<PAGE> 1
As filed with the Securities and Exchange Commission on May 17, 2000
File No. 0-29495
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
Amendment No. 2 to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------------
WORLD COMMERCE ONLINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 52-2205697
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
(407) 240-8999
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Principal Executive Offices)
-----------------
Copies of communications to:
<TABLE>
<CAPTION>
<S> <C>
RANDOLPH H. FIELDS, ESQ. MARK E. PATTEN
GREENBERG TRAURIG, P.A. WORLD COMMERCE ONLINE, INC.
111 N. ORANGE AVENUE, 20TH FLOOR 9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32801 ORLANDO, FLORIDA 32827
(407) 420-1000/(407) 420-5909 (TELECOPY) (407) 240-8999/(407) 240-9228 (TELECOPY)
</TABLE>
-------------------------------------
Securities to be Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class to be so Registered Each Class is to be Registered
---------------------------------------------------------------------------
NONE NONE
Securities to be Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK ($.001 PAR VALUE)
(Title of Class)
===============================================================================
<PAGE> 2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS REGISTRATION
STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
DIFFERENT FROM THAT CONTAINED IN THIS REGISTRATION STATEMENT. THE INFORMATION
CONTAINED IN THIS REGISTRATION STATEMENT IS ACCURATE ONLY AS OF THE DATE OF THIS
REGISTRATION STATEMENT. IN THIS REGISTRATION STATEMENT, REFERENCES TO "WORLD
COMMERCE," "THE COMPANY," "WE," "OUR" AND "US" REFER TO WORLD COMMERCE ONLINE,
INC.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Business..................................................................................................1
Corporate History And Development.......................................................................20
Risk Factors............................................................................................21
Cautionary Note Regarding Forward-Looking Statements....................................................28
Item 2. Financial Information....................................................................................29
Selected Financial Data.................................................................................29
Management's Discussion And Analysis Of Financial Condition And Results Of Operations...................30
Item 3. Properties...............................................................................................36
Item 4. Security Ownership Of Certain Beneficial Owners And Management...........................................37
Item 5. Directors And Executive Officers.........................................................................39
Item 6. Executive Compensation...................................................................................42
Item 7. Certain Relationships And Related Transactions...........................................................47
Item 8. Legal Proceedings........................................................................................48
Item 9. Market Price Of And Dividends On Registrant's Common Equity And Related Stockholder Matters..............49
Item 10. Recent Sales Of Unregistered Securities.................................................................50
Item 11. Description Of Registrant's Securities..................................................................53
Item 12. Indemnification Of Directors And Officers...............................................................57
Item 13. Financial Statements And Exhibits.......................................................................58
Index To Financial Statements...................................................................................F-1
</TABLE>
i
<PAGE> 3
All statements, trend analyses and other information contained in this
registration statement regarding markets for our products and trends in net
revenues, gross margin and anticipated expense levels, and any statement that
contains the words "anticipate," "believe," "plan," "estimate," "expect,"
"should," "intend" and other similar expressions, constitute forward-looking
statements within the meaning of the federal securities laws, relating to, among
other things, our future prospects and financial performance, expansion plans,
business strategies and their intended results. Individuals considering an
investment in the Company are cautioned that these forward-looking statements
are subject to business and economic risks, including those risks identified in
"Risk Factors" and elsewhere in this registration statement and our actual
results of operations may differ significantly from those contained in the
forward-looking statements because of those risks. The cautionary statements
made in this registration statement apply to all forward-looking statements
wherever they appear in this registration statement.
ITEM 1. BUSINESS
OVERVIEW
We provide Internet-based technology products and services that enable
business-to-business electronic commerce, or B2B e-commerce, intended for the
global perishable products industries. Our B2B e-commerce products include a
broad range of Internet-based technology including basic Internet storefronts
for advertising, e-mail and messaging tools for communications, basic websites
with information content, and complex trading systems that enable our customers
to buy and sell product in a secure e-commerce network. Our core business model
involves the aggregation of our B2B e-commerce products into an Internet-based
environment, which we refer to as a Global Trade Community. Our Global Trade
Community Floraplex(TM) enables our customers within the worldwide floriculture
vertical supply chain to utilize the Internet to execute commercial
transactions, access industry information and, access communication tools. Our
Global Trade Community FreshPlex(TM), which is in the development stage, is
designed to enable customers within the worldwide produce vertical supply chain
to utilize the Internet to execute commercial transactions, access industry
information, and access communication tools. Our Global Trade Communities
consist of proprietary and licensed software, hardware and the related technical
services necessary to support our customers that are executing transactions with
the implementation and use of our Global Trade Communities. Our Global Trade
Communities are designed to be the Internet-based conduit for our customers to
interact and transact business online.
Through our wholly-owned subsidiary, World Commerce Online-Floraplex, Inc.,
we designed and implemented our first Global Trading Community, Floraplex(TM)
for the global floriculture industry. Floraplex includes the following trading
systems: the Flower Purchase Network(TM) (for sales between growers and
wholesalers in Europe), Tradelink(TM) (for sales between growers and wholesalers
in the U.S.), the Supply Purchase Network (for sales of hardgoods by
manufacturers to wholesalers), Floramall(TM) (for sales between wholesalers and
retailers), and FloraShops.com(TM) (for sales by retailers to consumers). (See
"Products and Services"). In September 1999, the FPN and Tradelink trading
systems, the information content websites, the advertising products and
communication tools in Floraplex were operational. These products and services
within Floraplex were the only product offering from which we have derived
revenue for the year ended December 31, 1999 under our B2B e-commerce business
model. Through our wholly-owned subsidiary, World Commerce Online-FreshPlex,
Inc., we have designed our second Global Trading Community, FreshPlex(TM), for
the global fresh produce industry. FreshPlex is still in the development stage.
We anticipate that the information and communication product components of
FreshPlex will be operational in the second quarter of 2000 and the trading
system will be operational in the third quarter of 2000. Based upon our targeted
launch dates, we anticipate that FreshPlex will generate revenue in 2000,
although, we do not expect that any such revenue will significantly diminish the
net losses we anticipate in the foreseeable future. We believe Floraplex and
FreshPlex will provide significant benefits to supply chain participants and
industry professionals, by creating efficiency and improving the effectiveness
of sales, marketing and distribution of perishable products.
1
<PAGE> 4
The formulation of our B2B e-commerce strategy and business model occurred
in the second half of 1998. Prior to this period, we generated revenue and
incurred costs in connection with the import and resale of fresh cut flowers
from 1994 through December 31, 1996. In the year ended December 31, 1997, and
the first several months of 1998, we also generated revenue from the development
of Internet web-sites for a third party and a company under the control of one
of our senior executives. We do not intend to generate revenues from these
sources in the future.
We believe the worldwide perishable products industries are well-suited for
our Global Trade Communities due to the following characteristics:
- Highly fragmented market of buyers and sellers;
- Large transaction volumes;
- Inefficiencies in the supply chain and related cost structure;
- Large variety of non-homogeneous products;
- The time-sensitive nature of perishable products with regard to the
relationship between quality and pricing;
- Large number of buyers and sellers; and
- Highly fragmented industry information, including product varieties
and pricing.
Our B2B e-commerce business model was initiated in September 1998. Our
operating history and financial results prior to that time were reflective of
our previous business model including the import and resale of fresh cut flowers
and the development of Internet web-sites. Our B2B e-commerce business model is
based upon three primary sources of revenue including transaction fees
(representing a fee equal to a percentage of the transaction order value),
advertising revenue, and subscription fees (representing fees for monthly
access). (See "Revenue Model" for a detailed description of these revenue
sources.) The B2B e-commerce industry is a highly competitive market. We believe
that in order for our business to be competitive in this market we must focus on
the following objectives:
- develop and sustain technology products that are functional and
scalable through existing internal development capabilities and
web-server infrastructure as well as third party service providers of
technology products and integration services;
- retain personnel with applicable professional experience in the
perishable products markets globally through recruitment of referrals
by existing personnel or search activities and the utilization of
stock options under our existing option plan;
- establish contractual relationships with supply chain participants
with significant annual revenue, market share, or customer base and/or
with operating capabilities or geographic reach through our
established sales and marketing programs and continued initiatives to
develop programs targeting identified customer segments;
- establish our brands including Floraplex and FreshPlex through
traditional print media, trade show participation, and marketing
initiatives with key service providers; and
- integrate logistics and financial payment systems technology to
enhance our overall product value through contractual relationships
with software providers specializing in applicable technology
products.
We have incurred significant losses since our inception. We anticipate
that we will continue to incur net losses for the foreseeable future as we
build our revenue base and incur costs, particularly associated with product
and technology development and sales and marketing initiatives.
INDUSTRY BACKGROUND
THE INTERNET AND E-COMMERCE
The Internet has emerged as potentially the most significant force in
global commerce, communication and information for businesses as well as
consumers. International Data Corporation, or IDC, estimates the number of
Internet users will grow from nearly 150 million at the end of 1998 to
approximately 500 million by 2002. The dramatic increase in the number of users
as well as the enhanced sophistication of content and capability have
transformed the Internet from a one-dimensional medium for information and
marketing to a complex tool for conducting business and facilitating
communication. The evolution of Internet acceptance and functionality parallels
the shift of the medium as primarily a tool for business-to-consumer, or B2C,
interaction and commerce to a business-to-business, or B2B, model that offers
business organizations significant strategic opportunities. The strategic
opportunity for B2B e-commerce includes the ability of a business to leverage
resources to reach a global customer base, deliver customized content and open
new or expand existing channels of connectivity for distribution and sourcing.
In addition, B2B e-commerce enables companies to
2
<PAGE> 5
streamline complex, often manual, processes, lower costs, and enhance
productivity. The following highlights are indicative of the significant growth
projected for e-commerce:
- According to IDC, B2B e-commerce is projected to grow to $1.5 trillion
by 2003.
- According to Jupiter Communications, Internet advertising expenditures
are expected to grow from an estimated $1.9 billion in 1998 to $7.7
billion in 2002 while B2B advertising is projected to grow from just
under $300 million in 1998 to $2.6 billion in 2002.
B2B e-commerce impacts the fundamental business practices of an enterprise.
B2B e-commerce SOLUTIONS alter the nature of business relationships with
suppliers, partners, customers and, frequently, competitors. In addition, the
B2B e-commerce SOLUTION often represents significant automation to processes and
workflows that were traditionally paper-based and phone-based practices. The
magnitude of the B2B e-commerce transformation on a business operation is
heavily influenced by the level of requisite integration of the B2B e-commerce
technology with the business' existing information systems. The integration
process introduces elements of complexity, cost and timing that will be affected
by the relative sophistication of the business participant. B2B e-commerce
integration and transformation inherently requires training of personnel and
provision of an ongoing customer service capability. The adoption, selection and
implementation of a B2B e-commerce technology represents a significant strategic
decision and level of commitment for a business. Consequently, we believe the
costs of switching to an alternative B2B e-commerce SOLUTION would likely be
high.
B2B e-commerce models are being introduced in a large number of industries.
We believe that the B2B e-commerce technology designed to provide measurable
value by providing competitive advantage and the opportunity of improved
automation, reduced costs and increased productivity has the greatest potential
for acceptance and adoption. We believe the potential adoption rate will be
greatest in industries characterized by a highly fragmented network of supply
chain participants, an inefficient supply chain with related inefficient cost
structure, large transaction volume, a large number of buyers and sellers and a
high level of user acceptance of the Internet or desire to be Internet-enabled.
THE FLORICULTURE MARKET
The estimated $150 billion global floriculture market encompasses the
production, distribution and marketing of fresh cut flowers and greens, bulbs,
bedding plants, perennials, trees, potted plants, bouquets and other
consumer-ready products and floral-related hard-goods, including vases,
glassware, foam, tools, and supplies. Through a network of growers,
manufacturers, importers, brokers, and wholesalers, flowers are delivered from
growing regions around the world to retail florists and mass-market distributors
such as supermarkets and discount stores. The estimated $150 billion global
floriculture market represents the cumulative transaction volume at each B2B
supply chain segment (e.g., grower to wholesaler) as well as the B2C volume
(retailer to consumer). The global market is comprised of the following three
geographic markets:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
MARKETS % SUPPLIED TO
MARKETS SIZE(7) SUPPLIERS GEOGRAPHIC MARKET
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe(1) $98B Holland(4) 40%
Germany(4) 15%
Africa(5) 10%
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Middle East(5) 14%
Italy(6) 9%
Spain(5) 5%
Denmark(6) 5%
Colombia & Ecuador(5) 2%
Americas(2) $30B Colombia(5) 70%
Ecuador(5) 12%
Holland(5) 13%
Caribbean & other
Latin America(5) 5%
Asia(3) $22B Thailand(5) 23%
Taiwan(5) 16%
New Zealand(4) 15%
China(4) 14%
Singapore(5) 9%
Other(4) 23%
</TABLE>
- --------------------
(1) The vast majority of supply in the European market is channeled through the
auction system in Holland. The auction system is a unique component of the
European market providing logistics functions and financial credit and
payment services. The auctions are sales cooperatives that are associations
of Dutch growers.
(2) Over 85% of product supply imported into the U.S. is handled through
importers in Miami, Florida on a consignment basis.
(3) The significant majority of product produced in these markets is consumed
within the market of origin.
(4) Broad range of floriculture products.
(5) Primarily fresh cut flower product.
(6) Primarily potted plants (shrubs/trees).
(7) Estimates based upon data from the Association of International Producers
of Horticulture - Union Fleurs 1998 yearbook (Volume 46), edited by the
University of Hannover, the 1999 yearbook of the Dutch Flower Council
titled MartData 1999, and the 1996 Floriculture and Environmental
Horticulture Briefing Room report updated as of May 1999 issued by the
Economic Research Service of the United States Department of Agriculture
primarily pertaining to production and consumption of cut flowers and
potted plants. Estimated market data includes estimates for hardgoods,
bulbs, and other floriculture based upon referenced data sources and
information supplied by Hortimarc B.V., a horticulture consulting firm in
Holland.
At each stage of the distribution chain, the pricing of cut flowers varies
both with supply and demand, as well as quality and freshness. Inherently, fresh
products have to be sold or at least delivered to a buyer immediately after
harvesting. In Europe this problem is addressed by the auction system using a
clock as the pricing mechanism between demand and supply. Growers deliver their
products to the auction where the products are sold `at the clock'. The auction
system essentially guarantees that nearly all offered products are sold although
the price can vary enormously. In the Americas, growers, like Colombian and
Ecuadorian growers, send a significant majority of their products on consignment
to the buyers/importers in Miami with the expectation that the market will
generate a fair price dependant upon conditions of supply or demand. Generally,
the freshest, most consistent and highest-quality flowers command the highest
prices. A key contributing factor impacting prices is brand recognition relative
to the grower as well as the growing region. Thus, the distribution system
effectively rewards the growers that produce the best product, the importers and
brokers that clear and match product with buyers most efficiently, and the
wholesalers and bouquet-producing companies that distribute product most
effectively while efficiently bringing a quality product to market.
4
<PAGE> 7
The distribution channel in the floriculture industry is highly fragmented.
The majority of suppliers are small, family-owned farms that operate from a
single location or from a small number of outlets in a single region. However,
in the Americas market we estimate that more than 50% of the imported product in
fresh cut flowers is grown or distributed by two corporate operations, including
Dole Fresh Flowers and U.S.A. Floral Products Inc. Floral products have
historically been sold at retail through a large number of traditional retail
florists. Currently, more consumers have begun to purchase floral products from
mass-market retailers such as supermarkets, discount retailers and chain stores.
According to estimates of the Floral Index, a floral product marketing company,
pertaining to 1999 (as published in the January 2000 issue of Flowers &
Magazine, a publication by Teleflora, one of the worlds largest wire service
companies) sales in the retail segment of the U.S. floriculture industry
totaled approximately $15 billion in 1999, of which $7 billion is fresh cut
flowers, with mass-market retailers generating approximately 50% of the retail
sales.
The floriculture industry is built on production cycles, not on
traditional, market-driven sales operations. An increasing number of growers are
producing product year around, in part, to mitigate the impact of seasonality on
their operations and achieve standardized quality for their buyers. The current
supply chain utilizes telephones and facsimiles to execute transactions. Growers
or importers fax their offerings to existing and prospective wholesale and
retail clients. These faxes include product types, volumes offered and sales
prices desired. The fax is followed up by a call in which the salesperson
reviews the product offerings and attempts to get the wholesaler or retailer to
buy the product. Because of the current communication process, many growers are
not knowledgeable of consumer demand levels and market information. The window
of time to execute transactions between importer and wholesaler is approximately
5-6 hours per day, due to current logistics constraints and a lack of available
information, which makes planning and forecasting difficult. Once the sale is
made, the logistics carrier is notified and the product is either picked up or
delivered to the carrier's refrigerated trucks. We estimate that 12-15% of
imported flowers sold are sold direct by the growers to wholesalers or
retailers.
THE PRODUCE MARKET
The estimated $550 billion global produce market encompasses the
production, distribution and marketing of bulk fresh produce, value-added fresh
produce products (fresh-cut salads, baby peeled carrots, etc.) and supplies and
services for the fresh produce industry. Through a network of growers, packer/
shippers, importer/exporters, brokers, wholesalers and transportation companies,
fresh produce is brought from growing regions around the world to food service
establishments and retail grocers. The estimated $550 billion global produce
market represents the cumulative transaction volume at each B2B supply chain
segment only (e.g., packer/shipper to wholesaler). The global market is
comprised of the following four geographic markets:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
MARKETS % SUPPLIED TO
MARKETS SIZE(7) SUPPLIERS GEOGRAPHIC MARKET
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
North America(1) $215B(5) Domestic 70%
Imported 30%
Latin America(2) $ 35B(6) Domestic 80%
Imported 20%
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
MARKETS % SUPPLIED TO
MARKETS SIZE(7) SUPPLIERS GEOGRAPHIC MARKET
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Europe(3) $215B(6) Domestic 60%
Imported 40%
Asia(4) $ 85B(6) Domestic 85%
Imported 15%
</TABLE>
- ----------------------
(1) The majority of the product supply for North America originates from 10
states primarily in the Western and Southern United States. During the
winter months, product is imported from countries in the Southern
Hemisphere, including Mexico (50%), other Latin American countries (40%)
and Europe (including The Netherlands, Spain and Israel) (10%).
(2) The majority of product supply for Latin America is grown domestically.
Product that is not grown domestically is imported from the United States
or Canada.
(3) Product that is not provided by countries on the Continent is imported from
Africa, the Middle East, South America and the United States.
(4) China is also a major producer of fresh produce but due to a lack of
distribution infrastructure and unfavorable trade policies, it has not
become a global or even regional supplier.
(5) North American estimates based upon data in the 1999 Fresh Track report
published by the Produce Marketing Association, the 1992 Census of
Agriculture published by the National Agricultural Statistics Service (part
of the USDA), and the 1994 report of the Economic Research Service (also
part of the USDA).
(6) Estimates provided by Novelle Consulting, L.L.C. based upon data from
statistical reports of North American market and internal data collection.
The produce industry has experienced significant consolidation in recent
years, including both retail as well as supply, and is a highly competitive
industry. Buyers have increasingly more responsibilities and sellers are finding
the need to become year-round, multi-national suppliers in order to serve their
customers' needs and thereby retain their customers' business.
Most produce items are very time and temperature sensitive. Consequently,
the supply chain contains a complex distribution/logistics system to get the
product from farm level to consumers around the world. Almost all produce is
shipped to a distribution center before being sent to a retail location.
The produce industry is built on supply and demand curves. These market
dynamics create wide fluctuations in market prices and provide a business
atmosphere in which up-to-date information that is easy to access and use is a
critical strategic tool.
THE OPPORTUNITY
We believe there is a significant need for a neutral, Internet-based B2B
e-commerce solution for the global perishable products industries, bringing
buyers and sellers together in a single trading system to execute transactions
online. In addition, we believe there is a significant need for a consolidated
information source providing current industry knowledge relative to the
worldwide markets and educational resources.
6
<PAGE> 9
The fragmentation and complexities of the global perishable products
industries and the current paper-based, telephone-based buying processes provide
the core opportunity for a B2B e-commerce solution that seamlessly links
suppliers with buyers of perishable product. To be an effective solution meeting
the needs of supply chain participants, a solution must be cost-effective,
easily implemented and maintained, enable the business to sustain existing
buying policies, offer opportunities for increased access to suppliers and
customers and must represent minimal disruption to the existing trading model.
We believe it is critical that the B2B e-commerce solution offer an impartial
and fair environment for buying and selling with adequate and accurate product
pricing data and product descriptions.
OUR SOLUTION
Our Global Trade Communities are the Internet-based marketplace for the
global perishable products industries facilitating interactions and transactions
by our customers. We utilize Internet-based technology, our management's
industry experience, and relationships with industry participants with
significant annual revenue, market share, or customer base geographic reach, or
organizational capabilities in marketing, sales, or distribution to provide a
B2B e-commerce trading system designed to enhance sales and marketing
productivity, reduce costs, increase customer access, increase supply chain
efficiency (i.e. order and fulfillment cycles) and meet user demand for online
trading capability. We assist our customers in using the Internet for B2B
e-commerce in a secure Internet-based trading environment. Our Global Trade
Communities provide our customers with the ability to utilize the Internet for
expanded access to new and existing customers and suppliers globally, and enable
them to conduct B2B e-commerce.
BENEFITS TO OUR CUSTOMERS
We believe our Global Trade Communities provide our customers with the
following potential benefits:
- Increased product quality based upon the enhanced supply chain
efficiency and effectiveness providing growers with opportunities for
improved profitability;
- Single site access to multiple suppliers and buyers, permitting
efficient product procurement and expanded sourcing;
- New market access and global reach providing cost effective strategic
growth opportunities without the impediment of geographic boundaries;
- 24 hour/7 day access to "available for sale" inventory expanding the
window of time for procurement processes;
- Internet-based, automated, order processing should reduce error and
discrepancy rates, increase process efficiency through access to
expanded supply scheduling, and decrease dependency on and cost of
traditional telecommunication tools;
- Paperless record of transaction histories and communications,
providing enhanced demand forecast analysis and reorder capability;
- Increased human resource productivity by eliminating manual
interactions (phone and fax) and creating excess capacity for human
capital allocation;
- Reduced marketing costs by allowing targeted marketing campaigns
online (i.e. e-brochures) and utilization of less expensive mediums
for supplementary advertising;
- Opportunity for increased market share from existing and expanded
customer base due to ease of operating system and online features;
- Stronger business relationships from the enhanced connectivity within
a more efficient supply chain;
7
<PAGE> 10
- Improved logistics, inventory management and production processes
relating to reduced spoilage and improved production scheduling and
forecasting;
- Enhanced profitability potential from expanded revenue opportunity and
increased productivity of personnel;
- Increased access to comprehensive global industry news, daily, weekly
and monthly features, as well as the year-long calendar of industry
events and registration; and
- Convenient, online messaging, teleconferencing and real time audio and
video.
STRATEGY
Our goal is to be the B2B e-commerce solution for the global perishable
products industries, providing an Internet-based technology utility, which
facilitates global trade and, provides a centralized online resource with
communication capability and consolidated industry information relative to
global markets and educational tools. We intend to capitalize on our technology
and market position to establish the standard for global B2B e-commerce in the
perishable products industries. To accomplish our goals, we are pursuing a
strategy built on the following initiatives:
TARGET THE LEADERS IN THE FLORICULTURE AND PRODUCE SUPPLY CHAIN TO ACHIEVE
ACCEPTANCE AND ADOPTION
We believe successful execution of our B2B e-commerce business model must
begin with acceptance and adoption by the supply chain participants with
significant market share, customer base or annual revenues, with significant
scale in sales and marketing capability or distribution capacity, or with large
multi-national or national operations, which we consider collectively as
industry leaders. We displayed and demonstrated a prototype of the Floraplex
products and business model at the Wholesale Florist & Florist Suppliers of
America trade show in January 1999 and displayed a prototype of the FreshPlex
product and business model at the Produce Marketing Association trade show in
October 1999. Since their introductions we have entered into agreements with
supply chain participants including the Flower Auction Aalsmeer and Flower
Auction Holland, two auctions in Holland with estimated annual transaction sales
of $1.5 billion and $1.4 billion, respectively, with Dole Fresh Flowers, with
annual revenue of more than $200 million, and with Charles Kremp and the Kremp
Network, a network of approximately 30 retail florists in the U.S. each with an
average annual revenue of more than $1 million. We are seeking to expand our
penetration into other organizations at each component of the supply chain in
each geographic market for floriculture and produce. We are continuing to expand
our sales force. Our sales and marketing programs are intended to attract the
organizations or networks of organizations at each component of the supply chain
to promote our B2B e-commerce products to their customers and suppliers and to
develop our brand. These programs include our `hub and spoke' strategy which
targets the large regional wholesale florists to promote our B2B e-commerce
products to their customer base, the retail florist, and promote product
purchases from the wholesaler through our trading systems.
ESTABLISH FLORAPLEX AND FRESHPLEX AS LEADING BRANDS FOR B2B E-COMMERCE.
We plan to establish Floraplex and FreshPlex as the industry standard for
B2B e-commerce relative to product quality and operational effectiveness in the
global perishable products marketplaces. We plan to achieve significant
penetration among the leading supply chain participants in our targeted
perishables product industries by promotion of our brands. We intend to promote
our brands through traditional print media, including advertising in industry
periodicals. We will participate as a speaker or booth presence at most of the
significant international and U.S. based trade shows held annually. We will also
conduct marketing initiatives with key service providers with whom we have
contractual relationships whereby we will utilize the sales and marketing
personnel of the service providers to identify potential customers for us. We
believe the combination of strong brand awareness, the functionality of our
Global Trade Communities, and our customer base will create competitive
advantage in our market.
8
<PAGE> 11
BUILD RELATIONSHIPS WITH KEY CUSTOMERS, INVESTORS, AND SERVICE PROVIDERS TO
STRENGTHEN MARKET POSITION.
We have established and will continue to develop agreements with capital
investors, supply chain participants, technology providers, Internet-based
companies, logistics providers, and financial services organizations to
accelerate acceptance and adoption of our Global Trade Communities and expand
our global reach. During 1999 and as of March 31, 2000, we entered into the
following agreements.
<TABLE>
<S> <C>
- Investor Interprise Technology Partners, L.P.
- Supply chain - Floriculture
Customers-Europe Flower Auction Aalsmeer
Flower Auction Holland
Customers-Americas Dole Fresh Flowers
Wholesale Florists and Florist
Suppliers of America
International Floral Distributors
Premier Floral Distributors
Consultant Charles Kremp III
- Supply chain - Produce
Consultant Novelle Consulting, L.L.C.
- Technology
Logistics i2 Technologies, Inc.
Financial services eCredit.com Inc.
Consultants AnswerThink Consulting Group, Inc.
Netera, Inc.
</TABLE>
We will continue to selectively pursue relationships supporting our
strategy with other supply chain participants, Internet technology providers,
Internet service providers, web site developers and systems integrators, as well
as investors. Our relationships will focus on complementary Internet-based
products as well as products complementary to our targeted supply chains
including logistics and financial payment systems. We believe these
relationships will accelerate the adoption and penetration of our B2B e-commerce
solutions, increase our brand recognition and enhance the value of the supply
chain to our customer base.
LEVERAGE FLORAPLEX AND ITS BUSINESS MODEL TO FRESHPLEX AND OTHER GLOBAL
TRADE COMMUNITIES.
We have developed and are implementing a business model and technology
infrastructure for Floraplex. We intend to leverage our technology
infrastructure and business model into subsequent Global Trade Communities,
including FreshPlex during 2000. We believe certain similarities in the
perishable products industries provide us with the opportunity to benefit from
our experience with Floraplex and effectively replicate the technology
development and the sales and marketing operations structure.
CREATE AN INTERNET-BASED SALES AND MARKETING TOOL FOR OUR CUSTOMERS.
We believe a functional goal of our Global Trade Communities is to provide
our customers with a secure Internet-based system that significantly enhances
their sales and marketing capabilities. A critical element to achieving our goal
is to have significant industry experience on our management team. Our industry
experience allows us to understand our customers, optimize our relationships
with key supply chain participants, and efficiently meet the functional
requirements of our customer in the development or advancement of our technology
and related B2B e-commerce tools.
9
<PAGE> 12
EXPAND AND ENHANCE OUR TECHNOLOGY AND CONTENT TO INCREASE THE VALUE AND
FUNCTIONALITY OF OUR GLOBAL TRADE COMMUNITIES.
We plan to continue to expand and enhance our network content as well as
our Internet-based B2B e-commerce technology to increase performance and
emphasize quality for our customers. We intend to continuously evaluate the
content provided in our information portals and improve or expand the
information to promote quality as well as relevance to our global customer base.
Further, we will evaluate our existing infrastructure of hardware and software
on an ongoing basis to assess performance and customer demand, as well as
identify current advancements in technology that may enhance the quality of our
products or the integration of our customer's or strategic partner's
technology.
INTEGRATE LOGISTICS AND FINANCIAL SERVICES IN OUR TRADING SYSTEMS TO
ENHANCE THE VALUE OF OUR GLOBAL TRADE COMMUNITIES.
We believe the B2B e-commerce trading system for the global perishable
products industries must provide customers with the ability to access logistics
services for efficient and cost effective product movement and financial
services for enhanced payment options and timely credit information. In 1999, we
executed an agreement with an Internet-based technology provider to facilitate
financial services between supplier and wholesaler in the Americas market
segment of Floraplex. In April 2000, we executed a software license agreement
with a developer of supply chain management software to facilitate logistics and
supply chain management capabilities globally within our Global Trade
Communities. We will continue to pursue arrangements and strategic alliances
with providers of technology or services specializing in logistics fulfillment
as well as financial services.
REVENUE MODEL
FLORAPLEX
- TRANSACTION FEES: In the year ended December 31, 1999, we earned
revenue from the seller in each transaction conducted within Floraplex
with transaction fees ranging from 2% to 8% of the transaction order
value. The percentage varies based upon a sliding scale of total
transaction volume conducted within a specified time period. We intend
to earn revenue from transactions between retailers and end consumers
by charging the retailer a flat fee for each transaction and a fee
equal to 5% of the transaction order value.
- ADVERTISING REVENUE: In the year ended December 31, 1999, we earned
revenue from advertising fees paid by business enterprises wishing to
reach our customers. Business enterprises are charged varying rates
for advertising space through banner displays and "click-through"
advertisements. Floraplex provides a concentration of industry
participants which we believe provides significant opportunity for
cost efficient and effective targeted marketing for a business seeking
to reach our customers. We also earned revenue from advertising fees
paid by our customers who utilize our web-marketing products and
services. We anticipate that our revenue opportunities from
advertising will continue to expand as we pursue affinity marketing
arrangements and strategic sponsorship agreements.
- SUBSCRIPTION FEES: In the year ended December 31, 1999, we earned
revenue from subscription fees paid by our customers for access to
Floraplex. Subscription fees are determined according to the nature of
a customer's participation and the number of subscribers. Customers
generally will be charged $9.95 per month for access to the
10
<PAGE> 13
information and communication portal and $99 per month for access and
participation in the trading systems.
FRESHPLEX
- TRANSACTION FEES: We intend to earn revenue from both the buyer and
seller in each transaction conducted within FreshPlex based upon a
charge per carton which approximates fees ranging from 1% to 2% of the
transaction value. In addition, we plan to earn revenue from
transactions involving industry suppliers such as fertilizer or
pesticide producers with transaction fees ranging from 3% to 5% of the
transaction value.
- ADVERTISING REVENUE: We intend to generate revenue from advertising
fees in substantially the same manner as Floraplex.
- SUBSCRIPTION FEES: Subsequent to development of the portal component
of FreshPlex, we intend to earn revenue from subscription fees paid by
our customers for access to FreshPlex. Subscription fees are
determined according to the nature of a customer's participation and
the number of subscribers.
We did not earn revenue from any source relative to FreshPlex in the year
ended December 31, 1999.
TECHNOLOGY
We have developed and implemented a broad array of technologies using a
combination of proprietary technologies and commercially available, licensed
technologies. Approximately 60% of the technology we currently use is licensed
technology; the remaining 40% is proprietary technology. Our current strategy is
to license commercially available technology whenever possible while also having
internal resources capable of systems development and third party development
arrangements. We expect that commercially licensed technology will continue to
be available at reasonable costs.
We developed the majority of our applications using the Microsoft
Development Suite tools. This allows our customers to buy and sell product over
the Internet quickly and easily. In addition, we developed an XML application
available in our trading systems which allows our customers to upload their
available inventory and other pertinent business information into our trading
system as well as download inventory and sales data.
Our web-marketing products incorporate advanced software applications to
enable Internet-based promotions through banners, direct e-mail programs,
electronic brochures and electronic catalog distribution with interactive
ordering capability.
Scalability. The scalable structure of our hardware and software allows for
rapid deployment of our Global Trade Community framework to new geographic
markets or industries while maintaining desired user performance standards. In
the rapidly changing Internet environment, the ability to update an application
to stay current with new technologies is critical. The system's base technology
and database design allow for the addition, modification, or replacement of Web
site based applications in a cost-efficient and expeditious manner.
11
<PAGE> 14
Reliability and Security. Our Web server architecture is redundant with no
single point of failure. All components of the system architecture, both
software and hardware, are duplicated. Under normal operations both sets of
components operate. In the event that one component fails the duplicate
component will seamlessly provide all system support required for uninterrupted
operation.
We use CheckPoint Firewall-1 software to protect our Web servers. Our Web
server production machines are located at the facilities of SunGard Data
Systems, Inc. in Philadelphia, Pennsylvania. SunGard provides professional data
center hosting facilities and redundant high-speed Internet connectivity.
SunGard also provides monitoring and support 24 hours a day, seven days a week
supplementing our own system administrators. We encrypt all data internally and
externally using DES encryption, Secure Socket Layer, and the Hyper-Text
Transmission Protocol Secure browser protocol.
Our existing infrastructure for Floraplex has the system capacity for
approximately 1 million transactions per day relative to trading activities and
for 3 million discrete hits per week relative to overall usage of our aggregate
B2B e-commerce products. Our current transaction usage is less than 1% of
capacity on a daily basis and we are experiencing approximately 200,000 hits per
week on our combined systems and sites.
We have developed our own content and Web site management tools to
facilitate the maintenance and updating of our Global Trade Communities. Our Web
site management tools allow our editors to update our Web sites from remote
locations throughout the day.
PRODUCTS AND SERVICES
Floraplex contains specific trading systems for buying and selling tailored
to the different segments of the floriculture supply chain and an information
and communication portal providing comprehensive global industry news and
information and Internet-based communication tools. Our products and services
within Floraplex include:
<TABLE>
<CAPTION>
PRODUCT/SERVICE AREA PRODUCT NAME PRODUCT DESCRIPTION
- -------------------- ------------ -------------------
<S> <C> <C>
Trading Systems Flower Purchase Online trading systems dedicated
Network(TM) to transactions for growers and
Trade Link(TM)(1) importers of floriculture products selling
to wholesalers. Users can build
"available for sale" inventory
listings, schedule their inventory
according to an annual calendar,
browse new buyers, view purchase reports,
and edit purchase points.
Supply Purchase Network Online trading systems dedicated
to transactions for manufacturers
and suppliers of hardgoods selling
to wholesalers. Users can build
"available for sale" inventory
listings, browse new buyers, view
purchase reports, and edit purchase
points.
