<PAGE>
As filed with the Securities and Exchange Commission on July 21, 2000
Registration Statement No. 333-34142
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 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, VA 20166
(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, VA 20166
(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, DC 20004 Boston, MA 02110
(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...................... $75,900,000 $20,038(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) $18,480 was previously paid, and $1,558 is paid herewith.
----------------------------------
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>
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>
Subject to Completion, Dated , 2000.
[LOGO]
6,000,000 Shares
Common Stock
This is the initial public offering of shares of common stock of Vastera, Inc.
and we are offering 6,000,000 shares of common stock. We estimate that the
initial public offering price per share will be between $9.00 and $11.00. 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 7.
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 900,000 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 AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
Our Business
We are a leading provider of web-based software products and services that
facilitate international buying and selling of goods by streamlining and
optimizing global trade processes. We call these products and services our
solutions. Global trade involves the shipment of goods between countries and the
management of information and business processes required to complete shipments.
Global trade is regulated by dynamic, country-specific rules and involves a
complex network of trade participants, namely exporters, forwarders, carriers,
brokers, importers, banks and customs and regulatory agencies. The core of our
solutions is our global trade content, which is our extensive on-line library of
country-specific rules and regulations that are needed to automate global trade
processes. Our web-based software applications utilize this content to improve
coordination and collaboration between the network of trade participants
required to complete international transactions. Our clients can subscribe to or
license our software products, use our transaction-based hosted service through
our Internet portal, TradePrism.com, or engage us to provide complete managed
services for part or all of their global trade operations.
The Internet is enabling companies and individuals to expand their reach for
buying and selling goods around the world. While many companies have deployed
the technologies to streamline and automate business practices for their
domestic operations, many companies continue to inefficiently execute
international trade transactions due to paper-based business practices, a lack
of coordination among international trade participants and constantly changing
trade regulations. These inefficiencies are evidenced by a lack of information
and excess inventory in international supply chains, inaccurate duty payments
resulting in overpayments or fines or engaging in illegal trade.
Most large companies maintain large and costly internal departments solely
to handle issues related to international trade. Companies that cannot justify
this cost often miss new opportunities entirely. Forrester Research estimates
that over 46% of Internet-based orders into the U.S. from international clients
go unfilled because companies lack the procedures to fill them.
We provide comprehensive trade content covering countries that accounted for
approximately $4.1 trillion of global trade in 1999. We serve an international
client base of over 200 companies, including Alcatel, Dell, Ford, Lucent,
Microsoft, the New Zealand Dairy Board, Nike, Nortel and Robert Bosch. Our
clients currently utilize our solutions to ship to over 120 countries worldwide.
We also provide integrated solutions for specific industry segments, or vertical
industries, which are currently used by Internet trading exchanges such as
CatalogCity.com, Fasturn.com, RightFreight.com and SupplierMarket.com.
Recent Developments
On July 14, 2000, we entered into an agreement to acquire Ford Motor
Company's global customs unit in exchange for 8,000,000 shares of our common
stock. Under the terms of our agreement, Ford will merge its global customs
unit, consisting of personnel and technology currently used by Ford to manage
its worldwide trade, into our managed services operations.
1
<PAGE>
Under a 10-year agreement with Ford, we will manage Ford's global trade
operations including supporting Ford's import/export customs operations,
administering contracts between Ford and third party brokers and freight
forwarders, minimizing duties and customs fees. As consideration for our
software products and services offerings, Ford has agreed to pay us based on
certain minimum transaction thresholds as well as a gain-sharing fee equal to a
specified percentage of the cost savings experienced by Ford under our
agreement. We will initially provide our product and service offerings to Ford
in the United States. Under our agreement, after successful implementation of
our services in the United States, we will commence providing our services to
Ford divisions and subsidiaries in other geographic regions around the world in
a phased approach. For a complete description of the Ford transaction, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions--Transaction with Ford Motor Company."
The Offering
<TABLE>
<S> <C>
Common stock offered......................... 6,000,000 shares
Common stock to be outstanding after
this offering.............................. 34,457,508 shares
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 as of June 30, 2000 and
assumes no exercise of the underwriters' over-allotment option, the conversion
into common stock of all of our convertible preferred stock outstanding on that
date and the issuance of 8,000,000 shares of common stock to Ford on completion
of our acquisition of Ford's global customs unit anticipated to occur in August
2000. It excludes 17,833,028 shares of common stock available for issuance
pursuant to our employee stock option plans, of which 6,504,552 shares are
subject to outstanding options at a weighted average exercise price of $3.56 as
of June 30, 2000, and 5,000,000 shares of common stock available for issuance
pursuant to our employee stock purchase plan. It also excludes 640,459 shares of
common stock issuable upon the exercise of warrants outstanding after this
offering, at a weighted average exercise price of $5.48.
Our revenues for 1999 were $19.1 million, and for the six months ended
June 30, 2000, our revenues were $13.4 million. Our net loss for 1999 was
$10.5 million, and for the six months ended June 30, 2000, our net loss was
$15.7 million. Our accumulated deficit as of June 30, 2000 was $82.8 million.
2
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------------- -------------------------
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 $ 2,945 $ 5,629
Services revenues............ 402 917 1,545 4,778 11,869 6,190 7,806
------ ------- ------- ------- -------- ------- --------
Total revenues........... 1,037 2,139 3,745 8,866 19,130 9,135 13,435
Gross profit................... 397 971 1,506 3,952 8,360 4,561 6,194
Loss from operations........... (758) (3,079) (9,209) (8,099) (10,660) (2,738) (15,815)
Net loss....................... $ (783) $(3,086) $(9,307) $(8,256) $(10,479) $(2,615) $(15,743)
====== ======= ======= ======= ======== ======= ========
Per share information:
Pro forma basic and diluted
net loss per share......... $ (.64) $ (0.82)
-------- --------
Pro forma weighted average
common shares
outstanding................ 16,277 19,206
-------- --------
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $ 374 $ 374 $ 53,174
Short-term investments.................................... 8,669 8,669 8,669
Working capital........................................... 4,752 69,522 122,352
Total assets.............................................. 28,599 94,149 146,949
Long-term debt............................................ 3,408 3,408 3,408
Redeemable convertible preferred stock.................... 80,224 -- --
Total stockholders' equity (deficit)...................... (74,043) 70,981 123,781
</TABLE>
The pro forma balance sheet data gives effect to the automatic conversion of
all outstanding shares of convertible preferred stock into 13,824,817 shares of
common stock upon the consummation of the offering and both the issuance of
8,000,000 shares of common stock that will be issued and an estimated
$65.5 million of assets that will be acquired in connection with completing our
acquisition of Ford's global customs unit anticipated to occur in August 2000.
The pro forma as adjusted balance sheet data also gives effect to the sale of
6,000,000 shares of common stock at an assumed initial public offering price of
$10.00 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,
3
<PAGE>
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 CONVERTIBLE PREFERRED STOCK
INTO AN AGGREGATE 13,824,817 SHARES OF COMMON STOCK UPON THE CLOSING OF
THIS OFFERING;
- THE COMPLETION OF OUR ACQUISITION OF FORD'S GLOBAL CUSTOMS UNIT
ANTICIPATED TO OCCUR IN AUGUST 2000, INCLUDING THE ISSUANCE OF 8,000,000
SHARES OF COMMON STOCK TO FORD; AND
- THE COMPLETION OF A 3-FOR-2 STOCK SPLIT TO BE EFFECTED UPON THE CLOSING OF
THIS OFFERING.
4
<PAGE>
RISK FACTORS
THIS OFFERING AND YOUR INVESTMENT IN OUR COMMON STOCK INVOLVES 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.
Our future success is uncertain and a component of our strategy may not be
successful because our web-based solutions are unproven, have only been recently
developed or are currently in development.
We commercially released our web-based products and services known as our
TradeSphere solutions in February 2000. Our web-based portal, TradePrism.com,
was introduced in March 2000. Both TradeSphere and TradePrism.com are subject to
further development. Although prior to 2000 we derived substantially all of our
revenues from sales of our client-server based products, we expect, based on our
current strategy, to derive an increasingly higher percentage of revenues from
our web-based solutions in the immediate future. Because TradePrism.com and many
of our TradeSphere elements are in the early stages of development, there can be
no assurance that they will be successfully integrated into our solutions. Many
of these solutions require further product development to meet the needs of
companies engaging in global trade. If we fail to successfully complete this
development or if the market does not commercially accept our solutions once
they are fully developed, use of our solutions may decrease and our revenues
would be adversely impacted.
If we are not successful in providing managed services to existing and future
clients, a critical element of our strategy will have failed.
As an element of our strategy, we intend to provide managed services to our
current and future clients. We plan to deliver services ranging from providing
operational management for a single global trade process to managing a client's
worldwide trade operation. If we are not able to successfully provide these
services to existing or future clients, our strategy will have failed, and we
will not realize material expected future revenues.
We have a history of losses and expect to incur losses in the future.
Vastera incurred net losses of $9.3 million in 1997, $8.3 million in 1998,
$10.5 million in 1999 and $15.7 million for the six months ended June 30, 2000.
Our accumulated deficit as of June 30, 2000 was $82.8 million. Giving effect to
the acquisition of Ford's global customs unit, we incurred pro forma net losses
in 1999 of $ , and had a pro forma accumulated deficit of $ . 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 incur expenses to
develop our products and services. We believe that the success of our business
depends on our ability to significantly increase revenue and to limit our
operating expenses. If our revenues fail to grow at anticipated rates or our
operating expenses increase without a corresponding 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.
5
<PAGE>
The market for our recently developed web-based solutions is newly emerging and
dependent on the growth of the Internet, and if the Internet does not grow as
fast or is not as effective as we anticipate, clients may not use our products
and our revenue may decline.
The market for our recently developed web-based 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 means. 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 is not as effective as we currently anticipate, the
market for our web-based solutions may not grow as we expect and our revenues
would be adversely affected.
Any restriction on our ability to cost effectively and legally 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 compromise the effectiveness
of our solutions and adversely impact our revenues.
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 solutions, 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 solutions may not be useful to, or cost efficient for, our
current and future clients and our revenues could decrease.
We have entered into a significant contract with Ford and our inability to
perform thereunder would significantly reduce our revenues, increase our costs,
hurt our reputation in our industry and adversely affect our business.
We have established a contractual relationship with Ford under which we have
agreed to acquire Ford's global trade import/export customs operations and to
provide Ford with our managed services. See "Certain Transactions--Transaction
with Ford Motor Company" for a discussion of the material terms of this
relationship. By entering into this relationship, we expect Ford to become our
single largest client generating a significant portion of our revenues. Because
the Ford contract is our largest to date, we cannot assure you that we have
adequate resources to meet our obligations under our agreements with Ford. Any
inability to perform under these agreements would significantly reduce our
revenues, increase our costs, hurt our reputation in our industry and adversely
affect our business.
Our services agreement with Ford is subject to termination for any reason by
either Ford or us after four years and, if terminated, we will not realize the
revenues expected to be generated thereunder.
The services agreement between us and Ford has a 10-year term that may be
terminated by either party for any reason after four years. If the services
agreement is terminated prior to July 2010, we will not realize a material
amount of expected revenues expected to be generated thereunder. Any events
adversely affecting our relationship with Ford may result in
6
<PAGE>
us not being able to achieve the full marketing benefit associated with having
Ford as a principal client, which would reduce our revenues, increase our costs
and hurt our reputation in our industry.
The integration of Ford's global customs unit is a challenge which, if not
overcome, could have an adverse effect on our business.
Integrating Ford's global customs unit, including its employees and
technology, will be challenging. We are not certain that we will be successful
in integrating their operations into our operations, which may increase our
costs, decrease our revenues and hurt our reputation in the industry. To the
extent that our management devotes significant time and attention to this
integration, our ability to service Ford and our other clients may suffer.
We have no operating history with Ford's global customs unit as our subsidiary,
and neither our historical results of operations nor our pro forma financial
information may be an accurate indicator of our future results or prospects.
We have no operating history with Ford's global customs unit as our
subsidiary, which makes an evaluation of our business and prospects very
difficult. The pro forma financial information included in this prospectus is
based on the separate pre-acquisition financial information of Ford and us. As a
result, our historical result of operations and pro forma financial information
may not give you an accurate indication of our future results of operations or
our business prospects.
Fluctuations in our operating results and the composition of our revenues,
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 TradeShpere
and TradePrism.com solutions;
- Seasonality in revenues due to variations in the number of holidays from
quarter to quarter;
- 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.
In addition, we have not yet experienced a consistent pattern of revenues
such that we can accurately predict the mix of revenues between our operating
segments.
7
<PAGE>
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.
Our ability to achieve or maintain profitability will be constrained if we do
not effectively manage our rapid growth.
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 234 as of June 30, 2000. Upon acquisition of Ford's
global customs unit, we will acquire or have access to a number of Ford's
employees. 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 ability to achieve or maintain
profitability may be harmed.
If several key new members of our management team do not work together
successfully, a component of our growth strategy will have failed.
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 Product Engineering all joined us
within the last year. 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 impair our ability to implement our growth strategy.
We may be unable to attract and retain key personnel, which would adversely
affect our ability to develop and effectively manage 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. This dependence is particular to our business because
personal relationships are a critical element of obtaining and maintaining
clients. 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 ability to develop and effectively manage our
business.
If we are unable to obtain additional capital as needed or obtain additional
capital on unfavorable terms in the future, our operations and growth strategy
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. As of June 30, 2000, we had cash and cash equivalents of
approximately $374,000 plus short term investments of approximately
$8.7 million and an accumulated deficit of approximately
8
<PAGE>
$82.8 million. While 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 twelve months, 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. Any debt financing secured by us in the future could involve
restrictive covenants relating to our capital raising activities and other
financial and operational matters, which may make it more difficult for us to
obtain additional capital and to pursue business opportunities, including
potential acquisitions. 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 operations and growth strategy may be
adversely affected and the market price for our common stock could decline.
Our international operations and planned expansion expose us to business risks
that could limit the effectiveness of our growth strategy and cause our
operating results to suffer.
We intend to expand substantially our international operations and enter new
international markets, including providing our services to divisions and
subsidiaries of Ford operating in foreign countries. 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 not succeed in our efforts to enter new international markets,
establish, maintain or increase international demand for our solutions or expand
our international operations, which may harm our growth strategy and could cause
our operating results to suffer.
If our existing clients do not purchase additional elements of our solutions, we
may not achieve growth in our revenues.
Our clients' initial purchases from us often include only one or several
elements of our total global trade management solutions. For example, a client
may subscribe only to our TradeSphere Exporter or Landed Cost Calculator, an
element of our TradeSphere solution, and not other components included in our
TradeSphere solutions. Clients may subsequently add
9
<PAGE>
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 purchases of one or a few components of our solutions and they decline
to purchase additional components of our solutions, our revenues may 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. If our
current and future clients do not accept our 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 averaged
approximately six to nine months, depending on a particular client's
implementation requirements 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 client 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 alliances or failure to develop new relationships
would reduce our revenues.
We have established strategic alliances with a number of third parties
including Andersen Consulting, Sun Microsystems, IBM, Microsoft, Baan, i2
Technologies, JD Edwards, Oracle, RightFreight.com, SAP and SupplierMarket.com.
See "Business--Strategic Alliances" for a discussion of the material terms of
these relationships. We depend on these relationships for our worldwide
implementation, integration, development and promotion of our solutions. We also
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 revenues may be reduced.
