically on
termination of employment. If not terminated earlier, the Purchase Plan will
have a term of 20 years.
Accounting for Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation."
For purposes of the SFAS No. 123 disclosure, the fair value of all grants made
prior to the Company's initial public offering in July 1999, the fair value of
these options was determined using the minimum value method, which assumes no
volatility. The fair value for the options granted subsequent to the Company's
initial public offering was estimated at the date of grant using a Black-
Scholes option pricing model. The fair value of the Company's stock based
awards was estimated assuming no expected dividends and the following
weighted-average assumptions: expected life of four years, risk-free interest
rate of 6.66% and volatility of 1.0.
F-25
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
If SFAS No.123 were used to account for the Company's stock based compensation
programs, the pro forma net loss per share would be as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Period from
Inception
Years Ended (September 4,
December 31, 1997) through
----------------- December 31,
1999 1998 1997
-------- ------- -------------
<S> <C> <C> <C>
Net loss:
As reported............................. $(48,573) $(8,488) $(404)
Pro forma............................... $(52,114) $(8,495) $(404)
Basic and diluted net loss per share:
As reported............................. $ (3.17) $ (.85) $ --
Pro forma............................... $ (3.40) $ (.85) $ --
</TABLE>
Stock option activity for all our stock plans was as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998
----------------- -----------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.......... 509 --
Granted................................... 3,579 $14.28 1,979 $0.16
Exercised................................. (1,142) $ 1.40 (1,419) $0.12
Canceled.................................. (153) $ 6.40 (51) $0.12
------ ------
Outstanding at end of period................ 2,793 $17.40 509 $0.14
====== ======
Exercisable at end of period................ 119 509
====== ======
</TABLE>
The following table summarizes information about stock options outstanding as
of December 31, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------------------- ----------------------
Weighted-
Average
Remaining Weighted- Weighted-
Range of Number Contractual Average Number Average
Exercise of Life Exercise of Exercise
Prices Shares (years) Price Shares Price
------------- ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$ 1.50-5.00 925 9.24 $ 3.43 16 $ 2.13
$10.00 904 9.45 $10.00 3 $10.00
$15.00-33.875 736 9.75 $28.79 88 $15.00
$56.50 12 9.86 $56.50 12 $56.50
$66.50 216 9.92 $66.50 -- --
----- ---
2,793 9.50 $17.40 119 $17.47
===== ===
</TABLE>
F-26
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
11. Deferred Stock-based Compensation
The Company recorded deferred compensation for options granted in fiscal year
ended December 31, 1998 and 1999, for the difference at the option grant date
between the exercise price and the fair value of the common stock underlying
the options in accordance with FASB Interpretation No. 28. As of December 31,
1999 the Company had recorded aggregate deferred stock compensation of $ 8.7
million. The deferred stock compensation is being amortized over the vesting
periods of the stock options. The Company recognized a total of $ 2.0 million
and $400,000 in stock compensation expense during the year ended December 31,
1999 and 1998, respectively. The total charges to be recognized in future
periods from amortization of deferred stock compensation as of December 31,
1999 are anticipated to be approximately (in millions), $2.2, $2.2, $1.8 and
$0.2, for 2000, 2001, 2002 and 2003, respectively.
12. Employee Savings and Retirement Plan
Ventro has a 401(k) Plan that allows eligible employees to contribute up to
15% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limits. Ventro may make discretionary contributions to the plan
based on profitability as determined by the Board of Directors. Ventro did not
make any contributions to the plan during the years ended December 31, 1999
and 1998.
13. Income Taxes
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the federal statutory rate of
35% is due to net operating losses having a valuation allowance, due to past
operating results and uncertainties regarding Ventro's future results of
operations. Accordingly, there is no provision for income taxes for the years
ended December 31, 1999 and December 31, 1998 and for the period from
September 4, 1997 (inception) through December 31, 1997.
As of December 31, 1999, Ventro had federal and state net operating loss
carryforwards of approximately $54.0 million and $54.0 million, respectively.
Ventro also had federal and state research credit carryforwards of
approximately $0.7 million and $0.6 million, respectively. The net operating
loss and research credit carryforwards will expire at various dates beginning
in 2002 through 2019, if not utilized. The net operating loss carryforwards
differ from the accumulated deficit primarily as a result of certain reserves
and accruals not currently deductible for tax purposes. Utilization of the net
operating losses and credits may be subject to a substantial annual limitation
due to the ownership change limitations provided by the Internal Revenue Code
of 1986, as amended, and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Ventro's deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
As of December
31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 21,500 $ 3,000
Research credit carryforwards......................... 1,100 200
Reserves and accruals................................. 300 300
-------- -------
Total deferred tax assets........................... 22,900 3,500
Valuation allowance..................................... (22,900) (3,500)
-------- -------
Net deferred tax assets............................. $ -- $ --
======== =======
</TABLE>
F-27
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes Ventro's
historical operating performance, the reported net losses for the period from
inception through December 31, 1997 and for the years ended December 31, 1998
and December 31, 1999, and the uncertainties regarding Ventro's future results
of operations, a full valuation allowance has been provided against its net
deferred tax assets. It is not more likely than not that the deferred tax
assets will be realized. The valuation allowance increased by $19,400,000
during 1999 and $3,327,000 during 1998.
14. Agreement with VWR
In March 1999, Ventro entered into a strategic relationship agreement with
VWR, which was consummated in April 1999, pursuant to which Ventro and VWR
agreed to market jointly VWR laboratory products using the Chemdex
Marketplace. The term of the agreement is four years.
The agreement gives Ventro the right to offer approximately 350,000 VWR-
distributed products to Ventro customers and both parties agreed to jointly
develop an online purchasing solution for VWR's existing customers. In
connection with the strategic relationship agreement, VWR transferred to
Ventro information concerning VWR customers who purchased products from third
party suppliers outside VWR's primary product offering and Ventro issued
2,538,405 shares of common stock valued at $13.9 million to VWR. The Company
intends to use this information to expand sales of its purchasing solution to
these customers and facilitate adoption of the Chemdex Marketplace by these
customers and suppliers. The fair value of the common stock of $13.9 million
was allocated to the customer list and is being amortized into sales and
marketing expense over four years, the estimated useful life of the intangible
asset.
15. Agreement with Biotechnology Industry Organization ("BIO")
In May 1999, the Biotechnology Industry Organization selected Ventro as its
preferred supplier of e-commerce purchasing solutions. As a result, the
Company entered into a five-year, exclusive joint marketing agreement with
BIO. As part of the joint marketing agreement, Ventro will discount the fees
it charges to BIO members for its solution and will contribute cash payments
to a joint marketing fund, to be used in conjunction with both parties'
obligations under the joint marketing agreement. In addition, the Company sold
188,000 shares of its common stock to BIO for a nominal amount in
consideration for BIO's participation in these marketing activities. BIO has
the right to use a portion of the cash payments and any proceeds it receives
from the sale of the common stock for the benefit of its members and the
biotechnology industry. The charge for BIO marketing activities will be
expensed to sales and marketing as incurred. The Company recorded the
difference between the nominal amount per share price paid by BIO for the
purchase of our common stock and the fair value as of May 11, 1999, which is
approximately $1.8 million as an intangible asset, which is being amortized
ratably over the five-year term of the joint agreement.
16. Investment in Broadlane with Tenet Healthcare Corporation
On December 13, 1999, Ventro and Tenet Healthcare Corporation ("Tenet")
announced the formation of Broadlane, to provide business-to-business e-
commerce solutions to the healthcare industry. Broadlane is an independent
entity, with its own management team and board of directors. Tenet, through
its subsidiaries, owns and operates acute care hospitals and numerous related
health care services. In exchange for 76% ownership of Broadlane's capital
stock Tenet will provide Broadlane access to the benefits of its existing
buyer and supplier contracts of its BuyPower organization, which serves as a
group purchasing organization for Tenet's hospitals
F-28
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
and other members. In exchange for 24% ownership of Broadlane's capital stock,
Ventro will license its technology to Broadlane for use within the healthcare
industry and provide service and support functions at cost. As the licensed
technology has no recorded value on Ventro's financial statements, it
initially will have no recorded value on Broadlane's financial statements. In
addition, IBM has entered into a strategic alliance with Broadlane in which
IBM Global Services will provide implementation, integration and e-commerce
services to Broadlane's customers and suppliers.
Broadlane will offer its e-commerce technology to other group purchasing
organizations and their members to support their own proprietary contracts.
While Broadlane will initially focus on the hospital market, Broadlane
eventually plans to expand its e-commerce solution to the long-term care and
outpatient markets as well.
In December, 1999 Promedix.com ("Promedix") (see Note 18) and Tenet Healthcare
Corporation agreed to enter into an agreement whereby, Promedix will be the
exclusive provider to Tenet of e-commerce solutions for the purchase of
specialty medical products.
17. Related Party Transactions
VWR's former president and Chief Executive Officer is a director of the
Company. In addition, VWR owns 2,538,405 shares of common stock of the
Company. VWR and Ventro jointly market VWR core products and Ventro core
products to VWR's existing and new customers and jointly solicit several key
existing VWR suppliers. VWR currently performs some of the billing and cash
collection functions for the sale of jointly marketed products until these
functions can be transitioned to Ventro. With respect to sales of VWR core
products, Ventro act's as an intermediary and forward orders received through
the Chemdex Marketplace to VWR for fulfillment and customer service. The
Company receives no fee for orders for VWR core products from VWR's 40 largest
customers and the Company receives a minimal fee for all other orders for VWR
core products forwarded to VWR. Ventro is responsible for fulfillment and
customer service for all Ventro core product and orders for third party
products received from VWR customers through the Chemdex Marketplace. Under
the terms of the agreement, VWR provides support for the purchase of third
party products in return for a fee which approximates VWR's costs incurred. As
of December 31, 1999 the Company had accounts payable of $7.6 million owed to
VWR.
CMGI and/or its affiliates beneficially own 2,740,857 shares of Ventro common
stock, representing approximately 8.4% of the outstanding Ventro common stock,
and 3,997,000 shares of Promedix (see Note 18) preferred stock, representing
approximately 23.7% of the outstanding Promedix capital stock. Following
consummation of the merger with Promedix, CMGI and its affiliates will
beneficially own approximately 17.5% of the outstanding Ventro common stock.
Jonathon D. Callaghan is a general partner of CMGX @ Ventures, a CMGI
affiliate, and is a member of both the Ventro board of directors and the
Promedix Board of Directors.
18. Business Combinations
Promedix
On September 22, 1999 the Company entered into a definitive agreement to
acquire Promedix, a provider of e-commerce solutions for healthcare purchasing
professionals. Promedix is a privately held Company based in Salt Lake City,
Utah. Promedix links buyers and suppliers of specialty medical products,
providing healthcare professionals with a one-stop shop for product research,
purchase and order fulfillment through relationships with distributors and
manufacturers. Under the terms of the agreement, Ventro issued 12.1 million
shares of its common stock for all of the outstanding preferred and common
stock of Promedix based on an exchange ratio of
F-29
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
1.2647 shares of Promedix for 1.0000 shares of Ventro. The transaction will be
accounted for as a purchase. The purchase was executed on February 10, 2000.
Under the transaction, Ventro recorded approximately $2.0 million for
assembled workforce, $1.9 million for customer relationships, $2.1 million for
supplier relationships, with the remaining $319.3 million of the purchase
price allocated to goodwill, net tangible and intangible assets. A valuation
specialist used the Company's management estimates to establish the amount of
assembled workforce, customer relationships, and supplier relationships
recorded. Intangible assets of $323.8 million will be amortized ratably over a
two to three year period.
SpecialtyMD
On December 10, 1999 the Company entered into a definitive agreement to
acquire SpecialtyMD, a provider of a range of comprehensive search and content
functions which will add an interactive component to Ventro's e-commerce
procurement solutions. Under the terms of the agreement, Ventro will issue 1.1
million shares of its common stock for all of the outstanding common stock of
SpecialtyMD based on an exchange ratio of 0.1033 shares of SpecialtyMD for
1.0000 shares of Ventro. The transaction will be accounted for as a purchase.
The purchase was executed on February 10, 2000. Under the transaction, Ventro
recorded approximately $0.9 million for assembled workforce, $2.7 million for
developed technology, $15.0 million related to non-compete agreements, with
the remaining $89.1 million of the purchase price allocated to goodwill, net
tangible and intangible assets. A valuation specialist used the Company's
management estimates to establish the amount of assembled workforce, developed
technology, and non-compete agreements recorded. Intangible assets of
$107.9 million will be amortized ratably over a two to three year period.
Pro Forma. The following unaudited pro forma results of operations for fiscal
1999 and 1998 are as if the acquisition of Promedix and SpecialtyMD had
occurred at the beginning of each period presented. The pro forma information
has been prepared for comparative purposes only and is not indicative of what
operating results would have been if the acquisition had taken place at the
beginning of each period presented or of future operating results.
<TABLE>
<CAPTION>
1999 1998
--------- --------
(In thousands,
except per share
data, unaudited)
<S> <C> <C>
Net revenues.......................................... $ 30,871 43
Loss from continuing operations....................... $(219,827) (163,910)
Basic and diluted loss per share from continuing
operations........................................... $ (10.96) (29.71)
</TABLE>
19. Subsequent events
Formation of Industria
On January 24, 2000, Ventro, DuPont, IBM and CMGI @ Ventures announced the
formation of Industria Solutions, Inc (Industria)., a new business-to-business
e-commerce company in the worldwide fluid processing market. For a cash
investment of $5.0 million, as well as the contribution of technology, Ventro
will own 40% of Industria. The investment will be accounted for using the
equity method.