</TABLE>
12
<PAGE> 15
<TABLE>
PRODUCT/SERVICE AREA PRODUCT NAME PRODUCT DESCRIPTION
- -------------------- ------------ -------------------
<S> <C> <C>
Floramall A trading system specifically
tailored for product sales by
the wholesaler to the retailer,
providing 24-hour online sales
of product. Product enhancements
include tools designed to enhance
marketing capabilities including
product catalogs and e-brochures.
Technology tools also provide
wholesaler with the ability to load
'available for sale' inventory. Wholesale
florists can also pre-allocate
inventory for regular buying customers.
Florashops.com Primarily a trading system to
facilitate the retailer link
into Floramall and trading
activities with the wholesale
florist. Specifically the
product enables transactions by
retail florists to consumers. A
dedicated search engine allows
consumers to actively seek and
find retailers by location or
desired product.
Information Floraplex Website with global industry news
content (including features, profiles,
letters to the editor), calendar of
industry events, USDA market reports,
education links, product library and
breeder's showcase, web-casts, membership
directory, and general world news content.
Communications Floraplex `Web-based' tools for industry contact and
communication providing e-mail system,
chat rooms, and message boards.
</TABLE>
- --------------------
(1) Trading system originally built for the Americas market. We plan to merge
our global trading systems technology as a single platform under the Flower
Purchase Network.
The FreshPlex products and services are currently in the development stage.
We anticipate the component parts of FreshPlex will consist of the same products
and services as Floraplex excluding a B2C component similar to Florashops.com.
Due to the nature of the produce market, we intend for the FreshPlex trading
system to be a single product that incorporates all the participants in the
supply chain from the grower to the retailer. We intend to have the information
and communication product components of FreshPlex available in the 2nd quarter
of 2000 and the first version of the trading system available beginning in the
3rd quarter of 2000.
KEY CUSTOMERS, INVESTORS AND SERVICE PROVIDERS
We have agreements which we view as supporting our strategy with Interprise
Technology Partners, i2 Technologies, Inc., Flower Auction Aalsmeer, Flower
Auction Holland, Dole Fresh Flowers, Wholesale Florists and Florist Suppliers of
America, Charles Kremp III, International Floral Distributors, Premier Floral
Distributors,
13
<PAGE> 16
Novelle Consulting, L.L.C., AnswerThink Consulting Group, Inc., Netera, Inc. and
eCredit.com, Inc. We intend to enter into additional arrangements with supply
chain participants that we deem significant relative to annual revenue levels,
customer base, or market share, geographic scale or operational capability, as
well as with technology companies, logistics companies, and financial services
companies with leading technology capabilities, global reach or service
expertise to accelerate market acceptance of our products and services and to
expand and enhance the value of our Global Trade Communities. We believe
relationships of this nature can increase our brand recognition and improve
access to our target customer base.
INTERPRISE TECHNOLOGY PARTNERS
In February 1999, we executed an offering of 4,000,000 shares of Series A
convertible preferred stock funded entirely by Interprise Technology Partners,
or ITP, for approximately $8 million. In October 1999 we executed an offering of
5,000,000 shares of Series B convertible preferred stock lead by ITP for
approximately $20 million of which ITP provided 25% of the funding. See
"Description of Registrant's Securities" and "Certain Relationships and Related
Transactions."
i2 TECHNOLOGIES, INC.
In April 2000, we entered into a software license agreement with i2
Technologies, Inc., a provider of supply chain management and logistics
software. We will use i2's TradeMatrix(TM) platform for the integration of
supply chain management and fulfillment software applications including demand
consolidation, supply segregation and order fulfillment within FreshPlex and
Floraplex. FreshPlex and Floraplex will also provide logistics and
transportation services to the global perishable products industries utilizing
i2's transportation software applications.
Terms of the agreement include an exclusivity provision which requires i2,
for a period of six months from the date of the agreement, to not develop and
execute a sales and marketing strategy with several of our major competitors. As
consideration for acquiring the software license we issued to i2 a warrant
representing the right to purchase 1.25 million shares of our common stock at an
exercise price of $7.00 a share. The warrant vests immediately and has a fair
value of approximately $8 million based on a Black Scholes option pricing model.
As part of the agreement we agreed to pay i2 a royalty fee equal to 5% of
our gross revenues with minimum royalty payments of $0.5 million, $0.75 million
and $1 million, respectively, in each of the three successive years after the
launch date of the software which is currently estimated to be in September
2000. In addition, we have entered into a three-year joint marketing agreement
that requires the development of a joint marketing plan between the companies to
facilitate our sales and marketing strategy. As payment for their marketing
efforts, i2 will receive a finder's fee for customer leads it provides to us.
The finder's fee is equal to 50% of the fees we receive from a customer for
access to our products, less specific deductions as outlined in the agreement.
FLOWER AUCTION AALSMEER
In December 1999, we reached an agreement with Flower Auction Aalsmeer, or
the VBA, a flower and plant auction in Holland with estimated annual sales of
$1.5 billion. The VBA is a cooperative organization owned by Dutch growers
providing three key supply chain services, product trading through an auction
system, logistics, and a payment system for growers. Our agreement provides for
the utilization of Floraplex and specifically our trading system technology for
transactions between growers and the exporter/wholesaler buyers of the VBA. The
five year agreement contained no agreed transaction fee rate structure, however,
at the time of the execution of this agreement, the parties agreed to apply a
transaction fee of 4% of the transaction order value. The VBA will continue to
provide their payment system and logistics services regardless of whether a
product is purchased on Floraplex or through the auction process. Payment for
these services will continue to be the responsibility of the buyer and/or seller
in accordance with the existing arrangement with the auction. As of December 31,
1999, we had recognized approximately $10,000 in transaction fees, paid by the
seller, related to sales of product. As of December 31, 1999, we were in the
process of negotiating a more definitive agreement with agreed upon transaction
rates and terms of service.
FLOWER AUCTION HOLLAND
In October 1999, we entered into an agreement to implement Floraplex at the
Flower Auction Holland, or BVH, a flower auction in Holland with estimated
annual sales of $1.4 billion. The BVH is a cooperative organization owned by
Dutch growers providing the same supply chain services as the VBA. Our agreement
targeted the sale of cut flowers occurring prior to auction and required that we
conduct a pilot test of our Floraplex trading system. The agreement contained no
definitive term beyond the three month pilot program or agreed transaction fee
rate structure. The BVH was required to affirm the successful completion of the
test, commercially and technically, in order for the application of transaction
fees at agreed upon rates to become effective. In November 1999, we began the
pilot project. The pilot program was completed in February 2000 and we received
written notice from BVH confirming the successful test. During the pilot program
the BVH was not required to pay any transaction fees for product sold on
Floraplex. The BVH will continue to provide their payment and logistics services
regardless of whether a product is purchased on Floraplex or through the auction
process. Payment for these services will continue to be the responsibility of
the buyer and/or seller in accordance with the existing arrangement with the
auction. As of December 31, 1999, we had recognized no revenue in connection
with this agreement. As of December 31, 1999, we were in the process of
negotiating a more definitive agreement with agreed upon transaction rates and
terms of service.
DOLE FRESH FLOWERS
In December 1999, we entered into an agreement with Dole Fresh
Flowers, the floriculture division of Dole Food Company, a produce and
floriculture company with estimated annual sales of $5 billion, to adopt and
use Floraplex as their preferred B2B e-commerce solution. The agreement
requires us to provide training, systems
14
<PAGE> 17
operation materials, cost benefit analyses and a 15% discount on our web
marketing products. Transaction fees are based on monthly sales volumes of up to
$5 million or over $5 million and equal to 2.0% and 2.5% of the transaction
order value, respectively. Under the two year agreement we will conduct
cooperative marketing efforts targeting Dole's primary customer base with the
largest annual purchase volume to promote Floraplex as the industry standard for
B2B e-commerce and as a web-marketing opportunity. In addition, Dole will commit
specified human resources to coordinate usage of Floraplex and will pay a $150
monthly subscription fee for each shipping location and a $5.95 monthly
subscription fee for each user of the system. Dole provides an estimated 25% of
the fresh cut flower supply in the Americas market. As of December 31, 1999, we
had recognized no revenue in connection with this agreement.
As part of the agreement, we issued Dole a warrant representing the right
to purchase 1,000,000 shares of our common stock at an exercise price of $7.50
per share. See "Description of Registrant's Securities." The warrant is not
contingent upon production or performance commitments including guaranteed
transaction levels, revenue levels or similar volume commitments.
WHOLESALE FLORISTS AND FLORIST SUPPLIERS OF AMERICA
In January 1999, we entered into an agreement with WF&FSA in which we
developed their Internet web-site in return for which WF&FSA promoted Floraplex
exclusively to its approximately 800 members. The agreement contained no
definitive period of duration. WF&FSA includes a membership of wholesale
florists and hardgoods suppliers in the U.S. with annual sales estimated at
$1.5 billion. As of December 31, 1999, we had recognized no revenue in
connection with this agreement.
CHARLES KREMP III
In October 1999, we entered into a consulting agreement with Charles Kremp
III, former Chairman of the Society of American Florists and formerly a member
of the board of the FTD Association, to exclusively promote Floramall and
Florashops.com to retail florists. Specifically, our agreement requires Kremp to
exclusively promote our products to the Kremp Network, a group of approximately
30 retail florists throughout the United States each with an average annual
revenue of more than $1.0 million. Our agreement with Mr. Kremp is structured as
a three year consulting agreement paying Mr. Kremp approximately $100,000
annually, paid in quarterly installments. In connection with the promotional
exclusivity with the Kremp Network, we issued Kremp a warrant representing the
right to purchase 250,000 shares of common stock at an exercise price of $8 per
share and 20,000 shares of our common stock.
INTERNATIONAL FLORAL DISTRIBUTORS
In March 1999, we entered into a relationship with IFD to market our B2B
e-commerce products to the IFD members. Such products include Floraplex,
Floramall and Tradelink. IFD is an organization of 27 wholesale florists
throughout the U.S. with annual sales of approximately $350 million, or
approximately 10% of the U.S. wholesale market. In connection with this
relationship, we have entered into agreements with individual IFD members. Each
agreement has a three year term and provides for a transaction fee rate of 3% of
the transaction order value. As of December 31, 1999, we had not recognized
significant revenues in connection with these agreements.
Several members of the IFD purchased 137,500 shares of our Series B
redeemable convertible preferred stock.
15
<PAGE> 18
PREMIER FLORAL DISTRIBUTORS
In March 1999, we entered into a relationship with PFD to market our
B2B e-commerce products to the PFD members. Such products include Floraplex,
Floramall and Tradelink. PFD is an organization of 7 wholesale florists
throughout the U.S. with estimated annual sales of $80 million. In connection
with this relationship, we have entered into agreements with individual members
of PFD. Each agreement has a three year term and provides for a transaction fee
rate of 3% of the transaction order value. As of December 31, 1999, we had not
recognized significant revenues in connection with these agreements.
NOVELLE CONSULTING, L.L.C.
We engaged Novelle Consulting, L.L.C., a recognized consulting firm of
former executives in the global produce business of Dole, to, among other
things, develop and assist in the implementation of the strategic plan and
operational structure for FreshPlex. Our engagement with Novelle is on a time
and materials basis with no guaranteed fees or minimum billing levels. As of
December 31, 1999, we had not executed a written agreement with Novelle.
As part of our agreement, in April 1999, we issued 5,357 shares of our
common stock to Novelle as consideration for services rendered and a warrant
representing the right to purchase 250,000 shares of our common stock at an
exercise price of $12.38 per share. See "Description of Registrant's
Securities."
ANSWERTHINK CONSULTING GROUP, INC.
In July 1999, we entered into a strategic services contract with
AnswerThink, Inc., a consulting firm of systems architects and integrators, to
design the integrated technology for our trading systems. The contract requires
our approval of individual statements of work for each assigned service and
provides for costs to be billed on a time and materials basis with no guaranteed
fees or minimum billing levels.
As part of our arrangement with AnswerThink, Inc., and in recognition of
AnswerThink's role in our agreement with i2, in March 2000, we issued two
warrants representing the right to purchase 155,000 and 95,000 shares of our
common stock at an exercise price of $18 per share. See "Description of
Registrant's Securities."
NETERA, INC.
In July 1999, we entered into a strategic services contract with Netera,
Inc., a designer and developer of Internet hardware architectures, to design and
build our Global Trade Communities infrastructure. In connection with this
agreement, we incurred the costs for acquisition of hardware and software assets
installed (approximately $750,000) as well as charges for Netera consultants on
a time and materials basis (approximately $50,000). In November 1999, we
implemented the architectural design and installed our web-server infrastructure
at the SunGard Data Systems, Inc. facilities in Philadelphia, Pennsylvania. As
of December 31, 1999 the services affiliated with this agreement were complete.
ECREDIT.COM, INC.
In December 1999, we entered into a three year agreement with
eCredit.com Inc. to integrate eCredit's Internet-based financial services
product into Floraplex for the Americas market segment providing Internet-based
sourcing of financial payment and credit services for grower to wholesaler
transactions. Our minimum commitment relative to fees per payment transactions
processed in an annual period is approximately $150,000 in 2000, $240,000 in
2001, and $650,000 in 2002. The agreed upon transaction levels and minimum fees
are not applicable until we identify, select and approve financial service
providers presented by eCredit and the successful implementation of eCredit's
software. As of March 31, 2000, we have not selected or approved a financial
service provider.
16
<PAGE> 19
SALES AND MARKETING
Our sales and marketing team includes several individuals who have spent
the majority of their professional careers, in all instances more than 10
years, in the floriculture and produce industries in areas including
supply/production, and distribution. Our industry professionals have assisted in
the overall development, introduction, and implementation of our Global Trade
Communities. The following information regarding our sales and marketing
operations pertains primarily to Floraplex.
We currently sell Floraplex primarily through a direct sales force that is
actively targeting supply chain participants that have the largest annual
transaction volume, or turnover, and are the recognized leaders in the European
and the Americas market segments. As of December 31, 1999, we had 43 full-time
employees in our sales and marketing organization. As of December 31, 1999, we
had 11 full-time employees in direct sales.
Our technical consulting group directly supports our sales and distribution
efforts by providing technical consulting and integration assistance to our
current and prospective customers. As of December 31, 1999, we had 6 full-time
employees in our technical consulting group.
We believe that a high level of customer service and support is critical to
the successful marketing and sales of our Global Trade Communities. We are
building a service and support organization to meet the needs of our customers.
As of December 31, 1999, we had 4 full-time employees in our customer service
and support organization and 6 full-time employees in our product management
organization. We are seeking to hire additional customer service and support
personnel as our customer base grows and as we introduce new products and
services.
To support our sales efforts and actively promote Floraplex and FreshPlex,
we conduct targeted marketing programs. Our marketing programs include an active
public relations campaign, print advertisements, online advertisements, trade
shows, strategic relationships with professional associations within the
industry and on-going customer communications programs. We focus our marketing
efforts on business and trade publications, online media outlets, industry
events and sponsored activities. We participate in a variety of Internet,
floriculture and produce industry conferences and encourage our officers and
employees to pursue speaking engagements at these conferences. As of December
31, 1999, we had 20 full-time employees in our marketing organization.
RESEARCH AND DEVELOPMENT
We recognize that strong product and service development capabilities are a
critical component of our strategic success. We believe the development
capability is essential for enhancing our technologies, developing or
integrating new applications for our Global Trade Communities, and maintaining
our competitiveness. We believe these development capabilities need to represent
internal resource strengths as well as third party providers sourced and
selected based upon criteria such as quality, scalability and strategic fit. We
have invested and intend to continue to invest a significant amount of human and
capital resources in our research and development organization and activities.
As of December 31, 1999, we had 14 full-time employees and 5 third-party
professionals dedicated to our development efforts. Our development team is
primarily focused on developing and enhancing our Global Trade Communities, as
well as developing applications that advance our customer's capability to
integrate their internal systems to our Global Trade Communities, and the
functionality of our information content. We are currently in the process of
developing and integrating
17
<PAGE> 20
new technology or updated versions of existing technology into our Global Trade
Communities as part of our planned release of product enhancements in 2000.
Product and technology development expenditures were approximately $7.6 million,
$0.4 million and $0.1 million in 1999, 1998 and 1997, respectively. Our
development costs include expenditures for third-party development and systems
integration organizations. We expect to continue to commit resources to research
and development in the future.
In 1998 and 1997, all expenses for product and technology development were
expensed as incurred. In 1999 we capitalized $4.8 million of our product and
technology development costs as computer software assets to be amortized over 3
years in accordance with the AICPA's Statement of Position 98-1.
COMPETITION
The market for B2B e-commerce and Internet-based ordering and trading is
new, rapidly evolving, and intensely competitive. We expect competition to
increase both from existing competitors as well as new entrants, for various
components of our Global Trade Communities. We face competition from the
following areas:
- Other e-commerce companies;
- Traditional supply chain participants;
- Enterprise software companies that offer or develop an alternative
trading product.
Competition from other B2B e-commerce companies in the produce market
segment is particularly extensive with between 8 to 10 organizations
specifically targeting the U.S. and European supply chains including
domestically; Produce Online, Buyproduce.com, and DTN, and in Europe; World of
Fruit.com and Produce World. Our competition in the B2B component of the
floriculture market segment includes Flower Web, a B2B e-commerce company in
Holland, as well as organizations competing in the domestic B2C component such
as: FTD.com, 1-800-flowers.com, ProFlowers and Gerald Stevens, Inc. Competition
may also include B2C e-commerce companies in markets other than perishable
products seeking expanded revenue sources in the B2B market. We are unaware of
competitors for the Asian market for floriculture or produce that are located in
that market.
We could face further competition in the future from traditional supply
chain participants that enter into B2B e-commerce with an Internet-based trading
system of their own or by partnering with other companies. Traditional
enterprise software companies such as IBM, Oracle, or SAP could in the future
develop and offer a competitive set of products. Additionally, B2B e-commerce
companies currently focused on other industry segments could offer their
products in our targeted industries.
Our current and potential competitors may develop Internet-based trading
products that are superior to our Global Trade Communities and achieve greater
market acceptance. Many of our current and potential competitors have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial resources as well as technical and marketing
capabilities. These competitors could adopt more aggressive pricing structures,
initiate more aggressive sales and marketing programs and make offers to
customers, strategic partners, employees or third parties with more alternatives
providing complementary supply chain products.
18
<PAGE> 21
Consequently, we cannot be certain that we will be able to expand our
customer base and retain our existing customers. We may not be able to compete
successfully against our current or future competitors and competition could
have a material adverse effect on our business, financial condition and results
of operations.
INTELLECTUAL PROPERTY
We rely on copyright, trademark, and trade secret laws, confidentiality
agreements with employees and third parties, and license agreements with
consultants, vendors, and customers to protect our proprietary technology.
Despite such protections, a third party could, without authorization, copy or
otherwise appropriate information from our Global Trade Communities. Our
agreements with employees, consultants and others who participate in development
activities could be breached, we may not have adequate remedies for any breach,
and our trade secrets may otherwise become known or independently developed by
competitors.
We rely upon certain licenses from third parties for the majority of our
content and technology and may be required to license additional technology in
the future for use in managing our Global Trade Communities and providing
related services to our customers. There can be no assurance that these
third-party licenses will continue to be available to us on acceptable terms, or
at all. We do not, however, believe that we are dependent upon any single
licensor of technology or content.
We have applied for numerous trademarks, none of which have been issued to
date. We currently have pending applications for trademarks. Generally, we
cannot protect certain of our Web addresses for our Global Trade Communities as
trademarks due to the fact that they are too generic. The laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States, and effective copyright, trademark and trade secret
protection may not be available in such jurisdictions.
There have been substantial amounts of litigation in the computer industry
regarding intellectual property assets. Third parties may claim infringement by
us with respect to current and future products, trademarks or other proprietary
rights, or we may counterclaim against such parties in such actions. Any such
claims or counterclaims could be time-consuming, result in costly litigation,
diversion of management's attention, cause product release delays, require us to
redesign our products or require us to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon our business,
financial condition and operating results. Such royalty and licensing
agreements, if required, may not be available in terms acceptable to us, or at
all.
SEASONALITY
We anticipate that our revenues and operating results relative to Floraplex
will be subject to seasonality. Specifically, we anticipate that our revenues
and operating results in the third quarter relative to Floraplex will tend to be
lower due to the lack of popular holidays for which floriculture consumption is
increased. Our actual results for the year ended December 31, 1999, the only
period for which results are derived from our B2B e-commerce business model, are
insufficient to indicate the degree of seasonality we may experience. However,
we believe, for instance, that greater than 30% of the annual gross revenue for
the average retail florist in the United States is generated from Valentine's
Day and Mother's Day.
19
<PAGE> 22
EMPLOYEES
As of December 31, 1999, we had a total of 95 full-time employees
worldwide. We expect to hire additional employees in 2000. We believe our
relations with our employees are good. Our future success will depend, in part,
on our ability to attract, retain and motivate highly qualified technical, sales
and marketing, and management personnel, for whom competition is intense.
CORPORATE HISTORY AND DEVELOPMENT
- The Floral Foundation, Inc., or FFI, was incorporated in the State of
Florida on March 30, 1994.
- From its inception, FFI conducted limited activities related to
importing fresh cut flowers.
- In July 1996, FFI changed its name to World Commerce Online, Inc.
which we refer to as WCO Florida.
- On August 23, 1989, we were incorporated in the State of Nevada, and
our initial name was "Sunrise Express, Inc."
- On September 10, 1998, we entered into a voluntary share exchange with
the stockholders of WCO Florida, whereby WCO Florida became our
wholly-owned Florida subsidiary.
- Pursuant to the share exchange, we issued 7,020,000 shares of our
common stock to the stockholders of WCO Florida for their 7,020,000
outstanding shares of common stock.
- In September 1998, we changed our name to "World Commerce Online,
Inc." and in March 1999, WCO Florida changed its name to World
Commerce Online-Floraplex, Inc.
- We have acquired all the intellectual property rights and other assets
from World Commerce Online-Floraplex in exchange for the assumption of
its liabilities.
- We have since licensed the technology back to World Commerce
Online-Floraplex.
- We commenced operations of Floraplex in the third quarter of 1999.
- In October 1999, we changed our state of incorporation from the State
of Nevada to the State of Delaware.
20
<PAGE> 23
RISK FACTORS
Before you invest in our common stock, you should be aware of various
risks described below and carefully consider these risk factors, together with
all of the other information included in this registration statement, before
you decide whether to purchase shares of our common stock.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, THERE IS LIMITED
INFORMATION UPON WHICH TO BASE AN INVESTMENT DECISION
The formulation of our B2B e-commerce strategy and business model
occurred in the second half of 1998, consequently we did not engage in any such
operations from the date of our inception until after our share exchange with
World Commerce Online-Floraplex in September 1998. From September 1998 until we
commenced operation of the Floraplex products and services in the third quarter
of 1999 we generated no revenue and engaged in only limited operations including
hiring personnel, raising capital and developing software for Floraplex. As a
result of our limited operating history, we have limited meaningful historical
financial data that can be used in evaluating our business and prospects and in
projecting future operating results.
WE HAVE A HISTORY OF OPERATING LOSSES AND CANNOT GUARANTEE THAT WE
WILL EVER BE PROFITABLE
We have incurred annual losses from operations since our inception,
and we expect to continue to incur losses from operations on both a quarterly
and an annual basis for the foreseeable future. We had operating losses of
approximately $12.6 million during fiscal year 1999. At December 31, 1999, we
had an accumulated deficit of approximately $45.6 million. Our business is
still in the development stage, and revenue and income potential from our
business is unproven, making an evaluation of us and our prospects difficult.
There can be no assurance that our revenues will significantly increase or that
we will achieve or maintain profitability or generate cash from operations in
future periods.
DUE TO THE SEASONALITY OF THE FLORAL PRODUCTS INDUSTRY IN THE UNITED
STATES OUR REVENUES MAY BE SUBJECT TO FLUCTUATIONS OR THE RESULTS OF OUR
OPERATIONS MAY SUFFER
Our revenues and operating results may vary from quarter to quarter
due to factors beyond our control. For example, in the domestic floral industry,
revenues and operating results typically tend to be lower for the quarter that
ends on September 30 because none of the most popular floral holidays, which
include Valentine's Day, Easter, Mothers Day, Thanksgiving and Christmas, fall
within that quarter. In addition, the popular floral holiday of Easter
sometimes falls within the quarter that ends on March 31 and sometimes falls
within the quarter that ends on June 30. As a result of this seasonality, our
revenues may fluctuate significantly. In addition, due to the fixed nature of
some of our expenses, fluctuations in revenue due to seasonality may adversely
impact our interim results of operations.
OUR FUTURE GROWTH AND THE GENERATION OF REVENUE DEPENDS ON THE SUCCESS
OF FLORAPLEX
Currently, all of our revenues are derived from Floraplex, and we do
not anticipate deriving any revenues from FreshPlex until the second half of
fiscal year 2000. Floraplex may not achieve the widespread market acceptance
necessary for us to succeed. Failure of Floraplex to operate as anticipated
could delay or prevent its adoption by our customer base. If our targeted
customers do not adopt Floraplex and successfully implement our trading system,
our revenue will not grow significantly and our business prospects will suffer.
21
<PAGE> 24
OUR FUTURE EARNINGS WILL BE DECREASED DUE TO THE SIGNIFICANT AMOUNT OF
STOCK OPTIONS AWARDED TO OUR EMPLOYEES AND THE GRANTING OF WARRANTS TO PURCHASE
OUR COMMON STOCK
We have awarded a significant amount of stock options to our employees
and granted warrants to purchase our common stock at exercise prices below
market value on the date of award or grant, for which we have incurred
compensation expense. For fiscal year 1999, we incurred in the amount of
$2,828,369 in connection with stock options awarded to our employees and the
grant of warrants to purchase our common stock. Our earnings have been
decreased by the corresponding amount of compensation expense. We anticipate
that we will incur additional expense in the amount of $5,378,825 for the
fiscal year ended 2000, $3,297,265 for the fiscal year ended 2001, $1,746,265
for the fiscal year ended 2002 and $275,292 for the fiscal year ended 2003. Our
earnings will be decreased by the corresponding amount of compensation expense
in each of the stated fiscal years. We also may compensate our employees with
stock options or grant warrants to purchase our common stock at exercises prices
below market value in the future which will have a dilutive effect on our
earnings.
OUR DEPENDENCE ON THIRD PARTIES TO SUPPLY OUR TRADING SYSTEMS WITH
PRODUCT AND PRODUCT VARIETY MAY ADVERSELY AFFECT OUR BUSINESS OPERATIONS
Our success depends on the availability of product and product variety
in our trading systems. We must convince suppliers, including growers,
manufacturers and wholesalers that our trading systems provide a more efficient
means to sell their products. If we fail to convince suppliers to sell their
products through our trading system or if a significant number of suppliers do
not maintain and increase their offered inventory of product, use of our
trading systems and our revenues will decrease.
OUR SALES AND MARKETING STRATEGY HAS NOT BEEN TESTED AND MAY NOT
RESULT IN SUCCESS
Our sales and marketing efforts have been largely untested in the
marketplace, and may not result in sales of our products and services. To
penetrate our market, we will have to exert significant effort and incur
significant costs to create awareness of, and demand for, our Global Trade
Communities. We anticipate our cash-based costs for executing our sales and
marketing strategy in 2000 will exceed 1999 cash expenditure levels by
approximately 25%. Our failure to further develop our sales and marketing
capabilities and successfully market our Global Trade Communities could have a
negative effect on our business.
OUR STRATEGIC RELATIONSHIPS MAY COMPROMISE THE PERCEPTION THAT WE
PROVIDE A NEUTRAL AND IMPARTIAL TRADING COMMUNITY, WHICH WOULD HAVE A NEGATIVE
IMPACT ON OUR REVENUES
To the extent that we are perceived by our customers as favoring one
supplier over another, customers may lose confidence in our Global Trade
Communities as an impartial trading community and choose alternative means to
purchase and sell their products. The perishables product markets consist of
complex relationships among growers, manufacturers, wholesalers and retailers.
Adoption of our Global Trade Communities by our customers is dependent on their
perception that we provide a neutral, impartial trading community to buy and
sell perishable products. Any bias, whether perceived or actual, could have a
negative impact on our ability to maintain or increase our customer base
resulting in reduced revenues and therefore having a negative impact on our
business.
WE CURRENTLY RELY ON A LIMITED NUMBER OF CUSTOMERS, AND ANY LOSS OF A
CUSTOMER COULD HAVE A NEGATIVE EFFECT ON OUR REVENUES
During the year ended December 31, 1999, we derived approximately 82% of
our total revenues from 26 customers. Furthermore, two of those customers,
Kiliflora Limited and Waridi Limited, combined accounted for approximately 38%
of our total revenues, with Kiliflora, individually, accounting for
approximately 27% of our total revenues. We expect that for the first half of
fiscal year 2000 these 26 customers will account for approximately 50% of our
total revenues. A loss of any one of these customers could have a negative
effect on our total revenues. We may lose customers because we currently do not
offer all of the products required by them. Also, our customers may discontinue
use of Floraplex at any time without significant financial penalty.
22
<PAGE> 25
that achieve greater market acceptance than our products. We cannot assure you
that we will be able to compete successfully or that competitive pressures will
not adversely affect our business. We compete with both traditional distribution
channels including 1-800-Flowers.com, Inc., FTD.com, Inc., and Gerald Stephens,
Inc. as well as other e-commerce companies and enterprise software companies
that offer or develop alternative trading products such as IBM, Oracle or SAP.
Some of our existing and potential competitors may have significant competitive
advantages, including large customer bases and greater technical expertise,
brand recognition or superior Internet commerce experience. In addition, some
of our existing and potential competitors may be able to devote significantly
greater resources than we do to marketing campaign. Consequently, we may not be
able to compete successfully against our current or future competitors and
competition could have a negative effect on our business. See "Business --
Competition in our Industry."
OUR DEPENDENCE ON OUR INTERNATIONAL OPERATIONS FOR A SIGNIFICANT
PORTION OF OUR REVENUES EXPOSES US TO DIFFICULTIES OFTEN NOT ENCOUNTERED BY
EXCLUSIVELY DOMESTIC COMPANIES
During the year ended December 31, 1999, approximately 50% of our
revenues were derived from our international operations which are located in
Europe, the Middle East and South America. We are increasingly subject to a
number of risks associated with international business activities which may
decrease our revenue, increase our costs, lengthen our sales cycle or require
significant management attention. These risks include:
- Inability to adapt to multiple cultural environments and therefore to
achieve expanded sales and marketing activities;
- Ability to understand and adapt to diverse business standards;
- Increased expenses associated with sales and marketing activities in
foreign countries;
- General economic conditions in international markets;
- Currency exchange rate fluctuations;
- Unexpected changes in regulatory requirements in foreign countries
resulting in unanticipated costs and delays;
- Tariffs, export controls and other trade barriers;
- Longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
- Possible misappropriation of our intellectual property rights; and
- Risks related to global economic turbulence and adverse economic
circumstances.
OUR BUSINESS MAY SUFFER IF WE FAIL TO MANAGE OUR GROWTH
Failure to effectively manage our growth could impair our ability to
execute our business strategy. The evolution of our operations in 1999 has
resulted in a significant increase in number of employees from 18 at January 1,
1999 to 95 at January 1, 2000. We expect to continue to increase the number of
employees as our business grows, and may expand operations to locations other
than those in which we currently operate.
Continued growth is likely to place a greater burden on our operating
and financial systems as well as our senior management and other personal.
Existing and new members of management may not be able to improve existing
systems and controls or implement new systems and controls in response to
anticipated growth. Management of our operations in diverse locations may also
complicate the task of managing our growth.
23
<PAGE> 26
BECAUSE WE DEPEND UPON A SINGLE SITE FOR OUR COMPUTER AND
COMMUNICATIONS SYSTEMS, WE ARE MORE VULNERABLE TO THE EFFECTS OF NATURAL
DISASTERS, COMPUTER VIRUSES, AND SIMILAR DISRUPTIONS
The continued and uninterrupted performance of our computer system is
critical to our success. Our ability to successfully process transactions and
provide high-quality customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and
software systems. Our proprietary and licensed software resides solely on our
servers, all of which, as well as all of our communications hardware, are
located in a monitored server facility in Philadelphia, Pennsylvania. Our
systems and operations are in a secured facility with hospital-grade electrical
power, redundant telecommunications connections to the Internet backbone,
uninterruptible power supplies, and generator back-up power facilities. In
addition, we maintain redundant systems for backup and disaster recovery.
Despite these safeguards, we remain vulnerable to damage or interruption from
fire, flood, power loss, telecommunications failure, break-ins, and similar
events. In addition, we do not, and may not in the future, carry sufficient
business interruption insurance to compensate us for losses that may occur.
Despite our implementation of Internet security measures, our servers are
vulnerable to computer viruses, physical or electronic break-ins, and similar
disruptions which could lead to interruptions, delays, loss of data or the
inability to process transactions.
WE MAY FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND,
THEREFORE, LOSE OUR COMPETITIVE ADVANTAGE
Our success depends upon our ability to maintain the proprietary
nature of our software and the proprietary software of others with which we
have entered into software licensing agreements. If we fail to protect our
proprietary rights, other companies might copy our technology and introduce
products or services which compete with ours, without paying us for our
technology. This could have a material adverse effect on our business,
operating results and financial condition. We hold no patents and rely on a
combination of trade secrets and copyright laws, nondisclosure and other
contractual agreements and technical measures to protect our rights in our
proprietary technology. There can be no assurance that these laws will provide
sufficient or complete protection to us, that others will not develop
technologies that are similar or superior to ours, or that third parties will
not copy or otherwise obtain and use our technologies without authorization.
Policing unauthorized use of our proprietary technology and other intellectual
property rights could entail significant expense and could be difficult or
impossible, particularly given that we have operations in foreign countries and
the fact that the laws of other countries may provide us little or no effective
protection of our intellectual property against misappropriation. See "Business
- -- Intellectual Property."
WE MAY BE HELD LIABLE FOR ONLINE CONTENT PROVIDED BY THIRD PARTIES
As a provider of information online, we face potential liability for
defamation, negligence, copyright, patent, or trademark infringement and other
claims based on the nature and content of the materials that appear on our
Global Trade Communities. In these and other instances, we may be required to
engage in protracted and expensive litigation, which could have the effect of
diverting management's attention and require us to spend significant financial
resources. Our general liability insurance may not cover all claims or may not
be adequate to indemnify us for any liability that may be imposed. Any
imposition of liability, particularly liability that is not covered by
insurance or is in excess of our insurance coverage, could have a material
adverse effect on our brand and our business.
24
<PAGE> 27
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS,
AND THESE OFFICERS AND PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE
We depend upon the continuing contributions of our key management,
sales and product development personnel. The loss of the services of any of
Robert H. Shaw, our Chief Executive Officer and Chairman of the Board, Mark E.
Patten, our Executive Vice President and Chief Financial Officer, J. Keith
Money, our Executive Vice President and Chief Marketing Officer, Henry R.
Winogrond, our Executive Vice President of Business Development, John R. Daniel
II, our Executive Vice President of Operations, and Jacobus N. Kras, our
Executive Vice President for Europe could have an adverse affect on our
business. Although all of these individuals are subject to employment
agreements, we cannot be sure that we will retain their services. In addition,
we are the sole beneficiary of key person life insurance in the amount of $1
million on the life of Robert Shaw, our Chairman of our board of directors and
our Chief Executive Officer. See "Executive Compensation -- Employment
Agreements."