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 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
10
<PAGE>
at all. While the term of our license with Sun Microsystems is perpetual, and
our license with IBM expires on June 30, 2006, these licenses 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, and
would adversely affect our operating results.
A successful product liability claim may harm our financial condition.
The foundation of our software solutions and managed services, 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. Any provisions in our agreements
with our clients 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 under our agreements. 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. 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.
The uncertainty of future government regulation of the Internet and global trade
may add to our operating costs.
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. Complying with new regulation would increase our
operating costs.
We may be unable to expand the import and export trade management services
provided to Ford into other geographic regions and other product lines in the
manner anticipated.
Under our agreement, we are providing Ford with import and export trade
management services in a phased in geographical approach, starting with the
United States. If we are unable to perform the services provided in the United
States in accordance with our mutually agreed upon performance criteria, Ford
may not incorporate our services into many of Ford's operations in other
geographic regions and product lines, which would reduce our future revenue
growth. Additionally, in the past Ford may not have complied fully with all of
the
11
<PAGE>
regulatory requirements established by foreign governments, which may impede our
ability to establish and leverage our operations under the Ford agreements in
other geographic regions and which in turn would reduce our future revenue
growth. Any failure to receive the requisite government approvals in connection
with providing Ford managed services would adversely impact our operating
results.
We may be unable to adequately protect our proprietary rights, which could
result in their unauthorized use by our competitors and have an adverse impact
on our revenues.
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
competitors could benefit from the unauthorized use of such rights, resulting in
an adverse impact on our revenues. Even if we are able to protect our
proprietary rights, we could incur significant costs to defend our rights.
Our patent protection strategy is in development currently and any inadequacy in
the protection of our technology could increase our operating costs.
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
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. Developing and enforcing our patent
protection strategy may increase our operating costs.
12
<PAGE>
We may have to defend against intellectual property infringement claims, which
could be expensive and, if we are not successful, could disrupt our business.
We cannot be certain that our solutions do not or will not infringe valid
patents, copyrights, trademarks or other intellectual property rights held by
third parties. As a result, we may be subject to legal proceedings and claims
from time to time relating to the intellectual property of others in the
ordinary course of our business. We may incur substantial expenses in defending
against these third-party infringement claims, regardless of their merit.
Successful infringement claims against us may result in substantial monetary
liability or may disrupt our business.
Competition in our market could make it difficult to attract clients, 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 could
reduce our operating results.
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 and
ClearCross;
- 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. Current or future
competitors may develop or offer services that are comparable or superior to
ours at a lower price, which could harm our revenues and profitability.
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 reduce our operating results and lower
the value of your investment in our common stock.
Any future acquisitions may be difficult and disruptive, we may not realize the
expected benefits from any such acquisitions and our operating results may be
harmed if we cannot address the challenges presented by acquisitions.
In the past we have acquired businesses to expand our operations or market
presence and intend to continue our expansion 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;
13
<PAGE>
- Issuances of equity securities that may dilute your ownership interest in
our common stock;
- 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. In addition, in connection with our proposed acquisition of Ford's
global customs unit, we intend to acquire, or receive full-time services from, a
number of Ford employees. Any failure to successfully integrate these employees
into our operations will increase our operating expenses and may adversely
impact our revenues. Moreover, any future acquisitions or investments, even if
successfully completed, may not generate any additional revenue or provide any
benefit to our business.
Shares of common stock eligible for public sale after this offering could
depress our stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. Approximately 72% of
shares will be eligible to be sold in the public market 180 days after this
offering. The following table indicates approximately when the 28,457,508 shares
of our common stock that were outstanding as of June 30, 2000, assuming
conversion of all outstanding shares of convertible preferred stock into
13,824,817 shares of common stock and assuming the issuance of 8,000,000 shares
of common stock that will be issued in connection with our acquisition of Ford's
global customs unit, will be eligible for sale into the public market:
<TABLE>
<CAPTION>
Restricted Shares
Eligible for Sale in
the Public Market
--------------------
<S> <C>
On the date of this prospectus............................. --
180 days after the date of this prospectus................. 20,457,508
At various times more than 180 days after
the date of this prospectus.............................. 8,000,000
</TABLE>
In the event that any of our existing stockholders exercise registration
rights granted by prior agreements, additional shares of our common stock would
be available in the public market. Any such resales may make it more difficult
for us to raise capital through the sale of securities in the future at a time
and at a price that we deem appropriate.
Your ability to influence corporate matters may be limited because our officers,
directors and affiliates will be able to control, and Ford will be able to
influence, matters requiring stockholder approval and may have interests that
differ from yours.
Following the closing of this offering, our officers, directors and
affiliated entities, including Ford, together will beneficially own
approximately 50.9% of the outstanding shares of our common stock, 49.6% if the
underwriters' over-allotment option is exercised in full. In addition, Ford will
beneficially own approximately 23.2% of the outstanding shares of our common
stock, 22.6% if the underwriters' over-allotment option is exercised in full. As
the single largest stockholder of Vastera, Ford may have significant influence
over corporate acts requiring stockholder approval, including a merger or sale
of the Company. As long as Ford
14
<PAGE>
holds at least 5% of our common stock, it has the right to appoint a non-voting
observer to our board of directors. Accordingly, these stockholders collectively
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. Our officers, directors
and affiliated entities, including Ford, may have interests that differ from
your interests and their decisions may negatively impact our future success.
Our management has broad discretion over how to use the proceeds of this
offering; we may not use the proceeds in ways with which you agree or that help
achieve our growth strategy and our revenues may decline.
We estimate that our net proceeds from this offering will be $52.8 million,
at an assumed initial public offering price of $10.00 per share and after
deducting the estimated underwriting discount and offering expenses. See "Use of
Proceeds" for a detailed description of how management intends to apply the net
proceeds of this offering. 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, we may not achieve our growth strategy 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,
Delaware law and Ford's significant ownership position.
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 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."
Additionally, in connection with establishing our strategic relationship
with Ford, Ford will acquire a 23.2% ownership interest in us. See "Principal
Stockholders." Because of Ford's significant holdings, other companies may be
deterred from acquiring us, even if being acquired would be in the best interest
of our other stockholders.
SPECIAL NOTE REGARDING 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
15
<PAGE>
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. Unless required by law, we undertake no obligation to update
publicly any forward looking statements after the date of this Prospectus to
conform such statements to actual results.
16
<PAGE>
USE OF PROCEEDS
We expect to receive approximately $52.8 million in net proceeds from the
sale of the 6,000,000 shares of common stock in this offering, assuming that the
initial public offering price is $10.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. We expect to receive approximately $61.2 million if the underwriters'
over-allotment option is exercised in full.
The principal purposes of this offering are to increase our equity capital,
create a public market for our common stock, facilitate future access by us to
public capital markets and provide us with increased visibility in our markets.
We have no specific plans for the use of the net proceeds of this offering and
intend to use such proceeds 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 expand internationally, 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.
Under the terms of our current loan facility with PNC Bank, we are also
restricted from declaring or paying any dividends on any class of equity
securities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" for a more complete
discussion of our facility with PNC Bank.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000. We
present capitalization:
- on an actual basis;
- on a pro forma basis to reflect the automatic conversion of all
outstanding shares of convertible preferred stock into 13,824,817 shares
of common stock upon the consummation of the offering and the issuance of
8,000,000 shares of common stock that will be issued to Ford in connection
with completing our acquisition of Ford's global customs unit anticipated
to occur in August 2000; and
- on a pro forma as adjusted basis to reflect the automatic conversion of
all outstanding shares of convertible preferred stock into 13,824,817 of
common stock upon the consummation of the offering, the issuance of
8,000,000 shares of common stock that will be issued to Ford in connection
with completing our acquisition of Ford's global customs unit anticipated
to occur in August 2000, 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
6,000,000 shares of common stock offered in the offering at an assumed
initial public offering price of $10.00 per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
June 30, 2000
----------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents and short-term investments........ $ 9,043 $ 9,043 $ 61,843
Line of credit and capital lease obligations................ 4,083 4,083 4,083
Redeemable convertible preferred stock
$0.01 par value; 9,198 shares authorized and 8,312
outstanding (actual), and no shares issued and outstanding
(pro forma and pro forma as adjusted)..................... $ 80,224 -- --
Stockholders' equity (deficit):
Common stock
$0.01 par value; 100,000 shares authorized and 6,632
shares issued and outstanding (actual), 28,457 shares
issued and outstanding (pro forma), 34,457 issued and
outstanding (pro forma as adjusted)....................... 284 344
Additional paid-in capital.................................. 21,456 166,262 219,002
Accumulated other comprehensive income...................... (10) (10) (10)
Deferred compensation....................................... (12,713) (12,713) (12,713)
Accumulated deficit......................................... (82,842) (82,842) (82,842)
-------- -------- --------
Total stockholders' equity (deficit)...................... (74,043) (70,981) 123,781
-------- -------- --------
Total capitalization.................................... $ 19,307 $ 84,107 $189,707
======== ======== ========
</TABLE>
Our capitalization information represented above excludes:
- 17,833,028 shares of common stock available for issuance pursuant to our
employee stock option plans, of which 6,504,552 shares are subject to
outstanding options as of June 30, 2000 at a weighted average exercise
price of $3.56.
- 5,000,000 shares of common stock reserved for future issuances under our
employee stock purchase plan; and
- 640,459 shares of common stock issuable upon the exercise of warrants to
purchase our common stock outstanding after this offering at a weighted
average exercise price of $5.48.
18
<PAGE>
DILUTION
As of June 30, 2000, our net tangible book value on a pro forma basis giving
effect to the automatic conversion of our convertible preferred stock into
common stock upon consummation of this offering and to both the issuance of
8,000,000 shares of common stock to Ford and the acquisition of an estimated
$65.5 million of intangible assets from Ford in connection with completing our
acquisition of Ford's global customs unit anticipated to occur in August 2000
was approximately $3.6 million, or $0.13 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 June 30, 2000, our net tangible book
value, on a pro forma basis as adjusted for the sale of 6,000,000 shares of our
common stock, based on an assumed initial public offering price of $10.00 per
share and after deducting the underwriting discounts and commissions and other
estimated offering expenses, would have been approximately $1.64 per share. This
represents an immediate increase of $1.51 per share to existing stockholders and
an immediate dilution of $8.36 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share at June 30,
2000.................................................... $0.13
Pro forma increase per share attributable to new
investors............................................... 1.51
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.64
------
Dilution per share to new investors......................... $ 8.36
======
</TABLE>
The following summarizes on a pro forma basis as of June 30, 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 $10.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Consideration
----------------------- ------------------------ Average Price
Number Percent Amount Percent Per Share
-------- -------- --------- -------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 28,457 82.6% $114,104 65.5% $ 4.01
New public investors............. 6,000 17.4% 60,000 34.5% 10.00
------ ----- -------- ----- ------
Total.......................... 34,457 100.0% $174,104 100.0% $ 5.05
====== ===== ======== ===== ======
</TABLE>
The preceding table excludes:
- 17,833,028 shares of common stock available for issuance pursuant to our
employee stock option plans, of which 6,504,552 shares are subject to
outstanding options as of June 30, 2000 at a weighted average exercise price
of $3.56.
- 5,000,000 shares of common stock reserved for future issuances under our
employee stock purchase plan; and
- 640,459 shares of common stock issuable upon the exercise of outstanding
warrants to purchase our common stock at a weighted average exercise price of
$5.48.
To the extent all of these options and warrants had been exercised as of
June 30, 2000, pro forma net tangible book value per share after this offering
would be $1.36 and total dilution per share to new investors would be $7.64.
19
<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 six months ended June 30, 1999 and 2000 and the balance sheet data as of
June 30, 2000 from our unaudited financial statements which are included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------------------- -------------------------
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 $ 2,945 $ 5,629
Services revenues............. 402 917 1,545 4,778 11,869 6,190 7,806
------- ------- ------- ------- -------- ------- --------
Total revenues.............. 1,037 2,139 3,745 8,866 19,130 9,135 13,435
Cost of revenues:
Cost of
subscription/transaction
revenues.................... 1 398 766 708 692 309 741
Cost of services revenues..... 639 770 1,473 4,206 10,078 4,265 6,500
------- ------- ------- ------- -------- ------- --------
Total cost of revenues...... 640 1,168 2,239 4,914 10,770 4,574 7,241
------- ------- ------- ------- -------- ------- --------
Gross profit.................... 397 971 1,506 3,952 8,360 4,561 6,194
Operating expenses:
Sales and marketing........... 358 837 4,442 4,581 7,143 2,907 6,645
Research and development...... 403 1,548 4,137 4,271 6,194 2,377 6,157
General and administrative.... 329 1,498 1,710 2,562 3,680 1,372 2,357
Depreciation.................. 65 167 426 637 1,312 569 1,000
Amortization.................. -- -- -- -- 313 74 239
Stock-based compensation...... -- -- -- -- 378 -- 5,611
------- ------- ------- ------- -------- ------- --------
Total operating expenses.... 1,155 4,050 10,715 12,051 19,020 7,299 22,009
------- ------- ------- ------- -------- ------- --------
Loss from operations............ (758) (3,079) (9,209) (8,099) (10,660) (2,738) (15,815)
Other income (expense).......... (25) (7) (98) (157) 181 123 72
------- ------- ------- ------- -------- ------- --------
Net loss.................. $ (783) $(3,086) $(9,307) $(8,256) $(10,479) $(2,615) $(15,743)
Dividends and accretion on
redeemable convertible
preferred stock............... -- (164) (668) (1,184) (19,347) (1,728) (13,426)
------- ------- ------- ------- -------- ------- --------
Net loss attributable to common
stockholders.................. $ (783) $(3,250) $(9,975) $(9,440) $(29,826) $(4,343) $(29,169)
======= ======= ======= ======= ======== ======= ========
Net loss per share
Basic and diluted net loss per
share....................... $ (.35) $ (.61) $ (1.87) $ (1.73) $ (4.92) $ (.75) $ (4.40)
======= ======= ======= ======= ======== ======= ========
Weighted-average common shares
outstanding................. 2,250 5,340 5,341 5,457 6,065 5,754 6,629
Unaudited pro forma net loss per
share.........................
Pro forma basic and diluted
net loss per share.......... $ (.64) $ (.82)
======== ========
Pro forma weighted-average
common shares outstanding... 16,277 19,206
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................... $ 77 $ 1,283 $ 1,388 $ 7,792 $ 961 $ 374
Short-term investments...................... -- -- 597 1,892 3,908 8,669
Working capital............................. (612) (1,022) (2,892) 3,199 (4,200) 4,752
Total assets................................ 844 2,859 5,486 16,282 17,152 28,599
Long-term debt.............................. 24 148 514 996 2,326 3,408
Redeemable convertible preferred stock...... -- 3,801 10,240 24,431 46,117 80,224
Total stockholders' equity (deficit)........ (1,528) (4,394) (13,865) (22,763) (49,928) (74,043)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND OUR 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 web-based software products and services that
facilitate international buying and selling by streamlining and optimizing
global trade processes. We call these products and services our solutions.
Global trade involves the shipment of goods between countries and the management
of information and business processes required to complete shipments. 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 2000, we introduced TradeSphere, a multi-country, multi-module
suite of web-based global trade management solutions and 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 comprehensive solutions with features, functionality and services
that allow companies to manage the complexities of global trade.
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 clients, 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.
