<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
VASTERA, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 54-1616513
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
45025 AVIATION DRIVE, SUITE 200
DULLES, VIRGINIA 20166-7554
(703) 661-9006
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------------------
MR. ARJUN RISHI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VASTERA, INC.
45025 AVIATION DRIVE, SUITE 200
DULLES, VIRGINIA 20166-7554
(703) 661-9006
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
BRIAN D. HENDERSON, ESQ. KEITH F. HIGGINS, ESQ.
MICHAEL C. TODD, ESQ. JANE D. GOLDSTEIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP ROPES & GRAY
701 PENNSYLVANIA AVENUE, SUITE 220 ONE INTERNATIONAL PLACE
WASHINGTON, D.C. 20004 BOSTON, MA 02110-2624
(202) 220-6000 (617) 951-7000
</TABLE>
------------------------
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, 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>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(1)
<S> <C> <C>
Common Stock, par value $.01 per share.... $70,000,000 $18,480(2)
</TABLE>
(1) Includes shares that the underwriters have the option to purchase from the
Company to cover over-allotments, if any. Estimated solely for purposes of
calculating the registration fee in accordance with Rule 457(o) under the
Securities Act of 1933, as amended.
(2) Previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED , 2000.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[LOGO]
SHARES
COMMON STOCK
This is the initial public offering of shares of common stock of
Vastera, Inc. and we are offering shares of common stock. We estimate
that the initial public offering price per share will be between $ and $ .
We have applied to have the shares we are offering approved for quotation on
the Nasdaq National Market under the symbol "VAST."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS VASTERA, INC.
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>
We have granted the underwriters the right to purchase up to
additional shares of common stock to cover any over-allotments.
DEUTSCHE BANC ALEX. BROWN
CHASE H&Q
BANC OF AMERICA SECURITIES LLC
The date of this prospectus is , 2000.
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY, THE COMMON STOCK BEING SOLD IN THIS OFFERING
AND OUR CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES TO THOSE
STATEMENTS, APPEARING ELSEWHERE IN THIS PROSPECTUS.
OUR BUSINESS
We are a leading provider of solutions for global trade management. Our
offerings include an extensive online library of global trade content, web-based
business-to-business, or B2B, solutions, management consulting and solution
services. Global trade involves the physical movement of goods across country
borders, the management of information and processes required to enable global
trade and the financial exchange processes required to complete related
transactions. Our solutions focus on the management of information required to
enable global trade and enhance collaboration across a client's global trade
network. Our primary Internet-based delivery mechanism for our solutions is our
web-based portal, TradePrism.com.
Forrester Research estimates that B2B commerce will grow from approximately
$406 billion in 2000 to approximately $2.7 trillion in 2004, forcing many
companies to streamline and automate their trading practices. The Internet
allows businesses to penetrate global markets effectively. We believe that while
many companies have invested in the technologies to help streamline and automate
business practices for their domestic operations, they continue to operate
inefficiently across global supply chains or lose new market opportunities
entirely. For example, Forrester Research estimates that over 46% of
Internet-based orders to the U.S. from international clients go unfilled because
companies lack the procedures to fill them.
The modern global marketplace is a fast-paced, complex trade network that
includes exporters, forwarders, carriers, brokers, importers, banks and customs
and regulatory agencies. As a result, the resources and expertise necessary to
manage global trade have increased significantly. Today, companies need access
to:
- comprehensive, up-to-date and Internet-accessible global trade content
(regulations, data and documentation required to execute cross-border
transactions);
- software applications that automate cross-border B2B and
business-to-consumer, or B2C, transactions; and
- reliable global trade expertise and advice to optimize their global trade
practices.
We believe that we are the only company offering a comprehensive suite of
global trade management solutions that addresses all of these needs. Our
offerings enable companies to leverage our extensive and actively managed
library of country-specific trade requirements to improve their global trade
operations. Our comprehensive suite of web-based, B2B solutions enables clients
to automate and optimize information management procedures across their entire
global trade network. These solutions also address the needs of multiple members
of this network and enable collaboration among all of its participants. Our
management consulting services assist companies in analyzing and addressing
their global trade practices and opportunities. We also provide solution
services that enable clients to outsource their trade management procedures in
order to focus on their core competencies and realize financial benefits
associated with efficient and effective global trade management.
We serve an international client base of over 200 companies, including Dell,
Lucent, Microsoft, the New Zealand Dairy Board, Nike, Nortel, Robert Bosch and
Silicon Graphics. Our clients currently utilize our solutions to ship to over
120 countries worldwide. We also provide integrated B2B solutions for vertical
Internet trading markets such as Arzoon.com, CatalogCity.com, RightFreight.com
and SupplierMarket.com and are continuing to develop our B2B solutions to meet
the needs of specific vertical industries. To facilitate the marketing and
delivery of our solutions, we also maintain relationships with a number of
leading technology companies, including IBM, JD Edwards, Oracle and Sun
Microsystems.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after this shares
offering...................................
Use of proceeds.............................. For general corporate purposes, principally
working capital and possible acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... "VAST"
</TABLE>
The number of shares of our common stock that will be outstanding after this
offering is based on the number of shares outstanding on March 31, 2000 and
assumes no exercise of the underwriters' over-allotment option and the
conversion into common stock of all of our preferred stock outstanding on that
date. It excludes 16,429,075 shares of common stock available for issuance
pursuant to our employee stock option plans, of which 6,452,895 shares are
subject to outstanding options as of March 31, 2000, and 5,000,000 shares of
common stock available for issuance pursuant to our employee stock purchase
plan. It also excludes 640,461 shares of common stock issuable upon the exercise
of warrants outstanding after this offering.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
REVENUES:
Subscription/transaction
revenues.................. $ 635 $ 1,222 $ 2,200 $ 4,088 $ 7,261 1,373 2,617
Services revenues........... 402 917 1,545 4,778 11,869 3,125 3,662
------ ------- ------- ------- -------- ------- --------
Total revenues............ 1,037 2,139 3,745 8,866 19,130 4,498 6,279
Gross profit.................. 397 971 1,506 3,952 8,360 2,303 2,644
Loss from operations.......... (758) (3,079) (9,209) (8,099) (10,660) (1,058) (8,637)
Net loss...................... $ (783) $(3,086) $(9,307) $(8,256) $(10,479) $(1,006) $ (8,610)
====== ======= ======= ======= ======== ======= ========
Per share information:........
Pro forma basic and diluted
net loss per share........ $ (.64) $ (.47)
Pro forma weighted average
common shares
outstanding............... 16,277 18,362
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 669 $ 5,433
Working capital........................................... 6,546 11,310
Total assets.............................................. 29,629 34,393
Long-term debt............................................ 2,348 2,348
Redeemable convertible preferred stock.................... 75,198 --
Total stockholders' equity (deficit)...................... (67,926) 12,036
</TABLE>
The pro forma balance sheet data gives effect to the automatic conversion of
all outstanding shares of convertible preferred stock into 12,681,208 shares of
common stock and the issuance of 1,474,658 shares of common stock issuable upon
exercise of certain outstanding warrants prior to this offering. The pro forma
as adjusted balance sheet data also gives effect to the sale of
shares of common stock at an assumed initial public offering price of $ per
share, less the estimated underwriting discounts and commissions and estimated
offering expenses.
We were incorporated in Virginia in November 1991 under the name Export
Software International, Inc. We reincorporated in Delaware in July 1996 and we
changed our name to Vastera, Inc. in June 1997. Our principal executive offices
are located at 45025 Aviation Drive, Suite 200, Dulles, Virginia 20166, and our
telephone number is (703) 661-9006. Our web site is WWW.VASTERA.COM. Information
contained on our web site does not constitute a part of this prospectus.
Vastera is a registered U.S. trademark of Vastera, Inc. Global Trade
Management, Global Trade Value Chain, TradeSphere, TradeValue, TradeVantage,
TradePrism, Global eContent, TradeAxiom, Opening the World to eBusiness, Global
Passport, SmarteCommerce, SmarteContent, SmarteMethods and SmarteWare are
trademarks of Vastera, Inc. that are the subject of pending federal trademark
registration applications. The Vastera logo is also a trademark of
Vastera, Inc. All other brand names and trademarks appearing in this prospectus
are the property of their respective holders.
------------------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS IS BASED ON
THE FOLLOWING ASSUMPTIONS:
- THE UNDERWRITERS DO NOT EXERCISE THEIR OVER-ALLOTMENT OPTION;
- THE CONVERSION OF OUR OUTSTANDING SHARES OF PREFERRED STOCK INTO AN
AGGREGATE 12,681,208 SHARES OF COMMON STOCK UPON THE CLOSING OF THIS
OFFERING;
- THE ISSUANCE OF 1,474,658 SHARES OF COMMON STOCK ISSUED UPON EXERCISE OF
CERTAIN OUTSTANDING WARRANTS PRIOR TO THE CLOSING OF THIS OFFERING; AND
- THE COMPLETION OF A 3-FOR-2 STOCK SPLIT TO BE EFFECTED UPON THE CLOSING OF
THIS OFFERING.
5
<PAGE>
RISK FACTORS
THIS OFFERING AND YOUR INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE
OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND ALL OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED, THE VALUE OF
OUR STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL ALSO MAY IMPAIR OUR BUSINESS OPERATIONS.
RISKS RELATED TO OUR BUSINESS
OUR FUTURE SUCCESS IS UNCERTAIN BECAUSE OUR WEB-BASED SOLUTIONS ARE UNPROVEN,
HAVE ONLY BEEN RECENTLY DEVELOPED OR ARE CURRENTLY IN DEVELOPMENT.
We have recently commercially released our TradeSphere solutions, our
web-based suite of products and services developed from our existing global
trade management solutions. Our web-based portal, TradePrism.com, is also
currently in the development stage. Because our portal and many of our
TradeSphere modules are in the early stages of development, there can be no
assurance that they will be successfully integrated into our web-based B2B
solutions. Many of these solutions require further product development to
achieve our expected level of functionality. If we fail to successfully complete
this development or if the market does not commercially accept our solutions
once they are fully developed, our business would be adversely impacted.
Furthermore, because our web-based solutions are in their early stages of
development, we have limited insight into trends that may emerge and affect our
business. We face many challenges, risks and difficulties that are frequently
encountered by companies transitioning to a new product line and using a new
business strategy. If we are unable to successfully implement our new business
strategy and overcome these challenges, risks and difficulties, our operating
results will suffer.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.
We incurred net losses of $9.3 million in 1997, $8.3 million in 1998,
$10.5 million in 1999 and $8.6 million for the three months ended March 31,
2000. We expect to continue to incur losses in the foreseeable future. We expect
those losses to increase significantly from current levels as we continue to
develop our products and services. We believe that our business depends on our
ability to significantly increase revenue. If our revenues fail to grow at
anticipated rates or our operating expenses increase without a commensurate
increase in our revenues, or we fail to adjust operating expense levels
appropriately, we may not be able to achieve and maintain profitability, which
would increase the possibility that the value of your investment will decline.
THE MARKET FOR OUR RECENTLY DEVELOPED WEB-BASED SOLUTIONS IS NEWLY EMERGING AND
CLIENT DEMAND MAY NOT EVOLVE AND DEPENDS IN LARGE PART UPON THE GROWTH OF THE
INTERNET, WHICH MAY NOT GROW AS FAST OR AS EFFECTIVELY AS WE ANTICIPATE.
The market for our recently developed web-based, B2B solutions is newly
emerging and we cannot be certain that this market will continue to develop and
grow or that companies will choose to use our solutions rather than attempt to
develop alternative platforms and applications internally or through other
sources. To improve our operating results, we must keep pace with the evolving
industry standards that are characterized by rapid technological advances and
changing customer needs. If we fail in the development and marketing of either
enhancements to our current
6
<PAGE>
TradeSphere and TradePrism.com solutions or new solutions that respond to
technological advances in a timely and cost-effective basis, our ability to
generate revenues may be reduced. In addition, the anticipated growth of the
global trade market may depend on the growth of the Internet. Increased use of
the Internet largely depends upon available Internet security, bandwidth and
reliability. If use of the Internet by businesses does not increase as fast and
as effectively as we currently anticipate, the market for our web-based global
solutions may not grow as we expect and our business may be harmed.
ANY RESTRICTION ON OUR ABILITY TO COST EFFECTIVELY ACCESS A FOREIGN COUNTRY'S
RULES AND REGULATIONS THAT ARE INCORPORATED INTO OUR GLOBAL TRADE CONTENT,
GLOBAL ECONTENT, OR ANY FAILURE TO TIMELY UPDATE GLOBAL ECONTENT TO INCLUDE
CHANGES IN SUCH RULES AND REGULATIONS, MAY HARM OUR BUSINESS.
The success of our global trade management solutions for our clients depends
on our ability to access the complex rules and regulations published by foreign
governments governing a particular country's import and export of goods. The
foundation of our global trade solution, Global eContent, is subject to rapid
change at the initiative of foreign governments, based on factors beyond our
control. Any changes in a country's rules and regulations relating to global
trade that we are unable to include in our Global eContent library may result in
dissatisfied clients and possible litigation. In addition, to the extent a
foreign government restricts our access to its rules and regulations, charges a
fee for such access or grants proprietary rights to such information to one or
more of our competitors, our business may be harmed and our revenues could
decrease.
FLUCTUATIONS IN OUR OPERATING RESULTS, PARTICULARLY COMPARED TO THE EXPECTATIONS
OF MARKET ANALYSTS AND INVESTORS, MAY LEAD TO A REDUCED PRICE OF OUR COMMON
STOCK.
Our operating results have varied in the past, and we expect that they will
continue to vary in the future as a result of a number of factors, many of which
are beyond our control. These factors include:
- Demand for our products and services;
- Increases in our operating expenses;
- Competition in our industry;
- Variability in the mix of our subscription and transaction revenues and
our consulting revenues;
- Timing of new solution introductions and enhancements to our TradeSphere
and TradePrism.com solutions;
- Continued business from our existing clients;
- The loss of any key employees and timing of our new hires; and
- Significant downturns in the U.S. and international economies.
Due to the foregoing factors, our annual or quarterly results of operations
may not meet the expectations of securities analysts and investors, which could
cause the price of our common stock to decline.
In addition, seasonal trends with respect to our revenue derived from our
consulting services may harm our quarterly operating results. For example, in
the fourth quarter of our 1999 fiscal year our revenues were lower than our
revenues in each of the prior three quarters. We believe that the primary cause
of this fluctuation is the decrease in the amount of services that we provided
to our
7
<PAGE>
clients in the fourth quarter due to year-end client holiday schedules and
client postponements of new service engagements in order to concentrate on Year
2000 readiness.
WE ARE GROWING RAPIDLY AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
We have significantly increased our employee base to meet increasing demand
for our client solutions. The number of our employees has increased from 104 as
of December 31, 1998 to 230 as of March 31, 2000. As we expand our operations,
we expect to continue to increase the size of our employee base. Our management
and operations have been strained by this growth and will continue to be
strained by our anticipated growth. To compete effectively and to manage future
growth, we must continue to improve our financial and management controls,
reporting systems and procedures on a timely basis. We must also expand, train
and manage our employee base. If we are not successful in managing our growth,
our business may be harmed.
SEVERAL KEY EXECUTIVE OFFICERS HAVE RECENTLY JOINED OUR MANAGEMENT TEAM AND THE
INABILITY OF OUR MANAGEMENT TEAM TO SUCCESSFULLY WORK TOGETHER COULD HARM OUR
BUSINESS.
Some members of our current management team have been in place for only a
relatively short period of time. Our Chief Operating Officer, Senior Vice
President of Worldwide Sales, Senior Vice President of Global Services, Vice
President of Marketing and Vice President of Technology all joined us within the
last nine months. Accordingly, each of these individuals has limited experience
with our company. Our new executive officers may not be able to integrate
themselves into our daily operations and to work effectively as a team, which
could harm our business by impairing our ability to implement our business
strategy.
WE MAY BE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, WHICH WOULD ADVERSELY
AFFECT OUR BUSINESS.
Our future performance will depend largely on the efforts and abilities of
our senior executives, key technical, professional services, sales and marketing
and managerial personnel. Our success will depend on our ability to attract and
retain these key employees in the future. The employment of our key personnel,
including our executives, is at will. The market for such persons is extremely
competitive and we may not find qualified replacements for personnel who leave
us. In the past, we have experienced difficulty in hiring qualified technical,
professional services, sales, marketing and managerial personnel. In addition,
we do not maintain key person life insurance on any of our key personnel, and
have no plans to do so. The loss of, or the inability to attract, any one or
more of our key personnel may harm our business and adversely affect your
investment in our common stock.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL CAPITAL AS NEEDED IN THE FUTURE, OUR
BUSINESS MAY BE ADVERSELY AFFECTED AND THE MARKET PRICE FOR OUR COMMON STOCK
COULD DECLINE.
We have historically financed our operations primarily through the sale of
our securities. We may need to raise additional debt or equity capital to fund
the expansion of our operations, to enhance our products and services, or to
acquire or invest in complementary products, services, businesses or
technologies. If we raise additional funds through further issuances of equity
or convertible debt or equity securities, our existing stockholders could suffer
significant dilution, and any new equity securities we issue could have rights,
preferences and privileges superior to those of holders of our common stock,
including shares of common stock sold in the offering. In addition, we may not
be able to obtain additional financing on terms favorable to us, if at all. If
adequate funds are not available on terms favorable to us, our business may be
adversely affected and the market price for our common stock could decline.
8
<PAGE>
OUR INTERNATIONAL OPERATIONS AND PLANNED EXPANSION EXPOSE US TO BUSINESS RISKS
THAT COULD CAUSE OUR OPERATING RESULTS TO SUFFER.
We opened an office in the United Kingdom in January 1999, and intend to
expand substantially our international operations and enter new international
markets. This expansion will require significant management attention and
financial resources to successfully translate our software products into various
languages, to develop compliance expertise relating to international regulatory
agencies and to develop direct and indirect international sales and support
channels. We face a number of risks associated with conducting our business
internationally that could negatively impact our operating results, including:
- language barriers, conflicting international business practices and other
difficulties relating to the management and administration of a global
business;
- longer sales cycles associated with educating foreign clients about the
benefits of our products and services;
- currency fluctuations and exchange rates;
- multiple and possibly overlapping tax structures and the burdens of
complying with a wide variety of foreign laws;
- the need to consider characteristics unique to technology systems used
internationally; and
- economic or political instability in some international markets.
We may be unable to establish, maintain or increase international market
demand for our solutions and, if we are unable to do so, international sales may
be limited, and our business may be harmed. We also may not succeed in our
efforts to enter new international markets and expand our international
operations, which may harm our business.
IF OUR EXISTING CLIENTS DO NOT PURCHASE ADDITIONAL COMPONENTS OF OUR SOLUTIONS,
WE MAY NOT ACHIEVE GROWTH IN OUR REVENUES.
Our clients' initial implementations often include only one or two
components of our global trade management solutions. Clients may subsequently
add other components of our solutions and may eventually purchase and use the
full suite of our TradeSphere offerings. If our clients are not satisfied with
their initial implementations and they decline to purchase additional components
of our solutions, our business would be adversely impacted.
WE MAY BE UNABLE TO SELL OUR WEB-BASED SOLUTIONS IF OUR TARGET CLIENTS DO NOT
ACCEPT OUR SUBSCRIPTION AND TRANSACTION-BASED PRICING MODEL.
Our new subscription and transaction-based pricing model for our web-based
solutions is untested and will require our clients to make recurring
subscription and transaction fee payments instead of a one-time capital
investment followed by the payment of fees for maintenance and support. Our
current and future clients may not accept our pricing model. If we are unable to
receive acceptance by our current and future clients of this pricing model, our
sales could suffer.
OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT WHEN
OR IF SALES WILL OCCUR AND THEREFORE WE MAY EXPERIENCE AN UNPLANNED SHORTFALL IN
REVENUES.
Our products have a lengthy and unpredictable sales cycle that contributes
to the uncertainty of our operating results. Clients typically view the purchase
of our solutions as a significant and strategic decision. As a result, clients
generally evaluate our solutions and determine their impact on existing
infrastructure over a lengthy period of time. Our sales cycle has historically
ranged from
9
<PAGE>
approximately one to nine months depending on a particular client's need to
rapidly implement a solution and whether the client is new or is extending an
existing implementation. The license of our software products may be subject to
delays if the customer has lengthy internal budgeting, approval and evaluation
processes. We may incur significant selling and marketing expenses during a
client's evaluation period, including the costs of developing a full proposal
and completing a rapid proof of concept or custom demonstration, before the
client engages us. Larger clients may purchase our solutions as a part of
multiple simultaneous purchasing decisions, which may result in additional
unplanned administrative processing and other delays. If revenues forecasted
from a specific client for a particular quarter are not realized or are delayed
to another quarter, we may experience an unplanned shortfall in revenues, which
could adversely affect our operating results.
ANY LOSS OF OUR STRATEGIC RELATIONSHIPS OR FAILURE TO DEVELOP NEW RELATIONSHIPS
WOULD HARM OUR BUSINESS.
We have established strategic relationships with a number of third parties
including Arzoon.com, i2 Technologies, JD Edwards, Oracle, RightFreight.com, SAP
and SupplierMarket.com. These relationships are important to the worldwide
implementation, integration, development and promotion of our solutions. We
expect these relationships to provide us with marketing and sales opportunities.
If we are unable to maintain successfully our existing relationships or develop
new relationships, our business may be harmed.
ANY LOSS OF OUR LICENSED THIRD-PARTY TECHNOLOGY MAY RESULT IN INCREASED COSTS OF
OR DELAYS IN PROVIDING OUR SOLUTIONS, WHICH WOULD HARM OUR OPERATING RESULTS.
We license technology from several companies on a non-exclusive basis that
is integrated into our TradeSphere product suite, including database technology
from Oracle and Microsoft, development tools and facilities from IBM (WebSphere
and MQ Series) and Forte, which was acquired by Sun Microsystems. We anticipate
that we will continue to license technology from these and other third parties
in the future. This software may not continue to be available on commercially
reasonable terms, or at all. Some of the software we license from third parties
would be difficult and time-consuming to replace. The loss of any of these
technology licenses could result in delays in the licensing of our TradeSphere
products until equivalent technology, if available, is identified, licensed and
integrated. In addition, the effective implementation of our products may depend
upon the successful operation of third-party licensed products in conjunction
with our products, and therefore any undetected errors in these licensed
products may prevent the implementation or impair the functionality of our
products, delay new product introductions and injure our reputation.
WE MAY FACE PRODUCT LIABILITY CLAIMS, WHICH MAY HARM OUR FINANCIAL CONDITION.
The foundation of our TradeSphere solutions, Global eContent, consists of
the complex and continually changing country-specific rules and regulations
published by foreign governments in connection with the import and export of
goods. The organic and complex nature of Global eContent increases the
likelihood that we may face product liability claims in connection with our
current products and future products. A successful product liability claim
brought against us could harm our financial condition. Even if unsuccessful, any
product liability claim could result in costly litigation and divert
management's attention and resources. Any provisions in our license agreements
designed to limit our exposure to potential product liability claims and any
product liability insurance may not be adequate to protect us from such claims.
10
<PAGE>
THE UNCERTAINTY OF FUTURE GOVERNMENT REGULATION OF THE INTERNET AND GLOBAL TRADE
MAY ADD TO OUR OPERATING COSTS.
Like many businesses engaging in Internet-related business activities, we
may face unanticipated operating costs because of the current uncertainty
surrounding potential government regulation of the Internet and e-commerce. We
believe that we are not currently subject to direct regulation of online
commerce, other than regulations applicable to businesses generally. However,
the Internet has rapidly emerged as a commerce medium, and governmental agencies
have not yet been able to adapt all existing regulations to the Internet
environment. Laws and regulations may be introduced and court decisions reached
that affect the Internet or other online services, covering issues such as user
pricing, user privacy, freedom of expression, access charges, content and
quality of products and services, advertising, intellectual property rights and
information security. As an Internet company, it is unclear in which
jurisdictions we are actually conducting business. Our failure to qualify to do
business in a jurisdiction that requires us to do so could subject us to fines
or penalties and could result in our inability to enforce contracts in that
jurisdiction. Even if we were able to ascertain correctly in which jurisdictions
we conduct business, many of these jurisdictions have yet to determine the
application of their existing laws to web-based global trade or develop laws
that apply to such trade.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WHICH COULD
RESULT IN THEIR UNAUTHORIZED USE AND HARM OUR BUSINESS.
Our success depends on our ability to protect our proprietary rights. We
rely primarily on:
- Copyright, trade secret and trademark laws;
- Confidentiality agreements with employees and third parties; and
- Protective contractual provisions such as those contained in license
agreements with consultants, vendors and clients, although we have not
signed such agreements in every case.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy aspects of our products and obtain and use information we regard as
proprietary. Other parties may breach confidentiality agreements and other
protective contracts. We may not become aware of these breaches or have adequate
remedies available. We may need to litigate claims against third parties who
infringe our intellectual property rights, which could be costly.
We have not secured registration of all our marks in the United States and
have not pursued registration of our intellectual property in any foreign
country. The laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. Effective
copyright, trademark and trade secret protection may not be available in other
jurisdictions. If we cannot adequately protect our proprietary rights, our
business may be harmed.
OUR PATENT STRATEGY IS IN DEVELOPMENT CURRENTLY AND ANY INADEQUACY IN THE
PROTECTION OF OUR TECHNOLOGY COULD HURT OUR BUSINESS.
We may also rely on patents to protect our proprietary rights in the future.
Any patent strategy we attempt to implement may not be successful and could harm
our business by disclosing unpatentable trade secrets. The laws that apply to
the types of patents we may seek are evolving and are subject to change. We
presently have filed provisional patent applications in the United States. These
applications may not result in patents or may take longer than we expect to
result in patents. We may also decide to not file patent applications in all the
countries in which we operate or intend to operate. Our decision to do so may
inhibit our ability to protect our proprietary rights in those countries. Even
if we are issued patents, we cannot assure you that they will provide us any
11
<PAGE>
meaningful protection or competitive advantage. If we try to enforce our
patents, third parties may challenge our patents in court or before the United
States Patent and Trademark Office. An unfavorable outcome in any such
proceeding could require us to cease using the technology or to license rights
from prevailing third parties. There is no guarantee that any prevailing party
would offer us a license or that we could acquire any license made available to
us on commercially acceptable terms, which may harm our business.
COMPETITION IN OUR MARKET COULD MAKE IT DIFFICULT TO ATTRACT CUSTOMERS, CAUSE US
TO REDUCE PRICES, RESULTING IN REDUCED GROSS MARGINS, OR CAUSE US TO FAIL TO
GAIN MARKET SHARE OR EXPERIENCE A LOSS OF MARKET SHARE, ANY OF WHICH WOULD HARM
OUR BUSINESS.
The market for our products and services is competitive, dynamic and subject
to frequent technological changes. The intensity of competition and the pace of
change are expected to increase in the future. Our solutions face competition
from a number of competitors offering products and services that vary in
functionality including:
- Content aggregators such as Dun & Bradstreet and TradeCompass;
- International trade logistics providers such as Capstan, Nextlink,
Rockport and Syntra;
- Trade consultants such as management consulting firms, law firms and
boutique consulting firms; and
- Outsourcing service providers, such as third party logistics providers,
fourth party logistics providers and carriers.
We expect additional competition from other established and emerging
companies as the market for global trade solutions evolves. Increased
competition could result in price reductions, reduced gross margins, loss of
market share or failure to gain market share, any of which would seriously harm
our business. We may not be able to compete successfully against current and
future competitors, which may lower the value of your investment in our common
stock.
OUR PRODUCTS ARE COMPLEX AND MAY CONTAIN DEFECTS OR ERRORS.
Some of the software products may contain undetected errors or defects,
especially when first introduced or when new versions are released. Our new
products or releases may not be free from errors after commercial shipment. Any
errors discovered after commercial release could result in loss of revenues or
delay in market acceptance of our products, diversion of development resources,
damage to our reputation, lawsuits or increased service costs, all of which
could harm our business.
ANY FUTURE ACQUISITIONS MAY BE DIFFICULT AND DISRUPTIVE, AND WE MAY NOT REALIZE
THE EXPECTED BENEFITS FROM THOSE ACQUISITIONS.
We may expand our operations or market presence by acquiring or investing in
companies, assets or technologies that complement our business and offer
opportunities for growth. These transactions involve many risks and challenges
that we might not successfully overcome, including:
- Difficulties in assimilating technologies, products, personnel and
operations;
- Disruption of our ongoing business and diversion of management's attention
from other business concerns;
- Risks of entering markets in which we have no or limited prior experience;
- Issuances of equity securities that may dilute your ownership interest in
our common stock;
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<PAGE>
- Cash payments to or the assumption of debt or other liabilities of the
companies we acquire; and
- Large write-offs and amortization expenses related to goodwill and other
intangible assets.
Our inability to address these risks could negatively impact our operating
results. Moreover, any future acquisitions or investments, even if successfully
completed, may not generate any additional revenue or provide any benefit to our
business.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR PRODUCTS OR INTERNAL SYSTEMS MAY INVOLVE
SIGNIFICANT TIME AND EXPENSE AND MAY HARM OUR BUSINESS.
Although no material year 2000 problems with our solutions have been brought
to our attention to date, year 2000 problems emerging in the future could
subject us to liability claims and disrupt our clients' purchasing patterns,
either of which could harm our business. Our solutions rely on computer systems
and software products which operate in complex network environments. Our
solutions, directly or indirectly, interact with a number of other hardware and
software systems that we cannot adequately evaluate for year 2000 compliance. We
may face claims based on year 2000 problems in other companies' products, or
issues arising from the integration of multiple products within an overall
system. We may in the future be required to defend our applications, services
and product offerings in such proceedings, or to negotiate resolutions of claims
based on year 2000 issues. Defending and resolving any year 2000 related
problems or disputes could be expensive to us and reduce our operating results.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE AND MAY SUBJECT US TO SECURITIES LITIGATION,
WHICH IS EXPENSIVE AND COULD DIVERT OUR RESOURCES.
The market price for our shares of common stock is likely to be volatile
and, if you decide to purchase our shares, you may be unable to resell your
shares at or above the initial public offering price due to a number of factors,
including:
- Actual or anticipated variations in our operating results;
- Changes in earnings estimates by analysts;
- Announcements of technological innovations or new products by our
competitors; and
- General economic conditions in global trade and e-commerce industries.