WE HAVE ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION OF
OUR COMPANY
Some provisions of our certificate of incorporation and the provisions
of Delaware law may be deemed to have anti-takeover effects and may delay,
defer or prevent a takeover attempt of us. We are subject to the "business
combination" provisions of the Delaware General Corporation Law. These
provisions prohibit 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 "business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Also, our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares
of preferred stock with such rights and preferences as may be determined from
time to time by the board of directors, of which 640,000 shares remain without
designation and available for issuance as of December 31, 1999. We include such
preferred stock in our capitalization in order to enhance our financial
flexibility. However, the issuance of large blocks of preferred stock may have
a dilutive effect with respect to existing holders of our common stock.
WE DO NOT PLAN TO PAY CASH DIVIDENDS
Holders of our common stock are entitled to cash dividends when, as
and if declared by the board of directors out of funds legally available for
the payment of dividends. We have never paid dividends and our management does
not anticipate the declaration or payments of any dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the development and
expansion of our business. Our future dividend policy will be subject to the
discretion of our board of directors and will be contingent upon future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors.
INTERNET SECURITY POSES RISKS TO OUR ENTIRE BUSINESS
The processing of B2B e-commerce transactions by means of our
technology and infrastructure involves the transmission and analysis of
confidential and proprietary information of our customers, as well as our own
confidential and proprietary information. For example, currently all of our
customers pay for their subscriptions to Floraplex with a credit card. Also,
almost all of the transactions currently being processed on Floraplex between
suppliers and purchasers involve either credit cards or electronic funds
transfers. Anyone who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our
operations, as well as the operations of the
25
<PAGE> 28
merchant. We may be required to expend significant capital and other resources
to protect against security breaches or to minimize problems caused by security
breaches. We rely on encryption and authentication technology licensed from
other companies to provide the security and authentication necessary to effect
secure Internet transmission of confidential information, such as credit
information and proprietary consumer information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the technology used by us
to protect client transaction data. Concerns over the security of the Internet
and other B2B e-commerce transactions and the privacy of consumers and
merchants may also inhibit the growth of the Internet and other online services
generally, especially as a means of conducting commercial transactions. To the
extent that our activities or the activities of others involve the storage and
transmission of proprietary information, security breaches could damage our
reputation and expose us to a risk of loss or litigation and possible
liability. Our security measures may not prevent security breaches. The
compromise of our security or misappropriation of proprietary information could
harm our business.
OUR FUTURE SUCCESS WILL DEPEND ON THE INTERNET'S ABILITY TO
ACCOMMODATE GROWTH
The recent growth in the use of the Internet has caused frequent
periods of performance degradation. Any failure in performance or reliability
of the Internet could adversely affect our ability to provide our products and,
consequently, hurt our operating results. To the extent that the Internet
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users, the Internet infrastructure may not
continue to support the demands placed on it and, as a result, the performance
or reliability of the Internet may be adversely affected. Furthermore, the
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure or otherwise. While no previous
outages or delays have materially affected our operations, the relatively
complex and unproven technology that makes up the Internet infrastructure poses
a risk of material outages or delays that could adversely affect the ability of
our customers to use our trading systems. In addition, the Internet could lose
its viability as a form of media due to delays in the development or adoption
of new standards and protocols that can handle increased levels of activity.
The infrastructure and complementary products and services necessary to
maintain the Internet as a viable commercial medium may not be developed or
maintained.
WE ARE HIGHLY DEPENDENT ON THE ACCEPTANCE AND EFFECTIVENESS OF THE
INTERNET AS A MEDIUM FOR B2B E-COMMERCE
Our future revenues and any future profits are substantially dependent
upon the widespread acceptance and use of the Internet as an effective medium
of commerce by businesses. The failure of the Internet to continue to develop
as a means of commerce by businesses may harm our business, operating results
and financial condition. A number of factors could prevent the acceptance and
growth of the Internet as a medium for B2B e-commerce, including the following:
- B2B e-commerce is at an early stage and buyers may be unwilling to
shift their traditional purchasing to online purchasing;
- Businesses may not be able to implement B2B e-commerce applications
on these networks;
- Increased government regulations or taxation may adversely affect
the viability of e-commerce;
- Insufficient availability of telecommunication services or changes
in telecommunication services may result in slower response times;
and
26
<PAGE> 29
- Adverse publicity and consumer concern about the reliability,
cost, ease of access, quality of services, capacity, performance
and security of B2B e-commerce transactions could discourage its
acceptance and growth.
WE MAY NOT BE ABLE TO KEEP PACE WITH THE EVOLVING STANDARDS OF OUR
INDUSTRY AND DEMANDS OF OUR CUSTOMERS
The Internet, B2B e-commerce, and the B2B e-commerce services industry
are characterized by:
- Rapid technological change;
- Changes in customer requirements and preferences;
- Frequent new product and service introductions embodying new
technologies; and
- The emergence of new industry standards and practices that could
render proprietary technology and hardware and software
infrastructure obsolete.
Our success will depend, in part, on our ability to enhance existing
or integrate new technology into our Global Trade Communities that keeps pace
with rapid technological developments and addresses the changing needs of our
customers. If we are unable to adapt our technology in a cost-effective manner
and on a timely basis, we may lose customers or experience difficulty obtaining
new customers which would negatively impact revenues and our business.
REGULATORY AND LEGAL UNCERTAINTIES SURROUND THE DEVELOPMENT OF THE
INTERNET
We are not currently subject to direct regulation by any government
agency other than laws or regulations applicable to business and generally to
B2B e-commerce directly. However, due to the increasing popularity and use of
the Internet and other online services, federal, state, and local governments,
as well as foreign governments, may adopt laws and regulations, or amend
existing laws and regulations, with respect to the Internet or other online
services covering issues such as user privacy, pricing, sales tax, content,
copyrights, distribution, and characteristics and quality of products and
services. The adoption of any additional laws or regulations may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for our services and increase our cost of doing business, or
otherwise have a negative effect on our business. Furthermore, the growth and
development of the market for B2B e-commerce may prompt calls for more
stringent consumer protection laws to impose additional burdens on companies
conducting business over the Internet.
The tax treatment of the Internet and e-commerce is currently
unsettled. A number of proposals have been made at the federal, state and local
level and by some foreign governments that could impose taxes on the sale of
goods and services and other internet activities. In October 1998, the Internet
Tax Freedom Act was signed into law, placing a three year moratorium on new
state and local taxes on e-commerce. However, it is possible that future laws
imposing taxes or other regulations on e-commerce could substantially impair
the growth of e-commerce and as a result have a negative effect on our
business.
27
<PAGE> 30
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements, trend analyses and other information contained in this
registration statement regarding markets for our products and trends in net
revenues, gross margin and anticipated expense levels, and any statement that
contains the words "anticipate," "believe," "plan," "estimate," "expect,"
"should," "intend" and other similar expressions, constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks, including those risks identified in "Risk Factors" and
elsewhere in this registration statement and our actual results of operations
may differ significantly from those contained in the forward-looking statements
because of those risks. The cautionary statements made in this registration
statement apply to all forward-looking statements wherever they appear in this
registration statement.
28
<PAGE> 31
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with our consolidated financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial data included elsewhere in this registration
statement. The selected financial data as of December 31, 1999 and 1998 and for
the years ended December 31, 1999, 1998 and 1997 are derived from financial
statements audited by PricewaterhouseCoopers, LLP, our independent auditors and
are included elsewhere in this registration statement. The selected financial
data as of December 31, 1997, 1996 and 1995 and for the years ended December 31,
1996 and 1995 are derived from financial statements audited by
PricewaterhouseCoopers, LLP, but are not included in this registration
statement. Operating results for the year ended December 31, 1999 are not
necessarily indicative of the results that may be expected for any other period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue ..................................... $ 43,130 $ 292,406 $ 90,185 $ 110,834 $ 237,788
Operating expenses:
Cost of floral products .................. -- -- -- 124,924 182,076
Product and technology development ....... 2,836,605 381,192 136,089 36,546 31,369
Sales and marketing ...................... 5,464,989 316,966 81,954 86,943 71,543
General and administrative ............... 3,848,221 3,223,123 507,342 179,542 160,895
Depreciation and amortization ............ 421,167 7,401 1,888 1,829 --
------------ ----------- ----------- ----------- -----------
Total costs and operating expenses . 12,570,982 3,928,682 727,273 429,784 445,883
------------ ----------- ----------- ----------- -----------
Loss from operations ........................ $(12,527,852) $(3,636,276) $ (637,088) $ (318,950) $ (208,095)
Net interest expense ........................ 166,129 4,026 -- 1,384 4,769
Net loss .................................... $(12,750,568) $(3,640,302) $ (637,088) $ (320,334) $ (212,864)
Deemed dividend on redeemable convertible
preferred stock(1) ...................... (28,000,000) -- -- -- --
Net loss available to common stockholders ... $(40,750,568) $(3,640,302) $ (637,088) $ (320,334) $ (212,864)
Basic and diluted net loss per common
share ................................... $ (2.67) $ (0.40) $ (0.09) $ (0.04) $ (0.09)
Weighted average number of shares
outstanding ............................. 15,271,152 9,181,923 6,930,865 5,589,740 3,671,112
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................... $ 10,553,021 $ 42,335 $ 707 $ 37,814 $ (146)
Working capital ............................. 12,271,904 (174,695) (396,135) (130,145) (56,382)
Total assets ................................ 22,669,016 101,244 7,901 43,026 16,260
Long-term liabilities ....................... 91,927 26,983 -- 32,793 30,555
Redeemable convertible preferred stock ...... 27,598,983 -- -- -- --
Total stockholders' deficit ................. $ (7,320,765) $ (144,366) $ (389,814) $ (157,726) $ (86,937)
</TABLE>
(1) Deemed dividend on convertible preferred stock resulted from the estimated
fair value of the common stock exceeding the conversion price on the date
of issuance.
29
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with "Selected Financial Data," and the consolidated financial statements and
the notes to those statements that appear elsewhere in this registration
statement. The following discussion and analysis contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results
could differ from those discussed in the forward-looking statements. Factors
that could cause or contribute to any differences include, but are not limited
to, those discussed below and elsewhere in this registration statement,
particularly in "Risk Factors."
OVERVIEW
We develop B2B e-commerce technology products for the perishable
products industries providing trading systems, industry-specific information
resources and Internet-based communication tools. Our Global Trade Communities,
including Floraplex and FreshPlex, which we market to supply chain participants
and other businesses with an Internet focus, deliver our customers' web-enabled
procurement tools and an industry-specific Internet portal.
Since our inception, we have incurred significant losses, and as of
December 31, 1999, we had an accumulated deficit of $45.6 million. We have not
achieved profitability on a quarterly or an annual basis, and anticipate that
we will continue to incur net losses for the foreseeable future. We expect to
incur costs for technology development, sales and marketing, and general and
administrative expenses in the future in amounts at least equal to the expenses
incurred in 1999. As a result, we will need to generate significant revenue to
achieve and maintain profitability.
We are in the early stage of operations and, as a result, the
relationships between revenue, cost of revenue, and operating expenses
reflected in the financial information included in this registration statement
do not represent future expected financial relationships. Much of the cost of
revenue and operating expenses reflected in our financial statements represent
salaries and related personnel costs including stock-based compensation and
other costs which are impacted by revenue growth and expanding operations.
The formulation of our B2B e-commerce strategy and business model
occurred in the second half of 1998. Prior to this period, we generated revenue
and incurred costs in connection with importing and resale of fresh cut flowers
from 1994 through December 31, 1996. In the year ended December 31, 1997, and
the first several months of 1998, we also generated revenue from the development
of Internet web-sites for a third party and a company under the control of one
of our senior executives. We do not intend to generate revenues from these
sources in the future.
We intend to derive our revenue from B2B e-commerce sales transactions
of perishable product on our trading systems with fees typically ranging from
2% to 8% of transaction order value in the floriculture market and 1% to 5% of
transaction order value in the produce market and its related industry
suppliers. We also intend to derive revenue from advertisement and sponsorship
in our Global Trade Communities. We will record advertising revenues at the
time advertisements are displayed and will record sponsorship revenues ratably
over the period of sponsorship. We also intend to derive revenue from monthly
subscription fees. During 1999, we derived revenue from all three sources. See
30
<PAGE> 33
"Results of Operations Comparison of Year Ended December 31, 1999 to Year Ended
December 31, 1998--Revenues." In the future, we may also derive revenue from
one-time implementation fees which would be recognized ratably over the period
of the related implementation. As of December 31, 1999, we had not recognized
revenue related to implementation fees. Also in the future we may derive license
fees for the development of private trade communities in lieu of transaction
and subscription fees.
The revenue we generated in 1999 was derived equally from Floraplex
customers based in the United States and Europe. Due to the level of revenues
derived from our business model as of December 31, 1999, we are not able to
determine perceivable trends in the allocation of revenues from transaction
fees, advertisement revenue, and subscription fees. We expect that revenue
from customers based outside the United States will increase in future periods.
We did not generate any revenue from FreshPlex during 1999.
Cost of floral product sales consists of costs incurred to acquire
imported fresh cut flower product. These costs were incurred in 1994 through
1996 prior to the formulation and commencement of our B2B e-commerce business
model. We do not intend to have similar costs in any future period.
Product and technology development expenses consist primarily of
salaries and related personnel costs for our internal development team
including costs related to the design, development, testing, deployment and
enhancement of our Global Trade Community technology and our Web-server
infrastructure including costs for third party consultants and costs for
customer support, technology, maintenance, and training. We expensed our
product and technology development costs as they were incurred in 1998. During
the year ended December 31, 1999, we capitalized $4.8 million of costs incurred
in the development of our technology in accordance with the AICPA's Statement
of Position No. 98-1 "Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use." We believe that research and development is critical
to our strategic product development objectives and we intend to enhance our
technology to meet the changing requirements of the market and advancements in
functionality. As a result, we expect our product and technology development
expenses to increase in the future.
Sales and marketing expenses consist primarily of salaries and related
personnel costs including stock-based compensation for our sales and marketing
organization and marketing costs for activities including advertisements and
trade shows. We expect that sales and marketing expenses will increase in the
future as we hire additional personnel, expand our operations globally,
initiate additional marketing programs, establish sales offices in new
locations worldwide and incur additional costs related to the increase in
revenues and the growth of our business and our operations.
General and administrative expenses consists primarily of salaries and
related costs of operations and finance personnel including stock-based
compensation as well as costs for our operating facilities, recruiting
expenses, professional fees and telecommunication costs. We expect that our
general and administrative expenses will increase in the future as we hire
additional personnel, expand our operations domestically and internationally
and incur additional costs related to the increase in revenues and the growth
of our business and our operations as a public company.
In February 1999, we entered into a private placement of our Series A
redeemable convertible preferred stock which provided proceeds of approximately
$8 million net of transaction costs. We used the proceeds from this transaction
to begin hiring personnel in all areas, to begin a significant advertising and
branding campaign and to continue design and development of our technology
products and infrastructure. Additionally, we completed the private placement
of our Series B redeemable convertible preferred stock in October 1999, which
provided proceeds of approximately $19.6 million net of
31
<PAGE> 34
transaction costs. The proceeds from the Series B private placement were also
reduced by $2.4 million relating to the conversion of a bridge loan provided by
ITP prior to completion of the Series B transaction.
We completed the acquisition of the Flower Purchase Network in August
1999. The aggregate purchase price for this acquisition was approximately $1.5
million, primarily paid for in our common stock and the assumption of
approximately $0.3 million in debt. Although the acquisition involved an
established B2B e-commerce trading platform with user traffic, the trading
system had minimal revenues associated with them prior to our acquisition. The
acquisition was accounted for under the purchase method of accounting.
We have a limited operating history and have incurred losses in every
quarter of operations. Our accumulated deficit as of December 31, 1999 was
$45.6 million and we expect to continue to incur losses as we build brand
identity and develop our technology products to allow us to maintain our
position as a leader in the B2B e-commerce market for the perishable products
industries.
RESULTS OF OPERATIONS
The following is derived from our audited consolidated financial
statements.
COMPARISON OF YEAR ENDED DECEMBER 31, 1999 TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenue for the year ended December 31, 1999 was $0.04
million compared to $0.3 million for the year ended December 31, 1998, a
decrease of approximately $0.26 million. In 1999, revenue was generated
primarily from three sources: $21,076, or 48.9% of total revenue, in
transaction fees, $14,145, or 32.8% of total revenue, in advertising fees, and
$7,909, or 18.3% of total revenue, in subscription fees. We did not recognize
revenue from any of these three sources during 1998.
The decrease in revenues from 1998 to 1999 is attributable to our
change in strategy and business model that resulted in our offering different
products and services. In 1998, revenue was generated from the development of
Internet web-sites.
PRODUCT AND TECHNOLOGY DEVELOPMENT. Product and technology development
expenses consist primarily of salaries and related personnel costs for our
internal development team including costs related to the design, development,
testing, deployment and enhancement of our Global Trade Community technology
and our Web-server infrastructure including costs for third party consultants
and costs for customer support, technology, maintenance, and training. Product
and technology development expenses for the year ended December 31, 1999 were
$2.8 million compared to $0.4 million for the year ended December 31, 1998, an
increase of approximately $2.4 million. The primary reasons for this increase
was an increase in non-cash charges in the amount of approximately $0.6 million
related to stock based compensation and the issuance of warrants to third party
consultants and an increase in headcount from 6 as of December 31, 1998 to 29
as of December 31, 1999, as a result of the change in our strategy and business
model.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related personnel costs including stock-based compensation for our
sales and marketing organization and marketing costs for activities including
advertisements and trade shows. Sales and marketing expenses for the year ended
December 31, 1999 were $5.5 million compared to $0.3 million for the year ended
December 31, 1998, an increase of approximately $5.2 million. The primary
reason for this increase was
32
<PAGE> 35
the launch of our domestic and international branding campaign which included
advertisements in several industry and trade publications, and participation at
trade shows worldwide. Additionally, our sales and marketing department
increased from 5 employees as of December 31, 1998 to 43 employees as of
December 31, 1999, as a result of the change in our strategy and business model
to B2B e-commerce. This increase also reflects a non-cash charge of
approximately $1.2 million for warrants issued for professional fees and stock
based compensation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
consists primarily of salaries and related costs of operations and finance
personnel including stock-based compensation as well as costs for our operating
facilities, recruiting expenses, professional fees and telecommunication costs.
General and administrative expenses for the year ended December 31, 1999 were
$3.8 million compared to $3.2 million for the year ended December 31, 1998, an
increase of approximately $0.6 million. The primary reason for this increase was
the hiring of personnel in all support departments and the increased cost of
professional fees including legal costs. Our headcount increased from 7 as of
December 31, 1998 to 23 as of December 31, 1999, as a result of the change in
our strategy and business model to B2B e-commerce. As a result of the overall
increased headcount, our occupancy costs increased as we expanded our
headquarter offices and added offices in other locations outside the U.S. This
increase also reflects a non-cash charge of approximately $0.9 million in stock
grants and stock based compensation offset by stock issued for professional
services in the amount of $2.6 million incurred in 1998 but not in 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
consist primarily of depreciation and amortization of goodwill relating to our
acquisition. Depreciation and amortization expenses for the year ended December
31, 1999 were $0.4 million compared to $0.01 million for the year ended
December 31, 1998, an increase of approximately $0.4 million due to the
acquisition of FPN in August 1999 and additions in property and equipment.
STOCK-BASED COMPENSATION. Stock-based compensation expenses consist of
the amortization of deferred stock compensation resulting from the grant of
stock options at exercise prices deemed to be less than the fair value of the
common stock on the grant date. At December 31, 1999, deferred stock
compensation, which is a component of stockholders' equity, was $4.9 million.
This amount is being amortized ratably over the vesting periods of the
applicable stock options, typically four years, with either 25% cliff vesting
or 28% vesting on the first anniversary of the grant date and the balance
vesting 2% monthly thereafter. We expect to incur stock-based compensation
expense of at least $1.6 million in 2000, 2001 and 2002.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenue for the year ended December 31, 1998 was $0.3
million compared to $0.1 million for the year ended December 31, 1997, an
increase of $.2 million. Revenue in 1998 and 1997 was generated primarily from
the development of Internet web-sites. Revenues increased during 1998 as a
result of an increase in web-site development activities.
PRODUCT AND TECHNOLOGY DEVELOPMENT. Product and technology development
expenses for the year ended December 31, 1998 were $0.4 million compared to
$0.1 million for the year ended December 31, 1997, an increase of $0.3 million.
The increase resulted primarily from increases in professional fees and
employee related expenses due to an increase in head count during the last
quarter of the year associated with the preliminary stages of the development
of our B2B e-commerce strategy.
33
<PAGE> 36
SALES AND MARKETING. Sales and marketing expenses for the year ended
December 31, 1998 were $0.3 million compared to $0.1 million for the year ended
December 31, 1997, an increase of $0.2 million. The increase was a result of the
increased use of professionals associated with the launch of our domestic and
international branding campaign in 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$3.2 million for the year ended December 31, 1998 compared to $.5 million for
the year ended December 31, 1997, an increase of $2.7 million. The increase
resulted primarily due to an increase in non-cash charges related to
professional service fees.
NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS
As of December 31, 1999, we had approximately $8.6 million of state
and federal net operating loss carryforwards for tax reporting purposes
available to offset future taxable income. Such net operating loss
carryforwards begin to expire in 2009, to the extent that they are not
utilized. We have not recognized any benefit from the future use of loss
carryforwards since inception. Management's evaluation of all the available
evidence in assessing realizability of the tax benefits of such loss
carryforwards indicates that the underlying assumptions of future profitable
operations contain risks that do not provide sufficient assurance to recognize
the tax benefits currently. In addition, the net operating loss carryforwards
could be limited in future years if there is a significant change in our
ownership.
LIQUIDITY AND CAPITAL RESOURCES
From inception, we have financed our operations through private sales
of our common stock and redeemable convertible preferred stock. During the year
ended December 31, 1999, we raised approximately $28 million through sales of
our redeemable convertible preferred stock, including $8 million and $20
million raised in the first and fourth quarters of 1999, respectively.
Net cash used in operating activities was approximately $0.5 million
for the year ended December 31, 1998 and $7.7 million for the year ended
December 31, 1999. This use of cash was primarily attributable to our net
losses in each of those periods. In 1999, the net loss was offset by a non-cash
stock-based compensation charge and a significant increase in our accounts
payable and accrued compensation.
Net cash used in investing activities was approximately $0.02 million
for the year ended December 31, 1998 and $5.7 million for the year ended
December 31, 1999 an increase primarily attributable to the acquisition of
technology equipment and the development of software which represented $2.9
million of cash payments as of December 31, 1999.
Net cash provided by financing activities was approximately $0.6
million for the year ended December 31, 1998 and $24 million for the year ended
December 31, 1999. In addition to the sales of our Series A and Series B
redeemable convertible preferred stock, which provided proceeds of
approximately $21.4 million, we obtained an advance of $2.4 million from an
investor during the year ended December 31, 1999. The advance was subsequently
discharged in exchange for shares of our Series B redeemable convertible
preferred stock.
As of December 31, 1999, we had approximately $10.6 million in cash
and cash equivalents. In addition, we had a $3.8 million receivable from
investors in the Series B private placement. As of February 4, 2000,
approximately $3.3 million had been received.
34
<PAGE> 37
We expect to continue to incur losses and to utilize cash in our
operations for the next several years. We expect that revenues generated in
2000 will contribute substantive cash flow for our operations over the next 12
months. We believe that our current cash and cash equivalents and expected cash
from operations will be sufficient to meet our anticipated requirements for our
Floraplex operations and strategy as well as the initial implementation of
FreshPlex for at least the next 12 months. We expect that we will need to raise
additional funds, including through equity offerings, in the future in order to
successfully implement our FreshPlex strategy in 2001.
If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities. If additional funds are raised through the issuance of debt
securities, these securities could have rights, preferences and privileges
senior to those accruing to holders of our common stock, and the terms of this
debt could impose restrictions on our operations. The sale of additional equity
or debt securities could result in additional dilution to our stockholders, and
we cannot be certain that additional financing will be available in amounts or
on terms acceptable to us, if at all. If we are unable to obtain this
additional financing, we may be required to reduce the scope of our planned
technology or product development and sales and marketing efforts, which could
harm our business.
YEAR 2000 READINESS
The Year 2000 issue refers to the potential for system and processing
failures of date-related calculation, and is the result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
operate our sites, send invoices, or engage in similar normal business
activities.
To date, we have not experienced any material Year 2000 issues and
have not been informed by our material suppliers and vendors that they have
experienced material Year 2000 issues. We have not spent a material amount on
Year 2000 compliance issues. Most of our expenses have related to the operating
costs associated with time spent by employees and consultants in the evaluation
process and Year 2000 compliance matters generally.
If we fail to identify a remedy to any non-compliant internal or
external Year 2000 problems, or Year 2000 problems create a systemic failure
beyond our control, including a prolonged telecommunications or electrical
failure or a prolonged failure of third party software on which we rely, we
could be prevented from operating our business and permitting users access to
our sites. Such an occurrence would have a negative impact on our business.
MARKET RISK
To date, our results of operations have not been impacted materially
by inflation in the United States, Holland or in the countries that comprise
Latin America. Approximately 50% of our revenues generated in 1999 were
denominated in Dutch guilders.
Although approximately 50% of our revenues generated in 1999 are
denominated in U.S. dollars, an increasing percentage of our revenues will
likely be denominated in foreign currencies, specifically the Dutch guilder or
the Euro. As a result, our revenues may be impacted by fluctuations in these
currencies and the value of these currencies relative to the U.S. dollar. In
addition, a portion of our monetary assets and liabilities and our accounts
35
<PAGE> 38
payable and operating expenses are denominated in foreign currencies. Therefore,
we are exposed to foreign currency exchange risks. We have not tried to reduce
our exposure to exchange rate fluctuations by using hedging transactions.
However, we may choose to do so in the future. We may not be able to do this
successfully. Accordingly, we may experience economic loss and a negative
impact on earnings and equity as a result of foreign currency exchange rate
fluctuations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Historically, we have not entered into derivative contracts to hedge existing
risks or for speculative purposes. Accordingly, we do not expect the adoption
of the new standard on January 1, 2001 to affect our financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). The bulletin draws on existing accounting rules and provides specific
guidance on how those accounting rules should be applied, and specifically
addresses gross versus net basis of reporting revenues for companies which
operate Internet sites and up-front fees. SAB 101 is effective for fiscal years
beginning after December 15, 1999. The Company is evaluating SAB 101 and the
effect it may have on its financial statements. At this time, the Company
believes that SAB 101 will not have a material impact on its financial position
or results of operations.
ITEM 3. PROPERTIES
Our corporate headquarters are located at 9677 Tradeport Drive in an
office facility in Orlando, Florida, where we lease approximately 24,675 square
feet under the terms of a lease which expires in April 2003 for a monthly fee
of $25,000. For our European operations, we maintain two offices in Amsterdam,
Netherlands where we lease approximately 5,400 square feet under leases which
expire in 2002 for a monthly fee of $5,200. We also lease a small corporate
office in Jerusalem, Israel under a lease that expires in December 2000 for a
monthly fee of $750. We utilize sales offices in Quito, Ecuador and Bogota,
Colombia for which we are not obligated to pay rent but for which we incur
costs related to consulting arrangements with third parties. We believe that
our existing facilities are adequate to support our existing operations and
that, if needed, we will be able to obtain suitable additional facilities on
commercially reasonable terms.
36
<PAGE> 39
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information regarding the beneficial
ownership of World Commerce's common stock as of December 31, 1999, by the
following individuals or groups:
- each person or entity who we know beneficially owns more than 5.0% in
the aggregate of our outstanding common stock;
- each of the executive officers named in the Summary Compensation
Table;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address of each of the individuals
listed in the table is c/o World Commerce, 9677 Tradeport Drive, Orlando,
Florida 32827. To our knowledge, except as otherwise indicated, and subject to
community property laws where applicable, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
held by them.
The percentage of beneficial ownership in the following table is based
upon 15,435,357 shares of common stock outstanding as of December 31, 1999.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of our common stock issuable under
options, warrants or other conversion rights that are presently exercisable or
exercisable within 60 days of December 31, 1999 are deemed to be outstanding
and beneficially owned by the person holding the options, warrants or
conversion rights for the purpose of computing the percentage of ownership of
that person, but are not treated as outstanding for the purpose of computing
the percentage of any other person.
<TABLE>
<CAPTION>
NUMBER OF SHARES SHARES BENEFICIALLY OWNED AS A
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE OF CLASS OUTSTANDING
------------------------ ------------------ -------------------------------
<S> <C> <C>
Robert H. Shaw ............................................. 1,299,776(1) 8.3%
Mark E. Patten ............................................. 25,000 *
J. Keith Money ............................................. 377,500(2) 2.4%
Henry R. Winogrond ......................................... 80,000(3) *
John R. Daniel II .......................................... 81,070(4) *
Jacobus N. Kras ............................................ 80,000(5) *
Michael W. Poole ........................................... 225,000(6) 1.4%
David R. Parker ............................................ 5,645,000(7) 26.8%
Interprise Technology Partners, L.P. ....................... 5,610,000(8) 26.7%
William A. Mobley, Jr ...................................... 1,767,500(9) 11.5%
Larry L. Murphy ............................................ 2,510,750(10) 16.3%
Kenneth B. Cobb II ......................................... 615,000(11) 4.0%
All directors and executive officers as a
group (9 persons) ....................................... 7,878,346 36.1%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 139,776 shares of common stock subject to options either
currently exercisable or exercisable by Mr. Shaw within 60 days of
December 31, 1999. Includes 1,160,000 shares of common stock held jointly
between Mr. Shaw and his spouse, and each person, acting individually, may
vote and/or dispose of all of such shares.
37
<PAGE> 40
(2) Includes 96,000 shares of common stock subject to options either currently
exercisable or exercisable by Mr. Money within 60 days of December 31,
1999.
(3) All 80,000 shares of common stock are subject to options either currently
exercisable or exercisable by Mr. Winogrond within 60 days of December 31,
1999.
(4) Includes 80,000 shares of common stock subject to options either currently
exercisable or exercisable by Mr. Daniel within 60 days of December 31,
1999. Also includes 70 shares of common stock in the name of Mr. Daniel's
grandson as to which Mr. Daniel has sole voting and dispositive power over
such shares.
(5) All 80,000 shares of common stock are subject to options either currently
exercisable or exercisable by Mr. Kras within 60 days of December 31,
1999.
(6) Includes 25,000 shares of Series B preferred stock which are immediately
convertible into 25,000 shares of common stock. Includes a warrant
representing the right to purchase 100,000 shares of common stock held by
a trust of which Mr. Poole is the sole trustee and exercises sole voting
and dispositive power over such shares. Includes a warrant representing
the right to purchase 100,000 shares of common stock held by Poole Carbone
Capital Partners, Inc. for which Mr. Poole is the controlling principal
and exercises sole voting and dispositive power over such shares.
(7) Mr. Parker, individually, owns 10,000 shares of common stock and 25,000
shares of Series B preferred stock which are immediately convertible into
25,000 shares of common stock. Interprise Technology Partners, L.P., a
Delaware limited partnership, owns 4,000,000 shares of Series A preferred
stock which are immediately convertible into 4,000,000 shares of common
stock; 1,250,000 shares of Series B preferred stock which are immediately
convertible into 1,250,000 shares of common stock; an option, which is
immediately exercisable, to purchase 250,000 shares of Series A preferred
stock which are immediately convertible into 250,000 shares of common
stock; and a warrant, which is immediately exercisable, representing the
right to purchase 110,000 shares of Series B preferred stock which are
immediately convertible into 110,000 shares of common stock. Miller
Technology Management, L.P., a Delaware limited partnership, is the
general partner of Interprise Technology Partners, L.P. MTM I, LLC, a
Delaware limited liability company, is the general partner of Miller
Technology Management, L.P. Mr. David Parker and Mr. Edmund Miller each
own a 50% interest in MTM I, LLC, and Mr. Parker and Mr. Miller must both
agree on the voting and disposition of shares held by Interprise
Technology Partners, L.P. The address for each of Interprise Technology
Partners, L.P., Miller Technology Management, L.P., MTM I, LLC, Mr. Parker
and Mr. Miller is 1001 Brickell Bay Drive, 30th Floor, Miami, Florida
33131.
(8) See Footnote No. 7.
(9) Shares are held jointly between Mr. Mobley and his spouse, and each
person, acting individually, may vote and/or dispose of all of such
shares. The address of Mr. and Mrs. Mobley is 57 West Pine Street,
Orlando, Florida 32801.
(10) The address of Mr. Murphy is 210 Riverside Drive, Melbourne Beach, Florida
32951.
(11) Includes 315,000 shares held jointly between Mr. Cobb and his spouse, and
each person, acting individually, may vote and/or dispose of all of such
shares. Includes 250,000 shares held jointly between Mr. Cobb and Charles
T. Black, Jr., and each person, acting individually, may vote and/or
dispose of all of such shares. Includes a warrant representing the right
to purchase 50,000 shares of common stock and such warrant is exercisable
immediately. The address of Mr. Cobb and Mr. Black is 740 Florida Central
Parkway, Suite 2000, Longwood , Florida 32750.
38
<PAGE> 41
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Our directors, executive officers and significant employees, and their
ages as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert H. Shaw 56 Chairman of the Board and Chief Executive Officer
Mark E. Patten 36 Chief Financial Officer and Executive Vice President
J. Keith Money 45 Chief Marketing Officer and Executive Vice President
Henry R. Winogrond 57 Executive Vice President of Business Development
John R. Daniel II 55 Executive Vice President of Operations
Eugenio M. Valdes 42 Chief Operating Officer Floraplex Americas
Jacobus N. Kras 50 Executive Vice President for Europe
David R. Parker(1)(2) 56 Director
Michael W. Poole(1)(2) 43 Director
</TABLE>
- ---------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Set forth below is certain information regarding the professional
experience for each of the above-named persons.
ROBERT H. SHAW has served as our Chairman and Chief Executive Officer
since October 1998. From October 1997 to October 1998 Mr. Shaw was Chief
Executive Officer of Roundabout Logic, Inc., a leader in immersive imaging
technology. From 1995 to October 1997 Mr. Shaw was Chairman and Chief Executive
Officer of Galacticom, Inc., a worldwide leader of multi-user communications
software and e-commerce systems with an international customer base of more
than 20,000 users. Mr. Shaw received a bachelors degree in electrical
engineering from Northeastern University.
MARK E. PATTEN has served as our Chief Financial Officer and Executive
Vice President since October 1999. From February 1998 to October 1999, Mr.
Patten was Vice President and Chief Accounting Officer of Vistana, Inc., a
publicly traded timeshare resort developer. Prior to that, Mr. Patten was a
partner in the Information Risk Management practice of KPMG Peat Marwick LLP
from July 1997 to January 1998 and a Senior Manager with KPMG for a period of
four years prior to his election into the partnership including a two year
rotation in KPMG's Executive Office in the Department of Professional Practice.
Mr. Patten has a bachelors degree in accounting from the University of Florida
and is a Certified Public Accountant in Georgia.
J. KEITH MONEY has served as our Chief Marketing Officer and Executive
President since October 1998. From October 1997 to September 1998 Mr. Money was
Vice President of Sales and Marketing and Chief Operating Officer of Roundabout
Logic, Inc. From 1995 to September 1997
39
<PAGE> 42
Mr. Money was Director of Sales for Galacticom, Inc. Mr. Money received a
bachelors degree in liberal arts and history from Wingate University.