In July 2000, in connection with our acquisition of Ford's global customs
unit, we contracted with Ford to provide them with global trade management
services. The agreement provides for us to assume management of Ford's global
trade operations, initially starting with Ford's U.S.-based operations and
adding international operations over time upon achieving the established
criteria. We will be compensated for our services based on the number of
transactions executed, subject to certain minimum transaction levels through
2004. This customer relationship will have a significant impact on our total
revenue and is expected to account for greater than 10% of revenues for the
foreseeable future, beginning in the quarter ended December 31, 2000.
We have incurred significant losses in order to grow our business and as of
June 30, 2000 had an accumulated deficit of approximately $82.8 million. We
believe our future success depends on our successful performance under the Ford
agreements, increasing our client base, further developing additional global
trade data and content and introducing new products and services to the
marketplace. Prior to 2000, we derived substantially all of our revenues from
licenses of our client-server based solutions EMS-2000 and Global Passport. As
we continue to focus our development and marketing efforts on our web-based
products, TradeSphere and TradePrism.com, and our managed services,
TradeVantage, we expect to
21
<PAGE>
derive an increasing percentage of revenues from these 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.
Recent Acquisitions
FORD GLOBAL CUSTOMS UNIT
In July 2000, we entered into an agreement to acquire Ford's global customs
unit. Under the terms of the agreement, we will merge Ford's global customs unit
into our managed services operations. The Ford operations to be merged into us
consist of Ford personnel and the technology currently utilized by Ford to
manage its international trade transactions. By combining our existing
technology and intellectual capital with that acquired from Ford, we intend to
expand our managed services offerings to companies of varying sizes on a global
basis. Ford will receive 8,000,000 shares of our common stock valued at
approximately $64.8 million in consideration of the transaction.
QUANTUM CONSULTING ASSOCIATES, INC.
In June 1999, we acquired Quantum Consulting Associates, Inc. of Denver,
Colorado to enhance our trade process consulting services and trade expertise.
The shareholders of Quantum received $439,000 in cash and 567,000 shares of our
common stock valued at approximately $1.5 million, in exchange for all of the
outstanding common stock of Quantum.
DELTAC LIMITED
In January 1999, we acquired Deltac Limited., a provider of trade content
and management consulting expertise for the United Kingdom (UK) and European
Union (EU). The shareholders of Deltac received $100,000 in cash and 189,000
shares of our common stock valued at $409,000, in exchange for all of the
outstanding common stock of Deltac.
These acquisitions were all accounted for under the purchase method of
accounting. The excess of the consideration over the fair value of the acquired
assets and liabilities related to our Quantum and Deltac acquisitions of
approximately $2.4 million, was accounted for as goodwill. The excess of the
consideration over the fair value of the acquired assets of Ford's global
customs unit that will be accounted for as goodwill is estimated to be
$55.5 million. Goodwill is being amortized on a straight-line basis over five
years and resulted in charges to operations of approximately $313,000 for the
year ended December 31, 1999 and approximately $239,000 for the six months ended
June 30, 2000. In the aggregate, amortization for future periods is expected to
be approximately $5.1 million for the year ended December 31, 2000,
approximately $11.6 million for the years ending December 31, 2001, 2002, 2003,
approximately $11.3 million for the year ended December 31, 2004 and
approximately 6.5 million for the year ended December 31, 2005.
Source of Revenues and Revenue Recognition Policy
Our revenues are classified as either subscription/transaction revenues or
services revenues. In 2000, we renamed our software products and services as
follows:
- our Global Passport software product is now called TradeSphere;
- our strategic and operational consulting services are now called
TradeValue;
22
<PAGE>
- our managed-services consisting of Global e-Content, TradeSphere and our
proprietary methodology and services is now called TradeVantage.
A description of our current revenue classifications follows:
SUBSCRIPTION/TRANSACTION REVENUES
Subscription/transaction revenues consist of subscription-based revenues,
transaction-based revenues and perpetual software license revenues.
Subscription-based Revenues. Subscription-based revenues are revenues
derived from subscription arrangements in which our clients subscribe to the use
of TradeSphere, TradePrism.com and TradeVantage, our managed services
organization for a contract term. Revenues are recognized ratably over the
contract term. Subscription arrangements typically range from three to five
years. Payment on subscription arrangements are typically collected annually,
quarterly, or monthly.
Transaction-based Revenues. Transaction-based revenues are revenues derived
from agreements which provide for transaction fees based on usage of
TradeSphere, TradePrism.com and TradeVantage. Revenues are recognized as
transactions occur. Payments on transaction revenues are typically collected
monthly. Our transaction-based agreements, including our Ford agreements, are
often subject to minimum transaction thresholds.
Perpetual Software License Revenues. Perpetual software license revenues are
derived from the sales of perpetual software licenses and the related
maintenance contract. Maintenance contracts include the right to unspecified
enhancements on a when-and-if available basis, ongoing support and content
update services. In general, our active clients renew these maintenance
contracts to obtain access to these regular content updates, which are critical
to the continued capability of our clients' systems. Revenues from perpetual
software license sales are recognized ratably over the estimated economic life
of the product (three years). Revenues from maintenance contracts are recognized
ratably over the contract term, typically one year. Payments on perpetual
software license sales are typically collected upon contract signing or shortly
thereafter. Payments on maintenance revenues are typically collected annually in
advance, but may also be collected quarterly in advance.
SERVICES REVENUES
Our services revenues consist of TradeSphere services revenues and
TradeValue services revenues.
TradeSphere Services Revenues. TradeSphere services revenues are derived
from implementation and training services. These revenues are provided on either
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.
TradeValue Services Revenues. TradeValue services revenues are derived from
management consulting. These revenues are provided on either 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 client base,
expansion of our implementation organization and expansion of our management
consulting organization. Services revenues are typically billed and collected
monthly. In the future we expect services revenues to decrease as a percentage
of total revenues.
Our sales cycle averages six to nine months. Furthermore, we have
experienced, and expect to continue to experience, significant variation in the
size of individual sales. As a
23
<PAGE>
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, 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 services are
performed. As we continue to increase our subscription and transaction-based
revenues relative to our perpetual licenses, we expect our deferred revenues to
decrease.
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 as well as the cost of salaries and related expenses for
our technical support and managed services organizations.
We have a value-added reseller license agreement with Sun Microsystems and,
effective June 2000 through December 2002, we have the right to sublicense Sun's
software royalty free. Prior to June 2000, we were required to pay a royalty of
2% of revenues generated from the sale of our base application package in
exchange for the right to sublicense Sun's software. We also have an OEM
Software License agreement with IBM in which we have agreed to pay IBM a royalty
of $350,000 for the year 2000 and 6% of the contract value of products shipped
with IBM content for years 2001 through 2005 in exchange for the right to
sublicense IBM's software.
Cost of subscription/transaction revenues also includes the cost of salaries
and related expenses for our client support, which includes our technical
support and managed services organization. We expect the cost of
subscription/transaction revenues to continue to increase as we further expand
our offerings and integrate other technology products into our product
offerings.
Cost of services revenues includes the cost of salaries and related expenses
for implementation, management consulting, and training services provided to
clients, as well as, the cost of third parties contracted to provide either
application consulting or implementation services to our clients. The total cost
of revenues may fluctuate based on the mix of products and services sold.
We expect our cost of subscription/transaction revenues to increase as a
result of our recent transaction-based managed services contract signed with
Ford. In the short term, we expect our gross margins on subscription/transaction
revenues to decrease until we are able to fully integrate Ford's technology with
our technology and increase the number of additional customers subscribing to
managed trade services.
Stock-based Compensation
We recorded deferred compensation of approximately $6.4 million in the last
six months of 1999 and approximately $12.3 million in the first six months of
2000. These amounts represent the difference between the exercise price and the
fair value for accounting purposes
24
<PAGE>
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 six months ended June 30, 2000,
we amortized approximately $378,000 and approximately $5.6 million of deferred
compensation, respectively. We expect to amortize deferred compensation of
approximately $9.9 million, $5.0 million, $2.5 million, $867,000 and $25,000 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.
We 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 for accounting purposes 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.
25
<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>
Six Months
Ended
Years Ended December 31, June 30,
---------------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Subscription/transaction
revenues.................... 61 % 57 % 59 % 46 % 38 % 32 % 42 %
Services revenues............ 39 43 41 54 62 68 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 47 48
---- ---- ---- ---- ---- ---- ----
Total cost of revenues..... 62 55 59 55 57 50 54
---- ---- ---- ---- ---- ---- ----
Gross margin................... 38 45 41 45 43 50 46
---- ---- ---- ---- ---- ---- ----
Operating expenses:
Sales and marketing.......... 35 39 119 52 38 32 49
Research and development..... 39 72 110 48 32 26 46
General and administrative... 31 70 46 29 19 15 18
Depreciation................. 6 8 11 7 6 6 7
Amortization................. 0 0 0 0 2 1 2
Stock-based compensation..... - - - - 2 0 42
---- ---- ---- ---- ---- ---- ----
Total operating expenses... 111 189 286 136 99 80 164
---- ---- ---- ---- ---- ---- ----
Loss from operations........... (73) (144) (245) (91) (56) (30) (118)
Other income (expense), net.... (2) 0 (3) (2) 1 1 1
---- ---- ---- ---- ---- ---- ----
Net loss....................... (75)% (144)% (248)% (93)% (55)% (29)% (117)%
==== ==== ==== ==== ==== ==== ====
</TABLE>
Comparison of Six Months Ended June 30, 1999 to Six Months Ended June 30, 2000
REVENUES
Total revenues. Total revenues increased 47% from approximately
$9.1 million for the six months ended June 30, 1999 to approximately
$13.4 million for the six months ended June 30, 2000.
Subscription/transaction revenues. Subscription/transaction revenues
increased 91% from approximately $2.9 million for the six months ended June 30,
1999 to approximately $5.6 million for the six months ended June 30, 2000. We
attribute this increase 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 TradeSphere and TradePrism.com solutions, and as a result of our managed
services agreement with Ford, we expect subscription/transaction revenues to
increase significantly as a percentage of total revenues.
Services revenues. Services revenues increased 26% from approximately
$6.2 million for the six months ended June 30, 1999 to approximately
$7.8 million for the six months ended June 30, 2000. The increase resulted from
increases in our client base as well as in our average billing rates. We expect
the proportion of services revenues to total revenues to decrease significantly
as a result of our managed services agreement with Ford.
26
<PAGE>
COST OF REVENUES
Cost of subscription/transaction revenues. The cost of
subscription/transaction revenues increased 140% from approximately $309,000 for
the six months ended June 30, 1999 to approximately $741,000 for the six months
ended June 30, 2000. The increase resulted from our investment in our client
support infrastructure. The cost of subscription/transaction revenues, as a
percentage of subscription/transaction revenues was 10% for the six months ended
June 30, 1999 and 13% for the six months ended June 30, 2000. This increase as a
percentage of subscription/transaction revenues reflected our expansion of our
technical support and managed services organization. We expect the cost of
subscription/transaction revenues to increase as a percentage of
subscription/transaction revenues as we invest heavily in our support
infrastructure, due to our managed services agreement with Ford, experience
greater royalty costs associated with our OEM agreement with IBM, and as we
expand our product offerings and integrate other technology products into our
offerings.
Cost of services revenues. The cost of services revenues increased 52% from
approximately $4.3 million for the six months ended June 30, 1999 to
approximately $6.5 million for the six months ended June 30, 2000. This increase
resulted from the hiring and training of consulting and training personnel to
support our increased client base. The cost of services revenues, as a
percentage of services revenues was 69% for the six months ended June 30, 1999
and 83% for the six months ended June 30, 2000. This increase reflects our focus
on hiring and training personnel in our management consulting organization.
Although these increased costs negatively affected our gross margin, 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 36% from approximately $4.6 million for the six
months ended June 30, 1999 to approximately $6.2 million for the six months
ended June 30, 2000. This increase is attributable to the growth in our client
base, which increased subscription/ transaction revenues and services revenues.
Gross margin decreased from 50% for the six months ended June 30, 1999 to 46%
for the six months ended June 30, 2000. While we expect gross margins to
increase in the long term, in the short term we expect gross margins to be
constrained by our ability to fully integrate Ford's technology and personnel
into our managed services 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 129% from approximately $2.9 million for the six months ended
June 30, 1999 to approximately $6.6 million for the six months ended June 30,
2000. This increase resulted 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 expenses represented 32% of our total revenues for the six months
ended June 30, 1999 and 49% for the six months ended June 30, 2000. We believe
that we will need to continue to increase our sales and marketing expenses to
expand our
27
<PAGE>
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 159% from approximately $2.4 million for the six
months ended June 30, 1999 to approximately $6.2 million for the six months
ended June 30, 2000. This increase resulted from an increase in the number of
internal and contract software developers and quality assurance personnel needed
to support our product development and testing activities. Research and
development expenses represented 26% of our total revenues for the six months
ended June 30, 1999 and 46% for the six months ended June 30, 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 72% from approximately $1.4 million for
the six months ended June 30, 1999 to approximately $2.4 million for the six
months ended June 30, 2000. This increase resulted from the addition of
executive, finance and administrative personnel to support the growth of our
business. General and administrative expenses represented 15% of our total
revenues for the six months ended June 30, 1999 and 18% for the six months ended
June 30, 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, but decrease as a
percentage of total revenues 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.
28
<PAGE>
Depreciation. Depreciation expense increased 76% from approximately $569,000
for the six months ended June 30, 1999 to approximately $1.0 million for the six
months ended June 30, 2000. This increase resulted from the depreciation of
fixed assets purchased to build the infrastructure needed to support the growth
of our business. Depreciation expense represented 6% of our total revenues for
the six months ended June 30, 1999 and 7% for the six months ended June 30,
2000. As part of the Ford transaction we acquired the perpetual right to use
their technology royalty free. This asset was valued at approximately
$2.3 million and will be depreciated straight-line over five years.
Amortization. Amortization expense increased 223% from approximately $74,000
for the six months ended June 30, 1999 to approximately $239,000 for the six
months ended June 30, 2000. This increase resulted from the amortization of
goodwill from the acquisitions of Deltac Limited in January 1999 and Quantum
Consulting Associates, Inc. in June 1999. Amortization expense represented 1% of
our total revenues for the six months ended June 30, 1999 and 2% for the six
months ended June 30, 2000. As part of the Ford transaction we acquired an
assembled workforce that was valued at approximately $6.5 million. This
intangible asset will be amortized on a straight-line basis over three years
upon the closing of the transaction. In addition to recording the value
associated with the assembled workforce we will record approximately $55 million
in goodwill. The goodwill will be amortized on a straight-line basis over the
next five years upon the closing of the transaction.
Stock-based compensation. Stock-based compensation expense increased from
zero for the six months ended June 30, 1999 to approximately $5.6 million for
the six months ended June 30, 2000. Deferred compensation of approximately
$12.7 million at June 30, 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 (expenses), net decreased from
approximately $123,000 for the six months ended June 30, 1999 to approximately
$72,000 for the six months ended June 30, 2000. The decrease reflects the
additional interest expense on the equipment line of credit for the six months
ended June 30, 2000.
Income taxes. No provision for income taxes has been recorded for either the
six months ended June 30, 1999 or the six months ended June 30, 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 to growth in our client base resulting from increased
market acceptance of our product offerings and our increased sales and marketing
efforts.