In addition, the stock market has experienced extreme price and volume
fluctuations that affected the market price of many companies in our industry
and that have been unrelated to these companies' operating performances. These
broad market fluctuations could reduce the market price of our common stock and,
in some instances, we may become subject to securities litigation. If we become
involved in this type of litigation, regardless of the outcome, we could incur
substantial legal costs and our management's attention could be diverted,
causing our business to suffer.
OUR OFFICERS, DIRECTORS AND AFFILIATES WILL BE ABLE TO CONTROL MATTERS REQUIRING
STOCKHOLDER APPROVAL AND MAY HAVE INTERESTS THAT DIFFER FROM YOURS.
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately % of the
outstanding shares of our common stock, % if the
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<PAGE>
underwriters' over-allotment option is exercised in full. Accordingly, these
stockholders will be able to control all matters requiring stockholder approval
and, thereby, our management and affairs. In addition, this concentration of
ownership may delay, deter or prevent acts that would result in a change of
control, which in turn could reduce the market price of our common stock. These
stockholders may have interests that differ from your interests and their
decisions may negatively impact our business.
OUR MANAGEMENT HAS BROAD DISCRETION OVER HOW TO USE THE PROCEEDS OF THIS
OFFERING; WE MAY NOT USE THE PROCEEDS IN WAYS THAT HELP OUR BUSINESS SUCCEED.
We estimate that our net proceeds from this offering will be $ million,
at an assumed initial public offering price of $ per share and after deducting
the estimated underwriting discount and offering expenses. Our primary purposes
in making this offering are to increase our working capital, create a public
market for our common stock, facilitate our future access to the public capital
markets and increase our visibility in the marketplace. We have no specific
plans for the net proceeds of this offering other than working capital and
general corporate purposes, although we may use a portion of the net proceeds to
acquire or invest in additional businesses, products and technologies.
Accordingly, our management will have broad discretion as to how to apply the
net proceeds of this offering. If we fail to use these proceeds effectively, our
business may not grow and our revenues may decline.
OTHER COMPANIES MAY HAVE DIFFICULTY ACQUIRING US, EVEN IF DOING SO WOULD BENEFIT
OUR STOCKHOLDERS, DUE TO PROVISIONS OF OUR CORPORATE CHARTER AND BYLAWS AND
DELAWARE LAW.
Provisions in our certificate of incorporation, in our bylaws and under
Delaware law could make it more difficult for other companies to acquire us,
even if doing so would benefit our stockholders. Our certificate of
incorporation and bylaws contain the following provisions, among others, which
may inhibit an acquisition of our company by a third party:
- a staggered board of directors, where stockholders elect only a minority
of the board each year;
- advance notification procedures for matters to be brought before
stockholder meetings;
- a limitation on who may call stockholder meetings; and
- a prohibition on stockholder action by written consent.
We are also subject to provisions of Delaware law that prohibit us from
engaging in any business combination with any "interested stockholder," meaning
generally a stockholder who beneficially owns more than 15% of our stock, for a
period of three years from the date this person became an interested
stockholder, unless various conditions are met, such as approval of the
transaction by our board. This could have the effect of delaying or preventing a
change in control. For a more complete discussion of these provisions of
Delaware law, please see "Description of Capital Stock--Delaware Anti-Takeover
Law and Provisions in Our Charter and Bylaws."
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things, market acceptance of our solutions, expansion into new targeted
industries, product development, sales and marketing strategies, development and
maintenance of strategic alliances, technological advancement, global expansion,
use of proceeds, projected capital expenditures, liquidity and availability of
additional funding sources. These statements may be found in the sections of
this prospectus entitled "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Our Business" and in this prospectus generally. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of such terms or other
comparable terminology. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks discussed in "Risk Factors" and elsewhere in this
prospectus. We undertake no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
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<PAGE>
USE OF PROCEEDS
We expect to receive approximately $ million in net proceeds from
the sale of the shares of common stock in this offering, assuming that the
initial public offering price is $ per share and after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us. We expect to receive approximately $ million if the
underwriters' over-allotment option is exercised in full.
We intend to use the net proceeds of this offering for general corporate
purposes, principally working capital for increased domestic and international
sales and marketing expenditures, product development expenditures, expenditures
related to the expansion of our consulting services organization and capital
expenditures made in the ordinary course of business. We may also use a portion
of the net proceeds to acquire or invest in additional businesses, products and
technologies that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments, oral or written,
to do so. We are not currently engaged in any negotiations for any acquisition
or strategic investment. The amounts that we actually expend for working capital
purposes will vary significantly depending on a number of factors, including
future revenue growth, if any, the amount of cash we generate from operations
and the progress of our product development efforts. As a result, we will retain
broad discretion in the allocation of the net proceeds of this offering. Pending
the uses described above, we will invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business, and we do not anticipate paying any cash dividends in the future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. We
present capitalization:
- on an actual basis;
- on a pro forma basis to reflect the issuance of 1,474,658 shares of common
stock issuable upon exercise of outstanding warrants prior to the offering
and the automatic conversion of all outstanding shares of preferred stock
into 12,681,208 shares of common stock upon the consummation of the
offering; and
- on a pro forma as adjusted basis to give effect to the issuance of shares
of common stock issuable upon exercise of outstanding warrants prior to
the offering, the automatic conversion of all outstanding shares of
preferred stock into common stock and the filing of our amended and
restated certificate of incorporation upon the consummation of the
offering, and to reflect our receipt of the estimated net proceeds from
the sale of shares of common stock offered in the offering at an assumed
initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Line of credit and capital lease obligations......... $ 2,905 $ 2,905 $
Redeemable convertible preferred stock
$0.01 par value; 9,198 shares authorized and 7,654
outstanding (actual), and no shares issued and
outstanding (pro forma and pro forma as
adjusted).......................................... $75,198 --
Stockholders' equity (deficit):
Common stock
$0.01 par value; 100,000 shares authorized and
6,536 shares issued and outstanding (actual),
20,692 shares issued and outstanding (pro
forma), issued and outstanding (pro forma as
adjusted).......................................... 65 207
Additional paid-in capital........................... 20,831 100,651
Accumulated other comprehensive income............... (51) (51)
Deferred compensation................................ (14,381) (14,381)
Accumulated deficit.................................. (74,390) (74,390)
------- ------- -------
Total stockholders' equity (deficit)................. (67,926) 12,036
------- ------- -------
Total capitalization................................. $10,177 $14,941 $
======= ======= =======
</TABLE>
Our capitalization information represented above excludes:
- 16,429,075 shares of common stock available for issuance pursuant to our
employee stock option plans, of which 6,452,895 shares are subject to
outstanding options as of March 31, 2000.
- 5,000,000 shares of common stock reserved for future issuances under our
employee stock purchase plan; and
- 640,461 shares of common stock issuable upon the exercise of warrants to
purchase our common stock outstanding after this offering.
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<PAGE>
DILUTION
As of March 31, 2000, our net tangible book value on a pro forma basis
giving effect to the conversion of our preferred stock into common stock upon
consummation of this offering was approximately $ million or
$ per share of common stock. "Net tangible book value" per share
represents the amount of our total tangible assets reduced by the amount of our
total liabilities, divided by the number of shares of common stock outstanding.
As of March 31, 2000, our net tangible book value, on a pro forma basis as
adjusted for the sale of shares of our common stock, based on an assumed
initial public offering price of $ per share and after deducting the
underwriting discounts and commissions and other estimated offering expenses,
would have been approximately $ per share. This represents an
immediate increase of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at March 31,
2000.................................................... $
Pro forma increase per share attributable to new
investors...............................................
------
Pro forma net tangible book value per share after the
offering................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following summarizes on a pro forma basis as of March 31, 2000, the
differences between the total consideration paid and the average price per share
paid by the existing stockholders and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed initial
public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 20,693 $51,055 $ 2.47
New investors..........................
Total..................................
======= ======= ======= =======
</TABLE>
The preceding table excludes:
- 16,429,075 shares of common stock available for issuance pursuant to our
employee stock option plans, of which 6,452,895 shares are subject to
outstanding options as of March 31, 2000.
- 5,000,000 shares of common stock reserved for future issuances under our
employee stock purchase plan; and
- 640,461 shares of common stock issuable upon the exercise of outstanding
warrants to purchase our common stock.
To the extent all of these options and warrants had been exercised as of
March 31, 2000, pro forma net tangible book value per share after this offering
would be $ and total dilution per share to new investors would be $ .
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The tables that follow present portions of our financial statements and are
not complete. You should read the following selected financial data in
conjunction with our financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. We derived the statement of operations
data for the years ended December 31, 1997, 1998 and 1999, and the balance sheet
data as of December 31, 1998 and 1999 from our financial statements that have
been audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this prospectus. We derived the statement of operations
data for the years ended December 31, 1995 and 1996 and the balance sheet data
as of December 31, 1995 and 1996 from unaudited financial statements that are
not included in this prospectus. We derived the statement of operations data for
the three months ended March 31, 1999 and 2000 and the balance sheet data as of
March 31, 2000 from our unaudited financial statements which are included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
REVENUES:
Subscription/transaction
revenues............. $ 635 $ 1,222 $ 2,200 $ 4,088 $ 7,261 $ 1,373 $ 2,617
Services revenues...... 402 917 1,545 4,778 11,869 3,125 3,662
------- ------- -------- -------- -------- ------- -------
Total revenues....... 1,037 2,139 3,745 8,866 19,130 4,498 6,279
COST OF REVENUES:
Cost of subscription/
transaction
revenues............. 1 398 766 708 692 130 364
Cost of services
revenues............. 639 770 1,473 4,206 10,078 2,065 3,271
------- ------- -------- -------- -------- ------- -------
Total cost of
revenues........... 640 1,168 2,239 4,914 10,770 2,195 3,635
------- ------- -------- -------- -------- ------- -------
Gross profit............. 397 971 1,506 3,952 8,360 2,303 2,644
OPERATING EXPENSES:
Sales and marketing.... 358 837 4,442 4,581 7,143 1,340 3,387
Research and
development.......... 403 1,548 4,137 4,271 6,194 1,121 3,398
General and
administrative....... 329 1,498 1,710 2,562 3,680 619 1,294
Depreciation and
amortization......... 65 167 426 637 1,625 281 580
Stock option
compensation......... -- -- -- -- 378 -- 2,622
------- ------- -------- -------- -------- ------- -------
Total operating
expenses........... 1,155 4,050 10,715 12,051 19,020 3,361 11,281
------- ------- -------- -------- -------- ------- -------
Loss from
operations......... (758) (3,079) (9,209) (8,099) (10,660) (1,058) (8,637)
Other income (expense)... (25) (7) (98) (157) 181 52 27
------- ------- -------- -------- -------- ------- -------
Net loss........... $ (783) $(3,086) $ (9,307) $ (8,256) $(10,479) $(1,006) $(8,610)
======= ======= ======== ======== ======== ======= =======
Per share information....
Pro forma basic and
diluted net loss per
share................ $ (.64) $ (.47)
Pro forma weighted-
average common shares
outstanding.......... 16,277 18,362
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
----------- ----------- -------- -------- -------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... $ 77 $ 1,283 $ 1,388 $ 7,792 $ 961 $ 669
Working capital............. (612) (1,022) (2,892) 3,199 (4,200) 6,546
Total assets................ 844 2,859 5,486 16,282 17,152 29,629
Long-term debt.............. 24 148 514 996 2,326 2,348
Redeemable convertible
preferred stock........... -- 3,801 10,240 24,431 46,117 75,198
Total stockholders' equity
(deficit)................. (1,528) (4,394) (13,865) (22,763) (49,928) (67,926)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF VASTERA, INC. SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL DATA" AND VASTERA'S CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS WHICH ARE DEEMED TO BE
INCORPORATED INTO THIS SECTION. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS DUE TO VARIOUS FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of solutions for global trade management. Our
offerings include an extensive online library of global trade content, B2B
solutions, management consulting and solution services. In 1992, we introduced
EMS-2000, a U.S.-centric, DOS-based export management solution. In 1994, we
introduced EMS-2000 Version 4, a multi-country, two-tier, Windows-based export
management solution. In 1997, we introduced Global Passport, a multi-country,
three-tier, client-server based, import/export management solution. In 1999, we
introduced TradeSphere, a multi-country, multi-module suite of web-based global
trade management solutions. In 2000, we introduced TradePrism.com, a trade
portal that provides a web-based delivery mechanism for our global trade
management capabilities. Since our inception, we have continued to develop a
comprehensive suite of solutions with features, functionality and services that
allow companies to manage the complexities of global trade.
In January 1999, we acquired Deltac Ltd., a provider of trade content and
management consulting expertise for the United Kingdom (UK) and European Union
(EU). In addition, in June 1999, we acquired Quantum Consulting Associates, Inc.
of Denver, Colorado to enhance our trade process consulting services and trade
expertise. We provide our products and services from our offices in the United
States and United Kingdom to over 200 clients. Our clients typically acquire a
limited number of server and user subscriptions or licenses to implement in a
division or department. As they expand implementation of our products globally
and to their customers, suppliers, and business partners, additional
subscriptions or licenses are acquired. We currently market our products and
services on a global basis through our direct sales force and other channels,
such as strategic alliances and partners. We expect revenues from our
international operations to increase as we continue to expand our international
sales and services organizations.
We have incurred significant losses in order to grow our business and as of
March 31, 2000 had an accumulated deficit of approximately $74.4 million. We
believe our future success depends on increasing our client base, further
developing additional global trade data and content and introducing new products
and services to the marketplace. Prior to 1999, we have derived substantially
all of our revenues from sales of our client-server based solutions EMS-2000 and
Global Passport. As we continue to focus our development and marketing efforts
on TradeSphere and TradePrism.com, we expect to derive an increasingly higher
percentage of revenues from these web-based B2B solutions. Because these
solutions are new in the marketplace, we expect our revenues to be increasingly
uncertain and subject to fluctuations. In addition, to complete the development
of our web-based solutions, we intend to continue to invest heavily in research
and development, sales, marketing and management consulting services; therefore,
we expect to continue to incur substantial operating losses in the foreseeable
future.
SOURCE OF REVENUES AND REVENUE RECOGNITION POLICY
Our revenues consist of subscription/transaction revenues and services
revenues. Revenues classified as subscription/transaction consist of
subscriptions, transactions and sales of perpetual
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<PAGE>
software licenses, maintenance and solution services. Revenues from software
licenses, maintenance contracts, and subscription arrangements are recognized
ratably over the estimated economic life of the product (three years) or, if
stated, the contract term. Certain agreements provide for transaction fees based
on usage of our products and revenues are recognized when transactions occur.
Maintenance contracts include the right to unspecified enhancements on a
when-and-if available basis, ongoing support, and content update services. In
general, all of our active clients renew these maintenance contracts to obtain
access to these regular content updates, which are critical to the continued
maintenance of such clients' systems. Historically, we have not experienced
significant returns or exchanges of our products. As we continue to focus our
marketing efforts on our web-based, B2B solutions, we expect
subscription/transaction revenues to increase as a percentage of total revenues.
Services revenues are derived from implementation, management consulting and
training services. Our services revenues are provided on a time-and-materials or
on a fixed-price basis and are recognized as the services are performed or on a
percentage-of-completion basis. Our services revenues have increased due to the
growth in our customer base, expansion of our implementation organization and
expansion of our management consulting organization. In the future we expect
services revenues to decrease as a percentage of total revenues.
Our product sales cycle is typically one to nine months. Furthermore, we
have experienced, and expect to continue to experience, significant variation in
the size of individual sales. As a result of this and other factors, our results
have varied significantly in the past and are likely to be subject to
significant fluctuations in the future. Since subscription/transaction revenues
are recognized ratably, typically over three years, and the timing of services
revenues is dependent on the scope of the engagement, we believe that
period-to-period comparisons of the results of operations are not necessarily
indicative of the results we expect for any future period.
DEFERRED REVENUES
Deferred revenues include amounts billed to clients for which revenues have
not been recognized and generally result from billed, but deferred
subscription/transaction revenues and deferred services not yet rendered.
Deferred revenues will be recognized on a monthly basis over the remaining
economic life of the product or recognized as revenues when the service is
performed.
COST OF REVENUES
Cost of revenues includes the cost of our subscription/transaction revenues
and the cost of our services revenues. Cost of subscription/transaction revenues
includes royalties due to third parties for technology products integrated into
our software products. It also includes the cost of salaries and related
expenses for our client support function. The cost of subscription/transaction
revenues also includes the costs related to solution services offerings. As we
further develop our solution services, we expect our cost of revenues to
increase due to the increase in our providing hosting and outsourcing services
to our clients. We expect the cost of subscription/transaction revenues to
increase as we expand our solution services offerings and integrate other
technology products into our offerings.
Cost of services revenues includes the cost of salaries and related expenses
for implementation, management consulting, and training services provided to
customers, as well as, the cost of third parties contracted to provide either
application consulting or implementation services to our customers. Because our
cost of services revenues is greater than the cost of subscription/transaction
revenues, total cost of revenues may fluctuate based on the mix of products and
services sold.
22
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses consist of the depreciation expense
associated with our computer equipment; purchased software; furniture, fixtures
and equipment; and leasehold improvements and the amortization of goodwill
acquired through business combinations. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. Assets acquired under capital leases and leasehold
improvements are depreciated using the straight-line method over the shorter of
the estimated useful lives of the assets or the terms of the leases.
In January 1999, we acquired Deltac Ltd., a provider of trade content and
management consulting expertise for the UK and the EU. In addition, in
June 1999, we acquired Quantum Consulting Associates, Inc. of Denver, Colorado
to enhance our trade process consulting services and trade expertise. We
recorded these acquisitions under the purchase method of accounting. The excess
of the consideration over the fair value of the acquired assets and liabilities,
approximately $2.4 million, was accounted for as goodwill. Goodwill is being
amortized on a straight-line basis over five years and resulted in charges to
operations of approximately $313,000 for year ended December 31, 1999 and
approximately $120,000 for the three months ended March 31, 2000. Amortization
for future periods will be approximately $480,000 for the years ending
December 31, 2000, 2001, 2002, 2003 and approximately $167,000 in 2004.
STOCK OPTION COMPENSATION
We recorded deferred compensation of approximately $6.4 million in the last
six months of 1999 and approximately $11.0 million in the first three months of
2000. These amounts represents the difference between the exercise price and the
fair value for accounting purposes of the underlying common stock at the date of
grant. This amount is included as a component of stockholders' equity and is
being amortized on an accelerated basis over the applicable vesting period.
For the year ended December 31, 1999 and the three months ended March 31,
2000, we amortized approximately $378,000 and approximately $2.6 million of
deferred compensation, respectively. We expect to amortize deferred compensation
of approximately $9.3 million, $4.6 million, $2.3 million, $780,000 and $17,000
for the years ended December 31, 2000, 2001, 2002, 2003 and 2004. The amount of
stock option compensation expense to be recorded in future periods could
decrease if options are forfeited for which accrued but unvested compensation
has been recorded.
BENEFICIAL CONVERSION
On February 4, 2000 and February 29, 2000, pursuant to a stock purchase
agreement with new and existing investors, we issued approximately 1,569,000
shares of Series E convertible preferred stock for approximately $17.0 million.
The Company recorded a beneficial conversion feature as a dividend of
approximately $8.1 million in the first quarter of 2000 to reflect the
difference between the underlying convertible price per share of common stock
and the estimated fair market value of the common stock on the date of issuance.
RESEARCH AND DEVELOPMENT
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed", we have evaluated the establishment of technological feasibility of
our products during the development phase. The time period during which costs
could be capitalized from the point of reaching technological feasibility until
the time of general product release is very short and, consequently, the amounts
that could be capitalized are not material to our financial position or results
of operations.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the consolidated statement of operations
data, expressed as a percentage of total revenues for each period indicated. The
historical results are not necessarily indicative of results to be expected for
any future period.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
REVENUES:
Subscription/transaction
revenues..................... 61% 57% 59% 46% 38% 30% 42%
Services revenues.............. 39 43 41 54 62 70 58
---- ---- ---- ---- ---- ---- ----
Total revenues............. 100 100 100 100 100 100 100
COST OF REVENUES:
Cost of
subscription/transaction
revenues..................... -- 19 20 8 4 3 6
Cost of services revenues...... 62 36 39 47 53 46 52
---- ---- ---- ---- ---- ---- ----
Total cost of revenues..... 62 55 59 55 57 49 58
---- ---- ---- ---- ---- ---- ----
Gross margin....................... 38 45 41 45 43 51 42
---- ---- ---- ---- ---- ---- ----
OPERATING EXPENSES:
Sales and marketing............ 35 39 119 52 38 30 54
Research and development....... 39 72 110 48 32 25 54
General and administrative..... 31 70 46 29 19 14 21
Depreciation and
amortization................. 6 8 11 7 8 6 9
Stock option compensation...... -- -- -- -- 2 -- 42
---- ---- ---- ---- ---- ---- ----
Total operating expenses... 111 189 286 136 99 75 180
---- ---- ---- ---- ---- ---- ----
Loss from operations............... (73) (144) (245) (91) (56) (24) (138)
Other income (expense), net........ (2) 0 (3) (2) 1 1 --
---- ---- ---- ---- ---- ---- ----
Net loss........................... (75)% (144)% (248)% (93)% (55)% (23)% (138)%
==== ==== ==== ==== ==== ==== ====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO THREE MONTHS ENDED MARCH 31,
2000
REVENUES
TOTAL REVENUES. Total revenues increased 40% from approximately
$4.5 million for the three months ended March 31, 1999 to approximately
$6.3 million for the three months ended March 31, 2000.
SUBSCRIPTION/TRANSACTION REVENUES. Subscription/transaction revenues
increased 91% from approximately $1.4 million for the three months ended
March 31, 1999 to approximately $2.6 million for the three months ended
March 31, 2000. We attribute this increase primarily to continued growth in our
client base resulting from increased market acceptance of our product offerings
and our increased sales and marketing efforts. As we continue to focus our
development and marketing efforts on our web-based, B2B solutions, we expect
that subscription/transaction revenues will increase as a percentage of total
revenues.
24
<PAGE>
SERVICES REVENUES. Services revenues increased 17% from approximately
$3.1 million for the three months ended March 31, 1999 to approximately
$3.7 million for the three months ended March 31, 2000. The increase resulted
primarily from increases in our customer base and increases in our average
billing rates. We expect the proportion of services revenues to total revenues
to decrease.
COST OF REVENUES
COST OF SUBSCRIPTION/TRANSACTION REVENUES. The cost of
subscription/transaction revenues increased 180% from approximately $130,000 for
the three months ended March 31, 1999 to approximately $364,000 for the three
months ended March 31, 2000. The increase resulted primarily from our investment
in our customer support infrastructure. The cost of subscription/transaction
revenues, as a percentage of subscription/transaction revenues was 9% for the
three months ended March 31, 1999 and 14% for the three months ended March 31,
2000. This increase as a percentage of subscription/transaction revenues
reflected our expansion of our customer support staff. We expect the cost of
subscription/transaction revenues to increase as a percentage of
subscription/transaction revenues as we expand our solution services offerings
and integrate other technology products into our offerings.
COST OF SERVICES REVENUES. The cost of services revenues increased 58% from
approximately $2.1 million for the three months ended March 31, 1999 to
approximately $3.3 million for the three months ended March 31, 2000. This
increase resulted primarily from the hiring and training of consulting and
training personnel to support our increased customer base. The cost of services
revenues, as a percentage of services revenues was 66% for the three months
ended March 31, 1999 and 89% for the three months ended March 31, 2000. This
increase reflects our hiring and investment in our management consulting
organization. We expect the cost of services revenues to decrease as a
percentage of services revenues as we continue to make productivity improvements
in both our management consulting as well as our implementation and training
organizations.
GROSS PROFIT
Gross profit increased 15% from approximately $2.3 million for the three
months ended March 31, 1999 to approximately $2.6 million for the three months
ended March 31, 2000. This increase is attributable to the growth in our
customer base, which increased subscription/ transaction revenues and services
revenues. Gross margin decreased from 51% for the three months ended March 31,
1999 to 42% for the three months ended March 31, 2000. This decrease was due
primarily to the investments made in our management consulting organization. We
expect gross margin to increase, as we continue to make productivity
improvements in our management consulting organization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel, sales
training events, public relations, advertising, trade shows, and travel expenses
related to both promotional events and direct sales efforts. Sales and marketing
increased 153% from approximately $1.3 million for the three months ended
March 31, 1999 to approximately $3.4 million for the three months ended
March 31, 2000. This increase resulted primarily from our continued investment
in our sales and marketing infrastructure, both domestically and
internationally. The investments included significant personnel and related
expenses, recruiting fees, travel expenses, and related facility and equipment
costs. In addition, we increased marketing activities, including trade shows,
public relations, direct mail campaigns and other promotional activities during
this period. Sales and marketing represented 30% of our total revenues for the
three months ended March 31, 1999 and 54% for the
25
<PAGE>
three months ended March 31, 2000. We believe that we will need to continue to
increase our sales and marketing expenses to expand our market position. As a
result, we anticipate that sales and marketing expenses will continue to
increase in absolute dollar amounts in future years but decrease as a percentage
of total revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries, benefits and equipment for software developers, quality
assurance personnel, program managers, and technical writers. Research and
development expenses increased 203% from approximately $1.1 million for the
three months ended March 31, 1999 to approximately $3.4 million for the three
months ended March 31, 2000. This increase resulted from an increase in the
number of software developers and quality assurance personnel needed to support
our product development and testing activities. Research and development
expenses represented 25% of our total revenues for the three months ended
March 31, 1999 and 54% for the three months ended March 31, 2000. We believe
that we must continue to invest in research and development in order to develop
new products and services. As a result, we anticipate that research and
development expenses will continue to increase in absolute dollar amounts but
decrease as a percentage of total revenues.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative and information services personnel. These expenses also include
fees for legal, audit and accounting, and other professional services. General
and administrative expenses increased 109% from approximately $619,000 for the
three months ended March 31, 1999 to approximately $1.3 million for the three
months ended March 31, 2000. This increase resulted primarily from the addition
of executive, finance, and administrative personnel to support the growth of our
business. General and administrative expenses represented 14% of our total
revenues for the three months ended March 31, 1999 and 21% for the three months
ended March 31, 2000. The increase as a percentage of total revenues reflected
our expansion of our administrative staff. We believe our general and
administrative expenses will continue to increase in absolute dollar amounts as
we expand our administrative staff, domestically and internationally, and incur
expense associated with becoming a public company. We expect these expenses to
include annual and other public reporting costs, directors' and officers'
liability insurance, investor relations programs and additional legal,
accounting and consulting fees.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 106% from approximately $281,000 for the three months ended March 31,
1999 to approximately $580,000 for the three months ended March 31, 2000. This
increase resulted primarily from the depreciation of fixed assets purchased to
build the infrastructure needed to support the growth of our business and the
amortization of goodwill from the acquisition of Deltac Ltd. in January 1999 and
Quantum Consulting Associates, Inc. in June 1999. This amortization was
approximately $57,000 for the three months ended March 31, 1999 and
approximately $120,000 for the three months ended March 31, 2000. Depreciation
and amortization expenses represented 6% of our total revenues for the three
months ended March 31, 1999 and 9% for the three months ended March 31, 2000.
STOCK OPTION COMPENSATION. Stock option compensation expense increased from
zero for the three months ended March 31, 1999 to approximately $2.6 million for
the three months ended March 31, 2000. Deferred compensation of approximately
$14.4 million at March 31, 2000 will be amortized on an accelerated basis over
the applicable vesting period.
OTHER INCOME (EXPENSES), NET. Other income (expenses), net fluctuates based
on the amount of cash balances available for investment, borrowings under our
line of credit, interest expense related to our term loans and realized gains
and losses on investments. Other income
26
<PAGE>
(expenses), net decreased from approximately $52,000 for the three months ended
March 31, 1999 to approximately $27,000 for the three months ended March 31,
2000. The decrease reflects the additional interest expense on the equipment
line of credit for the three months ended March 31, 2000.
INCOME TAXES. No provision for income taxes has been recorded for either
the three months ended March 31, 1999 or the three months ended March 31, 2000
due to accumulated net operating losses. We have recorded a valuation allowance
for the full amount of our net deferred tax assets as a result of the
uncertainty surrounding the timing of the realization of these future tax
benefits.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1999
REVENUES
TOTAL REVENUES. Total revenues increased 116% from approximately
$8.9 million for the year ended December 31, 1998 to approximately
$19.1 million for the year ended December 31, 1999.
SUBSCRIPTION/TRANSACTION REVENUES. Subscription/transaction revenues
increased 78% from approximately $4.1 million for the year ended December 31,
1998 to approximately $7.3 million for the year ended December 31, 1999. We
attribute this increase primarily to growth in our client base resulting from
increased market acceptance of our product offerings and our increased sales and
marketing efforts.
SERVICES REVENUES. Services revenues increased 148% from approximately
$4.8 million for the year ended December 31, 1998 to approximately
$11.9 million for the year ended December 31, 1999. This increase resulted
primarily from increases in our customer base and increases in our average
billing rates. The increase in services revenues as a percentage of total
revenues was also attributable to the acquisitions of Deltac, Ltd. and Quantum
Consulting Associates.
COST OF REVENUES
COST OF SUBSCRIPTION/TRANSACTION REVENUES. The cost of
subscription/transaction revenues decreased 2% from approximately $708,000 for
the year ended December 31, 1998 to approximately $692,000 for the year ended
December 31, 1999. While we had an increase in our customer support costs, it
was more than offset by our ability to negotiate more favorable royalty rates
for technology products integrated into our software products. The cost of
subscription/ transaction revenues, as a percentage of subscription/transaction
revenues, was 17% for the year ended December 31, 1998 and 10% for the year
ended December 31, 1999.
COST OF SERVICES REVENUES. The cost of services revenues increased 140%
from approximately $4.2 million for the year ended December 31, 1998 to
approximately $10.1 million for the year ended December 31, 1999. This increase
resulted primarily from the hiring and training of consulting and training
personnel to support our increased customer base. The cost of services revenues,
as a percentage of services revenues was 88% for the year ended December 31,
1998 and 85% for the year ended December 31, 1999. This decrease reflects
productivity improvements in our implementation and training organizations in
1999. However, this decrease was offset by our hiring and investment in our
management consulting organization.