HENRY R. WINOGROND has served as our Executive Vice President of
Business Development since January 1999. From January 1996 to December 1998 Mr.
Winogrond was President of Great Lakes Floral Services, Inc., a provider of
investment consulting services in the floriculture industry. From January 1995
to December 1995 Mr. Winogrond was President of Bouquet Connection de los
Andes, a fresh cut flower importer. For the preceding seven years Mr. Winogrond
was President of Southern Rainbow, a fresh cut flower grower and importer. Mr.
Winogrond was also with Dole Food Company for seventeen years. Mr. Winogrond
has a bachelors degree in business administration from the University of
Wisconsin and an MBA from Stanford University.
JOHN R. DANIEL II has served as our Executive Vice President of
Operations since April 1999. Prior to joining WCO Mr. Daniel served in several
positions at U.S. Petroleum Construction, a petroleum equipment installation
company, including his last position as Vice President and General Manager,
from October 1997 to April 1999. From October 1993 to July 1997 Mr. Daniel
served in several positions with Omega, a petroleum equipment installation
company, including his last position as President of the Southeast region. The
previous 25 years of Mr. Daniel's career were spent in various management
positions in the computer technology industry.
EUGENIO M. VALDES has served as our Chief Operating Officer of the
Floraplex Americas division since July 1999. From May 1998 to June 1999 Mr.
Valdes was President of Dole Fresh Flowers, a division of Dole Food Company.
From June 1996 to May 1998 Mr. Valdes was President of Sunburst Farms, the
largest grower and distributor of fresh-cut flowers worldwide, prior to its
acquisition by Dole. For the preceding 10 years Mr. Valdes served in varying
sales, marketing and financial executive management positions with Sunburst. Mr.
Valdes received his bachelors degree in business from the University of Miami
and MBA from Nova Southeastern University.
JACOBUS N. KRAS has served as Executive Vice President for Europe
since July 1999. Since 1991, Mr. Kras has served as President of Hortimarc
B.V., a consultancy company to the horticulture industry based in Amsterdam,
The Netherlands. From 1980 to 1991 Kras was with the Dutch Association of
Flower Auctions serving as Chief Executive Officer from 1985 to 1991. Mr. Kras
is Chairman of the Board of Jac van Dillewijn B.V., a hardgood supplier in
Aalsmeer, Holland, and a director of Hazera Holding International, an Israeli
breeder of vegetable seeds. Mr. Kras is also member of the board of directors
of the Dutch Association of Agriculture Law. Mr. Kras has a bachelors degree
and masters degree in law from the University of Amsterdam and an MBA from the
University of Nijenrode.
DAVID R. PARKER has served as a Director since February 1999. Mr.
Parker is founder and Managing Principal of Interprise Technology Partners,
L.P., a venture capital fund focused on Internet and information technology
investments founded in January 1999. From 1992 to May 1998 Mr. Parker was
Chairman of ProSource Distribution Services, Inc., a U.S. food services
distributor which was sold for cash to AmeriServe Inc. in May 1998. From May
1998 to August 1998, Mr. Parker was Vice Chairman of AmeriServe, Inc. overseeing
the integration of ProSource into AmeriServe, until he resigned from the Company
in August 1998, but remained on the board of directors until he resigned from
the board in November 1999. Mr. Parker is a director of Tupperware, Inc. and
Applied Graphics Technologies Inc. Mr. Parker earned a bachelors degree in
engineering from the University of Texas and an MBA from Harvard University,
where he was a Baker Scholar.
40
<PAGE> 43
MICHAEL W. POOLE has served as a Director since February 1999. Mr.
Poole is a member of the Board of Directors of the Federal Reserve Bank of
Atlanta (Jacksonville, Florida branch). Since 1997, Mr. Poole has been a
principal with Poole Carbone Eckbert, Inc., an investment banking firm
providing traditional corporate finance services to middle market companies.
Since 1986 Mr. Poole has been President of Blaker Investment Company, a private
investment firm owned by Mr. Poole. Mr. Poole received his bachelors degree in
finance from the University of Florida and his MBA from Rollins College.
BOARD OF DIRECTORS AND COMMITTEES
Our bylaws provide for a board of directors consisting of at least 1
but no more than 9 individuals who are elected at the annual meeting and serve
for 1 year and until their successor is elected and qualified.
The board of directors has a compensation committee and an audit
committee.
COMPENSATION COMMITTEE. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding all forms of
compensation provided to the executive officers and directors of World Commerce
and its subsidiaries including stock compensation and loans. In addition, the
compensation committee reviews and makes recommendations on stock compensation
arrangements for all of our employees. The compensation committee also
administers our 1999 Stock Option Plan. The current members of the compensation
committee are David Parker and Michael Poole, with Mr. Parker chairing the
committee.
AUDIT COMMITTEE. The audit committee of the board of directors is
responsible for reviewing and monitoring the corporate financial reporting and
the internal and external audits of World Commerce, including, among other
things, our internal audit and control functions, the results and scope of the
annual audit and other services provided by our independent auditors and our
compliance with legal requirements that have a significant impact on our
financial reports. The audit committee also is responsible for consulting with
our management and our independent auditors regarding the preparation of
financial statements and, as appropriate, initiating inquiries into aspects of
our financial affairs. In addition, the audit committee has the responsibility
to consider and recommend the appointment of, and to review fee arrangements
with, our independent auditors. The current members of the audit committee are
Mr. Parker and Mr. Poole, with Mr. Poole chairing the committee.
DIRECTOR COMPENSATION
We reimburse directors for reasonable out-of-pocket expenses incurred
in attending meetings of the board of directors. We may, at our discretion,
grant stock options and other equity awards to our non-employee directors from
time-to-time pursuant to our 1999 Stock Option Plan or otherwise. In January
1999, we issued a warrant to the Michael W. Poole Trust representing the right
to purchase 100,000 shares of our common stock of which Mr. Poole is the
trustee, at an exercise price of $2.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors consisted in
1999, and currently consists of, David Parker and Michael Poole. There were no
compensation committee interlocks during our last fiscal year.
41
<PAGE> 44
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the fiscal
year ended December 31, 1999 paid by us for services by our Chief Executive
Officer and our other executive officers whose total salary and bonus for that
fiscal year exceeded $100,000, collectively referred to below as the "named
executive officers." None of the executive officers received total compensation
of at least $100,000 prior to fiscal year 1999.
SUMMARY COMPENSATION IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG-TERM COMPENSATION AWARDS
------------- -----------------------------
RESTRICTED STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(3)($) AWARD(S)($) UNDERLYING OPTIONS(#) COMPENSATION ($)
- ----------------------------------- ------------ ----------- --------------------- ----------------
<S> <C> <C> <C> <C>
Robert H. Shaw,(1) 132,700 -- 436,800 25,400(6)(7)
Chief Executive Officer
Mark E. Patten, 32,400 134,500(4) 200,000 1,000(8)
Chief Financial Officer
J. Keith Money, 111,900 -- 300,000 26,600(6)(7)
Chief Marketing Officer
Henry R. Winogrond, 142,000 -- 250,000 16,400(6)(7)
Executive VP of Bus. Development
John R. Daniel II, 114,300 -- 250,000 4,200(7)
Executive VP of Operations
Jacobus N. Kras, 90,000 -- 250,000 --
Executive VP for Europe
Kenneth B. Cobb II,(2) 136,500 -- 100,000(5) 4,200(7)
former Chief Financial Officer
</TABLE>
- ---------------
(1) For the fiscal year ended December 31, 1998, Mr. Shaw received
compensation in the form of consulting fees paid to a company controlled
by Mr. Shaw in the amount of $30,045. Also, Mr. Shaw was issued 1,200,000
shares of our common stock in September 1998 for services rendered in
facilitating the voluntary share exchange between us and World Commerce
Online-Floraplex.
(2) Mr. Cobb held the position of Chief Financial Officer until his resignation
in September 1999.
(3) Does not represent a full year of salary because no person listed, other
than Mr. Cobb, was paid a salary at the beginning of the fiscal year.
Mr. Shaw became an employee on March 29, 1999, at an annual salary of
$125,000, which was raised to $225,000 on July 1, 1999; Mr. Patten became
an employee on October 18, 1999, at an annual salary of $180,000; Mr.
Money became an employee on March 29, 1999, at an annual salary of
$125,000, which was raised to $180,000 on July 1, 1999; Mr. Winogrond
became an employee on February 1, 1999, at an annual salary of $125,000,
which was raised to $180,000 on July 1, 1999; Mr. Daniel became an
employee on March 22, 1999, at an annual salary of $125,000, which was
raised to 180,000 on July 1, 1999; Mr. Kras became an employee on July 1,
1999, at an annual salary of $180,000; and Mr. Cobb was an employee from
January 1, 1999 until September 30, 1999, at an annual salary of
$125,000, which was raised to $180,000 on July 1, 1999.
(4) Represents 25,000 shares valued at $5.38 per share issued in October 1999
in connection with the start of employment.
42
<PAGE> 45
(5) Reflects issuance of two warrants in September 1999 representing the right
to purchase 50,000 shares of our common stock at an exercise price of $8
and $2 per share, respectively.
(6) Other compensation includes payments to Mr. Shaw, Mr. Money and Mr.
Winogrond as consultants prior to full-time employment in the amount of
$21,200, $22,400, and $12,200, respectively.
(7) Includes an automobile allowance in an amount of $4,200.
(8) Automobile allowance in an amount of $1,000.
OPTION GRANTS TABLE
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1999 to each of the named executive officers. No
stock appreciation rights were granted to these individuals during that year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN OR BASE FOR OPTION TERM(4)
OPTIONS FISCAL PRICE EXPIRATION MARKET PRICE ------------------------------
NAME GRANTED(1) YEAR ($)/(SH) DATE(2) ($)(SH)(3) 5%($) 10%($) 0%($)
- ------------------ ---------- ------------ -------- ---------- ------------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Shaw 236,800 8.4% 2.00 10/18/09 5.38 1,596,175 2,821,223 797,680
200,000 7.1% 8.00 10/18/09 5.38 152,691 1,190,867 --
Mark E. Patten 126,876 4.5% 2.00 10/18/09 5.38 858,959 1,518,200 429,260
73,124 2.6% 5.38 10/18/09 5.38 246,992 625,926 --
J. Keith Money 300,000 10.6% 2.00 10/18/09 5.38 2,029,036 3,586,300 1,014,000
Henry R. Winogrond 250,000 8.9% 2.00 10/18/09 5.38 1,690,863 2,988,584 845,000
John R. Daniel II 200,000 7.1% 2.00 10/18/09 5.38 1,352,691 2,390,867 676,000
50,000 1.8% 8.00 10/18/09 5.38 38,173 297,717 --
Jacobus N. Kras 250,000 8.9% 2.00 10/18/09 5.38 1,690,863 2,988,584 845,000
Kenneth B. Cobb II -- -- -- -- -- -- -- --
</TABLE>
- -------------
(1) All options were granted as of October 18, 1999. All options granted to
everyone other than Mr. Patten vest 28% on January 1, 2000, and 2% on the
first of each successive month thereafter. The options granted to Mr.
Patten vest 28% on October 18, 2000 and 2% on the eighteenth of each
successive month thereafter.
(2) Each of the options has a ten-year term. However, the options will
terminate earlier if the optionee's employment is terminated or the
Company is liquidated, dissolved, reorganized or there is a change in
control.
(3) The fair market value of our common stock was determined on the basis of
the closing sale price of our common stock on the OTC Bulletin Board on
October 15, 1999, pursuant to the terms of our 1999 Stock Option Plan.
(4) The assumed 5%, 10% and 0% rates of stock price appreciation are provided
in accordance with rules of the SEC and do not represent our estimate or
projection of our common stock price. Actual gains, if any, on stock
option exercises are dependent on the future performance of our common
stock, overall market conditions, and the optionholder's continued
employment through the vesting period. Unless the market price of our
common stock appreciates over the option term, no value will be realized
from the option grants made to these executive officers. The potential
realizable value is based on the assumption that the common stock price
appreciates at the annual rate shown, compounded annually, from the date
of grant until the end of the option period. The actual value, if any, a
named executive officer may realize will depend upon the excess of the
stock price over
43
<PAGE> 46
the exercise price on the date the option is exercised, if the executive
were to sell the shares on the date of exercise, so there is no assurance
that the value realized will be equal to or near the potential realized
value as calculated in this table.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth information concerning the year-end
number and value of unexercised options for each of the named executive
officers. None of the individuals listed below exercised any options during the
last fiscal year.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999(#) DECEMBER 31, 1999($)(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert H. Shaw -- 436,800 -- 5,517,984
Mark E. Patten -- 200,000 -- 2,828,865
J. Keith Money -- 300,000 -- 4,614,000
Henry R. Winogrond -- 250,000 -- 3,845,000
John R. Daniel II -- 250,000 -- 3,545,000
Jacobus N. Kras -- 250,000 -- 3,845,000
Kenneth B. Cobb II -- -- -- --
</TABLE>
- ---------------
(1) The fair market value of our common stock (based on the closing sale price
of our common stock on the OTC Bulletin Board on December 31, 1999) was
$17.38. These values have been calculated based on a price of $17.38 per
share, minus the applicable per share exercise price.
EMPLOYMENT AGREEMENTS
The following named executive officers have signed employment
agreements with us:
Pursuant to an employment agreement dated October 18, 1999, we agreed
to pay Robert H. Shaw an annual salary of $225,000 to serve as our Chief
Executive Officer. In accordance with the offer terms, Mr. Shaw, on October 18,
1999, was granted 236,800 options to purchase our common stock at an exercise
price per share of $2 and 200,000 options to purchase our common stock at an
exercise price per share of $8. See "Option Grants Table."
Pursuant to an employment agreement with substantially similar
provisions as Mr. Shaw dated October 18, 1999, we agreed to pay Mark E. Patten
an annual salary of $180,000 to serve as Executive Vice President and Chief
Financial Officer and as of October 18, 1999 granted Mr. Patten 126,876 options
to purchase our common stock at an exercise price per share of $2.00 and 73,124
options to purchase our common stock at an exercise price per share of $5.38.
In addition, on October 18, 1999, Mr. Patten was granted and issued 25,000
shares of our common stock and provided $25,000, as well as, a loan of up to
$25,000 in connection with the related tax impact. See "Option Grants Table."
44
<PAGE> 47
Pursuant to an employment agreement with substantially similar
provisions as Mr. Shaw dated October 18, 1999, we agreed to pay J. Keith Money
an annual salary of $180,000 to serve as our Chief Marketing Officer and as of
October 18, 1999, granted Mr. Money 300,000 options to purchase our common
stock at an exercise price per share of $2. See "Option Grants Table."
Pursuant to an employment agreement with substantially similar
provisions as Mr. Shaw dated October 18, 1999, we agreed to pay Henry R.
Winogrond an annual salary of $180,000 to serve as our Executive Vice President
of Business Development and as of October 18, 1999, granted Mr. Winogrond
250,000 options to purchase our common stock at an exercise price per share of
$2. See "Option Grants Table."
Pursuant to an employment agreement with substantially similar
provisions as Mr. Shaw dated October 18, 1999, we agreed to pay John R. Daniel
II an annual salary of $180,000 to serve as our Executive Vice President of
Operations and as of October 18, 1999, granted Mr. Daniel 200,000 options to
purchase our common stock at an exercise price per share of $2 and 50,000
options to purchase our common stock at an exercise price per share of $8. See
"Option Grants Table."
Pursuant to an employment agreement with substantially similar
provisions as Mr. Shaw dated October 18 1999, we agreed to pay Jacobus N. Kras
an annual salary of $180,000 to serve as our Executive Vice President for
Europe and as of October 18, 1999, granted Mr. Kras 250,000 options to purchase
our common stock at an exercise price per share of $2. See "Option Grants
Table."
Each of the employment agreements described above provide that in the
event we terminate the executive without "cause" (as defined), or the executive
terminates his employment with "good reason" (as defined), other than in the
case of a "change in control" (as discussed below), that executive will be
entitled to severance payments equaling that executive's annual salary and
benefits for a one-year period from the date of termination. In the event the
terminated executive finds a new employment, we will be able to cease making or
reduce the severance payments and benefits. If an executive's employment is
terminated by us without cause or by the executive with good reason, in either
case in anticipation of, in connection with or within one year after a "change
in control" (as defined), his salary will be continued for one year, his
benefits will be continued for one year (subject to cessation if the executive
is entitled to similar benefits from a new employer), each executive will agree
to preserve the confidentiality and the proprietary nature of all information
relating to the Company and our business. Each executive's agreement includes
certain non-competition and non-solicitation provisions.
EMPLOYEE BENEFIT PLANS
Our board of directors adopted our 1999 Stock Option Plan in July 1999
and our stockholders approved the adoption of the plan on October 18, 1999. The
compensation committee of the board of directors amended the plan in December
1999 by deleting a method of payment of the exercise price. We have reserved
3,000,000 shares of common stock for issuance under the plan, of which options
to purchase 2,813,800 shares were outstanding as of December 31, 1999.
The plan provides for grants of incentive stock options, and
nonqualified stock options, to our designated employees, advisors and
consultants, and to non-employee directors. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year. If options
granted under the plan expire or are terminated for any reason without being
exercised, or are forfeited, the shares of common stock underlying such grant
will again be available for purposes of the plan.
45
<PAGE> 48
The compensation committee of the board of directors administers and
interprets the plan. The compensation committee will consist of two or more
persons appointed by the board of directors from among its members, each of
whom must be a "non-employee director" as defined by Rule 16b-3 under the
Securities Exchange Act of 1934, and an "outside director" as defined by
Section 162(m) of the Internal Revenue Code of 1986 and related Treasury
regulations. The compensation committee has complete discretion to make all
decisions relating to the interpretation and operation of the Plan, including
the discretion to determine which eligible individuals are to receive any
award, and to determine the type, number, vesting requirements and other
features and conditions of each award.
The exercise price for incentive stock options granted under the plan,
which may only be granted to employees, may not be less than 100% of the fair
market value of the common stock on the option grant date. The exercise price
may be paid in cash or by other means, including a cashless exercise method as
determined by the committee.
The compensation committee may amend or terminate the plan at any
time. If the compensation committee amends the plan, stockholder approval of
the amendment will be sought only if required by an applicable law. The plan
will continue in effect until the tenth anniversary of its effective date,
unless the compensation committee decides to terminate the plan earlier or
extend it with the approval of the stockholders.
46
<PAGE> 49
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ISSUANCES OF STOCK
On February 12, 1999, our board of directors agreed to sell to
Interprise Technology Partners 4,000,000 shares of our Series A preferred stock
at a purchase price of $2 per share. We issued the 4,000,000 shares to ITP on
March 30, 1999. The per share closing sale price of our common stock on the OTC
Bulletin Board was $4.00 and $5.44 on February 12 and March 30, 1999,
respectively. Our board of directors determined that a $2.00 per share purchase
price for the preferred stock was fair for a transaction of this magnitude with
ITP. Pursuant to the terms of the Stock Purchase Agreement, ITP has the right to
elect one member to our board of directors. David Parker, ITP's managing
principal,has been ITP's representative on our board of directors since
February 12, 1999. In addition, in connection with the Series A transaction, we
granted an option to ITP to purchase an additional 250,000 shares of Series A
convertible preferred stock at a purchase price of $2.00 per share, exercisable
at any time over the next 5 years. We received no separate tangible
consideration in exchange for the granting of the option.
On October 15, 1999, we received an approximately $2.4 million bridge
loan from ITP, and granted ITP a warrant representing the right to purchase up
to 110,000 shares of our Series B convertible preferred stock at an exercise
price of $4 per share. The bridge loan was in the form of our Series B
convertible preferred stock at an exercise price of $4 per share. The bridge
loan was in the form of a senior secured convertible note, convertible into
shares of our Series B preferred stock. Interest on the note was 8% per annum,
and principal and interest were due and payable upon 30 days written notice.
The warrant was granted to ITP in lieu of payment of interest on the note, and
had a fair market value (based on the closing sale price on the date of grant
of our common stock on the OTC Bulletin Board) on the date of grant of $151,800.
On November 11, 1999 we executed a Stock Purchase Agreement to sell to
ITP, and other accredited investors selected by ITP, a minimum of 1,250,000 and
a maximum of 5,000,000 shares of our Series B convertible preferred stock at a
purchase price of $4 per share. We issued 1,250,000 shares to ITP on December
16, 1999. The per share closing sale price of our common stock on the OTC
Bulletin Board was $7.81 and $11.50 on November 11 and December 16, 1999,
respectively. Our board of directors determined that a $4.00 per share purchase
price for the preferred stock was fair for a transaction of this magnitude with
ITP. See "Description of Registrant's Securities."
On December 16, 1999, we also issued 25,000 shares of our Series B
convertible preferred stock to each of David Parker and Michael W. Poole,
members of our board of directors, individually, at a purchase price of $4 per
share. The per share closing sale price of our common stock on the OTC Bulletin
Board was $11.50 on December 16, 1999. Our board of directors determined that it
was fair to issue these shares at the same price as those sold to ITP on the
same date. After the Series B convertible preferred stock offering, both ITP and
David Parker were the beneficial holders of 26.7% of our common stock.
On October 18, 1999, we issued 25,000 shares of our common stock to
Mark E. Patten in connection with the start of his employment with us as our
Chief Financial Officer and Executive Vice President. The per share closing sale
price of our common stock on the OTC Bulletin Board was $5.25 on the date of
issuance.
CONSULTING ARRANGEMENTS
In 1996, we entered into a five year exclusive agreement with
Hortimarc B.V., a consulting business owned by Jacobus N. Kras, an employee of
ours since July 1, 1999 and our Executive Vice President for Europe as of
October 1999, for the development of our marketing and sales initiatives in the
European market. The contract provided for compensation to Hortimarc based upon
time and materials billed. This agreement was terminated when Mr. Kras became
an employee in July 1999. However, we continue to utilize limited services of
Hortimarc for which we incur costs for time and materials. In 1999, we remitted
$98,300 to Hortimarc under the aforementioned agreement and activities
conducted after the termination of such agreement.
In January 1999, we entered into a two year agreement with Poole
Carbone Capital Partners, Inc., of which Mr. Poole, a member of our board of
directors since January 1999, was the controlling principal as of December 31,
1999, to receive financial and investment banking services. In connection
47
<PAGE> 50
with this agreement we granted to Poole Carbone Capital Partners two warrants
each representing the right to purchase 50,000 shares of our common stock at
exercise prices of $12 and $10 per share, respectively. We also granted to the
Michael W. Poole Trust a warrant representing the right to purchase 100,000
shares of our common stock at an exercise price of $2 per share. The warrants
were granted on January 15, 1999, at which time our common stock had a per share
closing sale price on the OTC Bulletin Board of $4.25. The fair market values
(based on the closing sale price on the date of grant of our common stock on the
OTC Bulletin Board) of the $12, $10 and $2 warrants on the date of grant were
$18,700, $12,900 and $212,000, respectively.
The foregoing transactions between us and our affiliates were
negotiated upon our behalf by our management. We believe that such transactions
are in compliance with our policy that transactions with affiliates be on terms
at least as favorable as could have been reasonably obtained from an
unaffiliated third party. We anticipate that all future transactions with our
affiliates will be approved by a majority of our board of directors, including
a majority of the independent and disinterested directors, and will continue to
be on terms no less favorable to us then could be obtained from unaffiliated
third parties.
ITEM 8. LEGAL PROCEEDINGS
We are not aware of any pending legal proceedings against us that,
individually or in the aggregate, would have a material adverse effect on our
business, results of operation or financial condition. We may in the future be
party to litigation arising in the course of our business, including claims
that we allegedly infringe third party trademarks and other intellectual
property rights. These claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
48
<PAGE> 51
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Our shares of common stock are traded over-the-counter on the OTC
Bulletin Board under the symbol "WCOL." The following table sets forth for the
periods indicated the high and low bid prices of our common stock, as reported
in published financial sources. The quotations reflect prices between dealers
in securities, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
Upon the effectiveness of this registration statement, we intend to
apply to list our shares on the Nasdaq National Market, whereupon our shares
would cease to be quoted on the OTC Bulletin Board. There can be no assurance
that we will be able to obtain or maintain any such listing for our shares.
<TABLE>
<CAPTION>
Common Stock
------------------------------
Fiscal Year Ending December 31, 2000 High Low
---------- ---------
<S> <C> <C>
Second Quarter(1)................................................ 21 15/16 7 1/4
First Quarter.................................................... 28 13 11/16
<CAPTION> ------------------------------
Fiscal Year Ended December 31, 1999 High Low
---------- ---------
<S> <C> <C>
Fourth Quarter.................................................... 16 1/2 5 1/6
Third Quarter..................................................... 16 5/8 5
Second Quarter.................................................... 14 1/8 4 7/8
First Quarter..................................................... 7 3/8 2 1/8
<CAPTION> ------------------------------
Fiscal Year Ended December 31, 1998 High Low
---------- ---------
<S> <C> <C>
Fourth Quarter.................................................... 3 3/4 2
Third Quarter (commencing September 9, 1998)(2)................... 2 1/2 2 1/2
</TABLE>
- -------------------
(1) As of May 12, 2000.
(2) Trading was commenced under the symbol SUEX.
As of December 31, 1999, there were 15,435,357 shares of common stock
outstanding, held by approximately 74 shareholders of record.
We have never declared or paid any cash dividends on our common stock
and do not anticipate declaring or paying cash dividends on our common stock in
2000 or in the foreseeable future. We currently intend to retain future
earnings to finance operations and fund the growth of our business. Any payment
of future dividends will be at the discretion of our board of directors and
will depend upon, among other things, our earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions in
respect of the payment of dividends and other factors that our board of
directors may deem relevant.
49
<PAGE> 52
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the
number of shares of common stock and preferred stock sold by us and the number
of options and warrants issued by us within the past three years, and the
consideration received by us for such shares, options and warrants. None of the
securities were registered under the Securities Act. In the opinion of World
Commerce, the sale or issuance of the above securities was deemed to be exempt
from registration under the Securities Act in reliance upon Section 4(2) of the
Securities Act, except as otherwise noted for the 1,705,000 shares sold or
issued in reliance upon Rule 504, as transactions by an issuer not involving
any public offering. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were fixed to the share certificates issued in such
transactions. All recipients had an opportunity to ask questions about us and
had adequate access to information about us. No sales of securities involved
the use of an underwriter and no commissions were paid in connection with the
sale or issuance of any securities.
On September 10, 1998, we issued 7,020,000 shares of our common stock
to World Commerce Online-Floraplex in exchange for all its outstanding shares
of common stock.
On September 23, 1998, we issued 3,380,000 shares of our common stock
to Consolidated Capital Group, Inc., PowWow, Inc., Roger Tichenor, Douglas
Hackett, Robert Shaw, Keith Money and Charles T. Black, Jr. and Kenneth B.
Cobb, II, as joint tenants, as consideration for services rendered in
facilitating the voluntary share exchange between us and World Commerce
Online-Floraplex.
Between September 25, 1998 and February 1, 1999, we sold 1,615,000
shares of our common stock, at a purchase price of $.50 per share to 27 persons
for $807,500. The sale of the securities was deemed to be exempt from
registration under the Securities Act in reliance upon Rule 504 of the
Securities Act as a transaction by an issuer not involving any public offering.
On October 21, 1998, we issued 300,000 shares of our common stock,
determined by our board of directors to have a value of $150,000, to Kenneth B.
Cobb, II as consideration for services rendered in his capacity as acting chief
financial officer.
On October 31, 1998, we issued 100,000 shares of our common stock,
determined by our board of directors to have a value of $52,000, to Larry L.
Murphy; on November 20, 1998, we issued 20,000 shares of our common stock, at a
fair market value of $45,000 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), to William
A. Mobley, Jr.; and on January 18, 1999, we issued 35,000 shares of our common
stock, at a fair market value of $78,750 (based on the closing sale price on the
day before the date of issuance of our common stock on the OTC Bulletin Board),
to Tucker H. Byrd and 5,000 shares of our common stock, at a fair market value
of $11,250 (based on the closing sale price on the day before the date of
issuance of our common stock on the OTC Bulletin Board), to Jack L. Byrd, Jr.,
for satisfaction of all loans, notes and debts of any kind made to World
Commerce on each of Mr. Murphy's, Mr. Mobley's, and Tucker Byrd's behalf. The
5,000 shares issued to Jack L. Byrd, Jr. were for satisfaction of loans made by
Tucker H. Byrd. The issuance of the securities was deemed to be exempt from
registration under the Securities Act in reliance upon Rule 504 of the
Securities Act as a transaction by an issuer not involving any public offering.
On December 7, 1998, we issued 200,000 shares of our common stock, at a
fair market value of $500,000 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), to Noble
House of Boston, Inc. as consideration for services rendered in performing
public relations work.
50
<PAGE> 53
On December 17, 1998, we issued 30,000 shares of our common stock, at a
fair market value of $75,000 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), to William
Armellini as consideration for consulting services rendered.
On January 15, 1999, we granted to Michael W. Poole Trust a warrant
representing the right to purchase 100,000 shares of our common stock at an
exercise price of $2 per share. The warrant was granted as consideration for Mr.
Michael Poole being a member of our board of directors and had a fair market
value (based on the closing sale price on the day before the date of grant of
our common stock on the OTC Bulletin Board) on the date of grant of $212,000. We
also granted Poole Carbone Capital Partners, Inc., two warrants each
representing the right to purchase 50,000 shares of our common stock at exercise
prices of $12 and $10 per share as consideration for consulting services to be
performed by Poole Carbone Capital Partners. The warrants had a fair market
value on the date of grant of $18,700 and $12,900 (based on the closing sale
price on the day before the date of grant of our common stock on the OTC
Bulletin Board), respectively.
On March 30, 1999, we sold 4,000,000 shares of our Series A convertible
preferred stock, at a purchase price of $2 per share, to Interprise
TechnologyPartners for $8 million and granted ITP an option to purchase an
additional 250,000 shares of our Series A convertible preferred stock at an
exercise price of $2.00 per share. We received no tangible consideration in
exchange for the granting of the option.
On April 22, 1999, we issued 5,357 shares of our common stock, at a
fair market value of $37,500 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), to Novelle
Consulting, L.L.C. as consideration for services rendered and granted a warrant
representing the right to purchase 250,000 shares of our common stock as
consideration for consulting services performed by Novelle in connection with
FreshPlex. The warrant had a fair market value (based on the closing sale price
on the day before the date of grant of our common stock on the OTC Bulletin
Board) on the date of grant of $276,560.
In July 1999, we issued 80,000 shares of our common stock, at a fair
market value of $945,000 (based on the closing sale price on the day before the
date of issuance of our common stock on the OTC Bulletin Board), to Peter
Giarrusso as consideration for consulting services performed from January 1999
to July 1999 relating to the design and development of our B2B e-commerce
technology.
On August 26, 1999, in connection with our acquisition of FPN, we
issued 100,000 shares of our common stock, at a fair market value of $1,126,150
(based on an average of the closing sale price for the two days before, the date
of and the two days after the date of issuance of our common stock on the OTC
Bulletin Board), to the sole stockholder of FPN, JoBo Holding B.V., and we
granted to Nils Van Beek, owner of JoBo, a warrant representing the right to
purchase 100,000 shares of our common stock. The warrant had a fair market value
(based on the closing sale price on the day before the date of grant of our
common stock on the OTC Bulletin Board) on the date of grant of $724,000.
On September 20, 1999, we granted to Kenneth B. Cobb II warrants
representing the right to purchase 100,000 shares of our common stock as
consideration for past services as our Chief Financial Officer. The warrant had
a fair market value (based on the closing sale price on the day before the date
of grant of our common stock on the OTC Bulletin Board) on the date of the grant
of $290,625.
On October 1, 1999, we issued 20,000 shares of our common stock, at a
fair market value of $110,000 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), and granted
a warrant representing the right to purchase 250,000 shares of our common stock
to Charles Kremp, III in connection with the consulting agreement with Mr. Kremp
and the discontinuance of the Kremp Network. The warrant had a fair market value
(based on the closing sale price on the day before the date of grant of our
common stock on the OTC Bulletin Board) on the date of the grant of $525,270.
On October 15, 1999, we granted to Interprise Technology Partners a
warrant representing the right to purchase up to 110,000 shares of our Series B
convertible preferred stock at an exercise price of $4 per share. The warrant
was granted to ITP in lieu of interest on an approximately $2.4 million bridge
loan provided to us by ITP. The warrant had a fair market value (based on the
closing sale price on the day before the date of grant of our common stock on
the OTC Bulletin Board) on the date of grant of $151,800.
On October 18, 1999, we issued 25,000 shares of our common stock, at a
fair market value of $134,375 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), to Mark E.
Patten, our Chief Financial Officer, in connection with the commencement of his
employment at World Commerce.
51
<PAGE> 54
On October 18, 1999, we granted to each of Tucker H. Byrd, Jr. and
Elizabeth Walsh a warrant representing the right to purchase 30,000 shares and
1,000 shares of our common stock, respectively, in connection with legal
services provided to us. The warrants had a fair market value (based on the
closing sale price on the day before the date of grant of our common stock on
the OTC Bulletin Board) on the date of the grant of $33,074 and $1,101,
respectively.
During the period from October 18, 1999 through December 16, 1999, we
granted to our employees stock options exercisable for an aggregate of 2,813,800
shares of our common stock at prices ranging from $2 to $11.75 per share.
On December 10, 1999, we granted to Dole Fresh Flowers, Inc. a warrant
representing the right to purchase 1,000,000 shares of our common stock in
connection with Dole Fresh Flowers agreeing to sell its flowers through
Floraplex. The warrant had a fair market value (based on the closing sale price
on the day before the date of grant of our common stock on the OTC Bulletin
Board) on the date of the grant of $5,170,000.
On December 16, 1999, we sold 5,000,000 shares of our Series B
convertible preferred stock, at a purchase price of $4 per share, to
approximately 60 accredited investors for $20 million, including 1,250,000
shares for $5 million to Interprise Technology Partners.
On March 14, 2000, we issued 10,000 shares of our common stock, at a
fair market value of $235,000 (based on the closing sale price on the day before
the date of issuance of our common stock on the OTC Bulletin Board), to Gregory
N. Chambers, an executive in our sales and marketing organization, in connection
with the commencement of his employment with the Company.
On March 14, 2000, we sold 200,000 shares of our Series A convertible
preferred stock, at a purchase price of $2 per share, to Interprise Technology
Partners for $400,000 pursuant to Interprise's exercise of an option, which we
granted on March 30, 1999, to purchase such shares at such price.
On March 29, 2000, we granted to AnswerThink Consulting Group, Inc.
two warrants representing the right to purchase 250,000 shares of our common
stock as consideration for introducing us to i2 Technologies, Inc. and in full
payment of $200,000 worth of consulting services rendered to us as of March 29,
2000. The warrant had a fair market value (based on the closing sale price on
the day before the date of grant of our common stock on the OTC Bulletin Board)
on the date of the grant of $2,572,000.
On April 11, 2000, we sold 50,000 shares of our Series A convertible
preferred stock, at a purchase price of $2 per share, to Interprise Technology
Partners for $100,000 pursuant to Interprise's exercise of an option, which we
granted on March 30, 1999, to purchase such shares at such price.
On April 29, 2000, we granted to i2 Technologies, Inc. a warrant
representing the right to purchase 1,250,000 shares of our common stock as
consideration for software i2 Technologies licensed to us pursuant to a software
license agreement dated April 29, 2000. The warrant had a fair market value
(based on the closing sale price on the day before the date of grant of our
common stock on the OTC Bulletin Board) on the date of the grant of $8,000,000.