29
<PAGE>
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 from
increases in our client 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 Limited and Quantum Consulting
Associates, Inc. Included in our services revenues for the year ended
December 31, 1999 is approximately $727,000 of services revenues attributable to
the acquisitions of Deltac Limited and Quantum Consulting Associates, Inc.
$727,000, or approximately 10%, of the $7.1 million increase in services
revenues was attributable to these acquisitions.
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 client 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 from
the hiring and training of consulting and training personnel to support our
increased client 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 focus on hiring and training personnel 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 client
base, which increased subscription/ transaction revenues and services revenues.
Gross margin decreased from 45% for the year ended December 31, 1998 to 43% for
the year ended December 31, 1999. This decrease was due to the hiring and
training of personnel 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 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.
30
<PAGE>
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 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. Depreciation expense increased 106% from approximately
$637,000 for the year ended December 31, 1998 to approximately $1.3 million for
the year ended December 31, 1999. This increase resulted from the depreciation
of fixed assets purchased to build the infrastructure needed to support the
growth of our business. Depreciation expense represented 7% of our total
revenues for the year ended December 31, 1998 and 6% for the year ended
December 31, 1999.
Amortization. There was no amortization expense for the year ended
December 31, 1998 and there was approximately $313,000 for the year ended
December 31, 1999. This increase resulted from amortization of goodwill from the
acquisition of Deltac Limited in January 1999 and Quantum Consulting
Associates, Inc. in June 1999. There was no amortization expense for the year
ended December 31, 1998 and an amount equal to 2% of revenues was recorded for
the year ended December 31, 1999.
Stock-based compensation. Stock-based 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 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.
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<PAGE>
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 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
attributed to our increased sales of our software applications and overall
growth of our installed base of clients.
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
client 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 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 client
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 to the increase in
subscription/transaction revenues and improved productivity in our service
organization.
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 included personnel related expenses. Sales and marketing
expenses represented 119% of our total revenues for the year ended
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<PAGE>
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 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 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 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. Depreciation expense 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 from the depreciation of fixed
assets purchased to build the infrastructure needed to support the growth of our
business. Depreciation expense 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.
Quarterly Results of Operations
The following tables set forth unaudited quarterly results for the eight
fiscal quarters ended June 30, 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
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<PAGE>
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
---------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1999 1999 1999 1999 2000 2000
--------- -------- ---------- --------- --------- -------- ---------- ---------
(in thousands, unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Subscription/transaction
revenues....................... $ 1,123 $ 1,231 $ 1,373 $ 1,572 $ 1,984 $ 2,332 $ 2,617 $ 3,012
Services revenues............... 1,355 2,026 3,125 3,065 3,393 2,286 3,662 4,144
------- ------- ------- ------- ------- ------- ------- -------
Total revenues................ 2,478 3,257 4,498 4,637 5,377 4,618 6,279 7,156
Cost of revenues:
Cost of subscription/transaction
revenues....................... 154 187 130 179 172 211 364 377
Cost of services revenues....... 1,186 1,810 2,065 2,200 2,695 3,118 3,271 3,229
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues:....... 1,340 1,997 2,195 2,379 2,867 3,329 3,635 3,606
Gross profit...................... 1,138 1,260 2,303 2,258 2,510 1,289 2,644 3,550
Operating expenses:
Sales and marketing............. 1,086 1,385 1,340 1,567 1,976 2,260 3,387 3,258
Research and development........ 977 1,198 1,121 1,256 1,670 2,147 3,398 2,759
General and administrative...... 706 653 619 753 1,068 1,240 1,294 1,063
Depreciation.................... 220 250 264 305 337 406 461 539
Amortization.................... 0 0 17 57 119 120 119 120
Stock-based compensation........ -- -- -- -- 89 289 2,622 2,989
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses...... 2,989 3,486 3,361 3,938 5,259 6,462 11,281 10,728
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.............. (1,851) (2,226) (1,058) (1,680) (2,749) (5,173) (8,637) (7,178)
Other income (expense)............ (91) (30) 52 71 49 9 27 45
------- ------- ------- ------- ------- ------- ------- -------
Net loss........................ $(1,942) $(2,256) $(1,006) $(1,609) $(2,700) $(5,164) $(8,610) $(7,133)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1999 1999 1999 1999 2000 2000
--------- -------- ---------- --------- --------- -------- ---------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage of Revenues:
Revenues:
Subscription/transaction
revenues....................... 45.3% 37.8% 30.5% 33.9% 36.9% 50.5% 41.7% 42.1%
Services revenues............... 54.7% 62.2% 69.5% 66.1% 63.1% 49.5% 58.3% 57.9%
------- ------- ------- ------- ------- ------- ------- -------
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....................... 6.2% 5.7% 2.9% 3.9% 3.2% 4.6% 5.8% 5.3%
Cost of services revenues....... 47.9% 55.6% 45.9% 47.4% 50.1% 67.5% 52.1% 45.1%
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues:....... 54.1% 61.3% 48.8% 51.3% 53.3% 72.1% 57.9% 50.4%
Gross margin...................... 45.9% 38.7% 51.2% 48.7% 46.7% 27.9% 42.1% 49.6%
Operating expenses:
Sales and marketing............. 43.8% 42.5% 29.8% 33.8% 36.7% 48.9% 53.9% 45.5%
Research and development........ 39.4% 36.8% 24.9% 27.1% 31.1% 46.5% 54.1% 38.6%
General and administrative...... 28.5% 20.0% 13.8% 16.2% 19.9% 26.9% 20.6% 14.9%
Depreciation.................... 8.9% 7.7% 5.8% 6.6% 6.3% 8.8% 7.3% 7.5%
Amortization.................... 0.0% 0.0% 0.4% 1.2% 2.2% 2.6% 1.9% 1.7%
Stock-based compensation........ -- -- -- -- 1.7% 6.3% 41.8% 41.8%
Total operating expenses...... 120.6% 107.0% 74.7% 84.9% 97.9% 140.0% 179.6% 150.0%
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.............. (74.7)% (68.3)% (23.5)% (36.2)% (51.2)% (112.1)% (137.5)% (100.4)%
Other income (expense)............ (3.7)% (0.9)% 1.2% 1.5% 0.9% 0.2% 0.4% 0.6%
------- ------- ------- ------- ------- ------- ------- -------
Net loss........................ (78.4)% (69.2)% (22.3)% (34.7)% (50.3)% (111.9)% (137.1)% (99.8)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
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.
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<PAGE>
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.
Operating expenses for the quarter ended June 30, 2000 decreased
approximately $553,000 from the quarter ended March 31, 2000. This decrease was
primarily due to our decreased usage in contract development as well as a
decrease in recruiting fees in our sales, marketing and administrative areas.
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
June 30, 2000 we have raised cumulative net proceeds of approximately
$46.6 million through convertible preferred stock offerings. The purchasers of
our convertible preferred stock were venture capital firms, a retirement fund
and FedEx Corporation. These entities are unrelated third parties and FedEx
subsequently sold its holding to some of our other stockholders. As of June 30,
2000 we had cash and cash equivalents of approximately $374,000 plus short term
investments of approximately $8.7 million and an accumulated deficit of
approximately $82.8 million. The Company has a $2.5 million secured
35
<PAGE>
revolving credit facility and a $4.8 million equipment line of credit with PNC
Bank. As of June 30, 2000, there was no outstanding indebtedness under the
secured revolving credit facility and $3.3 million outstanding under the
equipment line of credit, respectively.
Net cash used in operating activities totaled approximately $5.5 million in
1997, $3.9 million in 1998, $5.7 million in 1999 and $14.8 million for the six
months ended June 30, 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 $15.7 million for the six months ended June 30,
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-based compensation. In 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 $5.6 million for the six
months ended June 30, 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 $19.7 million for the six
months ended June 30, 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. In May 2000, pursuant to stock agreements with existing investors,
various existing investors exercised their preferred stock warrants. We issued
approximately 104,208 shares of Series B convertible preferred stock, 357,011
shares of Series C-1 convertible preferred stock, and 196,980 of Series D-1
convertible preferred stock for approximate net proceeds of $2.5 million.
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, 1998, 1999 and June 30, 2000, the outstanding
balance under this capital lease agreement was approximately $1.4 million,
$1.0 million and $781,000 respectively.
In March 1999, we obtained 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 and in March 2000, we
negotiated to increase the equipment line to $4.8 million.
The Company expects to pay approximately $2.0 million, $2.0 million,
$1.3 million, $535,000 and $376,000 on its equipment line of credit and lease
agreements in 2000, 2001, 2002, 2003 and 2004, respectively. The Company will
fund these commitments through its current cash resources, the proceeds of this
offering and its future cash flow from operations.
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. We are currently in
compliance with all restrictions and covenants relating to our credit
facilities. These financial covenants, among other things, restrict us from
incurring operating losses in excess of stated amounts and require us to
maintain stated levels of minimum tangible net worth.
36
<PAGE>
Our secured revolving credit facility expires on September 5, 2000. We
expect to extend the term of this facility. 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.
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. See the related risk factor on page 8.
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," and
issued SFAS No. 138 in June 2000 to amend SFAS No. 133. These statements
establish accounting and reporting standards for derivative securities
instruments and hedging activities. They require 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.
37
<PAGE>
BUSINESS
Overview
We are a leading provider of web-based software products and services that
facilitate international buying and selling of goods by streamlining and
optimizing global trade processes. We call these products and services our
solutions. Global trade involves the shipment of goods between countries and the
management of information and business processes required to complete shipments.
Global trade is regulated by dynamic, country-specific rules and involves a
complex network of trade participants, namely exporters, forwarders, carriers,
brokers, importers, banks and customs and regulatory agencies. The core of our
solutions is our global trade content, which is our extensive on-line library of
country-specific rules and regulations that are needed to automate global trade
processes. Our web-based software applications utilize this content to improve
coordination and collaboration between the network of trade participants
required to complete international transactions. Our clients can subscribe to or
license our software products, use our transaction-based hosted service through
our Internet portal, TradePrism.com, or engage us to provide complete managed
services for part or all of their global trade operations.
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 provide comprehensive trade content covering countries that accounted for
approximately $4.1 trillion of all global trade in 1999. We serve an
international client base of over 200 companies, including Alcatel, Dell, Ford,
Lucent, Microsoft, the New Zealand Dairy Board, Nike, Nortel and Robert Bosch.
Our clients currently utilize our solutions to ship to over 120 countries
worldwide. We also provide integrated solutions for specific industry segments,
or vertical industries, which are currently used by Internet trading exchanges
such as CatalogCity.com, Fasturn.com, RightFreight.com and SupplierMarket.com.
On July 14, 2000, we entered into an agreement with Ford to acquire its
global customs unit including a number of its employees. We also entered into a
10-year agreement whereby we will administer, automate and manage Ford's global
customs operations.
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 business 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 dispersed
network of exporters, forwarders, carriers, brokers, importers, banks and
customs and regulatory agencies. These participants must be coordinated to
manage the flow of goods, information and currency 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 poorly documented, 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. For
example, the U.S. Customs Service audits companies importing goods into the U.S.
These audits take an average of 15 months to complete and require an average of
1,900 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 and optimize the international trade
process. 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 excess inventory because their clients
demand heightened predictability and timely delivery, including real-time
tracking of shipments. 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. 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. While trade
agreements such as NAFTA and the European Free Trade Agreement have lowered
duties and taxes, they have increased record-keeping requirements. Many
companies engaging in global trade find it cost prohibitive to maintain large
in-house staffs to address these requirements. As a result, these companies may
outsource their trade compliance and documentation processes to third-party
logistics firms or forwarders/brokers.
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 clients, suppliers and other business partners worldwide has further
hastened this era of escalating global competition. Forrester Research estimates
that business-to-business e-
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<PAGE>
commerce will grow from approximately $406 billion in 2000 to approximately $2.7
trillion in 2004. Furthermore, the Internet provides the opportunity for
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 capabilities of currently available solutions. In addition to
lacking comprehensive global trade content, currently available solutions lack
the capabilities required to effectively manage 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 collaboration among global trade
participants.
Limited focus on global trade management. Global trade practices within
traditional consulting firms dedicate limited resources to global trade
practices for clients across the entire global trade network. Companies offering
global trade consulting services typically focus on only one part of the
process, such as logistics or trade regulations, or on only a limited number of
industries.
Need for comprehensive managed services. Recently, an increasing number of
company executives in multiple sectors of global e-commerce have been indicating
to us a desire to have their global trade management issues solved as a
comprehensive managed service. 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 frequently seek 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 offer comprehensive solutions for global trade processes
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 solutions for global trade processes. 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 solutions. Our solutions enable clients to automate
and optimize information management procedures across their entire global trade
network. In
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addition, our solutions address the requirements of multiple members of a
client's extended global trade network and enable an efficient exchange of goods
and information 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 managed services. Our managed services offering utilizes our
content, our software and our trade expertise to enable our clients to rely on
us to manage their day-to-day global trade operations to us. We intend to
deliver services ranging from providing operational management for a single
global trade process to managing a client's worldwide trade operation. We
believe that our managed services can result in significant improvement in the
efficiency and effectiveness of our clients' existing global trade operations.
Our global trade management solutions provide 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 rely on us to manage all or parts of their global trade
network to us. We believe that our solutions improve the speed of the movement
of goods globally and the accuracy of trade information by automating the
exchange of data among each participant in the global trade network, resulting
in enhanced revenue opportunities, increased operational efficiencies and
reductions in the costs of global sourcing. Because our solutions automate these
processes, our clients can focus on their core competencies and compete more
effectively in the global marketplace. We believe that our solutions also
increase client service through on-time delivery of goods and ability to quote
clients a total purchase cost for the goods at order time, including duties,
taxes and fees. Our clients can also reduce accounts receivable collection times
through improved compliance with letters of credit and reduced shipment delays.
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 solutions.
We believe that our ability to provide our clients with access to current,
centralized and standardized trade requirements differentiates us in the
marketplace. We believe that our solutions protect against potential fines,
sanctions and business risks that may result from non-compliant or inefficient
global trade processes and reduce excess inventory through more predictable
customs clearance times. We believe that our solutions reduce duties, taxes and
fees through leveraging the content of preferential duty programs such as NAFTA.
Improved collaboration through enhanced technology. Our software solutions
provide a platform for clients to exchange information 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 and user-friendly,
which we believe will facilitate their acceptance among the global trade
participants. Our solutions are also scalable-capable of satisfying the needs of
a business as the business continues to grow. This improved collaboration
enables our clients to more effectively move goods globally and strategically
manage information required in their global trade process.
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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 and software applications
enables our clients to preserve and build upon their corporate knowledge and
information technology platform, while realizing the benefits of our web-based
solutions.
Strategy
We seek to be the leading provider of solutions for the global trade
information management. The key elements of our strategy include:
Promote multiple delivery models for our solutions. We intend to leverage
our web-based delivery model for our software solutions to expand our client
base and increase our revenues. We intend to capitalize on a growing demand for
managed services by hiring additional personnel with global trade expertise and
further developing our software capabilities. We intend to target clients for
these services ranging from the Fortune 500 companies to Internet start-ups.
Target vertical industries and market segments. We plan to continue
developing various elements of our solutions to address the specific needs of
various vertical industries such as automotive, retail and technology, and trade
participants such as carriers and forwarders. For example, we intend to promote
our relationship with Ford to expand our penetration into the automotive
industry. We also intend to provide pre-configured solutions that are
competitively priced, quickly deployed and easily managed for mid-market to
small companies. In addition to in-house product development, we intend to
supplement these initiatives by evaluating opportunities for acquisitions and
strategic investments.
