Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) 90 452K
2: EX-4.2 Registration Rights Agreement Dated October 70 229K
3: EX-10.1 Form of Indemnification Agreement 6 41K
10: EX-10.10 Offer Letter - Mark X. Zaleski 7 27K
11: EX-10.11 Offer Letter - Gary B. Dahl 4 16K
12: EX-10.12 Offer Letter - Mark J. Holtzman 5 17K
13: EX-10.13 Offer Letter - S. Coppy Holzman 4 17K
14: EX-10.14 Contract Dated July 8, 1999 for Turnkey Design/Bui 82 332K
15: EX-10.15 Warrant Dated July 8, 1999 Issued to Bechtel Corp. 14 60K
16: EX-10.16 Warrant Dated May 27, 1998 Issued to Comdisco Vent 10 59K
17: EX-10.17 Warrant Dated November 18, 1998 Issued to Lighthou 9 44K
4: EX-10.4 Lease Agreement Lincoln Coliseum Distribution Cntr 85 358K
5: EX-10.5 Lease Agreement Amb Property, Lp 46 204K
6: EX-10.6 Lease Agreement Dove Holdings, Inc. 18± 68K
7: EX-10.7 Lease & Security Agreement Lighthouse Capital 56 259K
8: EX-10.8 Offer Letter - Kevin R. Czinger 6 26K
9: EX-10.9 Offer Letter - Arvind Peter Relan 6 23K
18: EX-27.1 Financial Data Schedule 1 9K
As filed with the Securities and Exchange Commission on August 6, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WEBVAN GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA* 7389 77-0446411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
1241 EAST HILLSDALE BOULEVARD, SUITE 210
FOSTER CITY, CALIFORNIA 94404
(650) 524-2200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LOUIS H. BORDERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WEBVAN GROUP, INC.
1241 EAST HILLSDALE BOULEVARD, SUITE 210
FOSTER CITY, CALIFORNIA 94404
(650) 524-2200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JEFFREY D. SAPER, ESQ. WILLIAM H. HINMAN, ESQ.
J. ROBERT SUFFOLETTA, ESQ. DANIELLE CARBONE, ESQ.
ROBERT G. DAY, ESQ. SHEARMAN & STERLING
ANIL P. PATEL, ESQ. 1550 EL CAMINO REAL, SUITE 100
WILSON SONSINI GOODRICH & ROSATI MENLO PARK, CALIFORNIA 94025
PROFESSIONAL CORPORATION (650) 330-2200
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is to register additional securities for an offering pursuant
to rule 462(b) 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(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 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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) REGISTRATION FEE
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Common Stock, par value $0.0001 per share $345,000,000 $95,910
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(1) Estimated solely for the purpose of computing the amount of the registration
fee, in accordance with Rule 457(o) promulgated under the Securities Act of
1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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* The Registrant's state of incorporation will be changed to Delaware prior to
the closing of the public offering contemplated by this Registration
Statement.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject To Completion. Dated , 1999.
Shares
WEBVAN GROUP, INC.
Common Stock
LOGO
-------------------------
This is an initial public offering of shares of common stock of Webvan
Group, Inc. This prospectus relates to an offering of shares in the
United States. In addition, shares are being offered outside the
United States in an international offering. All of the shares of
common stock are being sold by Webvan.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ and $ . Application has been made for quotation
of the common stock on the Nasdaq National Market under the symbol "WBVN".
See "Risk Factors" beginning on page 4 to read about factors you should
consider before buying shares of the common stock.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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Per Share Total
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Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Webvan........................ $ $
To the extent that the U.S. underwriters sell more than shares of
common stock, the U.S. underwriters have the option to purchase up to an
additional shares from Webvan at the initial public offering
price, less the underwriting discount. The international underwriters may
similarly purchase up to an additional shares from Webvan.
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
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GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
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Prospectus dated , 1999.
PROSPECTUS SUMMARY
This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, especially "Risk Factors" beginning on page 4.
WEBVAN GROUP, INC.
Webvan is an Internet retailer providing same-day delivery of consumer
products through an innovative proprietary business design that integrates our
Webstore, distribution center and delivery system. We provide our customers with
a personalized shopping experience that we believe is superior to traditional
retailers and current online retailers. Our current product offerings are
principally focused on food, non-prescription drug products and general
merchandise.
The Webvan shopping experience provides customers with:
- the convenience of same-day direct home delivery within a
customer-selected 30-minute window;
- a broad selection of high quality fresh foods including produce, hand-cut
meats, fresh fish and live lobsters, as well as non-perishable grocery
items, chef-prepared meals, fine wines, premium quality cigars and
non-prescription drug products;
- prices that are generally at or below everyday supermarket prices;
- reliable and friendly delivery service by Webvan employees, free of
charge for orders over $50; and
- an easy to navigate Webstore offering user-friendly features including
the ability to create personalized shopping lists.
Consumers are increasingly seeking a grocery shopping solution which will
allow them to save time and effort without sacrificing the wide selection, high
quality and low cost they have come to expect from supermarkets. While a number
of retailers have attempted to address this opportunity by offering grocery
items online, we believe that their lack of a scalable distribution system and
inability to realize cost efficiencies has made it difficult for these online
grocers to deliver a high quality, low cost shopping solution in an efficient
manner.
Our interactive Webstore and highly automated distribution center were
designed to provide high degrees of scalability and efficiency, enabling us to
operate with much lower overhead and reduced headcount compared to traditional
supermarkets. Our initial distribution center, which serves the San Francisco
Bay Area, was designed to process product volumes equivalent to approximately 18
supermarkets with substantially lower labor and real estate costs than these
stores would typically require.
Our proprietary distribution system and enabling software were designed to
optimize our inbound and outbound delivery operations and were created to be
readily replicated to facilitate our expansion into multiple geographic markets.
We commenced the commercial launch of our operations in the San Francisco Bay
Area in June 1999 and plan to open a second distribution center in Atlanta,
Georgia in the second quarter of 2000 and to further expand with distribution
centers in other key geographic markets. In July 1999, we entered into an
agreement with Bechtel Corporation for the construction of up to 26 additional
distribution centers on a turnkey basis over the next three years.
We believe that our innovative business design is the first solution to
adequately address the "last mile" problem of e-commerce fulfillment by
providing a highly efficient means of delivering goods directly and rapidly to
consumers. We also believe that the significant capital investment in our
business system provides us with a competitive advantage compared to traditional
supermarkets and other online grocers.
1
THE OFFERING
Common stock offered by Webvan........ shares
Common stock to be outstanding after
this offering......................... shares
Proposed Nasdaq National Market
symbol................................ "WBVN"
Use of proceeds....................... Funding construction of and equipment
for distribution centers and for general
corporate purposes, including working
capital. See "Use of Proceeds".
The shares of common stock to be outstanding after the offering are stated
as of June 30, 1999 and include 205,760,277 shares of common stock to be issued
upon automatic conversion of all outstanding shares of our preferred stock upon
completion of this offering. The shares of common stock to be outstanding
exclude:
- 50,150,910 shares of common stock reserved for issuance under our stock
option plan, of which 40,433,688 shares at a weighted average exercise
price of $0.27 were subject to outstanding options,
- 2,397,804 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.91.
All of the information in this prospectus assumes that the following
transactions will be effected prior to the closing of this offering: (a) a three
for two split of our outstanding shares of common stock and preferred stock, (b)
the amendment of our articles of incorporation to increase our authorized common
stock to 800,000,000 shares, and to authorize 10,000,000 shares of undesignated
preferred stock, (c) the conversion of all outstanding shares of preferred stock
into shares of common stock and (d) no exercise of the underwriters'
overallotment option.
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CORPORATE INFORMATION
We were incorporated in California in December 1996 and will change our
state of incorporation to Delaware prior to the date of this prospectus. Our
principal executive offices are located at 1241 East Hillsdale Boulevard, Suite
210, Foster City, California 94404, and our telephone number at that address is
(650) 524-2200. Our address on the World Wide Web is http://www.webvan.com. The
reference to our web site does not incorporate by reference the information
contained at our web site into this prospectus.
2
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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PERIOD FROM
DECEMBER 17,
1996 SIX MONTHS
(INCEPTION) TO YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
CONSOLIDATED STATEMENTS OF 1997 1998 1998 1999
OPERATIONS DATA: -------------- ------------ ----------- -----------
Net sales.............................. $ -- $ -- $ -- $ 395
Cost of goods sold..................... -- -- -- 419
----------- ----------- ----------- -----------
Gross profit......................... -- -- -- (24)
Operating expenses:
Software development................. 244 3,010 765 6,308
General and administrative........... 2,612 8,825 2,739 23,656
Amortization of deferred stock
compensation...................... -- 1,060 43 3,953
----------- ----------- ----------- -----------
Total operating expenses.......... 2,856 12,895 3,547 33,917
----------- ----------- ----------- -----------
Interest income........................ 85 923 285 1,641
Interest expense....................... 69 32 -- 1,194
----------- ----------- ----------- -----------
Net interest income.................. 16 891 285 447
----------- ----------- ----------- -----------
Net loss............................... $ (2,840) $ (12,004) $ (3,262) $ (33,494)
=========== =========== =========== ===========
Basic and diluted net loss per share... $ (0.08) $ (0.18) $ (0.05) $ (0.46)
=========== =========== =========== ===========
Shares used in calculating basic and
diluted net loss per share........... 37,406,785 67,114,048 65,075,326 73,280,388
=========== =========== =========== ===========
OTHER OPERATING DATA:
Capital expenditures................... $ 265 $ 32,669 $ 4,283 $ 25,948
Depreciation and amortization.......... 57 1,323 93 6,626
The following table provides a consolidated summary of our balance sheets.
The Pro Forma column reflects the closing of the sale of an aggregate of
21,670,605 shares of our Series D preferred stock in July and August 1999 for
approximately $275.0 million and the conversion of all outstanding shares of
preferred stock into common stock immediately prior to the closing of this
offering. The Pro Forma As Adjusted column also reflects the issuance of the
shares of common stock pursuant to this offering.
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JUNE 30, 1999
DECEMBER 31, ----------------------------------
---------------- PRO FORMA
1997 1998 ACTUAL PRO FORMA AS ADJUSTED
------ ------- -------- --------- -----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents...................... $2,935 $13,839 $ 21,836 $296,736
Working capital........................... 7,693 10,923 31,773 306,673
Total assets.............................. 8,279 60,009 112,429 387,329
Long-term liabilities..................... 17 14,337 14,216 14,216
Total shareholders' equity................ 7,972 33,612 79,626 354,526
3
RISK FACTORS
You should carefully consider the risks and uncertainties described below
before purchasing the common stock. The risks and uncertainties described below
are not the only ones facing our company. Additional risks and uncertainties
that we are unaware of or that we currently believe are not material also may
become important factors that may adversely affect our company in the future.
WE ARE AN EARLY-STAGE COMPANY AND WE EXPECT TO ENCOUNTER RISKS AND DIFFICULTIES
FREQUENTLY FACED BY EARLY-STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS.
We were incorporated in December 1996. From 1997 through May 1999, we were
focused on developing our Webstore and constructing and equipping our first
distribution center serving the San Francisco Bay Area. We did not begin
commercial operations until June 1999. Our limited operating history makes an
evaluation of our business and prospects very difficult. You must consider our
business and prospects in light of the risks and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets, such as e-commerce. These risks
and difficulties include, but are not limited to:
- an unproven business system;
- lack of sufficient customers, revenue or cash flow;
- difficulties in managing rapid growth;
- high capital expenditures; and
- lack of widespread acceptance of the Internet as a means of purchasing
groceries and other consumer products.
We cannot be certain that our business strategy will be successful or that
we will successfully address these risks. Our failure to address any of the
risks described above could have a material adverse effect on our business,
financial condition and results of operations.
WE HAVE DEVELOPED A NEW BUSINESS SYSTEM WHICH REMAINS SUBJECT TO A NUMBER OF
OPERATIONAL RISKS.
We have designed a new business system which integrates our Webstore,
highly automated distribution center and complex order fulfillment and delivery
operations. We have only been delivering products to customers commercially
since we launched our Webstore on June 2, 1999 and the daily volume of orders
that we have had to fulfill to date has been significantly below our designed
capacity and the levels that are necessary for us to achieve profitability. We
have voluntarily limited the number of customer orders accepted in any given
delivery window in an effort to ensure our ability to successfully execute those
orders. As a result, the success of our system in a high order volume
environment has yet to be proven. We cannot assure you that our business system
will be able to accommodate a significant increase in the number of customers
and orders. If we are unable to effectively accommodate substantial increases in
customer orders, we may lose existing customers or fail to add new customers.
Our innovative business design relies on the complex integration of
numerous software and hardware subsystems that utilize advanced algorithms to
manage the entire process from the receipt and processing of goods at our
distribution center to the picking, packing and delivery of these goods to
customers in a 30-minute delivery window. We have, from time to time,
experienced operational "bugs" which have resulted in order errors and delays in
deliveries. We expect bugs to occur from time to time and we cannot assure you
that our operations will not be adversely affected. The efficient and timely
execution of our business system is critical to consumer acceptance of our
service. If we are unable to meet customer demand or service expectations as a
result of operational issues, our ability to develop customer relationships that
result in repeat orders will be adversely affected.
4
OUR SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY EXECUTE OUR EXPANSION PLANS.
A critical part of our business strategy is to expand our business by
opening additional distribution centers in new and existing markets to achieve
economies of scale and leverage our significant capital investment in our
proprietary business system. One of the key elements of our expansion strategy
is our proprietary business system and enabling software, which we created to be
readily replicated to facilitate our expansion into additional geographic
markets on a timely and cost-effective basis. Nonetheless, our business system
is extremely complex and we currently have only one distribution center. As a
result, we have not demonstrated whether our proprietary business system is in
fact readily and cost-effectively replicable. If this key element of our
expansion strategy fails, our business, financial condition and results of
operations could be materially adversely affected.
In July 1999, we entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over the next three
years. We expect that our next 26 distribution centers following our Atlanta,
Georgia distribution center will be constructed by Bechtel pursuant to this
agreement. The success of our expansion program is highly dependent on the
success of our relationship with Bechtel and Bechtel's ability to perform its
obligations under the contract. We have no prior working relationship with
Bechtel and we cannot assure you that we will not encounter unexpected delays or
design problems in connection with the build-out of our distribution centers. If
our relationship with Bechtel fails for any reason, we would be forced to engage
another contractor, which would likely result in a significant delay in our
expansion plans.
In addition, our ability to expand successfully will depend upon a number
of factors, some of which are beyond our control. These factors include:
- the availability of appropriate and affordable sites that can accommodate
our distribution centers;
- our ability to successfully and cost-effectively hire and train qualified
employees to operate new distribution centers;
- our ability to develop relationships with local and regional
distributors, vendors and other product providers;
- acceptance of our product and service offerings;
- competition;
- our ability to integrate the operations of new distribution centers into
our existing operations;
- our ability to coordinate and manage distribution operations in multiple,
geographically distant locations; and
- our ability to establish and maintain adequate management and information
systems and financial controls.
We have no experience operating in any other regions, managing multiple
distribution centers or addressing the factors described above. Our failure to
successfully address these factors could have a material adverse effect on our
business, financial condition and results of operations.
WE ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW.
We have experienced significant net losses and negative cash flow since our
inception. As of June 30, 1999, we had an accumulated deficit of $48.3 million.
We incurred net losses of $12.0 million for the fiscal year ended December 31,
1998 and $33.5 million for the six months ended
5
June 30, 1999. We will continue to incur significant capital and operating
expenses over the next several years in connection with our planned expansion,
including:
- the continued expansion and development of operations at our existing
distribution center;
- the construction and operation of new distribution centers in additional
geographic markets;
- increases in personnel at our current and future distribution centers;
- brand development, marketing and other promotional activities;
- the continued development of our computer network, Webstore, warehouse
management and order fulfillment systems and delivery infrastructure; and
- the development of relationships with strategic business partners.
As a result, we expect to continue to have operating losses and negative cash
flow on a quarterly and annual basis for the foreseeable future. To achieve
profitability, we must accomplish the following objectives:
- substantially increase our number of customers and the number of orders
placed by our customers;
- generate a sufficient average order size;
- realize repeat orders from a significant number of customers;
- achieve favorable gross margins; and
- build additional distribution centers in new markets.
We cannot assure you that we will be able to achieve these objectives. If
we do achieve profitability, we cannot be certain that we would be able to
sustain or increase profitability on a quarterly or annual basis in the future.
If we cannot achieve or sustain profitability, we may not be able to meet our
working capital requirements, which would have a material adverse effect on our
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
WE FACE INTENSE COMPETITION FROM TRADITIONAL AND ONLINE RETAILERS OF GROCERY
PRODUCTS.
The grocery retailing market is extremely competitive. Local, regional, and
national food chains, independent food stores and markets, as well as online
grocery retailers comprise our principal competition, although we also face
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters, and drugstore chains. Many
of our existing and potential competitors, particularly traditional grocers and
retailers, are larger and have substantially greater resources than we do. We
expect this competition will intensify as more traditional and online grocery
retailers offer competitive services.
Our initial distribution center in Oakland, California operates in the San
Francisco Bay Area market. In this market, we compete primarily with traditional
grocery retailers and with online grocers NetGrocer and Peapod. The number and
nature of competitors and the amount of competition we will experience will vary
by market area. In other markets, we expect to compete with these and other
online grocers. The principal competitive factors that affect our business are
location, breadth of product selection, quality, service, price and consumer
loyalty to traditional and online grocery retailers. If we fail to effectively
compete in any one of these areas, we may lose existing and potential customers
which would have a material adverse effect on our business, financial condition
and results of operations.
We also compete to retain customers once they have registered for Webvan's
services. Generally, online subscriber attrition rates, or the rates at which
subscribers cancel an online service, are high.
6
High rates of customer attrition could have a material adverse effect on our
business, financial condition and results of operations.
WE RELY ON INCREASING CONSUMER ACCEPTANCE OF INTERNET GROCERY SHOPPING.
We rely solely on product orders received through our Webstore for sales.
The market for e-commerce is new and rapidly evolving, and it is uncertain
whether e-commerce will achieve and sustain high levels of demand and market
acceptance, particularly with respect to the grocery industry. Our success will
depend to a substantial extent on the willingness of consumers to increase their
use of online services as a method to buy groceries and other products and
services. Our success will also depend upon our vendors' acceptance of our
online service as a significant means to market and sell their products.
Moreover, our growth will depend on the extent to which an increasing number of
consumers own or have access to personal computers or other systems that can
access the Internet. If e-commerce in the grocery industry does not achieve high
levels of demand and market acceptance, our business will be materially
adversely affected.
WE NEED TO BUILD STRONG BRAND IDENTITY AND CUSTOMER LOYALTY TO BE SUCCESSFUL.
Since we only recently launched the Webvan brand, we currently do not have
strong brand identity or brand loyalty. We believe that establishing and
maintaining brand identity and brand loyalty is critical to attracting consumers
and vendors. Furthermore, we believe that the importance of brand loyalty will
increase with the proliferation of Internet retailers. In order to attract and
retain consumers and vendors, and respond to competitive pressures, we intend to
increase spending substantially to create and maintain brand loyalty among these
groups. We plan to accomplish this goal by expanding our current radio and
newspaper advertising campaigns and by conducting online and television
advertising campaigns. We believe that advertising rates, and the cost of our
advertising campaigns in particular, could increase substantially in the future.
If our branding efforts are not successful, our business, results of operations
and financial condition will be materially and adversely affected.
Promotion and enhancement of the Webvan brand will also depend on our
success in consistently providing a high-quality consumer experience for
purchasing groceries and other products. If consumers, other Internet users and
vendors do not perceive our service offerings to be of high quality, or if we
introduce new services that are not favorably received by these groups, the
value of the Webvan brand could be harmed. Any brand impairment or dilution
could decrease the attractiveness of Webvan to one or more of these groups,
which could materially and adversely affect our business, results of operations
and financial condition.
IF WE ARE UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF PRODUCTS FROM OUR KEY
VENDORS, OUR NET SALES WOULD BE ADVERSELY AFFECTED.
We expect to derive a significant percentage of our net sales from
high-volume items, well-known brand name products and fresh foods. We source
products from a network of manufacturers, wholesalers and distributors. We
currently rely on national and regional distributors for a substantial portion
of our items. We also utilize premium specialty suppliers or local sources for
gourmet foods, farm fresh produce, fresh fish and meats. From time to time, we
may experience difficulty in obtaining sufficient product allocations from a key
vendor. In addition, our key vendors may establish their own online retailing
efforts, which may impact our ability to get sufficient product allocations from
these vendors. Many of our key vendors also supply products to the retail
grocery industry and our online competitors. If we are unable to obtain
sufficient quantities of products from our key vendors to meet customer demand,
our net sales and results of operations would be materially adversely affected.
7
WE CURRENTLY OPERATE ONLY ONE DISTRIBUTION CENTER WHICH IS LOCATED IN THE SAN
FRANCISCO BAY AREA.
We currently operate only one distribution center, which is located in
Oakland, California and serves the San Francisco Bay Area. We do not expect to
begin operating a second distribution center until the second quarter of 2000.
Therefore, our business and operations would be materially adversely affected if
any of the following events affected our current distribution center or the San
Francisco Bay Area:
- prolonged power or equipment failures;
- disruptions in our web site, computer network, software and our order
fulfillment and delivery systems;
- disruptions in the transportation infrastructure including bridges,
tunnels and roads;
- refrigeration failures; or
- fires, floods, earthquakes or other disasters.
Since the San Francisco Bay Area is located in an earthquake-sensitive
area, we are particularly susceptible to the risk of damage to, or total
destruction of, our distribution center and the surrounding transportation
infrastructure caused by earthquakes. Although we maintain property damage and
business interruption insurance, the amount of this insurance may not be
sufficient to cover the total amount of any losses caused by any of those
events. In addition, this insurance would not cover any losses due to
interruptions in our business due to damage to or destruction of our
distribution center caused by earthquakes or major transportation infrastructure
disruptions or other events that do not occur on our premises.
WE MAY NEED SUBSTANTIAL ADDITIONAL CAPITAL TO FUND OUR PLANNED EXPANSION, AND WE
CANNOT BE SURE THAT ADDITIONAL FINANCING WILL BE AVAILABLE.
We require substantial amounts of working capital to fund our business. In
addition, the opening of new distribution centers and the continued development
of our order fulfillment and delivery systems requires significant amounts of
capital. Since our inception, we have experienced negative cash flow from
operations and expect to experience significant negative cash flow from
operations for the foreseeable future. In the past, we have funded our operating
losses and capital expenditures through proceeds from equity offerings, debt
financing and equipment leases. In addition to the proceeds from this offering,
we expect to require substantial additional capital to fund our expansion
program and operating expenses. We currently anticipate that the net proceeds of
this offering, together with our available funds, will be sufficient to meet our
anticipated needs for working capital and capital expenditures through the next
12 months. In July 1999, we entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over the next three
years. Although the Company has no specific capital commitment under this
agreement, our expenditures under the contract are estimated to be approximately
$1.0 billion. Our future capital needs will be highly dependent on the number of
additional distribution centers we open, the timing of openings and the success
of our facilities once they are launched. Therefore, we may need to raise
additional capital to fund our planned expansion. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all. If we are unable to obtain sufficient additional capital when needed,
we could be forced to alter our business strategy, delay or abandon some of our
expansion plans or sell assets. Any of these events would have a material
adverse effect on our business, financial condition and results of operation. In
addition, if we raise additional funds through the issuance of equity,
equity-linked or debt securities, such securities may have rights, preferences
or privileges senior to those of the rights of our common stock and our
stockholders may experience additional dilution.
8
OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT.
As a result of our limited operating history, it is difficult to accurately
forecast our revenue and we have no meaningful historical financial data upon
which to base planned operating expenses. We base our current and future expense
levels on our operating plans and estimates of future revenue, and our expenses
are dependent in large part upon our facilities and product costs. Sales and
operating results are difficult to forecast because they generally depend on the
growth of our customer base and the volume of the orders we receive, as well as
the mix of products sold. As a result, we may be unable to make accurate
financial forecasts and adjust our spending in a timely manner to compensate for
any unexpected revenue shortfall. This inability could cause our net losses in a
given quarter to be greater than expected and could have a material adverse
effect on our business, financial condition and results of operations.
OUR QUARTERLY OPERATING RESULTS ARE EXPECTED TO BE VOLATILE AND DIFFICULT TO
PREDICT.
Our quarterly operating results are expected to fluctuate significantly in
the future due to a variety of factors, some of which are outside of our
control. Some of the factors that may cause our operating results to fluctuate
include the following:
- the timing of our expansion plans as we construct and begin to operate
new distribution centers in additional geographic markets;
- changes in pricing policies or our product and service offerings;
- increases in personnel, marketing and other operating expenses to support
our anticipated growth;
- the mix of groceries and other products sold by us;
- our inability to obtain new customers or retain existing customers at
reasonable cost;
- our inability to manage our distribution and delivery operations to
handle significant increases in the number of customers and orders;
- our inability to adequately maintain, upgrade and develop our Webstore,
our computer network or the systems that we use to process customer
orders and payments;
- seasonal purchasing patterns of our customers;
- competitive factors; and
- technical difficulties, system or web site downtime or Internet
brownouts.