GROSS PROFIT
Gross profit increased 112% from approximately $4.0 million for the year
ended December 31, 1998 to approximately $8.4 million for the year ended
December 31, 1999. This increase is attributable to the growth in our customer
base, which increased subscription/transaction revenues and services revenues.
Gross margin decreased from 45% for the year ended December 31, 1998
27
<PAGE>
to 43% for the year ended December 31, 1999. This decrease was due primarily to
the investments made in our management consulting organization.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 56% from
approximately $4.6 million for the year ended December 31, 1998 to approximately
$7.1 million for the year ended December 31, 1999. This increase resulted
primarily from our increased investment in our sales and marketing
infrastructure, both domestically and internationally, in the anticipation of
future market growth. The investments included significant personnel related
expenses, recruiting fees, travel expenses, and related facility and equipment
costs. In addition, we increased marketing activities, including trade shows,
public relations, direct mail campaigns and other promotional activities. Sales
and marketing expenses represented 52% of our total revenues for the year ended
December 31, 1998 and 38% for the year ended December 31, 1999. This decrease
reflects the higher revenue base, as well as improvements achieved in
productivity of our sales organization.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 45%
from approximately $4.3 million for the year ended December 31, 1998 to
approximately $6.2 million for the year ended December 31, 1999. This increase
resulted from an increase in the number of software developers and quality
assurance personnel needed to support our product development and testing
activities. Research and development expenses represented 48% of our total
revenues for the year ended December 31, 1998 and 32% for the year ended
December 31, 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
44% from approximately $2.6 million for the year ended December 31, 1998 to
approximately $3.7 million for the year ended December 31, 1999. This increase
resulted primarily from the addition of executive, finance, and administrative
personnel to support the growth of our business. General and administrative
expenses represented 29% of our total revenues for the year ended December 31,
1998 and 19% for the year ended December 31, 1999. The decrease as a percentage
of total revenues reflected efficiencies gained throughout our administrative
processes as we have grown as a company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 155% from approximately $637,000 for the year ended December 31, 1998
to approximately $1.6 million for the year ended December 31, 1999. This
increase resulted primarily from the depreciation of fixed assets purchased to
build the infrastructure needed to support the growth of our business and the
amortization of goodwill from the acquisition of Deltac Ltd. in January 1999 and
Quantum Consulting Associates, Inc. in June 1999. This amortization was zero for
the year ended December 31, 1998 and approximately $313,000 for the year ended
December 31, 1999. Depreciation and amortization expenses represented 7% of our
total revenues for the year ended December 31, 1998 and 8% for the year ended
December 31, 1999.
STOCK OPTION COMPENSATION. Stock option compensation expense increased from
zero for the year ended December 31, 1998 to approximately $378,000 for the year
ended December 31, 1999. Deferred compensation of approximately $6.4 million at
December 31, 1999 will be amortized on an accelerated basis over the applicable
vesting period.
OTHER INCOME (EXPENSES), NET. Other income (expenses), net increased from
approximately ($157,000) for the year ended December 31, 1998 to $181,000 for
the year ended December 31, 1999. This increase reflects the investment income
earned on the proceeds of our private placement during 1998.
INCOME TAXES. No provision for income taxes has been recorded for either
the year ended December 31, 1998 or the year ended December 31, 1999 due to
accumulated net operating
28
<PAGE>
losses. We have recorded a valuation allowance for the full amount of our net
deferred tax assets as a result of the uncertainty surrounding the timing of the
realization of these future tax benefits.
As of December 31, 1999, we had net operating loss carry-forwards for
federal tax purposes of approximately $19.5 million. These federal tax loss
carry-forwards are available to reduce future taxable income and begin to expire
in 2011. Under the provisions of the Internal Revenue Code, certain substantial
changes in our ownership have occurred, and as a result, our future utilization
of these net operating carry-forwards, that we accumulated prior to the change
in ownership, may be subject to a limitation per year. We may generate
additional net operating loss carry-forwards in the future.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
REVENUES
TOTAL REVENUES. Total revenues increased 137% from approximately
$3.7 million for the year ended December 31, 1997 to approximately $8.9 million
for the year ended December 31, 1998.
SUBSCRIPTION/TRANSACTION REVENUES. Subscriptions/transaction revenues
increased 86% from approximately $2.2 million for the year ended December 31,
1997 to approximately $4.1 million for the year ended December 31, 1998. This
increase is primarily attributed to increased market acceptance of our product
offerings.
SERVICES REVENUES. Services revenues increased 209% from approximately
$1.5 million for the year ended December 31, 1997 to approximately $4.8 million
for the year ended December 31, 1998. This increase in services revenues is
primarily attributed to our increased sales of our software applications and
overall growth of our installed base of customers.
COST OF REVENUES
COST OF SUBSCRIPTION/TRANSACTION REVENUES. Cost of subscription/transaction
revenues decreased 8% from approximately $766,000 for the year ended
December 31, 1997 to approximately $708,000 for the year ended December 31,
1998. Cost of subscription/transaction revenues as a percentage of
subscription/transaction revenues was 35% for the year ended December 31, 1997
and 17% for the year ended December 31, 1998. This decrease was due to our
ability to negotiate during the year more favorable royalty rates for technology
products integrated into our software products.
COST OF SERVICES REVENUES. Cost of services revenues increased 186% from
approximately $1.5 million for the year ended December 31, 1997 to approximately
$4.2 million for the year ended December 31, 1998. This increase resulted from
the hiring and training of professional service personnel to support our growing
customer base. Cost of services revenues as a percentage of services revenues
was 95% for the year ended December 31, 1997 and 88% for the year ended
December 31,1998. This decrease primarily reflected increased utilization of
professional service personnel.
GROSS PROFIT
Gross profit increased 162% from approximately $1.5 million for the year
ended December 31, 1997 to approximately $4.0 million for the year ended
December 31, 1998. This increase is attributable to the growth in our customer
base, which increased subscription/transaction revenues and services revenues.
Gross margin increased from 41% for the year ended December 31, 1997 to 45% for
the year ended December 31, 1998. This increase was due primarily to the
increase in subscription/transaction revenues and improved productivity in our
service organization.
29
<PAGE>
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased 3% from
approximately $4.4 million for the year ended December 31, 1997 to approximately
$4.6 million for the year ended December 31, 1998. The increases in sales and
marketing expenses resulted from our investment in sales and marketing
infrastructure, which primarily included personnel related expenses. Sales and
marketing expenses represented 119% of our total revenues for the year ended
December 31, 1997 and 52% for the year ended December 31, 1998. The decrease in
sales and marketing expenses as a percentage of total revenues resulted
primarily from increased revenues in 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 3%
from approximately $4.1 million for the year ended December 31, 1997 to
approximately $4.3 million for the year ended December 31, 1998. The increases
in research and development expenses related primarily to the increase in the
number of software developers and quality assurance personnel needed to support
our product development and testing activities. Research and development costs
represented 110% of our total revenues for the year ended December 31, 1997 and
48% for the year ended December 31, 1998. This decrease is due to the completion
of a product upgrade in June 1997 and from increased revenues in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
50% from approximately $1.7 million for the year ended December 31, 1997 to
approximately $2.6 million for the year ended December 31, 1998. The increase in
general and administrative expenses resulted primarily from the addition of
executive, finance, and administrative personnel to support the growth of our
business during these periods. General and administrative costs represented 46%
of our total revenues for the year ended December 31, 1997 and 29% for the year
ended December 31, 1998. The decrease as a percentage of total revenues
reflected efficiencies gained throughout our general and administrative
functions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 50% from approximately $426,000 for the year ended December 31, 1997
to approximately $637,000 for the year ended December 31, 1998. This increase
resulted primarily from the depreciation of fixed assets purchased to build the
infrastructure needed to support the growth of our business. Depreciation and
amortization expenses represented 11% of our total revenues for the year ended
December 31, 1997 and 7% for the year ended December 31, 1998.
OTHER INCOME (EXPENSES), NET. Other income (expenses), net decreased from
approximately ($98,000) for the year ended December 31, 1997 to approximately
($157,000) for the year ended December 31, 1998. This decrease resulted from the
interest expense incurred from capital equipment leases entered into during the
last part of 1997 and the early part of 1998.
INCOME TAXES. No provision for income taxes has been recorded for either
the year ended December 31, 1997 or the year ended December 31, 1998 due to
accumulated net operating losses. We have recorded a valuation allowance for the
full amount of our net deferred tax assets as a result of the uncertainty
surrounding the timing of the realization of these future tax benefits.
30
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth unaudited quarterly results for the eight
fiscal quarters ended March 31, 2000, as well as, such data expressed as a
percentage of our net revenues for each quarter. This information has been
presented on the same basis as our audited consolidated financial statements
appearing elsewhere in this prospectus and, in our opinion, include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary to present fairly the unaudited quarterly results. This information
should be read in conjunction with our audited consolidated financial statements
and the related notes appearing elsewhere in this prospectus. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
CONSOLIDATED STATEMENT OF OPERATIONS 1998 1998 1998 1999 1999
DATA: --------- ---------- --------- ----------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Subscription/transaction
revenues...... $ 939 $ 1,123 $ 1,231 $ 1,373 $ 1,572
Services revenues... 837 1,355 2,026 3,125 3,065
------- ------- ------- ------- -------
Total revenues... 1,776 2,478 3,257 4,498 4,637
COST OF REVENUES:
Cost of subscription/transaction
revenues...... 188 154 187 130 179
Cost of services revenues... 652 1,186 1,810 2,065 2,200
------- ------- ------- ------- -------
Total cost of revenues:... 840 1,340 1,997 2,195 2,379
Gross profit...... 936 1,138 1,260 2,303 2,258
OPERATING EXPENSES:
Sales and marketing... 1,010 1,086 1,385 1,340 1,567
Research and development... 1,092 977 1,198 1,121 1,256
General and administrative... 725 706 653 619 753
Depreciation and amortization... 84 220 250 281 362
Stock option compensation... -- -- -- -- --
------- ------- ------- ------- -------
Total operating expenses... 2,911 2,989 3,486 3,361 3,938
------- ------- ------- ------- -------
Loss from operations... (1,975) (1,851) (2,226) (1,058) (1,680)
Other income (expense)... 3 (91) (30) 52 71
------- ------- ------- ------- -------
Net loss.... $(1,972) $(1,942) $(2,256) $(1,006) $(1,609)
======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
------------------------------------
SEPT. 30, DEC. 31, MARCH 31,
CONSOLIDATED STATEMENT OF OPERATIONS 1999 1999 2000
DATA: ---------- --------- -----------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Subscription/transaction
revenues...... $ 1,984 $ 2,332 2,617
Services revenues... 3,393 2,286 3,662
------- ------- ------
Total revenues... 5,377 4,618 6,279
COST OF REVENUES:
Cost of subscription/transaction
revenues...... 172 211 364
Cost of services revenues... 2,695 3,118 3,271
------- ------- ------
Total cost of revenues:... 2,867 3,329 3,635
Gross profit...... 2,510 1,289 2,644
OPERATING EXPENSES:
Sales and marketing... 1,976 2,260 3,387
Research and development... 1,670 2,147 3,398
General and administrative... 1,068 1,240 1,294
Depreciation and amortization... 456 526 580
Stock option compensation... 89 289 2,622
------- ------- ------
Total operating expenses... 5,259 6,462 11,281
------- ------- ------
Loss from operations... (2,749) (5,173) (8,637)
Other income (expense)... 49 9 27
------- ------- ------
Net loss.... $(2,700) $(5,164) (8,610)
======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
1998 1998 1998 1999 1999 1999 1999 2000
PERCENTAGE OF REVENUES --------- ---------- --------- ----------- --------- ---------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Subscription/transaction
revenues................ 52.9% 45.3% 37.8% 30.5% 33.9% 36.9% 50.5% 41.7%
Services revenues......... 47.1% 54.7% 62.2% 69.5% 66.1% 63.1% 49.5% 58.3%
------- ------- ------- ------- ------- ------- ------- ------
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
COST OF REVENUES:
Cost of
subscription/transaction
revenues................ 10.6% 6.2% 5.7% 2.9% 3.9% 3.2% 4.6% 5.8%
Cost of services
revenues................ 36.7% 47.9% 55.6% 45.9% 47.4% 50.1% 67.5% 52.1%
------- ------- ------- ------- ------- ------- ------- ------
Total cost of
revenues:............. 47.3% 54.1% 61.3% 48.8% 51.3% 53.3% 72.1% 57.9
Gross margin................ 52.7% 45.9% 38.7% 51.2% 48.7% 46.7% 27.9% 42.1%
OPERATING EXPENSES:
Sales and marketing....... 56.9% 43.8% 42.5% 29.8% 33.8% 36.7% 48.9% 53.9%
Research and
development............. 61.5% 39.4% 36.8% 24.9% 27.1% 31.1% 46.5% 54.1%
General and
administrative.......... 40.8% 28.5% 20.0% 13.8% 16.2% 19.9% 26.9% 20.6%
Depreciation and
amortization............ 4.7% 8.9% 7.7% 6.2% 7.8% 8.5% 11.4% 9.2%
Stock option
compensation............ -- -- -- -- -- 1.7% 6.3% 41.8%
------- ------- ------- ------- ------- ------- ------- ------
Total operating
expenses.............. 163.9% 120.6% 107.0% 74.7% 84.9% 97.9% 140.0% 179.6%
------- ------- ------- ------- ------- ------- ------- ------
Loss from operations........ (111.2)% (74.7)% (68.3)% (23.5)% (36.2)% (51.2)% (112.1)% (137.5)%
Other income (expense)...... 0.2% (3.7)% (0.9)% 1.2% 1.5% 0.9% 0.2% 0.4%
------- ------- ------- ------- ------- ------- ------- ------
Net loss.............. (111.0)% (78.4)% (69.2)% (22.3)% (34.7)% (50.3)% (111.9)% (137.1)%
======= ======= ======= ======= ======= ======= ======= ======
</TABLE>
31
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Our operating results have varied on a quarterly basis and may fluctuate
significantly in the future. In addition the quarterly results of any quarter do
not indicate results to be expected for a full fiscal year.
For the three months ended December 31, 1999, services revenues decreased
sequentially due to the effect of Year 2000 issues. Many clients postponed the
start of any new service engagements scheduled to begin in November and
December 1999 and instead started these engagements in the first quarter of
2000. Consequently, the increase in services revenues by 60% or approximately
$1.4 million for the three months ended March 31, 2000 resulted partially from
these delayed engagements. Training revenues, which are a component of services
revenues, also decreased for the same reasons. The overall gross margin
decreased in quarters ending June 1999 through December 1999 as a result of
increased costs related to our acquisition of Quantum Consulting
Associates, Inc. The acquisition of Quantum allowed us to enhance our offering
of management consulting services. We have continued to hire personnel and
enhance our capabilities in this area through December 1999. Our gross margin
was most negatively affected in the quarter ended December 1999 as a combined
result of decreased services revenues related to Year 2000 issues and increased
costs related to our acquisition of Quantum.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- Our ability to attract new clients and retain current clients which could
lead to changes in our revenues;
- The announcement or introduction of new products or services by us or our
competitors which could also lead to changes in our revenues;
- Changes in the pricing of our products and services or those of our
competitors;
- Variability in the mix of our subscription/transaction and services
revenues in any quarter which could affect our margins; and
- The amount and timing of operating expenses and capital expenditures
relating to expansion of our business.
We believe that, while the quarterly period to period comparisons furnish
important information about our revenues and expenses, these comparisons are not
necessarily meaningful and should not be relied upon as indicators of future
performance. Finally, as a result of these foregoing factors, our annual or
quarterly results of operations may be below the expectations of the public
market analysts or investors. If this occurs, the market price of our common
stock may decline.
LIQUIDITY AND CAPITAL RESOURCES
We have primarily financed our operations through private sales of
convertible preferred stock, borrowings under our line of credit and capital
lease obligations, and net revenues generated from our business. Through
March 31, 2000 we have raised cumulative net proceeds of approximately
$43.2 million through convertible preferred stock offerings. As of March 31,
2000 we had cash and cash equivalents of approximately $669,000 plus short term
investments of approximately $13.8 million and an accumulated deficit of
approximately $74.4 million.
Net cash used in operating activities totaled approximately $5.5 million in
1997, $3.9 million in 1998, $5.7 million in 1999 and $6.6 million for the three
months ended March 31, 2000. Net cash flows from operating activities in each
period reflect net losses of approximately $9.3 million in 1997, $8.3 million in
1998, $10.5 million in 1999 and $8.6 million for the three months ended
March 31, 2000, and to a lesser extent, are offset by the non-cash expenses
relating to depreciation and amortization, provision for allowance for doubtful
accounts and stock option compensation. In
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addition the net cash used in operations was increased by the growth in accounts
receivable and decreased by the growth in accounts payable, accrued compensation
and deferred revenues.
Net cash used in investing activities totaled approximately $510,000 in
1997, $2.8 million in 1998, $3.2 million in 1999 and $10.7 million for the three
months ended March 31, 2000. Our investing activities reflect the additions of
property and equipment, purchases of investments, and the acquisition of
subsidiaries completed during 1999. We also anticipate that our capital
expenditures will increase over the next several years as we expand our
facilities and acquire equipment to support expansion of our sales, marketing,
and research and development activities.
Our financing activities provided cash of approximately $6.1 million in
1997, $13.1 million in 1998, $2.1 million in 1999 and $17.0 million for the
three months ended March 31, 2000. These positive financing cash flows primarily
reflect the net proceeds from the issuance of redeemable convertible preferred
stock, and from the issuance of the line of credit and capital lease
obligations.
Amounts borrowed from one lending institution for capital leases are due
over 36 to 48 month repayment periods and are collateralized by our software
products. As of December 31, 1997, 1998, 1999 and March 31, 2000 the outstanding
balance under this equipment line of credit was approximately $612,000,
$1.3 million, $940,000 and $2.0 million, respectively.
In March 1999, we terminated the line of credit and negotiated with a
different bank a $2.5 million secured revolving credit facility and a
$1.5 million equipment line of credit. The line bears interest at prime rate
plus 0.75% percent for the secured revolving credit facility and prime rate plus
0.85% percent for the equipment line of credit. In September 1999, we negotiated
to increase the equipment line to $3.0 million. As of December 31, 1999 the
outstanding balance under this equipment line of credit was approximately
$1.7 million.
In March 2000, we renegotiated the financial covenants applicable to our
secured revolving credit facility and increased our aggregate borrowing limit
under the equipment line of credit to $4.8 million. One of these financial
covenants restricts us from incurring operating losses in excess of $5,000,000
for each of the second, third and fourth quarters of 2000, and $2,000,000 in any
quarters thereafter. Commencing with the first quarter of 2002, we are
restricted from incurring operating losses in any two consecutive quarters.
Additionally, we are required to maintain specific minimum tangible net worth
amounts on specified future dates.
Our secured revolving credit facility expires on September 5, 2000. The
amounts borrowed under the equipment line are initially subject to interest-only
payments and after the interest-only period will be repayable over a three-year
time period.
We intend to continue the investment in the business, particularly in the
areas of research and development, sales, and marketing. Our future liquidity
and capital requirements will depend on numerous factors, including:
- The costs and timing of expansion of sales and marketing activities;
- The costs and timing of product development efforts and the success of
these development efforts;
- The extent to which our existing and new products and services gain market
acceptance;
- The level and timing of revenues;
- The costs involved in maintaining and enforcing intellectual property
rights;
- The timing of market developments; and
- Available borrowings under line of credit and capital lease arrangements.
33
<PAGE>
In addition, we may use cash resources to fund acquisitions of complementary
businesses and technologies; however, we currently have no commitments or
agreements and are not involved in any negotiations regarding any of these
transactions. We believe that the net proceeds from this offering, combined with
current cash resources, will be sufficient to meet our working capital and
capital expenditures for at least the next 12 months. Thereafter, we may find it
necessary to obtain additional equity or debt financing. In the event that
additional financing is required, we may not be able to raise it on terms
acceptable to us, if at all.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative securities
instruments and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. As we do not engage in derivative or hedging
activities, we do not expect the adoption of this standard to have a significant
impact on our financial statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent, Europe and the Asia-Pacific region. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
As a majority of sales are currently made in U.S. dollars, a strengthening of
the dollar could make our products less competitive in foreign markets. We do
not expect any material adverse effect on our consolidated financial position,
results of operations or cash flows due to movements in any specific foreign
currency.
We currently do not use financial instruments to hedge operating expenses by
our European subsidiary. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis. Our interest income
is sensitive to changes in the general level of U.S. interest rates,
particularly since the majority of our investments are in short-term
instruments. Due to the short-term nature of our investments, we believe that
there is no material risk exposure. Therefore, no quantitative tabular
disclosures are required.
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<PAGE>
BUSINESS
OVERVIEW
We are a leading provider of solutions for global trade management. Our
offerings include an extensive library of global trade content, web-based B2B
solutions, management consulting and solution services. Global trade involves
the physical movement of goods across country borders, the management of the
information and processes required to enable global trade and the financial
exchange process required to complete related transactions. Our solutions focus
on the management of information and processes required to enable global trade
while enhancing collaboration across a client's global trade network, which
consists of exporters, forwarders, carriers, brokers, importers, banks and
customs or regulatory agencies. These offerings address the need for all members
of the global trade network to automate and optimize the multiple functions
associated with global trade. The core of our entire solutions suite is our
extensive library of trade content that leverages a sophisticated, rules-based
engine and unique trade expertise to deliver a web-based solution that enables
clients to automate their complex import and export needs. Our primary
Internet-based delivery mechanism for our solutions is our web-based portal,
TradePrism.com.
We believe the dynamics of global trade present both compelling
opportunities and challenges for companies participating in the global
marketplace. Global trade is complex and resource-intensive and has largely
remained a manual and inefficient process. The Internet and e-commerce provide
further opportunities for global expansion but also present significant
operational challenges. Our solutions enable clients to address these
difficulties and inefficiencies in order to capitalize on the large, highly
fragmented and rapidly growing opportunity that global e-commerce presents.
We serve an international client base of over 200 companies, some of whom
include Dell, Lucent, Microsoft, Nike, the New Zealand Dairy Board, Nortel,
Robert Bosch and Silicon Graphics. We provide comprehensive import and export
content to enable global trade management for transactions accounting for
approximately $4.1 trillion of all global trade in 1999. In addition, our
clients currently utilize our solutions to ship to over 120 countries worldwide.
We provide integrated B2B solutions for vertical Internet trading markets
such as CatalogCity.com, RightFreight.com, SupplierMarket.com and Arzoon.com and
are continuing to develop our B2B solutions to meet the needs of specific
vertical industries. To facilitate the marketing and delivery of our solutions,
we also maintain relationships with a number of leading technology companies,
including IBM, JD Edwards, Oracle and Sun Microsystems.
INDUSTRY BACKGROUND
The impact of multilateral trade agreements, the expansion of the modern
supply chain, competitive pressures and the rapid growth of e-commerce are
accelerating the pace of corporate globalization. The volume of global trade has
increased significantly over the last several decades and has reached an
unprecedented level in terms of both the number and size of transactions. The
World Trade Organization reported that world trade increased from $4.1 trillion
in 1980 to nearly $11.0 trillion in 1998. The U.S. Customs Service predicts that
U.S. imports alone will rise from more than $1 trillion in 1999 to approximately
$2 trillion by 2005. The U.S. Customs Service also projects that formal customs
entries will increase from approximately 18 million in 1999 to over 30 million
in 2005. As a result of this globalization, we believe the resources and
expertise necessary to manage global trade will increase significantly.
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<PAGE>
DIFFICULTIES OF GLOBAL TRADE
COMPLEX NETWORK. The modern global marketplace is a fast-paced, complex
trade network. Global trade involves an extended and geographically disperse
network of exporters, forwarders, carriers, brokers, importers, banks and
customs and regulatory agencies. These participants must be coordinated to
manage difficult physical, financial and information flows while satisfying
extensive country-specific trade requirements. These complex processes include
classifying and screening orders, determining and applying for required
licenses, generating and submitting extensive documentation, managing and
minimizing country-specific tariffs and duties, and tracking and tracing
shipments across the entire global trade network. Furthermore, trade
requirements are unique for every country, often undocumented, constantly
changing and difficult to interpret.
COMPLIANCE BURDEN. The burden of responsibility for regulatory compliance
and documentation weighs heavily on all members of the global trade network. The
U.S. Customs Service audits companies engaging in global trade. These audits
take an average of 15 months to complete and require an average of 1900 audit
hours. If caught in violation of international trade regulations, companies face
a variety of possible penalties and negative consequences, including fines, loss
of import/export privileges and adverse publicity. As a result, companies must
maintain an appropriate global trade compliance program to understand who is
buying their products and the end use of their products.
INEFFICIENCIES OF GLOBAL TRADE
INADEQUATE INFRASTRUCTURE AND PROCEDURES. Intense global competition is
requiring businesses to collaborate effectively with members of their global
trade network and to efficiently manage, optimize and utilize information flows.
For example, companies are finding it necessary to collaborate with trading
partners to take advantage of preferential trade programs such as those
promulgated under the North American Free Trade Agreement, or NAFTA. In
addition, companies are maintaining buffer inventory because their clients
demand heightened predictability and timely delivery. Customers are also
demanding heightened predictability and timely delivery, including real-time
tracking of shipments. Historically, businesses have lacked the technology and
procedures necessary to capitalize fully on the growth opportunities presented
by globalization. For example, Forrester Research estimates that 46% of
Internet-based orders to the U.S. from international clients go unfilled because
companies lack the procedures for international fulfillment.
RESOURCE-INTENSIVE. The resource demands for global trade management are
extensive, and existing trade compliance procedures, which are largely manual
and paper-based, tend to be highly inefficient and error-prone. Many companies
engaging in global trade cannot maintain large in-house staffs. Therefore, they
are required to outsource trade compliance and documentation processes to
third-party logistics firms or forwarders/brokers for a substantial fee. While
trade agreements such as NAFTA have removed barriers to global trade,
record-keeping requirements continue to increase substantially. Furthermore,
Benchmarking Partners estimates that up to 25% of a company's international
inventory is maintained as surplus stock due primarily to the inefficiencies of
global trade.
THE ROLE OF THE INTERNET
The rapid growth of the Internet as a global medium through which businesses
communicate, share information and conduct business internally and directly with
their customers, suppliers and other business partners worldwide has further
hastened this era of escalating global competition. Forrester Research estimates
that B2B commerce will grow from approximately $406 billion in 2000 to
approximately $2.7 trillion in 2004. Furthermore, the Internet provides the
opportunity for
36
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organizations to pursue solutions which automate and optimize the global trade
management processes.
MARKET OPPORTUNITY
We believe companies seeking to realize the benefits of global trade
management require solutions that address the following concerns:
LACK OF CENTRALIZED, COMPREHENSIVE AND CURRENT GLOBAL TRADE CONTENT. A
central, up-to-date library of global trade content is difficult to create and
maintain. As a result, there is a lack of a central source for this information.
Consequently, many multi-national companies resort to purchasing niche trade
solutions that cover only a limited number of countries or engage consulting
organizations specializing in selected countries to improve their global trade
practices. Given these deficiencies, we believe that companies are unable to
optimize decision-making based on access to dynamic centralized global trade
information.
LIMITED FUNCTIONAL SOLUTIONS FOR GLOBAL TRADE MANAGEMENT. In addition to
lacking comprehensive global trade content, currently available solutions lack
the breadth of functionality for clients to effectively manage their global
trade processes. For example, these solutions may address only limited global
trade functions, such as export document generation or import duty calculation.
Furthermore, these solutions may address the requirements of only one or a few
of the participants within the global trade network. Finally, many of these
solutions lack the technical architecture to operate over the Internet and do
not provide the portal capabilities necessary to facilitate global collaboration
of the trade network.
TRADE EXPERTISE ACROSS GEOGRAPHIC AND VERTICAL MARKETS. Companies offering
global trade consulting services typically focus on only one part of the
process, such as logistics or trade regulations, or only on a limited number of
industries, with very little understanding of the trade-specific implications of
their recommendations. Traditional consulting firms do not possess the
operational knowledge required to optimize global trade practices for clients
across the entire global trade network.
NEED FOR COMPREHENSIVE SOLUTION SERVICES. The resources required to manage
global trade effectively are extensive and include global trade expertise,
software solutions and related information technology infrastructure and
personnel to implement these solutions. Companies are frequently seeking
comprehensive outsourced solutions from third parties to satisfy their global
trade management needs because of the high costs and resource demands associated
with maintaining an in-house global trade department.
OUR SOLUTIONS
We believe that we are the only company offering a comprehensive suite of
global trade management solutions that address all of these needs. The
fundamental elements of our solutions include:
CENTRALIZED, COMPREHENSIVE AND CURRENT GLOBAL TRADE CONTENT. Our extensive
and actively managed library of country-specific trade requirements is the core
of our entire suite of global trade management solutions. We leverage our unique
global trade expertise and a sophisticated rules-based engine to deliver
accurate, comprehensive, up-to-date global trade information to our clients via
a web-based portal.
SOPHISTICATED, WEB-BASED B2B SOLUTIONS. We offer a sophisticated suite of
web-based, B2B solutions for global trade management. Our B2B solutions enable
clients to automate and optimize information management procedures across their
entire global trade networks. In addition, our
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solutions address the requirements of multiple members of a client's extended
global trade network and enable collaboration among all of these participants.
INDUSTRY AND COUNTRY-SPECIFIC GLOBAL TRADE EXPERTISE. Our management
consulting professionals analyze and address the global trade practices and
opportunities of our clients. Our consulting services help companies effectively
enter new geographic markets, better serve existing markets and address areas of
compliance risk. As part of our consulting offerings, we design, recommend and
implement process improvements for our clients.
COMPREHENSIVE SOLUTION SERVICES. Our solution services leverage
sophisticated technology, intellectual property and trade expertise to enable
our clients to outsource the information and process management required to
trade globally. These services enable clients to outsource all or parts of their
trade management procedures which allows them to focus on their core
competencies and realize financial benefits associated with efficient and
effective global trade management.
Our suite of global trade management solutions provides our clients with the
following benefits:
INFRASTRUCTURE TO PURSUE GLOBAL GROWTH OPPORTUNITIES. Our global trade
solutions leverage our global trade expertise and web-based functionality to
simplify many of the complexities associated with global trade management.