Expand our global presence. 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. Although we
will initially be providing Ford with global trade managed services in the
United States, we expect to expand the coverage of services to Ford's operations
in other geographic regions. In addition, we intend to utilize our strategic
alliances and foster our relationships with leaders within specific vertical
markets that participate in international trade. We also intend to evaluate
opportunities for acquisitions and investments that can accelerate our global
expansion.
Expand our global trade content and enhance our software solutions. We
intend to continue to develop software solutions with features, capabilities and
functionality that allow companies of all sizes to manage the complexities of
global trade. Because access to reliable, 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 intend to
leverage certain of the information received from our relationship with Ford
into our content database, thereby permitting us to expand our content and
software solutions.
Become the standard and preeminent brand for global trade management. We
plan to be the primary information resource for global trade management. We
expect to expand our offerings of web-based trade content to cover countries
engaged in over 75% of the world's global trade transactions. We intend to
launch a global branding campaign that leverages our strategic alliances and
relationships with clients, governments and industry consultants.
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Products and Services
Our comprehensive solutions for global trade processes consist of the
following elements: our library of trade regulations and requirements, called
Global eContent, our software solution, called TradeSphere, our management
consulting services, called TradeValue, our managed services, called
TradeVantage and our web-based delivery mechanism, TradePrism.com. 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 to increase the efficiency of their global trade processes.
GLOBAL ECONTENT
Global eContent is a dynamic library of country-specific trade requirements
that we provide to our clients. This extensive base of electronic content serves
as the platform for our entire suite of global trade management solutions. 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 solutions. For example, this intelligence includes
algorithms that can detect restricted parties even if names or addresses are
misspelled, or logic which can search for lower duty rates through preferential
programs. 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 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
TRADESPHERE SOLUTIONS
TradeSphere
TradeSphere is a set of software applications which streamline and automate
the information exchanges required to move goods across international borders.
TradeSphere components facilitate specific global trade functions, strategically
manage the information
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required to trade globally and enhance the efficient exchange of information and
goods among extended members of a client's global trade network. TradeSphere is
flexible, modular and highly scalable and supports multiple languages including
Dutch, French, German, Spanish, Portuguese, Chinese Simplified, Chinese
Traditional, Japanese, U.K. English, Italian and U.S. English. Components of
TradeSphere include restricted 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.
The following table summarizes the key functions that we currently offer
through TradeSphere. We also continue to develop additional TradeSphere
applications to meet the growing needs of extended members of the global trade
network.
<TABLE>
<CAPTION>
Operational Modules
<S> <C>
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>
<TABLE>
<CAPTION>
Execution Modules
<S> <C>
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>
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Our TradeSphere solutions use elements 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.
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.
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.
MANAGED SERVICES
Our managed services offerings, called TradeVantage, are the combination of
our Global eContent, TradeSphere solutions and proprietary global trade
methodology and processes. Managed services deliver to our clients our expertise
in managing all or parts of their global trade operations. Through the
combination of our business process improvement and technology improvement, we
are able to improve operational efficiencies at a predictable level of
expenditure to the client.
We offer services to manage all or a portion of our clients global trade
operations, ranging from specific global trade functions to providing a complete
managed service. Our goal is to provide consistent levels of service while
working with our clients to reduce operational cost and realize benefits such as
capitalizing on preferential trade programs, increased speed in their global
supply chain and improved supplier sources.
TRADEPRISM.COM
TradePrism.com is our global trade management portal that delivers our
Global eContent, TradeSphere solutions and TradeVantage services via the
Internet. TradePrism.com also allows our clients to collaborate with other
members of their global trade network from a public or private exchange portal.
Sales and Marketing
We market and sell our solutions through our direct sales force, resellers,
web-based 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, our marketing
organization is responsible for identifying preferred alliance partners and
initiating those relationships. 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 June 30, 2000, our direct sales organization consisted of a total of
46 sales and marketing personnel. We have recently added a Senior Vice President
of Worldwide Sales, a Vice President of North American Sales and a Director for
European Sales to our marketing and sales team. We have also realigned our sales
and marketing professionals along geographic and vertical markets in order to
strategically target our customers and alliance partners. We plan to expand our
sales and marketing organization as our business expands into new markets. In
addition to the direct sales force, members from other departments 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
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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
We maintain strategic alliances with a number of technology leaders and
industry experts through written and oral agreements. 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. The strategic alliances that are subject to
written agreements are summarized as follows:
- We license key components to our solutions from Sun Microsystems and IBM.
The proprietary technology of these companies are integrated into our
solutions. We, in turn, provide license fees for the use of their
proprietary technology.
- We have marketing relationships with a number of enterprise resource
planning, or ERP, companies including SAP, i2 Technologies, Baan and JD
Edwards. Our solutions are certified to be compatible with and
complementary to the enterprise software solutions offered by these ERP
companies. Our agreements with SAP, Baan and JD Edwards allows these ERP
companies to market our solutions alongside their enterprise software
solutions to their current and prospective clients.
- Elements of our web-based solutions are being incorporated into a number
of trade exchanges including CatalogCity.com, Fasturn.com,
RightFreight.com and SupplierMarket.com. These trade exchanges work to
connect separate parties, often in different countries, over the Internet
to consummate a transaction. We have agreements with these trade exchanges
that allow them to implement and embed our solutions into their product
offerings.
- We have strategic alliances with a number of consulting companies
including Andersen Consulting and KPMG. Under our agreement with KPMG,
KPMG agrees to disclose potential opportunities for new clients to Vastera
and we agree to train their consultants in the use and implementation of
our solutions.
While the strategic relationships subject to these agreements are important,
the agreements themselves, with the exception to the license agreements, are not
material to our operations and in many cases may be terminated with little or no
notice. We also have informal agreements, with a number of leading technology
companies to develop compatibility of solutions, business opportunities and
cross-referrals of each other's existing client base.
Product Development
Our product engineering team is made up of over 68 professionals focused on
new and developing solutions. Our product engineers are organized into the
following groups: quality assurance, documentation, release management, solution
development and sustaining engineering. Our solutions 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
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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 approximately $6.2 million for
the year ended December 31, 1999, and $6.2 million for the six months ended
June 30, 2000 which represented 32% of our total revenues. We expect to
significantly increase our research and development efforts in future years.
Financial Information About Geographic Areas
The Company sells its products and services through its offices in the
United States and through a subsidiary in the United Kingdom. The geographic
classification of product and services revenues is based upon the location of
our clients. Information regarding our revenues and long-lived assets
attributable to the United States and to foreign countries is set forth in
Note 11 in the Notes to the Consolidated Financial Statements.
Financial Information About Segments
We have two reportable operating segments: subscription/transactions and
services. Our subscription/transaction segment generates revenues from the
subscription software license agreements of our global trade solution products.
Our services segment provides implementation, management consulting and training
services for our clients as well as managed services. See Note 11 in the Notes
to the Consolidated Financial Statements for more information about our
reportable segments.
Clients
We have over 200 clients utilizing some or all of our solutions, Global
eContent, management consulting and managed services offerings. The following is
a partial list of our clients categorized by industry.
Technology
Dell
Hughes Network Systems
Lucent
Matsushita
Microsoft
Motorola
Nortel
Novell
Sun Microsystems
Industrial and Automotive Products
Ford Motor Company
Garlock Sealing Technologies, a division of Coltec Industries
Gates Rubber Company
Ingersoll-Rand
Mallinckrodt
Robert Bosch
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Consumer and Retail Products
Herman Miller
New Zealand Dairy Board
Nike
Ortho--Clinical Diagnostics, a division of
Johnson & Johnson
S.C. Johnson
Sony
Internet Marketplaces
CatalogCity.com
Fasturn.com
RightFreight.com
SupplierMarket.com
Logistics
BAX Global
Crowley Maritime
Schenker International
Our long-standing relationships with clients such as Nortel, our newly
established relationship with Ford and our recent successes with clients, such
as the New Zealand Dairy Board and RightFreight.com, a business-to-business
solutions provider, 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. While none of our clients currently
represent more than 10% of our revenues, we expect to derive more than 10% of
our revenues from Ford in the future.
Case Studies
We believe the following case studies reflect the range of products and
services that we provide:
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.
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
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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 business-to-business
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
web-based 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, QRS
Corporation and ClearCross;
- 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.
In addition, certain technology companies recently invested in or acquired
companies that we compete with or may compete with in the future. For example,
i2 recently invested in
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Capstan and Quik Response Services recently acquired Rockport, a company focused
on import trade management for the retail industry. Other acquisitions may
further consolidate our industry or create unforeseen competition.
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, client 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.
Technology
Our software solutions are based on leading edge technology, enabling us to
deliver high performance, scalable, flexible and interoperable solutions. Our
software 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.
The following diagram describes our TradeSphere Architecture.
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[LOGO]
This diagram illustrates that the TradeSphere architecture utilizes IBM
Websphere at the middle layer and existing TradeSphere engines for business
logic processing on the backend. A typical transaction consists of an XML
message transmitted from the browser. The Web Server forwards the message to the
Websphere application server where security authentication and authorization is
performed. Websphere then uses a Java servlet to send an XML transaction to one
of the TradeSphere engines through the TradeSphere Link-XML gateway for
processing over a TCP/IP socket. The TradeSphere engine formulates a reply to
the servlet. The servlet then prepares the XML or HTML response to the browser.
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.
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We incorporate technology from third parties into our software. We currently
have non-exclusive license agreements with Sun Microsystems and IBM for the use
of their technology in our global trade management solutions. The term of our
Sun Microsystems license is perpetual and the term of our IBM license expires on
June 30, 2006.
Employees
As of June 30, 2000, we had 234 employees. Upon completion of the Ford
acquisition, we will acquire or have access to a number of additional 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.
Facilities
Our principal administrative, sales, marketing, technical support and
product development facilities are located at our headquarters in Dulles,
Virginia. We currently occupy approximately 51,000 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.
In addition, pursuant to our arrangement with Ford, we maintain employees in
Dearborn, Michigan in office facilities that we may occupy until April 1, 2001
to manage and administer Ford's global customs unit. We believe these facilities
are suitable for our current operations.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Directors, Executive Officers and Other Key Employees
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 KEY 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 March 1991 to
December 1998, Mr. Lefebvre served as Chairman of the Board of AXENT
Technologies, Inc., a computer network security company. He also served as
AXENT's Chief Executive Officer from March 1991 to July 1997. Mr. Lefebvre
remains a director of AXENT.
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, a software company, 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, most recently 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., an application
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enablement software provider, 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 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., a venture capital firm. 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 August 1997.
Mr. Kimball co-founded Technology Crossover Ventures, a venture capital firm, in
June 1995 and has been a General Partner since its founding. 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., a venture capital firm. 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., a software company, from June 1995 until Best
Software's acquisition by the Sage Group plc in in February 2000. 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, a comprehensive solution
provider for delivery of business information over the Internet, 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 KEY 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.
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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, most recently 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, 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, a division of
Fidelity Investments, a large asset management 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 May 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 September 1999, Mr. Stock served as Vice President, Sales and Marketing,
Consumer Packaged Goods for POMS Corporation, a software company, where he was
responsible for global sales and marketing for the POMS manufacturing execution
product suite. From March 1995 to November 1998, Mr. Stock held numerous
positions with Manugistics, a software company, most recently 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, a provider of
financial products and services, 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.
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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. Upon becoming a
member of our board, we pay each member of our board who is not an employee or
an affiliate of one of our principal stockholders a director fee consisting of
options to purchase 45,000 shares of common stock vesting over the three years
following the date of grant. We pay our directors an annual retainer of $5,000
and fees of $1,000 for attendance at each board meeting and committee meeting
and $500 for participation on telephone calls regarding board or committee
business.
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>
Arjun Rishi............................................... $203,077 $80,000 --
Chief Executive Officer, President
Mark J. Ferrer............................................ 12,500* -- 675,000
Chief Operating Officer
Philip J. Balsamo......................................... 122,974 38,273 120,000
Chief Financial Officer
</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
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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>
Potential Realizable
Individual Grants Value at Assumed
---------------------------------------------------- Annual Rate of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price 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 In-the-Money
Options at Fiscal Year End" is based upon a value per share, the assumed initial
public offering price per share of $10.00, minus the per share exercise price,
multiplied by the number of shares underlying the option.
Fiscal Year-End Options Value
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1999 December 31, 1999 ($)
--------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Arjun Rishi................................ -- -- -- --
Mark J. Ferrer............................. -- 675,000 --
Philip J. Balsamo.......................... 23,751 156,249
</TABLE>
Compensation Plans
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
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advisors. Members of the non-employee director administrative committee are not
eligible to receive options and awards. As of July 21, 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.
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
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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
- 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 non-statutory 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
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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.
- 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
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<PAGE>
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
15,000 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 cessation of board service. The shares subject to each initial
15,000-share automatic option grant will vest in a series of three successive
annual installments upon the optionee's completion of each year of board service
over the three-year period measured from the grant date. The shares subject to
each annual 15,000-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
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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 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
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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 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.
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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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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 As Converted
Purchaser Preferred 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 As Converted
Purchaser Preferred 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
Other Purchasers............................... 689,190 1,033,784
</TABLE>
Pursuant to an investors' rights agreement dated November 24, 1998, as
amended, 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
Warrant Holder 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
Other Purchasers............................... 120,935 181,401
</TABLE>
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
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share of Series D convertible preferred stock will convert into 1.50 shares of
common stock upon the closing of this offering. The purchasers of the Series D
convertible preferred stock are:
<TABLE>
<CAPTION>
Shares of Series D As Converted
Purchaser Convertible Preferred Stock Shares of Common Stock
--------- --------------------------- ----------------------
<S> <C> <C>
Battery Ventures III, L.P..................... 205,086 307,629
MSD Portfolio Capital, L.P. and its
affiliates.................................. 820,345 1,230,517
Teachers Insurance and Annuity Association of
America..................................... 615,258 922,887
Technology Crossover Ventures and its
affiliates.................................. 140,485 210,726
Other Purchasers.............................. 1,192,575 1,788,861
</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
stock 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
Warrant Holder Stock Underlying Warrant Shares of Common Stock
-------------- ------------------------ ----------------------
<S> <C> <C>
Battery Ventures III, L.P...................... 20,509 30,763
MSD Portfolio Capital, L.P. and its
affiliates................................... 82,034 123,050
Teachers Insurance and Annuity Association of
America...................................... 61,526 92,289
Technology Crossover Ventures and its
affiliates................................... 14,048 21,071
Other Purchasers............................... 453,491 680,236
</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 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 As Converted
Purchaser Convertible Preferred 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
Teachers Insurance and Annuity Association of
America..................................... 738,689 1,108,034
Technology Crossover Ventures and its
affiliates.................................. 218,278 327,417
Other Purchasers.............................. 435,698 653,546
</TABLE>
In May 2000, MSD Portfolio Capital, L.P. and its affiliates, Teachers
Insurance and Annuity Association of America and Technology Crossover Ventures
and its affiliates fully exercised their convertible preferred stock warrants.
In May 2000, as well, Battery Ventures III, L.P. exercised certain of its
convertible preferred stock warrants by way of a net issuance for
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<PAGE>
402,607 shares of common stock on an as converted basis. The aggregate cash
proceeds received by Vastera for their exercises of convertible preferred stock
warrants is approximately $2.5 million.
Battery Ventures III, L.P., MSD Portfolio Capital, 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. 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.