52
<PAGE> 55
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES
GENERAL
Our authorized capital stock consists of 90,000,000 shares of common
stock, par value $.001 per share, and 10,000,000 shares of preferred stock, par
value $.001 per share.
COMMON STOCK
As of December 31, 1999, there were 15,435,537 shares of common stock
outstanding, all of which are fully paid and nonassessable. The holders of
common stock are entitled to one vote per share on all matters to be voted upon
by the stockholders. Subject to any preferential rights of preferred stock
holders, the holders of common stock are entitled to receive dividends on a pro
rata basis, if any, declared from time to time by the board of directors out of
legally available funds. In the event of our liquidation, dissolution or
winding up, subject to any preferential rights of preferred stock holders, the
holders of common stock are entitled to share on a pro rata basis in all assets
remaining after payment of liabilities. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. We have never paid
dividends in the past and do not intend to do so in the future.
PREFERRED STOCK
The following is a description of certain terms of our Series A and
Series B convertible preferred stock, or collectively referred to as our
preferred stock, which is intended as a summary only, and is qualified in its
entirety by reference to the complete text of each Certificate of Designations
which contain the voting powers, designations, preferences and rights of the
Series A and Series B convertible preferred stock. A copy of each certificate
is filed as an exhibit to this registration statement. As of December 31, 1999,
there were 9,000,000 shares of preferred stock issued and outstanding, all of
which are fully paid and non-assessable. Except as otherwise noted, the Series
A and Series B redeemable convertible preferred stock had the same powers,
designations, preferences and rights.
RANKING. The preferred stock will, with respect to dividend rights and
rights upon liquidation, dissolution and winding up, rank senior to our common
stock.
DIVIDENDS. The holders of outstanding shares of preferred stock are
not as a matter of right entitled to be paid or receive any dividends or
distributions. The board of directors may decide, at its discretion, whether or
not to pay dividends and in what amount. The board of directors shall not pay
or declare any dividend or make any distribution to the holders of shares of
common stock as long as their remains any shares of preferred stock
outstanding.
LIQUIDATION. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of World Commerce, the holders of the
outstanding shares of Series A and Series B preferred stock are entitled to
receive $2.00 and $4.00, respectively, in cash for each respective outstanding
share of preferred stock (plus all accrued and unpaid dividends), before any
distribution or payment to the holders of outstanding shares of any other
capital stock of World Commerce. In addition to and after payment in full of
all other amounts payable to the holders of the outstanding shares of preferred
stock upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of World Commerce, the holders of the outstanding shares of the
preferred stock shall be entitled to
53
<PAGE> 56
participate on an as-if-converted basis with the holders of the outstanding
shares of our common stock as a single class in the distribution of our assets
with respect to the common stock.
REDEMPTION. No outstanding shares of preferred stock shall be callable
or redeemable by us. The holders of a majority of the outstanding shares of
preferred stock may require World Commerce to redeem all of the preferred stock
owned by such holders at a price equal to $2.00 per share for the Series A
(plus all accrued and unpaid dividends thereon) and $4.00 per share for the
Series B (plus all accrued and unpaid dividends thereon) at any time after
April 1, 2001, upon the occurrence of a change in ownership of a majority of
our outstanding shares of common stock, and/or upon the sale or transfer of
more than 50% of our assets.
VOTING RIGHTS. The holders of the outstanding shares of Series A and
Series B preferred stock, voting separately as a single class to the exclusion
of all other classes of our capital stock, are each entitled to elect one
member to our board of directors until such time as no shares of their
respective preferred stock are outstanding. The holders of a majority of the
outstanding shares of both the Series A and Series B preferred stock must
approve any increase in the number of directors on our board of directors
beyond five. The holders of the outstanding shares of preferred stock shall be
entitled to notice of all stockholders' meetings in accordance with our Bylaws,
and except in the election of directors, shall be entitled to vote on all
matters submitted to the stockholders for a vote together with the holders of
the outstanding shares of common stock voting together as a single class with
each share of preferred stock entitled to one vote for each share of common
stock issuable upon conversion of the preferred stock.
CONVERSION RIGHTS. At any time any holder of preferred stock may
convert all or any portion of the preferred stock held by such holder into a
number of shares of common stock computed by: (i) for Series A preferred stock,
multiplying the number of shares of Series A preferred stock to be converted by
$2.00 and dividing the result by the conversion price of $2.00; or (ii) for
Series B preferred stock, multiplying the number of shares of Series B
preferred stock to be converted by $4.00 and dividing the result by the
conversion price of $4.00. The conversion price of both the Series A and Series
B preferred stock is subject to adjustment pursuant to customary anti-dilution
provisions. The conversion of the preferred stock at the election of the holder
thereof shall take effect as of the close of business on the date on which the
certificate or certificates representing the preferred stock to be converted
have been surrendered for conversion at our principal office. Furthermore, we
may at any time require the mandatory conversion of all outstanding shares of
preferred stock at such time as we close a public offering of our common stock
in which we raise at least $15,000,000, the price per share paid for our common
stock was at least three hundred percent above the conversion price of the
preferred stock then in effect, and the holders of the preferred stock were
permitted to include their shares in the public offering, subject to
underwriting limitations. The mandatory conversion would be effective upon the
closing of the public offering provided written notice of such mandatory
conversion was given to all holders of the preferred stock at least seven days
prior to such closing.
REGISTRATION RIGHTS. The holders of the outstanding shares of
preferred stock have registration rights relative to the common stock issuable
upon conversion of their preferred stock. All registration rights become
available on the earlier of April 1, 2001 or one hundred eighty days after the
close of our first registered public offering of our common stock under the
Securities Act with net proceeds of not less than $15,000,000, and end three
years thereafter. The registration rights are provided under the terms of an
agreement between us and the holders of the preferred stock. Subject to
limitations in the agreement, the holders of a majority of preferred stock can
demand up to five times that we register their shares of common stock, and if
we register any of our common stock either for our own account or for the
account of other security holders, each holder of shares of preferred stock is
entitled to "piggyback"
54
<PAGE> 57
its shares of common stock in such registration, subject to the ability of the
underwriters to limit the number of shares included in the offering. We will be
responsible for paying all registration expenses relating to any piggyback
registrations and all but one demand registration.
WARRANTS
We have issued warrants representing the right to purchase our common
stock to the warrant holders set forth below for the number of shares of common
stock and at the exercise price set forth opposite each warrant holders' name.
We have reserved from our authorized but unissued shares a sufficient number of
shares of common stock for issuance upon the exercise of the warrants. As of
December 31, 1999, no warrants have been exercised. The warrants do not confer
upon the warrant holder any voting or other rights of a stockholder of World
Commerce. Except as otherwise indicated, the warrants and all rights thereunder
are freely transferable in whole or in part. Except as otherwise indicated, the
warrants provide for customary anti-dilution provisions in the event of certain
events which may include mergers, consolidations, reorganizations,
reclassifications, stock dividends, stock splits and other changes in our
capital structure. Except as otherwise indicated, the warrant holders are
entitled to certain "piggyback" registration rights enabling them, under
certain conditions, to include the common stock underlying the warrants in a
registration statement in the event that we propose to register any of our
common stock under the Securities Act. The foregoing is a summary of the terms
generally applicable to the warrants, however, the terms of each individual
warrant may vary according to negotiation between us and the various warrant
holders. The following table provides certain information with respect to the
warrants as of December 31, 1999.
<TABLE>
<CAPTION>
EXERCISE PRICE
HOLDER AMOUNT OF SHARES PER SHARE EXPIRATION DATE
- ------------------------------------ ---------------- -------------- ----------------
<S> <C> <C> <C>
Michael W. Poole Trust 100,000(5) $ 2.00(11) January 14, 2009
Poole Carbone Capital Partners, Inc. 50,000(5) 12.00(11) January 14, 2009
Poole Carbone Capital Partners, Inc. 50,000(5) 10.00(11) January 14, 2009
Nils Van Beek(1)(2)(3) 100,000(7) 11.50(11) August 25, 2003
Kenneth B. Cobb II 50,000(6) 2.00(11) December 31, 2004
Kenneth B. Cobb II 50,000(8) 8.00(11) July 29, 2005
Charles Kremp III(1)(2)(3) 250,000(9) 8.00(11) September 30, 2005
Tucker H. Byrd 30,000(5) 8.00(12) October 17, 2009
Elizabeth Walsh(1)(2)(3) 1,000(5) 8.00(12) October 18, 2004
Dole Fresh Flowers, Inc.(1)(2)(3) 1,000,000(10) 7.50(11) December 9, 2009
Interprise Technology Partners(4) 110,000(5) 4.00(13) October 31, 2004
Novelle Consulting, L.L.C.(2)(3) 250,000(5) 12.38(12) April 21, 2003
</TABLE>
- -------------------
(1) The warrant and all rights thereunder may only be transferred by will or
the laws of descent and distribution.
(2) Anti-dilution rights only in the event of stock dividends or stock splits.
(3) No "piggy back" registration rights for any of the shares of our common
stock underlying the warrant. (4) The warrant represents the right to
purchase shares of our Series B preferred stock, which is convertible on a
1 for 1 basis into our common stock, subject to customary anti-dilution
provisions.
(5) 100% of the shares are immediately exercisable.
(6) 100% of the shares are exercisable as of January 1, 2000.
(7) 25% of the shares are exercisable as of January 1, 2000, 25% of the shares
are exercisable as of January 1, 2001, 25% of the shares are exercisable as
of January 1, 2002, and the remaining 25% of the shares are exercisable as
of August 30, 2003.
55
<PAGE> 58
(8) 100% of the shares are exercisable as of August 1, 2000.
(9) 20,837 shares are exercisable as of December 31, 1999 and 20,833 shares
are exercisable on the last day of each calendar quarter for 11 successive
quarters until September 30, 2002.
(10) 58,337 shares are exercisable as of January 1, 2000, 58,333 shares are
exercisable as of February 1, 2000 and on the first calendar day of each
month for 10 successive months until December 1, 2000 and 25,000 shares
are exercisable as of January 1, 2001 and on the first calendar day of
each month for 11 successive months until December 1, 2001.
(11) The exercise price is payable in cash or any other form of consideration
agreed to by World Commerce and the warrant holder. The exercise price is
also payable in warrants valued at the current market price of our common
stock underlying such warrant on the date of such exercise less the
current warrant price then in effect, or a combination of cash and such
warrants.
(12) The exercise price is payable in cash or any other form of consideration
agreed to by World Commerce and the warrant holder.
(13) The exercise price is payable in cash or in warrants valued at the average
of the closing prices of our common stock reported for the five business
days immediately before notice of exercise is given, or a combination of
cash and such warrants.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION
Provisions of Delaware Law and our certificate of incorporation
summarized below could make more difficult our acquisition by means of a tender
offer, a proxy contest or otherwise in the removal of incumbent officers and
directors. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control to first negotiate with us. We believe that
the benefits of increased protection of our potential ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us outweighs the disadvantages of discouraging such proposals
because, among other things, negotiation of such proposals could result in an
improvement of their terms.
DELAWARE ANTI-TAKEOVER LAW. We are subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. 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
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, 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, 15.0% or more of a
corporation's voting stock. The existence of this provision may have an
anti-takeover effect with respect to transactions not approved in advance by
the board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders.
CERTIFICATE OF INCORPORATION. Our certificate of incorporation
authorizes our board of directors to establish one or more series of preferred
stock and to determine, with respect to any series of preferred stock, the
terms and rights of such series. The authorized shares of preferred stock, as
well as shares of common stock, will be available for issuance without further
action by our stockholders, unless such action is required by applicable laws
or the rules of any stock exchange or automatic quotation system on which our
securities may be listed or traded.
Although our board of directors has no intention at the present time
of doing so, it could issue a series of preferred stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. Our board of directors will make any determination to
56
<PAGE> 59
issue such shares based on its judgment as to the best interest of World
Commerce and its stockholders. Our board of directors, in so acting, could
issue preferred stock having terms that could discourage an acquisition attempt
through which an acquiror otherwise may be able to change the composition of
our board of directors, including a tender or exchange offer or other
transaction that some, or a majority, of our stockholders might believe to be
in the best interest or in which stockholders might receive a premium for their
stock over the then current market price of such stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Continental
Stock Transfer & Trust Company
ITEM 12. 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 the current law.
Our certificate of incorporation provides that, pursuant to Delaware
law, our directors and officers shall not be liable for monetary damages for
breach of the their fiduciary duty as directors or officers to World Commerce
and its stockholders. This provision in the Certificate of Incorporation does
not eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director and
officer will continue to be subject to liability for breach of their duty of
loyalty to us for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit, and for payment of dividends or approval of stock repurchases
or redemptions that are unlawful under Delaware law. The provision also does
not affect a director's responsibilities under any other law, such as the
federal securities laws or state or federal environmental laws.
We have entered into indemnification agreements with our directors and
executive officers, in addition to the indemnification provided for in our
Certificate of Incorporation, and intend to enter into indemnification
agreements with any new directors and executive officers in the future. The
indemnification agreements provide the directors and executive officers with
further indemnification to the maximum extent permitted by the Delaware General
Corporation Law.
57
<PAGE> 60
ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
The financial statements filed as part of this registration statement
are listed in the Index to Financial Statements on page F-1 and are attached
hereto immediately thereafter.
(b) EXHIBITS.
The exhibits filed as part of this registration statement are listed
below and in the Exhibit Index and are attached hereto immediately following
the Exhibit Index.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------
<S> <C>
2.1* Agreement and Plan of Merger between World Commerce Online, a
Nevada corporation and World Commerce Online, a Delaware
corporation, dated September 30, 1999.
2.2* Acquisition Agreement dated as of September 10, 1998 between
World Commerce Online, Inc., a Nevada corporation and Sunrise
Express, Inc., a Nevada corporation.
3.1* Certificate of Incorporation of World Commerce Online.
3.2* Certificate of Amendment of Certificate of Incorporation
amending Certificate of Designations of Series A Preferred Stock.
3.3* Bylaws.
3.4* Stock Purchase Agreement for Series A Preferred Stock, dated
March 30, 1999.
3.5* Stock Purchase Agreement for Series B Preferred Stock, dated
November 11, 1999.
3.6* Certificate of Designations of Series B Preferred Stock.
3.7* Registration Rights Agreement for Series A and B Preferred Stock,
dated November 11, 1999.
4.1* Form of Common Stock Certificate.
4.2* Warrant Agreement in favor of Poole Carbone Capital Partners, dated
January 15, 1999.
4.3* Warrant Agreement in favor of Poole Carbone Capital Partners, dated
January 15, 1999.
4.4* Warrant Agreement in favor of Michael W. Poole Trust, dated January
15, 1999.
4.5* Warrant Agreement in favor of Novelle Consulting, L.L.C., dated
April 22, 1999.
4.6* Warrant Agreement in favor of Kenneth B. Cobb II, dated September
20, 1999.
4.7* Warrant Agreement in favor of Kenneth B. Cobb II, dated September
20, 1999.
4.8* Warrant Agreement in favor of Charles Kremp, III, dated as of
October 1, 1999.
4.9* Warrant Agreement in favor of Interprise Technology Partners, L.P.,
dated October 15, 1999.
4.10* Warrant Agreement in favor of Tucker Byrd, dated October 18, 1999.
4.11* Warrant Agreement in favor of Liz Walsh, dated October 18, 1999.
4.12* Warrant Agreement in favor of Nils Van Beek, dated August 26, 1999.
</TABLE>
58
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------
<S> <C>
4.13* Warrant Agreement in favor of Dole Fresh Flowers, dated December 10,
1999.
4.14* Warrant Agreement in favor of AnswerThink Consulting Group, Inc.,
dated March 29, 1999.
4.15* Warrant Agreement in favor of AnswerThink Consulting Group, Inc.,
dated March 29, 1999.
4.16 Warrant Purchase Agreement with i2 Technologies, Inc., dated
April 29, 2000.
4.17 Warrant Agreement in favor of i2 Technologies, Inc., dated
April 29, 2000.
10.1* 1999 Stock Option Plan.
10.2* Form of Executive Incentive Stock Option Agreement.
10.3* Form of Executive Non-Qualified Stock Option Agreement.
10.4* Form of Non-Executive Incentive Stock Option Agreement.
10.5* Form of Non-Executive Non-Qualified Stock Option Agreement.
10.6* Form of Indemnification Agreement for officers and directors.
10.7* Corporate Headquarters Lease Agreement, dated February 15, 1999.
10.8* Consulting Agreement with AnswerThink, Inc., dated August 11, 1999.
10.9* Stock Purchase Agreement by and among World Commerce Online, Fresh
Products Network, Omniflora International Ltd., Jobo Holding B.V.
and Nils Van Beek, dated August 26, 1999.
10.10* Consulting Agreement with Jobo Holding B.V., dated August 26, 1999.
10.11* 1st Amendment to Corporate Headquarter Lease Agreement, dated
September 7, 1999.
10.12* Consulting Agreement with Charles Kremp, III, dated as of October
1, 1999.
10.13* Demonstration License Agreement with AnswerThink, Inc., dated
October 4, 1999.
10.14* Web Site Development Agreement with Snickleways Interactive, dated
October 14, 1999.
10.15* Employment Agreement with Robert H. Shaw, dated as of October 18,
1999.
10.16* Employment Agreement with Mark E. Patten, dated as of October 18,
1999.
10.17* Employment Agreement with J. Keith Money, dated as of October 18,
1999.
10.18* Employment Agreement with Henry R. Winogrond, dated as of October
18, 1999.
10.19* Employment Agreement with John R. Daniel II, dated as of October
18, 1999.
10.20* Employment Agreement with Eugenio M. Valdes, dated as of October
18, 1999.
10.21* Employment Agreement with Jacobus N. Kras, dated as of October 18,
1999.
10.22* Floraplex User Agreement with Dole Fresh Flowers, dated December 10,
1999.
10.23* Master Outsourced Services Agreement with eCredit.com, Inc., dated
December 30, 1999.
10.24* Form of Floraplex User Agreement with wholesale florists who are
members of Premiere Floral Distributors and International Floral
Distributors.
10.25* Agreement between World Commerce Online and Flower Auction Holland,
dated October 22, 1999.
10.26* Agreement between Flower Purchase Network-Floraplex and Flower
Auction Aalsmeer, dated December 8, 1999.
</TABLE>
59
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- -------------------------------------------------------------------
<S> <C>
10.27 Software License Agreement with i2 Technologies, Inc., dated
April 29, 2000.
21.1* Subsidiaries.
27.1* Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Previously Filed
60
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997,
and for the Period March 30, 1994 (Date of Inception) through December 31, 1999 F-4
Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1999, 1998
and 1997, and for the Period March 30, 1994 (Date of Inception) through December 31, 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997,
and for the Period March 30, 1994 (Date of Inception) through December 31, 1999 F-9
Notes to Consolidated Financial Statements F-11
FRESH PRODUCTS NETWORK B.V. (A DEVELOPMENT STAGE COMPANY)
Report of Independent Accountants F-22
Financial Statements:
Balance Sheets as of August 26, 1999 and December 31, 1998 F-23
Statements of Operations for the period April 17, 1998 (Date of inception) through
December 31, 1998, for the period from January 1, 1999 to August 26, 1999 and
for the period April 17, 1998 (date of inception) through August 26, 1999 F-24
Statements of Stockholder's Deficit for the period April 17, 1998 (Date of inception) through
December 31, 1998, and for the period from January 1, 1999 to August 26, 1999 F-25
Statements of Cash flows for the period April 17, 1998 (Date of inception) through
December 31, 1998, for the period from January 1, 1999 to August 26, 1999 and
for the period April 17, 1998 (date of inception) through August 26, 1999 F-26
Notes to Financial Statements F-27
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
World Commerce Online, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' deficit and cash flows
present fairly, in all material respects, the consolidated financial position of
World Commerce Online, Inc. and Subsidiaries (a development stage company) at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for the years ended December 31, 1999, 1998, 1997 and for the period from
March 30, 1994 (date of inception) through December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
February 9, 2000, except for Note 16 for
which the date is April 29, 2000
F-2
<PAGE> 65
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1999 1998
- ------------------------------------------------------------ ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,553,021 $ 42,335
Prepaid expenses and other current assets 232,754 1,597
Receivable from investors 3,785,000 --
------------ -----------
Total current assets 14,570,775 43,932
Property and equipment, net 6,477,743 57,312
Intangible assets, net 1,596,260 --
Other assets 24,238 --
------------ -----------
Total assets $ 22,669,016 $ 101,244
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- ------------------------------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 1,855,185 $ 176,308
Accrued compensation and benefits 372,075 30,852
Capital lease obligation, current 71,611 11,467
------------ -----------
Total current liabilities 2,298,871 218,627
Long-term liabilities:
Capital lease obligation 91,927 26,983
Redeemable convertible preferred stock:
Preferred stock Series A, $0.001 par value; authorized 4,250,000 shares,
issued and outstanding 4,000,000 shares at December 31, 1999, stated at
liquidation value, net of related costs 7,978,211 --
Preferred stock Series B, $0.001, par value; authorized 5,110,000 shares,
issued and outstanding 5,000,000 shares at December 31, 1999, stated at
liquidation value, net of related costs 19,620,772 --
------------ -----------
Total redeemable convertible preferred stock 27,598,983 --
Stockholders' deficit:
Common stock, $0.001 par value; authorized 90,000,000 shares, issued and
outstanding 15,435,357 and 14,815,000 shares at December 31, 1999 and
1998, respectively 15,435 14,815
Additional paid-in capital 43,175,872 4,692,623
Deferred stock-based compensation (4,863,980) --
Deficit accumulated during the development stage (45,602,372) (4,851,804)
Accumulated comprehensive loss (45,720) --
------------ -----------
Total stockholders' deficit (7,320,765) (144,366)
------------ -----------
Total Liabilities and Stockholders' Deficit $ 22,669,016 $ 101,244
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 66
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30,
1994 (DATE
OF INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenues:
Advertising revenue $ 14,145 $ -- $ -- $ 14,145
Subscription revenue 7,909 -- -- 7,909
Transaction revenue 21,076 -- -- 21,076
Floral product revenue -- -- -- 350,130
Other revenue -- -- 40,195 40,273
Service revenues from related parties -- 292,406 49,990 342,396
------------ ------------ ------------ ------------
Total revenues 43,130 292,406 90,185 775,929
------------ ------------ ------------ ------------
Costs and operating expenses:
Cost of floral product -- -- -- 308,749
Product and technology development 2,836,605 381,192 136,089 3,422,484
Sales and marketing 5,464,989 316,966 81,954 6,048,126
General and administrative 3,848,221 3,223,123 507,342 7,932,957
Depreciation and amortization 421,167 7,401 1,888 432,285
------------ ------------ ------------ ------------
Total costs and operating expenses 12,570,982 3,928,682 727,273 18,144,601
------------ ------------ ------------ ------------
Loss from operations (12,527,852) (3,636,276) (637,088) (17,368,672)
Net interest expense (166,129) (4,026) -- (177,113)
Other non-operating income (expense) (56,587) -- -- (56,587)
------------ ------------ ------------ ------------
Net loss $(12,750,568) $ (3,640,302) $ (637,088) $(17,602,372)
Deemed dividend on redeemable
convertible preferred stock (28,000,000) -- --
------------ ------------ ------------
Net loss available to common
stockholders $(40,750,568) $ (3,640,302) $ (637,088)
------------ ------------ ------------
Basic and diluted net loss per common
share $ (2.67) $ (0.40) $ (0.09)
============ ============ ============
Weighted average number of shares used in
computing basic and diluted net loss per
common share 15,271,152 9,181,923 6,930,865
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 67
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL DEFERRED
PRICE PER ---------------------- PAID-IN TREASURY STOCK-BASED
DATE SHARE SHARES AMOUNT CAPITAL STOCK COMPENSATION
----- ---------- ---------- ------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial sale of common stock 11/94 $ .02 3,150,000 $ 3,150 $ 56,850 $ -- $ --
Comprehensive Loss:
Net loss for the period March 30, 1994
(date of inception) through
December 31, 1994 -- -- -- -- --
---------- ------- ---------- -------- ---------
Total comprehensive loss
Balance, December 31, 1994 3,150,000 $ 3,150 $ 56,850 $ -- $ --
Sales of common stock 7/95-11/95 .08 504,000 504 39,496 -- --
Issuances of common stock in exchange
for professional services 7/95 .08 846,000 846 66,297 -- --
Comprehensive Loss:
Net loss -- -- -- -- --
---------- ------- ---------- -------- ---------
Total comprehensive loss
Balance, December 31, 1995 4,500,000 $ 4,500 $ 162,643 $ -- $ --
Common stock for loan 5/96 .02 1,350,000 1,350 28,195 -- --
Sales of common stock 8/96 .10 675,000 675 69,325 -- --
8/96 .83 90,000 90 74,910 -- --
Issuances of common stock in exchange
for professional services 12/96 .83 90,000 90 74,910 -- --
Comprehensive Loss:
Net loss -- -- -- -- --
---------- ------- ---------- -------- ---------
Total comprehensive loss
Balance, December 31, 1996 6,705,000 $ 6,705 $ 409,983 $ -- $ --
Issuances of common stock in exchange
for professional services 4/97 .56 225,000 225 124,775 -- --
Transfer of shares by principal
shareholders for the benefit of the -- -- 225,000 -- --
Company
Sales of common stock 7/97 .42 90,000 90 37,410 -- --
Repurchase of treasury shares (20 -- -- -- (20,000) --
shares)
Reissuance of treasury stock (20 shares) -- -- 17,500 20,000 --
Comprehensive Loss:
Net loss -- -- -- -- --
---------- ------- ---------- -------- ---------
Total comprehensive loss
Balance, December 31, 1997 7,020,000 $ 7,020 $ 814,668 $ -- $ --
Sales of common stock 9/98-12/98 .50 1,225,000 1,225 611,275 -- --
Transfer of shares by principal share
holders for the benefit of the Company -- -- -- -- 124,750 -- --
Issuances of common stock in exchange 9/98 .50 3,380,000 3,380 1,686,620 -- --
for professional services 10/98-12/98 2.25 305,000 305 685,945 -- --
11/98 1.73 23,650 24 40,891 -- --
12/98 2.50 230,000 230 574,770 -- --
Common stock issued in satisfaction of 10/98 .52 100,000 100 51,900 -- --
shareholder loans 11/98 1.73 31,350 31 54,304 -- --
Common stock issued in connection with
reverse merger with public shell -- -- 2,500,000 2,500 (2,500) -- --
Forgiveness of loan from Affiliate -- -- -- -- 50,000 -- --
Comprehensive Loss:
Net loss -- -- -- -- --
---------- ------- ---------- -------- ---------
Total comprehensive loss
Balance, December 31, 1998 14,815,000 $14,815 $4,692,623 $ -- $ --
</TABLE>
F-5
<PAGE> 68
World Commerce Online, Inc. and Subsidiaries
(A Development State Company)
Consolidated Statements of Stockholders' Deficit (continued)
<TABLE>
<CAPTION>
Common Stock Additional Deferred
Price Per ---------------------- Paid-In Treasury Stock-Based
Date Share Shares Amount Capital Stock Compensation
----------- ---------- ---------- ------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales of common stock 1/99 .50 390,000 390 194,610 -- --
Stock grant to employee 10/99 5.38 25,000 25 134,350 -- --
Issuances of common stock in exchange
for professional services
4/99-10/99 5.50-11.81 105,357 105 1,217,395 -- --
Acquisition of FPN 8/99 11.26 100,000 100 1,126,150 -- --
Issuances of warrants to employees and
directors 1/99-9/99 -- -- 425,770 -- --
Issuances of warrants for professional
services 1/99-12/99 -- -- 933,068 -- --
Deemed dividend on convertible
preferred stock -- -- 28,000,000 -- --
Stock based compensation, net of
amortization of deferred compensation -- -- 6,451,906 -- (4,863,980)
Comprehensive Loss:
Net loss -- -- -- -- --
Foreign currency translation -- -- -- -- --
adjustment
---------- ------- ----------- -------- -----------
Total comprehensive loss
Balance, December 31, 1999 15,435,357 $15,435 $43,175,872 $ -- $(4,863,980)
========== ======= =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 69
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
DURING THE OTHER
COMPREHENSIVE DEVELOPMENT COMPREHENSIVE
LOSS STAGE LOSS TOTAL
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Initial sale of common stock $ -- $ -- $ 60,000
Comprehensive Loss:
Net loss for the period March 30, 1994 (date
of inception) through December 31, 1994 (41,215) (41,215) -- (41,215)
------------- ------------ ------------- -----------
Total comprehensive loss $ (41,215)
=============
Balance, December 31, 1994 $ (41,215) $ -- $ 18,785
Sales of common stock -- -- 40,000
Issuances of common stock in exchange for
professional services -- -- 67,143
Comprehensive Loss:
Net loss (212,865) (212,865) -- (212,865)
------------- ------------ ------------- -----------
Total comprehensive loss $ (212,865)
=============
Balance, December 31, 1995 $ (254,080) $ -- $ (86,937)
Common stock for loan -- -- 29,545
Sales of common stock -- -- 70,000
-- -- 75,000
Issuances of common stock in exchange for
professional services -- -- 75,000
Comprehensive Loss:
Net loss (320,334) (320,334) -- (320,334)
------------- ------------ ------------- -----------
Total comprehensive loss $ (320,334)
=============
Balance, December 31, 1996 $ (574,414) $ -- $ (157,726)
Issuances of common stock in exchange for
professional services -- -- 125,000
Transfer of shares by principal shareholders for
the benefit of the Company -- -- 225,000
Sales of common stock -- -- 37,500
Repurchase of treasury shares (20 shares) -- -- (20,000)
Reissuance of treasury stock (20 shares) -- -- 37,500
Comprehensive Loss:
Net loss (637,088) (637,088) -- (637,088)
------------- ------------ ------------- -----------
Total comprehensive loss $ (637,088)
=============
Balance, December 31, 1997 $ (1,211,502) $ -- $ (389,814)
Sales of common stock -- -- 612,500
Transfer of shares by principal shareholders for
the benefit of the Company -- -- 124,750
Issuances of common stock in exchange for -- -- 1,690,000
professional services -- -- 686,250
-- -- 40,915
-- -- 575,000
Common stock issued in satisfaction of shareholder -- -- 52,000
loans -- -- 54,335
Common stock issued in connection with reverse
merger with public shell -- -- --
Forgiveness of loan from Affiliate -- -- 50,000
Comprehensive Loss:
Net loss (3,640,302) (3,640,302) -- (3,640,302)
------------- ------------ ------------- -----------
Total comprehensive loss $ (3,640,302)
=============
Balance, December 31, 1998 $ (4,851,804) $ -- $ (144,366)
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 70
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
DURING THE OTHER
COMPREHENSIVE DEVELOPMENT COMPREHENSIVE
LOSS STAGE LOSS TOTAL
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
Sales of common stock -- -- 195,000
Stock grant to employee -- -- 134,375
Issuances of common stock in exchange for
professional services -- -- 1,217,500
Acquisition of FPN -- -- 1,126,250
Issuances of warrants to employees and
directors -- -- 425,770
Issuances of warrants for professional
services -- -- 933,068
Deemed dividend on convertible
preferred stock (28,000,000) -- --
Stock based compensation, net of amortization of
deferred compensation -- -- 1,587,926
Comprehensive Loss:
Net loss (12,750,568) (12,750,568) -- (12,750,568)
Foreign currency translation adjustment (45,720) -- (45,720) (45,720)
------------- ------------ ------------- -----------
Total comprehensive loss $ (12,796,288)
=============
Balance, December 31, 1999 $(45,602,372) $ (45,720) $(7,320,765)
============ ============= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 71
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30, 1994
(DATE OF INCEPTION)
THROUGH
YEAR ENDED DECEMBER 31, DECEMBER 31,
1999 1998 1997 1999
------------ ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(12,750,568) $(3,640,302) $ (637,088) $ (17,602,372)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 464,939 7,401 1,888 476,057
Provision for doubtful accounts -- 4,200 29,981 40,322
Stock-based compensation 2,100,426 -- -- 2,100,426
Loss on retirement of property & equipment 18,609 -- -- 30,109
Loss on foreign currency translation 30,071 -- -- 30,071
Professional fees paid through the issuance
of common stock and warrants 576,143 3,159,850 350,000 4,228,136
Interest paid through the issuance of warrants 151,800 -- -- 151,800
Change in operating assets & liabilities:
Accounts receivable -- (4,200) (29,981) (40,322)
Prepaid expenses & other current assets (231,157) (724) (873) (232,754)
Other assets (24,238) -- -- (24,238)
Accounts payable and accrued liabilities 1,587,466 30,477 11,281 1,763,774
Unearned development fees -- (107,172) 75,650 --
Accrued compensation and benefits 341,223 18,833 10,133 372,075
------------ ----------- ------------ ------------------
Net cash used in operating activities (7,735,286) (531,637) (189,009) (8,706,916)
------------ ----------- ------------ ------------------
Cash flows from investing activities:
Purchase of property and equipment and software
development (5,711,800) (15,376) (2,998) (5,748,714)
------------ ----------- ------------ ------------------
Net cash used in investing activities (5,711,800) (15,376) (2,998) (5,748,714)
------------ ----------- ------------ ------------------
Cash flows from financing activities:
Issuance of common stock 195,000 612,500 75,000 1,127,500
Issuance of redeemable convertible
preferred stock, net of related expenses 21,447,983 -- -- 21,447,983
Purchase of treasury stock -- -- (20,000) (20,000)
Proceeds from shareholder loans -- -- 99,900 132,693
Proceeds from other debt 2,366,000 50,000 -- 2,445,545
Payments on shareholder loans -- (69,293) -- (69,293)
Payments on capital leases (51,211) (4,566) -- (55,777)
----------- ------------ ------------------
Net cash provided by financing activities 23,957,772 588,641 154,900 25,008,651
------------ ----------- ------------ ------------------
Net change in cash 10,510,686 41,628 (37,107) 10,553,021
Cash and cash equivalents, beginning of period 42,335 707 37,814 --
------------ ----------- ------------ ------------------
Cash and cash equivalents, end of period $ 10,553,021 $ 42,335 $ 707 $ 10,553,021
============ =========== ============ ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 72
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
MARCH 30,
1994 (DATE
OF INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
-------------------------------------- DECEMBER 31,
1999 1998 1997 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 39,059 $ 3,419 $ -- $ 42,478
========== ========== ========== ==============
Non-cash investing and financing:
Equipment acquired through capital leases $ 176,299 $ 43,016 $ -- $ 219,315
========== ========== ========== ==============
Common stock and warrants issued in exchange for
professional services $1,525,143 $3,035,100 $ 125,000 $ 4,823,611
========== ========== ========== ==============
Common stock issued for extinguishment of shareholder
debt $ -- $ 63,400 $ -- $ 63,400
========== ========== ========== ==============
Common stock issued for extinguishment of debt $ -- $ -- $ -- $ 29,545
========== ========== ========== ==============
Preferred stock issued for extinguishment of other debt $2,366,000 $ -- $ -- $ 2,366,000
========== ========== ========== ==============
Warrants issued in connection with other debt $ 151,800 $ -- $ -- $ 151,800
========== ========== ========== ==============
Common stock transferred by principal shareholder for
the benefit of the Company $ -- $ 62,375 $ 225,000 $ 287,375
========== ========== ========== ==============
Common stock issued in reverse merger $ -- $ 2,500 $ -- $ 2,500
========== ========== ========== ==============
Common stock issued as consideration for purchase of
FPN $1,126,150 $ -- $ -- $ 1,126,150
========== ========== ========== ==============
Warrant issued in exchange for covenant not to compete $ 525,270 $ -- $ -- $ 525,270
========== ========== ========== ==============
Preferred stock sold in exchange for note receivable $3,785,000 $ -- $ -- $ 3,785,000
========== ========== ========== ==============
Forgiveness of loan from Affiliate $ -- $ 50,000 $ -- $ 50,000
========== ========== ========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 73
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
World Commerce Online, Inc. and its consolidated subsidiaries (the
"Company") is a provider of business-to-business electronic commerce
SOLUTIONS to the perishable products industries. The Company provides
its customers with access to the Company's secure Internet-based trading
systems and to industry-specific Internet communities supplying
comprehensive industry data and information resources as well as
communication tools.