Because our web-based solutions are flexible and modular, our clients can select
specific components, or engines, to address their particular global trade needs.
They may also choose to outsource the management of all or parts of their global
trade network to us. Because our solutions automate these processes, our clients
can focus on their core competencies and compete more effectively in the global
marketplace.
EASY ACCESS TO RELIABLE GLOBAL TRADE CONTENT. We constantly monitor and
interpret global trade rules and regulations and deliver them to our clients
through a dynamic web-based portal, which fully integrates with our B2B
solutions. We believe that our ability to provide our clients with access to
current, centralized and standardized trade requirements differentiates us in
the marketplace.
TECHNOLOGY ENHANCING B2B COLLABORATION. Our solutions suite provides a
platform for clients to collaborate in real-time over the Internet with members
of their global trade network. Our Internet architecture includes XML technology
that enables our clients to exchange information with their trade partners,
regardless of differing information technology infrastructures, systems or
software. Our web-based solutions are flexible, scalable and user-friendly,
which we believe will facilitate their acceptance across extended members of a
company's global trade network. This improved collaboration enables our clients
to more effectively move goods globally and strategically manage information
required in their global trade process.
AUTOMATION AND OPTIMIZATION OF RESOURCE-INTENSIVE PROCEDURES. By automating
and optimizing currently inefficient procedures, our solutions enable companies
to enhance revenue opportunities, increase operational efficiencies and reduce
the costs of global sourcing. These benefits enable clients to more effectively
and efficiently compete in the global marketplace.
MANAGEMENT OF THE GLOBAL TRADE COMPLIANCE BURDEN. By automating regulatory
compliance and documentation procedures, our solutions help clients protect
against potential fines, sanctions and business risks that may result from
noncompliant or inefficient global trade management systems.
LEVERAGING OF INFORMATION TECHNOLOGY INVESTMENTS. Our web-based platform is
designed to integrate existing information management systems and software
applications and work within the capacity of existing networks. The ability of
our products to integrate existing information systems
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and software applications enables our clients to preserve and build upon their
corporate knowledge and information technology investments, while realizing the
benefits of our web-based solutions.
OUR STRATEGY
We seek to be the leading provider of web-based, B2B solutions for global
trade information management. The key elements of our strategy include:
BECOME THE STANDARD AND PREEMINENT BRAND FOR GLOBAL TRADE MANAGEMENT. We
seek to serve as the information backbone for global trade management. We expect
to expand our offerings of web-based trade information to cover countries
engaged in over 75% of the world's global trade transactions. We plan to
complement our solutions suite with an aggressive global branding campaign that
leverages our strategic alliances and relationships with clients, governments
and industry consultants. Moreover, we intend to provide solutions to all
members of the global trade network, positioning us to be recognized as the
standard for global trade management.
EXPAND GLOBAL TRADE CONTENT AND ENHANCE SOLUTIONS OFFERINGS. We intend to
continue to develop a comprehensive suite of solutions with features,
functionality and services that allow companies of all sizes to manage the
complexities of global trade. Because access to reliable, up-to-date
country-specific trade requirements is essential to companies engaging in global
trade, we intend to fortify our trade content by continuing to hire top global
trade experts worldwide. We plan to continue developing various components of
our B2B solutions to address the specific needs of various industries and trade
participants. We also intend to provide packaged solutions that are tailored to
provide immediate value to companies in specific industries, as well as
mid-market solutions that are competitively priced, quickly deployed and easily
managed. In addition to in-house product development, we intend to supplement
these initiatives by evaluating opportunities for acquisitions and strategic
investments.
ENHANCE TRANSACTION-BASED REVENUE STREAM. We will continue to provide
integrated solutions for industry-leading web-based B2B and B2C e-commerce
marketplaces. These marketplaces require global trade management solutions to
enable the cross-border movement of goods between buyers and sellers. We plan to
derive primarily transaction-based revenues from these Internet trading markets.
As these marketplaces add new clients that trade globally, we will, in turn,
receive a recurring revenue benefit of those new clients executing transactions
using our engines.
EXPAND OUR REACH AND RANGE. We intend to continue expanding our global
presence to enhance our competitive position worldwide and our ability to serve
and support our clients. We anticipate expanding our sales, marketing and
services presence in strategically important geographic markets. In addition, we
intend to utilize our strategic alliances and our relationships with leaders
within specific vertical markets that have strong potential for global
expansion. We also intend to evaluate opportunities for acquisitions and
investments that can accelerate our global expansion.
EXPAND OUR SOLUTION SERVICES CAPABILITIES. We intend to invest actively in
our solution services offerings in order to capitalize on a growing demand for
outsourced trade management solutions. We will continue to provide solution
services that will enable companies to outsource all or parts of their global
trade functions. These offerings target clients ranging from the Fortune 500 to
Internet start-ups and will be customized to an individual client or provided as
a shared service.
PRODUCTS AND SERVICES
Our comprehensive web-based solutions for global trade management consist of
our library of trade regulations, called Global eContent, our web-based B2B
solutions, including TradeSphere and TradePrism.com, our management consulting
services, called TradeValue, and our solution services,
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called TradeVantage. Clients can select elements of each product and service to
address their specific issues and opportunities. This flexibility offers our
clients a unique solution to automate and optimize their global trade process.
GLOBAL ECONTENT
Global eContent is a dynamic library of country-specific trade requirements
that is available to our clients. This extensive base of electronic content
serves as the platform for our entire suite of global trade management
solutions. Because of the global trade expertise and specialization required to
interpret and fully understand the impact of country-specific trade regulations,
we employ a full-time content and compliance team dedicated exclusively to
tracking and managing trade regulations, trade content and international
regulatory data. These full-time Global eContent experts also design
intelligence into the data to be leveraged by our B2B solutions (e.g.,
algorithms which can detect restricted parties even if names or addresses are
misspelled, or logic which can search for lower duty rates given preferential
programs such as NAFTA and others). This team consists of former government
compliance officials, international lawyers, licensed customs brokers,
in-country data experts, industry consultants and individuals with previous
responsibility for managing import and export functions within multi-national
organizations in various industries.
Periodic regulatory and policy changes require that our B2B solutions be
updated on a regular basis to keep current with the latest country-specific
trade regulations. To meet this need, daily updates and postings are made
available through TradePrism.com, our web-based portal, from which updates and
changes can be electronically downloaded and applied. Information provided in
our Global eContent library includes trade data, regulation updates, regulation
notices, trade committee meeting information, requests for public comment on
regulatory issues and final rulings on proposed regulation.
The following table lists the countries for which we provide Global eContent
support. The level of data we provide varies by country and ranges from simple
references to extensive import and export regulations.
Australia
Austria
Belgium
Brazil
Canada
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hong Kong
Hungary
Ireland
Italy
Japan
Kazakhstan
Latvia
Lithuania
Luxembourg
Netherlands
New Zealand
Norway
Poland
Portugal
Romania
Russia
Singapore
South Africa
South Korea
Spain
Sweden
Switzerland
Turkey
Ukraine
United Kingdom
United States
B2B SOLUTIONS
Our suite of web-based, B2B solutions includes TradeSphere, TradePrism.com
and our TradeSphere Services.
TRADESPHERE
TradeSphere intelligently automates and optimizes the information exchanges
required to move goods across international borders. TradeSphere components
facilitate specific global trade functions, strategically manage the information
required to trade globally and enhance collaboration among extended members of a
client's global trade network. TradeSphere is flexible, modular and highly
scalable and is offered in multiple languages. Components of TradeSphere include
restricted
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party and boycott/embargo screening, landed cost calculation, shipment
documentation, global tracking and tracing, sourcing optimization, and tariff
management. Clients may use our TradeSphere components on either a subscription
or transaction fee basis. We also offer these components as a hosted solution.
We provide TradeSphere as an integrated solution for vertical Internet trading
market providers such as Arzoon.com, CatalogCity.com, RightFreight.com and
SupplierMarket.com. We are continuing to develop TradeSphere to meet the
specific needs of targeted vertical industries.
The following table summarizes the key functions that we offer as a part of
our current TradeSphere business plan. We also continue to develop additional
TradeSphere components to meet the growing needs of extended members of the
global trade network.
<TABLE>
<S> <C> <C>
OPERATIONAL MODULES--PROVIDE SHORT TO MEDIUM RANGE PLANNING OF GLOBAL TRADE PRACTICES.
TradeSphere Exporter - Manages export process for companies trading
globally.
- Manages transactions to ensure compliance with export
laws and international trade agreements before goods
are exported.
- Performs checks and calculations on orders and
shipments.
TradeSphere Broker - Provides collaboration between brokers and global
trade partners.
- Manages the import entry information provided by the
broker.
TradeSphere Importer - Manages import process for companies trading
globally.
- Electronically files import entries.
- Performs checks and calculations on pre-entries and
commercial invoices.
- Manages transactions to ensure compliance with import
laws and international trade agreements before goods
are imported.
</TABLE>
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<TABLE>
<S> <C> <C>
EXECUTION MODULES--PROVIDE MANAGEMENT OF THE DAY-TO-DAY GLOBAL TRADE PRACTICES.
Restricted Party Screening - Screens transaction parties against a government
maintained list of restricted parties.
- Places holds on transactions in which restricted
parties are identified.
Landed Cost Calculator - Calculates total landed cost, including duties, taxes
and fees.
- Optimizes supply sourcing decisions associated with
international shipments.
Document Director - Produces the required documents for international
shipments.
- Tracks the status of documents as they flow among
participants in international shipments.
- Determines the delivery method for each document such
as fax, email or printer.
Tariff Agent - Maintains current duty rates, tariff codes and FTZ
(free trade zone) information for clients to
reference.
</TABLE>
Our TradeSphere solutions leverage components of our client-server software
solution for import and export management named Global Passport. Global
Passport's capabilities include generating international shipping documents,
calculating import duties, ensuring adherence to trade regulations,
electronically filing entries with customs and tracking and tracing
international shipments. Its intelligent algorithms and global trade data serve
as the import/export engines within our TradeSphere solution.
TRADEPRISM.COM
TradePrism.com is our global trade management portal that allows our clients
to access TradeSphere solutions via the Internet, gather global trade data from
our Global eContent library and collaborate with other members of their global
trade network from a public or private exchange portal.
TRADESPHERE SERVICES
Our TradeSphere Services are provided to our clients to complement our
TradeSphere solutions and include the following:
IMPLEMENTATION SERVICES. Our implementation consultants assist our
TradeSphere clients with the development and management of a project and with
the technical activities during the installation phase, provide them with
comprehensive documentation instructions and offer training classes to help our
clients understand the functions of TradeSphere.
APPLICATION SERVICES. These services facilitate data integration with
existing third-party applications and enable information to be shared between
TradeSphere and our clients' other enterprise systems. These services result in
cost-effective implementation of our solutions by
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enabling our clients to undertake the required integration tasks themselves and
to leverage our alliances with our service partners.
POST IMPLEMENTATION SUPPORT. Client support specialists are available
on a daily basis and tend to develop ongoing relationships with our clients to
better understand their needs. To facilitate troubleshooting, we maintain
dial-in access to the client's production environment. We also give clients
opportunities to provide feedback on our solutions through meetings of our
Client Council, which is comprised of eight to twelve of our key clients, and
our annual user conference, which is open to our full client base.
MANAGEMENT CONSULTING
Our management consulting services, called TradeValue, leverage our
extensive global trade expertise and our proprietary analytical methodology. Our
TradeValue services range from operational assessments to detailed strategic
analyses designed to enable clients to improve their global trade practices.
Each consulting engagement is based on focused objectives and deliverables that
are specifically tailored to our clients' needs. The size and length of a
management consulting engagement depends on the scope of work and the size and
complexity of the client.
Our TradeValue clients range from Fortune 500 companies to early stage
emerging companies. These clients include leading technology firms, Internet
companies, retail and consumer products companies, logistics providers and
automotive and industrial companies. Our TradeValue consultants provide
extensive, hands-on experience gained from careers in a variety of industry
sectors with specific areas of expertise including import and export operations
and compliance, international transportation, logistics and distribution, trade
finance, pricing, international marketing, training and manufacturing. All of
our consultants are trained in TradeValue proprietary assessment and
implementation consulting methodologies. Our initiatives tend to focus on
skill-set and knowledge transfer to the employees of our clients, thus resulting
in significant long-term value to clients after engagements have concluded.
Our TradeValue consulting services are divided into the following areas:
STRATEGIC CONSULTING. Our strategic consulting services are designed to
help an organization assess its global market potential, identify new revenue
opportunities and identify current areas of compliance risk. Some of these
offerings include:
- Quantifying and analyzing existing global trade management processes;
- Identifying and recommending import/export compliance processes;
- Developing global trade management processes, systems and organizational
structures; and
- Analyzing and quantifying global growth opportunities.
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OPERATIONAL CONSULTING. Our operational consulting services are designed to
define and improve the operational efficiencies of an organization's global
trade management practices. These services focus on import and export trade
processes, global trade information solutions and implementation of operational
global trade initiatives. Specific offerings include assisting clients in
licensing foreign nationals, accelerating customs clearance, minimizing duty
payments and expediting collection of accounts payable.
SOLUTION SERVICES
Our solution services, called TradeVantage, enable clients to leverage our
expertise to manage all or parts of their global trade operations. By hosting
our clients' global trade operations and providing additional resources and
expertise, we enable clients to focus on their core competencies and realize
financial benefits associated with efficient and effective global trade
management. Our solutions services are highly scalable and can range from:
- Managing specific components of a client's trade operations; to
- Hosting our solutions via the web, which clients can access on a
transaction or subscription basis through our TradePrism.com portal; to
- Managing a client's entire global trade operation.
SALES AND MARKETING
We market and sell our solutions through our direct sales force, resellers,
B2B marketplaces and strategic alliances. Our marketing organization is
responsible for educating the marketplace, generating leads, communicating with
market analysts, working with complementary technology and consulting partners
and creating sales programs and literature. In addition to our internal
resources, we rely on third parties such as public relations firms and graphic
design firms to assist us with our marketing campaigns.
As of March 31, 2000, our direct sales organization consisted of a total of
46 sales and marketing personnel. In addition to the direct sales force, members
from other departments within Vastera contribute to the sales effort at various
stages in the sales cycle.
Our marketing professionals assist in generating new sales opportunities by
creating various marketing programs, updating our web site and hosting or
sponsoring various events. We participate in a number of trade shows and
industry events. We also provide speakers from our company and our clients to
represent us in a number of industry forums. We host monthly teleconferences led
by individual experts focused on educating individuals involved in global trade
operations for companies worldwide. Our public relations plan is designed to
convey our messages to appropriate audiences and we reinforce these efforts
through our ongoing communications with a number of key industry analysts and
press representatives.
STRATEGIC ALLIANCES
The principal goals of our strategic alliances are to accelerate the global
market acceptance of our solutions, to extend our global resources and to help
our clients realize the benefits of our solutions quickly. Our strategic
alliances are summarized as follows:
- We have technology alliances with Sun Microsystems, Hewlett-Packard and
Microsoft, and serve as an original equipment manufacturer, or OEM, for
IBM WebSphere.
- We have marketing certifications of varying degrees from a number of
enterprise resource planning, or ERP, companies including SAP, Oracle,
Baan and JD Edwards.
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- We have reseller agreements with i2 Technologies and EXE Technologies.
- Components of our web-based, B2B solutions are incorporated into a number
of trade exchanges including Arzoon.com, CatalogCity.com, RightFreight.com
and SupplierMarket.com.
- We have strategic alliances with a number of consulting companies
including Andersen Consulting and KPMG Peat Marwick.
PRODUCT DEVELOPMENT
Our product engineering team is made up of over 68 professionals focused on
new and developing B2B solutions. Our product engineers are organized into the
following groups: quality assurance, documentation, release management, solution
development and sustaining engineering. Our solution development is structured
around project teams that are comprised of developers led by a senior
development manager responsible for delivering a defined solution engine. This
structure allows for the organization to quickly scale and allows us to
outsource non-critical development activities when necessary to bring products
to market quickly. These dedicated product engineers are partnered with a
product management team consisting of experienced global trade professionals who
set the product plan and requirements based on our business plan and market
dynamics. Our engines are tied into the complete TradeSphere suite through
process and specifications defined and managed by our infrastructure and
integration team.
In addition, our Global eContent development methodology and approach allows
us to deliver market leading solutions for import and export management for
specific countries. This effort requires synthesizing an often lengthy export or
import manual into a set of requirements that then are integrated with our
rules-based Global eContent engine. In addition, these solutions are designed so
that we can readily provide updates for frequent country regulation changes. We
believe our product development professionals, teamed with our 35 product
management trade professionals, allow us to provide robust, market-driven,
web-based technology solutions that are reliable and scalable.
Our research and development expenses totaled $6.2 million for the year
ended December 31, 1999, which represented 32% of our total revenues. We expect
to significantly increase our research and development efforts in future years.
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CLIENTS
We have over 200 clients utilizing some or all of our B2B solutions, Global
eContent, management consulting and solution services offerings. The following
is a partial list of our clients categorized by industry.
<TABLE>
<CAPTION>
TECHNOLOGY CONSUMER AND RETAIL PRODUCTS
- ---------- ----------------------------
<S> <C>
Dell Herman Miller
Hughes Network Systems Ortho-Clinical Diagnostics, a division of
Lucent Johnson & Johnson
Matsushita New Zealand Dairy Board
Microsoft Nike
Motorola S.C. Johnson
Nortel Sony
Novell
Silicon Graphics INTERNET MARKETPLACES
Sun Microsystems Arzoon.com
CatalogCity.com
INDUSTRIAL & AUTOMOTIVE PRODUCTS Fasturn.com
Garlock Sealing Technologies, a division RightFreight.com
of
Coltec Industries SupplierMarket.com
Ingersoll-Rand
Gates Rubber Company LOGISTICS
Mallinckrodt BAX Global
Robert Bosch Crowley Maritime
Schenker International
</TABLE>
Our long-standing relationships with clients such as Nortel and more recent
successes with clients, such as the New Zealand Dairy Board and a B2B solutions
provider, RightFreight.com, demonstrate our ability to service a variety of
large multi-national corporations with complex trade management networks as well
as emerging Internet portals and marketplaces.
CASE STUDIES
NORTEL
CHALLENGE: Prior to implementing our solutions, Nortel handled its global
trade management functions either manually or through a variety of internally
developed systems. As Nortel's business increased and the number of
international shipments grew, Nortel experienced challenges generating the
volume of global trade documentation required, which resulted in delayed
deliveries as goods were held up in customs. Another issue was the lack of
product visibility within Nortel's own global network of over 90 shipping sites
as well as across its global trade network.
SOLUTION: Our solutions were first implemented in 1993 and are now Nortel's
standard for global trade management. Our solutions have been deployed in the
United States, Canada, UK, Mexico, Brazil, Malaysia and Singapore. In late 1999,
Nortel purchased a subscription for TradeSphere and other web-based global trade
collaboration capabilities.
RESULTS: Our solutions have reduced Nortel's costs and improved global
trade information and time to market, resulting in more than $9.4 million of
value over two years. Our solutions were cited by Nortel as the project with the
highest return on investment for 1997.
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NEW ZEALAND DAIRY BOARD
CHALLENGE: The New Zealand Dairy Board (NZDB) is the world's largest single
dairy exporter, shipping more than 4,000 products to over 1,000 destination
ports in over 120 countries across six continents. Prior to implementing our
solutions, the NZDB maintained a 10-year-old legacy system and relied heavily on
contractors to modify this system. It also relied on frequent manual
intervention to handle business functions not addressed by its legacy system.
Each of the NZDB's international shipments averaged 12 documents. Adding further
complexity to the NZDB's global trade operations were frequent changes to
international shipping documents and regulations imposed by governments around
the world in an effort to protect their local dairy businesses. The NZDB
recognized that it could not continue to generate and update the necessary
country-specific shipping documents and trade regulations by simply adding
personnel.
SOLUTION: Our solutions were implemented in 1998 as the NZDB worldwide
standard for global trade management. The implementation of our solutions was
completed in less than six months.
RESULTS: Our solutions reduced the total number of source shipping
documents at the NZDB from over 5,000 to fewer than 300. In 1999, unlike
previous years, there were no late shipment dispatches caused by export
documentation errors. By utilizing our global trade solutions, the NZDB was able
to manage an estimated 300,000 ton increase in exports to approximately
1.3 million tons for the fiscal year ending in May 2000.
RIGHTFREIGHT.COM
CHALLENGE: RightFreight.com is an Internet-based B2B airfreight services
exchange, providing reverse auctions for carrier services including contract and
spot shipment proposal processing. To differentiate its offering,
RightFreight.com needed to determine how to address global trade in its business
processes and offer more value-added services to its clients.
SOLUTION: In December 1999, RightFreight.com selected our solution to
provide embedded and hosted global trade management capabilities. Our
TradeSphere solutions allowed for fast time-to-market and provided mission
critical global trade functions and value-added services such as restricted
party screening, landed-cost information and international document generation.
RESULTS: In less than eight weeks, RightFreight.com was able to create a
B2B exchange that included global trade capabilities by leveraging our global
trade expertise and extensive research and development investment.
COMPETITION
Our market is intensely competitive, evolving and highly fragmented. We
expect the intensity of competition to increase in the future. We face
competition from third-party development efforts, consulting companies and
in-house development efforts. We expect that these parties will continue to be a
principal source of competition for the foreseeable future. Our principal
competitors by solution segment include:
- Content aggregators such as Dun & Bradstreet and TradeCompass;
- International trade logistics providers such as Capstan, Nextlinx,
Rockport and Syntra;
- Trade consultants such as management consulting firms, law firms and
boutique consulting firms; and
- Outsourcing service providers such as third party logistics providers,
fourth party logistics providers and carriers.
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We believe that the principal competitive factors affecting our market
include a referenceable client base, the breadth and depth of a given solution,
product quality and performance, customer service, core technology, product
scalability and reliability, product features, the ability to implement
solutions and the value of a given solution. Although we believe our solutions
currently compete favorably with respect to these factors, our market is
relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.
Many of our competitors and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater name recognition, global presence and established channel
partners, a broader range of products to offer, and a larger installed base of
clients than us, each of which could provide them with a significant competitive
advantage over us. In addition, we expect to experience increased price
competition as competitors compete for market share. It is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We may not be able to compete successfully with
existing or new competitors and this competition may have a material adverse
effect on our business.
TECHNOLOGY
Our B2B solutions are based on leading edge technology, enabling us to
deliver high performance, scalable, flexible and interoperable B2B solutions.
Our B2B solutions are built using a browser-based user interface, or UI, XML
integration technology and are also offered with a traditional Windows or
Motif-based UI. Our TradeSphere architecture supports the client demand for
configurability, electronic updates to country-specific content and plug-in
additions for new countries, functions and content.
For our web-based solutions infrastructure, we utilize IBM's WebSphere,
HTML/DHTML, Java and Enterprise Java Beans, MQ Systems Integration Series and
XML. We incorporate a SmarteLink architecture that facilitates XML integration
and also leverages our repository of Forte-developed C++ applications allowing
interoperability with our web-based applications.
Unique to the TradeSphere design and implementation approach is that both
content rules and configurations or installation-specific options are stored as
metadata within the solution's database. This approach supports a single source
solution which is able to operate on multiple hardware platforms, operating
environments and database platforms. Currently supported environments include
Windows NT and UNIX operating environments based on Sun Solaris, IBM AIX and
HP-UX platforms. Currently supported relational databases include either the
Oracle or SQL Server. Current user interfaces include a web-browser, Windows NT
and Motif. The system also supports multiple languages including double byte
languages.
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[Graphic showing TradeSphere Architecture including Web Browser, firewall,
Web Server Application Server--IBM WebSphere, Server Manager and firewall.]
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely primarily on a combination of copyright, trade secret and trademark
laws, confidentiality agreements with employees and third parties, and
protective contractual provisions contained in license agreements with
consultants, vendors and clients to protect our proprietary rights.
We have registered the trademark Vastera in the United States. We have also
filed federal trademark applications with respect to Global Trade Management,
Global Trade Value Chain, TradeSphere, TradeValue, TradeVantage, TradePrism,
Global eContent, TradeAxiom, Opening the World to eBusiness, Global Passport,
Smarte Commerce, Smarte Contents, Smarte Methods and SmartWare. The Vastera logo
is also a trademark of Vastera, Inc.
We believe the strength of our trademarks and service marks benefits our
business and we intend to continue to protect our registered and common law
trademarks and service marks in the United States and abroad. We have not
secured registration of all of our marks in the United States and have not
pursued registration in any foreign country.
We also protect our proprietary rights by requiring employees to agree not
to reveal any proprietary information to our competitors and to sign a
confidentiality agreement. Employees also are required to execute a
non-competition agreement, which restricts them from working for a competitor
for one year after termination of employment with us. However, we may not obtain
these agreements in every case.
We incorporate technology from third parties into our software. We currently
have non-exclusive license agreements with Forte Software, Inc. and IBM for the
use of their technology in our global trade management solutions.
EMPLOYEES
As of March 31, 2000, we had 230 employees. Our employees are not
represented by any collective bargaining agreement and we have never experienced
a work stoppage. We believe our relations with our employees are good.
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FACILITIES
Our principal administrative, sales, marketing, technical support and
product development facilities are located at our headquarters in Dulles,
Virginia. We currently occupy approximately 50,000 square feet of office space
in the Dulles facility under a lease that terminates on October 31, 2002. We
also lease office space for sales, marketing and consulting activities outside
of San Francisco, outside of Denver and outside of London in the United Kingdom.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
Our directors, executive officers and other management employees and their
respective ages and positions as of December 31, 1999, are as follows.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Executive Officers and Directors
Richard A. Lefebvre....................... 51 Chairman of the Board of Directors
Arjun Rishi............................... 36 Chief Executive Officer, President and Director
Mark J. Ferrer............................ 40 Chief Operating Officer and Director
Philip J. Balsamo......................... 38 Chief Financial Officer
Robert G. Barrett......................... 53 Director
Richard H. Kimball........................ 41 Director
James D. Robinson IV...................... 38 Director
Timothy Davenport......................... 44 Director
Nicolas C. Nierenberg..................... 43 Director
Other Management Employees
Laurent F. Ferrere, II.................... 40 Senior Vice President, Business Development
Mark E. Palomba........................... 41 Senior Vice President, Global Services
David M. Pierce........................... 45 Senior Vice President, Worldwide Sales
Thomas E. Bright.......................... 40 Vice President, Product Engineering
Gregory E. Stock.......................... 35 Vice President, Marketing
Kimberly A. Walsh......................... 30 Vice President, Human Resources
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
RICHARD A. LEFEBVRE has served as Chairman of our board of directors since
June 1998 and a member of our board of directors since 1997. From January 1989
to July 1997, Mr. Lefebvre served as Chairman of the Board of AXENT
Technologies, Inc. ("AXENT"), a computer network security company. He also
served as AXENT's Chief Executive Officer from January 1989 to July 1997.
ARJUN RISHI co-founded Vastera in 1992 and has served as President, Chief
Executive Officer and a member of our board of directors since its inception.
Mr. Rishi has been responsible for our direction and vision. From 1990 to 1992,
Mr. Rishi worked as a consultant with Electronic Data Systems, a computer
software company, developing a credit card validation system. From 1987 to 1989,
Mr. Rishi was an employee of PRC, a computer software company.
MARK J. FERRER joined Vastera in December 1999 as Chief Operating Officer
and is responsible for our day-to-day operations. Mr. Ferrer was appointed to
our board of directors in March 2000. From October 1998 to December 1999,
Mr. Ferrer served as President, Baan Americas where he held fiscal
responsibility for Baan operations in North and South America. From April 1998
to October 1998, Mr. Ferrer served as Chief Operating Officer for Aurum Software
(A Baan Company) where he was responsible for sales, marketing, services and
development. From 1982 to April 1998, Mr. Ferrer held numerous positions with
IBM, the most recent as Vice President, Software Marketing and Sales.
PHILIP J. BALSAMO joined Vastera in May 1998, and he currently serves as our
Chief Financial Officer. From May 1997 to May 1998, Mr. Balsamo was Business
Advisor and Controller of the SCM and Data Connectivity Business Units of
INTERSOLV, Inc., now known as Merant. From May 1992 to May 1997, Mr. Balsamo was
Director of Financial Reporting and Assistant Controller of INTERSOLV. From 1987
to 1992, he served as Treasurer and Controller of Government Marketing
Services, Inc., a computer reseller. From 1984 to November 1986, he served as
Senior Accountant
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to MBI Business Centers and to Buchanan & Company. Mr. Balsamo is a certified
public accountant.
ROBERT G. BARRETT has served as one of our directors since 1996. Since 1984,
he was a founding partner of Battery Ventures and is a General Partner of
Battery Ventures III, L.P. Mr. Barrett serves on the board of directors of
Brooktrout Technology, Inc., Interspeed, Inc. and Peerless Corporation and
several privately owned companies.
RICHARD H. KIMBALL has served as one of our directors since 1997. Since
1995, Mr. Kimball co-founded Technology Crossover Ventures in 1995 and is a
Managing General Partner. Prior to that, Mr. Kimball spent over 10 years at
Montgomery Securities serving as a securities analyst and Managing Director. He
is currently on the board of directors of Copper Mountain Networks, Inc. and
several private companies.
JAMES D. ROBINSON IV has served as one of our directors since
November 1998. Since 1994, Mr. Robinson has served as a General Partner of RRE
Ventures GP II, L.L.C. Mr. Robinson was one of the founders of RRE Ventures.
Mr. Robinson currently serves on the Board of Directors of Callware
Technologies, Evoke Software, Fandom.com, indulge.com, Invention Machine
Corporation, Quixi, Vocera, GoldPocket.com, M4 Financial and the New York City
Investment Fund's Education and Information Services Sector Group. From 1992 to
1994, Mr. Robinson served in various capacities for Hambrecht & Quist Venture
Capital.
TIMOTHY DAVENPORT has served as one of our directors since April 2000.
Mr. Davenport served as President, Chief Executive Officer and a director of
Best Software, Inc. from June 1995 until Best Software's acquisition by the Sage
Group plc. From March 1987 to June 1995, Mr. Davenport served as Vice President,
Developer Tools Group, and Vice President, Graphics Division, of Lotus
Development Corporation.
NICOLAS C. NIERENBERG has served as one of our directors since April 2000.