Transaction with Ford Motor Company
On July 14, 2000, our wholly owned subsidiary, Vastera Solutions Services
Corporation, entered into a series of agreements with Ford that transfer the
responsibility of managing Ford's global trade processes to us. We will purchase
Ford's global customs unit including its technologies and the services of its
employees in exchange for 8,000,000 shares of our common stock to be issued by
Ford. The material agreements that define the relationship are the Global Trade
Services Agreement, the Stock Transfer Agreement, the License Agreement, the
Salaried Employee Secondment Agreement and the Employee Transfer Agreement.
Beginning in 2000, we expect to derive more than 10% of our annual revenues from
Ford. The principal terms of each of these agreements are described below. Our
relationship with Ford will not become binding until the waiting period
applicable to our transaction under the Hart-Scott-Rodino Act has terminated or
expired.
GLOBAL TRADE SERVICES AGREEMENT
We have signed a 10-year agreement to provide the entire range of our
service offerings to Ford. Under this Agreement, we will be administering and
managing Ford's global trade operations including supporting and managing Ford's
import/export customs operations, administering contracts between Ford and third
party brokers and freight forwarders, minimizing duties and customs fees and
generally automating and managing Ford's global trade management requirements.
We will initially provide our suite of product and service offerings to Ford
in the United States. If we have successfully implemented our services in the
United States, we have the opportunity to provide our services to Ford divisions
and subsidiaries in other geographic regions around the world. Although this
agreement has an initial term of 10 years, commencing on July 1, 2003, either
party may terminate for convenience after providing the non-terminating party
one-year advance notice. Commencing on July 1, 2004 and continuing thereafter,
either party may terminate the agreement upon providing six-month advance
written notice.
As consideration for our service and product offerings, Ford has agreed to
pay us certain transaction fees and there will be minimum fees paid to us
applicable to each geographic region or country in which we are providing
services. Additionally, Ford will pay us a gainsharing fee, which will be equal
to a specified percentage of the cost savings experienced by Ford under this
agreement.
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STOCK TRANSFER AGREEMENT
Under this agreement, we will issue 8,000,000 shares of our common stock to
Ford. Ford has agreed to certain market standstill conditions that limit the
number of our shares that Ford can acquire without obtaining approval from our
board of directors. Ford has also agreed to limit the number of shares of our
common stock that it will sell into the market during the first four years
following the date of signing of this agreement. In addition, Ford will become a
party to our Investors' Rights agreement.
LICENSE AGREEMENT
To enable us to perform the services described in the Global Trade Services
Agreement, we will need access to certain of Ford's computer systems, trade
secrets, copyrights, patents, software and other intellectual property. Under
this agreement, Ford has agreed to license to us all of the intellectual
property we will require to commence performance. We have agreed to pay Ford a
monthly fee for the use of Ford's information technology and related support
services.
SALARIED EMPLOYEE SECONDMENT AGREEMENT
Under this agreement, which terminates on December 31, 2002, Ford has agreed
to assign to us selected employees that are performing its import/export customs
operations. In addition to reimbursing Ford for the direct salary and benefits
costs attributable to each seconded employee, we will pay Ford a per employee
fee for each employee that is assigned to us and is engaged in performing global
trade management services on Ford's behalf.
EMPLOYEE TRANSFER AGREEMENT
Under this agreement, we agreed to make employment offers to selected Ford
employees who were previously performing the import/export customs operations at
Ford.
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 nontransferable, perpetual licenses
to use our software products with the later agreement being for newer versions
of 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 for license, maintenance and support, and consulting services fees
related to our software products from Dell Products L.P. under these agreements.
Arms Length Transactions
All past and future transactions with our officers, directors, principal
stockholders or affiliates have been and will be approved by a majority of the
independent and disinterested members of the board of directors or, if required
by law, a majority of disinterested stockholders, and have been or will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of June 30, 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
June 30, 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) 28,457,508 shares of common stock outstanding as of June 30,
2000, assuming conversion of all outstanding shares of preferred stock into
common stock and the issuance of 8,000,000 shares of common stock to Ford on
completion of our acquisition of Ford's global customs unit anticipated to occur
in August 2000, and (ii) 6,000,000 shares of common stock issued in this
offering.
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.
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<PAGE>
<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)............................ 4,104,887 14.4% 11.9%
901 Mariner's Island Blvd., Suite 475
San Mateo, CA 94404
Ford Motor Company........................................ 8,000,000 28.1% 23.2%
Henry Ford II World Center
One American Road
Dearborn, MI 48126
MSD Portfolio Capital, L.P. and its affiliates (2)........ 1,515,046 5.3% 4.4%
599 Lexington Ave., Suite 2300
New York, NY 10022
Technology Crossover Ventures and its affiliates (3)...... 3,687,399 13.0% 10.7%
575 High Street, Suite 400
Palo Alto, CA 94301
Teachers Insurance and Annuity Association of America..... 2,123,209 7.5% 6.2%
730 Third Avenue
New York, NY 10017-3206
Arjun Rishi (4)........................................... 1,054,363 3.7% 3.1%
Philip J. Balsamo (5)..................................... 48,749 * *
Richard A. Lefebvre (6)................................... 217,086 * *
Nicolas C. Nierenberg (7)................................. 67,500 * *
Robert G. Barrett (8)..................................... 4,263,375 15.0% 12.4%
Richard H. Kimball (9).................................... 3,687,399 13.0% 10.7%
James D. Robinson IV (10)................................. 1,081,021 3.8% 3.1%
Mark J. Ferrer (11)....................................... 84,375 * *
Timothy Davenport......................................... -- -- --
All directors and executive officers as a group (9 people)
(12).................................................... 10,503,868 36.9% 30.5%
Punkaj Rishi.............................................. 1,634,685 5.7% 4.7%
</TABLE>
------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 4,092,725 shares held by Battery Ventures III, L.P. and 12,162
shares subject to warrants held by Battery Ventures III, L.P.
(2) 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.
(3) 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., (e) 38,825 shares held by TCV II, V.O.F.,
(f) 654,211 shares held by TCV IV, L.P., (g) 491,893 shares subject to
warrants held by TCV IV, L.P., (h) 24,394 shares held by TCV Strategic
Partners, L.P. and (i) 18,342 shares subject to warrants held by TCV
Strategic Partners, L.P.
(4) Includes 15,624 shares subject to stock options exercisable within 60 days
of June 30, 2000.
(5) Includes 48,749 shares subject to stock options exercisable within 60 days
of June 30, 2000.
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<PAGE>
(6) Includes 217,086 shares subject to stock options exercisable within 60 days
of June 30, 2000.
(7) Includes 67,500 shares subject to stock options exercisable within 60 days
of June 30, 2000.
(8) Includes (a) 4,092,725 shares held by Battery Ventures III, L.P.,
(b) 12,162 shares subject to warrants held by Battery Ventures III, L.P. and
(c) 68,022 shares subject to warrants held by Mr. Barrett. 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.
(9) 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., (e) 38,825 shares held by TCV II, V.O.F.,
(f) 654,211 shares held by TCV IV, L.P., (g) 491,893 shares subject to
warrants held by TCV IV, L.P., (h)) 24,394 shares held by TCV Strategic
Partners, L.P. and (i) 18,342 shares subject to warrants held by TCV
Strategic Partners, L.P. 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.
(10) Includes (a) 697,189 shares held by RRE Investors, L.P. and 383,832 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.
(11) Includes 84,375 shares subject to stock options exercisable within 60 days
of June 30, 2000.
(12) Includes 590,419 shares subject to warrants and 365,834 shares subject to
stock options exercisable within 60 days of June 30, 2000.
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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 June 30, 2000, there were 6,632,691 shares of common stock outstanding
held of record by 58 stockholders. Based upon the number of shares outstanding
as of that date and giving effect to the automatic conversion of all previously
outstanding convertible preferred stock into shares of common stock and the
issuance of 8,000,000 shares of common stock that will be issued to Ford in
connection with completing our acquisition of Ford's global customs unit
anticipated to occur in August 2000 and assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options after
June 30, 2000, there will be approximately 34,457,508 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 June 30, 2000, we had outstanding the following warrants to purchase
our stock:
<TABLE>
<CAPTION>
Total Number As Converted
of Shares Exercise Shares of
Subject to Price Per Common
Type of Stock Warrants Share 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........................ 4,511 $6.650 13,533 June 30, 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 D convertible preferred stock........................ 30,763 $5.610 46,144 Upon this offering
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 June 30, 2000,
8,250,000 shares of common stock are reserved for issuance to employees at the
discretion of our board of directors under the 1996 Plan and there were
1,328,477 shares of common stock available for future grant under the 1996 Plan.
The exercise price of all options outstanding at June 30, 2000 under the 1996
Plan range from $1.00 to $9.33 with a weighted average exercise price of $3.56
and these options are exercisable in the aggregate for 6,504,552 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 22,511,421 shares of common
stock, assuming the exercise of all outstanding convertible preferred stock
warrants and the conversion into common stock of the convertible 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 becoming freely tradable without restriction under the
Securities Act immediately upon effectiveness of such registration.
74
<PAGE>
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.
75
<PAGE>
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 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.
76
<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 34,457,508 shares to be outstanding after the offering,
6,000,000 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
of this Prospectus Eligible for Sale Comment
------------------ ----------------- --------------------------------------
<S> <C> <C>
Upon effectiveness.................... -- All holders of securities have
executed or are bound to execute
lock-up agreements
180 days.............................. 20,457,508 Lock-up released; shares saleable
under Rule 144, 144(k) or 701
Various dates thereafter.............. 8,000,000 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
(34,457,508 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 prospectus in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
77
<PAGE>
Stock Plans
As of June 30, 2000, options to purchase 6,504,552 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 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 23,250,000 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 22,511,421 shares of our common stock,
assuming the exercise of all outstanding convertible preferred stock warrants
and the conversion into common stock of the convertible preferred stock issued
upon the exercise of the warrants, 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.
78
<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
Over-Allotment Option Over-Allotment Option
--------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Vastera..................... $ $ $
</TABLE>
79
<PAGE>
In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $ .
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 600,000 shares for our vendors, employees, family
members of employees, clients 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.
80
<PAGE>
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 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. BT Investment Partners, Inc. and the above-named
affiliates of Chase Securities Inc. will each agree with us not to sell,
transfer, assign, pledge or hypothecate, other than to an entity that is
participating in the offering or an officer or partner thereof, any shares of or
common stock issued with respect to such shares of Series E convertible
preferred stock for one year after the date of this offering.
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. In June 2000,
Banc of America Securities LLC exercised this warrant.
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. The primary factors that will be considered in determining the
public offering price are:
- information set forth in this prospectus and otherwise available to the
representatives;
- prevailing market conditions;
- 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.
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
81
<PAGE>
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.
WHERE YOU CAN FIND 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.
82
<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
------------------- June 30, June 30,
1998 1999 2000 2000
-------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ 7,792 $ 961 $ 374
Short-term investments.................................... 1,892 3,908 8,669
Accounts receivable, net of allowance for doubtful
accounts of $339, $589 and $531, respectively............ 3,612 5,237 9,830
Prepaid expenses and other current assets................. 115 442 1,715
-------- -------- --------
Total current assets.................................. 13,411 10,548 20,588
Property and equipment, net................................. 2,232 3,859 5,602
Goodwill, net............................................... -- 2,079 1,840
Deposits and other assets................................... 639 666 569
-------- -------- --------
Total assets.......................................... $ 16,282 $ 17,152 $ 28,599
======== ======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Line of credit and capital lease obligations, current..... $ 392 $ 391 $ 675
Accounts payable.......................................... 1,648 2,440 2,011
Accrued expenses.......................................... 1,908 2,979 3,478
Accrued compensation and benefits......................... 1,245 1,736 1,950
Deferred revenue, current................................. 5,019 7,202 7,722
-------- -------- --------
Total current liabilities............................. 10,212 14,748 15,836
Long-term liabilities:
Line of credit and capital lease obligations.............. 996 2,326 3,408
Deferred revenue, net of current portion.................. 3,406 3,889 3,174
-------- -------- --------
Total liabilities..................................... 14,614 20,963 22,418
-------- -------- --------
Commitments and contingencies
Redeemable convertible preferred stock:
Series A, Series B, Series C, Series C-1, Series D, Series
D-1, and Series E; $0.01 par value; 9,198 shares
authorized in aggregate; 5,572, 6,085 and 8,312 shares
issued and outstanding in aggregate as of December 31,
1998 and 1999, and June 30, 2000, respectively, and no
shares outstanding on a pro forma basis (aggregate
redemption amount and liquidation preference of $112,217
and $53,307, respectively, as of June 30, 2000)........... 24,431 46,117 80,224 $ --
Stockholders' equity (deficit):
Common stock, $0.01 par value; 100,000 shares authorized;
5,502, 6,430 and 6,632 shares issued and outstanding as
of December 31, 1998 and 1999, and June 30, 2000,
respectively, and 20,457 on a pro forma basis........... 55 64 66 204
Additional paid-in capital................................ 1,029 9,765 21,456 101,542
Accumulated other comprehensive loss...................... -- (41) (10) (10)
Deferred compensation..................................... -- (6,043) (12,713) (12,713)
Accumulated deficit....................................... (23,847) (53,673) (82,842) (82,842)
-------- -------- -------- --------
Total stockholders' equity (deficit).................. (22,763) (49,928) (74,043) 6,181
-------- -------- -------- --------
Total liabilities and stockholders' equity
(deficit)............................................ $ 16,282 $ 17,152 $ 28,599 $ 10,638
======== ======== ======== ========
</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>
Six Months Ended
Years Ended December 31, June 30,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription/transaction revenues....................... $ 2,200 $ 4,088 $ 7,261 $ 2,945 $ 5,629
Services revenues....................................... 1,545 4,778 11,869 6,190 7,806
------- ------- -------- ------- --------
Total revenues........................................ 3,745 8,866 19,130 9,135 13,435
------- ------- -------- ------- --------
Cost of revenues:
Cost of subscription/transaction revenues (excluding
stock-based compensation of $21 for the six months
ended June 30, 2000.).................................. 766 708 692 309 741
Cost of services revenues (excluding stock-based
compensation of $27 and $780 for the year ended
December 31, 1999 and the six months ended June 30,
2000, respectively.)................................... 1,473 4,206 10,078 4,265 6,500
------- ------- -------- ------- --------
Total cost of revenues................................ 2,239 4,914 10,770 4,574 7,241
------- ------- -------- ------- --------
Gross profit.............................................. 1,506 3,952 8,360 4,561 6,194
Operating Expenses:
Sales and marketing (excluding stock-based compensation
of $135 and $2,286 for the year ended December 31, 1999
and the six months ended June 30, 2000,
respectively.)......................................... 4,442 4,581 7,143 2,907 6,645
Research and development (excluding stock-based
compensation of $56 and $579 for the year ended
December 31, 1999 and the six months ended June 30,
2000 respectively.).................................... 4,137 4,271 6,194 2,377 6,157
General and administrative (excluding stock-based
compensation of $160 and $1,945 for the year ended
December 31, 1999 and the six months ended June 30,
2000, respectively.)................................... 1,710 2,562 3,680 1,372 2,357
Depreciation............................................ 426 637 1,312 569 1,000
Amortization............................................ -- -- 313 74 239
Stock-based compensation................................ -- -- 378 -- 5,611
------- ------- -------- ------- --------
Total operating expenses.............................. 10,715 12,051 19,020 7,299 22,009
------- ------- -------- ------- --------
Loss from operations.................................. (9,209) (8,099) (10,660) (2,738) (15,815)
Other income (expense):
Interest income........................................... 48 51 421 224 214
Interest expense.......................................... (146) (208) (240) (101) (142)
------- ------- -------- ------- --------
Total other income (expense).......................... (98) (157) 181 123 72
------- ------- -------- ------- --------
Net loss.................................................. $(9,307) $(8,256) $(10,479) $(2,615) $(15,743)
Dividends and accretion on redeemable convertible
preferred stock......................................... (668) (1,184) (19,347) (1,728) (13,426)
------- ------- -------- ------- --------
Net loss applicable to common stockholders................ $(9,975) $(9,440) $(29,826) $(4,343) $(29,169)
======= ======= ======== ======= ========
Basic and diluted net loss per common share............... $ (1.87) $ (1.73) $ (4.92) $ (0.75) $ (4.40)
======= ======= ======== ======= ========
Weighted-average common shares outstanding................ 5,341 5,457 6,065 5,754 6,629
Pro forma basic and diluted loss per common share......... $ (.64) $ (.82)
======== ========
Pro forma weighted-average common shares outstanding...... $ 16,277 $ 19,206
======== ========
</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>
Accumulated
Common Stock Additional Other
Comprehensive ------------------- Paid-In Comprehensive Deferred
Income (Loss) Shares Amount Capital Loss Compensation
--------------- -------- -------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996........ 6,000 $60 $ 308 $ -- $ --
Net loss........................ -- -- -- -- --
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............... -- -- -- --
-------- --- ------ ------ -------
Balance, December 31, 1997........ 6,027 60 812 --
Net loss........................ -- -- -- --
Issuance of warrants to purchase
Series C-1 preferred stock.... -- -171 -- --
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............... -- -- -- --
-------- --- ------ ------ -------
Balance, December 31, 1998........ 5,502 55 1,029 -- --
Net loss........................ $(10,479) -- -- -- -- --
Unrealized gains and losses on
investments................... (41) -- -- -- -(41) --
--------
Comprehensive loss.............. $(10,520)
========
Issuance of warrants to purchase
Series D-1 preferred stock.... -- -- 231 -- --
Exercise of stock options....... 172 2 170 -- --
Deferred stock compensation..... -- -- 6,421 -- (6,421)
Amortization of deferred stock
compensation..................