The Company is in the development stage. From 1994 through 1996, the
Company generated revenue through activities outside of the Company's
planned principal operations including the sale of imported fresh cut
flowers and during 1997 and 1998 through Internet site development
services provided to a third party and a company affiliated through
common ownership. Since the third quarter of 1998, the Company has
devoted substantially all of its efforts to develop its technology,
market brand and sales operations. Planned principal operations have
commenced, but have not produced significant revenue in 1999. The
Company plans to generate revenues from its B2B e-commerce business from
three primary sources: transaction fees, subscription fees and
advertising revenue.
The Company has experienced operating losses since its inception.
Additional operating losses are anticipated for the next several years
as the Company expands its operations, sales and marketing activities
and product technology development.
2. CAPITAL TRANSACTIONS AND BASIS OF PRESENTATION:
The Floral Foundation, Inc. was organized under the laws of the State of
Florida on March 30, 1994 and changed its name to World Commerce Online,
Inc. ("WCO") on July 22, 1996. In September 1998, Sunrise Express, Inc.
("Sunrise"), a Nevada public shell corporation, acquired all of the
outstanding common stock of WCO in exchange for 7,020,000 shares of
Sunrise stock. Since the shareholders of WCO received the majority
voting interests in the combined company, the acquisition has been
treated as a recapitalization of WCO with WCO as the acquiring
enterprise for accounting and financial reporting purposes. The
transaction was recorded as a reverse acquisition using the purchase
method of accounting whereby equity of WCO was adjusted for the fair
value of the acquired tangible net assets of Sunrise. The 2,500,000
shares of the common stock of Sunrise outstanding prior to the merger
have been shown as an issuance in 1998 with no assigned value, given
that there were no net tangible assets received. The historical
financial statements prior to 1998 are those of WCO. Immediately
following the acquisition of WCO, Sunrise changed its name to World
Commerce Online, Inc., a Nevada corporation. Pro forma information is
not presented since this combination is treated as an issuance of shares
rather than a business combination.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of World Commerce Online, Inc. and its
wholly owned subsidiaries under common control. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents - The Company considers all highly liquid
instruments with a maturity of three months or less at time of purchase
to be cash equivalents.
Income Taxes - Income taxes are accounted for under the asset and
liability method. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates applicable to
the periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
F-11
<PAGE> 74
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and Equipment - Property and equipment, stated at cost, is
comprised of computer and office equipment. Gains and losses on
disposition are recognized in the year of the disposal. Expenditures for
maintenance and repairs are expensed as incurred.
Depreciation is computed using the straight-line method over the
following estimated lives:
<TABLE>
<S> <C>
Computer software 3 years
Furniture, fixtures and computer hardware 5 years
</TABLE>
Revenue Recognition - The Company recognizes revenues at the time that
services are performed. Transaction fee revenue represents a fee equal
to a percentage of the transaction order value and is earned as
transactions are conducted through the Company's trading systems.
Subscription fee revenue is recognized ratably over the Subscription
Period in connection with the customer's access. Current subscription
fees are generally $9.95 per month for access to the information and
communication portal and $99 per month for access and participation in
the trading systems. Advertising revenues are recognized in the period
in which the advertisement is displayed.
Computer Software Costs - The Company has adopted Statement of Position
("SOP") 98-1, which requires computer software costs associated with
internal use software to be charged to operations as incurred until
certain capitalization criteria are met. Costs incurred in the
preliminary project stage of software development have been expensed as
incurred. Costs incurred in the application development stage have been
capitalized. As of December 31, 1999, $4,762,191 has been capitalized
and is included in property and equipment in the accompanying
consolidated balance sheets.
Advertising Costs - Advertising costs are expensed as incurred.
Advertising expenditures reflected in the accompanying consolidated
statements of operations amounted to approximately $255,900, $5,000,
$-0- and $260,900 for the years ended December 31, 1999, 1998, 1997 and
the period from March 30, 1994 (date of inception) through December 31,
1999, respectively.
Net Loss per Share - Basic net loss per share is computed by dividing
net loss available to common stockholders by the weighted average number
of common shares outstanding during the period. Dilutive net loss per
share is computed using the weighted average number of common shares
outstanding during the period, plus the dilutive effect of common stock
equivalents. Common stock equivalent shares consist of convertible
preferred stock, stock options and warrants. For the year ended December
31, 1999, options to purchase 2,813,800 shares of common stock,
preferred stock convertible into 9,000,000 shares of common stock,
warrants to purchase 1,931,000 shares of common stock an option to
purchase 250,000 shares of preferred stock convertible into 250,000
shares of common stock, and warrants to purchase 110,000 shares of
preferred stock convertible into 110,000 shares of common stock were
excluded from the calculation of earnings per share since their
inclusion would be antidilutive.
Intangible Assets - The Company periodically reevaluates the
recoverability of intangible assets as well as the amortization periods
to determine whether an adjustment to carrying value or a revision to
estimated useful lives is appropriate. Recoverability is measured by
comparison of the carrying amount of the assets to future undiscounted
cash flows expected to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the
discounted cash flows. The Company has recognized no impairment losses
to date.
Foreign Currency - The financial transactions of subsidiaries located
outside of the United States, are generally measured using the local
currency as the functional currency. Assets, including goodwill, and
liabilities of these subsidiaries are translated at the rates of
exchange at the balance sheet date. The resultant translation
adjustments are in accumulated foreign currency translation adjustment,
a separate component of stockholders' deficit. Income and expense items
are translated at average monthly rates of exchange.
F-12
<PAGE> 75
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Stock-Based Compensation - The Company accounts for employee stock-based
compensation using the intrinsic value method. Stock-based compensation
to non-employees is accounted for using the fair value method. The
Company also provides disclosure of certain pro forma information as if
the Company accounted for its employee stock-based compensation using
the fair value method.
When options are granted to employees, a non-cash charge representing
the difference, if any, between the exercise price and the fair value of
the common stock underlying the vested options on the date of grant is
recorded as stock-based compensation expense and the balance is deferred
and amortized over the remaining vesting period.
Other Comprehensive Income - The Company has adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying
comprehensive income and its components in a financial statement with
the same prominence as the other financial statements. The Company's
only item of other comprehensive income is foreign currency translation
adjustment which has been reported separately within stockholders'
deficit.
Fair Value of Financial Instruments - The carrying amounts of the
Company's financial instruments, which include cash and cash
equivalents, receivable from investors, accounts payable and accrued
liabilities and capital lease obligation approximate their fair values
at December 31, 1999 and 1998 due to the short maturities of these
instruments. The fair value of the convertible preferred stock
approximated the carrying value at December 31, 1999.
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.
Recent Accounting Pronouncements - In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101). The bulletin draws on
existing accounting rules and provides specific guidance on how those
accounting rules should be applied, and specifically addresses gross
versus net basis of reporting revenues for companies which operate
Internet sites as well as the accounting for up-front fees. SAB 101 is
effective for fiscal years beginning after December 15, 1999. The
Company currently records revenues on a net basis with no revenues
generated by activities that result in gross versus net issues. To
date, the Company does not charge any up front fees to customers. As a
result, the Company believes that SAB 101 will not have a material
impact on its financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments and hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The Company, to date, has not engaged in
derivative and hedging activities, and accordingly does not believe that
the adoption of SFAS No. 133 will have a material impact on the
financial reporting and related disclosures of the Company. The Company
will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the
Effective Date of the FASB Statement No. 133," in fiscal year 2001.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily
of cash, and cash equivalents. The Company maintains the majority of its
cash balances at one financial institution.
F-13
<PAGE> 76
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
----------- ---------
<S> <C> <C>
Computer software $ 4,762,191 $ 11,114
Furniture, fixtures and computer hardware 1,844,141 14,300
Furniture and equipment under capital lease 218,988 43,016
----------- ---------
6,825,320 68,430
Less accumulated depreciation (347,577) (11,118)
----------- ---------
$ 6,477,743 $ 57,312
=========== =========
</TABLE>
Accumulated amortization on capital leases at December 31, 1999 and 1998
is $44,376 and $4,313, respectively.
5. ACQUISITION TRANSACTION:
On August 26, 1999, the Company acquired Fresh Products Network B.V.
("FPN"). The Company acquired the entire equity interest in the business
for a purchase price of approximately $1,500,000 through the issuance of
100,000 shares of Company common stock, $336,000 in assumed liabilities,
and contingent consideration of 100,000 shares of Company common stock.
Delivery of contingent shares is dependent upon FPN achieving certain
operational milestones by December 31, 2000. Management of the Company
has determined that the contingent consideration will be recorded as an
additional cost of the acquisition when satisfaction of the contingency
is considered probable. The purchase method of accounting was followed
in accounting for this transaction. The goodwill associated with the
acquisition is being amortized on a straight-line basis over 5 years.
Operations of FPN from September 1, 1999 through year-end 1999 are
included in the accompanying consolidated statements of income.
Unaudited pro forma revenues, net loss available to common stockholders
and loss per common share (basic and diluted) are approximately $47,000
$(40,915,000) and $(2.68), respectively, and represent the combined
results of operations of the Company and FPN, as if the acquisition had
occurred at January 1, 1999. The pro forma amounts do not necessarily
reflect the results of operations as they would have been if the
businesses had constituted a single entity during the period and is not
necessarily indicative of results which may be obtained in the future.
6. INTANGIBLE ASSETS:
Intangible assets consist of goodwill and a covenant not to compete,
totaling $1,596,260 as of December 31, 1999. In connection with the
acquisition of FPN, consideration paid exceeded the estimated value of
the assets acquired (including estimated liabilities assumed as part of
the transaction) by approximately $1,191,000. As of December 31, 1999,
no additional goodwill had been recorded relative to the contingent
consideration discussed in Note 5 above. The amount of excess
consideration paid over net asset value amortized was approximately
$76,000 in 1999.
The Company issued a warrant to purchase 100,000 shares of common stock
to a consultant of the Company in exchange for a covenant not to compete
valued at $525,270 based on the fair value of the warrants on the date
of grant based on a Black Scholes option pricing model. The covenant not
to compete is being amortized over the three-year term of the agreement.
Amortization expense related to the covenant not to compete was $43,772
in 1999 and is included in sales and marketing expense.
F-14
<PAGE> 77
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. NOTES PAYABLE:
The Company has received loans from shareholders during the development
stage period to finance activities. Shareholder loans carried no
interest rate or repayment terms. All shareholder loans were repaid
during 1998 through the issuance of stock or payment of cash.
The Company received a loan for $50,000 from a company affiliated
through common ownership during 1998 that was used to extinguish a
shareholder loan. This debt was forgiven in 1998 and recorded as
additional paid in capital.
8. LEASES:
The Company has operating lease agreements primarily involving its
office facilities. The Company has various equipment under capital
lease agreements. Commitments for minimum rentals under non-cancelable
leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ----------
<S> <C> <C>
2000 $ 308,392 $ 91,939
2001 316,923 56,537
2002 309,958 29,775
2003 65,867 19,590
2004 -- 4,341
----------- ----------
Total minimum payments $ 1,001,140 202,182
===========
Less amount representing interest (38,644)
----------
Present value of minimum lease payment 163,538
Less current portion (71,611)
----------
Long-term capital lease obligation $ 91,927
==========
</TABLE>
Rent expense was $301,000, $46,000, $12,000 and $373,000 for the years
ended December 31, 1999, 1998, 1997 and the period from March 30, 1994
(date of inception) through December 31, 1999, respectively.
9. STOCK OPTION PLAN:
The World Commerce Online, Inc. 1999 Stock Option Plan (the "Plan") was
adopted by the Company's shareholders in October 1999. The Plan covers
up to 3.0 million shares of common stock and permits the Company to
grant to employees, directors, officers, and consultants of the Company
and its subsidiaries: (i) incentive stock options ("ISOs") and (ii)
nonqualified stock options ("NSOs"). The Plan is administered by the
Compensation Committee of the Board of Directors, which also selects
the individuals who receive grants under the plan. As of December 31,
1999, the grants that had been made under the Plan were NSOs and ISOs.
The exercise price, term, and vesting schedule for options granted
under the Plan are set by the Compensation Committee, subject to
certain limitations. Under the Plan, the exercise price of an ISO may
not be less than the fair market value of the shares of common stock at
the date of grant (110% if the ISO is granted to a greater than 10%
shareholder), and the term of an option may not exceed 10 years (5
years if an ISO is granted to a greater than 10% shareholder). Unless
otherwise specified by the Compensation Committee, options become 25%
vested after 12 months from the date of grant and thereafter vest pro
rata in arrears over 48 months. Options generally terminate 3 months
after the termination of the option holder's employment unless
terminated for cause.
F-15
<PAGE> 78
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTION PLAN (CONTINUED):
For the year ended December 31, 1999, the Company recognized $1,587,926
of stock-based compensation expense related to options and expects to
recognize $4,863,980 over the remaining vesting period of the options.
The following table summarizes the status of the Company's Stock Option
Plan:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
--------------------------------
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding options beginning of year............................. -- --
Granted:.......................................................... 2,813,800 $ 3.76
Exercised:........................................................ -- --
Forfeited:........................................................ -- --
Outstanding at year end:.......................................... 2,813,800 $ 3.76
Exercisable at year end:.......................................... -- --
Weighted average fair value of options granted during the year.... $ 3.98
</TABLE>
The following table summarizes the status of the Plan for options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Total Weighted Average Weighted Average
Range of Exercise Prices Outstanding Remaining Contractual Life (Years) Exercise Price
------------------------ ----------- ---------------------------------- --------------
<S> <C> <C> <C>
$2.00 1,911,676 10 $ 2.00
$5.38 211,248 10 $ 5.38
$7.13 - $8.00 635,876 10 $ 7.93
$9.00 - $11.75 55,000 10 $10.25
---------
Total 2,813,800 $ 3.76
=========
</TABLE>
Included in the preceding table are 1,911,676 stock options with a
weighted average exercise price of $2.00 and a weighted average
remaining contractual life of 10 years. The exercise price of such
stock options was less than the grant date fair value of the underlying
common stock.
Also included in the preceding table are 635,876 stock options with a
weighted average exercise price of $8.00 and a weighted average
remaining contractual life of 10 years. The exercise price of such
options was greater than the grant date fair value of the underlying
common stock.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Had compensation cost for the Plan been accounted for based on the fair
value at the grant date, consistent with provisions of SFAS No. 123,
the Company's net loss and net loss per share would have been increased
to the pro forma amounts below:
<TABLE>
<CAPTION>
Year Ended
(in thousands except per share amounts) December 31, 1999
------------------------------------------------------------------------------------ ----------------------
<S> <C>
Net loss available to common stockholders -- as reported.......................... $(40,750,568)
Net loss available to common stockholders -- pro forma............................ $(41,721,369)
Net loss per share -- as reported................................................. $ (2.67)
Net loss per share -- pro forma................................................... $ (2.73)
</TABLE>
F-16
<PAGE> 79
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTION PLAN (CONTINUED):
The effects of applying SFAS No. 123 for the presentation of pro forma
disclosures are not necessarily indicative of the effects on reported
net income for future years.
The fair value of options granted in 1999 were estimated using the
Black-Scholes option pricing model as of the date of grant with the
following assumptions: expected lives of 4 years; expected volatility
of 80%; expected dividend yield of 0% and a risk-free interest rate of
6.53%.
10. EQUITY TRANSACTIONS:
The authorized capital stock of the Company consists of (i) 90,000,000
shares of voting common stock ("Common Stock") authorized for issuance
with a par value of $0.001 and (ii) 10,000,000 shares of preferred
stock with a par value of $0.001, of which 4,250,000 are designated as
Series A redeemable convertible preferred stock ("Series A") and
5,110,000 shares are designated as Series B redeemable convertible
preferred stock ("Series B").
Common Stock
The common shares authorized, issued and outstanding have been
retroactively restated for the reverse acquisition discussed in Note 2.
At December 31, 1999, 11,000,000 shares of the outstanding common
shares are restricted.
Warrants
In January 1999, the Company issued to a director of the Company a
warrant representing the right to purchase 100,000 shares of common
stock at an exercise price of $2 per share. The estimated fair value of
the warrant based upon the intrinsic value method equaled $212,000 and
is recorded as general and administrative expense. In addition, the
Company issued to a company controlled by the director two warrants
each representing the right to purchase 50,000 shares of our common
stock at exercise prices of $12 and $10 per share, respectively. The
warrants vested immediately upon issuance and expire on January 14,
2009. The estimated fair values of the warrants based on a Black
Scholes option pricing model are $18,700 and $12,900, respectively.
These amounts were recorded as general and administrative expense
during the year ended December 31, 1999.
In April 1999, the Company issued to a consultant of the Company a
warrant representing the right to purchase 250,000 shares of common
stock at an exercise price of $12.38 per share. The warrant vested
immediately. The estimated fair value of this warrant based on a Black
Scholes option pricing model is $276,560 and was recorded as sales and
marketing expense during the year ended December 31, 1999.
In August 1999, the Company issued to a former owner of FPN, an
employee of the Company as of the acquisition date, a warrant
representing the right to purchase 100,000 shares of common stock at an
exercise price of $11.50 per share. The warrant vests 25% a year over a
four year period beginning January 1, 2000. The estimated fair value of
the warrant based on a Black Scholes option pricing model is $724,000
which will be amortized as Sales and Marketing expense over the vesting
period. The Company recognized $60,333 in Sales and Marketing expense
related to this warrant during the year ended December 31, 1999.
In September 1999, the Company issued to an employee, for past
employment services, warrants to purchase a total of 100,000 shares of
common stock, each warrant representing the right to acquire 50,000
shares at exercise prices of $2 and $8 per share. The warrants vest on
January 1, 2000 and August 1, 2000, respectively, and expire on
December 31, 2004 and July 29, 2005, respectively. The estimated fair
value of the warrant based upon the intrinsic value method equaled
$290,625 and is recorded in general and administrative expense.
F-17
<PAGE> 80
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. EQUITY TRANSACTIONS (CONTINUED):
In October 1999, the Company entered into an agreement with a
consultant of the Company to exclusively promote the Company's products
to its affiliated network, a cooperative of large retail florists
throughout the United States. In connection with the promotional
exclusivity of this agreement, the Company issued a warrant
representing the right to purchase 250,000 shares of common stock at an
exercise price of $8 per share. The warrant vests quarterly over a
three year period beginning on October 1, 1999. The estimated fair
value of the warrant totaled $525,270 and was recorded as a covenant
not to compete and is included in Intangible Assets (Note 6) in the
accompanying consolidated balance sheet at December 31, 1999.
Also in October 1999, the Company issued to its outside legal counsel
two warrants each representing the right to purchase 30,000 shares and
1,000 shares of common stock at $8 per share. The warrants vested
immediately and expire on October 17, 2009 and October 18, 2004,
respectively. The estimated fair value of the warrants based on a Black
Scholes option pricing model is $34,175 which was recorded as
professional fees within general and administrative expenses during the
year ended December 31, 1999.
In December 1999, the Company issued to Dole Fresh Flowers, a division
of Dole Food Company, a warrant representing the right to purchase
1,000,000 shares of common stock at $7.50 per share. The warrant vests
over a two-year period beginning January 1, 2000 with 58,333 shares
vesting monthly during the first year (700,000 total shares) and 25,000
vesting monthly during the second year (300,000 total shares). The
estimated fair value of the warrant based on a Black Scholes option
pricing model is $5,170,000 which will be amortized as sales and
marketing expense over the vesting period. No expense was recorded
during 1999 related to this warrant.
No warrants have been exercised as of December 31, 1999.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In March 1999, the Company sold 4,000,000 shares of Series A
convertible preferred stock at $2.00 per share to investors for total
proceeds of $7,978,211 (net of offering costs of $21,789) and an option
to purchase an additional 250,000 shares exercisable at any time over
the next 5 years.
The holders of Series A are allowed to elect one member to the board of
directors as a group and participate in the voting on all matters which
are decided by a shareholder vote. The holders of Series A are not as a
matter of right entitled to be paid or receive dividends or
distributions. Series A is convertible at any time at the holder's
option, at the then applicable conversion rate (1-1 at the date of
issuance) adjusted for certain events including the issuance of common
stock for consideration of less than the conversion price then in
effect. Series A is redeemable for cash at the holder's option
beginning April 1, 2001. Upon liquidation, holders of Series A
preferred stock are entitled to receive, out of funds then generally
available, $2.00 per share, plus any declared and unpaid dividends,
thereon. In addition to and after payment in full of all other amounts
payable to the holders of Series A, the holders of Series A will be
entitled to share in remaining available funds on an as if converted
basis with the holders of common stock. Because on the date of issuance
of such shares, the estimated fair market value of the Company's common
stock exceeded the conversion price, the Company has treated as a
preferred stock dividend an amount of $8,000,000 related to these
transactions.
In December 1999, the Company sold 5,000,000 shares of Series B
convertible preferred stock at $4.00 per share to investors for total
proceeds of $17,254,772 (net of loan conversion of $2,366,000 and
offering costs of $379,228) which included a receivable in the amount
of $3,785,000 that was collected subsequent to December 31, 1999. In
addition, the Company issued a warrant to purchase 110,000 shares of
Series B convertible preferred stock at an exercise price of $4 per
share which expires on October 31, 2004. The Company recognized
$151,800 in interest expense related to the assigned value of this
warrant during the year ended December 31, 1999.
F-18
<PAGE> 81
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED):
The holders of Series B are allowed to elect one member to the board of
directors as a group and participate in the voting on all matters which
are decided by a shareholder vote. The holders of Series B are not as a
matter of right entitled to be paid or receive dividends or
distributions. Series B is convertible at any time at the holder's
option, at the then applicable conversion rate (1-1 at the date of
issuance), adjusted for certain events including the issuance of common
stock for consideration of less than the conversion price then in
effect. Series B is redeemable for cash beginning April 1, 2001. Upon
liquidation, holders of Series A and Series B preferred stock are
entitled to receive, out of funds then generally available, $4.00 per
share, plus any declared and unpaid dividends, thereon. In addition to
and after payment in full of all other amounts payable to the holders
of Series B, the holders of Series B will be entitled to share in
remaining available funds on an as if converted basis with the holders
of common stock. Because on the date of issuance of such shares, the
estimated fair market value of the Company's common stock exceeded the
conversion price, the Company has treated as a preferred stock dividend
an amount of $20,000,000 related to these transactions.
12. INCOME TAXES:
The components of the Company's net deferred tax asset and the tax
effects of the temporary differences giving rise to the Company's
deferred tax asset are as follows as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Noncurrent deferred tax assets:
Net operating loss $ 3,263,250 $ 113,607
----------- ----------
Deferred compensation 911,306 615,573
Fixed assets (28,313) (1,661)
Accrued expenses 970,188 209,843
----------- ----------
Noncurrent deferred tax asset 5,116,431 937,362
Valuation allowance (5,116,431) (937,362)
----------- ----------
Net deferred tax $ -- $ --
</TABLE>
Any tax benefits for the years ended December 31, 1999 and 1998 and the
period March 30, 1994 (date of inception) through December 31, 1999
computed based on statutory federal and state rates are completely
offset by valuation allowances established since realization of the
deferred tax benefits are not considered more likely than not.
As of December 31, 1999, the Company had a net operating loss of
approximately $8,587,500 available to reduce future federal income
taxes. This net operating loss carryforward will begin to expire in
2009 and is subject to limitation in any given year in the event of
certain changes in ownership.
The following table accounts for the difference between the actual tax
provision and amounts obtained by applying the statutory U.S. federal
income tax rate of 35% to the income before income taxes:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Statutory provision $(4,423,133) $(1,256,606)
State taxes net of federal benefit (379,126) (107,709)
Nondeductible expenses 623,190 853,582
----------- -----------
(4,179,069) (510,733)
Change in valuation allowance 4,179,069 510,733
----------- -----------
$ -- $ --
</TABLE>
F-19
<PAGE> 82
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. RELATED-PARTY TRANSACTIONS:
In 1996, the Company entered into a five year exclusive agreement with
Hortimarc B.V., a consulting business owned by the Company's Executive
Vice President for Europe as of October 1999, for the development of
marketing and sales initiatives in the European market. The contract
provided for compensation to Hortimarc based upon time and materials
billed. This agreement was terminated upon the execution of an
employment agreement with the executive. However, the Company continues
to utilize limited services of Hortimarc for which the Company incurs
costs for time and materials. In 1999, the Company remitted $98,300 to
Hortimarc under the aforementioned agreement and for activities
conducted after the termination of such agreement.
The Company has had various transactions with the Company's founder, a
primary shareholder and a member of the board of directors. Amounts
were paid to the Company's founder for consulting fees in the amount of
$41,844 and $21,500 during 1998 and 1997, respectively. Additionally,
the Company's founder received common shares in exchange for services
valued at $56,250 (25,000 shares) in 1998 and $89,821 (290,500 shares)
since the date of inception. In 1997, the Company's founder transferred
405,000 shares of common stock valued at $225,000 to individuals in
payment of services provided to the Company. In 1998, the Company's
founder transferred 124,750 shares of common stock valued at $62,375 to
individuals in payment of services provided to the Company.
The Company also had various transactions with a primary shareholder
and member of the board of directors. Since the date of inception,
220,500 common shares have been issued to this shareholder in exchange
for services valued at $17,500.
As indicated in Note 1, the Company provided various Internet site
development services to a company affiliated through common ownership.
Amounts paid by the affiliate to the Company during 1998 and 1997 were
$292,406 and $49,990, respectively. The amounts paid were based on
development time incurred at pre-established rates and related
expenses.
In January 1999, the Company entered into a two year agreement with a
company controlled by a director to receive financial and investment
banking services. In connection with this agreement the Company issued
two warrants each representing the right to purchase 50,000 shares of
our common stock at exercise prices of $12 and $10 per share,
respectively. The estimated fair values of the warrants at the date of
issuance based on a Black Scholes option pricing model were $18,700 and
$12,900, respectively. These amounts were recorded as general and
administrative expense during the year ended December 31, 1999. In
addition, the Company issued to the director personally, a warrant
representing the right to purchase 100,000 shares of common stock at an
exercise price of $2. The estimated fair value of this warrant at the
date of issuance based on the intrinsic value method was $212,000.
In October 1999, the Company issued 25,000 shares of common stock to
the Company's Chief Financial Officer in connection with the start of
his employment with the Company.
F-20
<PAGE> 83
WORLD COMMERCE ONLINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. COMMITMENTS AND CONTINGENCIES:
In August 1999, in connection with the acquisition of FPN, the Company
entered into a four year consulting agreement with a business owned by
the former owner of FPN providing for the performance of advisory
services to us on matters pertaining to sales and product marketing for
Europe, Africa and the Middle East. The agreement provides annual
compensation of $210,000, and annual incentive compensation of
approximately $220,000 payable quarterly based upon achievement of
agreed-upon levels of transaction volume.
In December 1999, the Company entered into an agreement with a company
to integrate their Internet-based financial services product into
Floraplex for the Americas market segment providing Internet-based
sourcing of financial payment and credit services. The three year
agreement is contingent upon the identification and selection of
financial partners acceptable to the Company to facilitate the payment
system for the grower to wholesaler transactions. Upon selection of
financial partners acceptable to the Company and satisfaction of the
implementation requirements, the Company is committed to specified
transaction levels in each of the three years beginning with fiscal
year 2000 at agreed-upon pricing levels. The minimum commitment
relative to fees per payment transactions processed in an annual period
is approximately $150,000 in 2000, $240,000 in 2001, and $650,000 in
2002.
The Company makes trade commitments in the course of its normal
operations and is subject to litigation incident to the conduct of its
ongoing business. In the opinion of management, there are no unusual
commitments or contingencies at December 31, 1999, that would
materially affect the financial position or operating results of the
Company.
15. BUSINESS SEGMENT INFORMATION:
As of and for the years presented, the Company has primarily operated
in one business segment, providing business-to-business electronic
commerce solutions to the fresh cut flower industry.
During the year ended December 31, 1999, the Company derived
approximately 50% of its revenues from its international operations. At
December 31, 1999, the Company held approximately $661,000 of its total
assets in Holland. The Company derived approximately 82% of its revenues
from 26 customers and two of those customers exceeded 10% of total
revenues.
16. SUBSEQUENT EVENT:
In March 2000, the Company issued to a consultant of the Company two
warrants representing the right to purchase 250,000 shares of common
stock at an exercise price of $18 per share. The warrants vest over a
six month period with 155,000 shares vesting immediately and 40,000
shares vesting in June and 55,000 shares vesting in September 2000. The
estimated fair value of these warrants based on a Black Scholes option
pricing model is $2,572,354 which will be amortized over the vesting
period.
In March 2000, the option to purchase 250,000 shares of Series A
convertible preferred stock was exercised for total proceeds of
$500,000.
In April 2000, we entered into a software license agreement with i2
Technologies, Inc., a provider of supply chain management and logistics
software. We will use i2's TradeMatrix(TM) platform for the integration
of supply chain management and fulfillment software applications
including demand consolidation, supply segregation and order fulfillment
within FreshPlex and Floraplex. FreshPlex and Floraplex will also
provide logistics and transportation services to the global perishables
products industry utilizing i2's transportation software applications.
We will also provide the platform for the trading and transaction
application.
Terms of the Agreement include an exclusivity provision which requires
i2, for a period of six months from the date of the Agreement, to not
develop and execute a sales and marketing strategy with several of our
major competitors. As consideration for acquiring the software license
we issued to i2 a warrant representing the right to purchase 1.25
million shares of our common stock at an exercise price of $7.00 a
share. The warrant vests immediately and has a fair value of
approximately $8 million based on a Black Scholes option pricing model.
As part of the agreement we agreed to pay i2 a royalty fee equal to 5%
of our gross revenues with minimum royalty payments of $0.5 million,
$0.75 million and $1 million, respectively, in each of the three
successive years after the launch date of the software which is
currently estimated to be complete in September 2000. In addition, we
have entered into a three-year joint marketing agreement that requires
the development of a joint marketing plan between the companies to
facilitate our sales and marketing strategy. As payment for their
marketing efforts, i2 will receive a finder's fee for customer leads it
provides to us. The finder's fee is equal to 50% of the fees we receive
from a customer for use, sale or license of our solutions, less specific
deductions as outlined in the agreement.
F-21
<PAGE> 84
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Fresh Products Network, B. V.
In our opinion, the accompanying balance sheets and the related statements of
operations, stockholder's deficit and cash flows present fairly, in all material
respects, the financial position of Fresh Products Network, B. V. (a development
stage company) at August 26, 1999 and December 31, 1998, and the results of its
operations and cash flows for the period from April 17, 1998 (date of inception)
through December 31, 1998 and the period from January 1, 1999 through August 26,
1999, and the period from April 17, 1998 (date of inception) through August 26,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 7, on August 26, 1999, the Company was acquired by World
Commerce Online, Inc.
PricewaterhouseCoopers N.V.
Amsterdam, Netherlands
March 31, 2000
F-22
<PAGE> 85
FRESH PRODUCTS NETWORK B. V.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 26, DECEMBER 31,
ASSETS 1999 1998
- --------------------------------------------------------------------------- ---------- ------------
NLG NLG
<S> <C> <C>
Current Assets:
VAT Receivable 117,306 --
-------- --------
Total current assets 117,306 --
-------- --------
Computer Hardware, net of accumulated depreciation of 12,495 and
1,209, respectively 38,291 49,577
Software development costs, net of accumulated depreciation of 42,219
and 1,652, respectively 204,166 117,268
-------- --------
Total assets 359,763 166,845
-------- --------
LIABILITIES AND STOCKHOLDER'S DEFICIT
- ---------------------------------------------------------------------------
Current liabilities:
Accounts payable to Van Beek Bloemen B. V. 739,606 178,357
-------- --------
Total current liabilities 739,606 178,357
-------- --------
Commitments and Contingencies (Note [5]).
Stockholder's deficit:
Common stock, Euro 1 par value; authorized 100,000 shares, subscribed
but not issued 20,000 at August 26, 1999 44,074 --
Common stock subscriptions receivable (44,074) --
Deficit accumulated during the development stage (379,843) (11,512)
-------- --------
Total stockholder's deficit (379,843) (11,512)
-------- --------
Total Liabilities and Stockholder's Deficit 359,763 166,845
-------- --------
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 86
FRESH PRODUCTS NETWORK B. V.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
APRIL 17, FOR THE PERIOD APRIL 17,
1998 (DATE JANUARY 1, 1998 (DATE
OF INCEPTION) 1999 OF INCEPTION)
THROUGH THROUGH THROUGH
DECEMBER 31, AUGUST 26, AUGUST 26,
1998 1999 1999
-------------- -------------- --------------
NLG NLG NLG
<S> <C> <C> <C>
Revenues:
Transaction revenue -- 7,151 7,151
-------------- -------------- --------------
Total revenues -- 7,151 7,151
-------------- -------------- --------------
Costs and operating expenses:
Sales and marketing 5,563 278,448 284,011
General and administrative 3,088 45,181 48,269
Depreciation and amortization 2,861 51,853 54,714
-------------- -------------- --------------
Total costs and operating expenses 11,512 375,482 386,994
-------------- -------------- --------------
Net loss (11,512) (368,331) (379,843)
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 87
Fresh Products Network B. V.
(A Development Stage Company)
Statements of Stockholder's Deficit
<TABLE>
<CAPTION>
-----------------
Common Stock Common Stock Deficit
Price per ----------------- Subscriptions Accumulated During
Date share Shares Amount Receivable Development Stage Total
-------- --------- ------ ------ ------------- ------------------ ---------
(NLG) (NLG) (NLG) (NLG) (NLG)
<S> <C> <C> <C> <C> <C> <C> <C>
INCEPTION 04/17/98
NET LOSS FOR THE PERIOD
APRIL 17, 1998 (DATE OF
INCEPTION) THROUGH -- -- -- -- (11,512) (11,512)
DECEMBER 31, 1998
TOTAL COMPREHENSIVE INCOME -- -- -- -- -- -- (11,512)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 -- -- -- -- -- (11,512) (11,512)
INCORPORATION 08/17/99 2.20371 20,000 44,074 (44,074) -- --
NET LOSS FOR THE PERIOD
JANUARY 1, 1999 THROUGH
AUGUST 26, 1999 -- -- -- -- (368,331) (368,331)
TOTAL COMPREHENSIVE INCOME -- -- -- -- -- -- (368,331)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 26, 1999 20,000 44,074 (44,074) (379,843) (379,843)
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 88
Fresh Products Network B. V.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 17,
FOR THE PERIOD FOR THE PERIOD 1998 (DATE
APRIL 17, 1998 (DATE OF JANUARY 1, 1999 OF INCEPTION)
INCEPTION) THROUGH THROUGH THROUGH
DECEMBER 31, AUGUST 26, AUGUST 26,
1998 1999 1999
----------------------- -------------- --------------
NLG NLG NLG
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (11,512) (368,331) (379,843)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
Change in operating assets & liabilities: 2,861 51,853 54,714
VAT receivable -- (117,306) (117,306)
---------- ---------- ---------
Net cash used in operating activities (8,651) (433,784) (442,435)
---------- ---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (50,786) -- (50,786)
Software Development (118,920) (127,465) (246,385)
---------- ---------- ---------
Net cash used in investing activities (169,706) (127,465) (297,171)
---------- ---------- ---------
Cash flows from financing activities:
Change in accounts payable to Van Beek Bloemen B.V. 178,357 561,249 739,606
---------- ---------- ---------
Net cash from financing activities 178,357 561,249 739,606
---------- ---------- ---------
Net change in cash 0 0 0
Cash and cash equivalents, beginning of period 0 0 0
----------- --------- ----------
Cash and cash equivalents, end of period 0 0 0
=========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 89
FRESH PRODUCTS NETWORK B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION, PRINCIPAL BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Organization and Principal Business Activities
Fresh Products Network, B. V., ("FPN" or the "Company") is a provider
of a business-to-business electronic commerce, or B2B e-commerce,
trading system designed to sell floriculture products from growers to
resellers via the Internet.