Due to these factors, we expect our operating results to be volatile and
difficult to predict. As a result, quarter-to-quarter comparisons of our
operating results may not be good indicators of our future performance. In
addition, it is possible that in any future quarter our operating results could
be below the expectations of securities analysts and investors. In that event,
the price of our common stock could decline, perhaps substantially.
IF WE EXPERIENCE PROBLEMS IN OUR DELIVERY OPERATIONS, OUR BUSINESS COULD BE
SERIOUSLY HARMED.
We use our own couriers to deliver products from our distribution center to
our local stations, and from the local stations to our customers. We are
therefore subject to the risks associated with our ability to provide delivery
services to meet our shipping needs, including potential labor activism or
employee strikes, inclement weather, disruptions in the transportation
infrastructure, including bridges, roads and traffic congestion. In addition,
our failure to deliver products to our customers in a timely and accurate manner
or to meet our targeted delivery times would harm our reputation and brand,
which would have a material adverse effect on our business, financial condition
and results of operations.
9
OUR NET SALES WOULD BE HARMED IF OUR ONLINE SECURITY MEASURES FAIL.
Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, we lose many customers,
our net sales and results of operations would be harmed. We rely on security and
authentication technology to perform real-time credit card authorization and
verification with our bank. We cannot predict whether events or developments
will result in a compromise or breach of the technology we use to protect a
customer's personal information.
Furthermore, our computer servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. We may need to expend
significant additional capital and other resources to protect against a security
breach or to alleviate problems caused by any breaches. We cannot assure you
that we can prevent all security breaches, and any failure to do so could have a
material adverse effect on our business, financial condition and results of
operations.
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL, OR OUR FAILURE TO
ATTRACT, ASSIMILATE AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE
WOULD SERIOUSLY HARM OUR BUSINESS.
The loss of the services of one or more of our key personnel could
seriously harm our business. We depend on the continued services and performance
of our senior management and other key personnel, particularly Louis H. Borders,
our founder, President and Chief Executive Officer. Our future success also
depends upon the continued service of our other executive officers and other key
software development, merchandising, marketing and support personnel. None of
our officers or key employees are bound by an employment agreement and our
relationships with these officers and key employees are at will. We currently
hold a "key person" life insurance policy in the amount of $2.0 million for Mr.
Borders, which expires in January 2000. However, this policy would not be
sufficient to compensate for the loss of the services of Mr. Borders.
Additionally, there are low levels of unemployment in the San Francisco Bay Area
and in many of the regions in which we plan to operate. These low levels of
unemployment have led to pressure on wage rates, which can make it more
difficult and costly for us to attract and retain qualified employees. The loss
of key personnel, or the failure to attract additional personnel, could have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF GOVERNMENT
REGULATION OF THE INTERNET INCREASES.
The adoption or modification of laws or regulations relating to the
Internet could adversely affect the manner in which we currently conduct our
business. In addition, the growth and development of the market for online
commerce may lead to more stringent consumer protection laws which may impose
additional burdens on us. Laws and regulations directly applicable to
communications or commerce over the Internet are becoming more prevalent. The
United States government recently enacted Internet laws regarding privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has been
some legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel and taxation
apply to the Internet. If we are required to comply with new regulations or new
interpretations of existing regulations, this compliance could have a material
adverse effect on our business, financial condition and results of operations.
WE ARE AFFECTED BY REGULATIONS APPLICABLE TO THE SALE OF FOOD, ALCOHOL AND
TOBACCO PRODUCTS.
It is uncertain whether the handling of certain food items in our
distribution facility, such as meat and fish, will subject us to regulation by
the United States Department of Agriculture, or USDA. Although we have designed
our food handling operations to comply with USDA regulations, we cannot
10
assure you that the USDA will not require changes to our food handling
operations. We are subject to state and local regulations applicable to food,
alcohol and tobacco products. We will be required to obtain state licenses and
permits for the sale of alcohol and tobacco products in each location in which
we seek to open a distribution center. We cannot assure you that we will be able
to obtain any required permits or licenses in a timely manner, or at all. In
addition, the United States Congress is considering enacting legislation which
would restrict the interstate sale of alcoholic beverages over the Internet. We
will also be required to comply with local health regulations concerning the
preparation and packaging of our prepared meals and other food items. Any
applicable federal, state or local regulations or required permits or licenses
may cause us to incur substantial compliance costs or delay the availability of
certain items at one or more of our distribution centers. In addition, any
inquiry or investigation from a food regulatory authority could have a negative
impact on our reputation. Any of these events could have a material adverse
effect on our business, financial condition and results of operations.
IN THE FUTURE WE MAY FACE POTENTIAL PRODUCT LIABILITY CLAIMS.
We cannot assure you that the products that we deliver will be free from
contaminants. Grocery and other related products occasionally contain
contaminants due to inherent defects in the products or improper storage or
handling. If any of the products that we sell cause harm to any of our
customers, we could be subject to product liability lawsuits. If we are found
liable under a product liability claim, or even if we are required to defend
ourselves against such a claim, our reputation could suffer and customers may
substantially reduce their orders or stop ordering from us. Any of these events
could have a material adverse effect on our business, financial condition and
results of operations.
OUR NET SALES WOULD BE HARMED IF WE EXPERIENCE SIGNIFICANT CREDIT CARD FRAUD.
A failure to adequately control fraudulent credit card transactions would
harm our net sales and results of operations because we do not carry insurance
against this risk. We utilize technology to help us detect the fraudulent use of
credit card information. Nonetheless, we may suffer losses as a result of orders
placed with fraudulent credit card data even though the associated financial
institution approved payment of the orders. Under current credit card practices,
we are liable for fraudulent credit card transactions because we do not obtain a
cardholder's signature. Because we have had an extremely short operating
history, we cannot predict our future levels of bad debt expense.
IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BUSINESS MAY BE SERIOUSLY HARMED.
We regard patent rights, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to our success. We rely
on patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights; however, the steps we take to
protect our proprietary rights may be inadequate. We currently have no patents.
We have filed, and from time to time expect to file, patent applications
directed to aspects of our proprietary technology. We cannot assure you that any
of these applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by third
parties. In addition, other parties may independently develop similar or
competing technology or design around any patents that may be issued to us. Our
failure to protect our proprietary rights could have a material adverse effect
on our business, financial condition and results of operations.
INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS.
Patent, trademark and other intellectual property rights are becoming
increasingly important to us and other e-commerce vendors. Many companies are
devoting significant resources to developing
11
patents that could affect many aspects of our business. Other parties may assert
infringement or unfair competition claims against us. We cannot predict whether
third parties will assert claims of infringement against us, or whether these
assertions or prosecutions will harm our business. If we are forced to defend
ourselves against any of these claims, whether they are with or without merit or
are determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, inability to use our current web site
technology, or product shipment delays. As a result of a dispute, we may have to
develop non-infringing technology or enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of patent
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology on a timely basis, our business,
financial condition and results of operations may be materially adversely
affected.
ANY FAILURES OF, OR CAPACITY CONSTRAINTS IN, OUR SYSTEMS OR THE SYSTEMS OF THIRD
PARTIES ON WHICH WE RELY COULD ADVERSELY AFFECT OUR BUSINESS.
Our communications hardware and certain of our other computer hardware
operations are located at the facilities of Exodus Communications, Inc. in Santa
Clara, California. The hardware for our warehouse management and materials
handling systems is maintained in our Oakland, California distribution center.
Fires, floods, earthquakes, power losses, telecommunications failures, break-ins
and similar events could damage these systems. Computer viruses, electronic
break-ins or other similar disruptive problems could also adversely affect our
Webstore. Our business could be adversely affected if our systems were affected
by any of these occurrences. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures or interruptions
in our systems.
Our Webstore may experience slower response times or decreased traffic
capacity for a variety of reasons. In addition, our users depend on Internet
service providers, online service providers and other web site operators for
access to our Webstore. Many of them have experienced significant outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to our systems. Moreover, the Internet infrastructure may not
be able to support continued growth in its use. Any of these problems could have
a material adverse effect on our business, financial condition and results of
operations.
WE MAY BE ADVERSELY IMPACTED IF THE SOFTWARE, COMPUTER TECHNOLOGY AND OTHER
SYSTEMS WE USE ARE NOT YEAR 2000 COMPLIANT.
Any failure of our material systems, our vendors' material systems or the
Internet to be year 2000 compliant would have material adverse consequences for
us. These consequences would include difficulties in operating our Webstore
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business. We also depend on the year 2000
compliance of the computer systems and financial services used by consumers. A
significant disruption in the ability of consumers to reliably access the
Internet, especially our Webstore, or to use their credit cards would have an
adverse effect on demand for our services and would have a material adverse
effect on our business, financial condition and results of operations.
WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.
As a publisher of online content, we face potential liability for
negligence, copyright, patent or trademark infringement, or other claims based
on the nature and content of materials that we publish or distribute. If we face
liability, particularly liability that is not covered by our insurance or is in
excess of our insurance coverage, then our reputation and our business may
suffer. In the past, plaintiffs have brought these types of claims and sometimes
successfully litigated them against online services. Although we carry general
liability insurance, our insurance may not cover claims of these types or may be
inadequate to indemnify us for all liability that may be imposed on us.
12
OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL EXERCISE SIGNIFICANT
CONTROL OVER WEBVAN.
As of June 30, 1999 and giving effect to the issuance of 21,670,605 shares
of Series D preferred stock in July and August 1999, our executive officers and
directors and their affiliates beneficially owned, in the aggregate,
approximately 59.2% of our outstanding common stock, assuming conversion of all
preferred stock into common stock. As a result, these stockholders are able to
exercise significant control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions, which could delay or prevent someone from acquiring or merging
with us. See "Principal Stockholders".
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US DUE TO ANTI-TAKEOVER
PROVISIONS.
Our charter documents authorize 10,000,000 shares of undesignated preferred
stock, create a classified board of directors, eliminate the right of
stockholders to call a special meeting of stockholders, require stockholders to
comply with advance notice requirements before raising a matter at a meeting of
stockholders and eliminate the ability of stockholders to take action by written
consent. As a Delaware corporation, we are also subject to the Delaware
antitakeover statute contained in Section 203 of the Delaware General
Corporation Law. These provisions could make it more difficult for a third party
to acquire us, even if doing so would be beneficial to our stockholders. See
"Description of Capital Stock".
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND AN ACTIVE TRADING MARKET
MAY NOT DEVELOP FOLLOWING THIS OFFERING.
Before this offering, there has not been a public market for our common
stock and the trading market price for our common stock may decline below the
initial public offering price. We cannot predict the extent to which a market
will develop or how liquid that market might become. The initial public offering
price for the shares of our common stock will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE FOLLOWING THIS OFFERING.
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. You may not be able to resell your shares
at or above the initial public offering price. The price at which our common
stock will trade after this offering is likely to be volatile and may fluctuate
substantially due to factors such as:
- our historical and anticipated quarterly and annual operating results;
- variations between our actual results and the expectations of investors
and analysts;
- announcements by us or others and developments affecting our business;
- investor perceptions of our company and comparable public companies; and
- conditions and trends in e-commerce industries.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Based on shares outstanding as of June 30, 1999, upon completion
of this offering we will have outstanding shares of
13
common stock, assuming no exercise of the underwriters' over-allotment option.
Of these shares, the shares of our common stock sold in this
offering will be freely tradeable, without restriction, in the public market.
Our directors, officers and securityholders have entered into lock-up agreements
in connection with this offering generally providing that they will not offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
our common stock or any securities exercisable for or convertible into our
common stock without the prior written consent of Goldman, Sachs & Co. The
lock-up agreements will expire as to 15% of the shares held by each stockholder
beginning on the third day following the public release of Webvan's earnings for
the year ended December 31, 1999, as to an additional 25% of the shares
beginning 45 days thereafter and as to the remaining shares 180 days after the
date of this prospectus.
In addition, approximately 42.8 million shares under outstanding options
and warrants and approximately 9.7 million shares reserved for future issuance
under our stock option plan as of June 30, 1999 will be eligible for sale in the
public market subject to vesting, the expiration of lock-up agreements and
restrictions imposed under Rules 144 and 701 under the Securities Act. See
"Shares Eligible for Future Sale".
14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the meaning of
the securities laws. These forward-looking statements are subject to a number of
risks and uncertainties, many of which are beyond our control. All statements,
other than statements of historical facts included in this prospectus, regarding
our strategy, future operations, financial position, estimated revenues,
projected costs, prospects, plans and objectives of management are
forward-looking statements. When used in this prospectus, the words "will",
"believe", "anticipate", "intend", "estimate", "expect", "project" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying words. All
forward-looking statements speak only as of the date of this prospectus. Neither
we nor the underwriters undertake any obligation to update or revise publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise. Although we believe that our plans, intentions and
expectations reflected in or suggested by the forward-looking statements we make
in this prospectus are reasonable, we can give no assurance that these plans,
intentions or expectations will be achieved. We disclose important factors that
could cause our actual results to differ materially from our expectations
("cautionary statements") under "Risk Factors" and elsewhere in this prospectus.
The cautionary statements qualify all forward-looking statements attributable to
us or persons acting on our behalf.
15
USE OF PROCEEDS
The net proceeds we receive from the sale of the common stock offered
hereby will be approximately $ million, after deducting the underwriters'
discounts and commissions and expenses payable by us estimated at $ . We
expect to use the net proceeds from this offering principally to fund the
construction of and equipment for distribution centers in other geographic
markets. We also expect to use the proceeds for general corporate purposes,
including working capital and funding of our expected operating losses. We may
use a portion of the net proceeds to pursue possible acquisitions of
complementary businesses, technologies or products; however, we have no present
understandings, commitments or agreements with respect to any such transactions.
Pending use of such net proceeds for the above purposes, we intend to invest
such funds in short-term interest-bearing investment-grade securities.
DIVIDEND POLICY
We have not paid any dividends since our inception and do not intend to pay
any dividends on our capital stock in the foreseeable future.
16
CAPITALIZATION
The following table sets forth our cash and equivalents and capitalization
as of June 30, 1999: (a) on an actual basis, (b) on a pro forma basis after
giving effect to the closing of the sale of an aggregate of 21,670,605 shares of
our Series D-2 preferred stock in July and August 1999 for approximately $275.0
million and the conversion of each outstanding share of preferred stock into one
share of common stock upon the closing of this offering, and (c) on a pro forma
basis as adjusted for this offering and application of the net proceeds
therefrom. You should read this table in conjunction with our consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus.
[Enlarge/Download Table]
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
Cash and equivalents........................................ $ 21,836 $296,736 $
======== ======== ========
Restricted cash............................................. $ 3,453 $ 3,453 $
======== ======== ========
Lease obligations, net of current portion................... 2,137 2,137
-------- -------- --------
Long term debt, net of current portion...................... 11,811 11,811
-------- -------- --------
Redeemable common stock..................................... 1,556 1,556 --
Shareholders' equity:
Convertible preferred stock:
Series A preferred stock, no par value; 112,635,168
shares authorized, actual, no shares authorized pro
forma and pro forma as adjusted; 112,635,168 shares
issued and outstanding, actual, no shares issued and
outstanding pro forma and pro forma as adjusted...... 10,759 -- --
Series B preferred stock, no par value; 41,814,000
shares authorized, actual, 2,700,696 shares
authorized pro forma, no shares authorized pro forma
as adjusted; 39,113,304 shares issued and
outstanding, actual, no shares issued and outstanding
pro forma and pro forma as adjusted(1)............... 34,834 -- --
Series C preferred stock, no par value; 34,601,616
shares authorized, actual, 2,260,416 shares
authorized pro forma, no shares authorized pro forma
as adjusted; 32,341,200 shares issued and
outstanding, actual, no shares issued and outstanding
pro forma and pro forma as adjusted(2)............... 72,776 -- --
Series D preferred stock, no par value; no shares
authorized, actual, 29,550,831 shares authorized, pro
forma, no shares authorized pro forma as adjusted; no
shares issued and outstanding, actual, pro forma and
pro forma as adjusted(3)............................. -- -- --
Preferred stock; no shares authorized, actual and pro
forma, 10,000,000 shares authorized pro forma as
adjusted; no shares issued and outstanding actual, pro
forma and pro forma as adjusted........................ -- -- --
Common stock; 450,000,000 shares authorized, actual and
pro forma, 800,000,000 shares authorized pro forma as
adjusted; 81,908,562 shares issued and outstanding,
actual, 287,668,839 shares issued and outstanding pro
forma, shares issued and outstanding pro
forma as adjusted(4)................................... 29,611 422,880
Additional paid-in capital................................ 3,829 3,829
Deferred compensation....................................... (23,790) (23,790)
Accumulated deficit......................................... (48,338) (48,338)
Accumulated other comprehensive income (loss)............... (55) (55)
-------- -------- --------
Total shareholders' equity........................ 79,626 354,526
-------- -------- --------
Total capitalization.............................. $ 95,130 $370,030 $
======== ======== ========
17
-------------------------
(1) Excludes warrants to purchase an aggregate of 2,397,804 shares of Series B
preferred stock at a weighted average exercise price of $0.91 per share.
(2) Excludes (a) options to purchase 430,416 shares of Series C preferred stock
at an exercise price of $2.32 per share as of March 31, 1999 and (b) a
warrant to purchase up to 1,800,000 shares of our Series C preferred stock
at an exercise price of $2.32 per share issued in June 1999.
(3) On July 19, 1999, we authorized 25,610,718 shares of Series D-1 preferred
stock and 25,610,718 shares of Series D-2 preferred stock. In July and
August 1999, we issued 21,670,605 shares of Series D-2 preferred stock. Each
of these shares will automatically convert into one share of common stock
immediately prior to the closing of this offering. No shares of Series D-1
preferred stock are issued and outstanding, actual, pro forma and pro forma
as adjusted.
(4) Excludes 50,150,910 shares of common stock reserved for issuance under our
stock option plan, of which 40,433,688 shares at a weighted average exercise
price of $0.27 per share were subject to outstanding options as of June 30,
1999.
18
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$352.8 million or $1.23 per share. Our pro forma net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities and divided by the total number of shares of common
stock outstanding after giving effect to the issuance of 21,670,605 shares of
Series D preferred stock in July and August 1999 and the automatic conversion of
all outstanding shares of our preferred stock. Dilution per share represents the
difference between the amount per share paid by investors of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering. After giving
effect to the sale of the shares of common stock offered by us at
an assumed initial public offering price of $ per share, and after
deducting the underwriting discount and estimated offering expenses payable by
us, our pro forma as adjusted net tangible book value at June 30, 1999 would
have been approximately $ million or $ per share of common
stock. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of
per share to new investors of common stock. The following table illustrates
this dilution on a per share basis:
[Download Table]
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $1.23
Increase per share attributable to new investors..........
-----
Pro forma as adjusted net tangible book value per share
after the offering........................................
-----
Dilution per share to new investors......................... $
=====
The following table summarizes on a pro forma as adjusted basis after
giving effect to the offering, as of June 30, 1999, the differences between the
existing stockholders and new investors with respect to the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid at an assumed initial public offering price of
$ per share, and after deducting the underwriting discount and estimated
offering expenses payable by us:
[Enlarge/Download Table]
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ------------ ------- ---------
Existing stockholders......... 287,668,839 % $426,268,000 % $1.48
New investors.................
----------- ----- ------------ -----
Totals........................ 100.0% 100.0%
=========== ===== ============ =====
In the preceding tables, the shares of common stock outstanding exclude:
- 50,150,910 shares of common stock reserved for issuance under our
stock option plans, of which 40,433,688 shares at a weighted average
exercise price of $0.27 were subject to outstanding options as of June
30, 1999, and
- 2,397,804 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.91 as of June 30,
1999.
To the extent outstanding options and warrants are exercised, there will be
further dilution to new investors.
19
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and the notes to those
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus. The consolidated
statement of operations data for the period from inception through December 31,
1997 and for the year ended December 31, 1998, and the consolidated balance
sheet data as of December 31, 1997 and 1998 are derived from, and are qualified
by reference to, the audited consolidated financial statements and the notes to
those statements included in this prospectus that have been audited by Deloitte
& Touche LLP. The consolidated statement of operations data for the six months
ended June 30, 1998 and 1999, and the consolidated balance sheet data at June
30, 1999 are derived from unaudited consolidated financial statements that
include, in the opinion of our management, all adjustments, consisting of only
normal, recurring adjustments, necessary for a fair presentation of the
information set forth therein. The consolidated results of operations for the
six months ended June 30, 1999 are not necessarily indicative of future results.
[Enlarge/Download Table]
PERIOD FROM
DECEMBER 17,
1996 SIX MONTHS
(INCEPTION) TO YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------
1997 1998 1998 1999
CONSOLIDATED STATEMENTS OF --------------- ------------ ----------- -----------
OPERATIONS DATA: (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Net sales....................................... $ -- $ -- $ -- $ 395
Cost of goods sold.............................. -- -- -- 419
----------- ----------- ----------- -----------
Gross profit (loss)........................... -- -- -- (24)
Operating expenses:
Software development.......................... 244 3,010 765 6,308
General and administrative.................... 2,612 8,825 2,739 23,656
Amortization of deferred stock compensation... -- 1,060 43 3,953
----------- ----------- ----------- -----------
Total operating expenses.................... 2,856 12,895 3,547 33,917
----------- ----------- ----------- -----------
Interest income................................. 85 923 285 1,641
Interest expense................................ 69 32 -- 1,194
----------- ----------- ----------- -----------
Net interest income........................... 16 891 285 447
----------- ----------- ----------- -----------
Net loss........................................ $ (2,840) $ (12,004) $ (3,262) $ (33,494)
=========== =========== =========== ===========
Basic and diluted net loss per share............ $ (0.08) $ (0.18) $ (0.05) $ (0.46)
=========== =========== =========== ===========
Shares used in calculating basic and diluted net
loss per share................................ 37,406,785 67,114,048 65,075,326 73,280,388
=========== =========== =========== ===========
OTHER OPERATING DATA:
Capital expenditures............................ $ 265 $ 32,669 $ 4,283 $ 25,948
Depreciation and amortization................... 57 1,323 93 6,626
The following table provides a consolidated summary of our balance sheet.
The Pro Forma column reflects the closing of the sale of 21,670,605 shares of
our Series D-2 preferred stock in July and August 1999 for approximately $275.0
million and the conversion of all outstanding shares of preferred stock into
common stock immediately prior to the closing of this offering. The Pro Forma As
Adjusted column reflects the Pro Forma adjustments as well as the issuance of
the common stock pursuant to this offering.
[Enlarge/Download Table]
DECEMBER 31, JUNE 30, 1999
---------------- ------------------------------------
PRO FORMA
1997 1998 ACTUAL PRO FORMA AS ADJUSTED
------ ------- -------- --------- -----------
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents................................. $2,935 $13,839 $ 21,836 $296,736
Working capital...................................... 7,693 10,923 31,773 306,673
Total assets......................................... 8,279 60,009 112,429 387,329
Long-term liabilities................................ 17 14,337 14,216 14,216
Total shareholder's equity........................... 7,972 33,612 79,626 354,526
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this prospectus
contains forward-looking statements that involve risks and uncertainties.
Webvan's actual results could differ materially from those discussed in this
prospectus. Factors that could cause or contribute to these differences include,
but are not limited to, the risks discussed in the section entitled "Risk
Factors" in this prospectus. See "Special Note Regarding Forward-Looking
Statements".
OVERVIEW
Webvan is an Internet retailer providing same-day delivery of consumer
products through an innovative proprietary business design which integrates our
Webstore, distribution center and delivery system. We provide our customers with
a personalized shopping experience which we believe is superior to traditional
retailers and current online retailers. Our current product offerings are
principally focused on food, non-prescription drug products and general
merchandise.
We were incorporated in December 1996, commenced our grocery delivery
service in May 1999 on a test basis to approximately 1,100 persons and
commercially launched our Webstore on June 2, 1999. For the period from
inception to June 1999, our primary activities consisted of raising capital,
recruiting and training employees, developing our business strategy, designing a
business system to implement our strategy, constructing and equipping our first
distribution center and developing relationships with vendors. Since launching
our service, we have continued these operating activities and have also focused
on building sales momentum, establishing additional vendor relationships,
promoting our brand name and enhancing our distribution, delivery and customer
service operations. Our cost of sales and operating expenses have increased
significantly since inception and are expected to continue to increase. This
trend reflects the costs associated with our formation as well as increased
efforts to promote the Webvan brand, build market awareness, attract new
customers, recruit personnel, build our operating systems and develop our
Webstore and associated systems that we use to process customers' orders and
payments.
Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. These
risks for Webvan include an unproven business system and our ability to
successfully manage our growth. To address these risks, we must develop and
increase our customer base, implement and successfully execute our business and
marketing strategy, continue to develop and enhance our Webstore, order
fulfillment, transaction processing and delivery systems, respond to competitive
developments and attract, retain and motivate quality personnel.
Since our inception, we have incurred significant losses, and as of June
30, 1999 we had an accumulated deficit of $48.3 million. Our initial
distribution center in Oakland, California is currently operating at
substantially less than capacity. We believe that our success will depend on our
ability to:
- substantially increase the number of subscribers to our service and the
number of orders placed by our customers;
- realize repeat orders from a significant number of customers;
- achieve favorable gross margins; and
- rapidly expand and build out distribution centers in new markets.
To meet these challenges, we intend to continue to invest heavily in
marketing and promotion, distribution facilities and equipment, technology and
personnel. As a result, we expect to incur substantial operating losses for the
foreseeable future and the rate at which such losses will be incurred may
increase significantly from current levels. See "Risk Factors -- We anticipate
future losses and negative cash flow". In addition, our limited operating
history makes the prediction of future results of operations difficult, and
accordingly, we cannot assure you that we will achieve or
21
sustain revenue growth or profitability. See "Risk Factors -- Our limited
operating history makes financial forecasting difficult".
In connection with the grant of certain stock options during 1998 and the
first six months of 1999, we recorded deferred compensation of $11.8 million and
$17.0 million and compensation expense of $1.1 million and $4.0 million,
respectively, representing the difference between the deemed fair value and the
option exercise price as determined by our Board of Directors on the date of
grant. In connection with the grant of certain options in July and August 1999,
we recorded additional deferred compensation of $41.4 million. The aggregate
deferred compensation of $70.3 million is being amortized over the four-year
vesting period of the underlying options and will result in compensation expense
of approximately $8.0 million in the quarter ended September 30, 1999.
In connection with the sale of 150,000 shares of common stock in July 1999
at a price of $3.33 per share, we will record expense based on changes in the
fair value of the stock using an option pricing model and such expense will be
charged as services are rendered to Webvan.
In connection with the warrant issued to Bechtel to purchase 1,800,000
shares of Series C preferred stock, the costs of services provided by Bechtel
will include recognition of the changes in the fair value of the warrant using
an option pricing model. These costs will be amortized over the estimated useful
lives of the facilities constructed by Bechtel.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1997 AND 1998
NET SALES
Net sales are comprised of the price of groceries and other products we
sell, net of returns and credits. We commenced our grocery delivery service in
May 1999 and commercially launched our Webstore in June 1999. We therefore did
not generate any net sales in 1997 or 1998. We recognize revenue at the time our
products are delivered to customers.
COST OF GOODS SOLD
Cost of goods sold includes the cost of the groceries and other products we
sell as well as payroll and related expenses for the preparation of our home
replacement meals. We did not have any cost of goods sold in 1997 or 1998.
OPERATING EXPENSES
SOFTWARE DEVELOPMENT. Software development expenses include the payroll and
related costs for the team of software developers directly involved in
programming our computer systems. Software development expenses increased to
$3.0 million in 1998 from $0.2 million for the period from inception through
1997. This increase was primarily attributable to increased staffing,
consultants and associated costs related to creating and enhancing the features
and functionality of our Webstore, and implementing our order fulfillment,
inventory, distribution, accounting and delivery systems used to process
customer orders. Certain costs have been capitalized in accordance with
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". We believe that continued investment in
software development is critical to attaining our strategic objectives and, as a
result, expect software development expenses to increase significantly in future
quarters.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
costs related to fulfillment and delivery of products, real estate, technology
operations, equipment leases, merchandising, finance, marketing, and
professional services. General and administrative expenses increased to $8.8
million in 1998 from $2.6 million for the period from inception through 1997.
The payroll expense for general and administrative functions increased by $3.2
million due to an increase in
22
headcount. Consulting and professional expenses increased by $0.8 million,
primarily related to marketing. In addition, rent and facility charges increased
by $1.1 million due to the addition of corporate office space and the
distribution center in Oakland, California. We expect general and administrative
expenses to increase as we expand our staff and incur additional costs to
support the expected growth of our business.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net consists of earnings on our cash and cash
equivalents and interest payments on our loan and lease agreements. Net interest
income increased to $891,000 in 1998 from $16,000 in the period from inception
through 1997. This increase was primarily attributable to earnings on higher
average cash and cash equivalent balances during 1998.
SIX MONTHS ENDED JUNE 30, 1998 AND 1999
NET SALES
We commenced our grocery delivery service in May 1999 on a test basis to
approximately 1,100 customers and commercially launched our Webstore in June
1999. We did not have any net sales in the six months ended June 30, 1998. We
had net sales of $395,000 in the six months ended June 30, 1999.
COST OF GOODS SOLD
We did not have any cost of goods sold in the six months ended June 30,
1998. Our cost of goods sold was $419,000 in the six months ended June 30, 1999.
OPERATING EXPENSES
SOFTWARE DEVELOPMENT. Software development expenses increased to $6.3
million in the six months ended June 30, 1999 from $0.8 million in the six
months ended June 30, 1998. This increase was primarily attributable to $1.9
million for increased staffing and $3.4 million for consultants related to
enhancing the features, content and functionality of our Webstore and increasing
the capacity of our order processing, distribution center and delivery systems.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $23.7 million for the six months ended June 30, 1999 from $2.7 million for
the six months ended June 30, 1998. General and administrative expenses
pertaining to our distribution center in the six months ended June 30, 1999
totalled $9.9 million, as compared to zero in the six months ended June 30,
1998. Payroll and related expenses increased by $6.6 million due to increased
staffing at headquarters. Consulting and professional fees related to logistical
and marketing development increased by $1.3 million. Rent and facility charges
increased by $0.8 million due to additional corporate office space.
INTEREST INCOME (EXPENSE) NET
Net interest income increased to $447,000 in the six months ended June 30,
1999 from $285,000 in the six months ended June 30, 1998 primarily due to
earnings on higher average cash and cash equivalent balances.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of preferred stock which through June 30, 1999 totaled $118.3 million (net
of issuance costs). Net cash used in operating activities was $22.6 million in
the six months ended June 30, 1999, $2.2 million in the year ended December 31,
1998, and $2.4 million in the period from inception through 1997. Net cash used
23
in operating activities for each of these periods primarily consisted of net
losses as well as increases in prepaid expenses, partially offset by increases
in accounts payable, accrued liabilities and depreciation and amortization. The
significant increase in working capital during 1998 was primarily due to
proceeds from the sale of our preferred stock. Net cash used in investing
activities was $42.7 million in the six months ended June 30, 1999, $39.0
million in the year ended December 31, 1998, and $5.3 million in the period from
inception through December 31, 1997. Net cash used in investing activities for
each of these periods primarily consisted of leasehold improvements and
purchases of equipment and systems, including computer equipment and fixtures
and furniture. Net cash provided by financing activities was $73.3 million in
the six months ended June 30, 1999, $52.1 million in the year ended December 31,
1998, and $10.7 million in the period from inception through 1997. Net cash
provided by financing activities during the six months ended June 30, 1999 and
the year ended December 31, 1998 primarily consisted of proceeds from the
issuance of preferred stock of $72.8 million and $34.8 million, respectively. As
of June 30, 1999, we had $21.8 million of cash and equivalents.
In July 1999, we entered into a preferred stock purchase agreement whereby
we sold an aggregate of 21,670,605 shares of our Series D-2 preferred stock to
investors at a price of $12.69 per share for an aggregate purchase price of
approximately $275.0 million.
As of June 30, 1999, our principal commitments consisted of obligations of
approximately $18.2 million outstanding under capital leases and loans. As of
June 30, 1999, we had capital commitments of approximately $20.0 million
principally related to the construction of and equipment for our Atlanta,
Georgia distribution center. We anticipate capital expenditures of up to $150
million for the 12 months ending June 30, 2000. We anticipate a substantial
increase in our capital expenditures and lease commitments to support our
anticipated growth in operations, systems and personnel. The launch of each
distribution center will require us to commit to additional lease obligations
and to purchase equipment and install leasehold improvements.
In July 1999, we entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over the next three
years. Although the Company has no specific capital commitment under this
agreement, our expenditures under the contract are estimated to be approximately
$1.0 billion.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through the next 12 months. Our future
capital needs will be highly dependent on the number of additional distribution
centers we open, the timing of these openings and the success of these
facilities once they are launched. Thus, any projections of future cash needs
and cash flows are subject to substantial uncertainty. If cash generated from
operations is insufficient to satisfy our liquidity requirements, we may seek to
sell additional equity or debt securities, obtain a line of credit or curtail
our expansion plans. However, the terms of our guaranty of our subsidiary's
credit facility contain restrictions on our ability to incur debt or issue
certain types of equity securities. In addition, if we issue additional
securities to raise funds, those securities may have rights, preferences or
privileges senior to those of the rights of our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year 2000
phenomenon. For example, we are dependent on the financial institutions involved
in processing our customers' credit card payments for
24
Internet services and a third party that hosts our servers. We are also
dependent on telecommunications vendors to maintain our communications network
and suppliers to deliver products to us.
Since inception, we have internally developed substantially all of the
systems for the operation of our web site. These systems include the software
used to provide our Webstore's search, customer interaction, and
transaction-processing and distribution functions, as well as monitoring and
back-up capabilities. Based upon our assessment to date, we believe that our
internally developed proprietary software is year 2000 compliant, but we cannot
assure you that unanticipated year 2000 problems will not occur.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services, which include
software for use in our accounting, database and security systems. The failure
of such software or systems to be year 2000 compliant could have a material
negative impact on our corporate accounting functions and the operation of our
web site and distribution system. As part of the assessment of the year 2000
compliance of these systems, we have sought assurances from these vendors that
their software, computer technology and other services are year 2000 compliant.
To date, the amounts we have spent in connection with our year 2000 assessment
have been immaterial. Based upon the results of this assessment, we will develop
and implement, if necessary, a remediation plan with respect to third-party
software, third-party vendors and computer technology and services that may fail
to be year 2000 compliant. We expect to complete any required remediation during
the third quarter of 1999. At this time, the expenses associated with this
assessment and potential remediation plan that may be incurred in the future
cannot be determined; therefore, we have not developed a budget for these
expenses.
The failure of our software and computer systems and of our third-party
suppliers to be year 2000 compliant would have a material adverse effect on us.
The year 2000 readiness of the general system necessary to support our
operations is difficult to assess. For instance, we depend on the integrity and
stability of the Internet to provide our services. We also depend on the year
2000 compliance of the computer systems and financial services used by
consumers. Thus, the system necessary to support our operations consists of a
network of computers and telecommunications systems located throughout the world
and operated by numerous unrelated entities and individuals, none of which has
the ability to control or manage the potential year 2000 issues that may impact
the entire system. Our ability to assess the reliability of this system is
limited and relies solely on generally available news reports, surveys and
comparable industry data. Based on these sources, we believe most entities and
individuals that rely significantly on the Internet are reviewing and attempting
to remediate issues relating to year 2000 compliance, but it is not possible to
predict whether these efforts will be successful in reducing or eliminating the
potential negative impact of year 2000 issues.
A significant disruption in the ability of consumers to reliably access the
Internet or portions of it or to use their credit cards would have an adverse
effect on demand for our services and would have a material adverse effect on
us. At this time, we have not yet developed a contingency plan to address
situations that may result if we or our vendors are unable to achieve year 2000
compliance plan because we currently do not believe that such a plan is
necessary. The cost of developing and implementing such a plan, if necessary,
could be material. Any failure of our material systems, our vendors' material
systems or the Internet to be year 2000 compliant could have material adverse
consequences for us. These consequences could include difficulties in operating
our web site effectively, taking customer orders, making deliveries or
conducting other fundamental parts of our business.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedging accounting when
certain conditions are met. Webvan will adopt this statement
25
for its fiscal year ending December 31, 2001. Management has not fully assessed
the implications of adopting this new standard.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Webvan maintains a short-term investment portfolio primarily consisting of
corporate debt securities with maturities of thirteen months or less. These
available-for-sale securities are subject to interest rate risk and will rise
and fall in value if market interest rates change. The extent of this risk is
not quantifiable or predictable due to the variability of future interest rates.
Webvan does not expect any material loss with respect to its investment
portfolio.
Webvan's restricted cash balance is invested in certificates of deposit.
Accordingly, changes in market interest rates have no material effect on
Webvan's operating results, financial condition and cash flows. There is
inherent roll over risk on these certificates of deposit as they mature and are
renewed at current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.
The following table provides information about Webvan's investment
portfolio and restricted cash as of June 30, 1999, and presents principal cash
flows and related weighted averages interest rates by expected maturity dates.
[Download Table]
YEAR OF MATURITY
-----------------------
1999 2000
---------- ---------
(DOLLARS IN THOUSANDS)
Cash and Equivalents.................................... $21,836 --
Average interest rate................................. 4.95% --
Corporate Debt Securities............................... $14,289 $7,942
Average interest rate................................. 4.81% 5.29%
Certificates of Deposits................................ $ 3,453 --
Average interest rate................................. 4.52% --
26
BUSINESS
OVERVIEW
Webvan is an Internet retailer providing same-day delivery of consumer
products through an innovative proprietary business design that integrates our
Webstore, distribution center and delivery system. We provide our customers with
a personalized shopping experience that we believe is superior to traditional
retailers and current online retailers. Our current product offerings are
principally focused on food, non-prescription drug products and general
merchandise.
The Webvan shopping experience provides customers with:
- the convenience of same-day direct home delivery within a
customer-selected 30-minute window;
- a broad selection of high quality fresh foods including produce, hand-cut
meats, fresh fish and live lobsters, as well as non-perishable grocery
items, chef-prepared meals, fine wines, premium quality cigars and
non-prescription drug products;
- prices that are generally at or below everyday supermarket prices;
- reliable and friendly delivery service by Webvan employees, free of
charge for orders over $50; and
- an easy to navigate Webstore offering user-friendly features including
the ability to create personalized shopping lists.
Our interactive Webstore and highly automated distribution center were
designed to provide high degrees of scalability and efficiency, enabling us to
operate with much lower overhead and reduced headcount compared to traditional
supermarkets. Our initial distribution center which serves the San Francisco Bay
Area was designed to process product volumes equivalent to approximately 18
supermarkets with substantially lower labor and real estate costs than those
stores would typically require.
Our proprietary distribution system and enabling software were designed to
optimize our inbound and outbound fulfillment operations and were created to be
readily replicated to facilitate our expansion into multiple geographic markets.
Following our commercial launch of operations in the San Francisco Bay Area in
June 1999, we plan to open a second distribution center in Atlanta, Georgia in
the second quarter of 2000 and to further expand with distribution centers in
other key geographic markets.
We believe that our innovative business design is the first solution to
adequately address the "last mile" problem of e-commerce fulfillment by
providing a highly efficient means of delivering goods directly and rapidly to
consumers. We also believe that the significant capital investment in our
business system provides us with a competitive advantage compared to traditional
supermarkets and other online grocers.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND E-COMMERCE
The rapid growth of the Internet and e-commerce is revolutionizing the way
in which businesses and consumers communicate, share information and conduct
business. International Data Corporation estimates that there were 63 million
web users in the United States at the end of 1998 and anticipates this number
will grow to approximately 177 million users by the end of 2003. This growth in
Internet usage is being fueled by a number of factors, including:
- a large and growing installed base of personal computers in the workplace
and at home;
- advances in the performance and speed of personal computers and modems;
27
- improvements in network security, system and bandwidth;
- faster, easier and cheaper access to the Internet;
- proliferation of content and services being provided on the Internet; and
- consumers' growing level of comfort and experience with e-commerce.
The unique characteristics of the Internet create a number of advantages
for online retailers and have dramatically affected the manner in which
companies distribute goods and services. Specifically, online retailers use the
Internet to:
- provide consumers with a broad selection of products and services,
increased information and enhanced convenience;
- operate with reduced overhead costs and greater economies of scale;
- frequently adjust featured selections, editorial content and pricing,
providing significant merchandising flexibility;
- "display" a larger number of products than traditional retailers at lower
cost; and
- obtain demographic and behavioral data about customers, increasing
opportunities for direct marketing and personalized services.
The Internet provides a powerful and convenient means for consumers to
order products and services. As a result of the increased use of the Internet
and the benefits of online retailing, consumer spending on the Internet is
growing rapidly. International Data Corporation estimates that consumer
purchases of goods and services over the Internet in the U.S. will increase from
$12.4 billion in 1998 to $75.0 billion in 2002. In addition, Forrester Research
estimates that online grocery spending in the U.S. will grow from $235 million
in 1998 to $10.8 billion by 2003 which will represent only 2% of the total
market for grocery products in 2003.
TRADITIONAL GROCERY RETAILING
The U.S. grocery market is large, with retail supermarket sales equal to
approximately $449 billion in 1998, according to Progressive Grocer. In
addition, the market for prepared meals or "home meal replacements" is growing
rapidly and, according to ACNielsen, comprises an incremental $100 billion
segment of the food industry.
Many consumers find supermarket shopping to be a time-consuming and
inconvenient experience. FMI has estimated that the average household made two
trips to the supermarket per week and spent approximately $86 on groceries per
week in 1998. Traditional store-based supermarkets face many challenges in
providing a satisfying shopping experience for consumers. Physical space
availability in stores limits the number of products supermarkets can offer and
reduces merchandising flexibility. This forces traditional store-based
supermarkets to limit their product selection to the most popular products,
further impairing customer selection. Traditional grocery retailers also face
significant costs associated with building and operating large brick and mortar
stores, including costs associated with personnel, real estate, construction,
store set-up, inventory and fixed assets. The challenges facing these
traditional retailers have created an opportunity for online grocery retailers
to provide a more compelling and cost-effective solution.
The Internet provides a medium that could significantly improve the
consumer grocery shopping experience. The Internet provides 24-hour shopping
convenience and the ability to monitor order and information accuracy, and
eliminates the need to wait in line. With an efficient business model, online
retailers will also be able to reduce labor, real estate and other operating
costs.
28
ONLINE GROCERY RETAILING
Attempting to capitalize on the benefits of the Internet, several
companies, including NetGrocer and Peapod, have begun offering a variety of
grocery products online. Many of these services charge membership, delivery or
service fees and often offer many of their goods at prices higher than those of
traditional supermarkets. In addition, many of these online grocery efforts only
offer a limited selection of products, do not offer frozen foods or perishables
and do not stock a wide range of high-end items such as wine, prepared meals and
specialty products. These online grocers generally do not offer same-day
delivery and guarantee delivery within narrow time parameters. Many of these
early online grocers currently lack a highly automated and scalable distribution
and delivery model which would enable rapid and efficient expansion on a
national level. As a result, these companies rely on manual systems to fill the
orders they receive over the Internet and rely on third parties to deliver
orders to their customers.
Consumers are increasingly seeking a grocery shopping solution which will
allow them to save time and effort without sacrificing the wide selection, high
quality and low cost they have come to expect from traditional supermarkets. We
believe that online grocers lack a scalable distribution system and a business
model that optimizes cost efficiencies, which has made it difficult for them to
deliver a high quality, low cost shopping solution in an efficient manner.
THE WEBVAN SOLUTION
We provide a unique online shopping experience by offering customers a
broad selection of high-quality, competitively priced grocery and related
product offerings delivered directly and conveniently to their homes. Our
Webstore is designed to create a user-friendly, informative and personalized
shopping experience for customers while providing them with the time savings and
convenience of shopping online. We believe that our innovative business design
is the first solution to adequately address the "last mile" problem of
e-commerce fulfillment because our model enables us to efficiently fill a high
volume of orders and deliver products to our customers on the same day. We also
believe that our significant capital investment in our direct-to-the-home
delivery system provides us with a competitive advantage compared to traditional
supermarkets and other online grocers. Our delivery channel also enables us to
create brand awareness and customer loyalty that we believe will help to
strengthen our market position.
Our solution provides customers with the following key benefits:
- prices that are generally at or below everyday supermarket prices;
- a broad selection of high quality products;
- no membership or service fees and no delivery fees for orders over $50;
and
- same-day home delivery within a customer-selected 30-minute window.
The principal components of our solution include our:
BROAD SELECTION OF HIGH QUALITY PRODUCTS AT COMPETITIVE PRICES. Our
scalable Webstore and distribution system are designed to enable us to offer
over 50,000 different items to our customers. As of June 30, 1999, we were
offering consumers a broad selection of over 15,000 grocery and specialty items
including:
- farm fresh produce;
- premium meats hand cut in our butcher shop;
- fresh fish and other seafood including live lobsters;
- a variety of chef-prepared meals;
- bakery items including specialty breads, bagels and pastries;
29
- non-perishable grocery items typically found in large supermarkets;
- non-prescription drug products and health and beauty items;
- specialty items including fine wines and premium quality cigars; and
- general merchandise such as office products and small appliances.
INTERACTIVE AND PERSONALIZED WEBSTORE. Our Webstore is an easy-to-use
online alternative to the traditional supermarket providing customers with
significant time savings and convenience. The Webstore is organized to provide
detailed product and nutritional information as well as interesting generalized
content. We believe our Webstore promotes customer loyalty by making the grocery
shopping experience easier for the consumer. Through our Webstore, consumers can
personalize their shopping experience by creating their own shopping lists and
by spending as much or as little time browsing and selecting products as is
appropriate for their specific needs. Customers may shop for products by:
- browsing clearly organized categories such as Produce, Meat and Seafood,
Prepared Food or Health and Beauty;
- going directly to a specific product by using our keyword search
technology; or
- accessing one of their personal shopping lists for immediate purchase or
editing.
Our Webstore utilizes a proprietary logistics technology to offer a
delivery window to the customer. A point-and-click time schedule will indicate
to the customer the 30-minute delivery slots which are currently available in
their specific location, based on the time of day, location and items purchased.
For example, a customer could shop at the Webstore at any time before 10:00 a.m.
and select a specified 4:30 p.m. -- 5:00 p.m. same-day delivery window.
HIGHLY AUTOMATED DISTRIBUTION CENTER. Our technologically advanced
distribution center is highly automated and is designed to provide economies of
scale and create significant cost savings compared to traditional supermarkets
and existing online grocers. Our distribution center is designed to process
product volumes equivalent to approximately 18 supermarkets and allow for a
highly flexible inventory selection of over 50,000 SKUs. The distribution center
is designed to fill customer orders using proprietary software and labor-saving
automation technology such as carousels and conveyors which bring individual
products directly to the worker, compared to traditional warehouse designs which
require the worker to move throughout rows of products to fill individual
orders. Our first distribution center is located in Oakland, California and
serves the San Francisco Bay Area. We plan to open a second distribution center
in Atlanta, Georgia in the second quarter of 2000 and to further expand with
distribution centers in other key geographic markets.
Our distribution center is designed to accommodate both a wide product
selection as well the finest in product quality. The design allows for
appropriate storage temperatures for individual product categories including
produce, meats and frozen foods and enables us to offer specialty products such
as premium wines and cigars. In addition to product storage, our distribution
center is designed with food preparation facilities which allow us to offer
chef-prepared meals, individually cut meats and fish and made-to-order fruit
baskets.
We have designed our initial distribution center in Oakland, California to
be a prototype that we can readily replicate in other locations. In July 1999,
we entered into an agreement with Bechtel Corporation for the construction of up
to 26 additional distribution centers for us on a turnkey basis over the next
three years.
EFFICIENT DELIVERY PROCESS. To facilitate rapid and predictable product
delivery to the customer's home, we utilize a hub-and-spoke fulfillment model
that is designed to minimize product and order handling. Customer orders are
packaged in individual plastic containers or "totes" at the distribution center
and are transferred by temperature-controlled trucks from the distribution
center to local stations. At the local stations, the totes are transferred to
smaller temperature-controlled vans for
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delivery to the home. Each distribution center will supply shipments to up to
10 - 12 stations, varying by market, which will be strategically positioned
throughout a particular delivery region within an approximate 50 mile radius of
each distribution center. Our hub-and-spoke model, centralized order fulfillment
and decentralized delivery, combined with our proprietary route and load
planning technology allows for a highly efficient, low cost fulfillment
solution.
SUPERIOR CUSTOMER SERVICE. Our home delivery model also provides us with an
important opportunity to interact with our customers. Because of the high
frequency of grocery purchases, our couriers will be able to help continually
reinforce our brand with the customer. Our couriers are valued employees and are
incentivized with competitive salaries and stock options. Our couriers have also
been trained to answer questions about the service and handle routine service
issues directly and promptly at the customer residence. Each courier
communicates with the route planning and delivery scheduling systems throughout
the delivery process through the use of a wireless mobile field device. If the
customer is not satisfied with the products received, the courier is able to
initiate a transaction to replace items or credit the customer's bill. We
believe this approach helps develop couriers who are highly focused on customer
service and on creating long-term consumer relationships.