Stock issued for acquisition of
subsidiaries.................. 756 7 1,914 -- -378
Dividends and accretion on
redeemable convertible
preferred stock............... -- -- -- -- --
======== === ====== ====== =======
Balance, December 31, 1999........ 6,430 64 9,765 (41) (6,043)
Net loss (unaudited)............ (15,743) -- -- -- -- --
Foreign currency translation
adjustment (unaudited)........ (59) (59)
Unrealized gains and losses on
investments (unaudited)....... 90 -- -- -- 90 --
--------
Comprehensive loss
(unaudited)................... $(15,712)
========
Dividend for beneficial
conversion feature on Series E
preferred stock (unaudited)... -- -- -- -- --
Exercise of stock options
(unaudited)................... 203 2 583 -- --
Exercise of preferred stock
warrants (unaudited).......... (1,173)
Deferred stock compensation
(unaudited)................... -- -- 12,281 -- (12,281)
Amortization of deferred stock
compensation (unaudited)...... -- -- -- -- 5,611
Dividends and accretion on
redeemable convertible
preferred stock (unaudited)... -- -- -- -- --
======== === ====== ====== =======
Balance, June 30, 2000
(unaudited)..................... 6,632 66 21,456 (10) (12,713)
======== === ====== ====== =======
<CAPTION>
Treasury Stock
Accumulated -------------------
Deficit Shares Amount Total
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1996........ $ 4,432) 660 $ (330) $ (4,394)
Net loss........................ (9,307) -- -- (9,307)
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) -- -- (668)
-------- ------- ------- --------
Balance, December 31, 1997........ (14,407) 660 (330) (13,865)
Net loss........................ (8,256) -- -- (8,256)
Issuance of warrants to purchase
Series C-1 preferred stock.... -- -- -- -171
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.... -- (660) 330 --
Dividends and accretion on
redeemable convertible
preferred stock............... (1,184) -- -- (1,184)
-------- ------- ------- --------
Balance, December 31, 1998........ (23,847) -- -- (22,763)
Net loss........................ -(10,479) -- -- (10,479)
Unrealized gains and losses on
investments................... -- -- -- (41)
Comprehensive loss..............
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) -- -- (19,347)
======== ======= ======= ========
Balance, December 31, 1999........ (53,673) -- -- (49,928)
Net loss (unaudited)............ (15,743) -- -- (15,743)
Foreign currency translation
adjustment (unaudited)........ (59)
Unrealized gains and losses on
investments (unaudited)....... -- -- -- 90
Comprehensive loss
(unaudited)...................
Dividend for beneficial
conversion feature on Series E
preferred stock (unaudited)... (8,115) -- -- (8,115)
Exercise of stock options
(unaudited)................... -- -- -- 585
Exercise of preferred stock
warrants (unaudited).......... (1,173)
Deferred stock compensation
(unaudited)................... -- -- -- --
Amortization of deferred stock
compensation (unaudited)...... -- -- -- 5,611
Dividends and accretion on
redeemable convertible
preferred stock (unaudited)... (5,311) -- -- (5,311)
======== ======= ======= ========
Balance, June 30, 2000
(unaudited)..................... (82,842) -- -- (74,043)
======== ======= ======= ========
</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>
Years Ended December Six Months Ended
31, June,
------------------------------ -------------------------
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) $(2,615) $(15,743)
Adjustments to reconcile net loss to net cash used in
operating activities:
Stock-based compensation................................ -- -- 378 -- 5,611
Depreciation and amortization........................... 407 637 1,625 643 1,239
Provision for allowance for doubtful accounts........... 313 61 300 -- --
Provision for litigation settlement..................... 120 -- -- -- --
Amortization of discount related to warrants............ -- -- 6 -- 151
Changes in operating assets and liabilities:
Accounts receivable................................... (2,047) (1,215) (1,925) (1,817) (4,593)
Prepaid expenses and other current assets............. 5 (50) (102) (34) (1,424)
Deposits and other assets............................. 10 (44) (536) 12 97
Accounts payable and accrued expenses................. 1,431 1,489 1,863 415 70
Accrued compensation and benefits..................... 328 611 491 (392) 214
Deferred revenue...................................... 3,261 2,905 2,666 2,043 (195)
------- ------- -------- ------- --------
Net cash used in operating activities....................... (5,479) (3,862) (5,713) (1,745) (14,573)
------- ------- -------- ------- --------
Cash flows from investing activities:
Acquisition of subsidiaries............................... -- -- (539) (539) --
Purchase of investments................................... -- (2,401) (1,548) (732) (4,671)
Acquisition of property and equipment..................... (510) (433) (1,148) (1,060) (962)
------- ------- -------- ------- --------
Net cash used in investing activities................. (510) (2,834) (3,235) (2,331) (5,633)
------- ------- -------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred
stock.................................................... 5,248 13,415 2,339 2,339 16,974
Proceeds from the exercise of preferred stock warrants.... -- -- -- -- 2,534
Proceeds from the exercise of stock options............... 27 14 172 6 585
Proceeds from the issuance of long-term debt.............. 2,500 1,600 150 -- --
Principal payments on long-term debt...................... (1,681) (1,929) (544) (79) (415)
------- ------- -------- ------- --------
Net cash provided by financing activities................. 6,094 13,100 2,117 2,266 19,678
------- ------- -------- ------- --------
Effect of foreign currency exchange rate changes on cash and
cash equivalents.......................................... -- -- -- -- (59)
Net increase (decrease) in cash and cash
equivalents.......................................... 105 6,404 (6,831) (1,810) (587)
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 $ 5,982 $ 374
======= ======= ======== ======= ========
</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 leading provider of
web-based solutions for global trade management and was incorporated in Virginia
in November 1991 under the name Export Software International, Inc. The Company
reincorporated in Delaware in July 1996 and changed its name to Vastera, Inc. in
June 1997.
The Company's offerings include a library of global trade content, web-based
software solutions and management consulting and managed services. Global trade
involves the shipment of goods between countries and the management of
information and business processes to complete shipment.
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, 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.,
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)
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, December 31,
1998 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 June 30, 2000 and for the six
months ended June 30, 1999 and 2000 and all related disclosures 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 June 30, 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 June 30, 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 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.
F-8
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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......... $ (.08)
--------
</TABLE>
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,"
F-9
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Accounts Receivable
As of December 31, 1998, 1999, and June 30, 2000, the Company had
approximately $225,000, $285,000, and $1,228,000, respectively, of unbilled
revenue included in accounts receivable. Unbilled amounts primarily relate to
services performed but not yet billed under fixed price arrangements.
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 June 30, 2000, the Company recognized approximately
($41,000) and $49,000, respectively of net unrealized gains (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
F-10
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
industries throughout the world without requiring collateral. However, the
Company routinely assesses the financial strength of its customers and maintains
allowances for anticipated losses.
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 June 30, 2000, one
customer accounted for 11 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.
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.
Net Loss Per Common Share
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 June 30, 2000, options to purchase approximately 4,728,000
and 6,505,000 shares of common stock, respectively; and warrants to purchase
approximately 1,248,000 and 446,000 shares, respectively, 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.
F-11
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 years ended
December 31, 1997, 1998 and 1999. The Company incurred a loss of approximately
$59,000 from translation of its foreign subsidiary's assets and liabilities into
U.S. dollars for the six months ended June 30, 2000. There were no material
gains and losses from foreign currency exchange transactions for the same
period.
Comprehensive Loss
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. As of December 31, 1999, accumulated other comprehensive loss
includes unrealized gains and losses on investments. As of June 30, accumulated
other comprehensive loss includes unrealized gains and losses on investments and
foreign currency translation adjustments.
3. Property and Equipment and Goodwill:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment............................ $ 1,526 $ 2,649 $ 3,859
Software...................................... 1,369 1,939 1,982
Furniture and equipment....................... 600 1,677 2,434
Leasehold improvements........................ 33 230 956
------- ------- -------
3,528 6,495 9,231
Less--Accumulated depreciation................ (1,296) (2,636) (3,629)
------- ------- -------
Property and equipment, net................... $ 2,232 $ 3,859 $ 5,602
======= ======= =======
</TABLE>
As of December 31, 1999 and June 30, 2000, goodwill of approximately
$2,079,000 and 1,840,000, respectively, relates to the Company's 1999
acquisitions. Accumulated amortization as of December 31, 1999 and June 30,
2000, was approximately $313,000 and $552,000, respectively.
F-12
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 June 30, 2000, the outstanding balance under the equipment
line was approximately $1,723,000 and $3,302,000, respectively, and there were
no amounts outstanding under the revolving line of credit. The revolving line of
credit expires on September 5, 2000.
The equipment line of credit has two interest-only payment periods. Amounts
borrowed until March 15, 2000 are subject to interest-only payments. After this
date, the Company is required to make principal and interest payments to repay
these borrowings over three years. The second interest-only payment period is
applicable to borrowings from March 16, 2000 to September 15, 2000. After
September 15, 2000, the Company is required to make principal and interest
payments to repay the borrowings from the second interest-only period 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, as
defined, 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. Pursuant to an amendment dated June 19, 2000,
the Company's financial covenants were clarified by the bank to exclude all
non-cash charges
F-13
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
from the calculations of the covenants. Other financial covenants, which were
amended, 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.............................................. $ 4,000
June 30, 2000............................................... 400
September 30, 2000.......................................... (3,750)
December 31, 2000........................................... (6,600)
March 31, 2001.............................................. (9,500)
June 30, 2001............................................... (11,500)
September 30, 2001.......................................... (11,750)
Thereafter.................................................. (11,250)
</TABLE>
Capital Lease Obligations
The Company leases office equipment under various non-cancelable 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 and, accordingly, have not been accounted for separately in the
consolidated financial statements.
As of December 31, 1998 and 1999 and June 30, 2000, capital lease
obligations outstanding were approximately $1,388,000, $994,000 and $781,000,
respectively. 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 June 30, 2000, respectively. Related accumulated
depreciation was approximately $904,000, $1,437,000 and $1,658,000 at
December 31, 1998 and 1999 and June 30, 2000, respectively.
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>
F-14
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Redeemable Convertible Preferred Stock:
As of June 30, 2000, the Company had a total of approximately 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. 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, June 30, December 31, December 31, June 30,
1998 1999 2000 1998 1999 2000
-------------- -------------- ----------- -------------- -------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Series A.............. 800 800 800 $ 4,533 $ 8,271 $ 8,655
Series B.............. -- -- 104 -- -- 374
Series C.............. 2,311 2,311 2,311 8,845 17,630 19,436
Series C-1............ -- -- 357 -- -- 2,274
Series D.............. 2,461 2,974 2,974 11,053 20,216 23,213
Series D-1............ -- -- 197 -- -- 1,348
Series E.............. -- -- 1,569 -- -- 24,924
----- ----- ----- ------- ------- -------
5,572 6,085 8,312 $24,431 $46,117 $80,224
===== ===== ===== ======= ======= =======
<CAPTION>
Liquidation Preference
----------------------------------------------
December 31, December 31, June 30,
1998 1999 2000
-------------- -------------- ------------
(unaudited)
<S> <C> <C> <C>
Series A.............. $ 4,773 $ 5,093 $ 5,253
Series B.............. -- -- 702
Series C.............. 9,407 10,091 10,433
Series C-1............ -- -- 1,780
Series D.............. 12,113 15,742 16,310
Series D-1............ -- -- 1,295
Series E.............. -- -- 17,534
------- ------- -------
$26,293 $30,926 $53,307
======= ======= =======
</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. The Company paid approximately $52,000 in issuance costs, which has
been reflected as a reduction in the proceeds from the sale of Series C.
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.
F-15
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. The Company paid approximately $161,000 in issuance costs,
which has been reflected as a reduction in the proceeds from the sale of
Series D.
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 $16,999,000. 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. The Company paid approximately $25,000 in issuance costs, which has
been reflected as a reduction in the proceeds from the sale of Series E.
In May 2000, several existing investors exercised warrants to purchase
approximately 104,000, 357,000, and 197,000 shares of Series B, Series C-1, and
Series D-1, respectively, for an aggregate of approximately $2,534,000.
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. As
of June 30, 2000, the aggregate amount of arrearages of cumulative dividends is
approximately $5,531,000 and on a per share basis $1.57, $0.09 , $0.81, $0.06,
$0.61, $0.09 and $0.34 for Series A, Series B, Series C, Series C-1, Series D,
Series D-1 and Series E.
F-16
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of activity of the redeemable convertible preferred stock is as
follows (in thousands):
<TABLE>
<CAPTION>
Shares Amount
-------- --------
<S> <C> <C>
Balance, December 31, 1996.................................. 800 $ 3,801
Issuance of Series C.................................... 1,703 5,771
Dividends and accretion................................. -- 668
----- -------
Balance, December 31, 1997.................................. 2,503 10,240
Issuance of Series C.................................... 608 2,076
Issuance of Series D.................................... 2,461 10,931
Dividends and accretion................................. -- 1,184
----- -------
Balance, December 31, 1998.................................. 5,572 24,431
Issuance of Series D.................................... 513 2,339
Dividends and accretion................................. -- 19,347
----- -------
Balance, December 31, 1999.................................. 6,085 46,117
Issuance of Series E (unaudited)........................ 1,569 16,974
Dividend for beneficial conversion feature on Series E
(unaudited)............................................ -- 8,115
Exercise of preferred stock warrants (unaudited)........ 658 3,707
Dividends and accretion (unaudited)..................... -- 5,311
----- -------
Balance, June 30, 2000 (unaudited).......................... 8,312 $80,224
</TABLE>
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 $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.