Formation of Ventro
On February 22, 2000, Chemdex announced the formation of Ventro as a leading
builder and operator of business-to-business vertical marketplace companies.
Ventro became a publicly traded company that incorporated Chemdex, Promedix
and Specialty MD's assets, with a new stock symbol, VNTR, which became
F-30
<PAGE>
VENTRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
effective on March 1, 2000. Ventro was created to leverage the corporate
assets originally developed by Chemdex across multiple vertical marketplaces.
Stock Option Plans
On February 10, 2000 the shareholders approved a 4,250,000 share increase to
the 1998 Employee Stock Plan and a 300,000 share increase to the 1999 Employee
Stock Purchase Plan.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Promedix.com, Inc.
We have audited the accompanying balance sheets of Promedix.com, Inc. as of
December 31, 1999 and 1998, and the related statements of operations, common
shareholders' equity (deficit) 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Promedix.com, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Salt Lake City, Utah
February 11, 2000
F-32
<PAGE>
PROMEDIX.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 312,248 $3,002,148
Other current assets................................ 95,352 30,000
Net current assets of discontinued operations....... 2,404,511 --
------------ ----------
Total current assets.............................. 2,812,111 3,032,148
Property and equipment, net........................... 1,864,266 2,252
Other assets.......................................... 60,893 --
Net non-current assets of discontinued operations..... 1,095,489 --
------------ ----------
Total assets...................................... $ 5,832,759 $3,034,400
============ ==========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................... $ 717,668 $ 10,944
Accrued compensation................................ 447,736 786
Accrued liabilities................................. 1,028,893 17,526
Other current liabilities........................... 7,076 2,000
Short-term debt..................................... 3,666,667 --
Subordinated convertible notes...................... 4,999,835 --
------------ ----------
Total current liabilities......................... 10,867,875 31,256
Commitments
Preferred stock--series A............................. 3,738,057 3,001,597
Common shareholders' equity (deficit):
Common stock; $.0001 value; 25,000,000 and
15,500,000 shares authorized, respectively;
3,546,250 and 3,446,250 issued and outstanding,
respectively....................................... 355 345
Additional paid in capital.......................... 23,290,499 133,306
Deferred compensation............................... (15,744,712) --
Accumulated deficit................................. (16,319,315) (132,104)
------------ ----------
Total shareholders' equity (deficit).............. (8,773,173) 1,547
------------ ----------
Total liabilities and shareholders' equity
(deficit)...................................... $ 5,832,759 $3,034,400
============ ==========
</TABLE>
See accompanying notes.
F-33
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1999 1998 1997
------------ --------- ---------
<S> <C> <C> <C>
Revenues................................... $ -- $ 14,034 $ 197,249
Cost of revenues........................... -- 1,100 55,542
------------ --------- ---------
Gross profit............................... -- 12,934 141,707
Operating expenses:
Sales and marketing...................... 1,933,053 -- 30,596
General and administrative............... 4,192,237 73,236 246,306
Research and development................. 679,037 -- --
Amortization of deferred compensation.... 5,012,816 -- --
------------ --------- ---------
Total operating expenses................... 11,817,143 73,236 276,902
------------ --------- ---------
Loss from operations....................... (11,817,143) (60,302) (135,195)
Other income (expense):
Interest expense......................... (347,741) -- (316)
Interest income.......................... 87,920 398 100
Other income (expense)................... 3,538 -- (5,465)
------------ --------- ---------
Loss from continuing operations............ (12,073,426) (59,904) (140,876)
Discontinued operations:
Income from Pro Med Co., net of income
tax of $10,000.......................... 5,116 -- --
Loss on disposal of Pro Med Co........... (4,118,901) -- --
Extraordinary gain......................... -- 86,204 --
------------ --------- ---------
Net income (loss).......................... $(16,187,211) $ 26,300 $(140,876)
============ ========= =========
Basic net income (loss) per share:
Loss from continuing operations.......... $ (3.46) $ (0.02) $ (0.10)
Discontinued operations.................. (1.18) -- --
Extraordinary gain....................... -- 0.03 --
------------ --------- ---------
Net income (loss).......................... $ (4.64) $ 0.01 $ (0.10)
============ ========= =========
Diluted net income (loss) per share:
Loss from continuing operations.......... $ (3.46) $ (0.01) $ (0.10)
Discontinued operations.................. (1.18) -- --
Extraordinary gain....................... -- 0.01 --
------------ --------- ---------
Net income (loss).......................... $ (4.64) $ -- $ (0.10)
============ ========= =========
Weighted average number of shares
outstanding:
Basic.................................... 3,492,346 2,696,228 1,379,988
Diluted.................................. 3,492,346 6,693,028 1,379,988
</TABLE>
See accompanying notes.
F-34
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
--------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996................... 1,000,000 $100 $ 9,900 $ -- $ -- $ 10,000
Issuance of stock for
cash and other........ 1,100,760 110 109,966 -- -- 110,076
Net loss............... -- -- -- -- (140,876) (140,876)
--------- ---- ----------- ------------ ------------ ------------
Balances at December 31,
1997................... 2,100,760 210 119,866 -- (140,876) (20,800)
Issuance of stock for
cash and other........ 1,357,570 136 13,439 -- -- 13,575
Accretion of preferred
stock................. -- -- -- -- (17,528) (17,528)
Cancellation of common
stock................. (12,080) (1) 1 -- -- --
Net income............. -- -- -- -- 26,300 26,300
--------- ---- ----------- ------------ ------------ ------------
Balance of December 31,
1998................... 3,446,250 345 133,306 -- (132,104) 1,547
Issuance of stock for
cash.................. 100,000 10 9,990 -- -- 10,000
Deferred compensation
relating to stock
options............... -- -- 21,401,278 (21,401,278) -- --
Forfeiture of non-
vested stock options.. -- -- (643,750) 643,750 -- --
Amortization of
deferred compensation
relating to stock
options............... -- -- -- 5,012,816 -- 5,012,816
Issuance of warrants
for Pro Med Co. ...... -- -- 2,389,675 -- -- 2,389,675
Net loss............... -- -- -- -- (16,187,211) (16,187,211)
--------- ---- ----------- ------------ ------------ ------------
Balance at December 31,
1999................... 3,546,250 $355 $23,290,499 $(15,744,712) $(16,319,315) $ (8,773,173)
========= ==== =========== ============ ============ ============
</TABLE>
See accompanying notes.
F-35
<PAGE>
PROMEDIX.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1999 1998 1997
------------ ---------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................ $(16,187,211) $ 26,300 $(140,876)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation........................... 342,830 749 749
Amortization of deferred compensation.. 5,012,816 -- --
Non-cash legal expense................. 711,460 -- --
Non-cash interest expense.............. 312,645 -- --
Loss on disposal of discontinued
operations............................ 4,118,901 -- --
Income from discontinued operations.... (5,116) -- --
Forgiveness of debt.................... -- (86,204) --
Changes in operating assets and
liabilities:
Accounts receivable.................... -- 16,668 (16,668)
Other current assets................... (65,352) (30,000) 10,000
Other assets........................... (60,893) -- --
Accounts payable....................... 706,724 (2,256) 13,200
Accrued liabilities.................... 430,210 10,290 7,236
Accrued compensation................... 1,028,107 786 --
Other liabilities...................... 5,076 -- --
------------ ---------- ---------
Net cash used in operating
activities.......................... (3,649,803) (63,667) (126,359)
Investing activities:
Investment in subsidiary............... (536,920) -- --
Purchases of property and equipment.... (2,204,844) -- (3,750)
------------ ---------- ---------
Net cash used in investing
activities.......................... (2,741,764) -- (3,750)
Financing activities:
Borrowings on short-term notes......... 3,666,667 68,044 20,160
Net proceeds from issuance of preferred
stock................................. 25,000 2,984,069 --
Proceeds from issuance of common
stock................................. 10,000 13,575 110,076
------------ ---------- ---------
Net cash provided by financing
activities.......................... 3,701,667 3,065,688 130,236
------------ ---------- ---------
Net increase (decrease) in cash and cash
equivalents............................. (2,689,900) 3,002,021 127
Cash and cash equivalents at beginning of
year.................................... 3,002,148 127 --
------------ ---------- ---------
Cash and cash equivalents at end of
year.................................... $ 312,248 $3,002,148 $ 127
============ ========== =========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest.............................. $ 35,096 $ -- $ 316
Non cash investing and financing
activities:
Investment in subsidiary--subordinated
convertible note payable.............. $ 2,120,855 $ -- $ --
Investment in subsidiary--value
ascribed to warrants.................. $ 2,389,675 $ -- $ --
Deferred compensation associated with
issuance of stock options............. $ 21,401,278 $ -- $ --
</TABLE>
See accompanying notes.
F-36
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Description of Business
Promedix.com, Inc. ("Promedix") (originally named MCA HealthPages, Inc.) was
incorporated on December 20, 1996. During 1997, Promedix pursued a strategy of
providing web design and hosting services for specialty medical equipment
manufacturers. This strategy was terminated in early 1998, and Promedix then
began pursuing its present e-commerce activities.
Promedix is a provider of e-commerce solutions to the specialty medical
products market. Promedix enables health care enterprises and suppliers to
efficiently buy and sell specialty medical products through the Promedix
marketplace, a secure, Internet-based solution.
Promedix's e-commerce business is currently in development. During this
period, operating activities relate primarily to the design and development of
Promedix's online marketplace and corporate infrastructure and the
establishment of relationships with suppliers and customers. Promedix has
incurred operating losses to date and had an accumulated deficit of
approximately $16.3 million at December 31, 1999. Promedix's activities have
been primarily financed through private placements of equity securities.
On February 10, 2000, Promedix was acquired by Ventro Corporation ("Ventro")
(see Note 11).
2. Summary of Significant Accounting Policies
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.
Revenue Recognition
During 1998 and 1997, revenues consisted primarily of service and renewal fees
charged to medical manufacturers which utilized the company's website design
and hosting services, which were recorded as revenues when the services were
provided.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at
the time of acquisition. Promedix's cash and cash equivalents, as of December
31, 1999 and 1998, consisted primarily of cash and money market funds held by
federally insured financial institutions in the United States, and had
carrying values which approximated fair value.
Property and Leasehold Improvements
Promedix records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of five to ten
years.
Advertising Costs
Costs of advertising are expensed the first time the advertising takes place.
Advertising costs in 1999 were approximately $330,000. No significant
advertising costs were incurred in 1998 or 1997.
F-37
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-Based Compensation
Promedix has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB Opinion No. 25"), and related
interpretations in accounting for its employee stock options and adopted the
disclosure only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. Under APB Opinion No. 25, when
the exercise price of Promedix's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of
shares outstanding. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for the incremental shares
attributed to outstanding stock options, warrants and convertible securities.
Because of the net loss, the computation of basic and diluted earnings per
share is the same for the years ended December 31, 1999 and 1997. The
incremental shares used for 1998 was 3,996,800 related to the assumed
conversion of preferred stock.
3. Acquisition and Disposal of Pro Med Co.
On May 18, 1999, Promedix acquired all the outstanding stock of Pro Med Co.
for $5,047,450 consisting of (i) $500,192 in cash (ii) $4,999,835 in face
amount of convertible subordinated promissory notes (discounted $2,878,980 to
reflect the value assigned to the warrants and the non-interest bearing period
of the notes) and (iii) warrants to purchase 333,334 shares of Promedix Series
B-1 preferred stock, valued at $2,389,675 for accounting purposes. Promedix
also incurred $36,728 in direct costs relating to the acquisition. The
acquisition was accounted for as a purchase. The purchase price was allocated
based on estimated fair values of the assets and liabilities acquired and
resulted in goodwill of $2,725,067.
On November 9, 1999, in connection with the pending merger of Promedix with
Ventro, Promedix agreed to sell all of the outstanding shares of capital stock
of Pro Med Co. to a third party for $3,500,000. Certain of Promedix's
stockholders own a minority interest in such third party. The sale was
completed on January 25, 2000.
The assets and liabilities of Pro Med Co. as of December 31, 1999 are
reflected in the accompanying balance sheet on a net basis as either current
or non-current assets of discontinued operations based on the original
classification of the related accounts. The following table summarizes the
significant assets and liabilities of Pro Med Co. as of December 31, 1999:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 2,467,339
Inventory........................................................ 1,827,742
Goodwill......................................................... 880,243
Accounts payable................................................. (1,170,593)
Line of credit................................................... (650,021)
Other assets and liabilities, net................................ 145,290
-----------
Total net assets of discontinued operations.................... $ 3,500,000
===========
</TABLE>
The operations of Pro Med Co. for the period from May 19, 1999 through
December 31, 1999 are reported as discontinued operations and includes
goodwill amortization of $292,258. Pro Med Co. had sales of $13,495,020 for
the same period.
F-38
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The reported loss on disposal of discontinued operations includes goodwill
impairment totaling $1,552,566 and the reversal of the remaining discount of
$2,566,335 on the subordinated convertible notes which were satisfied in full,
concurrent with the sale of Pro Med Co., on January 25, 2000.