STRATEGY
Our objective is to be the leading online retailer providing same-day
delivery of consumer products. Our current product offerings are principally
focused on food, non-prescription drug products and general merchandise. The key
elements of our strategy are as follows:
BUILD BRAND AWARENESS AND MARKET SHARE. We intend to establish Webvan as
the leading brand for buying groceries and consumer goods over the Internet for
home delivery. Through our public relations programs, advertising campaigns,
promotional activities and media partnerships, we plan to generate brand
awareness and drive customer trials of our services. Our efforts will focus on
building credibility with customers and achieving market acceptance for our
services. We will pursue online and traditional media marketing strategies on a
regional basis to achieve these results.
DELIVER SUPERIOR CUSTOMER SERVICE AND OPERATING PERFORMANCE. We intend to
offer our customers a compelling shopping experience by delivering orders on an
accurate, timely and reliable basis. We will strive to continuously improve our
delivery and service performance to enhance the customer experience. We are
focused on building strong, lasting customer relationships which will drive
repeat purchases and higher average order sizes. By interacting directly with
customers on a regular basis and providing high quality service, we believe we
will promote customer loyalty and establish Webvan as the leading online
retailer and distribution company providing same-day delivery direct to the
customer.
LEVERAGE EFFICIENT AND SCALABLE BUSINESS DESIGN. We have designed a
proprietary business system which integrates our interactive Webstore,
distribution center and delivery system. This design addresses the "last mile"
problem in Internet commerce by providing a highly efficient means of delivering
goods directly to the homes of consumers on the same day that an online order is
placed. Our software, automated distribution center and hub and spoke delivery
system were designed to accommodate a high volume of orders and to enable us to
offer over 50,000 different items to our customers. We believe that our scalable
and highly automated order fulfillment systems provide us with an advantage
compared to our online competitors which generally rely on manual order
fulfillment systems.
REPLICATE DISTRIBUTION CENTER AND DELIVERY SYSTEM IN ADDITIONAL GEOGRAPHIC
MARKETS. We believe that our compelling product and service offerings combined
with the broad scope of the Internet present opportunities to expand to
additional locations in major cities in the U.S. Our distribution center and
delivery system are designed to be readily replicated and we plan to pursue an
aggressive expansion strategy by opening additional distribution centers in key
geographic markets beginning in the second quarter of 2000. In July 1999, we
entered into an agreement with Bechtel Corporation for the construction of up to
26 additional distribution centers on a turnkey basis over the
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next three years. We believe that our alliance with Bechtel will enable us to
more aggressively roll out distribution centers in other markets by utilizing
Bechtel's engineering, design, procurement and construction expertise.
LEVERAGE DISTRIBUTION SYSTEM TO ENTER ADDITIONAL PRODUCT CATEGORIES. We
intend to use our distribution system to sell products in other product
categories to achieve additional revenue opportunities and favorable gross
margins. While our initial product focus is on groceries, non-prescription drugs
and general merchandise, we plan to pursue new product category opportunities
through a combination of internal growth, partnerships, strategic alliances and
acquisitions. We believe that our same-day distribution system can position us
as a preferred online provider for many consumer products that can be delivered
to the home.
THE WEBVAN WEBSTORE
Our Webstore is a user-friendly, informative and personalized web site
which enables users to quickly and easily navigate and purchase from a wide
selection of items. The Webstore makes the shopping experience easy for the
customer by offering them multiple methods for shopping the site. The store
directory is divided into eleven intuitively organized categories and allows the
customer to quickly and efficiently find items. Once customers find the item
they want, they may add it to the shopping cart or may save it to a shopping
list. The shopping cart is always visible on the screen and instantly updates
and calculates the order total while the customer shops. Our Webstore promotes
brand loyalty and repeat purchases by providing a convenient, easy-to-use
experience that encourages customers to return frequently.
HOME PAGE. Our home page serves as the entry point and gives visitors a
glimpse of the wide selection available on the site. On our home page, customers
find weekly specials on brand name products, a clearly defined directory
structure and links that showcase specific products and areas of the site.
BROWSING. Our Webstore displays a store directory which allows visitors to
browse through all the categories of products Webvan offers. The categories are
intuitively organized by type of product and enable the user to drill down from
general to more specific categories, such as moving from produce to fruits to
bananas. The browsing tool also enables customers to see all products in a
particular category before making a selection, similar to scanning the shelves
of a neighborhood store. In addition, each item on the site has an image and
nutritional information attached to it, which further enhances the user
experience.
SEARCHING. Our Webstore contains an interactive, searchable database of
over 15,000 SKUs. The customer can search based on product type, brand name or
category. The search results page displays each relevant item, along with the
product category and subcategories.
CONTENT AND FEATURES. Webvan offers an array of content on the site to
enhance the user experience and encourage visitors to try new items. Our weekly
electronic magazine, Sensations, features special recipes, cooking tips,
features authored by food and health experts, and the opportunity to interact
with culinary professionals. As we accumulate data, our Webstore can be
personalized to appeal to individual customer preferences and buying habits.
PERSONALIZATION AND LISTS. Our Webstore enables a customer to personalize
their shopping experience. The site's shopping list feature allows customers to
create and retain personal shopping lists in their profiles. Multiple lists can
be saved for weekly shopping, specific events or special occasions. Once a list
has been created and saved, it can be retrieved and modified at any time,
enabling customers to shop and check out in a few minutes. We believe that the
personalization of a customer's shopping experience is an important element of
our value proposition and we intend to continue to enhance our personalization
services.
DELIVERY SCHEDULING. Customers schedule their delivery by selecting a time
from a grid of 30-minute alternatives. Our real-time inventory tracking and
delivery route software systems are designed
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to help ensure that the groceries a customer orders will be available so that
they can be delivered at the delivery time window selected by the customer.
Using this system, the customer is able to select and schedule a delivery to
occur within an available specific 30-minute window, on the same day or up to
four days after the order is placed.
TECHNOLOGY
We have developed a technologically advanced systems platform, which
integrates our entire business process from end to end. We have built an array
of proprietary advanced inventory management, warehouse management, route
management and materials handling systems and software to manage the entire
customer ordering and delivery flow process. Our proprietary automated materials
handling controller provides real-time connectivity with the Webstore and
warehouse management system and issues instructions to the various mechanized
areas of the distribution center to ensure the proper fulfillment of orders. We
designed the system to utilize automated conveyors and carousels to transport
items to a few centrally located employees. As a result, the system is highly
scalable and allows us to increase volume without a proportionate increase in
human resources.
Once a delivery is scheduled, a route planning feature of the system
determines the most efficient route to deliver goods to the customer's home. The
courier communicates with the route planner and delivery scheduler modules
throughout the delivery process through the use of a wireless mobile field
device. Each aspect of this process is tightly integrated and enables us to
provide high quality service to our customers.
We outsource most of our network operations functions and employ our own
customer services personnel. The continued uninterrupted operation of our
Webstore and transaction-processing systems is essential to our business, and it
is the job of the site operations staff to ensure, to the greatest extent
possible, the reliability of our Webstore and transaction-processing systems.
Webvan's web and database servers are hosted at Exodus Communications, Inc. in
Santa Clara, California.
DISTRIBUTION CENTER ROLL OUT
We currently operate a 336,000 square foot distribution center facility in
Oakland, California. The distribution center was designed to process product
volumes equivalent to approximately 18 supermarkets and is the regional hub for
the receipt and distribution of products and allows for efficient sorting and
distribution of products. The distribution center is a clean, climate controlled
facility segmented into separate ambient, refrigerated and frozen areas that
store grocery items at optimal temperatures. Identical software systems will be
implemented at each distribution center, enabling the easy replication of the
distribution center model across multiple locations and allowing for central
management of the entire system.
We intend to pursue a roll out of distribution centers into various
locations in the U.S. to capitalize on what we view as a substantial market
opportunity. Our first facility in Oakland, California was commercially launched
in June 1999 and our second distribution center, located in Atlanta, Georgia, is
scheduled to be launched in the second quarter of 2000. We plan to open
additional distribution centers in major metropolitan markets. We plan to locate
our distribution centers in industrially zoned areas, which generally have lower
real estate costs than traditional supermarkets located in commercial areas.
In July 1999, we entered into an agreement with Bechtel Corporation for the
construction of up to 26 additional distribution centers over the next three
years in various locations that we designate. We believe that our alliance with
Bechtel will enable us to more aggressively roll out distribution centers in
other markets by utilizing their engineering, design, procurement and
construction expertise. Bechtel will be responsible for substantially all
aspects of the build-out program and will deliver completed distribution centers
to Webvan on a turnkey basis. Bechtel will also leverage its strengths in
engineering management to incorporate improvements to the design of our
distribution centers.
33
Bechtel will perform such services within schedule and budgetary parameters
determined by Webvan, and will be eligible to receive incentive payments to the
extent distribution centers are completed within the preestablished parameters.
We also issued Bechtel a warrant to purchase up to 1,800,000 shares of our
stock. The warrant generally becomes exercisable for a certain number of shares
as distribution centers are completed within agreed upon schedule and budgetary
parameters.
DELIVERY OPERATIONS
The distribution center will serve as the center of our hub and spoke
delivery system. Orders are collected from the Webstore, routed and managed by
the distribution center, transferred to stations and delivered from the stations
to customers' homes. This model enables us to efficiently and cost effectively
deliver consumer goods to the home by combining centralized order fulfillment
with decentralized delivery. We use temperature-controlled trucks to deliver
from the distribution center to the station and smaller vans to deliver from the
station to the home. The stations are strategically positioned throughout a
delivery region within approximately 50 miles of a distribution center and
typically within approximately 10 miles of target customer residences. We
deliver to the customer's door in a smaller van complete with refrigeration
equipment to keep chilled and frozen items at temperatures that insure their
quality and freshness. Each customers' order is delivered in
environmentally-friendly reusable containers, called totes.
All of our couriers are Webvan employees. We utilize strict hiring
standards in choosing couriers and require each new employee to complete an
intensive training program. The courier training lasts three weeks and includes
32 hours of classroom training, 24 hours of driving training and 16 hours of on
the job training. Couriers are trained in responsible driving practices,
courtesy and the proper handling of totes and products. Our couriers receive a
competitive compensation package, including cash and stock options, and are
incentivized to reinforce our brand and help to create a lasting one-to-one
relationship with our customers. In addition, couriers have been trained to
answer questions about the service and handle service issues directly and
promptly at the customer residence. If the customer is not satisfied with the
products received, the courier is able to initiate a transaction to replace
items or credit the customer's bill.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers and to encourage repeat visits and purchases
depends on the strength of our customer support and service operations and
staff. We seek to achieve frequent communication with and feedback from our
customers to continually improve the Webvan service. Webvan offers a number of
automated help options on the website and an easy-to-use direct email service to
enable customers to ask questions and to encourage feedback and suggestions. We
plan to respond to customer email inquiries within 12 hours of the submission
and allow for a maximum response time of 24 hours. Our team of customer support
and service personnel are responsible for handling general customer inquiries,
answering customer questions about the ordering process, and investigating the
status of orders, deliveries and payments. Users can contact customer service
representatives via our toll free telephone number to ask questions or pay bills
if customers are reluctant to enter their credit card number over the Internet.
Our automated customer service function distributes emails to customers after
registration and after each order is placed. We plan to enhance the automation
of the tools used by our customer support and service staff in the future.
MARKETING AND PROMOTION
Our marketing and promotion program is designed to strengthen the Webvan
brand name, drive trials of our service in our target markets, build strong
customer loyalty and maximize repeat usage and purchases. We intend to build our
brand name and customer loyalty through our public relations programs,
advertising campaigns and promotional activities. Our efforts will focus on
building credibility with customers and achieving market acceptance for our
services. We expect to advertise
34
locally in our initial launch markets and plan to tailor our advertising to each
specific market. In addition, we plan to leverage our relationships with our
media investors, including CBS and Knight-Ridder, for television, online and
print advertising opportunities.
In the future, Webvan expects to be able to provide increasingly targeted
and customized services by using the customer purchasing, preference and
behavioral data obtained through the traffic and purchases generated at the
Webstore. We also build brand loyalty though personalized interaction with
customers through prompt, professional delivery persons and through use of
Webvan delivery vehicles. By offering customers a compelling and personalized
value proposition, our goal is to increase the number of visitors that make a
purchase, to encourage repeat visits and purchases and to extend customer
retention. In addition, loyal, satisfied customers generate strong word-of-mouth
support and awareness which drive new customer acquisitions and increased order
volumes.
MERCHANTS AND VENDORS
Webvan sources products from a network of food and drug manufacturers,
wholesalers and distributors. We currently rely on rapid fulfillment from
national and regional distributors for a substantial portion of our items. We
purchase certain top brands and high volume items directly from manufacturers
and may increase our use of direct suppliers as our product volumes increase
with additional distribution centers. We also utilize premium specialty
suppliers or local sources for gourmet foods, farm fresh produce, fresh fish and
meats. Because we cover a broad area and service high volumes from a single
point of distribution, we offer our suppliers a very efficient product supply
model which is reflected in the discounts and pricing we receive. When we select
a new product for purchase, it is entered into the inventory management system
and our Webstore. We employ advanced replenishment and expiration date controls
to manage our inventory and maintain product freshness. As of June 30, 1999, we
were purchasing products from 10 distributors and directly from over 160
vendors.
COMPETITION
The grocery retailing market is extremely competitive. Local, regional, and
national food chains, independent food stores and markets, as well as online
grocery retailers comprise our principal competition, although we also face
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters, and drugstore chains. Many
of our existing and potential competitors, particularly traditional grocers and
retailers, are larger and have substantially greater resources than we do. We
expect this competition will intensify as more traditional and online grocery
retailers offer competitive services.
Our initial distribution center in Oakland, California, operates in the San
Francisco Bay Area market. In this market, we compete primarily with traditional
grocery retailers and with online grocers NetGrocer and Peapod. The number and
nature of competitors and the amount of competition we will experience will vary
by market area. In other markets, we expect to compete with current online
offerings from these companies and others. Many of these services charge
membership, delivery or service fees, and often offer their goods at a premium
to traditional supermarkets. In addition, most competing online retailers use
manual shopping and retrieval systems which lack the capability to process a
large number of orders for a large number of customers in a cost efficient
manner.
The principal competitive factors that affect our business are location,
breadth of product selection, quality, service, price and consumer loyalty to
traditional and online grocery retailers. We believe that we compete favorably
with respect to each of these factors although many traditional grocery
retailers may have substantially greater levels of consumer loyalty and serve
many more locations than we currently do. If we fail to effectively compete in
any one of these areas, we may lose existing and potential customers which would
have a material adverse effect on our business, financial condition and results
of operations.
35
We also compete to retain customers once they have registered for Webvan's
services. Generally, online subscriber attrition rates, or the rates at which
subscribers cancel an online service, are high. High rates of member attrition
could have a material adverse effect on our business, financial condition and
results of operations.
GOVERNMENT REGULATION
In addition to regulations applicable to businesses generally or directly
applicable to electronic commerce, we are subject to a variety of regulations
concerning the handling, sale and delivery of food, alcohol and tobacco
products. It is uncertain whether the handling of certain food items in our
distribution facility, such as meat and fish, will subject us to regulation by
the United States Department of Agriculture. Although we have designed our food
handling operations to comply with USDA regulations, we cannot assure you that
the USDA will not require changes to our food handling operations. In addition,
we are subject to state and local regulations applicable to food, alcohol and
tobacco products. We will be required to obtain state licenses and permits for
the sale of alcohol and tobacco products in each location in which we seek to
open a distribution center. We cannot assure you that we will be able to obtain
any required permits or licenses in a timely manner, or at all. In addition, the
United States Congress is considering enacting legislation which would restrict
the interstate sale of alcoholic beverages over the Internet. We will also be
required to comply with local health regulations concerning the preparation and
packaging of our prepared meals and other food items. Any applicable federal,
state or local regulations or required permits or licenses may cause us to incur
substantial compliance costs or delay the availability of certain items at one
or more of our distribution centers. In addition, any inquiry or investigation
from a food regulatory authority could have a negative impact on our reputation.
Any of these events could have a material adverse effect on our business,
financial condition and results of operations.
In addition, because of the increasing popularity of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet. These laws may cover issues such as user privacy, freedom of
expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth of electronic commerce may prompt calls for more stringent consumer
protection laws. Several states have proposed legislation to limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties. We
do not currently provide personal information regarding our users to third
parties. However, the adoption of such consumer protection laws could create
uncertainty in web usage and reduce the demand for our products and services.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of such laws were adopted prior
to the wide use of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address such issues could create uncertainty in the Internet market
place. Such uncertainty could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs.
INTELLECTUAL PROPERTY
We regard patent rights, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to our success. We rely
on patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights; however, the steps we take to
protect our proprietary rights may be inadequate. We currently have no patents
protecting our technology. From time to time, we have filed and expect to file
patent applications directed to aspects of our proprietary
36
technology. We cannot assure you that any of these applications will be
approved, that any issued patents will protect our intellectual property or that
any issued patents will not be challenged by third parties. In addition, other
parties may independently develop similar or competing technology or design
around any patents that may be issued to us.
EMPLOYEES
As of June 30, 1999, we had 414 full-time employees consisting of 40 in
software development, 76 in operations and administration, 23 in merchandising,
16 in marketing and 259 at our distribution center in Oakland. We expect to hire
additional personnel at our Oakland facility and to staff our other distribution
centers as they are opened. None of our employees are represented by a labor
union. We have not experienced any work stoppages and consider our employee
relations to be good.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently a party to
any material litigation.
FACILITIES
Our corporate offices are located in Foster City, California, where we
lease a total of approximately 7,400 square feet under leases that expire in May
2002. We recently signed a lease for approximately 55,000 square feet of office
space in Foster City, California that expires in November 2011, and we will be
relocating our corporate offices to this facility in the fourth quarter of 1999.
In addition, we lease approximately 336,000 square feet in Oakland, California
for our distribution center under a lease that expires in June 2008, with an
option to extend the lease for an additional five years. We also lease an
aggregate of approximately 106,000 square feet for 16 local facilities for
distribution in the San Francisco Bay Area under leases that expire from June
2001 to May 2009. We have signed a lease for a site of approximately 350,000
square feet for our second distribution center site in Atlanta, Georgia. This
lease expires in July 2009, with two options to extend the lease for additional
five year periods.
We anticipate that we will require additional corporate office space within
the next 12 months. We are also evaluating sites for additional distribution
centers in other markets. Although we expect such space to be available as
needed, we cannot assure you that suitable additional space will be available on
commercially reasonable terms. We do not own any real estate and expect to lease
distribution center and station locations in the other markets we enter.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of Webvan as of June 30, 1999:
[Enlarge/Download Table]
NAME AGE POSITION(S)
---- --- -----------
Louis H. Borders................... 51 President, Chief Executive Officer and Chairman
Kevin R. Czinger................... 40 Senior Vice President, Corporate Operations and
Finance
Arvind Peter Relan................. 36 Senior Vice President, Technology
Mark X. Zaleski.................... 36 Senior Vice President, Area Operations
Gary B. Dahl....................... 45 Vice President, Distribution
Leo L. Farley...................... 46 Vice President, Food Production
Mark J. Holtzman................... 39 Vice President and Controller
S. Coppy Holzman................... 44 Vice President, Merchandising
Vivek M. Joshi..................... 36 Vice President, Program Management
Christian T. Mannella.............. 36 Vice President, Marketing
David S. Rock...................... 50 Vice President, Real Estate
David M. Beirne(1)(2).............. 35 Director
Christos M. Cotsakos(2)............ 50 Director
Tim Koogle(1)...................... 47 Director
Michael J. Moritz(1)(2)............ 44 Director
-------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
LOUIS H. BORDERS has served as our Chairman and Chief Executive Officer
since founding Webvan in December 1996. Mr. Borders co-founded Synergy Software
in November 1989 and served on its board of directors from November 1989 to
November 1997. Mr. Borders founded Borders Books in 1971 and served as President
and Chief Executive Officer until 1983 and as Chairman from 1983 to 1992. He
also developed the advanced information systems used by Borders Books to manage
inventory across diverse geographic and demographic regions. In addition, Mr.
Borders is chairman of Mercury Capital Management, an investment firm he founded
in 1995. Mr. Borders holds a B.A. in Mathematics from the University of
Michigan.
KEVIN R. CZINGER has served as Senior Vice President, Corporate Operations
and Finance of Webvan since July 1999. From March 1999 to July 1999, he was
Chief Financial Officer of Webvan. From 1998 to 1999, Mr. Czinger served as a
managing director in the media and telecommunications group at Merrill Lynch &
Co., Inc. From 1996 to 1998, Mr. Czinger served as Chief Executive Officer of
Volcano Entertainment L.L.C., a record and music publishing company he founded.
From 1994 to 1996, Mr. Czinger served as Executive Vice President, Chief
Financial Officer and then Chief Operating Officer of Bertelsmann AG's
media/entertainment operations in North America. From 1991 to 1994, Mr. Czinger
was executive director and head of media banking group at Goldman Sachs
International, an investment banking firm. Mr. Czinger holds a B.A. from Yale
College and a J.D. from Yale Law School.
ARVIND PETER RELAN has served as Senior Vice President, Technology of
Webvan since February 1998. From May 1994 to February 1998, Mr. Relan served in
various management positions at Oracle Corporation, most recently as Vice
President of Internet Server Products in its Application Server Division. In
1995, Mr. Relan founded Oracle's Internet Server Division, including Oracle's
patented Web Request Broker technology, Oracle Application Server and Oracle
Internet Commerce Server. From 1988 to 1994, Mr. Relan held various positions at
Hewlett-Packard, including principal
38
technologist for the HP Openview Platform. Mr. Relan holds a B.S. in Computer
Engineering from the University of California, Los Angeles and a M.S. in
Engineering Management from Stanford University.
MARK X. ZALESKI has served as Senior Vice President, Area Operations of
Webvan since July 1999. From December 1998 to July 1999, he served as Chief
Operating Officer of Webvan. From 1994 to 1998, Mr. Zaleski served in various
executive management positions for ACNielsen, most recently as Senior Vice
President and Group Managing Director of Central Europe. From 1985 to 1994, Mr.
Zaleski held several positions at Federal Express, most recently as a Managing
Director for Federal Express, Europe. From 1985 to 1988, Mr. Zaleski held
various management positions in hub, ground operation and sales for Federal
Express. Mr. Zaleski holds a B.S. in Business Administration and an M.B.A. from
the European University in Antwerp, Belgium.
GARY B. DAHL has served as Vice President, Distribution of Webvan since
April 1997. From March 1993 to April 1997, Mr. Dahl served as Senior Vice
President, Logistics of American Stores Company, a retail food and drug company.
From 1990 to 1993, Mr. Dahl was employed with Lucky Stores, as a Vice President
of Warehousing and Distribution. Mr. Dahl received his B.A. in Biology from
California State University, Long Beach and his M.P.H. in Public Health from the
University of California, Berkeley.
LEO L. FARLEY has served as Vice President, Food Production of Webvan since
July 1999. From 1998 to 1999, Mr. Farley was Vice President of Culinary Research
and Development for Sodexho Marriott Services. In this capacity, Mr. Farley was
responsible for menu and recipe development, culinary research and development
and food safety and quality assurance. From 1986 to 1998, Mr. Farley held
several executive management positions in finance, strategic planning, project
management and marketing with Marriott Management Services, the contract food
service division of Marriott International. Mr. Farley holds a B.A. in Political
Science from Drew University, an A.O.S. in culinary arts from the Culinary
Institute of America and an M.B.A. in finance from New York University.
MARK J. HOLTZMAN has served as Vice President and Controller of Webvan
since March 1999. Mr. Holtzman also serves as Chief Financial Officer of
Webvan -- Bay Area. From July 1997 to March 1999, Mr. Holtzman served as Chief
Financial Officer of Webvan. From December 1994 to July of 1997, Mr. Holtzman
served as Group Controller of MicroAge, a distributor and reseller of computer
products and services. From December 1989 to December 1994, Mr. Holtzman was
employed by Kenfil, Inc., a computer software distributor, becoming Chief
Financial Officer in 1993. Mr. Holtzman received his B.A. in Political Science
and Economics from University of California, Berkeley and his M.B.A. from the
University of Michigan. Mr. Holtzman is a Certified Public Accountant.
S. COPPY HOLZMAN has served as Vice President, Merchandising of Webvan
since joining us in September 1997. From February 1993 to August 1997, Mr.
Holzman served as President and CEO of Gentry Men's Clothing, a retail clothing
chain. From November 1990 to February 1993, Mr. Holzman was employed by
Federated Department Stores as Senior Vice President for Sourcing and
Production. Mr. Holzman holds a B.S. in Economics from the University of
Pennsylvania.
VIVEK M. JOSHI has served as Vice President, Program Management of Webvan
since August 1999. From May 1996 to August 1999, Mr. Joshi held several
positions at General Electric Company, most recently as General Manager,
Off-Highway/Transit Operations at GE Transportation Systems. From May 1996 to
June 1998, Mr. Joshi was Manager, Corporate Initiatives Group at GE Corporate.