The Company is in the development stage. Planned principal operations
have commenced, but have not produced significant revenue in 1999.
Since inception, the Company has devoted substantially all of its
efforts to develop its technology, market its brand and commence sales
operations. The Company plans to generate revenues from its B2B
e-commerce business from three primary sources: transaction fees,
subscription fees and advertising revenue.
As described in Note 7, on August 26, 1999, the Company was acquired by
World Commerce Online, Inc.
Basis of Presentation
Fresh Products Network B. V. was incorporated under the laws of The
Netherlands on August 17, 1999. Prior to incorporation, the company did
not exist as a separate legal entity, and operated as a fully
integrated business of Van Beek Bloemen B. V. After incorporation, Van
Beek Bloemen contributed this business and related assets and
liabilities to the legal entity, for a price of approximately NLG
630,000, which reflects the funds contributed directly to the business
by Van Beek Bloemen since inception.
The Company has devoted substantial efforts to developing, marketing
and selling new products and services. As a result, the Company has
incurred losses and negative cash flows from operations since
inception. Management is seeking to increase revenues through the
marketing and sales of its products and services while controlling
expenditures to meet its working capital needs. However, additional
cash and working capital will be required and the Company will be
required to continue to increase revenues and control costs, or obtain
additional financing. On August 26, 1999, the Company was acquired by
World Commerce Online, Inc. (Note 7). The Company received a commitment
from World Commerce Online to provide the required financing, if
necessary.
These financial statements are designed to reflect the carve-out
results of operations and financial position of the business within Van
Beek Bloemen B. V. for the period from April 17, 1998 (inception) to
August 17, 1999 (date of incorporation) and of the Company from August
17, 1999 (date of incorporation) until August 26, 1999. The financial
statements reflect the assets, liabilities, equity, revenues and
expenses that were directly related to the Company. Certain corporate
allocations have been included in the expenses (see Note 2). These
financial statements are not necessarily indicative of the results that
would have occurred if the Company had been a separate stand-alone
entity during the entire period presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Corporate allocations - For the purposes of these financial statements,
certain corporate allocations have been included in the company's
financial statements as discussed below. Management believes that the
methods of allocation are reasonable and that the allocated costs
represent the expenses that would have been incurred by the Company on
a stand-alone basis.
Van Beek Bloemen B. V. provided services to the Company in management,
accounting and financial reporting, human resources, information
systems, legal, taxes and other corporate services. The allocation of
these expenses which is generally based on certain operating costs
incurred by the company as a percentage of such costs incurred by Van
Beek Bloemen B. V. is reflected in the financial statements as sales
and marketing expenses and general and administrative expenses.
F-27
<PAGE> 90
FRESH PRODUCTS NETWORK B.V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Property and Equipment - Property and equipment, stated at cost, is
comprised of computer software and hardware. Gains and losses on
disposition are recognized in the year of the disposal.
Depreciation is computed using the straight-line method over the
following estimated lives:
Computer software 3 years
Computer hardware 3 years
Software Development Costs - The Company has adopted Statement of
Position ("SOP") 98-1, which requires computer software costs
associated with internal use software to be charged to operations as
incurred until certain capitalization criteria are met. Costs incurred
in the preliminary project state of software development have been
expensed as incurred. Costs incurred in the application development
stage have been capitalized. As of August 26, 1999 and December 31,
1998, NLG 246,385 and NLG 118,920, respectively has been capitalized.
Revenue Recognition - The Company recognizes revenues at the time that
services are performed. Transaction fee revenues are recognized at the
time of sale.
Advertising Costs - Advertising costs are expensed as incurred.
Advertising expenditures reflected in the accompanying statement of
operations amounted to approximately NLG 3,732, NLG 62,803 and NLG
66,535, respectively, for the period from April 17, 1998 (date of
inception) through December 31, 1998, January 1, 1999 through August 26,
1999 and April 17, 1998 (date of inception) through August 26, 1999.
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.
3. EQUITY:
On August 17, 1999, date of incorporation, the founding shareholders of
the Company authorized for issuance 100,000 shares of common stock with
a Euro 1 par value. At that date, the founding shareholders subscribed
to 40,000 shares at par. Subsequent to August 26, 1999 these shares were
issued and paid.
4. RELATED-PARTY TRANSACTIONS:
Except for the transactions with Van Beek Bloemen as mentioned under
notes 1 and 2, there have been no other transactions with related
parties.
5. COMMITMENTS AND CONTINGENCIES:
The Company makes trade commitments in the course of its normal
operations and is subject to litigation incident to the conduct of its
ongoing business. In the opinion of management, there are no unusual
commitments or contingencies at August 26, 1999, that would materially
affect the financial position or operating results of the Company.
6. INCOME TAXES:
Through August 17, 1999, the Company was not a separate tax paying
entity. For purposes of these financial statements deferred tax
benefits arise solely as a result of the Company's net operating
losses.
As a result of tax losses incurred by the Company, no current tax
provision has been recorded in the accompanying financial statements
for all periods presented.
The Company's deferred tax asset reflects the tax effect of differences
between financial statement carrying amounts and tax bases of assets on
a separate company basis as follows at August 26, 1999 and December 31,
1998:
F-28
<PAGE> 91
Fresh Products Network B. V.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED):
<TABLE>
<CAPTION>
August 26, 1999 December 31, 1998
NLG NLG
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards 132,945 4,029
Deferred tax asset valuation allowance (132,945) (4,029)
-------- ------
Deferred tax assets, net 0 0
======== ======
</TABLE>
On a separate company basis, the Company has net operating loss
carryforwards for income tax purposes subject to certain carryforward
limitation of approximately NLG 379,843 at August 26, 1999. Management
has recorded a valuation allowance for the full amount of the Company's
net deferred tax assets as a result of the uncertainty surrounding the
realization of such deferred tax assets on a separate company basis. As
a result of such valuation allowance, no deferred tax provision has
been recorded in the accounts at August 26, 1999.
Limitations on the utilization of the Company's net operating tax loss
carryforwards could result in the event of certain changes in the
Company's ownership.
7. SUBSEQUENT EVENT
On August 26, 1999, World Commerce, Online Inc. ("WCO") acquired the
entire equity interest of the Company for a purchase price of
approximately $1,500,000 through the issuance of 100,000 shares of WCO
common stock, the assumption of FPN's liabilities on the date of
acquisition, and contingent consideration of 100,000 shares of WCO
common stock. Delivery of contingent shares is dependent upon FPN
achieving certain operational milestones by December 31, 2000.
In connection with this acquisition, WCO also entered into a consulting
agreement with JoBo Holding B.V., a shareholder of Van Beek Bloemen
B.V. Under the terms of this agreement, JoBo Holding B.V. is retained
as a consultant for a period of four years after the date of the
acquisition, at a total compensation of approximately $210,000 and
bonuses of approximately $220,000, contingent on FPN meeting certain
milestones during the life of the agreement. In addition, WCO granted
Nils van Beek, sole owner of JoBo Holding B.V., a warrant to purchase
100,000 shares of WCO common stock, vesting 25% on January 1, 2000 and
on January 1 of each of the three following years, at an exercise price
of $11.50. The warrant is contingent on continued existence of the
consulting agreement between JoBo Holding and WCO, and contains certain
anti-dilutive provisions.
8. BUSINESS SEGMENT INFORMATION
As of and for the period presented, the Company has primarily operated
in one business segment, providing business-to-business electronic
commerce solutions to the fresh cut flower industry.
F-29
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Orlando, State of Florida, on the 17th day of May, 2000.
WORLD COMMERCE ONLINE, INC.
By: /s/ Robert H. Shaw
-------------------------------------------
Robert H. Shaw
Chairman of the Board and
Chief Executive Officer
By: /s/ Mark E. Patten
-------------------------------------------
Mark E. Patten
Executive Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------------- ------------------------------------------------------------------------------------------
<S> <C>
2.1* Agreement and Plan of Merger between World Commerce Online, a Nevada corporation
and World Commerce Online, a Delaware corporation, dated September 30, 1999.
2.2* Acquisition Agreement dated as of September 10, 1998 between World Commerce
Online, Inc., a Nevada corporation and Sunrise Express, Inc., a Nevada corporation.
3.1* Certificate of Incorporation of World Commerce Online.
3.2* Certificate of Amendment of Certificate of Incorporation amending Certificate of
Designations of Series A Preferred Stock.
3.3* Bylaws.
3.4* Stock Purchase Agreement for Series A Preferred Stock, dated March 30, 1999.
3.5* Stock Purchase Agreement for Series B Preferred Stock, dated November 11, 1999.
3.6* Certificate of Designations of Series B Preferred Stock.
3.7* Registration Rights Agreement for Series A and B Preferred Stock, dated November 11, 1999.
4.1* Form of Common Stock Certificate.
4.2* Warrant Agreement in favor of Poole Carbone Capital Partners, dated January 15, 1999.
4.3* Warrant Agreement in favor of Poole Carbone Capital Partners, dated January 15, 1999.
4.4* Warrant Agreement in favor of Michael W. Poole Trust, dated January 15, 1999.
4.5* Warrant Agreement in favor of Novelle Consulting, L.L.C., dated April 22, 1999.
4.6* Warrant Agreement in favor of Kenneth B. Cobb II, dated September 20, 1999.
4.7* Warrant Agreement in favor of Kenneth B. Cobb II, dated September 20, 1999.
4.8* Warrant Agreement in favor of Charles Kremp, III, dated as of October 1, 1999.
4.9* Warrant Agreement in favor of Interprise Technology Partners, L.P., dated October 15, 1999.
4.10* Warrant Agreement in favor of Tucker Byrd, dated October 18, 1999.
4.11* Warrant Agreement in favor of Liz Walsh, dated October 18, 1999.
4.12* Warrant Agreement in favor of Nils Van Beek, dated August 26, 1999.
4.13* Warrant Agreement in favor of Dole Fresh Flowers, dated December 10, 1999.
4.14* Warrant Agreement in favor of AnswerThink Consulting Group, Inc., dated March 29, 1999.
4.15* Warrant Agreement in favor of AnswerThink Consulting Group, Inc., dated March 29, 1999.
4.16 Warrant Purchase Agreement with i2 Technologies, Inc., dated April 29, 2000.
4.17 Warrant Agreement in favor of i2 Technologies, Inc., dated April 29, 2000.
10.1* 1999 Stock Option Plan.
10.2* Form of Executive Incentive Stock Option Agreement.
10.3* Form of Executive Non-Qualified Stock Option Agreement.
10.4* Form of Non-Executive Incentive Stock Option Agreement.
10.5* Form of Non-Executive Non-Qualified Stock Option Agreement.
10.6* Form of Indemnification Agreement for officers and directors.
10.7* Corporate Headquarters Lease Agreement, dated February 15, 1999.
10.8* Consulting Agreement with AnswerThink, Inc., dated August 11, 1999.
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------------- -------------------------------------------------------------------------------------------
<S> <C>
10.9* Stock Purchase Agreement by and among World Commerce Online, Fresh Products
Network, Omniflora International Ltd., Jobo Holding B.V. and Nils Van Beek,
dated August 26, 1999.
10.10* Consulting Agreement with Jobo Holding B.V., dated August 26, 1999.
10.11* 1st Amendment to Corporate Headquarter Lease Agreement, dated September 7, 1999.
10.12* Consulting Agreement with Charles Kremp, III, dated as of October 1, 1999.
10.13* Demonstration License Agreement with AnswerThink, Inc., dated October 4, 1999.
10.14* Web Site Development Agreement with Snickleways Interactive, dated October 14, 1999.
10.15* Employment Agreement with Robert H. Shaw, dated as of October 18, 1999.
10.16* Employment Agreement with Mark E. Patten, dated as of October 18, 1999.
10.17* Employment Agreement with J. Keith Money, dated as of October 18, 1999.
10.18* Employment Agreement with Henry R. Winogrond, dated as of October 18, 1999.
10.19* Employment Agreement with John R. Daniel II, dated as of October 18, 1999.
10.20* Employment Agreement with Eugenio M. Valdes, dated as of October 18, 1999.
10.21* Employment Agreement with Jacobus N. Kras, dated as of October 18, 1999.
10.22* Floraplex User Agreement with Dole Fresh Flowers, dated December 10, 1999.
10.23* Master Outsourced Services Agreement with eCredit.com, Inc., dated December 30, 1999.
10.24* Form of Floraplex User Agreement with wholesale florists who are members of
Premiere Floral Distributors and International Floral Distributors.
10.25* Agreement between World Commerce Online and Flower Auction Holland, dated
October 22, 1999.
10.26* Agreement between Flower Purchase Network-Floraplex and Flower Auction Aalsmeer,
dated December 8, 1999.
10.27 Software License Agreement with i2 Technologies, Inc., dated April 29, 2000.
21.1* Subsidiaries.
27.1* Financial Data Schedule (for SEC use only).
</TABLE>
* Previously Filed
<PAGE> 1
EXHIBIT 4.16
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT is made as of April 29, 2000, by and
between i2 Technologies, Inc., a Delaware corporation (the "Investor"), and
World Commerce Online, Inc., a Delaware corporation (the "Company").
RECITALS
A. The Investor has agreed to (a) grant the License to the Company as
provided for in the License Agreement; and (b) assist the Company in the
Associated Activities.
B. In consideration for the License and the Associated Activities, the
Company has agreed to pay the Investor certain fees as set forth in the License
Agreement, the Marketing Agreement and the Finder's Fee Agreement, to grant to
the Investor the Warrant.
In consideration of the terms and conditions contained herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
AGREEMENT
ARTICLE I. GENERAL DEFINITIONS
SECTION 1.1. DEFINED TERMS. Capitalized terms, when used herein, shall have
the following meanings:
"Additional Stock" means any shares of the Company's Capital Stock, or
securities convertible, exercisable or exchangeable into the Company's Capital
Stock, issued by the Company after the Closing Date, other than Excluded Stock.
"Affiliate" means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
Capital Stock of such Person; or (c) five percent (5%) or more of the voting
Capital Stock of which is directly or indirectly beneficially owned or held by
the Person in question. For purposes of this definition, the term "control"
means the possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; provided, however, in
no event shall the Investor or a Holder of a Warrant or Common Stock issued
upon exercise of a Warrant be deemed an Affiliate of the Company.
"Agreement" means this Warrant Purchase Agreement, including any and all
exhibits and schedules hereto, as the same may be from time to time amended,
modified or supplemented.
<PAGE> 2
"Amended and Restated Registration Rights Agreement" has the meaning set
forth in Section 4.6.
"Associated Activities" means certain marketing and public relations
activities relating to the License as set forth in more detail in the Marketing
Agreement and the services set forth in the Finder's Fee Agreement.
"Business Day" means any day on which commercial banks are not authorized
or required to close in Dallas, Texas.
"Capital Stock" means corporate stock and any and all shares, partnership
interests, limited partnership interests, limited liability company interests,
membership interests, equity interests, participations, rights or other
equivalents (however designated) of corporate stock or any of the foregoing
issued by any entity (whether a corporation, a partnership or another entity).
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $0.001 par value, as such
stock is constituted on the Closing Date, any stock into which such stock shall
be changed, converted or exchanged and any stock resulting from
reclassification of such stock.
"Company" means World Commerce Online, Inc., a Delaware corporation.
"Consolidation" and all related terms, including "consolidate,"
"consolidated" and "consolidating," whenever used in this Agreement or the
Other Agreements, whether capitalized or not, shall be deemed to expand the
meanings given those terms under GAAP to also include, pro rata based on
percentage ownership interest, any Subsidiaries of the corporation or entity in
question, even though such Subsidiaries are less than eighty percent (80%)
owned.
"Equity Issuance" means any issuance by the Company of any Capital Stock of
the Company.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended.
"Excluded Stock" means shares of Common Stock or other securities (a) for
which the Warrant is exercisable; (b) issued or reserved for issuance by the
Company for which adjustment is made under Section 4.3 with respect to shares
received upon exercise of the Warrant (i) as a stock dividend payable in shares
of Common Stock or other securities for which the Warrant is exercisable or
(ii) upon any subdivision or split-up of the outstanding shares of Common Stock
or other securities for which the Warrant is exercisable; (c) issued in
connection with warrants or
-2-
<PAGE> 3
convertible securities issued and outstanding on the date of this Agreement,
plus up to an additional 50,000 shares of Series A convertible preferred stock;
and (d) up to an aggregate of 5,000,000 shares issued in connection with the
exercise of options granted pursuant to the Company's 1999 Stock Option Plan.
"Exercise Price" has the meaning set forth in the Warrant.
"Expiration Date" has the meaning set forth in the Warrant.
"Finder's Fee Agreement" means that certain Finder's Fee Agreement, dated
as of the date hereof, by and between the Investor and the Company, attached
hereto as Exhibit D.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in the Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their respective
successors and which are applicable to the circumstances as of the date in
question. Accounting principles are applied on a "consistent basis" when the
accounting principles applied in a current period are comparable in all
material respects to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Governmental Requirement" means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, franchise, Permit, certificate,
license, authorization or other directive or requirement of any Governmental
Authority.
"Holder" means any holder of Registrable Securities or anyone who holds
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with this Agreement.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark
and service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar
technical information, engineering know-how, customer and supplier information,
assembly and test data drawings or royalty rights.
"Investor" means i2 Technologies, Inc., a Delaware corporation, and its
permitted successors and assigns.
"License" means the license of certain of the Investor's software to the
Company, as set forth in the License Agreement.
-3-
<PAGE> 4
"License Agreement" means that certain Software License Agreement dated as
of the date hereof, between the Company and the Investor, attached hereto as
Exhibit B.
"Lien" means any lien, mortgage, interest, security interest, tax lien,
financing statement, pledge, charge, hypothecation or other encumbrance of any
kind or nature whatsoever (including, without limitation, any conditional sale
or title retention agreement), whether arising by contract, operation of law or
otherwise.
"Marketing Agreement" means that certain Joint Marketing Agreement, dated
as of the date hereof, between the Company and the Investor, attached hereto as
Exhibit C.
"Material Adverse Effect" means any material adverse effect, or the
occurrence of any event or the existence of any condition that could reasonably
be expected to have a material adverse effect on (a) the prospects, business or
financial condition or performance of the Company and its Subsidiaries, taken
as a whole; (b) the validity or enforceability of this Agreement or any of the
Other Agreements; or (c) the rights and remedies of the Investor under this
Agreement or any of the Other Agreements.
"Material Contracts" means any agreement or contract required to be
disclosed pursuant to the Exchange Act, and any and all amendments,
modifications, supplements, renewals or restatements thereof.
"Other Agreements" means the Warrant, the License Agreement, the Marketing
Agreement, the Finder's Fee Agreement, the Amended and Restated Registration
Rights Agreement and all agreements, instruments and documents, whether
heretofore, now or hereafter executed by or on behalf of the Company or its
Subsidiaries and delivered to the Investor with respect to this Agreement or
any of the foregoing, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
"Permit" means any permit, certificate, approval, order, license or other
authorization.
"Person" means and includes natural persons, corporations, limited
partnerships, limited liability companies, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and Governmental Authorities.
"Property" means property or assets of all kinds, real, personal or mixed,
tangible or intangible (including, without limitation, all rights relating
thereto), whether owned or acquired on or after the Closing Date.
"Registrable Securities" means any shares of Common Stock issuable to the
Investor or any other Holder upon exercise of the Warrant, any shares of Common
Stock issued to the Investor or any other Holder as a dividend on the Common
Stock covered by the Warrant, and any other shares of Common Stock
distributable on, with respect to, or in substitution for such Registrable
Securities, including those which have been transferred as permitted under this
-4-
<PAGE> 5
Agreement, except for those that have been sold or transferred pursuant to an
effective registration statement or pursuant to Rule 144 under the Securities
Act.
"Registration Statement" means the Company's Form 10, as filed with the
Commission on February 14, 2000, together with any amendment thereto filed with
the Commission on or before the date hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect
a majority of the board of directors (or Persons performing similar functions)
of such corporation or entity (irrespective of whether or not at the time, in
the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is, at the time, directly or indirectly owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or
more of its Subsidiaries.
"Warrant" means the warrant issued to the Investor by the Company, as
provided in Section 4.1 of this Agreement, substantially in the form of Exhibit
A hereto.
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that the following
statements are true, correct and complete as of the date hereof:
SECTION 2.1 CORPORATE EXISTENCE AND AUTHORITY. Each of the Company and its
Subsidiaries (a) is a corporation, duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation or
organization; (b) has all requisite corporate or other power and authority to
own its Properties and carry on its business as now being and as proposed to be
conducted; and (c) is qualified to do business in all jurisdictions in which
the nature of its business or the ownership of its assets makes such
qualification necessary. The Company has the power and authority and legal
right to execute, deliver and perform its obligations under this Agreement and
the Other Agreements to which it is or may become a party. The Certificate of
Incorporation and Bylaws of the Company filed as exhibits to the Registration
Statement are true, correct and complete copies thereof as of the date of this
Agreement.
SECTION 2.2 FINANCIAL STATEMENTS. The audited consolidated and
consolidating financial statements of the Company as of and for the fiscal year
ended December 31, 1999, as set forth in the Registration Statement, are true
and correct in all material respects, have been prepared in accordance with
GAAP and fairly and accurately present, on a consolidated and consolidating
(where applicable) basis, the financial condition of the Company and its
consolidated Subsidiaries as of the respective dates indicated therein and the
results of operations for the respective periods indicated therein. There has
not been, as of the Closing Date, any material adverse change in the financial
condition, results of operations, business, operations,
-5-
<PAGE> 6
capitalization, assets, liabilities or prospects of the Company or its
Subsidiaries since December 31, 1999.
SECTION 2.3 CORPORATE ACTION; NO BREACH. The execution, delivery, and
performance by the Company of this Agreement and the Other Agreements to which
it is a party or may become a party and compliance with the terms and
provisions hereof and thereof have been duly authorized by all requisite
corporate action on the part of the Company and do not and will not (a) violate
or conflict with, or result in a breach (whether through notice or lapse of
time) of or require any consent under (i) the Certificate of Incorporation or
bylaws of the Company or any amendments to any of the foregoing; (ii) any
Governmental Requirements or any order, writ, injunction, or decree of any
Governmental Authority or arbitrator; or (iii) any Material Contract to which
the Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries or any of the Property of such parties is bound or subject; or (b)
constitute a default (whether through notice or lapse of time) under any such
Material Contract, or result in the creation or imposition of any Lien upon any
of the revenues or Property of the Company or its Subsidiaries. The shares of
Common Stock to be issued upon exercise of the Warrant have been duly and
validly authorized and reserved for issuance, and when issued in compliance
with the terms of this Agreement and the Warrant, will be validly issued,
fully-paid and nonassessable and free of any preemptive rights.
SECTION 2.4 OPERATION OF BUSINESS. The Company and each of its Subsidiaries
possess all material Permits, franchises, licenses and authorizations necessary
or appropriate to conduct their respective businesses substantially as now
conducted, and no suspension or cancellation of any such material licenses,
Permits, franchises, certificates, orders, approvals or authority is pending
or, to the Company's knowledge, threatened; and the transactions contemplated
by this Agreement and/or the Other Agreements will not cause any cancellation
or suspension or have any effect upon any of such licenses, Permits,
franchises, certificates, orders, approvals or authority.
SECTION 2.5 INTELLECTUAL PROPERTY. The Company and each of its Subsidiaries
have ownership of, or valid licenses to use, all Intellectual Property used in
their respective businesses, the lack of which could reasonably be expected to
have a Material Adverse Effect on such parties. The present products or
services of the Company and each of its Subsidiaries do not infringe, to the
best knowledge of the Company, any patent, copyright, trademark or other
proprietary rights of others, and neither the Company nor any of its
Subsidiaries have received any notice from any third party of any such alleged
infringement by any of such party. The Company and each of its Subsidiaries
have taken all reasonable steps to establish and preserve their ownership of
all Intellectual Property that is material to the operation of the business of
the Company and each of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is aware of any infringement by others of any Intellectual
Property of any of them.
SECTION 2.6 LITIGATION. There is no action, suit, investigation or
proceeding before or by any court, Governmental Authority, or arbitrator
pending, or to the knowledge of the Company, threatened against or affecting
the Company or any of its Subsidiaries, that could reasonably be expected to,
if adversely determined, have a Material Adverse Effect or could
-6-
<PAGE> 7
adversely affect the ability of the Company or any of its Subsidiaries to pay
and perform its obligations hereunder.
SECTION 2.7 RIGHTS IN AND SUFFICIENCY OF PROPERTIES. The Company and each
of its Subsidiaries have good and marketable title to, or valid leasehold
interests in, all of their respective Properties reflected in the financial
statements described in Section 2.2, except for goods sold in the ordinary
course of business since the date of the most recent of such financial
statements for each of them. As of the Closing Date, the Company and each of
its Subsidiaries own, and have good and marketable title to or valid leasehold
interests in, all Properties and assets, including furniture, fixtures, real
property, and equipment necessary to conduct their respective businesses, as
conducted and to complete the transactions and fulfill the obligations
contemplated hereby, and the Company and each of its Subsidiaries is in
compliance with all leases which it has assumed or to which it is a party.
SECTION 2.8 ENFORCEABILITY. This Agreement and the Other Agreements to
which the Company is a party has been duly and validly executed and delivered
by the Company, and this Agreement and the Other Agreements constitute the
legal, valid, and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as limited by
bankruptcy, insolvency, or other laws of general application relating to the
enforcement of creditors' rights and general principles of equity.
SECTION 2.9 APPROVALS. Except for the consent of Interprise Technology
Partners, L.P., no authorization, approval, or consent of, and no filing or
registration with, or notice to, any court, Governmental Authority or third
party is or will be necessary for the execution, delivery or performance by the
Company of this Agreement or the Other Agreements to which the Company is a
party or for the validity or enforceability thereof. The Company has not failed
to obtain any material governmental consent, approval, license, Permit,
franchise or other governmental authorization necessary for the ownership or
use of any of its Properties or the conduct of its business.
SECTION 2.10 TAXES. The Company and each of its Subsidiaries have filed all
material tax returns (federal, state, and local) required to be filed (subject
to allowable extensions), including all income, franchise, employment,
property, and sales and use tax returns, and have paid all of their respective
liabilities for taxes, assessments, governmental charges, and other levies that
are due and payable, and there are no pending or, to the knowledge of the
Company, threatened investigation of the Company or any of its Subsidiaries by
any taxing authority or of any pending but unassessed tax liability of the
Company or any of its Subsidiaries, other than with respect to taxes in an
aggregate amount as to which would not, if an adverse determination is made
with respect to such taxes, have a Material Adverse Effect on such Person. No
tax Liens have been filed and no claims are being asserted against the Company
or any of its Subsidiaries or any of their Affiliates, with respect to any
taxes. As of the Closing Date, none of the income tax returns of the Company or
any of its Subsidiaries or any of their Affiliates are under audit. The
charges, accruals and reserves on the books of the Company and each of its
Subsidiaries in respect of taxes or other governmental charges are in
accordance with GAAP.
-7-
<PAGE> 8
SECTION 2.11 DISCLOSURE. No statement, information, report, representation,
or warranty made by the Company or any of its Subsidiaries in the Registration
Statement or any other report to or filing made with the Commission, this
Agreement or in any Other Agreement or furnished to the Investor by the Company
in connection with the negotiation or preparation of this Agreement or the
Other Agreements contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein not
misleading. There is no fact known to the Company not disclosed in writing to
the Investor that has had a Material Adverse Effect, or that could reasonably
be expected in the future to have a Material Adverse Effect.
SECTION 2.12 CAPITALIZATION; SUBSIDIARIES.
(a) On and as of the Closing Date, the authorized Capital
Stock, the par value per share and the number of shares issued and outstanding
with respect to the Capital Stock of the Company is as specified on Schedule
2.12.
(b) All of the issued and outstanding Capital Stock of the
Company has been validly issued and is fully paid and nonassessable. Except as
set forth on Schedule 2.12, and other than the Warrant, there are no
outstanding subscriptions, options, warrants, calls or rights (including
preemptive rights) or other agreements or commitments of any nature to acquire,
and no outstanding securities or instruments convertible into, Capital Stock of
the Company.
SECTION 2.13 AGREEMENTS. The Company is not in default in any material
respect in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement, document or
instrument binding on it or its Properties, except for instances of
noncompliance that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
SECTION 2.14 COMPLIANCE WITH LAWS. None of the Company or any of its
Subsidiaries is in violation of any Governmental Requirement, except for
instances of non-compliance that, individually or in the aggregate, could not
have a Material Adverse Effect. The Company and each of its Subsidiaries have
complied, and will comply with, all material requirements of applicable
federal, state and local laws, and regulations thereunder, including federal
and state securities laws.
SECTION 2.15 MATERIAL CONTRACTS. All Material Contracts of the Company and
each of its Subsidiaries have been filed as exhibits to the Registration
Statement. All of the Material Contracts are in full force and effect and none
of the Company or any of its Subsidiaries is in material default under any
Material Contract and, to the knowledge of the Company after due inquiry, no
other Person that is a party thereto is in default under any of the Material
Contracts. None of the Material Contracts prohibit the transactions
contemplated under the this Agreement and the Other Agreements.
SECTION 2.16 COMPLIANCE WITH SECURITIES LAWS. None of the Company or any of
its Subsidiaries has offered or sold any securities in violation of any federal
or state securities laws.
-8-
<PAGE> 9
The Company has made all filings required under the Act, the Exchange Act and
the rules and regulations promulgated and rulings issued under the Act and the
Exchange Act, and such filings have been made timely.
SECTION 2.17 AFFILIATED TRANSACTIONS. The Registration Statement contains a
description of all material compensation and other agreements of the Company
with, or for the benefit of, its Affiliates, any stockholder of the Company or
any of its Subsidiaries, or any Affiliate of any stockholder of the Company or
any of its Subsidiaries.
SECTION 2.18 BROKERAGE. There are no claims for brokerage commissions,
finder's fees or similar compensation arrangements in connection with the
transactions contemplated by this Agreement or the Other Agreements.
SECTION 2.19 REGISTRATION RIGHTS. Except as set forth in the Amended and
Restated Registration Rights Agreement, and except as set forth in the
Registration Statement, the Company is not under any contractual obligation to
register any of its presently outstanding securities or any of its securities
that may hereafter be issued.
ARTICLE III. AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees that, as long as the Investor holds
the Warrant or Common Stock issued or issuable upon exercise of the Warrant, it
will perform and observe the following covenants:
SECTION 3.1 REPORTING REQUIREMENTS. The Company will furnish to the
Investor:
(a) Annual Financial Statements. As soon as available, and in
any event within one hundred and twenty (120) days after the end of each fiscal
year of the Company, beginning with the fiscal year ending December 31, 1999, a
copy of the annual audit report of the Company and its consolidated
Subsidiaries as of the end of and for such fiscal year then ended containing,
on a consolidated and consolidating basis, balance sheets and statements of
income, retained earnings and cash flow, in each case setting forth in
comparative form the figures for the preceding fiscal year, all in reasonable
detail and audited and certified by independent certified public accountants of
recognized national standing acceptable to the Investor, and containing no
qualification thereto, to the effect that such report has been prepared in
accordance with GAAP; and
(b) Quarterly Financial Statements. As soon as available, and
in any event within forty-five (45) days after the end of the first, second and
third fiscal quarters of each fiscal year of the Company, beginning with the
fiscal quarter ending March 31, 2000, a copy of (i) an unaudited financial
report of the Company and its consolidated Subsidiaries as of the end of such
fiscal quarter and for the portion of the fiscal year then ended, containing,
on a consolidated and consolidating basis, balance sheets and statements of
income, retained earnings and cash flow, in each case setting forth in
comparative form the figures for the corresponding period from the preceding
fiscal year, all in reasonable detail certified by the chief financial officer
of the Company to have been prepared in accordance with GAAP (except for
certain
-9-
<PAGE> 10
footnote disclosures) and to fairly and accurately present (subject to
non-material year-end audit adjustments) the financial condition and results of
operations of the Company and its consolidated Subsidiaries, on a consolidated
and consolidating basis, at the date and for the periods indicated therein, and
containing information regarding any guaranties and other contingent debt in
detail consistent with the information regarding guaranties and other
contingent debt contained in the Company's annual audit report; and (ii)
management's financial reports comparing actual financial results for the
period to the current budget for the period.
(c) Suspension of Requirements. The covenants of the Company
contained in Sections 3.1(a) and 3.1(b) shall be suspended for such periods as
the Company is subject to the reporting requirements of the Exchange Act.
SECTION 3.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Company will
preserve and maintain its corporate existence and all of its material leases,
privileges, licenses, Permits, franchises, qualifications, Intellectual
Property, Property and rights that are necessary or appropriate to the ordinary
conduct of its business as the same may now or hereafter be conducted. The
Company will conduct its business in an orderly and efficient manner in
accordance with good business practices.
SECTION 3.3 TAXES AND CLAIMS. The Company and each of its Subsidiaries will
pay or discharge at or before maturity or before becoming delinquent all
material taxes, levies, assessments, and governmental charges imposed on it or
its income or profits or any of its Property; provided, however, that neither
the Company nor any of its Subsidiaries shall be required to pay or discharge
any such tax, levy, assessment, governmental charge or claim that is being
contested in good faith by appropriate proceedings diligently pursued, and for
which adequate reserves have been established under GAAP.
SECTION 3.4 INSPECTION RIGHTS. The Company and each of its Subsidiaries
will permit representatives and agents of the Investor, during normal business
hours and upon reasonable notice, to examine, copy and make extracts from its
books and records, to visit and inspect its Properties and to discuss its
business, operations and financial condition with its officers and independent
certified public accountants, subject to any applicable securities laws.
SECTION 3.5 KEEPING BOOKS AND RECORDS. The Company will maintain
appropriate books of record and account in accordance with GAAP consistently
applied in which true, full and correct entries will be made of its dealings
and business affairs.
SECTION 3.6 COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries
will comply with all Governmental Requirements, except for instances of
noncompliance that could not have, individually or in the aggregate, a Material
Adverse Effect.