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful Lives -------------------
in years 1999 1998
------------- ---------- -------
<S> <C> <C> <C>
Computer hardware and software............... 5 $1,811,666 $ --
Furniture and fixtures....................... 5 263,917 3,750
Leasehold improvements....................... life of lease 133,011 --
---------- -------
2,208,594 3,750
Less-accumulated depreciation................ (344,328) (1,498)
---------- -------
Property and equipment, net.................. $1,864,266 $ 2,252
========== =======
</TABLE>
5. Commitments and Contingencies
Promedix leases computer equipment and building space. The following is a
schedule of future minimum rental payments under non-cancellable operating
leases at December 31, 1999.
<TABLE>
<S> <C>
2000.............................................................. $360,000
2001.............................................................. 56,615
2002.............................................................. 39,228
2003.............................................................. 26,152
2004.............................................................. --
</TABLE>
Rental expense for the years ended December 31, 1999, 1998 and 1997 was
$191,630, $825 and $13,500, respectively.
On January 24, 2000, Promedix signed an operating lease agreement for office
space commencing in May 2000. The future minimum rental payments are
approximately as follows: 2000--$420,000; 2001--$1,020,000; 2002--$1,050,000;
2003--$1,080,000 and 2004--$1,100,000.
Promedix has entered into agreements during 1999 with two companies to provide
public relations and advertising services for payments of approximately
$26,000 per month. These agreements are cancelable by either party with 60
days notice.
A claim against Promedix was filed on February 8, 2000 alleging breach of
contract, breach of the implied covenant of good faith and fair dealing, and
unjust enrichment. The plaintiff seeks to impose a constructive trust on
intellectual property and specific performance relating to the issuance of
stock warrants. Promedix believes the claim is unfounded and plans to
vigorously defend it. Management believes that resolution of the claim will
not have a materially adverse effect on the financial condition of the
Company.
Promedix is subject to legal actions arising from the normal conduct of its
business. Management believes resolution of any potential claim related to
such action will not have a material effect on Promedix's financial position
or results of operations.
6. Financing Arrangements
In connection with the Ventro merger, Ventro agreed to provide Promedix a $10
million line of credit. The loan bears interest at 9% and is secured by
substantially all of Promedix's assets. The outstanding balance is due
F-39
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 2000. At December 31, 1999, $3,666,667 was outstanding and
$6,333,333 was unused and available, under the line of credit.
In May 1999, in connection with the acquisition of Pro Med Co., Promedix
issued subordinated convertible promissory notes in the aggregate amount of
$4,999,835. These notes were due December 31, 2005, bore interest at 8%
beginning September 2000 and were secured by the common stock of Pro Med Co.
The notes were issued with an original discount of $2,878,980 to reflect the
value assigned to the warrants issued in connection with the Pro Med Co.
acquisition and the non-interest bearing period of the notes. These notes were
satisfied in full on January 25, 2000, as follows:
<TABLE>
<S> <C>
Exercise of warrants to purchase 333,334 shares of Series B-1
convertible preferred stock................................... $ 500,000
Conversion into 346,020 shares of Series B-2 convertible
preferred stock............................................... 1,000,000
Offset against notes recievable from officers of Pro Med Co.... 200,000
Funds to note holders.......................................... 3,299,835
----------
Total outstanding amount satisfied........................... $4,999,835
==========
</TABLE>
7. Stockholder's Equity
Convertible Preferred Stock
Convertible preferred stock at December 31, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
Shares Issued and
Shares Outstanding
Authorized December 31,
Liquidation December 31, -------------------
Preference 1999 1998 1999
----------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Series A........................ $0.751 4,030,089 3,996,800 4,030,089
Series B-1...................... $1.500 333,334 -- --
Series B-2...................... $2.890 346,020 -- --
Series C........................ $28.34 1,000,000 -- --
</TABLE>
The Series A, Series B-1 and Series B-2 preferred stock is redeemable at the
option of the holders on or after December 29, 2004, in an amount equal to
$0.751 per share for the Series A, $1.50 per share for the Series B-1 and
$2.89 per share for the Series B-2 preferred stock.
Series A, B-1, B-2 and C preferred stock is convertible, at the option of the
holder, into one share of common stock, subject to certain adjustments for
dilutive issuances. Any outstanding shares of Series A, B-1, B-2 and C
preferred stock automatically convert into common stock upon a firm commitment
underwritten public offering of Promedix's common stock with gross proceeds to
Promedix of at least $10,000,000 and a per share price of at least $5.257.
Holders of Series A, B-1, B-2 and C preferred stock are entitled to receive
dividends only when declared by the Board of Directors out of legally
available funds. No dividends have been declared or accrued as of December 31,
1999.
Series A, B-1, B-2 and C preferred stock are entitled to receive, upon a
Liquidating Event, an amount per share equal to the issuance price, plus all
declared but unpaid dividends. The remaining assets and funds, if any, shall
be distributed among the holders of Series A, B-1, B-2 and C preferred stock
and common stock pro rata based on the number of shares of common stock held
by each (assuming conversion of all such Series A, B-1,
F-40
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
B-2 and C preferred stock). If any assets remain after the holders of Series
A, B-1, B-2 and C preferred stock have received an aggregate of $0.751, $1.50,
$2.89 and $28.34 per share, the remaining assets will be distributed to the
holders of the common stock pro rata based on the number of shares common
stock held by each.
During 1999, for legal services provided, Promedix issued 33,289 shares of
Series A preferred stock at the liquidation value. As a result, Promedix
recorded legal fees of $711,460 for the difference between the liquidation
value and the deemed fair value on the date of issuance.
In May 1999, in connection with the acquisition of Pro Med Co., Promedix
issued fully vested warrants that entitled the holder to purchase 333,334
shares of the Series B-1 preferred stock at an exercise price of $1.50 per
share. These warrants were exercised on January 25, 2000. Also, on January 25,
2000, $1,000,000 of convertible promisory notes issued by Promedix in
connection with the acquisition of Pro Med Co., were converted into 346,020
shares of Series B-2 preferred stock.
On February 9, 2000, Promedix issued 176,429 shares of its Series C preferred
stock for $28.34 per share.
Common Stock
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends from legally available funds when
and if declared by the Board of Directors, subject to the prior rights of
holders of Series A, B-1, B-2 and C preferred stock.
At December 31, 1999, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock............................. 4,030,089
Conversion of Series B-1 preferred stock........................... 333,334
Conversion of Series B-2 preferred stock........................... 346,020
Conversion of Series C preferred stock............................. 1,000,000
Stock Option Plan.................................................. 1,770,000
</TABLE>
During the first quarter of 1999, Promedix adjusted its capital structure to
effect a 10:1 stock split and to change its capital stock from no par value to
$.0001 per share par value. The impact of these adjustments has been applied
retroactively to all periods presented.
During 1998, a stockholder requested that Promedix cancel its 12,080 shares of
Promedix common stock. Accordingly, these shares have been removed from
Promedix's outstanding shares.
Stock Option Plan
In December 1998, the Board of Directors adopted the 1998 Stock Plan (the
"1998 Plan") for issuance of common stock to eligible participants. The Plan
provides for the granting of incentive stock options and non-qualified stock
options. Incentive stock options and non-qualified stock options may be
granted under the 1998 Plan at prices not less than 100% and 85% of the fair
value at the date of grant, or at prices not less than 110% for individuals
owning more than 10% of the combined voting power of all classes of stock at
the date of grant. Options generally vest over four years, with 25% vesting
after one year and the remaining 75% vesting ratability over the remaining 36
months. Unexercised options generally expire ten years after the grant date.
F-41
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Activity under the 1998 Stock Plan is as follows:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Weighted-
Shares Average
Available Number of Price per Exercise
for Grant Shares Share Price
---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Authorized.............. 1,870,000
Granted................. (1,413,511) 1,413,511 $.10-$105.75 $6.26
Exercised............... -- (100,000) $ .10 $ .10
Forfeitures............. 22,750 (22,750) $.10-$ 15.00 $1.16
---------- ---------
Balance at December 31,
1999................... 479,239 1,290,761 $.10-$105.75 $6.52
========== =========
</TABLE>
At December 31, 1999, there are 25,500 options currently exercisable at a
weighted-average exercise price of $1.00.
In connection with the grant of share options to employees through December
31, 1999, Promedix recorded deferred compensation of $21,401,278 for the
aggregate differences between the exercise price of options at the various
grant dates and deemed fair value of the common shares subject to these
options. Such amount is included as a reduction of stockholders' equity and is
being amortized on a straight-line vesting method over the option vesting
periods, which are generally four years. The compensation expense of
$5,012,816 through December 31, 1999 relates to the options awarded to
employees in all operating expense categories.
If Promedix had elected to recognize compensation cost based on the fair value
of the options granted at the grant date as prescribed by SFAS No. 123, the
1999 net loss and loss per share would have been increased to the pro forma
amounts indicated below.
<TABLE>
<S> <C>
Net loss--as reported......................................... $16,187,211
Net loss--pro forma........................................... $17,984,807
Basic and diluted loss per share--as reported................. $4.64
Basic and diluted loss per share--pro forma................... $5.15
</TABLE>
The weighted-average fair value at date of grant and the weighted-average
exercise price was $15.98 and $7.27, respectively. The fair value of each
option grant was estimated on the date of grant using the minimum value
option-pricing model assuming a weighted-average risk-free interest rate of
5.23% and expected life of 2.26 years.
8. Employee Savings and Retirement Plan
Beginning May 1999, Promedix has a 401(K) plan that allows eligible employees
to contribute up to 15% of their salary, subject to annual limits. Under the
Plan, eligible employees may defer a portion of the pretax salaries but not
more than statutory limits. Promedix made $9,200 in contributions in 1999.
9. Income Taxes
As of December 31, 1999 Promedix had federal and state net operating loss
carry-forwards of approximately $6,510,000 which will expire through 2019 if
not utilized.
As a result of the acquisition by Ventro, utilization of the net operating
losses may be subject to a substantial annual limitation due to the ownership
change limitations provided by the internal Revenue Code of 1986, as
F-42
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
amended, and similar state provisions. The annual limitation may result in the
expiration of net operating losses before utilization. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Significant components of the Promedix deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
----------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $ 2,428,000 $ 41,880
Compensation expense................................ 1,870,000 --
Reserves and accruals............................... 97,000 --
Other............................................... 33,000 --
----------- --------
Total deferred tax assets......................... 4,428,000 41,880
Deferred tax liabilities:
Depreciation........................................ (28,000) (180)
----------- --------
Net deferred tax asset................................ 4,400,000 41,700
Valuation Allowance................................... (4,400,000) (41,700)
----------- --------
Net deferred tax assets............................... $ -- $ --
=========== ========
</TABLE>
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes
Promedix's historical operating performance, the reported net losses for the
years ended December 31, 1999, 1998 and 1997, and the uncertainties regarding
Promedix's future results of operations, a full valuation allowance has been
provided against its net deferred tax assets.
10. Related Party Transactions
Pro Med Co. has an aggregate of $200,000 in principal amount of notes
receivable from two of its officers. The notes bear interest at 9.5%, are
unsecured and were paid in full on January 25, 2000. The total amount due,
including interest, at December 31, 1999, was $222,147 and is included in net
current assets of discontinued operations in the accompanying balance sheet.
During 1998 and 1997, certain shareholders provided services and advanced
funds to Promedix to meet certain operating requirements. The value of these
advances and services totaled $13,575 in 1998 and $65,684 in 1997. These
advances were converted to common stock during each of the respective years.
During 1998 and 1997, Medical Companies Alliance, Inc. and/or its affiliates
("MCA") advanced funds to Promedix to pay certain operating and development
expenses. The total of these advances was $20,160 and $86,204 through December
31, 1997 and September 30, 1998, respectively. This debt was forgiven by MCA
in September 1998, and the gain is reflected as an extraordinary item in the
accompanying statements of operations.
11. Ventro Merger and Related Transactions
On September 21, 1999, Promedix entered into an agreement involving the merger
of a wholly-owned subsidiary of Ventro, with and into Promedix. This
transaction closed on February 10, 2000 and Promedix became a wholly-owned
subsidiary of Ventro pursuant to the Agreement and Plan of Merger by and among
F-43
<PAGE>
PROMEDIX.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Ventro, the acquisition subsidiary and Promedix. In the merger, each
outstanding share of Promedix common stock was converted into and represented
the right to receive Ventro common stock based on an exchange ratio.
Each outstanding option to purchase Promedix common stock was converted into
an option to purchase shares of Ventro common stock in accordance with the
same exchange ratio. The exchange ratio was determined by dividing 12,057,298,
the maximum number of shares of Ventro common stock to be issued as a result
of this merger by the number of shares of Promedix capital stock outstanding
(including all common stock, preferred stock, stock options and warrants) and
the number of shares of Promedix capital stock subjected to options to
purchase Promedix capital stock outstanding as of the closing date.
In connection with its agreement with Ventro, Promedix agreed to sell all of
the outstanding shares of capital stock of Pro Med Co. to a third party.
Pursuant to these agreements, effective with the sale of Pro Med Co. on
January 25, 2000, all options to purchase Promedix common stock held by the
officers of Pro Med Co. were reduced by two-thirds and such remaining options
became immediately vested. All options to purchase Promedix common stock held
by all other employees of Pro Med Co. were reduced by one-half and such
remaining options became immediately vested.