In May 2000, several existing investors exercised warrants to purchase
approximately 104,000, 357,000, and 197,000 shares of Series B, Series C-1, and
Series D-1, respectively, for an aggregate of approximately $2,534,000. Several
investors exercised their warrants on a cashless basis and accordingly, the
number of shares purchased was reduced, as defined in the respective stock
purchase agreements. Warrants to purchase approximately 31,000 and 386,000
shares of Series D and Series D-1, respectively, remain outstanding as of
June 30, 2000.
The warrants to purchase shares of 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 shares of
Series D-1 will expire on March 1, 2001.
F-17
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 June 30, 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
June 30, 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
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 June 30, 2000, the redemption price
is calculated based on the fair market value of such shares ($15.00 and $13.50,
respectively) as it is greater than the liquidation preference.
F-18
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 June 30, 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
reserved and available for distribution at December 31, 1999. On April 26, 2000
the number of shares reserved under the plan was increased to 8,250,000. 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 and 1,328,000 options were available for future grant as
of December 31, 1999 and June 30, 2000, respectively.
F-19
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 six months ended June 30, 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 1.00-4.00 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 1.00-4.00 2.40
--------- ------------------- -----
Granted (unaudited)............................. 2,517,000 4.00-9.33 5.45
Exercised (unaudited)........................... (203,000) 1.00-6.67 2.86
Forfeited (unaudited)........................... (537,000) 1.00-4.00 2.54
--------- ------------------- -----
Options outstanding, June 30, 2000 (unaudited).... 6,505,000 $1.00-$9.33 $3.56
========= =================== =====
</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 June 30, 2000, options to purchase approximately 1,442,000 shares of
common stock were exercisable with a weighted-average per share exercise price
of $1.45. The weighted-average 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 1,122,000 9.70 4.00 -- --
--------- ---- ----- --------- -----
$1.00-$4.00 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
F-20
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
interpretations in accounting for its Plan. Accordingly, deferred compensation
cost of approximately $6,421,000 and $12,281,000 has been recorded for the year
ended December 31, 1999 and the six months ended June 30, 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
six months ended June 30, 2000, the Company recognized compensation expense of
approximately $378,000 and $5,611,000, respectively.
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 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 common share, as reported...................... (1.87) (1.73) (4.92)
Pro forma net loss per common share......................... (1.91) (1.78) (4.99)
</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. 18,250,000 shares of common stock have been
authorized for issuance under the 2000 Plan which includes the shares subject to
outstanding options under the 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
F-21
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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)
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
six months ended June 30, 1999 and 2000, was approximately $345,000 and
$841,000, respectively.
License Agreements
The Company has a value-added reseller license agreement with a third party
in which Vastera has agreed to pay a royalty of 2% of revenues generated from
its base application package in exchange for the right to sublicense the third
party's software through June 30, 2000. Effective July 2000 through December
2002, the Company has the right to sublicense the software royalty free.
The Company has a license agreement with another third party in which the
Company can sublicense this third party's software in exchange for a royalty of
$350,000 in 2000 and 6% of its product revenue containing this software from
2001 through 2005.
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 $111,000 and $263,000 for
the six months ended June 30, 1999 and 2000, respectively.
F-23
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $101,000 and $135,000
for the six months ended June 30, 1999 and 2000, respectively.
Noncash activities were as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
------------------------------ -------------------------
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 $ 751 $1,781
Conversion of bridge loan to Series C...... 1,000 -- -- -- --
Dividends and accretion on redeemable
convertible preferred stock.............. 668 1,184 19,347 1,728 5,311
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.
F-24
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company's two segments (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Subscription/transaction............ $ 2,200 $ 4,088 $ 7,261 $ 2,945 $ 5,629
Services............................ 1,545 4,778 11,869 6,190 7,806
-------- -------- -------- ------- --------
Total revenues.................... 3,745 8,866 19,130 9,135 13,435
-------- -------- -------- ------- --------
Net loss:
Subscription/transaction............ 1,434 3,380 6,569 2,636 4,888
Services............................ 72 572 1,791 1,925 1,306
-------- -------- -------- ------- --------
Gross profit...................... 1,506 3,952 8,360 4,561 6,194
-------- -------- -------- ------- --------
Unallocated expense................. (10,715) (12,051) (19,020) (7,299) (22,009)
Interest income..................... 48 51 421 224 214
Interest expense...................... (146) (208) (240) (101) (142)
-------- -------- -------- ------- --------
Net loss.............................. $ (9,307) $ (8,256) $(10,479) $(2,615) $(15,743)
======== ======== ======== ======= ========
</TABLE>
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>
Six Months Ended
Years Ended December 31, June 30,
------------------------------ -------------------------
1997 1998 1999 1999 2000
-------- -------- -------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
United States.............................. $3,741 $8,154 $17,145 $ 7,903 $12,388
Europe and Asia............................ 4 470 1,433 796 813
Other international operations............. -- 242 552 436 234
------ ------ ------- ------- -------
Total revenues......................... $3,745 $8,866 $19,130 $ 9,135 $13,435
====== ====== ======= ======= =======
</TABLE>
F-25
<PAGE>
VASTERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Vastera's tangible long-lived assets were located as follows:
<TABLE>
<CAPTION>
December 31,
------------------- June 30,
1998 1999 2000
-------- -------- -----------
(unaudited)
<S> <C> <C> <C>
United States............................................... $2,232 $3,438 $8,565
Europe and Asia............................................. -- 421 666
Other international operations.............................. -- -- --
------ ------ ------
Total long-lived assets................................. $2,232 $3,859 $9,231
====== ====== ======
</TABLE>
Significant Customers
For the year 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
six months ended June 30, 1999, one customer accounted for 11 percent of total
revenues. For the six months ended June 30, 2000, the Company did not have any
customers that accounted for greater than 10 percent of total revenues.
12. Unaudited Subsequent Event:
On July 14, 2000, the Company entered into a definitive agreement with Ford
Motor Company ("Ford") to acquire Ford's global customs operations in exchange
for 8,000,000 shares of the Company's common stock valued at approximately $64.8
million. The Company also entered into a managed services agreement whereby
Vastera will manage Ford's global trade operations. Consummation of the
acquisition is contingent upon Hart-Scott-Rodino approval. The acquisition will
be accounted for under the purchase method of accounting, and accordingly, the
results of operations of Ford's global customs operations will be included in
the Company's operations from the effective date of the acquisition. The
purchase price has been allocated on a preliminary basis to the intangible
assets with the estimated useful lives as following:
<TABLE>
<CAPTION>
Estimated
Value Useful Life
------------ -----------
<S> <C> <C>
Assembled Workforce......................................... $ 6,500,000 3 yrs
Licensed Technology......................................... 2,300,000 5 yrs
Ford contract............................................... 1,200,000 4 yrs
Goodwill.................................................... 55,550,000 5 yrs
-----------
$65,550,000
===========
</TABLE>
F-26
<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.................... 1
Risk Factors.......................... 5
Special Note Regarding Forward-
Looking Statements.................. 15
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial Data.. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 38
Management............................ 54
Certain Transactions.................. 66
Principal Stockholders................ 70
Description of Capital Stock.......... 73
Shares Eligible for Future Sale....... 77
Underwriting.......................... 79
Legal Matters......................... 81
Experts............................... 81
Other Matters......................... 81
Where You Can Find Additional
Information......................... 82
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.
[LOGO]
6,000,000 Shares
Common Stock
Deutsche Banc Alex. Brown
Chase H&Q
Banc 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......... $ 20,038
NASD filing fee............................................. 8,090
Nasdaq filing fee........................................... 95,000
Printing and engraving expenses............................. 500,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ 750,000
Blue Sky fees and expenses (including legal fees)........... 25,000
Transfer agent and rights agent and registrar fees and
expenses.................................................. 25,000
Miscellaneous............................................... *
----------
Total................................................... $3,000,000
==========
</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.
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.
II-1
<PAGE>
Vastera has entered into Indemnification Agreements with each director of
Vastera, a form of which is filed as Exhibit 10.5 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. 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. Lighthouse Capital Partners, L.P. is an accredited
investor and the transaction was exempt from registration under Rule 506
and Section 4(2) of the Securities Act.
- 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. Lighthouse Capital Partners, L.P. is an accredited investor and the
transaction was exempt from registration under Rule 506 and Section 4(2)
of the Securities Act.
- 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.
Lighthouse Capital Partners, L.P. and Battery Ventures III, L.P. are
accredited investors and the transaction was exempt from registration
under Rule 506 and Section 4(2) of the Securities Act.
- From August 7, 1997 to May 28, 1998, we offered, sold and issued 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 for an aggregate
purchase price of $8,550,008. In addition, we also issued to these
investors warrants to purchase an aggregate of 405,488 shares
II-2
<PAGE>
of our Series C-1 convertible preferred stock at an exercise price of
$4.92 per share. The transaction was exempt from registration under
Rule 506 and Section 4(2) of the Securities Act.
- 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. Lighthouse Capital Partners, L.P. is an accredited investor and the
transaction was exempt from registration under Rule 506 and Section 4(2)
of the Securities Act.
- On April 10, 1998, we issued 120,000 shares of common stock at a fair
market value of $1.00 per share for an aggregate amount of $120,000 to one
of our employees in connection with a settlement agreement with such
employee. The transaction was exempt from registration under Section 4(2)
of the Securities Act.
- On November 24, 1998 and February 26, 1999, we offered, sold and issued 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 for an aggregate
purchase price of $14,500,000. 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., an accredited investor and 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. The transaction
was exempt from registration under Rule 506 and Section 4(2) of the
Securities Act.
- On January 31, 1999, we purchased Deltac Limited for aggregate
consideration equal to $510,130, consisting of $100,000 in cash and
189,000 shares of common stock issued to the stockholders of Deltac at a
fair market value of $2.17 per share. The transaction was exempt from
registration under Section 4(2) of the Securities Act.
- On June 1, 1999, we purchased Quantum Consulting Associates, Inc., for
aggregate consideration equal to $1,952,890, consisting of $439,000 in
cash and 566,719 shares of common stock issued to the stockholders of
Quantum at a fair market value of $2.67 per share. The transaction was
exempt from registration under Section 4(2) of the Securities Act.
- On February 4, 2000 and February 29, 2000, we offered, sold and issued 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 for an aggregate
purchase price of $16,998,519. The transaction was exempt from
registration under Rule 506 and Section 4(2) of the Securities Act.
- In May 2000, we issued an aggregate of 104,208 shares of Series B
convertible preferred stock, 357,011 shares of Series C-1 convertible
preferred stock and 196,980 shares of Series D-1 convertible preferred
stock to 16 accredited insiders upon the exercise of their convertible
preferred stock warrants on both a cash paid and net issuance basis, with
the aggregate cash proceeds to us equalling $2,533,978.
Between February 10, 1997 and June 30, 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.
II-3
<PAGE>
For a more detailed description of this plan, see "Management--Employee
Benefit Plans" in this registration statement. In granting the options and
issuing the underlying common stock upon exercise of the options, Vastera 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.
4.2 Second Amended and Restated Investors' Rights Agreement,
dated November 24, 1998, as amended.
5.1** Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Value-Added Reseller License and Services Agreement with
Forte Software, Inc. (subsequently acquired by Sun
MicroSystems), dated July 19, 1996, as amended.
10.2* Lease Agreement with RHI Holdings, Inc., dated August 20,
1996, as amended and assigned, 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.
10.11* IBM/OEM Software Agreement with IBM, dated March 31, 2000.
10.12* Loan Agreement with PNC Bank, National Association, dated
March 5, 1999, as amended.
10.13* Security Agreement with PNC Bank, National Association,
dated March 5, 1999, as amended.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.14* Amended and Restated Promissory Note with PNC Bank, National
Association, dated September 15, 1999.
10.15** Global Trade Services Agreement with Ford Motor Company,
dated July 14, 2000.
10.16** Stock Transfer Agreement with Ford Motor Company, dated
July 14, 2000.
10.17** License Agreement with Ford Motor Company, dated July 14,
2000.
10.18** Salaried Employee Secondment Agreement with Ford Motor
Company, dated July 14, 2000.
10.19** Employee Transfer Agreement with Ford Motor Company, dated
July 14, 2000.
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>
------------------------
* Filed herewith.
** To be filed by amendment.
(b) Financial Statement Schedules
Schedule I--Report of Independent Public Accountants
Schedule II--Valuation and Qualifying Accounts
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
II-5
<PAGE>
(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 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 July 21, 2000.
<TABLE>
<C> <S> <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 July 21, 2000
--------------------------------- Director (principal Executive Officer)
Arjun Rishi
* Chief Financial Officer (Principal July 21, 2000
--------------------------------- Financial and Accounting Officer)
Philip J. Balsamo
* Chief Operating Officer and Director July 21, 2000
---------------------------------
Mark J. Ferrer
* Director July 21, 2000
---------------------------------
Richard A. Lefebvre
* Director July 21, 2000
---------------------------------
Robert G. Barrett
* Director July 21, 2000
---------------------------------
Richard H. Kimball
* Director July 21, 2000
---------------------------------
James D. Robinson IV
* Director July 21, 2000
---------------------------------
Timothy Davenport
* Director July 21, 2000
---------------------------------
Nicolas C. Nierenberg
</TABLE>
------------------------
<TABLE>
<S> <C> <C> <C>
* /s/ ARJUN RISHI
--------------------------------------
ATTORNEY-IN-FACT
</TABLE>
II-7
<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
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Schedule II
Valuation and Qualifying Accounts
For Fiscal Years Ended December 31, 1997, 1998 and 1999
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Additions
Balance at Charged to Deductions Balance at
Description Beginning of Year Expense from 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
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EXHIBIT INDEX
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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,
dated November 24, 1998 as amended.
5.1** Opinion of Brobeck, Phleger & Harrison LLP.
10.1* Value-Added Reseller License and Services Agreement with
Forte Software, Inc. (subsequently acquired by Sun
Microsystems), dated July 19, 1996, as amended.
10.2* Lease Agreement with RHI Holdings, Inc., dated August 20,
1996, as amended and assigned, 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.
10.11* IBM/OEM Software Agreement with IBM, dated March 31, 2000.
10.12* Loan Agreement with PNC Bank, National Association, dated
March 5, 1999, as amended.
10.13* Security Agreement with PNC Bank, National Association,
dated March 5, 1999, as amended.
10.14* Amended and Restated Promissory Note with PNC Bank, National
Association, dated
September 15, 1999.
10.15** Global Trade Services Agreement with Ford Motor Company,
dated July 14, 2000.
10.16** Stock Transfer Agreement with Ford Motor Company, dated July
14, 2000.
10.17** License Agreement with Ford Motor Company, dated July 14,
2000.
10.18** Salaried Employee Secondment Agreement with Ford Motor
Company, dated July 14, 2000.
10.19** Employee Transfer Agreement with Ford Motor Company, dated
July 14, 2000.
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.
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* Filed herewith.
** To be filed by amendment.