From October 1993 to May 1996, Mr. Joshi was a management consultant at Booz
Allen & Hamilton, a global management consulting company. From July 1992 to
October 1993, Mr. Joshi was a Manufacturing Team Leader at Johnson & Johnson
Advanced Materials Company. Mr. Joshi holds a B.Tech in Chemical Engineering
from the Indian Institute of Technology, Bombay, and an M.S. in Chemical
Engineering and an M.B.A. from the University of Virginia.
CHRISTIAN T. MANNELLA has served as Vice President, Marketing of Webvan
since December 1998. From July 1990 to November 1998, Mr. Mannella held several
positions at MCI WorldCom, most recently as Vice President of Sales & Service
Operations. From December 1995 to March 1998,
39
Mr. Mannella was Vice President of Brand Marketing for MCI WorldCom. From
September 1989 to June of 1990, Mr. Mannella was employed by Credit Card Service
Corporation as Group Product Manager. From January 1986 to September 1989, Mr.
Mannella was employed as a Marketing Manager by Marriott International. From
July 1984 to January 1986, Mr. Mannella was a Management Consultant with
Laventhol & Horwath, CPAs. Mr. Mannella holds a B.A. in Hotel, Restaurant and
Institutional Management from Michigan State University.
DAVID S. ROCK has served as Vice President, Real Estate of Webvan since May
1999. From January 1997 to May 1999, Mr. Rock served as Webvan's Vice President,
Retail. From 1987 to 1996, Mr. Rock owned and operated a business brokerage firm
specializing in the sale and acquisition of food and beverage retail businesses.
DAVID M. BEIRNE has served as a member of the Board since October 1997. Mr.
Beirne has been a Managing Member of Benchmark Capital, a venture capital firm,
since June 1997. Prior to joining Benchmark, Mr. Beirne founded Ramsey/Beirne
Associates, an executive search firm, and served as its Chief Executive Officer
from October 1987 to June 1997. Mr. Beirne serves as a director of Scient
Corporation. Mr. Beirne received a B.S. in Management from Bryant College.
CHRISTOS M. COTSAKOS has served as a member of the Board since May 1998.
Mr. Cotsakos has been the Chief Executive Officer and Chairman of the Board of
E*TRADE Group, Inc. since December 1998. He joined E*TRADE in March 1996 as
President and Chief Executive Officer. Prior to joining E*TRADE, he served as
President, Co-Chief Executive Officer, Chief Operating Officer and a director of
ACNielsen, Inc. from March 1992 to January 1996. From March 1973 to March 1992,
he held a number of senior executive positions at FedEx Corporation. Mr.
Cotsakos serves as a director of National Processing Company, Inc., Digital
Island, Inc., Critical Path, Inc., and FOX Entertainment Group, Inc. Mr.
Cotsakos received a B.A. from William Paterson College, an M.B.A. from
Pepperdine University and is currently pursuing a Ph.D. in economics at the
Management School, University of London.
TIM KOOGLE has served as a member of the Board since June 1999. Mr. Koogle
has been the Chief Executive Officer of Yahoo!, Inc. and a member of Yahoo!'s
Board of Directors since August 1995. He has also been Yahoo!'s Chairman since
January 1999 and was its President from August 1995 until January 1999. Prior to
joining Yahoo!, Mr. Koogle was President of Intermec Corporation, a manufacturer
of data collection and data communication products, from 1992 to 1995. During
that time, he also served as a corporate Vice President of Intermec's parent
company, Western Atlas. Mr. Koogle also serves as a director of E-LOAN, Inc. Mr.
Koogle holds a B.S. degree from the University of Virginia and an M.S. degree
from Stanford University.
MICHAEL J. MORITZ has served as a member of the Board since October 1997.
Mr. Moritz has been a general partner of Sequoia Capital, a venture capital
firm, since 1988. Between 1979 and 1984, Mr. Moritz was employed in a variety of
positions by Time, Inc. Mr. Moritz also serves as a director of Yahoo!,
Flextronics International and eToys Inc. Mr. Moritz holds an M.A. degree in
history from Oxford University and an M.B.A. from the Wharton Business School of
the University of Pennsylvania.
Officers serve at the discretion of the Board and are appointed annually.
The employment of each of our officers is at will and may be terminated at any
time, with or without cause. There are no family relationships between any of
the directors or executive officers of Webvan.
BOARD COMPOSITION
Webvan currently has authorized five directors. Webvan's Restated
Certificate of Incorporation will provide that, effective upon the closing of
this offering, the terms of office of the members of the Board of Directors will
be divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 2000, Class II, whose term will expire at
the annual meeting of stockholders to be held in 2001, and Class III, whose term
will expire at the annual meeting of
40
stockholders to be held in 2002. The Class I directors are Messrs. Cotsakos and
Koogle, the Class II directors are Messrs. Beirne and Moritz and the Class III
director is Mr. Borders. At each annual meeting of stockholders after the
initial classification, the successors to directors whose term will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the total number of directors. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
Webvan.
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews our internal
accounting procedures and consults with and reviews the services provided by our
independent accountants. The Audit Committee currently consists of Messrs.
Beirne, Koogle and Moritz.
The Compensation Committee of the Board of Directors reviews and recommends
to the Board the compensation and benefits of all of our executive officers,
administers our stock option plan and employee stock purchase plan and
establishes and reviews general policies relating to compensation and benefits
of our employees. The Compensation Committee currently consists of Messrs.
Beirne, Cotsakos and Moritz. No interlocking relationships exist between our
Board of Directors or Compensation Committee and the board of directors or
compensation committee of any other company, nor has any interlocking
relationship existed in the past.
DIRECTOR COMPENSATION
Our directors do not receive cash for services they provide as directors.
In July 1998, Mr. Cotsakos was granted an option to purchase 2,190,276 shares of
common stock at an exercise price of $0.10 per share. The option granted to Mr.
Cotsakos vests at the rate of one-sixteenth ( 1/16th) of the shares subject to
the option per quarter.
COMPENSATION COMMITTEE INTERLOCKS
No executive officer of Webvan serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of Webvan's Board of Directors.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
We do not currently have any employment contract in effect with our Chief
Executive Officer.
Mr. Dahl is a party to an offer letter, dated March 31, 1997. Under the
offer letter, we agreed to pay Mr. Dahl a base salary of $200,000, subject to
annual adjustment.
Mr. Holzman is a party to an offer letter, dated September 2, 1997. Under
the offer letter, we agreed to pay Mr. Holzman a base salary of $250,000,
subject to annual adjustment. The offer letter provides that, in the event that
Mr. Holzman's employment is terminated for other than cause, we are obligated to
pay him a six month salary severance. This provision expires on October 1, 1999.
Mr. Holtzman is a party to an offer letter, dated June 5, 1997. Under the
offer letter, we agreed to pay Mr. Holtzman a base salary of $175,000, subject
to annual adjustment. The offer letter provides that in the event that Mr.
Holtzman's employment is terminated for other than cause, we are obligated to
pay him a monthly salary severance and option vesting for up to six months until
he is employed elsewhere at a comparable salary.
Mr. Relan is a party to an offer letter, dated February 2, 1998. Under the
offer letter, we agreed to pay Mr. Relan a base salary of $200,000, subject to
annual adjustment. The offer letter provides that in the event that Mr. Relan's
employment is terminated for any reason following the second
41
anniversary of his employment, we are obligated to, at our option, either (i)
pay to Mr. Relan the sum of $3.0 million or (ii) accelerate the vesting of all
of Mr. Relan's options to purchase our common stock. The offer letter further
provides that, in the event that Mr. Relan's employment is terminated without
cause, we are obligated to pay him six months of salary and benefits as
severance. Under Mr. Relan's offer letter, he has the right, expiring in March
2000, to cause Webvan to repurchase up to 1,914,000 shares of common stock
beginning on the first anniversary of his employment and an additional 1,914,000
shares of common stock beginning on the second anniversary of his employment, in
each case at a price of $0.37 per share. Mr. Relan also has the right to
participate in sales of our preferred stock prior to the initial public offering
of our common stock up to a maximum amount of $200,000 for each round of
financing.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by Webvan
during the fiscal year ended December 31, 1998 to our Chief Executive Officer
and our four other most highly compensated executive officers whose salary and
bonus exceeds $100,000 (collectively, the "Named Executive Officers") for
services rendered in all capacities to Webvan.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
ANNUAL COMPENSATION(1) LONG TERM
----------------------------------- COMPENSATION
OTHER ANNUAL AWARDS OF ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION(2) STOCK OPTIONS COMPENSATION(3)
---------------------------- -------- ------ --------------- ------------- ---------------
Louis H. Borders............... $ -- $ -- $ -- -- $ --
President and Chief Executive
Officer
Gary B. Dahl................... 178,600 8,750 -- 600,000 2,000
Vice President, Distribution
Mark J. Holtzman............... 150,000 7,500 13,835 1,200,000 2,000
Controller
S. Coppy Holzman............... 219,431 -- -- 900,000 1,491
Vice President, Merchandising
Arvind Peter Relan(4).......... 142,974 7,692 -- 7,956,000 2,000
Senior Vice President,
Technology
-------------------------
(1) Other compensation in the form of perquisites and other personal benefits
has been omitted in those cases where the aggregate amount of such
perquisites and other personal benefits constituted less than the lesser of
$50,000 or 10% of the total annual salary and bonus for the Named Executive
Officer for such year.
(2) Represents a payment for a relocation allowance.
(3) Represents 401(k) plan matching by Webvan.
(4) Mr. Relan joined Webvan in February 1998.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information for the fiscal year
ended December 31, 1998 with respect to each grant of stock options to the Named
Executive Officers:
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
[Enlarge/Download Table]
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
------------------------------------ VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ----------------------
NAME GRANTED IN 1998(2) SHARE DATE 5% 10%
---- --------- ----------- --------- ---------- --------- ----------
Louis H. Borders............. -- --% $ -- -- $ -- $ --
Gary B. Dahl................. 600,000 1.3 0.0125 1/06/2008 4,717 11,953
Mark J. Holtzman............. 1,200,000 2.6 0.0125 1/06/2008 9,433 23,906
S. Coppy Holzman............. 900,000 2.0 0.0125 1/06/2008 7,075 17,930
Arvind Peter Relan........... 7,656,000 16.5 0.0125 3/06/2008 60,185 152,521
Arvind Peter Relan........... 300,000 0.6 0.0125 5/13/2008 2,358 5,977
-------------------------
(1) Each of these options was granted pursuant to the Stock Plan and is subject
to the terms of such plan. These options were granted at an exercise price
equal to the fair market value of our common stock as determined by our
Board of Directors on the date of grant and, as long as the optionee
maintains continuous employment with Webvan, vest over a four year period at
the rate of one-fourth ( 1/4th) of the shares subject to the option on the
first anniversary of the date of grant and one-sixteenth ( 1/16th) of the
shares subject to the option per quarter thereafter.
(2) In 1998, we granted employees and consultants options to purchase an
aggregate of 46,436,478 shares of common stock.
(3) The gains shown are "option spreads" that would exist for the respective
options granted. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. These assumed annual compound rates of
stock price appreciation do not represent our estimate or projection of
future common stock prices.
AGGREGATED OPTION EXERCISES IN 1998 AND DECEMBER 31, 1998 OPTION VALUES
[Enlarge/Download Table]
NUMBER OF OPTIONS AT
SHARES DECEMBER 31, VALUE OF IN-THE-MONEY
ACQUIRED 1998(2) OPTIONS(3)
ON OPTIONS VALUE --------------------- ---------------------
NAME EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
---- ---------- ----------- --------- --------- -------- ----------
Louis H. Borders......... -- $ -- -- -- $ -- $ --
Gary B. Dahl............. 2,250,000 26,250 1,068,750 1,781,250 441,835 736,392
Mark J. Holtzman......... 1,860,000 14,700 768,750 1,691,250 315,324 693,712
S. Coppy Holzman......... 2,250,000 26,250 984,375 2,165,625 406,090 893,397
Arvind Peter Relan....... 3,828,000 -- -- 7,956,000 -- 3,215,815
-------------------------
(1) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
(2) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options will be subject to repurchase by
Webvan at the original exercise price paid per share, if the optionee ceases
service with Webvan before vesting in such shares. The heading "Vested"
refers to shares that are no longer subject to repurchase and the heading
"Unvested" refers to shares subject to repurchase as of December 31, 1998.
43
(3) Based upon an assumed fair market value of $0.42 per share as of December
31, 1998 less the exercise price per share.
COMPENSATION PLANS
1997 Stock Plan
Webvan's Stock Plan was approved by the Board of Directors and the
stockholders in September 1997 and was amended in March 1998, July 1998, October
1998, December 1998 and January 1999. The Stock Plan provides for the grant to
employees of Webvan (including officers and employee directors) of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and for the grant of nonstatutory stock options to employees,
directors and consultants of Webvan. The Stock Plan is currently administered by
the Board of Directors (the "Administrator") which selects the optionees,
determines the number of shares to be subject to each option and determines the
exercise price of each option. The Stock Plan authorizes the issuance of an
aggregate of up to 72,000,000 shares of common stock. In August 1999, the Board
approved an amendment to the Stock Plan to increase the number of shares of
common stock reserved thereunder by 7,500,000 shares of common stock, subject to
stockholder approval. The maximum number of shares that may be granted to any
individual under the Stock Plan in any year is . As of June 30, 1999,
options to purchase an aggregate of 40,433,688 shares of common stock were
outstanding under the Stock Plan, and an aggregate of 9,717,222 shares of common
stock remained available for future grants. The number of shares of common stock
reserved for issuance under this plan will be subject to an annual increase on
each anniversary beginning January 1, 2000 equal to the lesser of:
- 16,000,000 shares;
- 4% of the outstanding shares on such date; or
- an amount determined by the Board.
The exercise price of all incentive stock options granted under the Stock
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of all nonstatutory stock options granted
under the Stock Plan shall be determined by the Administrator, but in no event
may be less than 85% of the fair market value on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of stock of Webvan, the exercise price of any incentive or
nonstatutory option granted must equal at least 110% of the fair market value on
the grant date and the maximum term of any such option must not exceed five
years. The term of all other options granted under the Stock Plan may not exceed
ten years.
In the event of a merger of Webvan with or into another corporation or a
sale of substantially all of our assets, the Stock Plan requires that each
outstanding option be assumed or an equivalent option substituted by the
successor corporation; provided, however, that in the event the successor
corporation refuses to assume or substitute for the outstanding options, such
options will become fully vested and exercisable for a period of fifteen days
after notice from the Administrator. Unless terminated sooner, the Stock Plan
will terminate ten years from its effective date. The Board has authority to
amend or terminate the Stock Plan, provided that no such action may impair the
rights of the holder of any outstanding options without the written consent of
such holder.
1999 Employee Stock Purchase Plan
Our 1999 Employee Stock Purchase Plan, or the Purchase Plan, provides our
employees with an opportunity to purchase our common stock through accumulated
payroll deductions. This plan will become effective upon the closing of this
offering. A total of 5,000,000 shares of common stock have been reserved for
issuance under the Purchase Plan, none of which have been issued. The number of
44
shares reserved for issuance under the Purchase Plan will be subject to an
annual increase on each anniversary beginning January 1, 2000 equal to the
lesser of:
- the number of shares issued under the Purchase Plan in the prior year; or
- an amount determined by the Board.
The Purchase Plan will be administered by the Board of Directors or by a
committee appointed by the Board. The Purchase Plan permits eligible employees
to purchase common stock through payroll deductions up to a maximum of $25,000
for all purchases ending within the same calendar year and up to a maximum of
1,000 shares for each purchase period. Employees are eligible to participate if
they are employed by us for at least 20 hours per week and more than five months
in any calendar year. Unless the Board of Directors or its committee determines
otherwise, each offering period will run for six months. The first offering
period will commence on the date of this prospectus and end on or about
, 2000, and new offering periods will commence every six months
thereafter. In the event we are acquired, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
option, the offering period then in progress will be shortened by setting a new
exercise date. The price at which common stock will be purchased under the
Purchase Plan is equal to 85% of the fair market value of the common stock on
the first or last day of the applicable offering period, whichever is lower.
Employees may end their participation in the offering period at any time, and
participation automatically ends on termination of employment. Generally, the
Board of Directors may amend, modify or terminate the Purchase Plan at any time
as long as such amendment, modification or termination does not impair the
rights of plan participants. The Purchase Plan will terminate at 2009, unless
terminated earlier in accordance with its provisions.
401(k) Plan
Webvan adopted a retirement savings plan (the "401(k) Plan") that covers
all of our employees. An employee may elect to defer, in the form of
contributions to the 401(k) Plan, up to 15% of the total annual compensation
that would otherwise be paid to the employee, subject to statutory limitations.
Employee contributions are invested in selected mutual funds or money market
funds according to the directions of the employee. Webvan makes matching
contributions as a percentage of employee contributions, subject to established
limits. The employees' contributions are fully vested and nonforfeitable at all
times.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our Certificate of Incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their 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
redemption; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our Certificate of Incorporation and Bylaws provide that we shall indemnify
our directors and executive officers and may indemnify other officers and
employees and our agents to the fullest extent permitted by law. We believe that
indemnification under our Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our Bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions
45
in such capacity, regardless of whether the Bylaws would permit indemnification.
We have director and officer liability insurance that covers matters, including
matters arising under the Securities Act.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our Bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses (including attorneys' fees), judgments, fines
and settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of Webvan, arising out of such person's
services as a director or executive officer of ours, any subsidiary of ours or
any other company or enterprise 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 executive officers.
There is no pending litigation or proceeding involving any director,
officer, employee or agent of Webvan where indemnification will be required or
permitted. We are not aware of any pending or threatened litigation or
proceeding that might result in a claim for such indemnification.
46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF STOCK TO INSIDERS
In April 1997, we issued 27,038,856 shares of common stock to the Louis H.
Borders Amended and Restated Revocable Trust dated December 4, 1987, and
17,361,144 shares of common stock to ISR GRAT I, a trust affiliated with Mr.
Borders, for an aggregate purchase price of $37,000. Louis H. Borders is our
President, Chief Executive Officer and Chairman.
In October 1997, we issued an aggregate of 111,643,872 shares of Series A
preferred stock to investors for an aggregate purchase price of approximately
$10.7 million. The following directors, executive officers, holders of more than
5% of a class of voting securities and members of such person's immediate
families purchased shares of Series A preferred stock:
[Download Table]
SHARES OF
SERIES A
PURCHASER PREFERRED STOCK
--------- ---------------
Louis H. Borders............................................ 22,240,896
ISR GRAT I.................................................. 14,281,080
Benchmark Capital Partners.................................. 36,521,976
Sequoia Capital............................................. 36,521,976
In May and June 1998, we issued an aggregate of 38,612,184 shares of Series
B preferred stock to investors for an aggregate purchase price of approximately
$35.3 million. SOFTBANK America Inc., a holder of more than 5% of our voting
securities, purchased 36,521,976 shares of Series B preferred stock in such
transaction.
In January and April 1999, we issued an aggregate of 32,341,200 shares of
Series C preferred stock to investors for an aggregate purchase price of
approximately $75.1 million. E*TRADE Group, Inc. and Yahoo! Inc. each purchased
4,304,100 shares of Series C preferred stock in such transaction. Christos M.
Cotsakos, a director of Webvan, is the President and CEO of E*TRADE Group, Inc.,
and Tim Koogle, a director of Webvan, is the Chief Executive Officer and
Chairman of Yahoo! Inc.
In June 1999, as contemplated by his offer letter, Kevin R. Czinger
purchased 450,000 shares of our common stock at a price of $1.35 per share.
In July 1999, we entered into an agreement to issue an aggregate of
21,670,605 shares of Series D-2 preferred stock to investors at an aggregate
purchase price of approximately $275.0 million. Entities affiliated with
SOFTBANK America Inc. will purchase 9,850,275 shares of Series D-2 preferred
stock and entities affiliated with Sequoia Investors Group will purchase
3,940,110 shares of Series D-2 preferred stock transaction.
In July 1999, we sold 150,000 shares of common stock to Yahoo! Inc. at a
price of $3.33 per share pursuant to a restricted stock purchase agreement.
These shares are subject to a repurchase option which expires at the rate of
one-sixteenth ( 1/16th) of the shares subject to the agreement per quarter as
long as Mr. Koogle remains on our Board of Directors.
Each share of Series A preferred stock, Series B preferred stock, Series C
preferred stock and Series D preferred stock will convert into one share of
common stock immediately prior to the closing of this offering. See the notes to
table of beneficial ownership in "Principal Stockholders" for further
information relating to the beneficial ownership of our capital stock.
OTHER AGREEMENTS WITH INSIDERS
We are a party to a voting agreement executed in September 1997, as amended
in December 1998, with the Louis H. Borders Amended and Restated Revocable Trust
dated December 4, 1987, and certain of our shareholders affiliated with or
related to Mr. Borders. Such shareholders each executed an irrevocable proxy
appointing the trustee of the trust as their proxy and attorney-in-fact. The
voting agreement and irrevocable proxy terminate immediately prior to the
closing of an initial underwritten public offering of our common stock pursuant
to a registration statement filed with the SEC.
47
Mark Zaleski, our Senior Vice President, Area Operations, is a party to an
offer letter, dated December 14, 1998. In March 1999, Webvan loaned Mr. Zaleski
$200,000 to be used towards the purchase of a house in the San Francisco Bay
Area. This loan was made as an interest-free employee relocation bridge loan, as
contemplated by his offer letter, and is repayable upon the first to occur of
March 1, 2000 or 15 days after the sale of his previous residence. The offer
letter also provides that in the event that Mr. Zaleski's employment is
terminated for other than cause, we are obligated to pay him a severance of six
months of salary and benefits as well as continued salary and benefits for up to
12 months until he obtains subsequent employment. In the event of such a
termination, the unvested portion of Mr. Zaleski's options will become
exercisable to the extent of an additional 12 months of vesting.
Mr. Czinger is a party to an offer letter dated March 17, 1999. The offer
letter provides that, in the event that Mr. Czinger's employment is terminated
for other than cause, we are obligated to pay him a lump sum severance of six
months of salary and benefits as well as continued salary and benefits for up to
six months until Mr. Czinger obtains subsequent employment. Mr. Czinger also has
the option to purchase 430,416 shares of our Series C preferred stock at an
exercise price of $2.32 per share by January 1, 2000. The offer letter further
provides that, if Mr. Czinger is involuntarily terminated by Webvan or a
successor company, the unvested portion of his options will become exercisable
to the extent of an additional 12 months of vesting.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of June 30, 1999 with respect to (i) each
person (or group of affiliated persons) known by Webvan to own beneficially more
than 5% of the outstanding shares of common stock, (ii) each of our directors,
(iii) each of the Named Executive Officers, and (iv) all directors and executive
officers as a group. The address for each listed director and officer is c/o
Webvan Group, Inc., 1241 East Hillsdale Boulevard, Suite 210, Foster City,
California 94404. Except as otherwise indicated in the footnotes to the table,
each of the stockholders has sole voting and investment power with respect to
the shares of beneficially owned by such stockholders, subject to community
property laws where applicable.
[Enlarge/Download Table]
PERCENTAGE OF
NUMBER OF SHARES SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED(1)
------------------------ ------------------ -------------------
Louis H. Borders(2)....................................... 80,917,776 27.7%
SOFTBANK America Inc.(3).................................. 46,372,251 15.9
300 Delaware Avenue, Suite 900
Wilmington, Delaware 19801
Sequoia Capital(4)........................................ 40,462,086 13.8
Michael J. Moritz
Benchmark Capital Partners(5)............................. 36,521,976 12.5
David M. Beirne
Arvind Peter Relan(6)..................................... 3,903,000 1.3
S. Coppy Holzman(7)....................................... 2,643,750 *
Gary B. Dahl(8)........................................... 2,587,500 *
Mark J. Holtzman(9)....................................... 1,860,000 *
Christos Cotsakos(10)..................................... 684,461 *
Tim Koogle(11)............................................ -- --
All directors and officers as a group (13 persons)(12).... 173,990,549 59.2
-------------------------
* Less than 1%
(1) Applicable percentage ownership is based on 294,453,839 shares of common
stock outstanding as of June 30, 1999 and giving effect to the issuance of
21,670,605 shares of Series D preferred stock in July and August 1999.
Shares of common stock that a person has the right to acquire within 60
days of June 30, 1999 are deemed outstanding for purposes of computing the
percentage ownership of the person holding such rights, but are not deemed
outstanding for purposes of computing the percentage ownership of any other
person, except with respect to the percentage ownership of all directors
and executive officers as a group.
(2) Includes 36,358,224 shares held by Louis H. Borders, Trustee of the Louis
H. Borders Amended and Restated Revocable Trust dated December 4, 1987 (the
"Trust"); 31,642,224 shares held by ISR GRAT I and 12,917,328 shares held
by ISR GRAT II. ISR GRAT I holds shares for the benefit of the Trust and
will expire in February 2000. ISR GRAT II holds shares for the benefit of
Christina Borders, daughter of Mr. Borders, and will expire in December
2002. Mr. Borders is President, Chief Executive Officer and Chairman of
Webvan. Certain employees of Mercury Capital Management held options to
purchase 195,000 shares of common stock held by the Trust.