F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
SpecialtyMD.com Corporation
We have audited the accompanying balance sheets of SpecialtyMD.com Corporation
(a development stage company) (the "Company") as of December 31, 1998 and
1999, and the related statements of operations, stockholders' deficit, and
cash flows for the period from inception (May 27, 1998) through December 31,
1998, the year ended December 31, 1999, and the period from inception (May 27,
1998) through 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 financial statements referred to above present fairly, in
all material respects, the financial position of SpecialtyMD.com Corporation
(a development stage company) as of December 31, 1998 and 1999, and the
results of its operations and its cash flows for the period from inception
(May 27, 1998) to December 31, 1998, the year ended December 31, 1999, and the
period from inception (May 27, 1998) through December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
January 10, 2000
F-45
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 886,099 $ 1,138,278
Restricted cash...................................... -- 137,914
Accounts receivable.................................. -- 56,206
Prepaid expense and other:
Prepaid expenses and other assets................... -- 7,382
Deposits current.................................... 4,193 4,193
--------- -----------
Total current assets............................... 890,292 1,343,973
Property and equipment, net............................ 45,753 201,212
Long-term deposits..................................... -- 36,000
--------- -----------
Total assets....................................... $ 936,045 $ 1,581,185
========= ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Deferred revenue..................................... $ -- $ 44,583
Note payable......................................... -- 1,333,333
Accounts payable..................................... 28,543 190,154
Accrued liabilities.................................. 9,217 115,629
Deferred rent........................................ -- 45,960
--------- -----------
Total current liabilities.......................... 37,760 1,729,659
Series A redeemable convertible preferred stock, $0.001
par value, 3,050,000 shares authorized; 3,000,000 and
3,050,000 shares issued and outstanding at
December 31, 1998 and 1999, respectively.............. 1,469,694 1,492,085
Series B redeemable convertible preferred stock, $0.001
par value, 5,000,000 shares authorized; 2,522,333
shares issued and outstanding at December 31, 1998 and
1999, respectively.................................... -- 2,709,186
Stockholders' deficit:
Common stock, $0.001 par value, 22,000,000 shares
authorized, 5,150,000 and 5,106,379 shares issued
and outstanding at December 31, 1998 and 1999,
respectively........................................ 5,150 5,106
Additional paid-in capital........................... 17,946 4,757,265
Deferred compensation................................ -- (4,189,592)
Deficit accumulated during the development stage..... (594,505) (4,922,524)
--------- -----------
Total stockholders' deficit........................ (571,409) (4,349,745)
--------- -----------
Total liabilities and stockholders' deficit...... $ 936,045 $ 1,581,185
========= ===========
</TABLE>
See accompanying notes.
F-46
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from
inception inception
(May 27, 1998) (May 27, 1998)
through through
December 31, December December 31,
1998 31, 1999 1999
-------------- ----------- --------------
<S> <C> <C> <C>
Revenue............................ $ -- $ 30,535 $ 30,535
Operating expenses:
Research and development......... 374,006 1,348,278 1,722,284
Marketing and business
development..................... 7,936 1,457,408 1,465,344
General and administrative....... 222,278 1,135,486 1,357,764
Amortization of deferred
compensation.................... -- 352,391 352,391
--------- ----------- -----------
Total operating expenses....... 604,220 4,293,563 4,897,783
--------- ----------- -----------
Loss from operations............... (604,220) (4,263,028) (4,867,248)
Interest income.................... 10,576 18,241 28,817
Interest expense................... -- (81,344) (81,344)
--------- ----------- -----------
Other income (expense)............. 10,576 (63,103) (52,527)
--------- ----------- -----------
Loss before provision for income
taxes............................. (593,644) (4,326,131) (4,919,775)
Provision for income taxes......... 861 1,888 2,749
--------- ----------- -----------
Net loss........................... $(594,505) $(4,328,019) $(4,922,524)
========= =========== ===========
Net loss per share:
Basic and diluted net loss....... $ (0.21) $ (1.43) $ (1.86)
========= =========== ===========
Weighted-average number of shares
outstanding:
Basic and diluted................ 2,829,651 3,018,628 2,639,794
========= =========== ===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
STATEMENT OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
----------------- Paid-In Deferred Development Stockholders'
Shares Amount Capital Compensation Stage Deficit
--------- ------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash............... 5,050,000 $5,050 $ -- $ -- $ -- $ 5,050
Issuance of common stock
options for services... -- -- 13,046 -- -- 13,046
Issuance of common stock
upon exercise of stock
options................ 100,000 100 4,900 -- -- 5,000
Net loss................ -- -- -- -- (594,505) (594,505)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1998................... 5,150,000 5,150 17,946 -- (594,505) (571,409)
Issuance of common stock
options for services... -- -- 87,330 -- -- 87,330
Issuance of common stock
upon exercise of stock
options................ 660,825 661 53,511 -- -- 54,172
Repurchase of common
stock.................. (704,446) (705) (1,714) -- -- (2,419)
Deferred compensation
relating to options.... -- -- 4,541,983 (4,541,983) -- --
Amortization of deferred
compensation relating
to stock options....... -- -- -- 352,391 -- 352,391
Issuance of warrants for
promissory notes....... -- -- 58,209 -- -- 58,209
Net loss................ -- -- -- -- (4,328,019) (4,328,019)
--------- ------ ---------- ----------- ----------- -----------
Balance at December 31,
1999................... 5,106,379 $5,106 $4,757,265 $(4,189,592) $(4,922,524) $(4,349,745)
========= ====== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-48
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
inception inception
(May 27, 1998) (May 27, 1998)
through through
December 31, December 31, December 31,
1998 1999 1999
------------- ------------ -------------
<S> <C> <C> <C>
Operating activities
Net loss available to common
stockholder........................ $ (594,505) $(4,328,019) $(4,922,524)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred
compensation nonemployees......... -- 87,330 87,330
Noncash transaction--interest
paid.............................. -- 22,969 22,969
Accretion of discount on notes
associated with warrants.......... -- 58,209 58,209
Depreciation....................... 2,552 38,528 41,080
Amortization of deferred
compensation...................... 352,391 352,391
(Increase) decrease in operating
assets and liabilities:
Accounts receivable............... -- (56,206) (56,206)
Prepaid expenses.................. -- (5,219) (5,219)
Change in restricted cash......... -- (137,914) (137,914)
Employee receivable............... -- (2,163) (2,163)
Accounts payable.................. 28,543 161,611 190,154
Accrued liabilities............... 9,217 106,412 115,629
Accrued interest payable.......... -- -- --
Deferred revenue.................. -- 44,583 44,583
Deferred rent..................... -- 45,960 45,960
---------- ----------- -----------
Net cash used in operating
activities...................... (554,193) (3,611,528) (4,165,721)
Investing activities
Purchase of property and equipment.. (48,305) (193,987) (242,292)
Deposits............................ (4,193) (36,000) (40,193)
---------- ----------- -----------
Net cash used in investing
activities...................... (52,498) (229,987) (282,485)
Financing activities
Proceeds from issuance of Series B
redeemable convertible preferred
stock.............................. -- 2,686,217 2,686,217
Proceeds from issuance of Series A
redeemable convertible preferred
stock, net of issuance costs....... 1,469,694 22,391 1,492,085
Proceeds from issuance of common
stock.............................. 23,096 51,753 74,849
Note payable........................ -- 1,333,333 1,333,333
---------- ----------- -----------
Net cash provided by financing
activities...................... 1,492,790 4,093,694 5,586,484
Change in cash and cash equivalent.. 886,099 252,179 1,138,278
Cash and cash equivalents, at
beginning of period................ -- 886,099 --
---------- ----------- -----------
Cash and cash equivalents, at end
of period....................... $ 886,099 $ 1,138,278 $ 1,138,278
========== =========== ===========
Supplemental disclosures
Cash paid for interest.............. $ -- $ 166 $ 166
========== =========== ===========
Cash paid for taxes................. $ 861 $ 1,888 $ 2,749
========== =========== ===========
Noncash transactions
Preferred stock issued for accrued
interest on convertible notes...... $ -- $ 22,969 $ 22,969
========== =========== ===========
</TABLE>
See accompanying notes.
F-49
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998) through December 31, 1998 and 1999)
1. Description of the Business and Basis of Presentation
The Company
SpecialtyMD.com Corporation ("Specialty" or the "Company") (originally named
Healthcare Transaction Systems, Inc.) was incorporated on May 27, 1998. During
1998, Specialty pursued a strategy of providing data and tools for supply
chain reengineering in clinical areas such as Cardiology and Orthopedics. This
strategy was terminated in early 1999, and Specialty then began pursuing its
present deep clinical product content activities.
Specialty is a provider of deep clinical and product content to clinicians in
physician preference product areas. Specialty enables clinicians, suppliers,
and providers to exchange timely clinical information regarding products,
procedures, and techniques through a portfolio of specialty-specific web sites
under the SpecialtyMD.com brand. Specialty-specific web sites carry content
from the latest clinical conferences, outcomes studies, and clinical trial
information along with vendor-sponsored, on-line symposia, user groups, and
training. Specialty also provides on-line training to vendor's sales and
marketing organizations and provides tools that enable healthcare providers to
efficiently standardize on product usage and best practices.
Specialty's business is currently in development. During this period,
operating activities relate primarily to the design and development of
Specialty's web site, corporate infrastructure, and the establishment of
relationships with suppliers, physicians, and other partners. Specialty's
activities have been financed through private placements of convertible debt
and redeemable convertible preferred securities.
On December 10, 1999, Specialty signed a definitive agreement pursuant to
which all of its outstanding preferred stock, common stock, and stock options
and warrants will be acquired by Ventro Corporation ("Ventro"). Closing of the
transaction is expected to occur by February 2000. In the merger, each
outstanding share of common stock of the Company, assuming the conversion of
all outstanding preferred stock of the Company converts into Common Stock,
will be converted into and represent the right to receive Chemdex common stock
based on an exchange ratio. The exchange ratio shall equal the quotient
obtained by dividing 1,250,000, the number of shares given in consideration by
Ventro, by the number of shares of the Company's common stock, preferred stock
(as if converted), stock options, and stock warrants outstanding or subject to
issuance upon exercise of the Company's options immediately prior to the
effective date of the Agreement Plan of Merger. Each outstanding option and
warrant to purchase the Company's common stock will be converted into an
option or warrant, respectively, to purchase shares of Ventro common stock in
accordance with the same exchange ratio.
In connection with the proposed Ventro merger, Ventro agreed to provide the
Company a $4 million secured promissory note drawable ratably beginning within
five days of the execution of the Agreement and Plan of Merger, January 15,
2000 and February 15, 2000 of which $1,333,333 is outstanding as of
December 31, 1999. The note bears interest at 9% and is secured by
substantially all of the Company's assets. The outstanding balance is due on
December 31, 2000.
2. Summary of Significant Accounting Policies
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-50
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
Market and Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the
United States.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents. Cash equivalents consist
primarily of cash and money market funds held by financial institutions and
had carrying values which approximate fair value.
For purposes of the statement of cash flows, cash consists of amounts on
deposit with commercial banks in checking and interest bearing accounts
available on demand.
Fair Value of Financial Instruments
The carrying value of receivables, accounts payable and accrued expenses
approximates the fair value of these financial instruments at December 31,
1998 and 1999.
Property and Equipment
Property and equipment consists of furniture, computer and office equipment,
and software which are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, generally 3 to 5 years.
Income Taxes
The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that will be in
effect when the differences are expected to reverse.
Organization Costs
Organization costs amounting to $13,656 for the period from May 27, 1998
through December 31, 1998 were expensed as incurred. There were no such costs
for the year ending December 31, 1999.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options, as discussed in
Note 8. This election was made because the alternative fair value accounting
provided for under FAS 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. Under APB 25, when the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
F-51
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
Per Share Data
Basic and diluted net income (loss) per share have been calculated using the
weighted-average common shares outstanding during the periods in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), issued by the Financial Accounting Standards Board. The Company
has excluded all outstanding stock options and shares subject to repurchase by
the Company from the calculation of diluted loss per share because these
securities are antidilutive for all periods presented.
Recent Accounting Pronouncements
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). There are no material components of other
comprehensive income (loss) and, accordingly, the comprehensive income (loss)
is the same as net income (loss) for all periods presented.
Derivatives
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. Management
of the Company does not anticipate that the adoption of the new Statement will
have a significant effect on results of operations or the financial position
of the Company.
3. Accounts Receivable
Accounts receivable are shown net of allowance for doubtful accounts. The
allowance was nil for 1999 and 1998.
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated December 31,
Useful -----------------
Lives 1998 1999
--------- ------- --------
(In
years)
<S> <C> <C> <C>
Furniture and office equipment.................. 3-5 $ -- $ 19,413
Computer equipment and software................. 3 48,305 222,879
------- --------
48,305 242,292
Less accumulated depreciation................... (2,552) (41,080)
------- --------
Property and equipment, net..................... $45,753 $201,212
======= ========
</TABLE>
F-52
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
5. Operating Leases
The Company leases certain real property under noncancelable operating lease
agreements. The following is a schedule of minimum rental commitments under
operating lease agreements:
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
2000.......................................................... $ --
2001.......................................................... 491,400
2002.......................................................... 553,300
2003.......................................................... 561,300
2004.......................................................... 187,600
----------
$1,793,600
==========
</TABLE>
Total rental expense under operating leases was $11,009 and $254,448 for the
period from inception (May 27, 1998) through December 31, 1998 and the year
ended December 31, 1999, respectively.
The Company also rents certain equipment under operating lease commitments
with terms of not more than a year.