Mr. Nierenberg is a co-founder of Actuate Corporation and has been its Chief
Executive Officer and Chairman of the Board since December 1993. Mr. Nierenberg
was also President of Actuate Corporation until October 1998. Prior to
co-founding Actuate, from April 1993 to November 1993, Mr. Nierenberg worked as
a consultant for Accel Partners, a venture capital firm. Mr. Nierenberg
co-founded Unify Corporation, which develops and markets relational database
development tools. Mr. Nierenberg held a number of positions at Unify, including
Chairman of the Board of Directors, Chief Executive Officer, President, Vice
President Engineering and Chief Technology Officer.
OTHER MANAGEMENT EMPLOYEES
LAURENT F. FERRERE, II joined Vastera in January 1997. Mr. Ferrere has
served as Senior Vice President, Business Development since August 1999 and is
responsible for product requirements and alliances. From January 1997 to
August 1999, Mr. Ferrere served as Vastera's Vice President, Marketing and
Business Development where he was responsible for marketing. From August 1992 to
January 1997, Mr. Ferrere was Director, Industry Marketing at J.D. Edwards. From
June 1981 to August 1992, Mr. Ferrere held numerous management positions with
Andersen Consulting.
MARK E. PALOMBA joined Vastera in February 2000 as Senior Vice President,
Global Services and is responsible for our global service operations. Prior to
joining Vastera, Mr. Palomba served as Senior Vice President of Consulting for
Baan Americas from January 1999 to February 2000 and as Vice President of
Consulting, Client Services from July 1998 to January 1999. From 1982 to
July 1998, Mr. Palomba held numerous positions with IBM, the most recent as
Global Solutions Segment Executive.
DAVID M. PIERCE joined Vastera in March 2000 as Senior Vice President,
Worldwide Sales. From 1979 to March 2000, Mr. Pierce held numerous positions
with IBM where, since August 1996,
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he served as Vice President Sales and Marketing for Software and eBusiness.
Prior to that assignment, Mr. Pierce held numerous positions relating to the
sales and marketing growth of the software and services provided by IBM.
THOMAS E. BRIGHT joined Vastera in August 1999 as Vice President, Product
Engineering and is responsible for the development of our applications. From May
1996 to August 1999, Mr. Bright served as Vice President of Engineering &
Product Operations for Fidelity Investments Systems Company where he was
responsible for an organization of over 70 engineers working in a multi-
project, multi-site, engineering and product operations environment. From 1993
to 1996, Mr. Bright served as General Manager, Engineering for Progress Software
and from 1984 to 1993, Mr. Bright held numerous positions with Lotus Development
Corporation.
GREGORY E. STOCK joined Vastera in September 1999 as Vice President,
Marketing and is responsible for all marketing communication activities,
including lead generation, public relations and advertising. From November 1998
to October 1999, Mr. Stock served as Vice President, Sales and Marketing,
Consumer Packaged Goods for POMS Corporation where he was responsible for global
sales and marketing for the POMS manufacturing execution product suite. From
1993 to 1998, Mr. Stock held numerous positions with Manugistics, the most
recent as Director, Business Development where he organized a global business
consulting organization for seven geographies and four industrial segments. From
1987 to 1993, Mr. Stock held a number of logistics positions with IBM, Rohm &
Haas and Chrysler Motors Corporation.
KIMBERLY A. WALSH joined Vastera in December 1995 and currently serves as
Vice President, Human Resources. From 1992 to December 1995, Ms. Walsh was Human
Resource and Training Manager at Servus Financial Corporation where she was
responsible for all human resource activities, including recruitment, employee
benefit programs, training and corporate development.
BOARD COMMITTEES
The audit committee of the board of directors makes recommendations
concerning the engagement of independent public accountants. In addition the
committee reviews the plans, results and fees of the audit engagement with our
independent public accountants, and any independence issues with our independent
public accountants. The audit committee also reviews the adequacy of our
internal accounting controls. Current members of the audit committee are Timothy
Davenport, Richard H. Kimball and James D. Robinson IV.
The compensation committee of the board of directors determines compensation
for our executive officers and administers our 1996 Stock Option Plan and our
2000 Stock Option Plan. The compensation committee currently consists of Richard
A. Lefebvre, Robert G. Barrett and Richard H. Kimball.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee serves as a member of the board of
directors or compensation committee of any other entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee.
DIRECTOR COMPENSATION
We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. We intend to pay
each member of our board who is not an employee a director fee for attending
meetings of the board of directors and committee meetings.
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EXECUTIVE COMPENSATION
The table below summarizes information concerning the compensation earned
for services rendered to us in all capacities by our executive officers during
the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Arjun Rishi........................... CEO, President $203,077 $80,000 --
Mark J. Ferrer........................ Chief Operating Officer 12,500* -- 675,000
Philip J. Balsamo..................... Chief Financial Officer 122,974 38,273 120,000
</TABLE>
- --------------------------
* Mark J. Ferrer joined Vastera as Chief Operating Officer in
December 1999. Mr. Ferrer's annual base salary is $300,000 and his targeted
bonus is $150,000.
OPTION GRANTS DURING FISCAL YEAR ENDED DECEMBER 31, 1999
The following table sets forth information regarding the stock options
grants made to each of the named executive officers in the fiscal year ended
December 31, 1999. All of our options generally vest over a period of four
years, with 25% of the shares subject to the option vesting on the first
anniversary of the grant date, and the remaining option shares vesting ratably
monthly thereafter.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
-------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS EXERCISE ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO PRICE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN PER EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---- ---------- ------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arjun Rishi.................. -- -- -- -- -- --
Mark J. Ferrer............... 675,000 22.02% $4.00 12/31/2009 1,698,015 4,303,105
Philip J. Balsamo............ 60,000 1.96 2.17 4/30/2009 81,882 207,505
Philip J. Balsamo............ 60,000 1.96 2.67 8/31/2009 100,749 255,318
</TABLE>
The exercise price per share of each option was equal to the fair market
value of the common stock on the grant date as determined by the board of
directors. We have never granted any stock appreciation rights. The potential
realizable values assume that the options' price per share was the fair market
value of the common stock on the date of grant. This potential realizable value
also assumes that the price of the stock appreciates at rates of 5% and 10%
compounded annually from the date the options were granted until their
expiration date. These numbers are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect our estimate of future
stock price growth. Actual gains, if any, on stock option exercises will depend
on the future performance of the common stock and the date on which the options
are exercised.
AGGREGATED OPTION EXERCISES AND VALUES IN FISCAL YEAR ENDED DECEMBER 31, 1999
The following table sets forth information containing the value realized
upon exercise of options during the fiscal year ended December 31, 1999 and the
number and value of unexercised options held by the executive officers named in
the Summary Compensation Table above. As of December 31, 1999, there was no
public market for the common stock. The "Value of Unexercised
54
<PAGE>
In-the-Money Options at Fiscal Year End" is based upon a value per share, the
assumed initial public offering price per share of $ , minus the per
share exercise price, multiplied by the number of shares underlying the option.
FISCAL YEAR-END OPTIONS VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Arjun Rishi........................ -- -- -- -- -- --
Mark J. Ferrer..................... -- -- -- 675,000 --
Philip J. Balsamo.................. -- -- 23,751 156,249
</TABLE>
1996 STOCK OPTION PLAN
Our board of directors and stockholders adopted and approved the 1996 Stock
Option Plan on July 26, 1996. The 1996 Plan provides for grants of incentive
stock options, nonqualified stock options and stock awards to employees,
directors, consultants and advisors. Members of the non-employee director
administrative committee are not eligible to receive options and awards. As of
April 26, 2000, we may issue options to purchase a maximum of 8,250,000 shares
of common stock under the 1996 Plan. The board of directors may not increase the
maximum number of shares without obtaining the approval of the stockholders. No
options or awards may be granted under the 1996 Plan after July 26, 2006.
The 1996 Plan may be administered by the board of directors or by a
committee of non-employee directors. The plan administrator has the power to
determine the persons to whom, the times at which, and the price at which the
options and awards shall be granted, and to determine the type of option or
award to be granted and the number of shares subject to options and awards.
The plan administrator determines the option price for options. For a
nonqualified stock option, the price shall be at least equal to 85% of the fair
market value of the shares on the date the option is granted. For an incentive
stock option, the price shall be at least 100% of the fair market value on the
date the option is granted. If a recipient of an incentive stock option owns
shares possessing more than 10% of the total voting power of all classes of
stock, the option price shall be at least 110% of the fair market value on the
grant date.
Options expire not later than 10 years after the date of the grant or five
years after the date of grant if the recipient owns shares possessing more than
10% of the combined voting power of all classes of stock. Options expire
90 days from the date the recipient's employment or service with Vastera
terminates or 12 months after disability or death, unless the grant agreement or
plan administrator provides otherwise. Options are not transferable during the
lifetime of the recipient, except that a nonqualified stock option may be
transferred pursuant to the terms of a domestic relation's order, or otherwise
as provided in the grant agreement.
The 1996 Plan provides that in the event of a change of control, the plan
administrator may take any appropriate action with respect to options, including
terminating options with 15 days' notice or causing options to become
immediately exercisable in full. In the event of a merger of Vastera into
another company or a sale of all or substantially all of the assets of Vastera,
options shall become immediately exercisable unless the successor company agrees
to assume the options or provide equivalent options.
55
<PAGE>
Awards of stock granted pursuant to the 1996 Plan shall be in the form of
written award agreements approved by the plan administrator. The plan
administrator may impose appropriate restrictions and forfeiture conditions on
stock awards.
In the event that the outstanding shares are modified by reason of a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split, combination or exchange of shares, the plan administrator shall make
appropriate adjustments to the aggregate number of shares available under the
1996 Plan, the number of shares outstanding and price per share of outstanding
options.
2000 STOCK OPTION/STOCK ISSUANCE PLAN
INTRODUCTION. Our 2000 Stock Option/Stock Issuance Plan is intended to
serve as the successor equity incentive program to our 1996 Plan. Our 2000 Plan
was adopted by our board on April 4, 2000 and approved by the stockholders in
April 2000. Our 2000 Plan will become effective on the date the underwriting
agreement for this offering is signed. At that time, all options available for
grant under the 1996 Plan will be transferred to our 2000 Plan, and no further
option grants will be made under that predecessor plan. The transferred options
will continue to be governed by their existing terms, unless our compensation
committee elects to extend one or more features of our 2000 Plan to those
options. Except as otherwise noted below, the transferred options will have
substantially the same terms as are in effect for grants made under the
discretionary option grant program of our 2000 Plan.
SHARE RESERVE. Under our 2000 Plan, 18,250,000 shares of common stock have
been authorized for issuance. This share reserve consists of the number of
shares we estimate will be carried over from our 1996 Plan, including the shares
subject to outstanding options thereunder, plus an additional increase of
approximately 10,000,000 shares. The number of shares of common stock reserved
for issuance under our 2000 Plan will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to 1.5% of the total number of shares of common stock
outstanding on the last trading day in December of the preceding calendar year,
but in no event will any such annual increase exceed 750,000 shares. In
addition, no participant in our 2000 Plan may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 500,000 shares of common stock per calendar year.
EQUITY INCENTIVE PROGRAMS. Our 2000 Plan is divided into five separate
components:
- the discretionary option grant program, under which eligible individuals
in our employ or service may be granted options to purchase shares of
common stock at an exercise price not less than 100% of the fair market
value of those shares on the grant date;
- the stock issuance program, under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at a
price not less than 100% of their fair market value at the time of
issuance or as a bonus tied to the attainment of performance milestones or
the completion of a specified period of service;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below-market value stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to our non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
56
<PAGE>
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of the annual
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market value option grants.
ELIGIBILITY. The individuals eligible to participate in our 2000 Plan
include our officers and other employees, our non-employee board members and any
consultants we hire.
ADMINISTRATION. The discretionary option grant program and the stock
issuance program will be administered by the compensation committee. This
committee will determine which eligible individuals are to receive option grants
or stock issuances under those programs, the time or times when such option
grants or stock issuances are to be made, the number of shares subject to each
such grant or issuance, the status of any granted option as either an incentive
stock option or a nonstatutory stock option under the federal tax laws, the
vesting schedule to be in effect for the option grant or stock issuance and the
maximum term for which any granted option is to remain outstanding. The
compensation committee will also have the exclusive authority to select the
executive officers and other highly compensated employees who may participate in
the salary investment option grant program in the event that program is
activated for one or more calendar years.
PLAN FEATURES. Our 2000 Plan will include the following features:
- The exercise price for the shares of common stock subject to option grants
made under our 2000 Plan may be paid in cash or in shares of common stock
valued at fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the plan administrator may provide financial
assistance to one or more optionees in the exercise of their outstanding
options or the purchase of their unvested shares by allowing such
individuals to deliver a full-recourse, interest-bearing promissory note
in payment of the exercise price and any associated withholding taxes
incurred in connection with such exercise or purchase.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including options
transferred from the 1996 Plan, in return for the grant of new options for
the same or a different number of option shares with an exercise price per
share based upon the fair market value of our common stock on the new
grant date.
- Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders
with the election to surrender their outstanding options for an
appreciation distribution from us equal to the fair market value of the
vested shares of common stock subject to the surrendered option, less the
aggregate exercise price payable for those shares. Such appreciation
distribution may be made in cash or in shares of common stock. None of the
outstanding options under our 1996 Plan contain any stock appreciation
rights.
- The 2000 Plan will include the following change in control provisions
which may result in the accelerated vesting of outstanding option grants
and stock issuances:
- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary
option grant and stock issuance programs will immediately vest, except
to the extent our repurchase rights with respect to those shares are to
be assigned to the successor corporation.
57
<PAGE>
- The compensation committee will have complete discretion to structure
one or more options under the discretionary option grant program so
those options will vest as to all the option shares in the event those
options are assumed in the acquisition but the optionee's service with
us or the acquiring entity is subsequently terminated. The vesting of
outstanding shares under the stock issuance program may be accelerated
upon similar terms and conditions.
- The compensation committee will also have the authority to grant
options which will immediately vest in the event we are acquired,
whether or not those options are assumed by the successor corporation.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the
majority of our board through one or more contested elections for board
membership. Such accelerated vesting may occur either at the time of
such transaction or upon the subsequent termination of the individual's
service.
- The options currently outstanding under our 1996 Plan will immediately
vest in the event we are acquired by merger or sale of substantially
all our assets, unless those options are assumed by the acquiring
entity or our repurchase rights with respect to any unvested shares
subject to those options are assigned to such entity.
SALARY INVESTMENT OPTION GRANT PROGRAM. In the event the compensation
committee elects to activate the salary investment option grant program for one
or more calendar years, each of our executive officers and other highly
compensated employees selected for participation may elect, prior to the start
of the calendar year, to reduce his or her base salary for that calendar year by
a specified dollar amount not less than $10,000 nor more than $50,000. Each
selected individual who files such a timely election will automatically be
granted, on the first trading day in January of the calendar year for which his
or her salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will be exercisable at a price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal to
the amount by which the optionee's salary is reduced under the program. The
option will become exercisable in a series of 12 equal monthly installments over
the calendar year for which the salary reduction is to be in effect.
AUTOMATIC OPTION GRANT PROGRAM. Under the automatic option grant program,
each individual who first becomes a non-employee board member at any time after
the completion of this offering will automatically receive an option grant for
shares on the date such individual joins the board, provided such
individual has not been in our prior employ. In addition, on the date of each
annual stockholders meeting held after the completion of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase shares of common stock,
provided such individual has served on our board for at least six months.
Each automatic grant will have an exercise price per share equal to the fair
market value per share of our common stock on the grant date and will have a
term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's
58
<PAGE>
cessation of board service. The shares subject to each initial -share
automatic option grant will vest in a series of four successive annual
installments upon the optionee's completion of each year of board service over
the four-year period measured from the grant date. The shares subject to each
annual -share automatic option grant will vest upon the optionee's
completion of one year of board service measured from the grant date. However,
the shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while a board member.
DIRECTOR FEE OPTION GRANT PROGRAM. Should the director fee option grant
program be activated in the future, each non-employee board member will have the
opportunity to apply all or a portion of any cash retainer fee for the year to
the acquisition of a below-market value option grant. The option grant will
automatically be made on the first trading day in January in the year for which
the retainer fee would otherwise be payable in cash. The option will have an
exercise price per share equal to one-third of the fair market value of the
option shares on the grant date, and the number of shares subject to the option
will be determined by dividing the amount of the retainer fee applied to the
program by two-thirds of the fair market value per share of our common stock on
the grant date. As a result, the option will be structured so that the fair
market value of the option shares on the grant date less the exercise price
payable for those shares will be equal to the portion of the retainer fee
applied to that option. The option will become exercisable in a series of 12
equal monthly installments over the calendar year for which the election is to
be in effect. However, the option will become immediately exercisable for all
the option shares upon the optionee's death or disability while serving as a
board member.
Our 2000 Plan will also have the following features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights may
also be granted to one or more officers as part of their option grants
under the discretionary option grant program. Options with this feature
may be surrendered to us upon the successful completion of a hostile
tender offer for more than 50% of our outstanding voting stock. In return
for the surrendered option, the optionee will be entitled to a cash
distribution from us in an amount per surrendered option share based upon
the highest price per share of our common stock paid in that tender offer.
The board may amend or modify the 2000 Plan at any time, subject to any
required stockholder approval. The 2000 Plan will terminate no later than
, 2010.
2000 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION. Our 2000 Employee Stock Purchase Plan was adopted by the
board of directors on April 4, 2000 and approved by the stockholders in
2000. The plan is administered by the Compensation Committee. The
plan will become effective immediately upon the signing of the underwriting
agreement for this offering. The plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries to
purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.
SHARE RESERVE. 5,000,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to 1.0% of the total number of outstanding
59
<PAGE>
shares of our common stock on the last trading day in December in the prior
calendar year. In no event will any such annual increase exceed 500,000 shares.
OFFERING PERIODS. The plan will have a series of successive overlapping
offering periods, with a new offering period beginning on the first business day
of May and November each year. Each offering period will have a duration of
24 months, unless otherwise determined by the compensation committee. However,
the initial offering period may have a duration in excess of 24 months and will
start on the date the underwriting agreement for this offering is signed and
will end on the last business day in April 2002. The next offering period will
start on the first business day in May 2000.
ELIGIBLE EMPLOYEES. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date of that period. However, employees may participate in only one
offering period at a time.
PAYROLL DEDUCTIONS. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's date of entry into the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of April and October each
year. However, a participant may not purchase more than shares on any
purchase date, and not more than shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
RESET FEATURE. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
CHANGE IN CONTROL. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's date of entry into the
offering period in which an acquisition occurs or, if lower, 85% of the fair
market value per share immediately prior to the acquisition.
PLAN PROVISIONS. The following provisions will also be in effect under the
plan:
The plan will terminate no later than the last business day of April 2010.
The board may at any time amend, suspend or discontinue the plan. However,
certain amendments may require stockholder approval.
401(K) PROFIT SHARING PLAN
We have adopted a tax-qualified employee savings and retirement plan, the
401(k) Profit Sharing Plan, for eligible U.S. employees. Eligible employees may
elect to defer a portion of their eligible compensation, subject to the
statutorily prescribed annual limit. We may make matching contributions on
behalf of all participants who have elected to make deferrals to the 401(k)
Profit Sharing Plan in an amount determined annually by the Company. Any
contributions to the plan by the company or the participants are paid to a
trustee. The contributions made by the company, if any, are subject to a vesting
schedule; all other contributions are fully vested at all times. The 401(k)
Profit Sharing Plan, and the accompanying trust, are intended to qualify under
Sections
60
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401(k) and 501 of the Internal Revenue Code, so that contributions by us or by
employees and income earned (if any) on plan contributions are not taxable to
employees until withdrawn and contributions by us, if any, will be deductible by
the company when made. At the direction of each participant, the trustee invests
the contributions made to the 401(k) Profit Sharing Plan in any number of
investment options.
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS AND INDEMNIFICATION
LIMITATION OF LIABILITY. Our certificate of incorporation provides that our
officers and directors will not be personally liable to us or our stockholders
for monetary damages resulting from a breach of fiduciary duty, to the maximum
extent permitted by Delaware law. Under Delaware law, directors of a corporation
will not be personally liable for monetary damages for breach of their fiduciary
duties as directors, except for:
- Any breach of the duty of loyalty to the corporation or its stockholders;
- Acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- Unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- Any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to non-monetary remedies that
may be available, such as injunctive relief or rescission, nor does it relieve
our officers and directors from complying with federal or state securities laws.
INDEMNIFICATION. Our certificate of incorporation and bylaws provide that
we shall indemnify our directors and executive officers, and may indemnify our
other corporate agents, to the fullest extent permitted by law. This provision
deters transactions not approved by the board, including transactions which may
offer a premium over market price for shares of common stock. An officer or
director shall not be entitled to indemnification if:
- The officer or director did not act in good faith and in a manner
reasonably believed to be in, or not opposed to our best interests; or
- The officer or director is subject to criminal action or proceedings and
had reasonable cause to believe the conduct was unlawful.
We intend to enter into agreements to indemnify our directors and officers
in addition to the indemnification provided for in our certificate of
incorporation and our bylaws. These agreements, among other things, provide for
indemnification of our directors and officers for expenses specified in the
agreements, including attorneys' fees, judgments, fines and settlement amounts
incurred by any of these persons in any action or proceeding arising out of
these persons' services as a director or officer for us, any of our subsidiaries
or any other entity to which the person provides services at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and officers.
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<PAGE>
CERTAIN TRANSACTIONS
EQUITY FINANCINGS
On July 29, 1996, we sold 800,000 shares of our Series A convertible
preferred stock for $5.00 per share. Each share of Series A convertible
preferred stock will convert into three shares of common stock upon the closing
of this offering. The purchaser of our Series A convertible preferred stock is:
<TABLE>
<CAPTION>
SHARES OF SERIES A
CONVERTIBLE PREFERRED AS CONVERTED
PURCHASER STOCK SHARES OF COMMON STOCK
- --------- ------------------------- -----------------------
<S> <C> <C>
Battery Ventures III, L.P................ 800,000 2,400,000
</TABLE>
In addition, we granted to the above-listed purchaser a warrant to purchase
150,376 shares of Series B convertible preferred stock at an exercise price of
$6.65 per share. Each share of Series B convertible preferred stock will convert
into three shares of our common stock upon the closing of this offering. We
also, contemporaneously with our sale of Series A convertible preferred stock,
redeemed an aggregate of 660,000 shares of common stock for $1.1 million from
the following people: 252,000 shares from Arjun Rishi, one of our founders, for
$420,000; 195,000 shares from Punkaj Rishi, Mr. Rishi's brother, for $325,000;
21,000 shares from Sonja Rishi, Mr. Rishi's sister, for $35,000; and 192,000
shares from other stockholders for $320,000.
From August 7, 1997 to May 28, 1998, we sold 2,310,813 shares of our
Series C convertible preferred stock for $3.70 per share. Each share of
Series C convertible preferred stock will convert into 1.50 shares of common
stock upon the closing of this offering. The purchasers of the Series C
convertible preferred stock are:
<TABLE>
<CAPTION>
SHARES OF SERIES C
CONVERTIBLE PREFERRED AS CONVERTED
PURCHASER STOCK SHARES OF COMMON STOCK
- --------- ------------------------- -----------------------
<S> <C> <C>
Battery Ventures III, L.P................ 540,541 810,811
Technology Crossover Ventures and its
affiliates............................. 1,081,082 1,621,622
Vertex Technology Fund Pte. Ltd.......... 540,541 810,811
Other Purchasers......................... 148,649 222,973
</TABLE>
Pursuant to a prior agreement, the holders of shares of our Series C
convertible preferred stock are entitled to purchase in this offering $3.0
million of common stock. In addition, we also issued to the above-listed
purchasers warrants to purchase an aggregate of 405,488 shares of our
Series C-1 convertible preferred stock at an exercise price of $4.92 per share.
Each share of Series C-1 convertible preferred stock will convert into 1.50
shares of our common stock upon the closing of this offering. We issued warrants
to the purchasers as follows:
<TABLE>
<CAPTION>
SHARES OF SERIES C-1
CONVERTIBLE PREFERRED AS CONVERTED
WARRANTHOLDER STOCK UNDERLYING WARRANT SHARES OF COMMON STOCK
- ------------- ------------------------ -----------------------
<S> <C> <C>
Battery Ventures III, L.P.................. 94,851 142,276
Technology Crossover Ventures and its
affiliates............................... 189,702 284,551
Vertex Technology Fund Pte. Ltd............ 94,851 142,276
Other Purchasers........................... 26,084 39,125
</TABLE>
62
<PAGE>
On November 24, 1998 and February 26, 1999, we sold 2,461,034 shares and
512,715 shares, respectively, of our Series D convertible preferred stock for
$4.876 per share. Each share of Series D convertible preferred stock will
convert into 1.50 shares of common stock upon the closing of this offering. The
purchaser of the Series D convertible preferred stock are:
<TABLE>
<CAPTION>
SHARES OF SERIES D
CONVERTIBLE PREFERRED AS CONVERTED
PURCHASER STOCK SHARES OF COMMON STOCK
- --------- ------------------------- -----------------------
<S> <C> <C>
Battery Ventures III, L.P................ 205,086 307,629
FedEx Corporation........................ 512,715 769,072
MSD Portfolio Capital, L.P. and its
affiliates............................. 820,345 1,230,517
RRE Investors, L.P. and its affiliate.... 615,258 922,886
Teachers Insurance and Annuity
Association of America................. 615,258 922,887
Technology Crossover Ventures and its
affiliates............................. 140,485 210,726
Vertex Technology Fund Pte. Ltd.......... 64,602 96,903
</TABLE>
Banc of America Securities LLC (formerly, NationsBanc Montgomery Securities
L.L.C.), as placement agent for our Series D convertible preferred stock
offering, was issued a warrant to purchase 30,763 shares of our Series D
convertible preferred stock at an exercise price of $5.61 per share. Banc of
America Securities LLC will hold 46,144 shares of common stock upon the exercise
of their warrant and the conversion of their Series D convertible preferred
stock. In addition, we also issued to the above-listed purchasers warrants to
purchase an aggregate of 631,608 shares of our Series D-1 convertible preferred
sock at an exercise price of $6.485 per share. Each share of Series D-1
convertible preferred stock will convert into 1.50 shares of our common stock
upon the closing of this offering. We issued warrants to the purchasers as
follows:
<TABLE>
<CAPTION>
SHARES OF SERIES D-1
CONVERTIBLE PREFERRED AS CONVERTED
WARRANTHOLDER STOCK UNDERLYING WARRANT SHARES OF COMMON STOCK
- ------------- ------------------------ -----------------------
<S> <C> <C>
Battery Ventures III, L.P.................. 20,509 30,763
FedEx Corporation.......................... 385,505 578,257
MSD Portfolio Capital, L.P. and its
affiliates............................... 82,034 123,050
RRE Investors, L.P. and its affiliate...... 61,526 92,289
Teachers Insurance and Annuity Association
of America............................... 61,526 92,289
Technology Crossover Ventures and its
affiliates............................... 14,048 21,071
Vertex Technology Fund Pte. Ltd............ 6,460 9,690
</TABLE>
On February 4, 2000 and February 29, 2000, we sold 1,569,577 shares of our
Series E convertible preferred stock for $10.83 per share. Each share of
Series E convertible preferred stock
63
<PAGE>
will convert into 1.50 shares of common stock upon the closing of this offering.
The purchasers of the Series E convertible preferred stock are:
<TABLE>
<CAPTION>
SHARES OF SERIES E
CONVERTIBLE PREFERRED AS CONVERTED
PURCHASER STOCK SHARES OF COMMON STOCK
- --------- ------------------------- -----------------------
<S> <C> <C>
Battery Ventures III, L.P................ 92,336 138,504
MSD Portfolio Capital, L.P. and its
affiliates............................. 84,576 126,864
RRE Investors, L.P. and its affiliate.... 63,432 95,148
Teachers Insurance and Annuity
Association of America................. 738,689 1,108,034
Technology Crossover Ventures and its
affiliates............................. 218,278 327,417
Vertex Technology Fund II Ltd............ 62,389 93,583
Other Purchasers......................... 309,877 464,815
</TABLE>
Battery Ventures III, L.P., FedEx Corporation, MSD Portfolio Capital, L.P.
and its affiliate, RRE Investors L.P. and its affiliate, Technology Crossover
Ventures and its affiliates and Teachers Insurance and Annuity Association of
America are considered each a holder of more than 5% of our common stock. Vertex
Technology Fund Pte. Ltd. and Vertex Technology Fund II Ltd. are affiliated
entities and together are considered a holder of more than 5% of our common
stock. Mr. Barrett, one of our directors, is a partner of Battery Ventures III,
L.P. Mr. Kimball, one of our directors, is a partner of Technology Crossover
Ventures and its affiliate. Mr. Robinson, another one of our directors, is a
partner of RRE Ventures, L.P. and its affiliate. Messrs. Barrett, Kimball and
Robinson disclaim beneficial ownership of the securities held by their
respective entities, except for their respective pecuniary interests in their
entities.
TRANSACTIONS WITH FEDEX CORPORATION
On August 24, 1998, we entered into a software license and services
agreement with Federal Express Corporation, a subsidiary of FedEx Corporation.
The agreement provides Federal Express Corporation with certain licenses to use
our software products as well as installation, configuration, training, testing
and maintenance services for the software products licensed to Federal Express
Corporation.
On April 1, 1999, we entered into a development use agreement with FedEx
Corporation. We granted FedEx Corporation the right to use our software product
to aid in the design, development and testing of a web site that FedEx
Corporation was developing.
On September 1, 1999, we entered a marketing alliance agreement and
professional services agreement with FedEx Corporation. These agreements were
intended to govern the relationship between Vastera and FedEx Corporation in
developing and supporting a web site that FedEx Corporation planned to create.
For 1999, we received a total of $1,610,204 from FedEx Corporation and
Federal Express Corporation under these agreements. FedEx Corporation has
notified us of its intent to terminate the marketing alliance agreement,
effective September 1, 2000.
TRANSACTION WITH DELL PRODUCTS L.P.