(3) Includes 9,717,243 shares held by SOFTBANK Capital Partners LP and 133,032
shares held by SOFTBANK Capital Advisors Fund LLP.
(4) Includes 33,417,612 shares held by Sequoia Capital VII ("Sequoia Capital");
3,940,110 shares held by Sequoia Capital Franchise Fund ("Sequoia Fund")
and Sequoia Capital Franchise Partners ("Sequoia Partners"); 1,460,880
shares held by Sequoia Technology Partners; 677,844 shares held by SQP
1997; 584,352 shares held by Sequoia International Partners and
49
381,288 shares held by Sequoia 1997 LLC. Mr. Moritz, one of our directors,
is a general partner of Sequoia Capital, Sequoia Fund, Sequoia Partners,
Sequoia Technology, SQP, Sequoia International and Sequoia LLC. Mr. Moritz
disclaims beneficial ownership of such shares held by Sequoia Capital,
Sequoia Fund, Sequoia Partners, Sequoia Technology, SQP, Sequoia
International and Sequoia LLC, except to the extent of his pecuniary
interest therein.
(5) Includes 32,043,432 shares held by Benchmark Capital Partners, L.P.
("Benchmark Capital") and 4,478,544 shares held by Benchmark Founders'
Fund, L.P. ("Benchmark Founders"). Mr. Beirne, one of our directors, is a
managing member of Benchmark Capital Management Co., LLC, the general
partner of Benchmark Capital and Benchmark Founders. Mr. Beirne disclaims
beneficial ownership of such shares held by Benchmark Capital and Benchmark
Founders, except to the extent of his pecuniary interest therein.
(6) Includes 37,500 shares held by Renuka Prasad Relan, Trustee of the Renuka
Prasad Relan 1999 Grantor Trust, 37,500 shares held by Arvind Peter Relan,
Trustee of the Arvind Peter Relan 1999 Grantor Trust and 75,000 shares held
by Arvind Peter Relan and Renuka Prasad Relan, Trustees of the Relan Family
1999 Trust. Includes 75,000 shares subject to an option exercisable within
60 days of June 30, 1999. Of the shares included in the table, 1,435,500
shares are subject to a right of repurchase in favor of Webvan in the event
that Mr. Relan's employment with Webvan terminates. Such repurchase right
expired as to 25% of the shares in February 1999 and will expire as to
1/16 of the shares on a quarterly basis thereafter through February 2002.
(7) Includes 393,750 shares subject to an option exercisable within 60 days of
June 30, 1999. Of the shares included in the table, 1,265,625 shares are
subject to a right of repurchase in favor of Webvan in the event that Mr.
Holzman's employment with Webvan terminates. Such repurchase right expired
as to 25% of the shares in September 1998 and will expire as to 1/16th of
the shares on a quarterly basis thereafter through September 2001.
(8) Includes 337,500 shares subject to an option exercisable within 60 days of
June 30, 1999. Of the shares included in the table, 1,125,000 shares are
subject to a right of repurchase in favor of Webvan in the event that Mr.
Dahl's employment with Webvan terminates. Such repurchase right expired as
to 25% of the shares in April 1998 and will expire as to 1/16th of the
shares on a quarterly basis thereafter through April 2001.
(9) Of the shares included in the table, 783,750 shares are subject to a right
of repurchase in favor of Webvan in the event that Mr. Holtzman's
employment with Webvan terminates. Such repurchase right expired as to 25%
of the shares in July 1998 and will expire as to 1/16th of the shares on a
quarterly basis thereafter through July 2001.
(10) Represents shares issuable upon the exercise of options which are
exercisable within 60 days of June 30, 1999. Does not include 4,304,100
shares held by E*TRADE Group, Inc. Mr. Cotsakos is the Chairman of the
Board, President and Chief Executive Officer of E*TRADE Group, Inc. and
disclaims beneficial ownership of such shares.
(11) Does not include 4,304,100 shares held by Yahoo!, Inc. Mr. Koogle is the
Chairman of the Board and Chief Executive Officer of Yahoo!, Inc. and
disclaims beneficial ownership of such shares.
(12) Includes an aggregate of 1,490,711 shares subject to an option exercisable
within 60 days of June 30, 1999.
50
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Restated Certificate of Incorporation, which will be filed prior to the
closing of this offering, authorizes the issuance of up to 800,000,000 shares of
common stock, par value $0.0001 per share, and 10,000,000 shares of preferred
stock, par value $0.0001 per share, the rights and preferences of which may be
established by our Board of Directors. As of June 30, 1999, after giving effect
to the conversion of all outstanding shares of Series A, B, C and D preferred
stock prior to the closing of this offering, 292,453,839 shares of common stock
were issued and outstanding and held by approximately 120 stockholders.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record upon such matters and in such manner as may be provided by law. Subject
to preferences applicable to any outstanding shares of preferred stock, the
holders of common stock are entitled to receive ratably dividends, if any, as
may be declared by the Board of Directors out of funds legally available for
dividend payments. In the event we liquidate, dissolve or wind up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
the preferred stock. Holders of common stock have no preemptive rights or rights
to convert their common stock into any other securities. There are no redemption
or sinking fund provisions applicable to the common stock. All outstanding
shares of common stock are fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the Board of Directors will be
authorized, absent any limitations prescribed by law, without stockholder
approval, to issue up to an aggregate of 10,000,000 shares of preferred stock,
in one or more series, each of the series to have rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the Board of
Directors. The rights of the holders of common stock will be subject to, and may
be adversely affected by, the rights of holders of any preferred stock that may
be issued in the future. Issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, a majority
of our outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
REGISTRATION RIGHTS
Set forth below is a summary of the registration rights of the holders of
our Series A preferred stock, Series B preferred stock, Series C preferred stock
and Series D preferred stock each of which will convert into common stock
immediately prior to the consummation of this offering.
Demand Registrations. At any time on or after the first to occur of October
29, 2000 or six months following the closing date of the initial public offering
of our common stock, the holders of registration rights may request us to
register shares of common stock having a gross offering price of at least $25
million subject to our right, upon advice of our underwriters, to reduce the
number of shares proposed to be registered. We will be obligated to effect only
three registrations pursuant to such a request by holders of registration
rights. If shares requested to be included in a registration must be excluded
due to limitations on the number of shares to be registered on behalf of the
selling shareholders pursuant to the underwriters' advice, the shares registered
on behalf of the selling shareholders will be allocated among all holders of
shares with rights to be included in the registration on the basis of the number
of shares with such rights held by such shareholders.
Piggyback Registration Rights. The holders who have registration rights
have unlimited rights to request that shares be included in any
company-initiated registration of common stock other than registrations of
employee benefit plans or business combinations subject to Rule 145 under the
51
Securities Act. In our initial registration, the underwriters may, for marketing
reasons, exclude all or part of the shares requested to be registered on behalf
of all shareholders having the right to request inclusion in such registration.
In our subsequent registrations, the underwriters may, for marketing reasons,
limit the shares requested to be registered on behalf of all shareholders having
the right to request inclusion in such registration to not less than 30%. In
addition, we have the right to terminate any registration we initiated prior to
its effectiveness regardless of any request for inclusion by any stockholders.
Form S-3 Registrations. After we have qualified for registration on Form
S-3 (which will not be available until at least 12 months after we become a
publicly reporting company), holders of registration rights may request in
writing that we effect an unlimited number of registrations of such shares on
Form S-3 provided that the gross offering price of the shares to be so
registered in each such registration exceeds $1,000,000. If such registration is
to be an underwritten public offering, the underwriters may reduce for marketing
reasons the number of shares to be registered on behalf of all shareholders
having the right to request inclusion in such registration. We are not obligated
to effect a registration on Form S-3 prior to expiration of 180 days following
effectiveness of the most recent registration requested by the holders.
Future Grants of Registration Rights. We cannot grant further registration
rights without the prior written consent of current stockholders owning at least
a majority of the then outstanding registrable securities, including grants to
any holder or prospective holder of any registration rights which would:
- be on equal or more favorable terms than the existing registration
rights;
- cause a reduction in the amount of registrable securities held by current
holders that would be registrable in a registration statement; or
- require us to effect a registration earlier than the date current holders
can first require a registration.
Transferability. The registration rights are transferable upon notice by
the holder to us of the transfer, provided that the transferee or assignee is
not deemed by the Board of Directors to be a competitor of ours and assumes the
rights and obligations of the transferor for such shares.
Termination. The registration rights will terminate on the first to occur
of five years after the date of our initial public offering or the date on which
the holder may sell the share pursuant to Rule 144, provided that the aggregate
of the shares held by the holder represent less than 1% of our then outstanding
equity securities.
WARRANTS
At June 30, 1999, we had outstanding warrants to purchase an aggregate of
2,397,804 shares of our Series B preferred stock, which is convertible into an
equivalent number of shares of common stock. The weighted average exercise price
of the warrants is $0.91 per share. Any warrant may be exercised by applying the
value of a portion of such warrant (equal to the number of shares issuable under
such warrant being exercised multiplied by the fair market value of the security
receivable upon exercise of such warrant, less the per share exercise price) in
lieu of payment of the exercise price per share. The warrants to purchase an
aggregate of 2,233,572 shares expire in November 2005. The warrant to purchase
164,232 shares expires in May 2008 or five years from effective date of our
initial public offering, whichever occurs first.
In connection with our agreement with Bechtel Corporation, we issued to
Bechtel a warrant to purchase up to 1,800,000 shares at an exercise price of
$2.32 per share. The warrant expires in July 2004 and is exercisable as to
150,000 shares as of July 31, 1999. The warrant generally becomes exercisable as
to the remaining shares as distribution centers are completed by Bechtel within
agreed upon schedule and budgetary parameters.
52
DELAWARE ANTI-TAKEOVER LAW AND OUR CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
Provisions of Delaware law and our Certificate of Incorporation and Bylaws
could make more difficult our acquisition by a third party and the removal of
our incumbent officers and directors. These provisions, summarized below, are
expected to discourage coercive takeover practices and inadequate takeover bids
and to encourage persons seeking to acquire control of Webvan to first negotiate
with us. We believe that the benefits of increased protection of our ability to
negotiate with the proponent of an unfriendly or unsolicited acquisition
proposal outweigh the disadvantages of discouraging such proposals because,
among other things, negotiation could result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law,
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless:
- the Board of Directors approved the transaction in which such stockholder
became an interested stockholder prior to the date the interested
stockholder attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, he or she owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by persons who are directors and also
officers; or
- on or subsequent to such date the business combination is approved by the
Board of Directors and authorized at an annual or special meeting of
stockholders.
A "business combination" generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
Our Certificate of Incorporation and Bylaws do not provide for the right of
stockholders to act by written consent without a meeting or for cumulative
voting in the election of directors. In addition, our Certificate of
Incorporation permits the Board of Directors to issue preferred stock with
voting or other rights without any stockholder action. Our Certificate of
Incorporation provides for the Board of Directors to be divided into three
classes, with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders. Each of the
two other classes of directors will continue to serve for the remainder of its
respective three-year term. These provisions, which require the vote of
stockholders holding at least a majority of the outstanding common stock to
amend, may have the effect of deterring hostile takeovers or delaying changes in
our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C. The transfer agent's address and telephone number
is 235 Montgomery Street, 23rd Floor, San Francisco, California 94104 and (415)
743-1423.
53
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. As described below, no shares
currently outstanding will be available for sale immediately after this offering
because of contractual restrictions on resale. Sales of substantial amounts of
our common stock in the public market after the restrictions lapse or are
released could adversely affect the prevailing market price and impair our
ability to raise equity capital in the future.
Upon completion of the offering, we will have outstanding shares
of common stock. Of these shares, the shares sold in the offering,
plus any shares issued upon exercise of the underwriters' over-allotment option,
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. In general, affiliates include officers, directors or 10%
stockholders.
The remaining 292,453,839 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
Our directors, officers and securityholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of our common stock or any securities exercisable for or convertible
into our common stock without the prior written consent of Goldman, Sachs & Co.
The lock-up agreements will expire as to 15% of the shares held by each
stockholder beginning on the third day following the public release of Webvan's
earnings for the year ended December 31, 1999, as to an additional 25% of the
shares beginning 45 days thereafter and as to the remaining shares 180 days
after the date of this prospectus. Notwithstanding possible earlier eligibility
for sale under the provisions of Rules 144, 144(k) and 701, shares subject to
lock-up agreements will not be salable until such agreements expire or are
waived by Goldman, Sachs & Co. Taking into account the lock-up agreements, and
assuming Goldman, Sachs & Co. does not release stockholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
- Beginning on the date of this prospectus, only the shares sold in the
offering will be immediately available for sale in the public market.
- Beginning on or about February 1, 2000 (the third business day following
the public release of Webvan's earnings for the year ended December 31,
1999), approximately 40.6 million shares will be eligible for sale
pursuant to Rules 144, 144(k) and 701.
- Beginning on or about March 16, 2000 (45 days following the initial
lock-up expiration period), approximately 67.7 million additional shares
will be eligible for sale pursuant to Rules 144, 144(k) and 701.
- Beginning 180 days after the date of this prospectus, approximately 162.4
million additional shares will be eligible for sale pursuant to Rules
144, 144(k) and 701.
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
54
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice, and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate and
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written compensatory
plan or contract to resell such shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell such shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act within 180 days following the date of this prospectus to
register shares to be issued pursuant to our employee benefit plans. As a
result, any options or rights exercised under the 1997 Stock Plan, the 1999
Employee Stock Purchase Plan or any other benefit plan after the effectiveness
of the registration statement will also be freely tradable in the public market.
However, such shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of Rule
144 unless otherwise resalable under Rule 701. As of June 30, 1999 there were
outstanding options for the purchase of 40,433,688 shares of common stock, of
which options to purchase 13,756,055 shares were exercisable. See "Risk
Factors -- Future sales of our common stock could cause our stock price to
decline," "Management -- Compensation Plans" and "Description of Capital
Stock -- Registration Rights."
LEGAL MATTERS
Certain legal matters will be passed upon on behalf of Webvan by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
Jeffrey D. Saper, a member of Wilson Sonsini Goodrich & Rosati, serves as our
Secretary. Certain legal matters will be passed upon for the underwriters by
Shearman & Sterling, New York, New York. As of the date of this prospectus, an
investment partnership composed of certain current and former members of and
persons associated with Wilson Sonsini Goodrich & Rosati, P.C. and certain
members of Wilson Sonsini Goodrich & Rosati, P.C. beneficially owned an
aggregate of 2,068,944 shares of common stock.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for the period from December 17, 1996 (date of inception) to December 31, 1997
and for the year ended December 31, 1998 included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
55
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered in this offering. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedule thereto. For further information with respect to Webvan and the common
stock offered in this offering, we refer you to the registration statement and
to the attached exhibits and schedules. Statements made in this prospectus
concerning the contents of any document referred to in this prospectus are not
necessarily complete. With respect to each such document filed as an exhibit to
the registration statement, we refer you to the exhibit for a more complete
description of the matter involved.
The reports and other information we file with the SEC can be inspected and
copied at the public reference facilities that the SEC maintains at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of these materials can be obtained at prescribed rates
from the Public Reference Section of the SEC at the principal offices of the
SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information
regarding the operation of the public reference room by calling 1(800) SEC-0330.
The SEC also maintains a web site (http://www.sec.gov) that makes available the
reports and other information we have filed with the SEC.
56
WEBVAN GROUP, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998,
THE PERIOD FROM DECEMBER 17, 1996 (DATE OF INCEPTION)
TO DECEMBER 31, 1997 AND CUMULATIVE FROM
DECEMBER 17, 1996 (DATE OF INCEPTION) TO MARCH 31, 1999
AND INDEPENDENT AUDITORS' REPORT
INDEX TO FINANCIAL STATEMENTS
[Download Table]
PAGE
----
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations and Comprehensive F-4
Loss......................................................
Consolidated Statements of Shareholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Webvan Group, Inc.:
We have audited the accompanying consolidated balance sheets of Webvan
Group, Inc. (formerly Intelligent Systems for Retail, Inc.) and subsidiary
(collectively, "Webvan") (a development stage company) as of December 31, 1998
and 1997, and the related consolidated statements of operations and
comprehensive loss, shareholders' equity and cash flows for the year ended
December 31, 1998 and for the period from December 17, 1996 (date of inception)
to December 31, 1997. These financial statements are the responsibility of
Webvan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Webvan at December 31, 1998 and
1997, and the results of its operations and its cash flows for periods stated
above, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Jose, California
March 5, 1999
(August 5, 1999 as to the second sentence of Note 1 and as to Note 15 and August
, 1999 as to the first paragraph of Note 7)
To the Board of Directors and Shareholders of Webvan Group, Inc.:
The accompanying consolidated financial statements included herein reflect
the approval by Webvan's shareholders of the three-for-two stock split of
Webvan's common and preferred stock as described in Note 7 to the consolidated
financial statements. The above opinion is in the form that will be signed by
Deloitte & Touche LLP upon the effectiveness of such event assuming that from
July 15, 1999 to the effective date of such event, no other events shall have
occurred that would affect the accompanying consolidated financial statements or
notes thereto.
/s/ Deloitte & Touche LLP
San Jose, California
August 5, 1999
F-2
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
[Enlarge/Download Table]
DECEMBER 31, PRO FORMA
------------------ JUNE 30, JUNE 30,
1997 1998 1999 1999
------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
ASSETS
Current Assets:
Cash and equivalents...................................... $ 2,935 $ 13,839 $ 21,836
Marketable securities..................................... 5,043 7,728 22,231
Inventories............................................... -- -- 596
Related party receivable.................................. -- -- 847
Prepaid expenses and other current assets................. 5 114 3,294
------- -------- -------- --------
Total current assets............................... 7,983 21,681 48,804
Property, Equipment and Leasehold Improvements, Net......... 208 32,624 56,186
Loan Fees, Net.............................................. -- 2,000 1,713
Investments................................................. -- 518 1,018
Deposits.................................................... 88 1,418 1,255
Restricted Cash............................................. -- 1,768 3,453
------- -------- -------- --------
Total Assets................................................ $ 8,279 $ 60,009 $112,429
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 172 $ 6,815 $ 7,230
Accrued liabilities....................................... 118 706 5,813
Current portion capital lease obligations................. -- 133 621
Current portion long-term debt............................ -- 3,104 3,367
------- -------- -------- --------
Total current liabilities.......................... 290 10,758 17,031
------- -------- -------- --------
Deferred Rent............................................... 17 107 268
Capital Lease Obligations................................... -- 637 2,137
Long-Term Debt.............................................. -- 13,593 11,811
------- -------- -------- --------
Commitments and Contingencies (Notes 6 and 11).............. -- -- --
Redeemable Common Stock..................................... -- 1,302 1,556
Shareholders' Equity
Series A preferred stock, no par value; 112,635 shares
authorized; 112,583, 112,635, 112,635 shares and none
issued and outstanding at December 31, 1997, 1998, June
30, 1999 and pro forma, respectively; (liquidation
preferences of $10,789, $10,794 and $10,794 at December
31, 1997, 1998 and June 30, 1999, respectively)......... 10,754 10,759 10,759 $ --
Series B preferred stock, no par value; 41,814 shares
authorized; 39,101 and 39,113 shares and none issued and
outstanding; liquidation preference of $35,713 and
$35,724 at December 31, 1998, June 30, 1999 and pro
forma, respectively..................................... -- 34,823 34,834 --
Series C preferred stock, no par value; 32,341 shares
authorized; 32,341 shares and none issued and
outstanding June 30, 1999 and pro forma; liquidation
preference of $75,000................................... -- -- 72,776 --
Restricted common stock, no par value; 360,000 shares
authorized; 64,394, 78,590, 81,909 and 265,998 issued
and outstanding at December 31, 1997, 1998, June 30,
1999 and pro forma, respectively........................ 58 11,921 29,611 147,980
Additional paid-in capital................................ -- 1,686 3,829 3,829
Deferred compensation..................................... -- (10,737) (23,790) (23,790)
Deficit accumulated during the development stage.......... (2,840) (14,844) (48,338) (48,338)
Accumulated other comprehensive income (loss)............. -- 4 (55) (55)
------- -------- -------- --------
Total shareholders' equity......................... 7,972 33,612 79,626 79,626
------- -------- -------- --------
Total.............................................. $ 8,279 $ 60,009 $112,429
======= ======== ========
See notes to consolidated financial statements.
F-3
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
[Enlarge/Download Table]
PERIOD FROM CUMULATIVE
DECEMBER 17, FROM
1996 (DATE OF DECEMBER 17,
INCORPORATION) SIX MONTHS 1996 (DATE OF
TO YEAR ENDED ENDED JUNE 30, INCORPORATION)
DECEMBER 31, DECEMBER 31, ------------------------- TO JUNE 30,
1997 1998 1998 1999 1999
-------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Sales.................. $ -- $ -- $ -- $ 395 $ 395
Cost of Goods Sold......... -- -- -- 419 419
------- -------- ------- -------- --------
Gross Profit (Loss)........ -- -- -- (24) (24)
------- -------- ------- -------- --------
Software Development
Expenses................. 244 3,010 765 6,308 9,562
General and Administrative
Expenses................. 2,612 8,825 2,739 23,656 35,093
Amortization of deferred
stock compensation....... -- 1,060 43 3,953 5,013
------- -------- ------- -------- --------
Total Expenses... 2,856 12,895 3,547 33,917 49,668
------- -------- ------- -------- --------
Interest Income............ 85 923 285 1,641 2,649
Interest Expense........... 69 32 -- 1,194 1,295
------- -------- ------- -------- --------
Net Interest Income........ 16 891 285 447 1,354
------- -------- ------- -------- --------
Net Loss................... (2,840) (12,004) (3,262) (33,494) (48,338)
Unrealized Gain (Loss) on
Marketable Securities.... -- 4 (2) (59) (55)
------- -------- ------- -------- --------
Comprehensive Loss......... $(2,840) $(12,000) $(3,264) $(33,553) $(48,393)
======= ======== ======= ======== ========
Basic and Diluted Net Loss
Per Share (Note 10)...... $ (0.08) $ (0.18) $ (0.05) $ (0.46) $ (0.86)
======= ======== ======= ======== ========
Shares Used in Calculating
Basic and Diluted Net
Loss Per Share (Note
10)...................... 37,407 67,114 65,075 73,280 56,221
======= ======== ======= ======== ========
See notes to consolidated financial statements.
F-4
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
[Enlarge/Download Table]
CONVERTIBLE CONVERTIBLE CONVERTIBLE
SERIES A SERIES B SERIES C RESTRICTED
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------------- -------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------- ---------- ------- ---------- ------- ---------- -------
Issuance of Series A preferred, net
of $35 issuance costs, October
1997................................ 112,582,992 $10,754 -- $ -- -- $ -- -- $ --
Issuance of restricted common stock,
April through September 1997........ 64,380,972 53
Common stock issued for services,
December 1997....................... 13,500 5
Net loss.............................
----------- ------- ---------- ------- ---------- ------- ---------- -------
BALANCES, December 31, 1997.......... 112,582,992 10,754 -- -- -- -- 64,394,472 58
Issuance of Series A preferred,
January 1998........................ 52,176 5
Issuance of Series B preferred, net
of $890 issuance costs, May through
September 1998...................... 39,101,304 34,823
Series B preferred warrants granted
for debt, May 1998..................
Exercise of options during 1998...... 14,195,250 66
Options granted for services,
September and November 1998.........
Deferred Compensation................ 11,797
Amortization of deferred
compensation........................
Accumulated other comprehensive
income..............................
Net loss.............................
----------- ------- ---------- ------- ---------- ------- ---------- -------
BALANCES, December 31, 1998.......... 112,635,168 10,759 39,101,304 34,823 -- -- 78,589,722 11,921
Issuance of Series B preferred,
January 1999*....................... 12,000 11
Issuance of Series C preferred, net
of issuance costs of $2,363, January
through April 1999*................. 32,341,200 72,776
Exercise of stock options during
1999*............................... 2,868,840 76
Issuance of restricted common stock,
June 1999........................... 450,000 608
Issuance of warrant, June 1999.......
Deferred Compensation................ 17,006
Amortization of deferred
compensation........................
Accumulated other comprehensive
loss*...............................
Net loss*............................