6. Financing Arrangements
On April 2, 1999, the Company entered into convertible promissory notes with
Zilkha Venture Partners ("ZVP"), Staenberg Private Capital, LLC ("SPC"), C&H
Investments ("C&H"), and Nathaniel de Rothschild (together the "Investors")
for an aggregate amount of $500,000 with interest compounding annually at 7.5%
and a maturity date of December 31, 1999. Under the terms of the notes, the
investors converted the principal balance and accrued interest into 80,734
Series B redeemable convertible preferred shares upon closing of that stock
issuance on September 10, 1999. Warrants to purchase 80,734 shares of the
Company's Series B redeemable convertible preferred stock were issued in
conjunction with the issuance of these notes. Both the convertible promissory
notes and the underlying warrants were exercisable at $1.09 per share of
Series B redeemable convertible preferred stock.
On June 14, 1999, the Company entered into an irrevocable standby letter of
credit with Silicon Valley Bank for $112,000 with an expiration of July 1,
2000.
On June 23, 1999, the Company entered into convertible promissory notes with
ZVP and SPC for an aggregate of $400,000 with interest compounding annually at
7.5% and a maturity date of December 31, 1999. Under the terms of the notes,
the notes automatically were converted into Series B preferred stock on
September 10, 1999 upon closing of that stock issuance and the notes were
canceled. The number of shares issued upon conversion of the notes was 64,588
which equaled the aggregate amount of principal and interest outstanding under
the notes at the time of conversion at a value of $1.09 per share. Warrants to
purchase 64,588 shares of the Company's Series B preferred stock were issued
in conjunction with the issuance of these notes.
On July 1, 1999, the Company entered into convertible promissory notes with
ZVP, SPC, Zafaruzzaman Shaikh, and Audrey MacLean for an aggregate of $100,000
with interest compounding annually at 7.5% and a maturity date of December 31,
1999. Under the terms of the notes, the notes were automatically converted
into Series B
F-53
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
redeemable convertible preferred stock on September 10, 1999 upon closing of
that stock issuance and the notes were cancelled. The number of shares issued
upon conversion of the notes was 275,229 which equaled the aggregate amount of
principal and interest outstanding under the notes at the time of conversion
at a value of $1.09 per share. Warrants to purchase 16,147 shares of the
Company's Series B redeemable convertible preferred stock at $1.09 per share
were issued in conjunction with the issuance of these notes.
On August 27, 1999, the Company entered into convertible promissory notes with
ZVP and Audrey MacLean for an aggregate of $30,000 with interest compounding
annually at 7.5% and a maturity date of December 31, 1999. Under the terms of
the notes, the notes were automatically converted into Series B preferred
stock on September 10, 1999 upon the closing of that stock issuance and the
notes were canceled. The number of shares issued upon conversion of the notes
was 27,523 which equaled the aggregate amount of principal and interest
outstanding under the notes at the time of conversion at a value of $1.09 per
share. Warrants to purchase 4,844 shares of the Company's Series B preferred
stock were issued in conjunction with the issuance of these notes. Both the
convertible promissory notes and the underlying warrants were exercisable at
$1.09 per share of Series B redeemable convertible preferred stock.
7. Redeemable Convertible Preferred Stock
The Company is authorized to issue 3,050,000 and 5,000,000 shares of Series A
and B redeemable convertible preferred stock ("preferred stock"),
respectively.
Each holder of shares of preferred stock shall be entitled to the number of
votes equal to the number of shares of common stock into which their shares
could be converted.
Series A and B preferred stock is redeemable at the option of at least a
majority of the holders of the then outstanding preferred stock in three equal
annual installments beginning on August 1, 2003.
Series A and B preferred stock is convertible, at the option of the holder,
automatically by an affirmative election of the holders of at least a majority
of the outstanding preferred stock, or upon a firmly underwritten public
offering of the Company's common stock with gross proceeds of at least
$10,000,000 and a per share price of at least $3.27. Series A and B preferred
stock is convertible into the number of shares of common stock that is equal
to the original purchase price divided by the conversion price which is
subject to certain adjustments for stock splits, combinations, and other
dilutive issuances.
Holders of the Series A and B preferred stock are entitled to receive annual
dividends of $0.05 per share and $0.109 per share, respectively (adjusted for
stock splits, combinations, reorganizations, and the like) out of any assets
at the time legally available when, and if, declared by the board of
directors. No dividends have been declared by the board of directors at
December 31, 1998 or 1999.
Series A and B preferred stockholders are entitled to receive upon a
liquidating event an amount per share equal to the issuance price plus any and
all declared but unpaid dividends. The remaining assets and funds, if any,
shall be distributed pro rata among the holders of the Series A preferred
stock and common stock based on the number of shares of common stock held by
each (assuming conversion of all Series A preferred stock). If any assets
remain after the holders of the Series A preferred stock have received $1.50
per share plus any declared but unpaid dividends, and after the Series B
preferred stockholders have received their preference, the remaining assets
will be distributed to the holders of the common stock.
F-54
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
During the period from July 31, 1998 through April 1, 1999, the Company issued
3,050,000 shares of Series A redeemable convertible preferred stock with a par
value of $0.001 per share at a per share price of $0.50, less issuance costs
of approximately $33,000, of which $30,300 was incurred in 1998 and $2,700 in
1999.
On September 10, and September 27, 1999, the Company entered into the Series B
Redeemable Convertible Preferred Stock Purchase Agreement. Under the terms of
the Agreement, the Company authorized 5,000,000 shares of the Company's Series
B preferred stock with a par value of $0.001 per share. During the
September 10, 1999 and September 27, 1999 closings, an aggregate of 2,320,499
and 201,834 shares were issued, respectively. In conjunction with the issuance
of the Series B preferred stock, an aggregate of $1,030,000 of promissory
notes and accrued interest were converted to Series B preferred stock and the
notes canceled. The price per share of all Series B preferred stock was $1.09,
less issuance costs of approximately $40,000 and discount which has been
charged to interest expense as of the date of conversion ("Series B Preferred
Stock Warrants") of $58,209. On September 10, 1999, the Company had issued
50,000 shares of Series A redeemable convertible preferred stock for a
promissory note from Zilkha Venture Partners of $25,000. The promissory note
has been reflected as a reduction to Series A redeemable convertible preferred
stock in the accompanying financial statements. The Series A preferred stock
was issued at a discount of $25,000 due to the fact that the fair market value
of the stock at the time was $1.09 per share versus the 0.50 issuance price.
The discount has been fully amortized in the accompanying financial statements
as the stock was immediately convertible into shares of the Company's common
stock.
Redeemable convertible preferred stock issuances through December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Redeemable Convertible Preferred Stock
-----------------------------------------
Series A Stock B
Liquidation -------------------- --------------------
Preference Shares Amount Shares Amount
----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of Series A on:
July 31, 1998......... $0.50 1,700,000 $ 850,000 -- $ --
August 4, 1998........ $0.50 300,000 150,000 -- --
September 15, 1998.... $0.50 200,000 100,000 -- --
September 18, 1998.... $0.50 100,000 50,000 -- --
November 3, 1998...... $0.50 550,000 275,000 -- --
November 13, 1998..... $0.50 50,000 25,000 -- --
December 17, 1998..... $0.50 100,000 50,000 -- --
--------- ---------- --------- ----------
Balance at December 31,
1998................... 3,000,000 1,500,000 -- --
Issuance of Series A on $0.50
September 10, 1999.... $0.50 50,000 25,000 -- --
Issuance of Series B on:
September 10, 1999.... $1.09 -- -- 2,320,499 2,529,344
September 27, 1999.... $1.09 -- -- 201,834 220,000
--------- ---------- --------- ----------
Balance at December 31,
1999................... 3,050,000 $1,525,000 2,522,333 $2,749,344
========= ========== ========= ==========
</TABLE>
The Company incurred issuance costs of approximately $30,300 in 1998 and
approximately $43,200 in 1999 related to the Series A and B redeemable
convertible preferred stock.
F-55
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
8. Stockholders' Equity
Common Stock
The Company is authorized to issue 22,000,000 shares of common stock. Holders
of common stock are entitled to one vote per share on all matters to be voted
upon by the stockholders of the Company.
The Company issued 4,025,555 shares of common stock which is subject to
repurchase until vested; vesting for advisors and founders stock subject to
repurchase is ratable over a three- to four-year period. For all other stock,
vesting with respect to 25% occurs on the first anniversary of the issuance
date, with the balance vesting ratably over a period of three years as
specified in the purchase agreements. At December 31, 1998 and 1999,
approximately 2,561,348 and 1,841,915 shares, respectively, were subject to
repurchase at their original issuance price.
Stock-Based Compensation
Pro forma information regarding net income is required under FAS 123 and is
calculated as if the Company had accounted for its employee stock options
granted during the period from inception (May 27, 1998) through December 31,
1999 under the fair value method of FAS 123. Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of the Black-
Scholes option pricing model, even though such model was developed to estimate
the fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. The Black-Scholes model also requires subjective assumptions,
including future stock price volatility and expected time to exercise, which
greatly affect the calculated values.
<TABLE>
<S> <C>
Risk-free interest rate.......................................... 6.0%
Expected option life............................................. 10 years
Expected volatility.............................................. 1.0
Expected dividends............................................... none
</TABLE>
As discussed above, the option valuation models used under FAS 123 were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected life of the option. 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 estimates, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
On July 10, 1998, the board of directors adopted the 1998 Stock Option Plan
for issuance of common stock to eligible participants.
Under the 1998 Stock Option Plan, nonqualified options to purchase common
shares were granted to certain officers, employees, and independent
consultants of the Company. Incentive stock options were granted only to
employees as prescribed by the plan. Certain options issued to independent
contractors and employees are exercisable immediately upon the optionee
entering into a Restricted Stock Purchase Agreement. The options have a
contractual life of 10 years unless the optionee owns stock representing more
than 10% of the voting power of all classes of stock of the Company, in such
situation the options will have a contractual life of five years.
F-56
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
The Company's stock option activity and related information for the period
from inception (May 27, 1998) through December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted-
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding--inception (May 27, 1998) -- --
Granted.......................................... 850,000 $0.05
Exercised........................................ (100,000) $0.05
Canceled......................................... (59,375) $0.05
--------- -----
Outstanding--December 31, 1998..................... 690,625 $0.05
Granted.......................................... 1,567,100 $0.09
Exercised........................................ (650,225) $0.06
Canceled......................................... (116,834) $0.06
Expired.......................................... (4,166) $0.05
--------- -----
Outstanding--December 31, 1999..................... 1,486,500 $0.06
========= =====
</TABLE>
Weighted-average remaining contractual life of the outstanding options is 9.07
years
As of December 31, 1998 and 1999, there were 187,500 and 219,708 options,
respectively, that were exercisable.
In connection with the grant of options to employees through December 31,
1999, the Company recorded deferred compensation of $4,541,983 for the
aggregate differences between the exercise price of options at their dates of
grant and deemed fair value for accounting purposes of the common shares
subject to these options and common shares subject to repurchase. Such amount
is included as a reduction of stockholders' equity and is being amortized on a
graded vesting method over the option vesting periods, which range from
immediately to 24 months. The compensation expense of $352,391 through
December 31, 1999 relates to the options awarded to employees in all operating
expense categories.
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized, on a graded vesting method over the options'
vesting periods. The Company's pro forma results are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
--------- -----------
<S> <C> <C>
Net loss:
As reported....................................... $(594,505) $(4,328,019)
Pro forma......................................... $(594,505) $(8,517,611)
Basic and diluted net loss per share:
As reported....................................... $ (0.21) $ (1.43)
Pro forma......................................... $ (0.21) $ (2.82)
</TABLE>
Series B Convertible Preferred Stock Warrants
In 1999, in conjunction with the issuance of convertible promissory notes to
ZVP, SPC, Nathaniel de Rothschild, C&H, Audrey MacLean, and Zafaruzzaman
Shaikh, the Company issued fully vested warrants that entitle the
F-57
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
above holders to purchase an aggregate of 166,310 shares of Series B preferred
stock at an exercise price of $1.09 per share. The notes were issued with an
original discount of $58,209 which reflects the estimated fair value of the
warrants calculated through the use of the Black-Scholes option pricing model.
This amount has been reflected as interest expense and as an increase in
additional paid-in capital in the December 31, 1999 financial statements. The
warrants have a contractual life of 10 years.
9. Income Taxes
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $4,900,000. The net operating loss
carryforwards will expire in 2018.
Utilization of the net operating loss may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of the net operating loss before utilization.
As of December 31, 1999, the Company had deferred tax assets of approximately
$200,000. Based upon the weight of available evidence, which includes the
Company's historical operating performance, the reported net loss from
inception (May 27, 1998) through December 31, 1999, and uncertainties
regarding the Company's future results of operation, a full valuation
allowance has been provided against its deferred tax assets.
10. Commitments and Contingencies
Restricted cash consists of balances required to be held as restricted by
vendors for certain leasing transactions.
The Company has entered into an exclusive license agreement dated as of June
30, 1998 with RightWorks, Inc. which provides for payment by the Company of
certain license and maintenance fees for the use of RightWorks, Inc.'s
software. The license fees range from $25,000 for the first six-month period
to $750,000 for the sixth six-month period. The Company has not and does not
intend to exercise any license rights granted, in which case payment
obligations will not be incurred.
The Company has entered into an agreement with Globix Corporation, dated
September 9, 1999, for the provision of Internet access, products, and
services. Under the agreement, Globix will bill monthly based upon the number
of users and the range of services to be provided.