On June 28, 1996 and April 14, 1999, we entered into software license
agreements with Dell Products L.P., or Dell, an affiliate of Dell Computer
Corporation. The agreements provide certain licenses to use our software
products. Michael S. Dell, the Chairman of the board of directors and the Chief
Executive Officer of Dell Computer Corporation, holds a controlling ownership
interest in MSD Portfolio Capital, L.P. and two of its affiliates, significant
investors in Vastera, Inc. For 1999, we received a total of $594,801 from Dell
Products L.P. under these agreements.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 31, 2000 regarding
the beneficial ownership of our common stock by:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding common stock;
- each of our executive officers named in the Summary Compensation Table;
- each of our directors; and
- all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after
March 31, 2000, are deemed outstanding, while the shares are not deemed
outstanding for purposes of computing percentage ownership of any other person.
Unless otherwise indicated in the footnotes below, the persons and entities
named in the table have sole voting or investment power with respect to all
shares beneficially owned, subject to community property laws where applicable.
The number and percentage of shares beneficially owned are based on the
aggregate of (i) 20,692,510 shares of common stock outstanding as of March 31,
2000, assuming conversion of all outstanding shares of preferred stock into
common stock and the issuance of 1,474,658 shares of common stock issuable upon
exercise of certain outstanding warrants prior to this offering, and
(ii) shares of common stock issued in this offering.
65
<PAGE>
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Vastera, Inc., 45025 Aviation Drive, Suite 200,
Dulles, Virginia 20166.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
SHARES BENEFICIALLY -----------------------
OWNED PRIOR TO BEFORE AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERING OFFERING
- ------------------------ ------------------- -------- --------
<S> <C> <C> <C>
Battery Ventures III, L.P. (1)...................... 4,326,447 20.9%
901 Mariner's Island Blvd., Suite 475
San Mateo, CA 94404
FedEx Corporation (2)............................... 1,347,329 6.3%
942 South Shady Grove Road
Memphis, TN 38120
MSD Portfolio Capital, L.P. and its affiliates 1,515,046 7.3%
(3)...............................................
599 Lexington Ave., Suite 2300
New York, NY 10022
RRE Investors, L.P. and its affiliate (4)........... 1,136,283 5.5%
126 East 56th Street
New York, NY 10022
Technology Crossover Ventures and its affiliates 2,498,559 12.1%
(5)...............................................
575 High Street, Suite 400
Palo Alto, CA 94301
Teachers Insurance and Annuity Association of 2,123,209 10.3%
America (6).......................................
730 Third Avenue
New York, NY 10017-3206
Vertex Technology Fund Pte. Ltd. and its affiliate 1,153,263 5.6%
(7)...............................................
Three Lagoon Drive, Suite 220
Redwood City, CA 94065
Arjun Rishi......................................... 1,038,740 5.0%
Philip J. Balsamo (8)............................... 46,250 *
Richard A. Lefebvre (9)............................. 123,413 *
Nicolas C. Nierenberg (10).......................... 67,500 *
Robert G. Barrett (11).............................. 4,326,447 20.9%
Richard H. Kimball (12)............................. 2,498,559 12.1%
James D. Robinson IV (13)........................... 1,136,283 5.5%
Mark J. Ferrer...................................... -- --
Timothy Davenport................................... -- --
All directors and executive officers as a group 9,232,197 44.1%
(9 people) (14)...................................
Punkaj Rishi........................................ 1,634,685 7.9%
Ramona Rishi........................................ 1,072,651 5.2%
</TABLE>
66
<PAGE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 4,314,285 shares held by Battery Ventures III, L.P. and 12,162
shares subject to warrants held by Battery Ventures III, L.P.
(2) Includes 769,072 shares held by FedEx Corporation and 578,257 shares subject
to a warrant held by FedEx Corporation.
(3) Includes (a) 1,325,666 shares held by MSD Portfolio Capital, L.P.,
(b) 94,690 shares held by RPKS Investment, L.L.C. and (c) 94,690 shares held
by Triple Marlin Investments, L.L.C.
(4) Includes (a) 673,309 shares held by RRE Investors, L.P., and 370,685 shares
held by RRE Investors Fund, L.P.
(5) Includes (a) 1,195,247 shares held by Technology Crossover Ventures II,
L.P., (b) 182,488 shares held by Technology Crossover Ventures II, C.V.,
(c) 163,075 shares held by TCV II Strategic Partners, L.P., (d) 918,924
shares held by TCV II (Q), L.P. and (e) 38,825 shares held by TCV II, V.O.F.
(6) Includes 123,209 shares held by Teachers Insurance and Annuity Association
of America.
(7) Includes 1,059,680 shares held by Vertex Technology Fund Pte. Ltd. and
93,583 shares held by Vertex Technology Fund II Ltd.
(8) Includes 46,250 shares subject to stock options exercisable within 60 days
of March 31, 2000.
(9) Includes 123,413 shares subject to stock options exercisable within 60 days
of March 31, 2000.
(10) Includes 67,500 shares subject to stock options exercisable within 60 days
of March 31, 2000.
(11) Includes 4,314,285 shares held by Battery Ventures III, L.P. and 12,162
shares subject to warrants held by Battery Ventures III, L.P. Mr. Barrett is
a general partner of Battery Ventures III, L.P. Mr. Barrett disclaims
beneficial ownership of the shares held by Battery Ventures III, L.P.,
except to the extent of his pecuniary interest in the shares held.
(12) Includes (a) 1,195,247 shares held by Technology Crossover Ventures II,
L.P., (b) 182,488 shares held by Technology Crossover Ventures II, C.V.,
(c) 163,075 shares held by TCV II Strategic Partners, L.P., (d) 918,924
shares held by TCV II (Q), L.P., and (e) 38,825 shares held by TCV II,
V.O.F. Mr. Kimball is a general partner of Technology Crossover Ventures.
Mr. Kimball disclaims beneficial ownership of the shares held by Technology
Crossover Ventures and its affiliates, except to the extent of his pecuniary
interest in the shares held.
(13) Includes (a) 732,829 shares held by RRE Investors, L.P. and 403,454 shares
held by RRE Investors Fund, L.P. Mr. Robinson is a general partner of RRE
Investors, L.P. and RRE Investors Fund, L.P. Mr. Robinson disclaims
beneficial ownership of the shares held by RRE Investors, L.P. and RRE
Investors Fund, L.P., except to the extent of his pecuniary interest in the
shares held.
(14) Includes 237,163 shares subject to stock options exercisable within
60 days of March 31, 2000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our common stock and preferred stock and the
relevant provisions of our amended and restated certificate of incorporation and
amended and restated bylaws as will be in effect upon the closing of this
offering are summaries and are qualified by reference to these documents. Forms
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement, of which this prospectus forms a part.
Upon the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share.
COMMON STOCK
As of March 31, 2000, there were 6,536,644 shares of common stock
outstanding held of record by 52 stockholders. Based upon the number of shares
outstanding as of that date and giving effect to the automatic conversion of all
previously outstanding preferred stock into shares of common stock, the assumed
exercise of all outstanding preferred stock warrants, the conversion into common
stock of the preferred stock issued upon the exercise of the warrants and the
sale of shares of common stock in this offering, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options after
March 31, 2000, there will be approximately shares of common stock
outstanding at the closing of this offering.
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to receive
dividends as may be declared from time to time by the board of directors out of
funds legally available for the payment of dividends, subject to the preferences
that apply to any outstanding preferred stock. See "Dividend Policy." Upon a
liquidation, dissolution or winding up of Vastera, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and after giving effect to the liquidation preference of any
outstanding preferred stock. The common stock has no preemptive or conversion
rights and no additional subscription rights. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable. The shares issued in this offering will
be fully paid and nonassessable.
PREFERRED STOCK
Our amended and restated certificate of incorporation authorizes the board
of directors, without stockholder action, to designate and issue from time to
time shares of preferred stock in one or more series. The board of directors may
designate the price, rights, preferences and privileges of the shares of each
series of preferred stock, which may be greater than the rights of the common
stock. It is not possible to state the actual effect of the issuance of any
shares of preferred stock upon the rights of holders of common stock until the
board of directors determines the specific rights of the preferred stock.
However, possible effects of issuing preferred stock with voting and conversion
rights include:
- Restricting dividends on common stock;
- Diluting the voting power of common stock;
- Impairing the liquidation rights of the common stock;
- Delaying or preventing a change of control of Vastera without stockholder
action; and
- Harming the market price of common stock.
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<PAGE>
Upon the closing of this offering, no shares of our preferred stock will be
outstanding. We have no present plans to issue any shares of preferred stock.
WARRANTS
As of March 31, 2000, we had outstanding the following warrants to purchase
our stock:
<TABLE>
<CAPTION>
TOTAL NUMBER
OF SHARES EXERCISE AS CONVERTED
SUBJECT TO PRICE PER SHARES OF
TYPE OF STOCK WARRANTS SHARE COMMON STOCK EXPIRATION DATE
- ------------- ------------- --------- --------------- ------------------
<S> <C> <C> <C> <C>
Series A convertible preferred stock............ 7,000 $5.000 21,000 January 31, 2002
Series B convertible preferred stock............ 150,376 $6.650 451,128 Upon this offering
Series B convertible preferred stock............ 4,511 $6.650 13,533 March 31, 2002
Series C convertible preferred stock............ 14,324 $3.700 21,486 August 7, 2007
Series C convertible preferred stock............ 4,122 $3.700 6,183 January 31, 2003
Series C-1 convertible preferred stock.......... 405,488 $4.920 608,232 Upon this offering
Series D convertible preferred stock............ 30,763 $5.610 46,144 Upon this offering
Series D-1 convertible preferred stock.......... 246,103 $6.485 369,154 May 24, 2000
Series D-1 convertible preferred stock.......... 385,505 $6.485 578,257 March 1, 2001
</TABLE>
After the closing of this offering, all of the warrants that have not
expired will become exercisable for that number of shares of common stock as is
indicated in the table.
OPTIONS
In 1996, Vastera adopted the 1996 Stock Option Plan. As of March 31, 2000,
6,750,000 shares of common stock are reserved for issuance to employees at the
discretion of our board of directors under the 1996 Plan. At March 31, 2000,
there were no shares of common stock available for future grant under the 1996
Plan. On April 26, 2000, the number of shares of common stock reserved for
issuance under the 1996 Plan was increased to 8,250,000. The exercise price of
all options outstanding at March 31, 2000 under the 1996 Plan range from $1.00
to $6.67 with a weighted average exercise price of $3.22 and these options are
exercisable in the aggregate for 6,452,895 shares of common stock. Please see
"Management--Employee Benefit Plans" for a detailed description of the plan.
REGISTRATION RIGHTS
Upon closing of this offering, the holders of 14,796,327 shares of common
stock, assuming the exercise of all outstanding preferred stock warrants and the
conversion into common stock of the preferred stock issued upon the exercise of
the warrants, will be entitled to demand registration rights requiring us to
register the sale of their shares under the Securities Act of 1933, under the
terms of an agreement between us and the holders of these shares. The holders of
40% or more of these shares are entitled to demand that Vastera register their
shares under the Securities Act, subject to various limitations. Vastera is not
required to effect more than two registrations pursuant to these demand
registration rights. In addition, these holders are entitled to piggyback
registration rights with respect to the registration of their shares under the
Securities Act, subject to various limitations. Further, at any time after
Vastera becomes eligible to file a registration statement on Form S-3, these
holders may require Vastera to file registration statements under the Securities
Act on Form S-3 with respect to their shares of common stock. These registration
rights are subject to certain conditions and limitations, among them the right
of the underwriters of an offering to limit the number of shares of common stock
held by these holders with registration rights to be included in a registration.
Vastera is generally required to bear all of the expenses of all of these
registrations, except underwriting discounts and selling commissions.
Registration of any of the shares of common stock held by these holders with
registration rights would result in shares
69
<PAGE>
becoming freely tradable without restriction under the Securities Act
immediately upon effectiveness of such registration.
DELAWARE ANTI-TAKEOVER LAW AND PROVISIONS IN OUR CHARTER AND BYLAWS
DELAWARE ANTI-TAKEOVER STATUTE. We are subject to Section 203 of the
Delaware General Corporation Law. In general, these provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless the transaction in which
the person became an interested stockholder is approved in a manner presented in
Section 203 of the Delaware General Corporation Law. Generally, a "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years, did own, 15% or more of a corporation's voting stock.
CERTIFICATE OF INCORPORATION. Our amended and restated certificate of
incorporation provides that:
- Our board of directors may issue, without further action by the
stockholders, up to 10,000,000 shares of undesignated preferred stock;
- Any action to be taken by our stockholders must be effected at a duly
called annual or special meeting and not by a consent in writing;
- Our board of directors shall be divided into three classes, with each
class serving for a term of three years;
- Vacancies on the board, including newly created directorships, can be
filled by a majority of the directors then in office; and
- Our directors may be removed only for cause.
BYLAWS. Our amended and restated bylaws provide that stockholders seeking
to bring business before an annual meeting of stockholders or to nominate
candidates for election as directors at an annual meeting of stockholders, must
provide timely notice to us in writing. To be timely, a stockholder's notice
must be received at our principal executive offices not less than 90 days nor
more than 120 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders. In the event that the annual meeting is called
for a date that is not within 30 days before or 60 days after the anniversary
date, in order to be timely notice from the stockholder must be received:
- not earlier than 120 days prior to the annual meeting of stockholders; and
- not later than 90 days prior to the annual meeting of stockholders or the
tenth day following the date on which notice of the annual meeting was
made public.
In the case of a special meeting of stockholders called for the purpose of
electing directors, notice by the stockholder, in order to be timely, must be
received:
- not earlier than 120 days prior to the special meeting; and
- not later than 90 days prior to the special meeting or the close of
business on the tenth day following the day on which public disclosure of
the date of the special meeting was made.
Our amended and restated bylaws also specify requirements as to the form and
content of a stockholder's notice. These provisions may preclude stockholders
from bringing matters before an annual or special meeting of stockholders, from
making nominations for directors at an annual or special meeting of stockholders
or from making nominations for directors at an annual or special
70
<PAGE>
meeting of stockholders. In addition, a two-thirds supermajority vote of
stockholders will be required to amend our amended and restated bylaws.
The provisions in our amended and restated certificate of incorporation and
our amended and restated bylaws are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Vastera. These provisions also are designed to reduce our vulnerability to an
unsolicited proposal for a takeover of Vastera that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for the
restructuring or sale of all or parts of Vastera. These provisions, however,
could discourage potential acquisition proposals and could delay or prevent a
change in control of Vastera. They may also have the effect of preventing
changes in our management.
TRANSFER AGENT
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
71
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
the offering could adversely affect the market price of the common stock and
adversely affect our ability to raise capital at a time and on terms favorable
to us.
Of the shares to be outstanding after the offering,
shares of common stock will be freely tradable unless they are
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. The remaining shares, assuming no exercise of outstanding
options and warrants, will be eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES
OF THIS PROSPECTUS ELIGIBLE FOR SALE COMMENT
------------------ ----------------- -------
<S> <C> <C>
Upon effectiveness.................. Freely tradable shares sold in this
offering
180 days............................ 18,338,144 Lock-up released; shares saleable
under Rule 144, 144(k) or 701
Various dates thereafter............ 2,354,365 Restricted securities held for one
year or less as of 180 days
following effectiveness
</TABLE>
RULE 144. In general, under Rule 144 as currently in effect, a person who
has beneficially owned shares for at least one year, including an "affiliate,"
as that term is defined in the Securities Act, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- one percent of the then outstanding shares of our common stock
(approximately shares immediately following the offering), or
- the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
A shareholder who is deemed not to have been an "affiliate" of ours at any time
during the 90 days preceding a sale, and who has beneficially owned restricted
shares for at least two years, would be entitled to sell such shares under
Rule 144(k) without regard to the volume, limitations, manner of sale provisions
or public information requirements. For purposes of Rule 144, an "affiliate" of
an issuer is a person that, directly or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
such issuer. All of our affiliates have agreed to further restrict their shares
by entering into lock-up arrangements discussed above.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, each of our directors, officers, employees, consultants or advisors who
purchased shares from us before the date of this prospectus in connection with a
compensatory stock plan or other written compensatory agreement is eligible to
resell such shares 90 days after the effective date of this offering in reliance
on Rule 144, but without compliance with certain restrictions, including the
holding period, contained in Rule 144.
STOCK PLANS. As of March 31, 2000, options to purchase 6,452,895 shares of
our common stock were outstanding under our 1996 Stock Option Plan. After this
offering, we intend to file registration statements on Form S-8 under the
Securities Act of 1933 covering shares of common stock reserved for issuance
under our 1996 Plan, our 2000 Stock Option/Stock Issuance Plan and our 2000
Employee Stock Purchase Plan. Based on the number of options outstanding and
shares
72
<PAGE>
reserved for issuance under our 1996 Plan, our 2000 Plan and our 2000 Stock
Purchase Plan, the registration statements on Form S-8 will cover
shares. The Form S-8 registration statements will become effective immediately
upon filing, whereupon, subject to the satisfaction of applicable exercisability
periods, Rule 144 volume limitations applicable to affiliates and the lock-up
agreements with the underwriters referred to above, shares of common stock to be
issued upon exercise of outstanding options granted pursuant to our 1996 Plan,
our 2000 Plan and our 2000 Stock Purchase Plan (to the extent that such shares
were not held by affiliates) will be available for immediate resale in the
public market.
LOCK-UP AGREEMENT. Each of our officers and directors, and substantially
all of our stockholders and holders of options and warrants to purchase our
stock have agreed not to sell or otherwise dispose of any shares of common stock
for a period of 180 days after the date of this prospectus without the prior
written consent of Deutsche Bank Securities Inc. Transfers or dispositions can
be made during the lock-up period in the case of gifts or for estate planning
purposes where the donee signs a lock-up agreement. Upon the expiration of these
lock-up agreements, additional shares will be available for sale in the public
market.
REGISTRATION RIGHTS. After this offering, the holders of 14,796,327 shares
of our common stock will be entitled to certain rights with respect to the
registration of their shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." After any such registration of these
shares, such shares will be freely tradeable without restriction under the
Securities Act. These sales could cause the market price of our common stock to
decline.
73
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Chase Securities Inc. and Banc of America Securities LLC, have severally
agreed to purchase from Vastera the following respective number of shares of
common stock at a public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Deutsche Bank Securities Inc................................
Chase Securities Inc........................................
Banc of America Securities LLC..............................
---------
Total Underwriters ( ).................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the shares are being offered.
The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is % of the initial public offering price. We have
agreed to pay the underwriters the following fees, assuming either no exercise
or full exercise by the underwriters of the underwriters' over-allotment option:
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Vastera.............. $ $ $
</TABLE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
74
<PAGE>
We have agreed to indemnify the underwriters against some specified types of
liabilities, including liabilities under the Securities Act, and to contribute
to payments the underwriters may be required to make in respect of any of these
liabilities.
Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. Transfers or dispositions can be made during the lock-up period in the
case of gifts or for estate planning purposes where the donee signs a lock-up
agreement. We have entered into a similar agreement with the representatives of
the underwriters, except that without such consent we may grant options and sell
shares pursuant to our 1996 Stock Option Plan, our 2000 Stock Option/Stock
Issuance Plan and our 2000 Employee Stock Purchase Plan, and may issue shares of
our common stock in connection with a strategic partnering transaction or in
exchange for all or substantially all of the equity or assets of a company in
connection with a merger or acquisition. There are no agreements between the
representatives and any of our stockholders or affiliates releasing them from
these lock-up agreements prior to the expiration of the 180-day period.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our vendors, employees, family
members of employees, customers and other third parties. Pursuant to a prior
agreement, the holders of shares of our Series C convertible preferred stock are
entitled to purchase in this offering $3.0 million of common stock. The number
of shares of our common stock available for sale to the general public will be
reduced to the extent these reserved shares are purchased. Any reserved shares
that are not purchased by these persons will be offered by the underwriters to
the general public on the same basis as the other shares in this offering.
In February 2000, we sold shares of our Series E convertible preferred stock
in a private placement at a price of $10.83 per share. In this private
placement, BT Investment Partners, Inc., an affiliate of Deutsche Bank
Securities Inc., purchased 46,168 shares of Series E convertible preferred
75
<PAGE>
stock for an aggregate purchase price of $499,999.44. Additionally, Hambrecht &
Quist California, H&Q Employee Venture Fund 2000, L.P., Access Technology
Partners, L.P. and Access Technology Partners Brokers Fund, L.P., affiliates of
Chase Securities Inc., purchased 6,186 shares, 2,308 shares, 36,935 shares and
739 shares, respectively, of Series E convertible preferred stock for an
aggregate purchase price of $499,999.44.
In November 1998 we issued a warrant for 30,763 shares of our Series D
convertible preferred stock in a private placement to Banc of America Securities
LLC (formerly, NationsBanc Montgomery Securities L.L.C.). Banc of America
Securities LLC acted as placement agent in this private placement.
PRICING OF THIS OFFERING
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalization and stage of development of other companies that
we and the representatives of the underwriters believe to be comparable to
our business; and
- estimates of our business potential.
76
<PAGE>
LEGAL MATTERS
Brobeck, Phleger & Harrison LLP, Washington, D.C. will provide Vastera an
opinion relating to the validity of the common stock issued in this offering.
Legal matters will be passed upon for the underwriters by Ropes & Gray, Boston,
Massachusetts.
EXPERTS
The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
OTHER MATTERS
On March 26, 1999, our board of directors dismissed PricewaterhouseCoopers
LLP as its independent accountants. From our inception through March 26, 1999,
the former auditors did not disagree with us on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which disagreements, if not resolved to their satisfaction, would have
caused them to make reference thereto in their report on the financial
statements for such years. During the period from our inception to the date of
their dismissal, there have been no reportable events as defined in
Regulation S-K Item 304(a)(1)(iv). In response to our request,
PricewaterhouseCoopers LLP has furnished us with a letter addressed to the
Securities and Exchange Commission stating whether or not PricewaterhouseCoopers
LLP agrees with the above statements. We have filed a copy of such letter dated
April 5, 2000 as Exhibit 16 to the registration statement of which this
Prospectus is a part.
On March 26, 1999, our board of directors retained Arthur Andersen LLP as
our independent public accountants. Prior to retaining Arthur Andersen LLP, we
had not consulted with Arthur Andersen LLP on any accounting, auditing or
reporting matter.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-1 with respect to the common stock offered
hereby. This prospectus, which constitutes a part of the registration statement,
does not contain all of the information set forth in the registration statement
or the exhibits and schedules which are part of the registration statement. For
further information with respect us and the common stock, reference is made to
the registration statement and the exhibits and schedules thereto. You may read
and copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms. Our SEC
filings are also available to the public from the SEC's web site at
HTTP://WWW.SEC.GOV. Upon completion of this offering, we will become subject to
the information and periodic reporting requirements of the Securities Exchange
Act and, in accordance therewith, will file periodic reports, proxy statements
and other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Web site of the SEC referred to above.
77
<PAGE>
VASTERA, INC.
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit)................................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to the Consolidated Financial Statements.............. F-7
</TABLE>
F-1
<PAGE>
After the three-for-two stock split and the increase in authorized shares
discussed in Note 6 to Vastera, Inc.'s consolidated financial statements is
effected, we expect to be in a position to render the following audit report.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
April 5, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vastera, Inc.:
We have audited the accompanying consolidated balance sheets of
Vastera, Inc. (a Delaware corporation) and its subsidiary as of December 31,
1998 and 1999, and the related consolidated statements of operations and changes
in stockholders' 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 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 Vastera, Inc. and its
subsidiary as of December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
As explained in Note 2 to the consolidated financial statements, the Company
has given retroactive effect to the change in accounting for software license
revenues.
Vienna, Virginia
April 5, 2000
F-2
<PAGE>
VASTERA, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- MARCH 31, MARCH 31,
1998 1999 2000 2000
-------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 7,792 $ 961 $ 669
Short-term investments.................................... 1,892 3,908 13,823
Accounts receivable, net of allowance for doubtful
accounts of $339, $589 and $531, respectively........... 3,612 5,237 7,255
Prepaid expenses and other current assets................. 115 442 1,039
------- ------- --------
Total current assets.................................. 13,411 10,548 22,786
Property and equipment, net................................. 2,232 3,859 4,438
Goodwill, net............................................... -- 2,079 1,960
Deposits and other assets................................... 639 666 445
------- ------- --------
Total assets.......................................... $16,282 $17,152 $ 29,629
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit and capital lease obligations, current..... $ 392 $ 391 $ 557
Accounts payable.......................................... 1,648 2,440 1,841
Accrued expenses.......................................... 1,908 2,979 4,853
Accrued compensation and benefits......................... 1,245 1,736 1,193
Deferred revenue.......................................... 5,019 7,202 7,796
------- ------- --------
Total current liabilities............................. 10,212 14,748 16,240
Long-term liabilities:
Line of credit and capital lease obligations.............. 996 2,326 2,348
Deferred revenue, net of current portion.................. 3,406 3,889 3,769
------- ------- --------
Total liabilities..................................... 14,614 20,963 22,357
------- ------- --------
Commitments and contingencies
Redeemable convertible preferred stock:
Series A, Series B, Series C, Series C-1, Series D, and
Series D-1; $0.01 par value; 9,196 shares authorized in
aggregate; 5,572, 6,085 and 7,654 shares issued and
outstanding in aggregate as of December 31, 1998 and
1999, and March 31, 2000, respectively, and no shares
outstanding on a pro forma basis (aggregate liquidation
preference of $48,662, as of March 31, 2000)............ 24,431 46,117 75,198 $ --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 100,000 shares authorized;
5,502, 6,430 and 6,536 shares issued and outstanding as
of December 31, 1998 and 1999, and March 31, 2000,
respectively, and 19,217 on a pro forma basis........... 55 64 65 192
Additional paid-in capital................................ 1,029 9,765 20,831 95,902
Accumulated other comprehensive loss...................... -- (41) (51) (51)
Deferred compensation..................................... -- (6,043) (14,381) (14,381)
Accumulated deficit....................................... (23,847) (53,673) (74,390) (74,390)
------- ------- -------- --------
Total stockholders' equity (deficit).................. (22,763) (49,928) (67,926) 7,272
------- ------- --------
Total liabilities and stockholders' equity
(deficit)........................................... $16,282 $17,152 $ 29,629
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
VASTERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Subscription/transaction
revenues......................... $ 2,200 $ 4,088 $ 7,261 $ 1,373 $ 2,617
Services revenues.................. 1,545 4,778 11,869 3,125 3,662
-------- -------- -------- -------- --------
Total revenues................. 3,745 8,866 19,130 4,498 6,279
-------- -------- -------- -------- --------
COST OF REVENUES:
Cost of subscription/transaction
revenues......................... 766 708 692 130 364
Cost of services revenues.......... 1,473 4,206 10,078 2,065 3,271
-------- -------- -------- -------- --------
Total cost of revenues......... 2,239 4,914 10,770 2,195 3,635
-------- -------- -------- -------- --------
GROSS PROFIT......................... 1,506 3,952 8,360 2,303 2,644
OPERATING EXPENSES:
Sales and marketing................ 4,442 4,581 7,143 1,340 3,387
Research and development........... 4,137 4,271 6,194 1,121 3,398
General and administrative......... 1,710 2,562 3,680 619 1,294
Depreciation and amortization...... 426 637 1,625 281 580
Stock option compensation.......... -- -- 378 -- 2,622
-------- -------- -------- -------- --------
Total operating expenses....... 10,715 12,051 19,020 3,361 11,281
-------- -------- -------- -------- --------
Loss from operations................. (9,209) (8,099) (10,660) (1,058) (8,637)
Other income(expense):
Interest income.................... 48 51 421 104 101
Interest expense................... (146) (208) (240) (52) (74)
-------- -------- -------- -------- --------
Total other income (expense)... (98) (157) 181 52 27
-------- -------- -------- -------- --------
Net loss............................. $ (9,307) $ (8,256) $(10,479) $ (1,006) $ (8,610)
Dividends and accretion on redeemable
convertible preferred stock........ (668) (1,184) (19,347) (1,149) (12,107)
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders....................... $ (9,975) $ (9,440) $(29,826) $ (2,155) $(20,717)
======== ======== ======== ======== ========
Pro forma basic and diluted loss per
common share....................... $ (.64) $ (.47)
======== ========
Pro forma weighted-average common
shares outstanding................. 16,277 18,362
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
VASTERA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
COMPREHENSIVE ------------------- ------------------- PAID-IN
INCOME (LOSS) SHARES AMOUNT SHARES AMOUNT CAPITAL
--------------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........................ 800 $ 3,801 6,000 $ 60 $ 308
Net loss........................................ -- -- -- -- --
Issuance of Series C preferred stock............ 1,703 5,771 -- -- --
Issuance of warrants to purchase Series C-1
preferred stock............................... -- -- -- -- 477
Exercise of stock options....................... -- -- 27 -- 27
Dividends and accretion on redeemable
convertible preferred stock................... -- 668 -- -- --
------- ------- ------- ---- --------
BALANCE, December 31, 1997........................ 2,503 10,240 6,027 60 812
Net loss........................................ -- -- -- -- --
Issuance of Series C preferred stock............ 608 2,076 -- -- --
Issuance of warrants to purchase Series C-1
preferred stock............................... -- -- -- -- 171
Issuance of Series D preferred stock............ 2,461 10,931 -- -- --
Issuance of warrants to purchase Series D
preferred stock............................... -- -- -- -- 40
Issuance of warrants to purchase Series D-1
preferred stock............................... -- -- -- -- 197
Issuance of common stock in legal settlement.... -- -- 120 1 119
Exercise of stock options....................... -- -- 15 -- 14
Retirement of treasury stock.................... -- -- (660) (6) (324)
Dividends and accretion on redeemable
convertible preferred stock................... -- 1,184 -- -- --
------- ------- ------- ---- --------
BALANCE, December 31, 1998........................ 5,572 24,431 5,502 55 1,029
Net loss........................................ $(10,479) -- -- -- -- --
Unrealized gains and losses on investments...... (41) -- -- -- -- --
--------
Comprehensive loss.............................. $(10,520)
========
Issuance of Series D preferred stock............ 513 2,339 -- -- --
Issuance of warrants to purchase Series D-1
preferred stock............................... -- -- -- -- 231
Exercise of stock options....................... -- -- 172 2 170
Deferred stock compensation..................... -- -- -- -- 6,421
Amortization of deferred stock compensation.....