----------- ------- ---------- ------- ---------- ------- ---------- -------
BALANCES, June 30, 1999 *............ 112,635,168 $10,759 39,113,304 $34,834 32,341,200 $72,776 81,908,562 $29,611
=========== ======= ========== ======= ========== ======= ========== =======
DEFICIT
ACCUMULATED ACCUMULATED
ADDITIONAL DURING THE OTHER TOTAL
PAID-IN DEFERRED DEVELOPMENT COMPREHENSIVE SHAREHOLDERS'
CAPITAL COMPENSATION STAGE INCOME (LOSS) EQUITY
---------- ------------ ----------- ------------- -------------
Issuance of Series A preferred, net
of $35 issuance costs, October
1997................................ $ -- $ -- $ -- $ -- $ 10,754
Issuance of restricted common stock,
April through September 1997........ 53
Common stock issued for services,
December 1997....................... 5
Net loss............................. (2,840) (2,840)
------ -------- -------- ---- --------
BALANCES, December 31, 1997.......... -- -- (2,840) -- 7,972
Issuance of Series A preferred,
January 1998........................ 5
Issuance of Series B preferred, net
of $890 issuance costs, May through
September 1998...................... 34,823
Series B preferred warrants granted
for debt, May 1998.................. 1,679 1,679
Exercise of options during 1998...... 66
Options granted for services,
September and November 1998......... 7 7
Deferred Compensation................ (11,797) --
Amortization of deferred
compensation........................ 1,060 1,060
Accumulated other comprehensive
income.............................. 4 4
Net loss............................. (12,004) (12,004)
------ -------- -------- ---- --------
BALANCES, December 31, 1998.......... 1,686 (10,737) (14,844) 4 33,612
Issuance of Series B preferred,
January 1999*....................... 11
Issuance of Series C preferred, net
of issuance costs of $2,363, January
through April 1999*................. 72,776
Exercise of stock options during
1999*............................... 76
Issuance of restricted common stock,
June 1999........................... 608
Issuance of warrant, June 1999....... 2,143 2,143
Deferred Compensation................ (17,006) --
Amortization of deferred
compensation........................ 3,953 3,953
Accumulated other comprehensive
loss*............................... (59) (59)
Net loss*............................ (33,494) (33,494)
------ -------- -------- ---- --------
BALANCES, June 30, 1999 *............ $3,829 $(23,790) $(48,338) $(55) $ 79,626
====== ======== ======== ==== ========
---------------
* Unaudited
See notes to consolidated financial statements.
F-5
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Enlarge/Download Table]
PERIOD FROM CUMULATIVE FROM
DECEMBER 17, DECEMBER 17,
1996 (DATE OF SIX MONTHS ENDED 1996 (DATE OF
INCORPORATION) TO YEAR ENDED JUNE 30, INCORPORATION)
DECEMBER 31, DECEMBER 31, ------------------------- TO JUNE 30,
1997 1998 1998 1999 1999
----------------- ------------ ----------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash Flows From Operating Activities:
Net loss....................................... $(2,840) $(12,004) $ (3,262) $(33,494) $(48,338)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 57 263 50 2,673 2,993
Accretion on redeemable common stock......... -- 1,242 564 254 1,496
Amortization of deferred stock
compensation............................... -- 1,060 43 3,953 5,013
Stock and stock options issued for
services................................... 95 7 -- -- 102
Issuance of warrant.......................... -- -- -- 2,143 2,143
Undistributed income on short-term
investments................................ (47) -- -- -- (47)
Changes in operating assets and liabilities:
Inventories................................ -- -- -- (596) (596)
Prepaid expenses and other current
assets................................... (5) (109) (1,671) (3,180) (3,294)
Accounts payable........................... 172 6,643 1,942 415 7,230
Accrued liabilities........................ 118 588 1,162 5,107 5,813
Deferred rent.............................. 17 90 3 161 268
------- -------- -------- -------- --------
Net cash used in operating activities.... (2,433) (2,220) (1,169) (22,564) (27,217)
------- -------- -------- -------- --------
Cash Flows From Investing Activities:
Purchases of property, equipment and leasehold
improvements................................. (265) (32,669) (4,283) (25,948) (58,882)
(Purchases) sale of marketable securities...... (4,996) (2,681) 992 (14,562) (22,239)
Purchase of investments........................ -- (518) -- (500) (1,018)
Related party receivable....................... -- -- -- (200) (200)
Deposits....................................... (88) (1,330) (212) 163 (1,255)
Restricted cash................................ -- (1,768) (950) (1,685) (3,453)
------- -------- -------- -------- --------
Net cash used in investing activities.... (5,349) (38,966) (4,453) (42,732) (87,047)
------- -------- -------- -------- --------
Cash Flows From Financing Activities:
Proceeds from shareholder loans................ 2,038 -- -- -- 2,038
Repayment of shareholder loans................. (2,038) -- -- -- (2,038)
Proceeds from long-term debt................... -- 17,168 -- -- 17,168
Repayment of long-term debt.................... -- (471) -- (1,519) (1,990)
Proceeds from capital lease financing.......... -- 794 50 2,200 2,994
Repayment of capital lease obligations......... -- (32) -- (212) (244)
Loan fees capitalized.......................... -- (323) -- -- (323)
Net proceeds from Series A preferred stock..... 10,664 5 -- -- 10,669
Net proceeds from Series B preferred stock..... -- 34,823 34,328 11 34,834
Net proceeds from Series C preferred stock..... -- -- -- 72,776 72,776
Proceeds from restricted common stock issued... 53 78 161 37 168
Proceeds from redeemable common stock issued... -- 48 -- -- 48
------- -------- -------- -------- --------
Net cash provided by financing
activities............................. 10,717 52,090 34,539 73,293 136,100
------- -------- -------- -------- --------
Net Increase in Cash and Equivalents............. 2,935 10,904 28,917 7,997 21,836
Cash and Equivalents, Beginning of period........ -- 2,935 2,935 13,839 --
------- -------- -------- -------- --------
Cash and Equivalents, End of period.............. $ 2,935 $ 13,839 $ 31,852 $ 21,836 $ 21,836
======= ======== ======== ======== ========
Supplemental Cash Flow Information:
Interest paid.................................. $ 69 $ 32 $ -- $ 28 $ 129
======= ======== ======== ======== ========
Income taxes paid.............................. $ 1 $ 1 $ -- $ -- $ 2
======= ======== ======== ======== ========
Restricted common stock issued for short-term
receivables.................................. $ -- $ -- $ -- $ 647 $ 647
======= ======== ======== ======== ========
See notes to consolidated financial statements.
F-6
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- Webvan Group, Inc., formerly Intelligent Systems for
Retail, Inc., and subsidiary (a development stage company) (collectively,
"Webvan") was incorporated in California on December 17, 1996. On April 21,
1999, Intelligent Systems for Retail, Inc. changed its name to Webvan Group,
Inc. Webvan will be an Internet-based service provider offering an array of
groceries, home meal replacements, drugstore items and other merchandise.
Presently, Webvan continues in the process of developing its system software,
the completion of its initial distribution center, and its internet "Webstore".
Webvan began selling and delivering products on an initial test basis during the
first quarter of 1999.
On March 26, 1998, Webvan formed a wholly-owned subsidiary Webvan -- Bay
Area, Inc. ("WBA"). WBA represents Webvan's distribution center and cross
docking stations that will provide the internet-based retail service and home
delivery.
As of June 30, 1999, Webvan was a development stage company. Successful
completion of the Company's development program and, ultimately, the attainment
of profitable operations is dependent upon future events, including obtaining
adequate financing to fulfill its development activities, increasing its
customer base, implementing and successfully executing its business and
marketing strategy, continuing to develop and enhance its Webstore fulfillment
transactions and hiring quality personnel.
CONSOLIDATION -- The accompanying consolidated financial statements include
the accounts of Webvan and its wholly-owned subsidiary, WBA. All significant
intercompany balances and transactions have been eliminated in the consolidated
financial statements.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure 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.
CASH EQUIVALENTS -- Webvan considers all highly liquid instruments acquired
with an original maturity of three months or less when purchased to be cash
equivalents. The recorded carrying amounts of the Company's cash equivalents
approximate to their fair market value due to their highly liquid nature.
MARKETABLE SECURITIES -- Webvan considers all investments with a maturity
of more than three months but less than one year when purchased and investments
to be sold within one year to be short-term and available for sale.
RELATED PARTY RECEIVABLE -- In March 1999, the Company loaned an officer
$200,000 to be used towards the purchase of a house. The loan is interest free
and is due on the earlier of 15 days after the sale of the officer's previous
residence or March 1, 2000.
RESTRICTED CASH -- During 1998, Webvan entered into lease and credit card
merchant bank service agreements which required Webvan to hold three standby
letters of credit. The letters of credit require Webvan to maintain certain
balances on deposit which restricts the use of cash and equivalents. See Note 5
for the amounts of these deposits. These agreements expire at various dates
ranging from 1999 through 2007.
F-7
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
CONCENTRATION OF CREDIT RISK -- Financial instruments that potentially
subject Webvan to concentrations of credit risk consist principally of cash,
cash equivalents and short-term investments to the extent these exceed federal
insurance limits. Risks associated with cash, cash equivalents and marketable
securities are mitigated by banking with and purchasing commercial paper, market
auction preferred stock, corporate notes, and corporate bonds from credit-worthy
institutions.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Depreciation is taken on assets placed into service using the
straight-line method over estimated useful lives of three to five years.
Leasehold improvements are amortized, using the straight-line method, over the
shorter of the lease term or the useful lives of the improvements.
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". The Company assesses the impairment of long-lived assets
whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable. No such impairments have been identified to date.
LONG-TERM INVESTMENTS -- are recorded under the cost method of accounting
(Note 2).
LOAN FEES -- Webvan capitalizes loan and capital lease origination fees and
amortizes them over the life of the related obligations.
REDEEMABLE COMMON STOCK -- Redeemable common stock represents the estimated
value of common stock held by shareholders who have certain put rights.
INCOME TAXES -- Income taxes are provided at current rates. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes.
STOCK OPTIONS -- As permitted by SFAS No. 123, Webvan accounts for stock
options to employees using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." As required by SFAS No. 123, the pro forma impact on earnings and
earnings per share resulting from the fair value method is disclosed in Note 8.
REVENUE RECOGNITION -- The Company recognizes revenues from product sales
and delivery, net of returns and discounts, when the products are delivered to
customers.
NET LOSS PER SHARE -- Basic net loss per share excludes dilution and is
computed by dividing net loss by the weighted average number of common shares
outstanding for the period (excluding shares subject to repurchase). Diluted net
loss per common share was the same as basic net loss per common share for all
periods presented since the effect of any potentially dilutive securities is
excluded as they are anti-dilutive because of Webvan's net losses.
UNAUDITED INTERIM FINANCIAL INFORMATION -- The interim financial
information as of June 30, 1999 and for the six months ended June 30, 1998 and
1999 and for the cumulative period from December 17, 1996 (date of inception)
through June 30, 1999 is unaudited and has been prepared on the same basis as
the audited financial statements. In the opinion of management, such unaudited
financial information includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the interim
information. Operating results for the six months ended
F-8
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
June 30, 1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999.
UNAUDITED PRO FORMA INFORMATION -- Upon the closing of the planned initial
public offering, each of the outstanding shares of convertible preferred stock
will convert into one share of common stock. The pro forma balance sheet
presents Webvan's balance sheet as if this had occurred at June 30, 1999.
RECENTLY ISSUED ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board ("FASB") adopted SFAS No. 130 "Reporting
Comprehensive Income," which requires an enterprise to report, by major
components and as a single total, the change in net assets during the period
from non owner sources. Webvan adopted this statement during the year ended
December 31, 1998.
In February 1998, the FASB adopted SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits, an Amendment of FASB
Statements No. 87, 88, and 106," which revises employers' disclosures about
pension and other postretirement benefit plans. This statement does not change
the measurement or recognition of those plans, but standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures. Webvan adopted this statement
during the year ended December 31, 1998.
In March 1998, the Accounting Standards Committee of the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for Internal
Use." SOP 98-1 provides guidance for an enterprise on accounting for the costs
of computer software developed or obtained for internal use. Webvan adopted this
statement during the year ended December 31, 1998 and has capitalized software
costs according to the provisions of the standard. These costs are amortized on
a straight-line basis over the useful life of the software once it is placed
into service.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which defines derivatives, requires that all
derivatives be carried at fair value, and provides for hedging accounting when
certain conditions are met. Webvan will adopt this statement for its fiscal year
ending December 31, 2000. Management has not fully assessed the implications of
adopting this new standard.
2. INVESTMENTS
On November 24, 1998, an agreement was signed between an equipment
manufacturer and Webvan. The agreement set out the terms for Webvan to acquire
1,000 shares of such equipment manufacturer for a total amount of $1,000,000
which represents a less than 10% interest in the manufacturer. Investments are
recorded at cost as fair market value is not readily determinable. Long-term
investments principally include $500,000 paid for such shares in December 1998.
Webvan paid the additional $500,000 for such shares in January 1999 to complete
this transaction.
F-9
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
3. MARKETABLE SECURITIES
The fair value of marketable securities at June 30, 1999 (unaudited), and
at December 31, 1998 and 1997 are presented below. Fair values are based on
quoted market prices. The Company's marketable securities are classified as
available-for-sale, as the Company intends to sell them as needed for
operations. Balances at year-end consist of the following (in thousands):
[Enlarge/Download Table]
JUNE 30, 1999
(UNAUDITED)
-------------------------------------
UNREALIZED
AMORTIZED GAIN (LOSS) MARKET
COST ON INVESTMENT VALUE
--------- ------------- -------
Money market funds................................. $ 8 $ -- $ 8
Commercial paper................................... 36,129 (12) 36,117
Foreign debt securities............................ 1,638 (6) 1,632
Corporate notes.................................... 6,346 (36) 6,310
------- ---- -------
Total.................................... 44,121 (54) 44,067
Less amounts included in cash and equivalents...... 21,843 (7) 21,836
------- ---- -------
$22,278 $(47) $22,231
======= ==== =======
[Enlarge/Download Table]
DECEMBER 31, 1998
----------------------------------
UNREALIZED
AMORTIZED GAIN ON MARKET
COST INVESTMENT VALUE
--------- ---------- -------
Money market funds.................................... $ 27 $-- $ 27
Commercial paper...................................... 9,781 3 9,784
Commercial notes...................................... 3,164 1 3,165
Commercial bonds...................................... 1,285 -- 1,285
Market auction preferred.............................. 7,306 -- 7,306
------- -- -------
Total....................................... 21,563 4 21,567
Less amounts included in cash and equivalents......... 13,837 2 13,839
------- -- -------
$ 7,726 $2 $ 7,728
======= == =======
[Download Table]
DECEMBER 31,
1997
------------
Money market funds.......................................... $ 44
Commercial paper............................................ 7,859
------
Total at cost which approximates market........... 7,903
Less amounts included in cash and equivalents............... 2,860
------
$5,043
======
F-10
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements at December 31, 1997, 1998
and June 30, 1999 consists of the following (in thousands):
[Enlarge/Download Table]
DECEMBER 31,
--------------- JUNE 30,
1997 1998 1999
---- ------- -----------
(UNAUDITED)
Computer equipment and software........................... $121 $ 2,284 $ 8,917
Machinery and equipment................................... 3 2,026 18,742
Leasehold improvements.................................... 32 407 19,195
Furniture and fixtures.................................... 109 287 625
---- ------- -------
265 5,004 47,479
Accumulated depreciation and amortization................. (57) (310) (2,696)
---- ------- -------
208 4,694 44,783
Construction in progress.................................. -- 27,930 11,403
---- ------- -------
Property, equipment and leasehold improvements, net....... $208 $32,624 $56,186
==== ======= =======
Equipment under capital leases amounted to $794,000 at 1998. Accumulated
amortization on capital leases as of December 31, 1998 was $72,155.
Construction in progress includes costs incurred in the construction of
Webvan's distribution center located in Oakland. Such costs include the purchase
and installation of materials handling equipment, refrigeration and freezer
storage units. Webvan retains up to ten percent on all construction contracts in
process until final settlement of such contracts.
During the first six months of 1999, $2.2 million of computer equipment and
software was financed with capital leases.
5. DEPOSITS
Deposits consist of the following (in thousands):
[Enlarge/Download Table]
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
Software licenses........................................... $ 899 $ --
Payroll service provider.................................... 329 436
Real property leases........................................ 178 807
Other....................................................... 12 12
------ ------
$1,418 $1,255
====== ======
6. BORROWING ARRANGEMENTS
In December 1998, WBA entered into a $17,000,000 loan and security
agreement. The loan is payable in $472,000 monthly installments from January
1999 through June 2002 with an additional $2,550,000 payment of the remaining
balance payable in June 2002. Based upon this repayment
F-11
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
schedule, the imputed interest on this loan is 15.2%. The loan is secured by
substantially all the assets of Webvan.
Related to the above financing, Webvan issued warrants to the lenders to
purchase an aggregate of 2,233,578 shares of Series B preferred stock at an
exercise price of $0.91 per share (see Note 9). Webvan also paid $323,000 in
loan fees.
As part of an operating lease the landlord agreed to finance $168,340 of
improvements. The loan is payable in monthly installments including interest at
11% from January 1, 1999 through July 2003.
Future principal maturities under loan agreements as of December 31, 1998
are as follows (in thousands):
[Download Table]
YEAR ENDING
DECEMBER 31,
------------
1999...................................................... $ 3,104
2000...................................................... 3,909
2001...................................................... 4,545
2002...................................................... 5,113
2003...................................................... 26
-------
16,697
Less current maturities..................................... 3,104
-------
$13,593
=======
CAPITAL LEASE OBLIGATIONS
In March 1998, Webvan entered into a $3,000,000 nonrevolving master lease
agreement. The agreement specifies equipment which Webvan can purchase prior to
March 23, 1999 under the lease agreement. As of December 31, 1998, $2,230,000
was available for future financing, and obligations outstanding totaled
$770,000. As part of the leasing arrangement, warrants for 164,226 shares of
Series B preferred stock were granted to the provider at an exercise price of
$0.91 per share (see Note 9).
Future lease payments under the lease agreement as of December 31, 1998 are
as follows (in thousands):
[Download Table]
YEAR ENDING
DECEMBER 31,
------------
1999...................................................... $ 241
2000...................................................... 241
2001...................................................... 240
2002...................................................... 232
2003...................................................... 59
------
Total future lease payments................................. 1,013
Less portion relating to interest........................... 243
------
Total capital lease obligations............................. 770
Less current portion........................................ 133
------
Total long-term portion..................................... $ 637
======
F-12
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
7. SHAREHOLDERS' EQUITY
STOCK SPLITS
In March 1998, January 1999, July 1999 and August 1999, the Board of
Directors authorized two-for-one, two-for-one, two-for-one and three-for-two
stock splits, respectively, on the then outstanding shares, warrants and
options. The splits have been retroactively reflected in the financial
statements and notes to the financial statements.
CONVERTIBLE PREFERRED STOCK
Significant terms of outstanding Series A and B preferred stock are as
follows:
- In the event of liquidation, dissolution, or winding up of Webvan, the
holders of Series A and Series B preferred stock are entitled to receive
$0.0958 and $0.91 per share (subject to adjustment for stock splits and
like events), respectively, plus any declared but unpaid dividends prior
to any distribution to the common shareholders. After the preferred
shareholders have received payment, any remaining assets would be shared
by all preferred and common shareholders on a pro rata basis.
- Each share of preferred stock is convertible at the option of the holder
into one share of common stock (subject to adjustments for stock splits
and like events). Shares will automatically be converted upon an
underwritten initial public offering (IPO) of Webvan's common shares
meeting certain criteria.
- Each share of preferred stock has voting rights equivalent to the number
of shares of common stock into which it is convertible. In addition, for
so long as there are outstanding at least 12,000,000 shares in the case
of the Series A preferred stock, and 12,000,000 shares in the case of the
Series B preferred stock, the holders of each of the Series A preferred
stock and Series B preferred stock shall be entitled to approve
amendments to the articles of incorporation, approve the payment or
declaration of dividends, approve the merger or consolidation of Webvan,
approve the sale of all or substantially all of the assets of the
Company, and approve other actions specified in the articles of
incorporation. In addition, for so long as there are at least 12,000,000
shares of Series A preferred stock outstanding, the holders of the Series
A preferred stock shall be entitled to nominate and elect two directors.
- Dividends may be declared at the discretion of the Board of Directors and
are non-cumulative. Dividends of $0.0067 per share on Series A preferred
stock and $0.0617 on Series B preferred stock (as adjusted for any stock
splits or like events) must be declared and paid before payment of any
common stock dividends.
- Prior to the sale of any shares in a subsequent stock offering, the
existing preferred shareholders shall have a right of first refusal to
purchase the shares, subject to certain exceptions. In addition, upon
written notice of a sale of preferred shares by Webvan's founder, each
shareholder has the right to sell its co-sale pro rata share of the
shares proposed to be sold. These provisions expire upon an initial
public offering.
PREFERRED STOCK -- SERIES C
On January 21, 1999, Webvan authorized the sale and issuance of up to
32,341,200 shares of its Series C preferred stock at a purchase price of $2.32
per share. As of June 30, 1999, Webvan had
F-13
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
issued 32,341,200 shares of Series C preferred stock. The actual cash proceeds,
net of $2 million of issuance costs, amounted to $73 million.
RESTRICTED COMMON STOCK
At December 31, 1998, Webvan had 360,000,000 authorized shares of common
stock of which 78,589,722 were issued and outstanding. At December 31, 1998,
Webvan had reserved shares of common stock for issuance as follows:
[Download Table]
(IN THOUSANDS)
--------------
Issuance under stock options plan........................... 46,010
Issuance upon conversion of Series A preferred stock........ 112,635
Issuance upon conversion of Series B preferred stock........ 41,814
-------
Total shares reserved....................................... 200,459
=======
Significant terms of the restricted common stock are as follows:
- In the event that the continuous status of an employee, consultant or
director of Webvan terminates for any reason, Webvan shall upon the date
of such termination have an irrevocable right for a period of 90 days
from such termination date to repurchase any unreleased (unvested) shares
at the original purchase price.
- The shares shall be released from the repurchase option immediately
(i.e., fully vested) or over a three-year period depending on the
specific terms of the agreement and the parties involved. As of December
31, 1998, 66,000,000 shares (see Note 8) were subject to repurchase under
the applicable restricted stock purchase agreements.
- Prior to the sale of any common shares owned by certain shareholders,
Webvan shall have a right of first refusal to purchase the shares. These
rights shall terminate upon the closing of an IPO, a sale of all or
substantially all the assets of Webvan, or a merger.
- In connection with a possible IPO, the shareholders agree not to sell any
shares without the prior written consent of Webvan or the underwriters
managing the IPO for up to 180 days from the effective date of such
registration.
- Each share of common stock issued and outstanding shall have one vote.
8. STOCK OPTION PLAN
On September 17, 1997, Webvan adopted the 1997 Stock Plan (the Plan) and
reserved 30,000,000 shares of Webvan's common stock for issuance under the Plan,
which expires on September 17, 2007. Options are granted at fair market value at
the date of grant as determined by the Board of Directors. As provided for in
the Plan, incentive and non-statutory stock options may be granted to employees,
officers, directors or consultants. Incentive options may only be granted to
employees and at an exercise price of no less than fair value on the date of
grant. Non-statutory options may be granted at an exercise price of no less than
85% of fair value. For owners of more than 10% of Webvan's stock, options may
only be granted for an exercise price of no less than 110% of fair value.
Options generally become exercisable at a rate of 25% on the one year
anniversary of the vesting commencing date, which may precede the grant date,
with an additional 6.25% exercisable at the end of each quarter thereafter until
fully vested at the end of the fourth year.
F-14
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
Vesting may not exceed five years for grants to owners of more than 10% of
Webvan's voting power, nor exceed ten years for all other option holders.
Stock option activity under the 1997 Stock Plan is summarized as follows:
[Enlarge/Download Table]
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE
(IN THOUSANDS) PRICE
-------------- --------
Options granted during 1997 (weighted average fair value of
$0.00016)................................................. 12,588 $0.00081
Options canceled during 1997................................ (108) 0.00081
-------
Balance, December 31, 1997 (none exercisable)............... 12,480 0.00081
Options granted during 1998 (weighted average fair value of
$0.01740)................................................. 46,437 0.10206
Options exercised during 1998............................... (18,981) 0.00645
Options canceled during 1998................................ (3,210) 0.02735
-------
Balance, December 31, 1998.................................. 36,726 0.12361
Options granted during 1999 (unaudited)..................... 6,990 1.90332
Options exercised during 1999 (unaudited)................... (2,869) 0.02554
Options canceled during 1999 (unaudited).................... (413) 0.12429
-------
Balance, June 30, 1999 (unaudited).......................... 40,434 $0.26546
=======
Additional information regarding options outstanding as of December 31,
1998 is as follows:
[Download Table]
OPTIONS OUTSTANDING OPTIONS VESTED
------------------------------------- ---------------------
NUMBER WEIGHTED NUMBER
OF AVERAGE WEIGHTED OF WEIGHTED
SHARES REMAINING AVERAGE SHARES AVERAGE
EXERCISE (IN CONTRACTUAL EXERCISE (IN EXERCISE
PRICES THOUSANDS) LIFE (YEARS) PRICE THOUSANDS) PRICE
------------------- ---------- ------------ --------- ---------- --------
$0.00081 2,163 8.09 $0.00081 924 $0.00081
$0.01250 13,062 9.07 $0.01250 873 $0.01250
$0.10000 13,998 9.60 $0.10000 -- --
$0.41667 7,503 9.94 $0.41667 -- --
------ -----
$0.00081 - $0.41667 36,726 9.39 $0.12773 1,797 $0.00650
====== =====
At December 31, 1998, shares of common stock available for future option
grants totaled 16,293,522. During 1998 and in January 1999, Webvan's Board of
Directors increased the 30,000,000 shares of common stock reserved under the
plan as follows: 12,000,000 in May 1998; 6,000,000 in July 1998; 6,000,000 in
October 1998; 12,000,000 in December 1998 and 6,000,000 in January 1999. As a
result, 50,150,910 shares are reserved in the option pool as of June 30, 1999.