11. Subsequent Events
On February 10, 2000, the proposed Ventro merger was consummated as described
in Note 1 to the financial statements.
In connection with the Ventro merger, Ventro agreed to provide the Company a
$4 million secured promissory note drawable ratably beginning within five days
of the execution of the Agreement and Plan of Merger, January 15, 2000 and
February 15, 2000. The note bears interest at 9% and is secured by
substantially all of the Company's assets. The outstanding balance is due on
December 31, 2000. In January, the Company drew the second installment of this
secured promissory note in the amount of $1,333,333.
In connection with the Ventro merger, certain shares of common stock held by
directors of the Company which currently are subject to restrictions vested
immediately upon the occurrence of the merger. The result of this
F-58
<PAGE>
SPECIALTYMD.COM CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of December 31, 1999 and for the periods from inception)
(May 27, 1998 through December 31, 1998 and 1999)
accelerated vesting will be a charge to compensation expense of $46,800 that
has been recorded as deferred compensation as of December 31, 1999.
12. Impact of Year 2000 (Unaudited)
As a result of the planning and implementation efforts, the Company
experienced no significant disruptions in mission critical information
technology and noninformation technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the Year 2000
to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
F-59
<PAGE>
[LOGO OF VENTRO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Ventro in connection with
the sale of common stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................. 120,029
NASD filing fee.................................................. 30,500
Nasdaq National Market listing fee............................... 17,500
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 250,000
Accounting fees and expenses..................................... 325,000
Blue Sky qualification fees and expenses......................... 10,000
Transfer Agent and Registrar fees................................ 25,000
Miscellaneous fees and expenses.................................. 21,971
----------
Total.......................................................... $1,000,000
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit
indemnification for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article Seven of Ventro's Certificate of Incorporation
(Exhibit 3.1 hereto) and Article VI of Ventro's Bylaws (Exhibit 3.3 hereto)
provide for indemnification of Ventro's directors, officers, employees and
other agents to the maximum extent permitted by Delaware Law. In addition,
Ventro has entered into Indemnification Agreements (Exhibit 10.1 hereto) with
its officers and directors. The Underwriting Agreement (Exhibit 1.1) also
provides for cross-indemnification among Ventro and the Underwriters with
respect to some matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since inception (September 1997), Ventro has sold and issued the following
securities:
1. On September 25, 1997, Ventro issued and sold 2,570,000 shares of its
common stock at a price of $0.02 per share to four individuals, including
1,905,854 shares of common stock to David Perry, 635,285 shares of common
stock to Jeffrey S. Leane, 25,700 shares of common stock to Jon Callaghan and
3,161 shares of common stock to Marc Kaschke. The issuance of the securities
was deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not
involving any public offering. Based on representations made to Ventro by the
investors, information supplied by Ventro to the investors and the
relationship between Ventro and the investors, all investors had adequate
access to information about Ventro. In addition, based on representations made
to Ventro by the investors, the investors were able to bear the financial risk
of their investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
2. On September 25, 1997, Ventro issued and sold 800,800 shares of its
Series A Preferred Stock at a price of $.694 per share to a total of 4
purchasers, including CMG@Ventures II, LLC (formerly CMG@Ventures, L.P.),
II-1
<PAGE>
an entity with which Mr. Callaghan, a director of Ventro, is affiliated, a
partnership affiliated with Mr. Swanson, a director of Ventro, Mr. Kaschke and
Stanford University. On December 23, 1997 and March 23, 1998, Ventro issued
and sold 1,994,850 shares of its Series A Preferred Stock at a price of $.694
per share to The Bay City Capital Fund I, L.P., Mr. Burke, a director of
Ventro, CMG@Ventures, Kevin Bove, Mr. Kaschke, John Rodakis, Jeffrey Y. Suto
and VLG Investments 1998. The issuance of the securities was deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as transactions by an issuer not involving any public
offering. Based on representations made to Ventro by the investors,
information supplied by Ventro to the investors and the relationship between
Ventro and the investors, the investors were accredited investors within the
meaning of Rule 501 of Regulation D under the Securities Act and were able to
bear the financial risk of their investment. The investors represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities. Ventro did not make any offer to sell
the securities by means of any general solicitation or general advertising
within the meaning of Rule 502 of Regulation D under the Securities Act.
3. On May 15, 1998, Ventro issued and sold 8,649,992 shares of its Series B
Preferred Stock at a price of $1.50 per share to entities affiliated with
Kleiner Perkins Caufield & Byers, an entity with which Mr. Byers is
affiliated, Warburg, Pincus Ventures L.P., an entity with which Mr. Lewis is
affiliated, CMG@Ventures II, LLC, an entity with which Mr. Callaghan, a
director of Ventro, is affiliated, The Bay City Capital Fund I, L.P., an
entity with which Mr. Pritzker is affiliated, Mr. Burke, a partnership
affiliated with Mr. Swanson, Bove Family Living Trust, Scott Glenn, John
Rodakis, Jan and Lotte Leschly, Josh Olshansky, Kenneth Olshansky, Summerbell-
Kosnik Living Revocable Trust, Mr. Suto, Steven J. Tonsfeldt, VLG Investments
1998, Scott Waterhouse and John Young. The issuance of the securities was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. Based on representations made to Ventro by the investors,
information supplied by Ventro to the investors and the relationship between
Ventro and the investors, all investors had adequate access to information
about Ventro. Based on representations made to Ventro by the investors, the
investors were accredited investors within the meaning of Rule 501 of
Regulation D under the Securities Act and were able to bear the financial risk
of their investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
4. On January 20, 1999, Ventro issued a warrant to purchase 105,000 shares
of Series B Preferred Stock at an exercise price of $1.50 per share to
Comdisco, Inc. in consideration for and in connection with a Master Lease
Agreement dated as of January 20, 1999. The issuance of the securities was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as a transaction by an issuer not involving
any public offering. Based on representations made to Ventro by the investor,
information supplied by Ventro to the investor and the relationship between
Ventro and the investor, the investor had adequate access to information about
Ventro. In addition, based on representations made to Ventro by the investor,
the investor was an accredited investor within the meaning of Rule 501 of
Regulation D under the Securities Act and was able to bear the financial risk
of its investment. The investor represented its intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
5. On March 1, 1999, Ventro issued warrants to purchase a total of 49,999
shares of common stock at an exercise price of $5.20 per share to entities
affiliated with Galen Associates in consideration for a consulting agreement.
The issuance of the securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. Based on
representations made to Ventro by the investors, information supplied by
Ventro to the investors and the relationship between Ventro and the investors,
all investors had adequate access to information about Ventro. In addition,
based on representations made to Ventro by the investors, the investors were
accredited investors within the meaning of Rule 501 of Regulation D under the
Securities Act and were able to bear the financial risk
II-2
<PAGE>
of their investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
6. On March 5, 1999, Ventro entered into a Strategic Relationship Agreement
and a Common Stock Purchase Agreement with VWR Scientific Products
Corporation, pursuant to which Ventro issued 2,538,405 shares of Common Stock
valued at $13.9 million to VWR in consideration for the Strategic Relationship
Agreement and the transfer to Ventro of information concerning VWR customers.
The issuance of the securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. Based on
representations made to Ventro by the investor, information supplied by Ventro
to the investor and the relationship between Ventro and the investor, the
investor had adequate access to information about Ventro. In addition, based
on representations made to Ventro by the investor, the investor is an
accredited investor within the meaning of Rule 501 of Regulation D under the
Securities Act and was able to bear the financial risk of its investment. The
investor represented its intentions to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the securities. Ventro did not
make any offer to sell the securities by means of any general solicitation or
general advertising within the meaning of Rule 502 of Regulation D under the
Securities Act.
7. On March 24, 1999 and April 30, 1999, Ventro issued and sold 5,299,951
shares of its Series C Preferred Stock at a price of $5.716 per share to Mr.
Burke, The Bay City Capital Fund I, L.P., CMG@Ventures II, LLC, Galen Employee
Fund III, L.P., Galen Partners III, L.P., Galen Partners International III,
L.P., Genentech, Inc., Kleiner Perkins Caufield & Byers VII, L.P., KPCB Life
Sciences Zaibatsu Fund II, L.P., KPCB VIII Founders Fund, L.P. Warburg, Pincus
Ventures L.P., Mr. Harris, Mr. Waterhouse and 125 other private investors. The
issuance of the securities was deemed to be exempt from registration under the
Securities Act in reliance on Rule 506 promulgated under Regulation D of the
Securities Act as transactions by an issuer not involving any public offering
within the meaning of Section 4(2).
8. On May 11, 1999, Ventro entered into a Common Stock Purchase Agreement
with Biotechnology Industry Organization, pursuant to which Biotechnology
Industry Organization purchased 187,500 shares of Common Stock at a price per
share of $.0002. The issuance of the securities was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public
offering. Based on representations made to Ventro by the investor, information
supplied by Ventro to the investor and the relationship between Ventro and the
investor, the investor had adequate access to information about Ventro. In
addition, based on representations made to Ventro by the investor, the
investor is an accredited investor within the meaning of Rule 501 of
Regulation D under the Securities Act and was able to bear the financial risk
of its investment. The investor represented its intention to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the securities. Ventro did not make any offer to sell the securities by
means of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
9. As of June 30, 1999, Ventro has granted stock options to purchase a
total 4,565,117 shares of common stock at exercise prices ranging from $.10 to
$10.00 per share to a total of approximately 180 employees, consultants and
directors pursuant to its 1998 Stock Plan. The issuances described were deemed
exempt from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act.
10. On February 19, 2000 Alza Corporation exercised their option to convert
their 25,000 outstanding warrants into shares of common stock at a price of
$15.00 per share.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Agreement and Plan of Merger dated September 21, 1999 by and among
Chemdex Corporation, Popcorn Acquisitions Corp. and Promedix.com,
Inc. (4)
2.2 Form of Certificate of Merger between Popcorn Acquisitions Corp. and
Promedix.com, Inc. (4)
2.3 Escrow Agreement for Chemdex/Promedix (4)
2.4 Agreement and Plan of Merger dated December 10, 1999 by and among
Chemdex Corporation, Spinach Acquisitions Corp. and SpecialtyMD.com
Corporation (4)
2.5 Form of Certificate of Merger between Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation (4)
2.6 First Amendment to Agreement and Plan of Merger dated as of December
21, 1999 by and among Chemdex Corporation, Popcorn Acquisitions Corp.
and Promedix.com, Inc. (4)
2.7 Escrow Agreement for Ventro/SpecialtyMD (4)
2.8 Form of Certificate of Merger between Chemdex Corporation and Ventro
Corporation
3.1 Amended and Restated Certificate of Incorporation of Chemdex (1)
3.2 Amended and Restated Bylaws of Chemdex (1)
4.1 Specimen of Ventro Common Stock Certificate
4.2 Third Amended and Restated Investors' Rights Agreement dated March 24,
1999 (1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement (1)
5.1* Opinion of Davis Polk & Wardwell, as to the legality of the
Registrant's common stock being registered hereby
10.1 Form of Indemnification Agreement between Ventro and each of its
officers and directors (1)
10.2 Form of Change of Control Agreement between Ventro, each of its
officers and certain employees (1)
10.3 Change of Control Agreement between Ventro and Robert A. Swanson (1)
10.4 Change of Control Agreement between Ventro and Charles R. Burke (1)
10.5 1998 Stock Plan, as amended, and form of option agreement (4)
10.6 1999 Employee Stock Purchase Plan and form of subscription
agreement (4)
10.7 1999 Directors' Stock Plan (1)
10.8 Standard Office Lease dated June 11, 1998 between Ventro and Fabian
Partners II, a California General Partnership, as amended (1)
10.9 Master Lease Agreement dated January 20, 1999, as amended, between
Ventro and Comdisco, Inc. (1)
10.10 Starter Kit Loan and Security Agreement dated February 18, 1998
between Ventro and Imperial Bank (1)
10.11 Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Ventro dated January 20, 1999 between Ventro and Comdisco, Inc. (1)
10.12 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners III, L.P. (1)
10.13 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners International III, L.P. (1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.14 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Employee Fund III, L.P. (1)
10.15 Electronic Commerce Agreement dated January 5, 1998 between Ventro
and Genentech, Inc. (1)
10.16 Standstill Agreement dated April 23, 1999 between Ventro and VWR
Scientific Products Corporation (1)
10.17 Strategic Relationship Agreement dated April 30, 1999 between Ventro
and VWR Scientific Products Corporation (1)
10.18 Joint Marketing Agreement dated May 11, 1999 between Ventro and
Biotechnology Industry Organization (1)
10.19 Payment Plan Agreement dated February 22, 1999 and related agreements
between Ventro and Oracle Credit Corporation (1)
10.20 Warrant Purchase Agreement dated July 27, 1999 between Ventro and
Alza Corporation (2)
10.21 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1000 Joaquin Road, Mountain View,
California. (4)
10.22 Office Lease dated August 13, 1999 between Ventro and Alza
Corporation for space located at 1500 and 15550 Plymouth Street,
Mountain View, California. (4)
10.23 Voting Agreement dated September 21, 1999 between Ventro and certain
stockholders of Promedix.com, Inc. (4)
10.24 Employment Agreement dated September 21, 1999 between Ventro and
William Klintworth (4)
10.25 Change of Control Agreement dated September 21, 1999 between Ventro
and William Klintworth (4)
10.26 Affiliates Agreement dated September 21, 1999 between Ventro and
certain directors of Promedix.com, Inc. (4)
10.27 Secured Promissory Note and Agreement dated October 1, 1999 from
Promedix.com, Inc. to Ventro and related Security Agreement. (4)
10.28 Noncompetition Agreement dated September 21, 1999 between Ventro and
William Klintworth(4)
10.29 Employment Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi (4)
10.30 Employee Confidentiality and Inventions Agreement dated December 10,
1999 between Ventro and Ashfaq Munshi (4)
10.31 Change of Control Agreement dated December 10, 1999 between Ventro
and Ashfaq Munshi (4)
10.32 Noncompetition Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi (4)
10.33 Stock Restriction Agreement dated December 10, 1999 between Ventro
and Ashfaq Munshi (4)
10.34 Joint Venture Agreement dated as of December 10, 1999 by and between
Tenet Health System Medical, Inc. and Ventro Corporation (3)
10.35 Form of Tenet/Newco Agreement by and among Tenet Health System
Medical, Inc., Tendex, Inc., Promedix.com, Inc. and Ventro
Corporation (3)
10.36 Form of Ventro License and Services Agreement by and among Ventro
Corporation, Promedix.com, Inc., Tendex, Inc. and Tenet Health System
Medical, Inc. (3)
10.37 Form of warrant to purchase common stock of Healthcare Transaction
Systems, Inc.