Stock issued for acquisition of subsidiaries.... -- -- 756 7 1,914
Dividends and accretion on redeemable
convertible preferred stock................... -- 19,347 -- -- --
------- ------- ------- ---- --------
BALANCE, December 31, 1999........................ 6,085 46,117 6,430 64 9,765
Net loss (unaudited)............................ (8,610) -- -- -- -- --
Unrealized gains and losses on investments
(unaudited)................................... (10) -- -- -- -- --
--------
Comprehensive loss (unaudited).................. $ (8,620)
========
Issuance of Series E preferred stock
(unaudited)................................... 1,569 16,974 -- -- --
Dividend for beneficial conversion feature on
Series E preferred stock (unaudited).......... -- 8,115 -- -- --
Exercise of stock options (unaudited)........... -- -- 107 1 106
Deferred stock compensation (unaudited)........... -- -- -- -- 10,960
Amortization of deferred stock compensation
(unaudited)................................... -- -- -- -- --
Dividends and accretion on redeemable
convertible preferred stock (unaudited)....... -- 3,992 -- -- --
------- ------- ------- ---- --------
Balance, March 31, 2000 (unaudited................ 7,654 75,198 6,536 65 20,831
Pro forma adjustments (unaudited)............... (7,654) (75,198) 12,681 127 75,071
------- ------- ------- ---- --------
PRO FORMA BALANCE, March 31, 2000 (unaudited)..... -- $ -- 19,217 $192 $ 95,902
======= ======= ======= ==== ========
<CAPTION>
ACCUMULATED OTHER TREASURY STOCK
COMPREHENSIVE DEFERRED ACCUMULATED -------------------
LOSS COMPENSATION DEFICIT SHARES AMOUNT
------------------- -------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........................ $ -- $ -- $ 4,432) 660 $(330)
Net loss........................................ -- -- (9,307) -- --
Issuance of Series C preferred stock............ -- -- -- -- --
Issuance of warrants to purchase Series C-1
preferred stock............................... -- -- -- -- --
Exercise of stock options....................... -- -- -- -- --
Dividends and accretion on redeemable
convertible preferred stock................... -- (668) -- --
----- -------- -------- ---- -----
BALANCE, December 31, 1997........................ -- (14,407) 660 (330)
Net loss........................................ -- (8,256) -- --
Issuance of Series C preferred stock............ -- -- -- -- --
Issuance of warrants to purchase Series C-1
preferred stock............................... -- -- -- -- --
Issuance of Series D preferred stock............ -- -- -- -- --
Issuance of warrants to purchase Series D
preferred stock............................... -- -- -- -- --
Issuance of warrants to purchase Series D-1
preferred stock............................... -- -- -- -- --
Issuance of common stock in legal settlement.... -- -- -- -- --
Exercise of stock options....................... -- -- -- -- --
Retirement of treasury stock.................... -- -- -- (660) 330
Dividends and accretion on redeemable
convertible preferred stock................... -- (1,184) -- --
----- -------- -------- ---- -----
BALANCE, December 31, 1998........................ -- -- (23,847) -- --
Net loss........................................ -- -- (10,479) -- --
Unrealized gains and losses on investments...... (41) -- -- -- --
Comprehensive loss..............................
Issuance of Series D preferred stock............ -- -- -- -- --
Issuance of warrants to purchase Series D-1
preferred stock............................... -- -- -- -- --
Exercise of stock options....................... -- -- -- -- --
Deferred stock compensation..................... -- (6,421) -- -- --
Amortization of deferred stock compensation..... 378
Stock issued for acquisition of subsidiaries.... -- -- -- -- --
Dividends and accretion on redeemable
convertible preferred stock................... -- -- (19,347) -- --
----- -------- -------- ---- -----
BALANCE, December 31, 1999........................ (41) (6,043) (53,673) -- --
Net loss (unaudited)............................ -- -- (8,610) -- --
Unrealized gains and losses on investments
(unaudited)................................... (10) -- -- -- --
Comprehensive loss (unaudited)..................
Issuance of Series E preferred stock
(unaudited)................................... -- -- -- -- --
Dividend for beneficial conversion feature on
Series E preferred stock (unaudited).......... -- -- (8,115) -- --
Exercise of stock options (unaudited)........... -- -- -- -- --
Deferred stock compensation (unaudited)........... -- (10,960) -- -- --
Amortization of deferred stock compensation
(unaudited)................................... -- 2,622 -- -- --
Dividends and accretion on redeemable
convertible preferred stock (unaudited)....... -- -- (3,992) -- --
----- -------- -------- ---- -----
Balance, March 31, 2000 (unaudited................ (51) (14,381) (74,390) -- --
Pro forma adjustments (unaudited)............... -- -- -- -- --
----- -------- -------- ---- -----
PRO FORMA BALANCE, March 31, 2000 (unaudited)..... $(151) $(14,381) $(74,390) -- $ --
===== ======== ======== ==== =====
<CAPTION>
TOTAL
--------
<S> <C>
BALANCE, December 31, 1996........................ $ (4,394)
Net loss........................................ (9,307)
Issuance of Series C preferred stock............ --
Issuance of warrants to purchase Series C-1
preferred stock............................... 477
Exercise of stock options....................... 27
Dividends and accretion on redeemable
convertible preferred stock................... (668)
--------
BALANCE, December 31, 1997........................ (13,865)
Net loss........................................ (8,256)
Issuance of Series C preferred stock............ --
Issuance of warrants to purchase Series C-1
preferred stock............................... 171
Issuance of Series D preferred stock............ --
Issuance of warrants to purchase Series D
preferred stock............................... 40
Issuance of warrants to purchase Series D-1
preferred stock............................... 197
Issuance of common stock in legal settlement.... 120
Exercise of stock options....................... 14
Retirement of treasury stock.................... --
Dividends and accretion on redeemable
convertible preferred stock................... (1,184)
--------
BALANCE, December 31, 1998........................ (22,763)
Net loss........................................ (10,479)
Unrealized gains and losses on investments...... (41)
Comprehensive loss..............................
Issuance of Series D preferred stock............ --
Issuance of warrants to purchase Series D-1
preferred stock............................... 231
Exercise of stock options....................... 172
Deferred stock compensation..................... --
Amortization of deferred stock compensation..... 378
Stock issued for acquisition of subsidiaries.... 1,921
Dividends and accretion on redeemable
convertible preferred stock................... (19,347)
--------
BALANCE, December 31, 1999........................ (49,928)
Net loss (unaudited)............................ (8,610)
Unrealized gains and losses on investments
(unaudited)................................... (10)
Comprehensive loss (unaudited)..................
Issuance of Series E preferred stock
(unaudited)................................... --
Dividend for beneficial conversion feature on
Series E preferred stock (unaudited).......... (8,115)
Exercise of stock options (unaudited)........... 107
Deferred stock compensation (unaudited)........... --
Amortization of deferred stock compensation
(unaudited)................................... 2,622
Dividends and accretion on redeemable
convertible preferred stock (unaudited)....... (3,992)
--------
Balance, March 31, 2000 (unaudited................ (67,726)
Pro forma adjustments (unaudited)............... 75,198
--------
PRO FORMA BALANCE, March 31, 2000 (unaudited)..... $ 7,272
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
VASTERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................ $ (9,307) $ (8,256) $(10,479) $(1,006) $(8,610)
Adjustments to reconcile net loss to net
cash used in operating activities--
Stock option compensation............. -- -- 378 -- 2,622
Depreciation and amortization......... 407 637 1,625 281 580
Provision for allowance for doubtful
accounts............................ 313 61 300 -- --
Provision for litigation settlement... 120 -- --
Amortization of discount related to
warrants............................ -- -- 6 -- 41
Changes in operating assets and
liabilities:
Accounts receivable................. (2,047) (1,215) (1,925) (1,442) (2,018)
Prepaid expenses and other current
assets............................ 5 (50) (102) (41) (638)
Deposits and other assets........... 10 (44) (536) 17 221
Accounts payable and accrued
expenses.......................... 1,431 1,489 1,863 325 1,275
Accrued compensation and benefits... 328 611 491 (392) (543)
Deferred revenue.................... 3,261 2,905 2,666 448 474
-------- -------- -------- ------- -------
Net cash used in operating
activities...................... (5,479) (3,862) (5,713) (1,810) (6,596)
-------- -------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries............. -- -- (539) (100) --
Purchase of debt securities............. -- (2,401) (1,548) (4,974) (9,925)
Acquisition of property and equipment... (510) (433) (1,148) (119) (747)
-------- -------- -------- ------- -------
Net cash used in investing
activities...................... (510) (2,834) (3,235) (5,193) (10,672)
-------- -------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of redeemable
convertible preferred stock........... 5,248 13,415 2,339 2,570 16,974
Proceeds from the exercise of stock
options............................... 27 14 172 1 109
Proceeds from the issuance of long-term
debt.................................. 2,500 1,600 150 405 --
Principal payments on long-term debt.... (1,681) (1,929) (544) (730) (105)
-------- -------- -------- ------- -------
Net cash provided by financing
activities...................... 6,094 13,100 2,117 2,246 16,976
-------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................. 105 6,404 (6,831) (4,757) (292)
Cash and cash equivalents, beginning of
period.................................. 1,283 1,388 7,792 7,792 961
-------- -------- -------- ------- -------
Cash and cash equivalents, end of
period.................................. $ 1,388 $ 7,792 $ 961 $ 3,035 $ 669
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
NATURE OF THE BUSINESS
Vastera, Inc. ("Vastera" or the "Company") is a provider of solutions for
global trade management. The Company's offerings include a library of global
trade content, web-based business-to-business, or B2B, solutions and management
consulting and solution services. Global trade involves the physical movement of
goods across borders, the management of information required to enable global
trade and the financial exchange processes required to complete related
transactions. The Company's solutions focus on the management of information
required to enable global trade and enhance collaboration across a client's
global trade network.
The Company's operations are subject to certain risks and uncertainties,
including among others, uncertainties relating to product development, rapidly
changing technology, current and potential competitors with greater financial,
technological, production, and marketing resources, dependence on key management
personnel, limited protection of intellectual property and proprietary rights,
uncertainty of future profitability and possible fluctuations in financial
results.
ACQUISITIONS
On January 31, 1999, the Company acquired Deltac Limited ("Deltac"), located
in Wales, United Kingdom, a privately owned company and provider of
international trade consulting. The purchase method of accounting has been
applied to this acquisition, and accordingly, the results of operations of
Deltac are included in the Company's operations from the date of acquisition. In
connection with this transaction, the Company changed the name of Deltac to
Vastera, Ltd.
The shareholders of Deltac received $100,000 in cash and 189,000 shares of
common stock of Vastera, valued at $409,000, in exchange for all of the
outstanding common stock of Deltac. The excess of the purchase price over the
fair value of the net assets of Deltac was approximately $512,000. This amount
was allocated to goodwill and is being amortized on a straight-line basis over
five years.
On June 1, 1999, the Company acquired Quantum Consulting Associates, Inc.
("Quantum"), located in Denver, Colorado, a privately owned international trade
consulting company. The purchase method of accounting has been applied to this
acquisition, and accordingly, the results of operations of Quantum are included
in the Company's operations from the date of acquisition.
The shareholders of Quantum received approximately $439,000 in cash and
567,000 shares of common stock of Vastera, valued at approximately $1,511,000,
in exchange for all of the outstanding common stock of Quantum. The excess of
the purchase price over the fair value of the net assets of Quantum was
approximately $1,880,000. This amount was allocated to goodwill and is being
amortized on a straight-line basis over five years.
F-7
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY: (CONTINUED)
The following unaudited pro forma information has been prepared as if the
acquisitions of Deltac and Quantum had occurred as of January 1, 1998 and 1999,
respectively:
<TABLE>
<CAPTION>
PRO FORMA FOR THE PRO FORMA FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Total revenues....................................... $11,329 $ 19,708
Net loss............................................. (8,366) (10,684)
Pro forma loss per common and common equivalent
share.............................................. $ (.66)
</TABLE>
The unaudited pro forma information is not necessarily indicative of the
results of operations that would have occurred had the purchase been made at the
beginning of the periods presented or the future results of the combined
operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Vastera, Ltd., from the date of acquisition.
All significant intercompany balances and transactions have been eliminated in
consolidation.
UNAUDITED INTERIM FINANCIAL INFORMATION
The consolidated financial statements as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 are unaudited. These unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, which are necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim period ended
March 31, 2000 are not necessarily indicative of results to be expected for the
entire fiscal year or future periods.
UNAUDITED PRO FORMA BALANCE SHEET INFORMATION
The unaudited pro forma balance sheet information is being presented to show
the mandatory conversion of all shares of redeemable convertible preferred stock
outstanding at March 31, 2000 into shares of common stock upon a qualified
initial public offering. All of the Company's preferred stock will automatically
convert into shares of common stock if the initial public offering is
consummated under terms presently anticipated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent
F-8
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
REVENUE RECOGNITION
The Company's revenues consist of subscription/transaction revenues and
services revenues.
Revenues classified as subscription/transaction revenues are derived from
subscription/ transaction arrangements and sales of perpetual software licenses
and maintenance services. Revenues from software licenses, maintenance
contracts, and subscription arrangements are recognized as
subscription/transaction revenue ratably over the estimated economic life of the
product (three years) or, if stated, the contract term. Maintenance contracts
include the right to unspecified enhancements on a when-and-if available basis,
ongoing support, and content update services. Transaction fees are recognized as
revenue when earned based on the usage of the Company's product. Revenue
recognition begins upon the execution of a software license and maintenance
agreement and delivery of the product.
Services revenues are derived from implementation, management consulting and
training services. Services are performed on a time and materials basis or under
fixed price arrangements and are recognized as the services are performed or
using percentage of completion.
ACCOUNTING CHANGE
In 1999, the Company changed its method of recognizing revenue under
software license arrangements. The Company has accounted for software licenses
as a subscription arrangement over the term of the contract or the estimated
economic life of the product (three years) if the contract term is not
specified. Prior to the change, license fees were recognized upon delivery of
the software. The new method of accounting for software license fees was adopted
since the content updates provided under maintenance arrangements are essential
to the continued functionality of the software product. The financial statements
of prior years have been restated to apply the new method retroactively.
The direct effect of the change in accounting principle on net losses and
pro forma loss per share for the years ending December 31, 1997, 1998, and 1999
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
NET LOSS (IN THOUSANDS)
Subscription accounting..................................... $(9,307) $(8,256) $(10,479)
Up-front license fee recognition............................ (7,703) (5,314) (9,068)
------- ------- --------
Increase in net loss due to accounting change............... $(1,604) $(2,942) $ (1,411)
------- ------- --------
PRO FORMA LOSS PER SHARE
Subscription accounting..................................... $(.64)
Up-front license fee recognition............................ (.56)
--------
Increase in loss per share due to accounting change......... (.07)
--------
</TABLE>
F-9
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. To
date, the establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a result,
software development costs qualifying for capitalization have been
insignificant, and therefore, the Company has not capitalized any software
development costs.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from these disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
the Company. The carrying amounts reported in the consolidated balance sheets
approximate the fair value for cash and cash equivalents, investments, accounts
receivable, accounts payable, the line of credit and capital lease obligations.
INVESTMENTS
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." In 1998, the
Company began using its existing cash on hand to invest in certain debt
securities. The Company considers all of its investments as of December 31, 1998
and 1999, to be available-for-sale.
As of December 31, 1998, there were no material unrealized gains and losses.
As of December 31, 1999 and March 31, 2000, the Company recognized approximately
$41,000 and $10,000, respectively of net unrealized losses on investments in
debt securities as a component of stockholders' equity.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents and accounts receivable.
The Company limits the amount of investment exposure in any one financial
instrument and does not have any foreign currency investments. The Company sells
products and services to customers across several industries throughout the
world without requiring collateral. However, the Company routinely assesses the
financial strength of its customers and maintains allowances for anticipated
losses.
F-10
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
There were no customers that represented 10 percent or more of accounts
receivable as of December 31, 1998. As of December 31, 1999, one customer
accounted for 16 percent of total accounts receivable. As of March 31, 2000, one
customer accounted for 12 percent of total accounts receivable.
DEPRECIATION AND AMORTIZATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years. Assets acquired under
capital leases and leasehold improvements are amortized using the straight-line
method over the shorter of the estimated useful lives of the assets or the terms
of the leases. Goodwill related to the 1999 acquisitions is being amortized
using the straight-line method over five years. For the years ended
December 31, 1997, 1998, and 1999, depreciation and amortization expense was
approximately $407,000, $637,000, and $1,625,000, respectively. For the three
months ended March 31, 1999 and 2000, depreciation and amortization expense was
approximately $281,000 and $580,000, respectively.
LONG-LIVED ASSETS
The Company reviews its long-lived assets, including property and equipment
and goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. To determine
recoverability of its long-lived assets, the Company evaluates the future,
undiscounted, net cash flows compared to the carrying amount of the assets.
INCOME TAXES
Deferred taxes are provided utilizing the liability method as prescribed by
SFAS No. 109, "Accounting for Income Taxes," whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
UNAUDITED PRO FORMA LOSS PER COMMON SHARE
Unaudited pro forma loss per common share is computed using the pro forma
weighted-average number of common shares outstanding for the period. Pro forma
weighted-average common shares include the assumed conversion of all outstanding
convertible preferred stock into common stock. Since the conversion of the
preferred stock has a significant effect on the loss per share calculation, the
historical loss per share has not been presented.
Basic earnings per share includes no dilution and is computed by dividing
net loss available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share includes
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. As of
December 31, 1999 and March 31, 2000, options to purchase approximately
4,728,000 and
F-11
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
6,453,000 shares of common stock, respectively; and warrants to purchase
1,248,000 shares of redeemable convertible preferred stock were outstanding. Due
to the anti-dilutive nature of the options and warrants there is no effect on
the calculation of weighted-average shares for diluted earnings per share. As a
result, the basic and diluted loss per share amounts are identical.
FOREIGN CURRENCY TRANSLATION
The Company uses the local currency as its functional currency in all
foreign locations. Assets and liabilities are translated into U. S. dollars as
of the balance sheet date. Revenues, expenses, gains, and losses are translated
at the average exchange rates in effect during each period. If material, gains
and losses resulting from translation are included in accumulated other
comprehensive loss in stockholders' equity. Net gains or losses resulting from
foreign currency exchange transactions are included in the consolidated
statements of operations. There were no material gains or losses resulting from
translation or foreign currency exchange transactions for the year ended
December 31, 1999 and for the three months ended March 31, 2000.
COMPREHENSIVE LOSS
As of December 31, 1999 and March 31, 2000, accumulated other comprehensive
loss includes unrealized gains and losses on investments. As of December 31,
1997 and 1998, the Company did not have any material items of comprehensive loss
other than net loss, as the components of accumulated other comprehensive loss
were immaterial to the financial statements.
3. PROPERTY AND EQUIPMENT AND GOODWILL:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................. $1,526 $2,649 3,210
Software....................................... 1,369 1,939 1,974
Furniture and equipment........................ 600 1,677 2,006
Leasehold improvements......................... 33 230 343
------ ------ ------
3,528 6,495 7,533
Less--Accumulated depreciation................. (1,296) (2,636) (3,095)
------ ------ ------
Property and equipment, net.................... $2,232 $3,859 $4,438
====== ====== ======
</TABLE>
As of December 31, 1999 and March 31, 2000, goodwill of approximately
$2,079,000 and 1,960,000, respectively, relates to the Company's 1999
acquisitions. Accumulated amortization as of December 31, 1999 and March 31,
2000, was approximately $313,000 and 432,000, respectively.
F-12
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT:
LINE OF CREDIT
In June 1997, the Company received a $1,000,000 convertible bridge loan (the
"Bridge Loan") from an equity investor (the "Investor"). The loan had an
interest rate of 10 percent. In August 1997, the $1,000,000 principal bridge
loan was converted into approximately 270,000 shares of Series C redeemable
convertible preferred stock.
On April 28, 1998, the Company obtained a line of credit from a bank for
$2,500,000 with a $500,000 sublimit for equipment purchases, subject to
borrowing base restrictions. During 1998 the equipment line of credit was
increased to $1,000,000. The line bears interest at prime plus 1.25 percent. The
line of credit is collateralized by the first lien on all corporate assets,
including intangible assets. As of December 31, 1998, there were no borrowings
outstanding under this line of credit. The Company terminated this line of
credit in March 1999.
In March 1999, the Company negotiated a $2,500,000 secured revolving credit
facility and a $1,500,000 equipment line of credit with a different bank. The
line bears interest at the prime rate plus .75 percent for the secured revolving
credit facility and the prime rate plus .85 percent for the equipment line of
credit. In September 1999, the equipment line was increased to $3,000,000. As of
December 31, 1999 and March 31, 2000, the outstanding balance under the
equipment line was approximately $1,723,000 and $2,016,000, respectively, and
there were no amounts outstanding under the revolving line of credit. The
revolving line of credit expires on September 5, 2000. Amounts borrowed under
the equipment line are initially subject to interest-only payments and after the
interest-only period will be repayable over three years.
The terms of the line of credit require the Company to comply with certain
financial covenants. As of December 31, 1999, the Company was in violation of
these covenants. On February 3, 2000, the bank granted the Company a waiver of
past covenant violations and waived its right to call the line of credit for
these covenant violations.
On March 31, 2000, the Company amended the existing financial covenants and
increased the equipment line of credit to $4,800,000. The most restrictive of
the amended financial covenants is that the Company's operating losses will not
exceed $5,000,000 for the second, third, and fourth fiscal quarters of 2000 and
$2,000,000 in any quarter thereafter, and, beginning in the first quarter of
2002, the Company is not permitted to have two consecutive quarters with
operating losses. Other financial covenants require that the Company maintain
minimum tangible net worth, as defined, as follows (in thousands):
<TABLE>
<CAPTION>
MINIMUM TANGIBLE
AS OF THE QUARTER ENDED, NET WORTH
- ------------------------ ----------------
<S> <C>
March 31, 2000............................................ $ 800
June 30, 2000............................................. (3,000)
September 30, 2000........................................ (6,200)
December 31, 2000......................................... (9,100)
March 31, 2001............................................ (11,500)
June 30, 2001............................................. (13,000)
September 30, 2001........................................ (13,100)
Thereafter................................................ (12,600)
</TABLE>
F-13
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
CAPITAL LEASE OBLIGATIONS
The Company leases office equipment under various noncancelable capital
leases. The Company obtained an equipment leasing arrangement in the aggregate
of $1,400,000 in 1997 and an additional $250,000 in 1998 from a lending
institution (the "Lender"). Amounts borrowed from the equipment leasing
arrangement are due over 36- to 48-month repayment periods and are
collateralized by the Company's software product.
In connection with the capital lease arrangement from the Lender and the
Bridge Loan from the Investor during 1997, the Company issued the Lender and the
Investor warrants to purchase an aggregate of approximately 7,000, 5,000, and
18,000 shares of Series A preferred stock, Series B preferred stock, and
Series C preferred stock, respectively. The fair value of these warrants was
immaterial to the consolidated financial statements.
Property and equipment includes approximately $1,914,000, $1,798,000 and
$1,798,000 of equipment under capital lease arrangements at December 31, 1998
and 1999 and March 31, 2000, respectively. Related accumulated depreciation was
approximately $904,000, $1,437,000 and $1,560,000 at December 31, 1998 and 1999
and March 31, 2000, respectively.
F-14
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT: (CONTINUED)
Future minimum payments under the Company's line of credit and capital lease
arrangements at December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $1,190
2001........................................................ 1,199
2002........................................................ 704
------
Total minimum payments.................................. 3,093
Less--Amounts representing interest......................... 376
------
Present value of net minimum payments....................... 2,717
Less--Current obligations................................... 391
------
Long-term debt.............................................. $2,326
======
</TABLE>
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
As of March 31, 2000, the Company had a total of 9,198,000 shares of
authorized redeemable convertible preferred stock, which has been designated as
Series A, B, C, C-1, D, D-1 and E redeemable convertible preferred stock. As of
March 31, 2000 there have been no Series B, C-1, or D-1 shares issued. The
following table details the number of shares issued and liquidation preference
for each series of the redeemable convertible preferred stock outstanding (in
thousands):
<TABLE>
<CAPTION>
SHARES OUTSTANDING AMOUNT
----------------------------------------- -----------------------------------------
DECEMBER 31, DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000 1998 1999 2000
------------ ------------ ----------- ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Series A............. 800 800 800 $ 4,533 $ 8,271 8,717
Series C............. 2,311 2,311 2,311 8,845 17,630 19,042
Series D............. 2,461 2,974 2,974 11,053 20,216 22,142
Series E............. -- -- 1,569 -- -- 25,297
----- ----- ------ ------- ------- -------
5,572 6,085 7,654 $24,431 $46,117 $75,198
===== ===== ====== ======= ======= =======
<CAPTION>
LIQUIDATION PREFERENCE
-----------------------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Series A............. $ 4,773 $ 5,093 5,173
Series C............. 9,407 10,091 10,262
Series D............. 12,113 15,742 16,020
Series E............. -- -- 17,207
------- ------- ------
$26,293 $30,926 48,662
======= ======= ======
</TABLE>
On July 29, 1996, pursuant to a stock purchase agreement with an investor,
the Company issued 800,000 shares of Series A redeemable convertible preferred
stock ("Series A") and warrants to purchase approximately 150,000 shares of
Series B redeemable convertible preferred stock ("Series B") for total
consideration of $4,000,000. The warrants were valued at approximately $328,000.
On August 7, 1997, pursuant to a stock purchase agreement with a new and an
existing investor, the Company issued approximately 1,622,000 shares of
Series C redeemable convertible preferred stock ("Series C") and warrants to
purchase approximately 285,000 shares of Series C-1 redeemable convertible
preferred stock ("Series C-1") for total consideration of $6,000,000, which
includes the $1,000,000 Bridge Loan (see Note 4) that was converted into
approximately 270,000 shares of Series C. On September 3, 1997, the Company
issued approximately 81,000 shares of Series C and warrants to purchase
approximately 14,000 shares of Series C-1 to new investors for total
consideration of $300,000. The Series C-1 warrants were valued at approximately
$477,000.
F-15
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
On February 12, 1998, and May 28, 1998, pursuant to stock purchase
agreements with various new investors, the Company issued approximately 540,000
and 68,000 shares of Series C and warrants to purchase approximately 95,000 and
11,000 shares of Series C-1 for total consideration of $2,000,000 and $250,000,
respectively. The warrants were valued at approximately $171,000.
On November 24, 1998, pursuant to a stock purchase agreement with various
investors, the Company issued approximately 2,461,000 shares of Series D
redeemable convertible preferred stock ("Series D") and warrants to purchase
approximately 246,000 shares of Series D-1 redeemable convertible preferred
stock ("Series D-1") for total consideration of $12,000,000. The warrants to
purchase shares of Series D-1 were valued at approximately $197,000. The Company
paid approximately $832,000 in legal and broker fees related to these issuances,
which has been reflected as a reduction in the proceeds from the sale of
Series D. In connection with the sale of Series D, the Company issued warrants
to purchase approximately 31,000 shares of Series D to a securities company as a
fee related to the transaction. The fair value of these warrants was
approximately $40,000.
On February 26, 1999, pursuant to a stock purchase agreement with a new
investor, the Company issued approximately 513,000 shares of Series D for total
consideration of approximately $2,500,000. On September 1, 1999, the Company
issued this new investor warrants to purchase approximately 386,000 shares of
Series D-1 in connection with the signing of a subscription agreement. The
warrants issued to this customer were valued at approximately $231,000 and are
accounted for as a discount to revenue over the term of the subscription
agreement. On February 22, 2000, the investor notified the Company that they
will terminate the subscription agreement, effective September 1, 2000.
Accordingly, the remaining sales discount will be amortized through
September 1, 2000.
On February 4, 2000 and February 29, 2000, pursuant to a stock purchase
agreement with new and existing investors, the Company issued approximately
1,569,000 shares of Series E redeemable convertible preferred stock ("Series E")
for approximately $16,974,000. The Company recorded a beneficial conversion
feature of approximately $8,115,000 as a dividend in the first quarter of 2000
to reflect the difference between the underlying convertible price per share of
common stock and the estimated fair market value of the common stock on the date
of issuance.
In connection with the various stock purchase agreements, the Company and
the various investors entered into a stockholders agreement. The stockholders
agreement, among other things, prescribes certain limitations on the transfer of
stock, grants the various investors certain rights of first refusal and co-sale
rights with respect to the sales of stock, and provides for voting rights with
respect to the election of the directors under certain circumstances.
Holders of Series A, Series B, Series C, Series C-1, Series D, Series D-1,
and Series E are entitled to cumulative dividends at the rate per annum of
$0.40, $0.53, $0.30, $0.39, $0.39, $0.52 and $0.86 per share, respectively.
WARRANTS
In connection with the sales of the Series A, Series C, and Series D, the
Company issued warrants to investors to purchase an aggregate of approximately
150,000, 405,000, and 632,000 shares of Series B, Series C-1 and Series D-1,
respectively, at exercise prices of $6.65, $4.92, and
F-16
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
$6.49 per share. In connection with the sale of Series D, the Company also
issued warrants to purchase approximately 31,000 shares of Series D at $5.61 per
share. The warrants are immediately exercisable and may be exercised only in
their entirety.
The warrants to purchase Series B will expire on the earlier of
(i) July 31, 2001, or upon ten days prior written notice by the Company to the
warrant holder, (ii) on the date of the closing of an initial public offering
where the price is at least $5.00 per share and the net proceeds to the Company
are at least $15 million, or (iii) 30 days after written notice from the Company
informing the warrant holder that the Company has completed a 12-month operating
period during which gross revenues equal or exceed $20 million.
The warrants to purchase Series C-1 and Series D will expire on the earlier
of (i) the fifth anniversary of the issuance date, (ii) on the date of the
closing of an initial public offering where the price per share is at least
$7.40 per share and the net proceeds to the Company are at least $15 million, or
(iii) 30 days after written notice from the Company informing the warrant holder
that the Company has completed a 12-month operating period during which gross
revenues equal or exceed $30 million.
The warrants to purchase 246,000 shares of Series D-1 will expire on
May 24, 2000, and warrants to purchase 386,000 shares of Series D-1 will expire
on March 1, 2001.