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, Webvan accounts for its stock-based awards using
the intrinsic value method in accordance with APB 25. Based on the stock value
and exercise prices, no compensation expense has been recognized in the
financial statements for employee stock arrangements.
F-15
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", (SFAS 123) requires the disclosure of pro forma net
income and earnings per share as if Webvan had adopted the fair value method as
of the beginning of the period ended December 31, 1997. Webvan's calculations
were made using the minimum value method with the following weighted average
assumptions: expected life of 60 months following the grant date; risk free
interest rates of 6% in 1998; and no dividends during the expected term.
Webvan's calculations are based on a single option valuation approach and
forfeitures are recognized as they occur. If the computed fair value of 1998 and
1997 awards had been charged to compensation over the vesting period of the
awards, the net loss would have been $24,000 greater in 1998 and $1,000 greater
in 1997.
9. NONCASH FINANCING ACTIVITIES
STOCK AND OPTIONS FOR RECRUITING
Webvan issued the following shares and options for recruiting services that
represent noncash operating expenses (in thousands, except per share amounts):
[Download Table]
FAIR
NUMBER FAIR VALUE AT
DATE OF VALUE ISSUANCE
ISSUED SHARES PER SHARE DATE
------ ---------- --------- --------
Stock:
Series A preferred stock................ 1997 939 $0.09583 $90
Restricted common....................... 1997 360 0.01250 5
Series A preferred stock................ 1998 51 0.09583 5
[Download Table]
FAIR
SHARES EXERCISE VALUE
DATE COVERED BY PRICE AT GRANT
ISSUED OPTIONS PER SHARE DATE
------ ---------- --------- --------
Stock options --
Restricted common....................... 1998 159 $0.10000 $7
DEFERRED COMPENSATION
In connection with the grant of certain stock options in 1998 and 1999, the
Company recorded deferred compensation of $11,797,000 and $17,006,000 and
compensation expense of $1,060,000 and $3,953,000, respectively, representing
the difference between the deemed fair value and the option exercise price as
determined by the Board of Directors on the date of grant. The deferred
compensation is being amortized over the four-year vesting period of the
underlying options.
WARRANTS FOR DEBT
Webvan issued the following warrants in connection with its long-term debt
and capital lease arrangements (in thousands, except per share amounts):
[Download Table]
FAIR
SHARES EXERCISE VALUE
DATE COVERED BY PRICE AT GRANT
ISSUED WARRANTS PER SHARE DATE
------ ---------- --------- --------
Series B preferred stock warrants......... 1998 2,398 $ 0.91 $1,679
F-16
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
The above shares and shares covered by options and warrants reflect the
two-for-one stock splits in March 1998, January 1999 and July 1999 and the
three-for-two stock split in August 1999. The fair value of the options and
warrants was determined using the Black-Scholes option pricing model this the
following assumptions: expected life of seven years; risk-free interest rate of
6% in 1998 and 1997; no dividends during the expected term and volatility of
80%. The calculations are based on a single option valuation approach and
forfeitures are recognized as they occur. The warrants expire November 2005.
10. NET LOSS PER SHARE
The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands except per share
amounts):
[Enlarge/Download Table]
CUMULATIVE
PERIOD FROM FROM
DECEMBER 17, DECEMBER 17,
1996 (DATE OF YEAR SIX MONTHS ENDED 1996 (DATE OF
INCORPORATION) ENDED JUNE 30, INCORPORATION)
TO DECEMBER 31, DECEMBER 31, ------------------------- TO JUNE 30,
1997 1998 1998 1999 1999
--------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Net loss (numerator),
basic and
diluted............ $(2,840) $(12,004) $(3,262) $(33,494) $(48,338)
------- -------- ------- -------- --------
Shares (denominator):
Weighted average
common shares
outstanding..... 37,407 76,934 70,518 84,689 62,322
Weighted average
common shares
outstanding and
subject to
repurchase...... -- (9,820) (5,443) (11,409) (6,101)
------- -------- ------- -------- --------
Shares used in
computation, basic
and diluted........ 37,407 67,114 65,075 73,280 56,221
======= ======== ======= ======== ========
Net loss per share,
basic and
diluted............ $ (0.08) $ (0.18) $ (0.05) $ (0.46) $ (0.86)
======= ======== ======= ======== ========
F-17
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
For the above-mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following (in thousands, except per share amounts):
[Enlarge/Download Table]
CUMULATIVE
PERIOD FROM FROM
DECEMBER 17, DECEMBER 17,
1996 (DATE OF YEAR SIX MONTHS ENDED 1996 (DATE OF
INCORPORATION) ENDED JUNE 30 INCORPORATION)
TO DECEMBER 31, DECEMBER 31, ------------------------- TO JUNE 30,
1997 1998 1998 1999 1999
--------------- ------------ ----------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Convertible preferred
stock.............. 112,583 151,736 151,163 184,090 184,090
Shares of common
stock subject to
repurchase......... -- 14,456 16,629 9,345 9,345
Outstanding options.. 12,480 36,726 15,870 40,434 40,434
Warrants............. -- 2,398 -- 2,398 2,398
-------- -------- -------- -------- --------
Total...... 125,063 205,316 183,662 236,267 236,267
======== ======== ======== ======== ========
Weighted average
exercise price of
options............ $0.00083 $0.12773 $0.01043 $0.27431 $0.27431
======== ======== ======== ======== ========
Weighted average
exercise price of
warrants........... $ -- $ 0.91 $ -- $ 0.91 $ 0.91
======== ======== ======== ======== ========
11. INCOME TAXES
While Webvan is in the development stage, substantially all losses incurred
for financial statements purposes will be deferred for income tax purposes. In
the year that Webvan first generates revenues from operations, expenditures
accumulated during the development stage will start being amortized for income
tax purposes over a five-year period. The deduction of these expenses for
financial statement purposes in years preceding the deduction for income tax
purposes is a temporary difference that creates a deferred tax asset. At
statutory rates, the deferred tax asset amounts to approximately $6.7 million
which has been offset by a valuation allowance of the same amount due to lack of
operating history combined with risks and uncertainties surrounding Webvan's
ability to generate future taxable income.
Webvan has net research and development credits of approximately $234,000
and $129,000 which can be carried forward to offset future federal income taxes
and state franchise taxes, respectively. If unused, carryovers expire during
2012 and 2002 for federal and state purposes, respectively. Deferred tax assets
that relate to these credits have been fully reserved.
F-18
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
12. LEASES
Webvan leases facilities under noncancelable operating lease agreements
which expire at various dates through 2008.
Future lease payments under the lease agreements as of December 31, 1998
are as follows (in thousands):
[Download Table]
YEAR ENDING
DECEMBER 31,
------------
1999................................................... $ 1,790
2000................................................... 1,834
2001................................................... 1,900
2002................................................... 1,665
2003................................................... 1,577
Thereafter.................................................. 7,070
-------
Total future lease payments....................... $15,836
=======
Facilities rent expense was $1,026 and $123 for the periods ended December
31, 1998 and 1997, respectively.
13. EMPLOYEE BENEFIT PLAN
Webvan has a 401(k) profit-sharing plan (the 401(k) Plan) that covers
substantially all employees. The 401(k) Plan provides for voluntary salary
reduction contributions of up to 15% of eligible participants' annual
compensation subject to Internal Revenue Code limitations. Under the terms of
the 401(k) Plan, Webvan will match 100% of employees' contributions for the
first $500 and 25% thereafter to a maximum of $2,000 per year. Matching
contributions made during the period ended December 31, 1997 and 1998 were
$17,000 and $81,000, respectively.
14. RELATED PARTY TRANSACTIONS
From inception through October 1997, Webvan's founder advanced $2,037,679
to the Company in exchange for notes payable bearing 8% interest payable. The
notes were due on demand or upon Webvan's obtaining equity financing. The notes
were fully repaid with interest of $68,709 on October 30, 1997 after issuance of
Series A preferred stock on October 29, 1997.
A general contractor of Webvan has subcontracted with an equipment
manufacturer (see Note 2) to install equipment in Webvan's distribution center.
A total of $4.9 million of this work was completed by December 31, 1998 and is
included in construction in progress within property, equipment and leasehold
improvements.
F-19
WEBVAN GROUP, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND JUNE 30, 1999 IS UNAUDITED)
15. SUBSEQUENT EVENTS
On July 8, 1999, the Company signed an agreement (the "Agreement") with a
contractor to design, develop and construct up to 26 distribution center
warehouse facilities ("Distribution Centers") in the United States. The
Agreement expires July 8, 2002, unless extended by written agreement. As part of
the Agreement, the contractor was granted a warrant to purchase up to 1,800,000
shares of the Company's Series C preferred stock at $2.32 per share (the
"Warrant"). The Warrant is exercisable as to 150,000 shares on July 8, 1999 and
generally become exercisable as to the remaining shares as Distribution Centers
are completed by the contractor within agreed upon schedule and budgetary
parameters.
On July 15, 1999, Webvan entered into an agreement that provided for the
sale of 21,670,605 shares of its Series D-2 preferred stock at a price of $12.69
per share totaling approximately $275 million.
F-20
UNDERWRITING
Webvan and the underwriters for the U.S. offering named below (the "U.S.
Underwriters") have entered into an underwriting agreement with respect to the
shares being offered in the United States. Subject to certain conditions, each
U.S. Underwriter has severally agreed to purchase the number of shares indicated
in the following table. Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette
Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., Deutsche Bank
Securities Inc. and Thomas Weisel Partners LLC are the representatives of the
U.S. Underwriters.
[Download Table]
UNDERWRITERS NUMBER OF SHARES
------------ -----------------
Goldman, Sachs & Co. .......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
BancBoston Robertson Stephens Inc...........................
Bear, Stearns & Co. Inc.....................................
Deutsche Bank Securities Inc................................
Thomas Weisel Partners LLC..................................
-----------------
Total.....................................................
=================
If the U.S. Underwriters sell more shares than the total number set forth
in the table above, the U.S. Underwriters have an option to buy up to an
additional shares from Webvan to cover such sales. They may exercise
that option for 30 days. If any shares are purchased pursuant to this option,
the U.S. Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by Webvan. Such amounts are
shown assuming both no exercise and full exercise of the U.S. Underwriters'
option to purchase additional shares.
[Enlarge/Download Table]
PAID BY WEBVAN
--------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per share................................................... $ $
Total....................................................... $ $
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and the
other selling terms.
Webvan has entered into underwriting agreements with the underwriters for
the sale of shares outside the United States. The terms and conditions
of both offerings are the same and the sale of shares in both offerings are
conditioned on each other. Goldman Sachs International, Donaldson, Lufkin &
Jenrette International, Merrill Lynch International, BancBoston Robertson
Stephens International Limited, Bear, Stearns International Limited, Deutsche
Bank Securities, Inc. and Thomas Weisel Partners LLC are representatives of the
underwriters for the international offering outside the United States (the
"International Underwriters"). Webvan has granted the International Underwriters
a similar option to purchase up to an aggregate of an additional
shares.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a
U-1
part of the distribution of the shares. The underwriters also have agreed that
they may sell shares among each of the underwriting groups.
Pursuant to lock-up agreements, Webvan and its directors, officers,
employees and other securityholders have agreed not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the lock-up period, except with the prior written consent
of the representatives. According to the lock-up agreements, the lock-up period
will expire as to 15% of the shares held by each stockholder beginning on the
third day following the public release of Webvan's earnings for the year ended
December 31, 1999, as to an additional 25% of the shares beginning 45 days
thereafter and as to the remaining shares 180 days after the date of this
prospectus. This agreement does not apply to any existing employee benefit plan.
See "Shares Eligible for Future Sale" for a discussion of certain transfer
restrictions.
Prior to the offerings, there has been no public market for the shares. The
initial public offering price for the common stock will be negotiated among
Webvan and the representatives of the underwriters. Among the factors to be
considered in determining the initial public offering price of the shares, in
addition to prevailing market conditions, will be Webvan's historical
performance, estimates of Webvan's business potential and earnings prospects, an
assessment of Webvan's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
Webvan has applied to have the common stock listed on the Nasdaq National
Market under the symbol "WBVN".
In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offerings are in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect that market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock offered hereby for certain
individuals designated by Webvan who have expressed an interest in purchasing
such shares of common stock in the offering. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the underwriters to the general public on the same basis as other shares offered
hereby.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998 Thomas Weisel Partners has been named as a lead or co-manager of 54 filed
public offerings of equity securities, of which 31 have been completed, and has
acted as a syndicate member in an additional 27 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
Webvan or any of
U-2
Webvan's officers, directors or other controlling persons, except for its
contractual relationship with Webvan under the terms of the underwriting
agreement entered into in connection with this offering.
In July 1999, entities affiliated with Goldman, Sachs & Co. purchased an
aggregate of 7,880,220 shares of Webvan's Series D-2 preferred stock for an
aggregate purchase price of approximately $100.0 million.
Webvan estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Webvan has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offering being made outside of the
United States, to persons located in the United States.
U-3
Inside Gatefold Graphics
[artwork which depicts the Webvan solution, illustrated by pictures of the
Company's Webstore, delivery service, distribution center and food products
together with captions explaining the pictures and diagram]
Inside Front Cover Graphics
[artwork consists of the Webvan logo and
website address and pictures of food products]
------------------------------------------------------
------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances where
it is lawful to do so. The information contained in this prospectus is current
only as of its date.
-------------------------
TABLE OF CONTENTS
[Download Table]
PAGE
----
Prospectus Summary.................... 1
Summary Consolidated Financial Data... 3
Risk Factors.......................... 4
Special Note Regarding Forward-Looking
Statements.......................... 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 27
Management............................ 38
Certain Relationships and Related
Transactions........................ 47
Principal Stockholders................ 49
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 54
Legal Matters......................... 55
Experts............................... 55
Available Information................. 56
Index to Financial Statements......... F-1
Underwriting.......................... U-1
-------------------------
Through and including , 1999 (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
subscription.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Shares
WEBVAN GROUP, INC.
Common Stock
-------------------------
LOGO
-------------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
MERRILL LYNCH & CO.
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
Representatives of the Underwriters
------------------------------------------------------
------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASD filing fee.
[Download Table]
SEC registration fee....................................... $
NASD filing fee............................................
Nasdaq National Market Fees................................
Blue Sky qualification fees and expenses...................
Printing and engraving expenses............................
Accountant's fees and expenses.............................
Legal fees and expenses....................................
Miscellaneous..............................................
----------
Total............................................ $
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by such section.
The Registrant's Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The Registrant's Bylaws provides for the indemnification of officers,
directors and third parties acting on behalf of the Registrant if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interest of the Registrant, and, with respect to any criminal action
or proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
The Registrant has director and officer liability insurance that covers
matters, including matters arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Registrant's inception in December 1996, the Registrant has
issued and sold the following unregistered securities:
1. Between April and September 1997, the Registrant issued an aggregate of
64,034,472 shares of Common Stock of the Registrant to founders and
their family members and advisors pursuant to restricted stock purchase
agreements for an aggregate amount of $53,362.06.
2. Between September 1997 and July 1999, the Registrant granted and issued
options to purchase an aggregate of 69,172,878 shares of Common Stock
of the Registrant to employees, consultants and directors pursuant to
the Registrant's 1997 Stock Plan with an aggregate exercise price of
$21,967,344.13.
II-1
3. In October 1997, the Registrant issued an aggregate of 111,643,872
shares of Series A Preferred Stock of the Registrant to venture
investor, affiliated investors, unaffiliated investors and founder for
an aggregate amount of $10,699,204.40.
4. From December 1997 to February 1998, the Registrant issued an aggregate
of 991,296 shares of Series A Preferred Stock of the Registrant to
consultants for an aggregate amount of $94,999.20.
5. From April 1998 to July 1999, the Registrant issued an aggregate of
21,939,090 shares of Common Stock of the Registrant to employees and
consultants pursuant to the Registrant's 1997 Stock Plan with an
aggregate exercise price of $203,437.12.
6. In May 1998, the Registrant issued 16,380,000 shares of Series B
Preferred Stock of the Registrant to a venture investor for an amount
of $14,960,400.
7. In May 1998, the Registrant granted and issued a warrant to purchase
164,232 shares of Series B Preferred Stock of the Registrant an
equipment lessor for an exercise price of $149,998.56.
8. In June 1998, the Registrant issued an aggregate of 21,341,976 shares
of Series B Preferred Stock of the Registrant to venture investors for
an aggregate amount $19,492,338.08.
9. From June 1998 to September 1998, the Registrant issued an aggregate of
1,391,328 shares of Series B Preferred Stock of the Registrant to
consultants and affiliated investors for an aggregate amount of
$1,270,746.24.
10. In November 1998, the Registrant granted and issued warrants to
purchase an aggregate of 2,233,572 shares of Series B Preferred Stock
of the Registrant to equipment lessors for an aggregate exercise price
of $2,039,995.76.
11. In January 1999, the Registrant issued an aggregate of 32,281,200
shares of Series C Preferred Stock of the Registrant to venture
investors for an aggregate amount of $74,999,988.
12. In April 1999, the Registrant issued an aggregate of 60,000 shares of
Series C Preferred Stock of the Registrant to consultants and
affiliated investors for an aggregate amount of $139,400.
13. In June 1999, the Registrant issued 450,000 shares of Common Stock of
the Registrant to an officer for an amount of $607,500.
14. In July and August 1999, the Registrant issued an aggregate of
21,670,605 shares of Series D-2 Preferred Stock of the Registrant to
venture investors and affiliated investors for an aggregate amount of
$274,999,997.40.
15. In June and July 1999, the Registrant granted and issued warrants to
purchase an aggregate of 1,208,000 shares of Series C Preferred Stock
of the Registrant to a landlord of one of the Registrant's facilities
and a construction project manager for an aggregate exercise price of
$4,209,880.
There were no underwriters involved in connection with any transaction set
forth above. The issuances of the securities in paragraphs 2, 5 and 13 of this
Item 15 were deemed to be exempt from registration under the Securities Act in
reliance upon Rule 701 promulgated thereunder as grants of options pursuant to
written compensatory benefit plans approved by the Registrant's Board of
Directors. The other issuances set forth in this Item 15 were deemed to be
exempt from registration pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder as a transaction by an issuer not involving
a public offering.
II-2
In all of such transactions, the recipients of securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof, and appropriate legends
were affixed to the securities issued.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
[Download Table]
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Registrant
3.2* Restated Certificate of Incorporation of the Registrant to
be filed prior to the closing of the offering
3.3* Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2 Registration Rights Agreement dated October 29, 1997, as
amended
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers
10.2* 1997 Stock Plan and form of agreements thereunder
10.3* 1999 Employee Stock Purchase Plan
10.4 Lease Agreement dated April 1, 1998 between the Registrant
and Lincoln Coliseum Distribution Center for premises in
Oakland, California
10.5 Lease Agreement dated March 4, 1999 between the Registrant
and AMB Property, LP for premises in Atlanta, Georgia
10.6 Lease Agreement dated January 21, 1997 between the
Registrant and Dove Holdings, Inc. for premises in Foster
City, California
10.7 Lease and Security Agreement dated November 18, 1998 between
the Registrant and Lighthouse Capital Partners and other
lenders
10.8 Offer Letter dated March 18, 1999 between the Registrant and
Kevin R. Czinger
10.9 Offer Letter dated February 2, 1998 between the Registrant
and Arvind Peter Relan
10.10 Offer Letter dated December 14, 1998 between the Registrant
and Mark X. Zaleski
10.11 Offer Letter dated March 31, 1997 between the Registrant and
Gary B. Dahl
10.12 Offer Letter dated June 5, 1997 between the Registrant and
Mark J. Holtzman
10.13 Offer Letter dated September 3, 1997 between the Registrant
and S. Coppy Holzman
10.14+ Contract dated July 8, 1999 for turnkey design/build
construction and related services between the Registrant and
Bechtel Corporation
10.15+ Warrant dated July 8, 1999 issued to Bechtel Corporation
10.16 Warrant dated May 27, 1998 issued to Comdisco Ventures
10.17 Warrant dated November 18, 1998 issued to Lighthouse Capital
Partners
23.1* Consent of Deloitte & Touche LLP, Independent Auditors
23.2* Consent of Counsel (see Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
-------------------------
* To be filed by amendment
+ Confidential treatment has been requested for certain portions of this
exhibit.
II-3
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
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 Foster City, California, on August 6,
1999.
Webvan Group, Inc.
By: /s/ LOUIS H. BORDERS
------------------------------------
Louis H. Borders
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Louis H. Borders and Kevin R. Czinger,
and each of them his attorney-in-fact, with the power of substitution, for him
in any and all capacities, to sign any amendment or post-effective amendment to
this Registration on Form S-1 or abbreviated registration statement (including,
without limitation, any additional registration filed pursuant to Rule 462 under
the Securities Act of 1933) with respect thereto and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on August 6, 1999 by the following
persons in the capacities indicated.
[Enlarge/Download Table]
SIGNATURE TITLE
--------- -----
/s/ LOUIS H. BORDERS President, Chief Executive Officer and
----------------------------------------------------- Chairman of the Board of Directors
Louis H. Borders (Principal Executive Officer)
/s/ KEVIN R. CZINGER Senior Vice President,
----------------------------------------------------- Corporate Operations
Kevin R. Czinger and Finance
(Principal Financial and Accounting Officer)
/s/ DAVID M. BEIRNE Director
-----------------------------------------------------
David M. Beirne
/s/ CHRISTOS M. COTSAKOS Director
-----------------------------------------------------
Christos M. Cotsakos
Director
-----------------------------------------------------
Tim Koogle
/s/ MICHAEL J. MORITZ Director
-----------------------------------------------------
Michael J. Moritz
II-5
EXHIBIT INDEX
[Download Table]
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ----------------------- ------------
1.1* Form of Underwriting Agreement..............................
3.1* Certificate of Incorporation of the Registrant..............
3.2* Restated Certificate of Incorporation of the Registrant to
be filed prior to the closing of the offering...............
3.3* Bylaws of the Registrant....................................
4.1* Specimen Common Stock Certificate...........................
4.2 Registration Rights Agreement dated October 29, 1997, as
amended.....................................................
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.................................................
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers..........................
10.2* 1997 Stock Plan and form of agreements thereunder...........
10.3* 1999 Employee Stock Purchase Plan...........................
10.4 Lease Agreement dated April 1, 1998 between the Registrant
and Lincoln Coliseum Distribution Center for premises in
Oakland, California.........................................
10.5 Lease Agreement dated March 4, 1999 between the Registrant
and AMB Property, LP for premises in Atlanta, Georgia.......
10.6 Lease Agreement dated January 21, 1997 between the
Registrant and Dove Holdings, Inc. for premises in Foster
City, California............................................
10.7 Lease and Security Agreement dated November 18, 1998 between
the Registrant and Lighthouse Capital Partners and other
lenders.....................................................
10.8 Offer Letter dated March 18, 1999 between the Registrant and
Kevin R. Czinger............................................
10.9 Offer Letter dated February 2, 1998 between the Registrant
and Arvind Peter Relan......................................
10.10 Offer Letter dated December 14, 1998 between the Registrant
and Mark X. Zaleski.........................................
10.11 Offer Letter dated March 31, 1997 between the Registrant and
Gary B. Dahl................................................
10.12 Offer Letter dated June 5, 1997 between the Registrant and
Mark J. Holtzman............................................
10.13 Offer Letter dated September 3, 1997 between the Registrant
and S. Coppy Holzman........................................
10.14+ Contract dated July 8, 1999 for turnkey design/build
construction and related services between the Registrant and
Bechtel Corporation.........................................
10.15+ Warrant dated July 8, 1999 issued to Bechtel Corporation....
10.16 Warrant dated May 27, 1998 issued to Comdisco Ventures......
10.17 Warrant dated November 18, 1998 issued to Lighthouse Capital
Partners....................................................
23.1* Consent of Deloitte & Touche LLP, Independent Auditors......
23.2* Consent of Counsel (see Exhibit 5.1)........................
24.1 Power of Attorney (see page II-5)...........................
27.1 Financial Data Schedule.....................................
-------------------------
* To be filed by amendment
+ Confidential treatment has been requested for certain portions of this
exhibit.
Dates Referenced Herein and Documents Incorporated by Reference
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