21.1* Subsidiaries of Ventro
23.1* Consent of Davis Polk & Wardwell with respect to the legality of
securities being registered (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Ventro
23.3 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Promedix
23.4 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Specialty MD
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
24.1 Power of Attorney (included on page II-7)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August
16, 1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K dated December 10, 1999, as filed with
the Commission on January 4, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed
as an Exhibit to Registrant's Registration Statement on Form S-4 (File
No. 333-90727) filed with the Commission on January 4, 2000, as amended,
which Registration Statement was declared effective January 5, 2000.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
Schedule
Number Description
-------- -----------
<C> <S>
2.1 Ventro Valuation and Qualifying Accounts
</TABLE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, State of
California, on March 6, 2000.
Ventro Corporation
By: /s/ David P. Perry
-----------------------------
David P. Perry
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints David P. Perry and James G. Stewart
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement and to file the same with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David P. Perry President, Chief Executive March 6, 2000
______________________________________ Officer and Director
David P. Perry (Principal Executive
Officer)
/s/ James G. Stewart Chief Financial Officer March 6, 2000
______________________________________ and Assistant Secretary
James G. Stewart (Principal Financial
Officer)
/s/ Charles R. Burke Director March 6, 2000
______________________________________
Charles R. Burke
/s/ Brook H. Byers Director March 6, 2000
______________________________________
Brook H. Byers
/s/ Jonathan D. Callaghan Director March 6, 2000
______________________________________
Jonathan D. Callaghan
/s/ Paul J. Nowak Director March 6, 2000
______________________________________
Paul J. Nowak
/s/ John A. Pritzker Director March 6, 2000
______________________________________
John A. Pritzker
/s/ Naomi O. Seligman Director March 6, 2000
______________________________________
Naomi O. Seligman
/s/ L. John Wilkerson Director March 6, 2000
______________________________________
L. John Wilkerson
</TABLE>
II-7
<PAGE>
VENTRO CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Amounts
Charged to
Balance Revenue, Write-offs Balance
Beginning Costs or and at End
of Year Expenses Recoveries of Year
--------- ---------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Year ended December 31, 1999...... $ 2 $ 663 $ 1 $ 664
Year ended December 31, 1998...... $ -- $ 2 $ -- $ 2
Year ended December 31, 1997...... $ -- $ -- $ -- $ --
Sales Returns Reserve:
Year ended December 31, 1999...... $ -- $3,055 $ 117 $2,938
Year ended December 31, 1998...... $ -- $ -- $ -- $ --
Year ended December 31, 1997...... $ -- $ -- $ -- $ --
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger dated September 21, 1999 by and among
Ventro Corporation, Popcorn Acquisitions Corp. and Promedix.com,
Inc.(4)
2.2 Form of Certificate of Merger between Popcorn Acquisitions Corp. and
Promedix.com, Inc.(4)
2.3 Escrow Agreement for Ventro/Promedix(4)
2.4 Agreement and Plan of Merger dated December 10, 1999 by and among
Ventro Corporation, Spinach Acquisitions Corp. and SpecialtyMD.com
Corporation(4)
2.5 Form of Certificate of Merger between Spinach Acquisitions Corp. and
SpecialtyMD.com Corporation(4)
2.6 First Amendment to Agreement and Plan of Merger dated as of December
21, 1999 by and among Ventro Corporation, Popcorn Acquisitions Corp.
and Promedix.com, Inc.(4)
2.7 Escrow Agreement for Ventro/SpecialtyMD(4)
2.8 Form of Certificate of Merger between Chemdex Corporation and Ventro
Corporation
3.1 Amended and Restated Certificate of Incorporation of Ventro(1)
3.2 Amended and Restated Bylaws of Ventro(1)
4.1 Specimen of Ventro Common Stock Certificate
4.2 Third Amended and Restated Investors' Rights Agreement dated March 24,
1999(1)
4.3 Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement(1)
5.1* Opinion of Davis Polk & Wardwell, as to the legality of the
Registrant's common stock being registered hereby
10.1 Form of Indemnification Agreement between Ventro and each of its
officers and directors(1)
10.2 Form of Change of Control Agreement between Ventro, each of its
officers and certain employees(1)
10.3 Change of Control Agreement between Ventro and Robert A. Swanson(1)
10.4 Change of Control Agreement between Ventro and Charles R. Burke(1)
10.5 1998 Stock Plan, as amended, and form of option agreement(4)
10.6 1999 Employee Stock Purchase Plan and form of subscription
agreement(4)
10.7 1999 Directors' Stock Plan(1)
10.8 Standard Office Lease dated June 11, 1998 between Ventro and Fabian
Partners II, a California General Partnership, as amended(1)
10.9 Master Lease Agreement dated January 20, 1999, as amended, between
Ventro and Comdisco, Inc.(1)
10.10 Starter Kit Loan and Security Agreement dated February 18, 1998
between Ventro and Imperial Bank(1)
10.11 Warrant Agreement to Purchase Shares of Series B Preferred Stock of
Ventro dated January 20, 1999 between Ventro and Comdisco, Inc.(1)
10.12 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners III, L.P.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.13 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Partners International III, L.P.(1)
10.14 Warrant to Purchase Shares of Common Stock of Ventro dated March 24,
1999 between Ventro and Galen Employee Fund III, L.P.(1)
10.15 Electronic Commerce Agreement dated January 5, 1998 between Ventro and
Genentech, Inc.(1)
10.16 Standstill Agreement dated April 23, 1999 between Ventro and VWR
Scientific Products Corporation(1)
10.17 Strategic Relationship Agreement dated April 30, 1999 between Ventro
and VWR Scientific Products Corporation(1)
10.18 Joint Marketing Agreement dated May 11, 1999 between Ventro and
Biotechnology Industry Organization(1)
10.19 Payment Plan Agreement dated February 22, 1999 and related agreements
between Ventro and Oracle Credit Corporation(1)
10.20 Warrant Purchase Agreement dated July 27, 1999 between Ventro and Alza
Corporation(2)
10.21 Office Lease dated August 13, 1999 between Ventro and Alza Corporation
for space located at 1000 Joaquin Road, Mountain View, California.(4)
10.22 Office Lease dated August 13, 1999 between Ventro and Alza Corporation
for space located at 1500 and 15550 Plymouth Street, Mountain View,
California.(4)
10.23 Voting Agreement dated September 21, 1999 between Ventro and certain
stockholders of Promedix.com, Inc.(4)
10.24 Employment Agreement dated September 21, 1999 between Ventro and
William Klintworth(4)
10.25 Change of Control Agreement dated September 21, 1999 between Ventro
and William Klintworth(4)
10.26 Affiliates Agreement dated September 21, 1999 between Ventro and
certain directors of Promedix.com, Inc.(4)
10.27 Secured Promissory Note and Agreement dated October 1, 1999 from
Promedix.com, Inc. to Ventro and related Security Agreement.(4)
10.28 Noncompetition Agreement dated September 21, 1999 between Ventro and
William Klintworth(4)
10.29 Employment Agreement dated December 10, 1999 between Ventro and Ashfaq
Munshi(4)
10.30 Employee Confidentiality and Inventions Agreement dated December 10,
1999 between Ventro and Ashfaq Munshi(4)
10.31 Change of Control Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi(4)
10.32 Noncompetition Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi(4)
10.33 Stock Restriction Agreement dated December 10, 1999 between Ventro and
Ashfaq Munshi(4)
10.34 Joint Venture Agreement dated as of December 10, 1999 by and between
Tenet Health System Medical, Inc. and Ventro Corporation(3)
10.35 Form of Tenet/Newco Agreement by and among Tenet Health System
Medical, Inc., Tendex, Inc., Promedix.com, Inc. and Ventro
Corporation(3)
10.36 Form of Ventro License and Services Agreement by and among Ventro
Corporation, Promedix.com, Inc., Tendex, Inc. and Tenet Health System
Medical, Inc.(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.37 Form of warrant to purchase common stock of Healthcare Transaction
Systems, Inc.
21.1* Subsidiaries of Ventro
23.1* Consent of Davis Polk & Wardwell, with respect to the legality of
securities being registered (contained in Exhibit 5.1)
23.2 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Ventro
23.3 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Promedix
23.4 Consent of Ernst & Young, Independent Auditors, with respect to
financial statements of Specialty MD
24.1 Power of Attorney (included on page II-7)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-1 (File No.
333-78505) filed with the Commission on May 14, 1999, as amended, which
Registration Statement was declared effective July 26, 1999.
(2) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-Q filed with the Commission on August
16, 1999.
(3) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 8-K dated December 10, 1999, as filed with
the Commission on January 4, 2000.
(4) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Registration Statement on Form S-4 (File No.
333-90727) filed with the Commission on January 4, 2000, as amended, which
Registration Statement was declared effective January 5, 2000.
<PAGE>
EXHIBIT 2.8
CERTIFICATE OF OWNERSHIP AND MERGER
Pursuant to Section 253 of the General Corporation Law of the State of
Delaware, the undersigned, the President of Chemdex Corporation (the "Company"),
a Delaware corporation, hereby certifies in connection with the merger of
Chemdex Corporation and Ventro Corporation that:
1. The Company owns all of the outstanding shares of Ventro Corporation, a
corporation organized under the laws of Delaware.
2. The Company, by the following resolutions of its Board of Directors,
duly adopted by written consent dated as of February 17, 2000, pursuant
to Section 141(f) of the General Corporation Law of the State of
Delaware, determined to merge Ventro into itself on the terms and
conditions set forth in such resolutions:
Merger Subsidiary: Ventro Corporation
--------------------------------------
RESOLVED, that the officers of the Company are authorized to form
Ventro ("Merger Sub") under the laws of the State of Delaware and upon
----------
its formation, to purchase all 1,000 shares of Merger Sub's Common
Stock in exchange for the aggregate amount of $.20.
RESOLVED FURTHER, that any director or officer of the Company, acting
pursuant to authority delegated by the Board of Directors, is hereby
authorized and directed to execute and deliver all documents and take
such additional actions as may be necessary or appropriate to organize
Merger Sub.
RESOLVED FURTHER, that the prior actions by the officers of the Company
in connection with the formation of Merger Sub are hereby approved,
adopted and ratified.
RESOLVED FURTHER, that the Company, as the sole stockholder of Merger
Sub, hereby approves the Merger and adopts and approves the Related
Documents, and all other subsidiary documents and agreements related
thereto.
Merger with Ventro Corporation
------------------------------
RESOLVED, that the Board of Directors of the Company believes that it
is in the best interests of the Company and its stockholders to merge
Merger Sub with and into the Company, with the Company surviving (the
"Merger") .
------
<PAGE>
RESOLVED FURTHER, that the Merger and all other related documents
contemplated thereby including, without limitation, the Certificate of
Merger attached as Exhibit A hereto and the Stock Purchase Agreement
---------
attached as Exhibit B hereto (collectively, the "Related Documents")
--------- -----------------
are hereby adopted and approved by the Board, provided, however, that
the officers of the Company are hereby authorized to make such changes
and amendments to such documents as they may deem necessary or
appropriate.
RESOLVED FURTHER, that the officers of the Company are hereby
authorized and directed to execute and deliver on behalf of the Company
the Related Documents and thereafter to cause the Company to perform
all of its obligations and duties with respect to such agreements.
RESOLVED FURTHER, that the prior actions by the officers of the Company
in connection with the Merger and the Related Documents are hereby
approved, adopted and ratified.
RESOLVED FURTHER, that there are hereby reserved from the Company's
authorized but unissued capital stock the maximum number of shares of
the Company's common stock as may be issuable upon consummation of the
Merger.
RESOLVED FURTHER, that, pursuant to the foregoing transactions, the
Company shall succeed to all of the rights, certificates, privileges,
powers, properties, franchises and assets of Merger Sub.
RESOLVED FURTHER, that for purposes of complying with state law, the
officers of the Company are authorized to irrevocably appoint the
Delaware Secretary of State as its Agent upon whom may be served any
notice, process or pleading in any suit, action or proceeding against
it in connection with the enforcement of any obligation arising from
the transactions contemplated by these resolutions, including any suit
or other proceeding to enforce the right of any stockholders as
determined in appraisal proceedings under Delaware General Corporation
Law.