CONVERSION
Each share of redeemable convertible preferred stock is convertible into
common stock at the option of the holder and converts automatically at the
consummation date of a qualified initial public offering. As of December 31,
1999 and March 31, 2000, each share of Series A and Series B was convertible
into three shares of common stock, and each share of Series C, Series C-1,
Series D, Series D-1, and Series E was convertible into one and a half shares of
common stock. The conversion rates are subject to adjustments for events such as
stock splits, stock dividends, or issuances of stock.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution, or winding up of the Company, the
holders of Series A, Series B, Series C, Series C-1, Series D, Series D-1, and
Series E are entitled to a liquidation preference over the holders of the
Company's common stock. The liquidation preference equals the original issuance
price plus any unpaid dividends. No dividends have been declared or paid through
March 31, 2000.
Holders of Series D, Series D-1, and Series E shares have partial
liquidation preferences, which are preferential to other shares of redeemable
convertible preferred stock. This partial preference is limited to accrued
dividends of $.79, $1.86, and $4.75 per share, subject to stock dividends and
stock splits, for Series D, Series D-1, and Series E, respectively.
If the holders of shares of redeemable convertible preferred stock would be
entitled to receive an amount per share greater than two times the original
issuance price for each share of redeemable convertible preferred stock, subject
to adjustment in the event of any stock dividend or stock split, then the
holders of the shares of redeemable convertible preferred stock shall be
F-17
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK: (CONTINUED)
entitled to share only with the holders of the common stock on an
as-if-converted basis, and such holders of shares of redeemable convertible
preferred stock shall not be entitled to receive the liquidation preference.
REDEMPTION
At the option of the holders of a majority of the aggregate number of shares
of each series of redeemable convertible preferred stock, the Company shall
redeem, commencing on August 7, 2002, and continuing on the immediately
succeeding two anniversaries thereof in three installments, taking into effect
the prior redemptions, the number of shares of that series held by the holders.
In the event that the holders of a majority of the aggregate number of shares of
the particular series do not elect to exercise their redemption rights, they may
elect to exercise such rights at a subsequent anniversary, subject to certain
defined limitations. The redemption price shall be the greater of the fair
market value of such shares or the liquidation preference. The Company records
periodic accretion under the effective interest method on the redeemable
convertible preferred stock to recognize the excess of the redemption price over
the carrying value. As of December 31, 1999 and March 31, 2000, the redemption
price is calculated based on the fair market value of such shares as it is
greater than the liquidation preference.
6. STOCKHOLDERS' EQUITY (DEFICIT):
STOCK SPLITS AND INCREASE IN AUTHORIZED SHARES
On February 10, 1997, the Company declared a two-for-one stock split
effected in the form of a stock dividend for each common share. On April 4,
2000, the board of directors voted to approve a three-for-two stock split which
will be effected in the form of a stock dividend for each common share just
prior to the closing of the offering. The Board also approved an increase in
authorized shares of common stock from 40,000,000 to 100,000,000 which will be
effected prior to the closing of the offering. All share information has been
adjusted retroactively in these consolidated financial statements for all
periods presented.
COMMON STOCK
Dividends may be declared and paid on common stock shares at the discretion
of the Company's Board of Directors and are subject to any preferential dividend
rights of any current outstanding Preferred Stock. No common stock dividends
have been declared or paid as of March 31, 2000.
Subject to the voting rights of the holders of preferred stock shares, the
holder of each share of common stock is entitled to one vote on all matters
voted on by the stockholders of the Company.
STOCK OPTION PLAN
On July 26, 1996, the Company adopted a Stock Option Plan (the "Plan") in
order to provide an incentive to eligible employees, consultants, and officers
of the Company. The Plan provides for grants of incentive stock options,
nonqualified stock options, and stock awards to employees, directors,
consultants and advisors. Under the Plan, 6,750,000 shares of common stock were
F-18
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
reserved and available for distribution at December 31, 1999. For incentive
stock options, the exercise price may not be less than the determined fair
market value at the date of grant. For nonqualified stock options, the exercise
price shall be at least equal to 85 percent of the fair market value of the
shares at the date of grant. Stock options granted under the Plan vest over a
four to six-year period and expire ten years after the grant date. Approximately
1,057,000 options were available for future grant as of December 31, 1999.
The following table summarizes activity for the stock options granted to
employees pursuant to the Plan for the three years ended December 31, 1999 and
the three months ended March 31, 2000:
<TABLE>
<CAPTION>
NUMBER OF RANGE OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
---------- -------------- ----------------
<S> <C> <C> <C>
Options outstanding, December 31, 1996......... 663,000 $1.00 $1.00
--------- ----------- -----
Granted...................................... 1,137,000 1.00 1.00
Exercised.................................... (27,000) 1.00 1.00
Forfeited.................................... (273,000) 1.00 1.00
--------- ----------- -----
Options outstanding, December 31, 1997......... 1,500,000 1.00 1.00
--------- ----------- -----
Granted...................................... 1,251,000 1.00-2.17 1.01
Exercised.................................... (15,000) 1.00 1.00
Forfeited.................................... (269,000) 1.00 1.00
--------- ----------- -----
Options outstanding, December 31, 1998......... 2,467,000 1.00-2.17 1.00
--------- ----------- -----
Granted...................................... 3,083,000 1.00-5.33 3.17
Exercised.................................... (172,000) 1.00 1.00
Forfeited.................................... (650,000) 1.00-2.67 1.08
--------- ----------- -----
Options outstanding, December 31, 1999......... 4,728,000 $1.00-$5.33 $2.40
--------- ----------- -----
Granted (unaudited).......................... 1,955,000 4.00-6.67 5.11
Exercised (unaudited)........................ (107,000) 1.00 1.00
Forfeited (unaudited)........................ (123,000) 1.00-4.00 2.96
--------- ----------- -----
Options outstanding, March 31, 2000
(unaudited).................................. 6,453,000 1.00-6.67 3.22
========= =========== =====
</TABLE>
The weighted-average grant date fair value of options granted during the
years ended December 31, 1997, 1998, and 1999, was $0.27, $0.21, and $0.71,
respectively.
As of March 31, 2000, options to purchase approximately 1,313,000 shares of
common stock were exercisable with a weighted-average per share exercise price
of $1.50. The weighted-average
F-19
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
remaining contractual life and weighted-average exercise price of options
outstanding and options exercisable at December 31, 1999, for selected exercise
price ranges are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
REMAINING ----------------------------
RANGE OF NUMBER OF CONTRACTUAL LIFE WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
EXERCISE PRICES OPTIONS (IN YEARS) EXERCISE PRICE OPTIONS EXECISE PRICE
--------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 1,674,000 7.70 $1.00 1,147,000 1.00
2.17-3.33 1,932,000 9.50 2.51 4,000 2.17
4.00-5.33 1,122,000 9.70 4.01 -- --
--------- ---- ----- --------- ----
$1.00-$5.33 4,728,000 8.90 $2.40 1,151,000 1.01
========= ==== ===== ========= ====
</TABLE>
During 1996, the Company adopted the disclosure requirements of SFAS
No. 123, "Accounting for Stock-Based Compensation." The Company applies
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its Plan.
Accordingly, deferred compensation cost of approximately $6,421,000 and
$10,960,000 has been recorded for the year ended December 31, 1999 and the three
months ended March 31, 2000, respectively, for its Plan based on the deemed
intrinsic value of the stock option at the date of the grant. The deferred
compensation will be recognized over the vesting period of the related options.
No compensation expense related to options granted during 1997 and 1998 has been
included in the consolidated financial statements because the exercise prices
were equal to the fair market value at the time the options were granted. For
the year ended December 31, 1999 and the three months ended March 31, 2000, the
Company recognized compensation expense of approximately $378,000 and
$2,622,000, respectively.
Stock option compensation expense, which has been separately identified in
the accompanying consolidated statement of operations for the year ended
December 31, 1999 and the three months ended March 31, 2000 has not been
included in cost of revenues, sales and marketing, research and development, and
general and administrative expense as indicated below:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cost of subscription/transaction revenues............. -- 11,000
Cost of services revenues............................. $ 27,000 323,000
Sales and marketing................................... 135,000 1,121,000
Research and development.............................. 56,000 246,000
General and administrative............................ 160,000 921,000
-------- ---------
Total stock option compensation..................... $378,000 2,622,000
</TABLE>
Had compensation expense for the Company's Plan been determined based on the
fair value at the grant dates for awards under the Plans consistent with the
method of SFAS No. 123, the
F-20
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
Company's net loss would have been increased to the pro forma amounts indicated
below (in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss, as reported....................................... $(9,307) $(8,256) $(10,479)
Net loss, pro forma......................................... $(9,526) $(8,509) $(10,932)
Net loss per share, as reported............................. $ (0.64)
Pro forma net loss per common and common equivalent share... $ (0.67)
</TABLE>
For purposes of the SFAS No. 123 disclosure, the fair value of each option
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used for grants issued during the years ended
December 31, 1997, 1998, and 1999:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Dividend yield................................... 0% 0% 0%
Expected volatility.............................. 0% 0% 0%
Average risk-free interest rate.................. 6.18% 5.09% 5.59%
Expected term.................................... 5 years 4 years 4 years
</TABLE>
2000 STOCK OPTION/STOCK ISSUANCE PLAN
On April 4, 2000 the Company adopted a 2000 Stock Option/Stock Issuance Plan
(the "2000 Plan") to replace the 1996 Stock Option Plan, effective upon the
completion of the offering. 10,000,000 shares of common stock have been
authorized for issuance under the 2000 Plan. The 2000 Plan provides for grants
of options to purchase common stock and issuance of shares of common stock to
employees, directors, consultants and advisors.
2000 EMPLOYEE STOCK PURCHASE PLAN
On April 4, 2000 the Company adopted a 2000 Employee Stock Purchase Plan
(the "ESP Plan") to be effective upon the completion of the offering. 5,000,000
shares of common stock have been authorized for issuance under the ESP Plan.
Employees who work more than 20 hours a week for more than five calendar months
per year are eligible to participate in the ESP Plan. A participant may
contribute up to 15 percent of their salary. Shares of common stock will be
purchased semi-annually at a price per share equal to the lower of 85 percent of
the fair market value on the participants date of entry into the offering period
or 85 percent of the fair market value on the semi-annual purchase date.
7. INCOME TAXES:
For the years ended December 31, 1997, 1998, and 1999, the tax provision was
comprised primarily of a deferred tax benefit which was offset by a valuation
allowance of the same amount. The tax provision differed from the expected tax
benefit, computed by applying the U.S. Federal
F-21
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
statutory rate of 35% to the loss before income taxes, principally due to the
effect of increases in the valuation allowance.
Deferred tax assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Depreciation and amortization.............................. $ (73) $ (104)
Allowance for doubtful accounts............................ 129 224
Deferred revenue........................................... 3,201 4,214
Accrual to cash adjustment................................. 280 210
Net operating loss carryforwards........................... 4,695 7,411
Research and development credit............................ 379 590
------ -------
8,611 12,545
Valuation allowance........................................ (8,611) (12,545)
------ -------
Net deferred tax asset..................................... $ -- $ --
====== =======
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance is required. Such
factors include the lack of a significant history of material profits, recent
increases in expense levels to support the Company's growth, the fact that the
market in which the Company competes is intensely competitive and characterized
by rapidly changing technology, the materiality of revenues from indirect
channel partners, the lack of carryback capacity to realize deferred tax assets,
and the uncertainty regarding market acceptance of new versions of the Company's
software.
As of December 31, 1998 and 1999, the Company had approximately
$12.4 million and $19.5 million, respectively, of federal net operating losses,
which will be carried forward to offset future taxable income, subject to
ownership change limitations. As of December 31, 1998 and 1999, the Company had
research and development tax credit carryforwards of approximately $379,000 and
$590,000, respectively. The net operating loss and research and development tax
credit carryforwards will begin to expire in 2011.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various equipment and office space under operating lease
agreements expiring at various dates through 2004. In addition to base rent, the
Company is responsible for certain taxes, utilities, and maintenance costs.
F-22
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Future minimum lease payments under noncancelable operating leases as of
December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 774
2001........................................................ 753
2002........................................................ 623
2003........................................................ 535
2004........................................................ 376
------
$3,061
======
</TABLE>
Total rental expense for the years ended December 31, 1997, 1998, and 1999,
was approximately $281,000, $322,000, and $860,000, respectively, and for the
three months ended March 31, 1999 and 2000, was approximately $152,000 and
$399,000, respectively.
LITIGATION
On April 6, 1998, the Company settled an employment-related lawsuit with a
former employee by issuing 120,000 shares of common stock valued at $120,000.
The estimated settlement cost, including legal costs associated with the case,
was accrued as of December 31, 1997.
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect upon the financial position or future operating
results of the Company.
9. EMPLOYEE BENEFIT PLAN:
The Company sponsors a 401(k) profit sharing plan to provide retirement and
incidental benefits for its employees (the "401(k) Plan"). As allowed under
Section 401(k) of the Internal Revenue Code, the 401(k) Plan provides
tax-deferred salary deductions for eligible employees. The Company may make
matching contributions to the 401(k) Plan. The Company contributed approximately
$148,000, $131,000, and $248,000 to the 401(k) Plan for the years ended
December 31, 1997, 1998, and 1999, respectively, and $57,000 and $132,000 for
the three months ended March 31, 1999 and 2000, respectively.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest was $144,000, $208,000, and $231,000 for the years
ended December 31, 1997, 1998, and 1999, respectively, and $52,000 and $74,000
for the three months ended March 31, 1999 and 2000, respectively.
F-23
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
Noncash activities were as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Noncash investing and financing activities:
Capitalized lease obligations incurred...... 700 947 1,723 -- 293
Conversion of bridge loan to Series C....... 1,000 -- -- -- --
Dividends and accretion on redeemable
convertible preferred stock............... 668 1,184 19,347 1,149 12,107
Issuance of common stock in legal
settlement................................ -- 120 -- -- --
Retirement of treasury shares............... -- 330 -- -- --
</TABLE>
11. SEGMENT INFORMATION:
For the year ended December 31, 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company has two reportable operating segments: subscription/transactions and
services. The subscription/transaction segment generates revenues from
subscription software license agreements of its Global Trade Solution Products.
The services segment provides implementation, management consulting and training
services for its customers. The Company evaluates its segments' performance
based on revenues and gross profit. The Company's unallocated costs include
corporate and other costs not allocated to the segments for management's
reporting purposes.
The following table summarizes the Company's two segments (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription/transaction............... $ 2,200 $ 4,088 $ 7,261 $ 1,373 $ 2,617
Services............................... 1,545 4,778 11,869 3,125 3,662
------- ------- -------- -------- --------
Total revenues..................... $ 3,745 $ 8,866 $ 19,130 $ 4,498 $ 6,279
------- ------- -------- -------- --------
Net loss:
Subscription/transaction............... $ 1,434 $ 3,380 $ 6,569 $ 1,243 $ 2,253
Services............................... 72 572 1,791 1,060 301
------- ------- -------- -------- --------
Gross profit....................... 1,506 3,952 8,360 2,303 2,644
------- ------- -------- -------- --------
Unallocated expense.................... (10,715) (12,051) (19,020) (3,361) (11,281)
Interest income........................ 48 51 421 104 101
Interest expense....................... (146) (208) (240) (52) (74)
------- ------- -------- -------- --------
Net loss........................... $(9,307) $(8,256) $(10,479) $ (1,006) $ (8,610)
======= ======= ======== ======== ========
</TABLE>
F-24
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SEGMENT INFORMATION: (CONTINUED)
Under SFAS No. 131, the Company is required to provide enterprise-wide
disclosures about revenues by product and services, long-lived assets by
geographic area, and revenues from significant customers.
REVENUES
All of the Company's product revenues are from the subscription and
transaction sales of its global trade solutions products.
GEOGRAPHIC INFORMATION
The Company sells its product and services through its offices in the United
States and through a subsidiary in the United Kingdom. Information regarding
revenues and long-lived assets attributable to the United States and to all
foreign countries is stated below. The geographic classification of product and
services revenues was based upon the location of the customer. Vastera's product
and services revenues were generated in the following geographic regions (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -----------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
United States........................ $3,741 $8,154 $17,145 3,905 5,768
Europe and Asia...................... 4 470 1,433 360 442
Other international operations....... -- 242 552 233 69
------ ------ ------- ------- -------
Total revenues................. $3,745 $8,866 $19,130 4,498 6,279
====== ====== ======= ======= =======
</TABLE>
Vastera's long-lived assets were located as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
-------- -------- ---------
<S> <C> <C> <C>
United States................................... $2,232 $5,099 5,575
Europe and Asia................................. -- 839 823
Other international operations.................. -- -- --
------ ------ ------
Total long-lived assets..................... $2,232 $5,938 $6,398
====== ====== ======
</TABLE>
SIGNIFICANT CUSTOMERS
For the years ended December 31, 1999, the Company did not have any revenues
greater than 10 percent of total revenues to any specific customer. For the year
ended December 31, 1998, one customer accounted for 10 percent of total
revenues. For the year ended December 31, 1997, two customers accounted for
23 percent (12 percent and 11 percent, respectively) of total revenues. For the
three months ended March 31, 1999 and 2000, the Company did not have any
customers that accounted for greater than 10 percent of total revenues.
F-25
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF
COMMON STOCK ONLY IN 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 OF ANY SALE
OF OUR COMMON STOCK.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Forward-Looking Statements............ 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Consolidated
Financial Data...................... 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........... 20
Our Business.......................... 32
Management............................ 48
Certain Transactions.................. 59
Principal Stockholders................ 62
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 69
Underwriting.......................... 71
Legal Matters......................... 74
Experts............................... 74
Other Matters......................... 74
Additional Information................ 74
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
THROUGH AND INCLUDING , 2000 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
[VASTERA LOGO]
SHARES
COMMON STOCK
DEUTSCHE BANC ALEX. BROWN
CHASE H&Q
BANK OF AMERICA SECURITIES LLC
PROSPECTUS
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses (other than underwriting discounts and commissions and the
underwriters' non-accountable expense allowance) payable in connection with the
sale of the common stock offered in this Registration Statement are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 18,480
NASD filing fee............................................. 7,500
Nasdaq filing fee........................................... *
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses (including legal fees)........... *
Transfer agent and rights agent and registrar fees and
expenses.................................................. *
Miscellaneous............................................... *
Total..................................................... $ *
</TABLE>
- ------------------------
* To be filed by amendment
All expenses are estimated except for the SEC fee and the NASD fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides,
in effect, that any person made a party to any action by reason of the fact that
he is or was a director, officer, employee or agent of Vastera may and, in
certain cases, must be indemnified by Vastera against, in the case of a
non-derivative action, judgments, fines, amounts paid in settlement and
reasonable expenses (including attorneys' fees) incurred by him as a result of
such action, and in the case of a derivative action, against expenses (including
attorneys' fees), if in either type of action he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
Vastera. This indemnification does not apply, in a derivative action, to matters
as to which it is adjudged that the director, officer, employee or agent is
liable to Vastera, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnity for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was unlawful.
Article VI of Vastera's certificate of incorporation, as amended, provides
that no director of Vastera shall be liable to Vastera or its stockholders for
monetary damages for breach of fiduciary duty as a director to the fullest
extent permitted by the DGCL.
Article VII of Vastera's certificate of incorporation, as amended, also
provides that Vastera shall indemnify to the fullest extent permitted by
Delaware law any and all of its directors and officers, or former directors and
officers, or any person who may have served at Vastera's request as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise.
II-1
<PAGE>
Reference is made to Section 8 of the underwriting agreement to be filed as
Exhibit 1.1 hereto, pursuant to which the Underwriters have agreed to indemnify
officers and directors of Vastera against certain liabilities under the
Securities Act.
Vastera has entered into Indemnification Agreements with each director of
Vastera, a form of which is filed as Exhibit 10.7 to this Registration
Statement. Pursuant to such agreements, Vastera will be obligated, to the extent
permitted by applicable law, to indemnify such directors against all expenses,
judgments, fines and penalties incurred in connection with the defense or
settlement of any actions brought against them by reason of the fact that they
were directors of Vastera or assumed certain responsibilities at the direction
of Vastera. Vastera also intends to purchase directors and officers liability
insurance in order to limit its exposure to liability for indemnification of
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(A) STOCK SPLITS.
We have effected and will effect the following splits of our common stock:
- On February 19, 1997, we effected a 2-for-1 stock split of our common
stock in the form of a stock dividend of one share of common stock paid on
each share of common stock outstanding and held of record by a stockholder
as of February 19, 1997. All common share and per share amounts herein
have been retroactively adjusted to reflect the stock split.
- On April 4, 2000, we approved a 3-for-2 stock split of our common stock
effective immediately prior to the closing of this offering in the form of
a stock dividend of two shares of common stock to be paid on each share of
common stock outstanding as of March , 2000. All common share and per
share amounts herein have been retroactively adjusted to reflect the stock
split.
(B) CERTAIN SALES OF SECURITIES.
In the three years preceding the filing of this registration statement, the
registrant has issued the following securities that were not registered under
the Securities Act:
- On March 31, 1997, we issued a warrant to Lighthouse Capital Partners,
L.P. in connection with a working capital line of credit to purchase 4,511
shares of Series B convertible preferred stock at an exercise price of
$6.65 per share.
- On April 7, 1997, we issued a warrant to Lighthouse Capital Partners, L.P.
in connection with an equipment lease line to purchase 7,000 shares of
Series A convertible preferred stock at an exercise price of $5.00 per
share.
- On August 7, 1997, we issued warrants to Lighthouse Capital Partners, L.P.
and Battery Ventures III, L.P. in connection with a bridge financing to
purchase 6,216 shares and 8,108 shares, respectively, of Series C
convertible preferred stock at an exercise price of $3.70 per share.
- From August 7, 1997 to May 28, 1998, we issued and sold an aggregate of
2,310,813 shares of our Series C convertible preferred stock to ten
accredited investors at a price of $3.70 per share. In addition, we also
issued to these investors warrants to purchase an aggregate of 405,488
shares of our Series C-1 convertible preferred stock at an exercise price
of $4.92 per share.
- On January 31, 1998, we issued a warrant to Lighthouse Capital Partners,
L.P. in connection with an equipment lease line to purchase 4,122 shares
of Series C convertible preferred stock at an exercise price of $3.70 per
share.
II-2
<PAGE>
- On April 10, 1998, we issued 120,000 shares of common stock at a fair
market value of $1.00 per share to one of our employees in connection with
a settlement agreement with such employee.
- On November 24, 1998 and February 26, 1999, we issued and sold an
aggregate of 2,973,749 shares of Series D convertible preferred stock to
14 accredited investors at a price of $4.876 per share. In addition, we
issued to these investors warrants to purchase an aggregate of 631,608
shares of our Series D-1 convertible preferred stock at an exercise price
of $6.485 per share. NationsBanc Montgomery Securities L.L.C., our
placement agent for this Series D convertible preferred stock offering,
was issued a warrant to purchase 30,763 shares of Series D convertible
preferred stock at an exercise price of $5.61 per share.
- On January 31, 1999, we issued 189,000 shares of common stock to Peter F.
Taylor and John Thurton, as shareholders of Deltac Limited, in connection
with our purchase of Deltac Limited.
- On June 1, 1999, we issued 566,719 shares of common stock to stockholders
of Quantum Consulting Associates, Inc. in connection with our purchase of
Quantum Consulting Associates, Inc.
- On February 4, 2000 and February 29, 2000, we issued and sold an aggregate
of 1,569,577 shares of Series E convertible preferred stock to 24
accredited investors at a price of $10.83 per share.
The foregoing sales of securities were made in reliance upon the exemption
from the registration provisions of the Securities Act provided for by
Section 4(2) thereof for transactions not involving a public offering. All of
the foregoing securities are deemed restricted securities for the purposes of
the Securities Act.
Between February 10, 1997 and March 31, 2000, Vastera issued an aggregate of
320,925 shares of common stock to 22 people, all of whom were employees or
directors of, or consultants to, Vastera. Such shares were issued upon exercise
of stock options, all with exercise prices of $1.00 per share, granted under our
1996 Stock Option Plan.
For a more detailed description of this plan, see "Management--Employee
Benefit Plans" in this registration statement. In granting the options and
selling the underlying securities upon exercise of the options, the Company is
relying upon exemptions from registration set forth in Rule 701 and
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation
(to be filed with the Delaware Secretary of State
immediately prior to the closing of the offering covered by
this Registration Statement).
3.3 Bylaws, as amended.
3.4 Form of Amended and Restated Bylaws (to be adopted
immediately prior to the closing of the offering covered by
this Registration Statement).
4.1* Specimen common stock certificate.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
4.2 Second Amended and Restated Investors' Rights Agreement, as
amended, dated November 24, 1998.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Value-Added Reseller License and Services Agreement with
Forte Software, Inc., as amended, dated July 19, 1996.
10.2 Lease Agreement with RHI Holdings, Inc., dated August 20,
1996, as amended, for property located at 45025 Aviation
Drive, Dulles, Virginia.
10.3 Lease Agreement with Pratt Land, LLC, dated December 13,
1993, for property located at 1375 Ken Pratt Blvd.,
Longmont, Colorado.
10.4* Lease with Axon Solutions Limited for property located at
188 High Street, Engham, Surrey.
10.5 Form of Indemnification Agreement between Vastera, Inc. and
members of its board of directors.
10.6 1996 Stock Option Plan, as amended.
10.7 Form of Stock Option Agreement for 1996 Plan.
10.8* 2000 Employee Stock Purchase Plan.
10.9* 2000 Stock Option/Stock Issuance Plan.
10.10* Form of Stock Option Agreement for 2000 Stock Option/Stock
Issuance Plan.
16.1 Letter from former auditors.
21.1 List of subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1).
24.1 Power of Attorney (contained in the signature page to this
Registration Statement).
27.1* Financial data schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Schedule I--Report of Independent Public Accountants
Schedule II--Valuation and Qualifying Accounts
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, 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 (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, 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 Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement
II-5
<PAGE>
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.
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
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 Dulles, Virginia, on April 26, 2000.
<TABLE>
<S> <C> <C>
VASTERA, INC.
By: /s/ ARJUN RISHI
-----------------------------------------
Arjun Rishi
CHIEF EXECUTIVE OFFICER
</TABLE>
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ARJUN RISHI President, Chief Executive Officer
--------------------------------- and Director (principal Executive April 26, 2000
Arjun Rishi Officer)
* Chief Financial Officer (Principal
--------------------------------- Financial and Accounting Officer) April 26, 2000
Philip J. Balsamo
* Chief Operating Officer and
--------------------------------- Director April 26, 2000
Mark J. Ferrer
* Director
--------------------------------- April 26, 2000
Richard A. Lefebvre
* Director
--------------------------------- April 26, 2000
Robert G. Barrett
* Director
--------------------------------- April 26, 2000
Richard H. Kimball
* Director
--------------------------------- April 26, 2000
James D. Robinson IV
* Director
--------------------------------- April 26, 2000
Timothy Davenport
* Director
--------------------------------- April 26, 2000
Nicolas C. Nierenberg
</TABLE>
- ------------------------
* Signed by Arjun Rishi as Attorney-in-fact.
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation, as amended.
3.2 Form of Amended and Restated Certificate of Incorporation
(to be filed with the Delaware Secretary of State
immediately prior to the closing of the offering covered by
this Registration Statement).
3.3 Bylaws, as amended.
3.4 Form of Bylaws (to be adopted immediately prior to the
closing of the offering covered by this Registration
Statement).
4.1* Specimen common stock certificate.
4.2 Second Amended and Restated Investors' Rights Agreement, as
amended, dated November 24, 1998.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Value-Added Reseller License and Services Agreement with
Forte Software, Inc., as amended, dated July 19, 1996.
10.2 Lease Agreement with RHI Holdings, Inc., dated August 20,
1996, as amended, for property located at 45025 Aviation
Drive, Dulles, Virginia.
10.3 Lease Agreement with Pratt Land, LLC, dated December 13,
1993, for property located at 1375 Ken Pratt Blvd.,
Longmont, Colorado.
10.4* Lease with Axon Solutions Limited for property located at
188 High Street, Engham, Surrey.
10.5 Form of Indemnification Agreement between Vastera, Inc. and
members of its board of directors.
10.6 1996 Stock Option Plan, as amended.
10.7 Form of Stock Option Agreement for 1996 Plan.
10.8* 2000 Employee Stock Purchase Plan.
10.9* 2000 Stock Option/Stock Issuance Plan.
10.10* Form of Stock Option Agreement for 2000 Stock Option/Stock
Issuance Plan.
16.1 Letter from former auditors.
21.1 List of subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (Included in
Exhibit 5.1).
24.1 Power of Attorney (contained in the signature page to this
Registration Statement).
27.1 Financial data schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-8
<PAGE>
SCHEDULE I
After the three-for-two stock split and the increase in authorized shares
discussed in Note 6 to Vastera, Inc.'s consolidated financial statements is
effected, we expect to be in a position to render the following audit report.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
April 5, 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Vastera, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements of Vastera, Inc. included in this
registration statement and have issued our report thereon dated April 5, 2000.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic financial statements. The information as of December 31, 1997, 1998
and 1999, and for the three years in the period ended December 31, 1999 included
in the schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states, in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Vienna, Virginia
April 5, 2000
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS
BEGINNING OF CHARGED FROM BALANCE AT
DESCRIPTION YEAR TO EXPENSE RESERVES END OF YEAR
- ----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1997.................. 16,000 313,000 -- 329,000
December 31, 1998.................. 329,000 61,000 (51,000) 339,000
December 31, 1999.................. 339,000 300,000 (50,000) 589,000
</TABLE>
S-2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
April 25, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 669
<SECURITIES> 13,823
<RECEIVABLES> 7,786
<ALLOWANCES> 531
<INVENTORY> 0
<CURRENT-ASSETS> 22,786
<PP&E> 7,533
<DEPRECIATION> 3,095
<TOTAL-ASSETS> 29,629
<CURRENT-LIABILITIES> 16,240
<BONDS> 0
75,198
0
<COMMON> 65
<OTHER-SE> (67,991)
<TOTAL-LIABILITY-AND-EQUITY> 29,629
<SALES> 6,279
<TOTAL-REVENUES> 6,279
<CGS> 3,635
<TOTAL-COSTS> 3,635
<OTHER-EXPENSES> 11,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (74)
<INCOME-PRETAX> (8,610)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,610)
<EPS-BASIC> .47
<EPS-DILUTED> .47
</TABLE>