RESOLVED FURTHER, that the officers of the Company are hereby
authorized and directed to execute and deliver all documents, file all
certificates and notifications with appropriate federal, state and
local authorities and take such additional actions as may be necessary
or appropriate to carry out the intent of the foregoing resolutions.
-2-
<PAGE>
Amendment of the Company's Certificate of Incorporation
-------------------------------------------------------
RESOLVED, that, upon the effectiveness of the merger, the name of the
Company shall be changed to "Ventro Corporation" and Article I of the
Amended and Restated Certificate of Incorporation of the Company shall
be amended to read as follows:
"The name of the corporation is Ventro Corporation (the
"Corporation")."
-----------
Chemdex Corporation has caused the Certificate to be signed by David P.
Perry, its President and Chief Executive Officer, this 17th day of February,
2000.
Chemdex Corporation
By: /s/ David P. Perry
----------------------
President
-3-
<PAGE>
EXHIBIT 4.1
[LOGO of VENTRO]
NUMBER SHARES
VEN COMMON STOCK
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 922815 10
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.0002 PAR VALUE OF
VENTRO
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This Certificate is not valid until countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and facsimile signatures
of its duly authorized officers.
Dated:
[CORPORATE SEAL
OF VENTRO]
/s/ illegible /s/ illegible
PRESIDENT & CHIEF CHIEF FINANCIAL OFFICER
EXECUTIVE OFFICER & ASSISTANT SECRETARY
COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT
AND REGISTRAR
BY /s/ illegible
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______Custodian_____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act________________
in common (State)
UNIF TRF MIN ACT - _______ Custodian ____________
(Cust) (Minor)
__________ under Uniform Transfers
to Minors Act ____________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell(s), assign(s) and
transfer(s) unto
_______________________________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_____________________________________________________________________________
_____________________________________________________________________________
_______________________________________________________________________shares
of the capital stock represented by the within Certificate, and
do hereby irrevocably constitute and appoint
____________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________________
_______________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED
By_____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stock-
brokers, Savings and Loan Associations and
Credit Unions) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.37
No. W-001
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE NEW SECURITIES
OF HEALTHCARE TRANSACTION SYSTEMS, INC.
(Void after April 1, 2002)
This certifies that Zilkha Venture Partners, L.P. or its assigns (the
"Holder"), for value received, is entitled to purchase from HEALTHCARE
TRANSACTION SYSTEMS, INC., a Delaware corporation (the "Company"), having a
place of business at 75 Willow Road, Menlo Park, California 94025, that number
of fully paid and nonassessable shares of the capital stock of the Company as
provided for herein. This Warrant is one of a series of like Warrants (the
"Warrants") to be issued pursuant to the terms of that certain Note and Warrant
Purchase Agreement (the "Agreement") dated as of April 2, 1999 among the Company
and the other parties named therein. This Warrant is issued in conjunction with
a note (the "Note") issued by the Company pursuant to the Agreement on the date
hereof in the principal amount of $150,000.00 (the "Loan Amount").
During the Exercise Period (defined below) the Holder may purchase from the
Company that number of fully paid and nonassessable shares of the capital stock
of the Company ("New Securities") as shall equal (a) 17.6% multiplied by the
Loan Amount, divided by (b) the New Security Price (as defined below). The New
Securities shall be of the same class and series and have the same rights,
preferences and privileges as (i) the Series B Shares (as defined in the Note),
in the event the Note converts pursuant to Section 3 thereof or (ii) the Series
A Shares (as defined in the Note), in the event the Note converts pursuant to
either of Sections 4 or 5 thereof, or in the event the Note becomes due and
payable pursuant to Section 6 thereof. Unless otherwise defined in this
Warrant, capitalized terms used in this Warrant shall have the meaning indicated
in the Agreement and the Note. This Warrant shall be exercisable only during
the period (the "Exercise Period") commencing on the date that the Note shall be
either converted or repaid pursuant to Sections 3, 4, 5 or 6 of the Note and
ending at 5:00 p.m. (Pacific time) on the earlier of (i) the closing of the
initial public offering of the Company's Securities pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Initial Public
Offering"); or (ii) three (3) years from the date of this Warrant, such earlier
day being referred to herein as the "Expiration Date." To exercise this
Warrant, the Holder shall surrender to the Company at its principal office (or
at such other location as the Company may advise the Holder in writing) the
original Warrant, properly endorsed with the Form of Subscription attached
hereto duly filled in and signed, and shall pay in cash or by check the
aggregate New Security Price (as
<PAGE>
defined below), unless exercised as provided in Section 1.2 of this Warrant, for
the number of New Securities for which this Warrant is being exercised,
determined in accordance with the provisions hereof. The Company shall deliver
notice of any Initial Public Offering to the Holder at least 30 days prior to
the closing thereof. The New Security Price and the number of New Securities
purchasable hereunder are subject to adjustment as provided in Section 3 of this
Warrant.
This Warrant is subject to the following terms and conditions:
1.1 EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR NEW SECURITIES.
This Warrant is exercisable at the option of the holder of record hereof only
during the Exercise Period. The exercise price for this Warrant (the "New
Security Price") shall equal (i) the Financing Price (as defined in the Note),
in the event the Note converts pursuant to Section 3 thereof, (ii) the Bridge A
Price (as defined in the Note), in the event the Note converts pursuant to
Sections 4 or 5 thereof, or (iii) the Bridge A Price (as defined in the Note),
in the event the Note becomes due and payable pursuant to Section 6 thereof. The
Company agrees that the New Securities purchased under this Warrant shall be and
are deemed to be issued to the Holder hereof as the record owner of such New
Securities as of the close of business on the date on which this Warrant shall
have been surrendered, properly endorsed, the completed, executed Form of
Subscription delivered, and payment made for such New Securities. Certificates
for the New Securities so purchased, together with any other securities or
property to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company at the Company's expense within a
reasonable time after the rights represented by this Warrant have been so
exercised. In case of a purchase of less than all the New Securities which may
be purchased under this new Warrant, the Company shall cancel this Warrant and
execute and deliver a new Warrant or Warrants of like tenor for the balance of
the New Securities purchasable under the Warrant surrendered upon such purchase
to the Holder hereof within a reasonable time.
1.2 Net Issue Exercise. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's New
Securities is greater than the New Security Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of New Securities computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of New Securities to be issued to
the Holder
Y = the number of shares of New Securities purchasable under
the Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being canceled (at
the date of such calculation)
2.
<PAGE>
A = the fair market value of one share of the Company's New
Securities (at the date of such calculation)
B = New Security Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share of New
Securities shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its Common Stock the fair market value per share shall be the
product of (i) the per share offering price to the public of the Company's
initial public offering, and (ii) the number of shares of Common Stock into
which each share of New Securities is convertible at the time of such exercise.
2. NEW SECURITIES TO BE FULLY PAID; RESERVATION OF NEW SECURITIES. The
Company covenants and agrees that all New Securities which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the Exercise Period, the Company will at all times have authorized
and reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of New
Securities, or other securities and property, when and as required to provide
for the exercise of the rights represented by this Warrant. The Company will
take all such action as may be necessary to assure that such New Securities may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the New Securities may be listed; provided, however, that the Company
shall not be required to effect a registration under Federal or State securities
laws with respect to such exercise.
3. ADJUSTMENT OF NEW SECURITY PRICE AND NUMBER OF NEW SECURITIES. The New
Security Price and the number of New Securities purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3.
3.1 Subdivision or Combination of New Securities.
(a) If at any time or from time to time after the date of this
Warrant the Company shall subdivide its outstanding New Securities, the New
Security Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the New Securities of the
Company shall be combined into a smaller number of New Securities, the New
Security Price in effect immediately prior to such combination shall be
proportionately increased.
(b) Upon each adjustment of the New Security Price as provided
in Section 3.1(a) above, the Holder shall thereafter be entitled to purchase, at
the New Security Price resulting from such adjustment, the number of New
Securities (calculated to the nearest whole Security) obtained by multiplying
the New Security Price in effect immediately prior to such adjustment by the
number of New Securities purchasable pursuant hereto immediately prior
3.
<PAGE>
to such adjustment and dividing the product thereof by the New Security Price
resulting from such adjustment.
3.2 Reorganization, Reclassification, Consolidation, Merger or Sale.
Subject to the first paragraph above, if any recapitalization, reclassification
or reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets or other transaction shall be effected in such a
way that holders of New Securities shall be entitled to receive stock,
securities, or other assets or property (a "Reorganization") then, as a
condition of such Reorganization, lawful and adequate provisions shall be made
by the Company whereby the Holder hereof shall thereafter have the right to
purchase and receive (in lieu of the New Securities of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares of securities or other assets or property as may
be issued or payable with respect to or in exchange for a number of outstanding
New Securities equal to the number of New Securities immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby.
In the event of any Reorganization, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the New Security Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holders of a
majority of the warrants to purchase New Securities then outstanding, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
3.3 Certain Events. If any change in the outstanding New Securities
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of New Securities available under the
Warrant, the New Security Price or the application of such provisions, so as to
protect such purchase rights as aforesaid. The adjustment shall be such as will
give the Holder of the Warrant upon exercise for the same aggregate New Security
Price the total number, class and kind of New Securities as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
3.4 Notices of Change.
(a) Immediately upon any adjustment in the number or class of
New Securities subject to this Warrant and of the New Security Price, the
Company shall give written
4.
<PAGE>
notice thereof to the Holder, setting forth in reasonable detail and certifying
the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least 10 business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions. (c) The Company shall also give written notice to the Holder at
least 30 business days prior to the date on which a Reorganization shall take
place.
4. ISSUE TAX. The issuance of certificates for New Securities upon the
exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of the
Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any New Securities issued or issuable
upon the exercise of any warrant in any manner which interferes with the timely
exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a member of the
Company or any other matters or any rights whatsoever as a member of the
Company. In the event the Company shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Company or
other persons, assets (excluding cash dividends) or options or rights, then, in
each such case for the purpose of this Section 6, upon exercise of this Warrant,
the Holder hereof shall be entitled to a proportionate share of any such
distribution as though such Holder was the holder of the number of shares of New
Securities of the Company into which this Warrant may be exercised as of the
record date fixed for the determination of the holders of New Securities of the
Company entitled to receive such distribution.. No provisions hereof, in the
absence of affirmative action by the holder to purchase New Securities, and no
mere enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such Holder for the New Security Price or as a
shareholder of the Company, whether such liability is asserted by the Company or
by its creditors.
7. TRANSFERABILITY OF WARRANT. This Warrant may not be transferred or
assigned in whole or in part.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
New Securities issued upon exercise of this Warrant, shall survive the exercise
of this Warrant.
5.
<PAGE>
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or permitted
to be given or delivered to the holder hereof or the Company shall be delivered
or shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the New Securities issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional New Securities shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
New Security, pay the holder entitled to such fraction a sum in cash equal to
such fraction multiplied by the then effective New Security Price.
6.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this 2nd day of April, 1999.
HEALTHCARE TRANSACTION SYSTEMS, INC.
a Delaware corporation
By:_____________________________________
Title:__________________________________
ATTEST:
_________________________________
Secretary
7.
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: ___________
Healthcare Transaction Systems, Inc.
______________________________
______________________________
Attn: President
Ladies and Gentlemen:
[_] The undersigned hereby elects to exercise the warrant issued to it by
Healthcare Transaction Systems, Inc. (the "Company") and dated April 2,
1999, Warrant No. W-001 (the "Warrant") and to purchase thereunder
__________________________________ New Securities of the Company at a
purchase price of ______________________________ Dollars ($__________)
per Security or an aggregate purchase price of
______________________________ Dollars ($__________) (the "Purchase
Price").
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
_________________________________
By:______________________________
Title:___________________________
8.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 7, 2000 (except for Note 18, as to which
the date is February 10, 2000 and Note 19, as to which the date is March 1,
2000) to the Registration Statement (Form S-1) and the related Prospectus of
Ventro Corporation for the registration of Convertible Subordinated Notes due in
2007 with the principal amount of $300,000,000 and the registration of 2,098,750
shares of common stock issuable upon conversion.
Our audits also included the financial statement schedule listed in Item
16(b) of this Registration Statement. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Ernst & Young LLP
San Jose, California
March 5, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 11, 2000 on the financial statements of
Promedix.com, Inc. in the Registration Statement (Form S-1) and the related
Prospectus of Ventro Corporation for the registration of Convertible
Subordinated Notes due in 2007 with the principal amount of $300,000,000 and the
registration of shares of common stock issuable upon conversion.
/s/ Ernst & Young LLP
Salt Lake City, Utah
March 3, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 10, 2000, with respect to the financial
statements of SpecialtyMD.com Corporation included in the Registration Statement
(Form S-1) and the related Prospectus of Ventro Corporation for the registration
of Convertible Subordinated Notes due in 2007 with the principal amount of
$300,000,000 and the registration of shares of common stock issuable upon
conversion.
/s/ Ernst & Young LLP
Palo Alto, California
March 5, 2000
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 21,934
<SECURITIES> 81,161
<RECEIVABLES> 13,078
<ALLOWANCES> (664)
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<CURRENT-ASSETS> 120,550
<PP&E> 12,299
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<CURRENT-LIABILITIES> 38,420
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0
0
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<SALES> 30,840
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<CGS> 29,306
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<INTEREST-EXPENSE> (168)
<INCOME-PRETAX> (48,573)
<INCOME-TAX> 0
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