SECTION 3.7 RESERVE FOR WARRANT SHARES. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the exercise of the Warrant and otherwise
complying with the terms of this Agreement, such number of its duly authorized
shares of Common Stock as shall be sufficient to effect the exercise of the
Warrant from time to time outstanding or otherwise to comply with the terms of
-10-
<PAGE> 11
this Agreement. If, at any time, the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the exercise of the Warrant or
otherwise to comply with the terms of this Agreement, the Company will forthwith
take such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes. The Company will obtain any authorization, consent, approval
or other action by or make any filing with any court or administrative body that
may be required under applicable state securities laws in connection with the
issuance of shares of Common Stock upon exercise of the Warrant.
ARTICLE IV. WARRANT
SECTION 4.1 ISSUANCE OF WARRANT. On the Closing Date, the Company shall
issue the Warrant to the Investor. The Warrant will be exercisable from time to
time into an aggregate of 1,250,000 shares of Common Stock, subject to
adjustment as provided under Section 4.3. The Warrant may be exercised in whole
or in part at any time or from time to time after the Closing Date and on or
until the date that is the fifth anniversary of the Closing Date.
SECTION 4.2 REPRESENTATIONS OF THE INVESTOR. The Investor represents to the
Company as follows:
(a) The Investor (i) is an "Accredited Investor," as that term
is defined in Regulation D under the Securities Act; (ii) has such knowledge,
skill and experience in business and financial matters, based on actual
participation, that it is capable of evaluating the merits and risks of an
investment in the Company and the suitability thereof as an investment for the
Investor; (iii) has received such documents and information as it has requested
and has had an opportunity to ask questions of representatives of the Company
concerning the terms and conditions of the investment proposed herein, and such
questions were answered to the satisfaction of the Investor; and (iv) is in a
financial position to hold the Warrant and shares of Common Stock issued upon
exercise thereof for an indefinite time and is able to bear the economic risk
and withstand a complete loss of its investment in the Company.
(b) The Investor is acquiring the Warrant and any Common Stock
issuable upon exercise thereof for investment for its own account and not with
a view to, or for resale in connection with, any distribution thereof.
(c) The Investor understands that the Warrant and any Common
Stock issuable upon exercise thereof have not been registered under applicable
state or federal securities laws. The Investor acknowledges that by virtue of
the provisions of certain rules respecting "restricted securities" promulgated
by the Commission, the shares of Common Stock issuable upon the exercise of the
Warrant will be required to be held indefinitely, unless and until registered
under the Securities Act and applicable state securities laws, or unless an
exemption from the registration requirements of the Securities Act and
applicable state securities laws is available, in which case the Investor may
still be limited as to the number of such shares that may be sold. The Investor
agrees that neither the Warrant nor the shares of Common Stock issued on
exercise thereof will be offered, sold or transferred (except by registration
under the Securities Act and applicable state securities laws) in the absence
of a favorable opinion of
-11-
<PAGE> 12
counsel reasonably satisfactory to the Company, in form and substance
reasonably satisfactory to the Company, or other evidence reasonably acceptable
to the Company as appropriate, that the Warrant or any shares issuable upon
exercise of the Warrant may not be sold without registration under the
Securities Act and applicable state securities laws, and the certificates
representing the Warrant and any Common Stock issuable upon exercise thereof
will bear a conspicuous legend in substantially the form set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL
NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
(WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY
OF A FAVORABLE OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY
TO THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE A
VIOLATION OF THE 1933 ACT AND THE STATE ACTS.
Notwithstanding the foregoing, the certificates representing the Warrant
and any Common Stock issuable upon exercise thereof need not bear the foregoing
legend if (i) such transfer is in accordance with the provisions of Rule 144
promulgated under the Securities Act (or any other rule permitting public sale
without registration under the Securities Act); or (ii) the opinion of counsel
referred to above is to the further effect that the transferee and any
subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration
under the Securities Act.
(d) All action on the part of the Investor necessary for the
acquisition of the Warrant and the consummation of the transactions
contemplated herein, has been duly and validly taken, and this Agreement is a
valid and binding obligation of the Investor, enforceable against the Investor
in accordance with its terms, except as limited by bankruptcy, insolvency, or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
SECTION 4.3 ADJUSTMENTS. If any of the following events shall occur at any
time or from time to time prior to the exercise of the Warrant, the following
adjustments shall be made in the Exercise Price and/or the number of shares
then purchasable upon the exercise of the Warrant, as appropriate:
(a) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced and the number of shares purchasable under the Warrant
shall be proportionately increased; and conversely, in case the Common Stock of
the Company shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased and the number of shares purchasable hereunder shall be
proportionately reduced.
-12-
<PAGE> 13
(b) If the Company shall declare a dividend on its Common Stock
payable in Common Stock or other securities of the Company or of any other
corporation, or other Property (other than cash), to holders of record of
Common Stock as of a date prior to the date of exercise of the Warrant, the
Investor shall, without additional cost, be entitled to receive upon the
exercise of the Warrant, in addition to the Common Stock to which the Investor
is otherwise entitled upon such exercise, the number of shares of Common Stock
or other securities, or Property (other than cash) that the Investor would have
been entitled to receive if the Investor had been a holder of the number of
shares of Common Stock that the Investor actually received upon exercise of the
Warrant on such record date.
(c) In case of any capital reorganization or reclassification
of the Common Stock, or the consolidation or merger of the Company with or into
another corporation, or any sale of all or substantially all of the Company's
Property, or any liquidation of the Company, the Investor, upon the exercise of
the Warrant on or before the record date for determination of stockholders
entitled thereto, shall receive, in lieu of any shares of Common Stock, the
proportionate share of all stock, securities or other Property issued, paid or
delivered for or on all of the Common Stock as is allocable to the shares of
Common Stock then exercisable under the Warrant.
(d) No fractional shares of Common Stock are to be issued upon
the exercise of the Warrant, but the Company shall pay a cash adjustment in
respect of any fraction of a share that would otherwise be issuable in an
amount equal to the same fraction of the fair market value per share of Common
Stock on the day of exercise, as reasonably determined by the Board of
Directors of the Company; provided, however, that such determination shall not
take into account any restraints on the transferability of the Common Stock.
(e) The Exercise Price and the number of shares into which the
Warrant is exercisable shall also be subject to adjustment from time to time as
follows:
(i) If the Company shall issue any Additional Stock
(including Additional Stock deemed to be issued pursuant to Section 4.3(e)(ii),
below) without consideration or for a consideration per share less than the
Exercise Price in effect on the date of and immediately prior to such issue,
then and in such event, the Holder shall, upon the exercise of this Warrant, be
entitled to receive, without payment of any additional consideration therefor,
the number of shares of Common Stock equal to $[9,375,000] divided by the
product of the existing Exercise Price (as adjusted) and a fraction (i) the
numerator of which is the sum of (A) the total number of shares of Common Stock
issued and outstanding plus (B) the number of shares of Additional Stock that
can be purchased at the existing Exercise Price for the total consideration
received or deemed to be received for the issuance or deemed issuance of shares
of Additional Stock and (ii) the denominator of which is the Common Stock
issued and outstanding plus the number of shares of Additional Stock issued or
deemed to be issued in the new issuance or deemed issuance, and the Exercise
Price shall be adjusted accordingly. For purposes of the foregoing sentence,
the total number of shares of Common Stock outstanding shall be deemed to
include the number of shares of Common Stock that would be outstanding if all
outstanding securities exercisable for or convertible into Common Stock were so
exercised or converted, and
-13-
<PAGE> 14
all securities exercisable for or convertible into securities exercisable for
or convertible into Common Stock were exercised or converted, as applicable,
and then converted or exercised, as applicable.
(ii) If the Company shall issue options to purchase or rights
to subscribe for Additional Stock (or securities exercisable for or convertible
into options to purchase or rights to subscribe for Additional Stock), the
following provisions shall apply:
(A) The aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in paragraphs (e)(iii) and
(e)(iv) of this Section 4.3), if any, received by the Company upon the issuance
of such options or rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;
(B) The aggregate number of shares of Common Stock
deliverable upon conversion of, or in exchange for, any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Company for
any such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
paragraphs (e)(iii) and (e)(iv) of this Section 4.3);
(C) In the event of any change in the number of
shares of Common Stock deliverable upon exercise of such options or rights or
upon conversion of, or in exchange for, such convertible or exchangeable
securities, including, but not limited to, a change resulting from the
antidilution provision thereof, the Exercise Price (or, if applicable, the
number of shares into which the Warrant is exercisable, if such number was
previously adjusted under this Section 4.3(e)) in effect at the time shall
forthwith be readjusted to such Exercise Price (or, if applicable, as provided
above, the number of shares into which the Warrant is exercisable) as would
have been obtained, had the adjustment that was made upon the issuance of such
options, rights or securities not converted prior to such change (or the
options or rights related to such securities not converted prior to such
change) been made upon the basis of such change; and
(D) No further adjustment of the applicable Exercise
Price (or, if applicable, the number of shares into which the Warrant is
exercisable, if such number was previously adjusted under this Section 4.3(e))
shall be made for the actual issuance of Common Stock (or the issuance of
securities convertible into Common Stock upon the exercise of any such options
or rights) upon the exercise of any such options or rights or the conversion or
exchange of such securities after the adjustments have been made under this
paragraph (e)(ii)(D) of this Section 4.3.
-14-
<PAGE> 15
(iii) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash paid therefor
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise in
connection with the issuance and sale thereof.
(iv) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith
by the Company's Board of Directors.
SECTION 4.4 NOTICES OF CERTAIN EVENTS.
(a) In the event of (i) any setting by the Company of a record
date with respect to the holders of any class of securities of the Company for
the purpose of determining which of such holders are entitled to dividends or
other distributions, or any right to subscribe for, purchase or otherwise
acquire any shares of Common Stock or any other securities or Property, or to
receive any other right; (ii) any capital reorganization of the Company, or
reclassification or recapitalization of the Common Stock of the Company or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other entity or
Person; (iii) any voluntary dissolution or winding up of the Company; or (iv)
any proposed issue or grant by the Company of any shares of Common Stock or any
other securities, or any right or option to subscribe for, purchase or
otherwise acquire any shares of Capital Stock or any other securities of the
Company (other than Common Stock issued pursuant to exercise of the Warrant)
then, and in each such event, the Company will mail or cause to be mailed to
the Investor or any other Holder of the Warrant at the time, a notice
specifying, as the case may be: (A) the date on which any such record is to be
set for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution, or right; (B) the date as
of which the holders of record shall be entitled to vote on any reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
conveyance, dissolution, liquidation, or winding-up; (C) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, conveyance, dissolution, liquidation, or winding-up is
to take place and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other Capital Stock or securities receivable
upon the exercise of the Warrant) shall be entitled to exchange their shares of
Common Stock (or such other Capital Stock or securities) for securities or
other Property deliverable upon such event; or (D) the amount and character of
any Capital Stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the consideration to be received
therefor and, in the case of rights or options, the exercise price thereof, and
the date of such proposed issue or grant and the Persons or class of Persons to
whom such proposed issue or grant will be offered or made. Any such notice
shall be given as provided in Section 6.10 of this Agreement, at least thirty
(30) days prior to the date therein specified and the Holder of the Warrant may
exercise its Warrant within the thirty (30) day period from the date of mailing
of such notice.
(b) If there shall be any adjustment as provided in Section
4.3, or if securities or Property other than shares of Common Stock of the
Company shall become
-15-
<PAGE> 16
purchasable in lieu of shares of such Common Stock upon exercise of the
Warrant, the Company shall forthwith cause written notice thereof to be sent as
provided in Section 6.10, to the Investor or any other Holder of the Warrant at
the address of such Person shown on the books of the Company, which notice
shall be accompanied by a certificate of the chief financial officer of the
Company setting forth in reasonable detail the basis for the Investor or any
other Holder becoming entitled to purchase such shares and the number of shares
that may be purchased and the Exercise Price thereof, or the facts requiring
any such adjustment and the Exercise Price and number of shares purchasable
after such adjustment, or the kind and amount of any such securities or
Property so purchasable upon the exercise of the Warrant, as the case may be.
At the request of the Investor or any other Holder and upon surrender of the
Warrant, the Company shall reissue the Warrant in a form conforming to such
adjustments.
SECTION 4.5 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If the Warrant
shall become lost, stolen, mutilated, or destroyed, the Company shall, on such
reasonable terms as to indemnity or otherwise as it may impose, including,
without limitation, the delivery by the Investor to the Company (at the
Investor's expense) of an affidavit of lost instrument and an indemnity
agreement, issue a new warrant of like denomination, tenor, and date as the
Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall
constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any
time enforceable by anyone.
SECTION 4.6 REGISTRATION RIGHTS. The Investor shall have registration
rights as set forth in the Amended and Restated Registration Rights Agreement
dated as of the date hereof by and among the Company, the Investor, Interprise
Technology Partners, L.P., and the other parties named therein, attached hereto
as Exhibit F (the "Amended and Restated Registration Rights Agreement").
ARTICLE V. CONDITIONS PRECEDENT
SECTION 5.1 CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR. The obligation
of the Investor to purchase the Warrant under this Agreement on the Closing
Date is subject to the satisfaction of the following conditions precedent or
execution and delivery to the Investor of the following agreements, documents
or instruments, as the case may be:
(a) Resolutions. A copy of resolutions approving this Agreement
and authorizing the transactions contemplated hereby, duly adopted by the Board
of Directors of the Company, accompanied by a certificate of the secretary of
the Company, dated as of the Closing Date, certifying that such copy is a true
and correct copy of resolutions duly adopted at a meeting of, or by unanimous
written consent of, the Board of Directors of the Company and that such
resolutions have not been amended, modified, or revoked in any respect, and are
in full force and effect as of the Closing Date;
(b) Consents. Copies of all material consents or waivers
necessary for the execution, delivery and performance by the Company of this
Agreement and the Other Agreements to which it is a party, including the
consent of Interprise Technology Partners, L.P., in a form satisfactory to the
Investor;
-16-
<PAGE> 17
(c) Regulatory Approvals. Evidence satisfactory to the Investor
that all filings, consents or approvals with or of Governmental Authorities
necessary to consummate the transactions contemplated by this Agreement and the
Other Agreements have been made and obtained, if any;
(d) Compliance with Laws. As of the Closing Date, the Company
shall have complied with all Governmental Requirements necessary to consummate
the transactions contemplated by this Agreement and the Other Agreements;
(e) No Prohibitions. No Governmental Requirement shall prohibit
the consummation of the transactions contemplated by this Agreement or any of
the Other Agreements and no order, judgment or decree of any Governmental
Authority or arbitrator shall, and no litigation or other proceeding shall be
pending or threatened which would, enjoin, prohibit, restrain or otherwise
adversely affect in any material manner the consummation of the transactions
contemplated by this Agreement or the Other Agreements or otherwise have a
Material Adverse Effect;
(f) No Material Adverse Change. As of the Closing Date, no
material adverse change shall have occurred with respect to the financial
condition, results of operations, business, operations, capitalization, assets,
liabilities or prospects of the Company since December 31, 1999;
(g) Representations and Warranties. The representations and
warranties made by the Company in this Agreement and the Other Agreements or
that are contained in any certificate, document or financial or other statement
of the Company furnished under or in connection with this Agreement or the
Other Agreements shall be true and correct on and as of the Closing Date;
(h) The Warrant. The Warrant duly executed, properly completed
and dated as of the Closing Date;
(i) License Agreement. The License Agreement duly executed,
properly completed and dated as of the Closing Date;
(j) Marketing Agreement. The Marketing Agreement duly executed,
properly completed and dated as of the Closing Date;
(k) Finder's Fee Agreement. The Finder's Fee Agreement duly
executed, properly completed and dated as of the Closing Date;
(l) Amended and Restated Registration Rights Agreement. The
Amended and Restated Registration Rights Agreement duly executed, properly
completed and dated as of the Closing Date; and
-17-
<PAGE> 18
(m) Closing Certificate. The Company shall, concurrently with
the Closing Date, execute and deliver to the Investor a closing certificate in
form and substance satisfactory to the Investor certifying as to the
satisfaction of each of the conditions precedent set forth in this Section 5.1
that are required to be satisfied on or before the Closing Date.
SECTION 5.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of
the Company to issue the Warrant to the Investor under this Agreement on the
Closing Date is subject to the satisfaction of the following conditions
precedent or execution and delivery to the Company of the following agreements,
documents or instruments, as the case may be:
(a) Representations and Warranties. The representations and
warranties made by the Investor in this Agreement and the Other Agreements or
that are contained in any certificate or document of the Investor furnished
under or in connection with this Agreement or the Other Agreements shall be
true and correct on and as of the Closing Date;
(b) License Agreement. The License Agreement duly executed,
properly completed and dated as of the Closing Date;
(c) Marketing Agreement. The Marketing Agreement duly executed,
properly completed and dated as of the Closing Date;
(d) Finder's Fee Agreement. The Finder's Fee Agreement duly
executed, properly completed and dated as of the Closing Date;
(e) Amended and Restated Registration Rights Agreement. The
Amended and Restated Rights Agreement duly executed, properly completed and
dated as of the Closing Date;
(f) Regulatory Approvals. Evidence satisfactory to the Company
that all filings, consents or approvals with or of Governmental Authorities
necessary to consummate the transactions contemplated by this Agreement and the
Other Agreements have been made and obtained, if any;
(g) Compliance with Laws. As of the Closing Date, the Investor
shall have complied with all Governmental Requirements necessary to consummate
the transactions contemplated by this Agreement and the Other Agreements;
(h) No Prohibitions. No Governmental Requirement shall prohibit
the consummation of the transactions contemplated by this Agreement or any of
the Other Agreements and no order, judgment or decree of any Governmental
Authority or arbitrator shall, and no litigation or other proceeding shall be
pending or threatened which would, enjoin, prohibit, restrain or otherwise
adversely affect in any material manner the consummation of the transactions
contemplated by this Agreement or the Other Agreements or otherwise have a
Material Adverse Effect; and
-18-
<PAGE> 19
(i) Closing Certificate. The Investor shall, concurrently with
the Closing Date, execute and deliver to the Company a closing certificate in
form and substance satisfactory to the Company certifying as to the
satisfaction of each of the conditions precedent set forth in this Section 5.2
that are required to be satisfied on or before the Closing Date.
ARTICLE VI. MISCELLANEOUS
SECTION 6.1 MODIFICATION OF AGREEMENT; SALE OF INTEREST.
(a) This Agreement and the Other Agreements may not be
modified, altered or amended, except by an agreement in writing signed by the
Investor and the Company. The Company may not sell, assign or transfer this
Agreement, or any portion hereof, including, without limitation, any of the
Company's rights, titles, interests, remedies, powers, obligations and/or
duties hereunder. The Investor may, subject to the provisions of Section 6.1(b)
below, sell, assign, transfer or otherwise dispose of, at any time or times
hereafter, this Agreement or the Warrant (including all or part of its rights
under the Warrant), or any portion hereof or thereof, including, without
limitation, the Investor's rights, title, interests, remedies, powers, and/or
duties hereunder or thereunder, and such transferee or assignee must agree to
be bound by the terms and conditions of this Agreement.
(b) Anything to the contrary in this Agreement notwithstanding,
if the Investor has assigned any of its rights as permitted hereunder, the
rights of the Investor, including the right to grant any consent or waiver or
to enter into any amendment to this Agreement may be exercised by the holders
of the majority in interest of the Common Stock issued or issuable under the
Warrant.
SECTION 6.2 EXPENSES. Except as set forth in the Other Agreements, each
party shall bear its own expenses in connection with the transactions
contemplated by this Agreement and the Other Agreements including any finder's
or broker's fees for which such party is responsible.
SECTION 6.3 WAIVER BY THE INVESTOR. The Investor's failure, at any time or
times hereafter, to require strict performance by the Company of any provision
of this Agreement shall not waive, affect or diminish any right of the Investor
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by the Investor of a breach under this Agreement or the
Other Agreements shall not suspend, waive or affect any other breach by the
Company under this Agreement or the Other Agreements, whether the same is prior
or subsequent thereto and whether it is of the same or of a different type.
None of the undertakings, agreements, warranties, covenants and representations
of the Company or its Subsidiaries contained in this Agreement or the Other
Agreements and no breach by the Company under this Agreement or the Other
Agreements shall be deemed to have been suspended or waived by the Investor,
unless such suspension or waiver is by an instrument in writing signed by an
officer of the Investor and directed to the Company specifying such suspension
or waiver.
SECTION 6.4 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by, or invalid under, applicable law, such
-19-
<PAGE> 20
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
SECTION 6.5 PARTIES. Subject to the provisions of Section 6.1 hereof, this
Agreement and the Other Agreements shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Company and the
Investor.
SECTION 6.6 NO FIDUCIARY RELATIONSHIP. The Investor has no fiduciary or
other special relationship with the Company, and no term or condition of the
Agreement or the Other Agreements shall be construed so as to deem the
relationship between the Company and the Investor, to be such. No joint venture
or partnership is created by this Agreement among the Company and the Investor.
SECTION 6.7 ENTIRE AGREEMENT. This Agreement and the Other Agreements
constitute the entire agreement of the parties with respect to the Warrant.
SECTION 6.8 EQUITABLE RELIEF. The Company recognizes that, in the event it
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement or the Other Agreements, any remedy of law may prove to be
inadequate relief to the Investor; therefore, the Company agrees that the
Investor, if the Investor so request, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
SECTION 6.9 GOVERNING LAW. This agreement shall be governed by and
construed under the laws of the State of Delaware without giving effect to any
choice or conflict of law provision or rule (whether of the State of Delaware
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
SECTION 6.10 NOTICES. All notices, requests, consents, approvals or demands
to or upon the respective parties hereto shall be given or made to each party
at the address set forth for such party under "Address for Notices" specified
below such party's name on the signature pages to this Agreement. Unless
otherwise specified herein, all such notices, requests, consents, approvals and
demands given or made in connection with the terms and provisions of this
Agreement shall be deemed to have been given or made when personally delivered,
or, if mailed, upon the earlier of actual receipt by the addressee or three (3)
days after sent by registered or certified mail, postage prepaid, or, in the
case of overnight courier service (which may be utilized hereunder), when
delivered by the overnight courier company to the respective address specified
above, or, in the case of telecopy or facsimile transmission (which may be
utilized hereunder), within the first business hour (9:00 a.m. to 5:00 p.m.,
local time for the recipient, on any Business Day) after receipt by the
respective addressee. Any party may change the address or transmission number
to which notices shall be directed hereunder by giving ten (10) days written
notice of such change to the other parties.
SECTION 6.11 SECTION TITLES. The section titles contained in this Agreement
are and shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreement between the parties hereto.
-20-
<PAGE> 21
SECTION 6.12 CONFIDENTIAL TREATMENT. The parties agree (a) that all
agreements, instruments, documents and other information that is confidential
(or otherwise not public) received pursuant to this Agreement or any Other
Agreement by a party or its directors, officers, agents and other
representatives shall be held in strict confidence by that party, and (b) that
it shall take all reasonable steps to cause its directors, officers, agents and
other representatives to hold the same in strict confidence, in each case,
except as required to be disclosed by applicable law; provided, however, that
this provision shall not be a restriction on transfer as permitted under
Section 6.1 of this Agreement.
SECTION 6.13 COUNTERPARTS. This Agreement may be executed in a number of
identical counterparts, each of which, for all purposes, is to be deemed an
original, and all of which collectively constitute one agreement, but in making
proof of this Agreement, it shall not be necessary to produce or account for
more than one such counterpart. A facsimile or photocopy of an executed
counterpart of this Agreement shall be sufficient to bind the party or parties
whose signature(s) appear thereon.
SECTION 6.14 FURTHER ASSURANCES. Each party will execute and deliver such
further agreements, documents and instruments and take such further action as
may be reasonably requested by the other party to carry out the provisions and
purposes of this Agreement and the Other Agreements.
IN WITNESS WHEREOF, this Warrant Purchase Agreement has been duly executed
and delivered as of the day and year first written above.
THE INVESTOR:
i2 Technologies, Inc.
By: /s/ Robert Donohoo
-------------------------------
Name: Robert Donohoo
-----------------------------
Title: Corporate Counsel
----------------------------
Address for Notices:
i2 Technologies, Inc.
11701 Luna Road
Dallas, Texas 75234
Attn: Legal Department
Telecopy: (469) 357-6566
-21-
<PAGE> 22
THE COMPANY:
World Commerce Online, Inc.
By: /s/ Mark E. Patten
-------------------------------
Name: Mark E. Patten
-----------------------------
Title: Chief Financial Officer
----------------------------
Address for Notices:
World Commerce Online, Inc.
9677 Tradepost Drive
Orlando, Florida 32827
Attn: Mark Patten
Telecopy: (407) 240-8999
-22-
<PAGE> 23
Exhibit A
Warrant
<PAGE> 24
Exhibit B
License Agreement
<PAGE> 25
Exhibit C
Marketing Agreement
<PAGE> 26
Exhibit D
Finder's Fee Agreement
<PAGE> 27
Exhibit E
Amended and Restated Registration Rights Agreement
<PAGE> 1
EXHIBIT 4.17
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE
STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933 ACT AND THE STATE
ACTS.
1,250,000 Shares of Common Stock
WARRANT
To Purchase Common Stock of
World Commerce Online, Inc.
1. GRANT OF WARRANT. THIS IS TO CERTIFY THAT i2Technologies,
Inc., a Delaware corporation, or its registered assigns (the "Holder"), is
entitled to exercise this Warrant to purchase from World Commerce Online, Inc.,
a Delaware corporation (the "Company"), up to an aggregate of 1,250,000 shares
of common stock, $0.001 par value per share, of the Company (the "Common
Stock"), subject to adjustment determined in accordance with ARTICLE IV of the
Agreement (as defined below) all on the terms and conditions and pursuant to
the provisions hereinafter set forth. This Warrant is being granted pursuant to
the terms of that certain Warrant Purchase Agreement of even date herewith (the
"Agreement"), by and among the Company and the Holder, and the Company and the
Holder intend to be bound hereby and thereby. Any capitalized terms not defined
herein will have the meanings set forth in the Agreement. The Company
acknowledges that the payment of the purchase price of this Warrant by Holder
of $100.00 and the additional consideration set forth in the Agreement is fair
and full consideration for the rights granted to the Holder hereunder, since
the Company acknowledges that, due to restrictions on the exercisability of
this Warrant and other restrictions on the rights of the Holder contained
herein and in the Agreement, the value of this Warrant is contingent,
speculative and uncertain.
2. EXERCISE PRICE. The exercise price per share of Common Stock
shall be $7.00 (the "Exercise Price"). Such Exercise Price and the number of
shares of Common Stock into which this Warrant is exercisable are subject to
adjustment from time to time as provided in ARTICLE IV of the Agreement.
1
<PAGE> 2
3. EXERCISE. This Warrant may be exercised in whole or in part
at any time or from time to time after the Closing Date and on or until the
date that is the fifth anniversary of the Closing Date (the "Expiration Date"),
unless otherwise extended pursuant to the terms of the Agreement.
In order to exercise this Warrant, in whole or in part, the Holder
hereof shall deliver to the Company at its principal office at 9677 Tradeport
Drive, Orlando, Florida, 32827, or at such other office as shall be designated
by the Company pursuant to the Agreement:
(a) written notice of the Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased pursuant to such exercise;
(b) cash payable to the order of the Company; and
(c) this Warrant, properly endorsed.
Upon receipt thereof, the Company shall, as promptly as practicable, and in any
event within ten (10) days thereafter, execute or cause to be executed and
deliver to the Holder a certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise. The stock
certificate or certificates so delivered shall be registered in the name of the
Holder, or such other name as shall be designated in said notice.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and the Holder
or any other person so designated to be named therein shall be deemed to have
become a Holder of record of such shares for all purposes, as of the date that
said notice, together with said payment and this Warrant, is received by the
Company as aforesaid. Subject to the terms of the Agreement, the Holder of this
Warrant shall not, by virtue of its ownership of this Warrant, be entitled to
any rights of a stockholder in the Company, either at law or in equity;
provided, however, the Holder shall, for all purposes, be deemed to have become
the Holder of record of such shares on the date on which this Warrant is
surrendered to the Company in the immediately preceding sentence. If the
exercise is for less than all of the shares of Common Stock issuable as
provided in the Warrant, the Company will issue a new Warrant of like tenor and
date for the balance of such shares issuable hereunder to the Holder. The
Holder of this Warrant, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all of the provisions of this Warrant.
4. TAXES. The issuance of any Common Stock or other certificate
upon the exercise of this Warrant shall be made without charge to the
registered Holder hereof, or for any tax in respect of the issuance of such
certificate.
5. TRANSFER. Except as otherwise provided under the Agreement,
this Warrant and all options and rights hereunder are transferable, as to all
or any part of the number of shares of Common Stock purchasable upon its
exercise, by the Holder hereof in person or by its duly authorized attorney on
the books of the Company upon surrender of this Warrant at the principal
offices of the Company, together with the form of transfer authorization
attached hereto duly
2
<PAGE> 3
executed. The Company shall deem and treat the registered Holder of this
Warrant at any time as the absolute owner hereof for all purposes and shall not
be affected by any notice to the contrary. If this Warrant is transferred in
part, the Company shall at the time of surrender of this Warrant, issue to the
transferee a Warrant covering the number of shares of Common Stock transferred
and to the transferor a Warrant covering the number of shares not transferred.
6. CASH IN LIEU OF FRACTIONAL SHARES. The Company shall not be
required to issue fractional shares upon the exercise of this Warrant. If the
Holder of this Warrant would be entitled, upon the exercise of any rights
evidenced hereby, to receive a fractional interest in a share, the Company
shall pay such amount as indicated under Section 4.3(d) of the Agreement.
7. REGISTRATION RIGHTS. The Common Stock into which this Warrant
is exercisable is subject to registration rights as provided in Section 4.6 of
the Agreement.
8. RESERVATION OF SHARES. The Company will, at all times prior
to the Expiration Date, reserve and keep available such number of authorized
shares of its Common Stock, solely for the purpose of issue upon the exercise
of the rights represented by this Warrant as herein provided for, as may at any
time be issuable upon the exercise of this Warrant.
9. APPLICABLE LAW. THIS WARRANT SHALL BE INTERPRETED AND THE
RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS OF THE UNITED
STATES APPLICABLE THERETO AND THE INTERNAL LAWS OF THE STATE OF DELAWARE.
10. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of, and be binding upon, the successors and
assigns of the Holder hereof and shall be enforceable by any such Holder. In
the event this Warrant is sold, transferred or assigned, the transferor will
give written notice within fifteen (15) days following the sale, assignment, or
transfer to the Company and in such notice designate the name and address of
the transferee.
11. HEADINGS. Headings of the paragraphs in this Warrant are for
convenience and reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and issued.
DATED as of April 29, 2000.
WORLD COMMERCE ONLINE, INC.
By: /s/ Mark Patten
---------------------------------
Mark Patten, Chief Financial Officer
3
<PAGE> 4
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for and purchases ________ shares of Common Stock of World
Commerce Online, Inc. purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant and requests that certificates for the shares of Common Stock hereby
purchased (and any securities or other property issuable upon such exercise) be
issued in the name of and delivered to _______________________________________
whose address is ________________________________, and if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable thereunder to be delivered to the
undersigned.
DATED:________________, _____________
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
-------------------------
-------------------------
-------------------------
<PAGE> 5
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name & Address of Assignee No. of Shares
Common Stock
and does hereby irrevocably constitute and appoint as Attorney ________________
to register such transfer on the books of _____________________________
maintained for the purpose, with full power of substitution in the premises.
DATED:________________, _____________
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
NOTICE: The signature to this assignment must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
ACKNOWLEDGMENT BY ASSIGNEE
The undersigned Assignee hereby acknowledges receipt of the Warrant
Purchase Agreement, and agrees to be bound by its terms.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
<PAGE> 1
Exhibit 10.27
SOFTWARE LICENSE ("AGREEMENT")
AGREEMENT # ________________
(to be completed by i2)
Customer Name: WORLD COMMERCE ONLINE, INC. ("Customer")
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
In accordance with the following terms and conditions, i2 Technologies, Inc.
("i2") with its office at 11701 Luna Road, Dallas, TX 75234, agrees to license
the System (as defined in Section 1) and shall provide the Maintenance (as
defined in Addendum A) to Customer. The effective date of this agreement (the
"Agreement Date") is April 29 2000.
1. LICENSE GRANT AND USE. Subject to the terms and conditions of this
Agreement, and payment of the appropriate license fees, i2 hereby grants to
Customer a non-exclusive, non-transferable, license to use the machine readable
version of the software as identified in the applicable Addendum hereto
("Licensed Software"), which i2 delivers to Customer and the user manuals and
technical materials delivered to Customer (the "Documentation"), (the Licensed
Software, and Documentation are collectively referred to herein as the
"System") to process its data subject to the Site Location Users and/or Server
(collectively defined in Section 1.2) and other restrictions, if any, as
specified on the addenda attached to this Agreement. Use beyond the scope of
the license granted therein is subject to additional fees and requires an
amendment to this Agreement signed by both Customer and i2. Customer agrees to
allow i2, with reasonable prior notice, to enter Customer's premises during
normal business hours, or electronically access the System as installed at
Customer's location, to verify Customer's compliance with this Agreement.
1.1 THIRD PARTY SOFTWARE. The Customer acknowledges that the System may
include software which has been provided by third parties ("Third Party
Software") and the licensor of any Third Party Software embedded in the System
has a proprietary interest in such software. The license fees and costs
associated with Third Party Software shall be borne by i2.
1.2 SITE, SERVER AND USER DEFINITIONS. [Reserved.]
1.3 RIGHT TO COPY SYSTEM. Customer may copy the System for archival and/or
backup purposes only. Customer shall not otherwise, in whole or in part,
sublicense, copy, rent, loan, transfer, modify, enhance, prepare derivatives
of, decompile or reverse engineer the System or any copy of the System. Nothing
in this Section 1.3 shall be deemed to limit Customer's use of the Licensed
Software to support its business operations as a hosted service provider with
respect to its global trade communities in the Agribusiness Products (as
defined in Addendum A) industries as contemplated by the parties. Customer
shall not, in whole or in part, copy the Documentation except as expressly
permitted by this Agreement. Customer shall ensure that the proprietary,
copyright, trademark and trade secret notices contained in or placed upon the
System are affixed to the permitted copy in such manner and location as to give
Page 1
<PAGE> 2
reasonable notice of the proprietary, copyright, trademark and trade secret
rights of i2 or any third party from whom i2 has received distribution rights.
1.4 DOCUMENTATION RIGHTS. Subject to the terms and conditions of this
Agreement, Customer shall receive one set of Documentation per Site Location at
no additional cost. Customer may purchase additional sets of Documentation or
the right to reproduce the Documentation for internal use only at the Site
Locations identified in Addendum A. Additional Documentation rights, if any,
purchased under this Agreement are identified in Addendum A.
2. CONFIDENTIALITY. Customer acknowledges that System is proprietary and
confidential material of i2. Customer shall not disclose, provide or otherwise
make available, the System or any other proprietary or confidential material of
i2, in whole or in part, except to Customer's employees or subcontractors in
the scope of their employment. Customer shall take appropriate action to
satisfy its obligations under this Agreement with respect to the use, copying,
protection and security of the System and all other proprietary or confidential
material of i2 or its licensor. Customer shall not disclose the contents of
this Agreement to any third party without the prior written consent of i2;
provided, however, that Customer may disclose as much of this Agreement as is
necessary to comply with the law and with the regulations of The Nasdaq
National Market System or other exchange. Customer acknowledges that in the
event of an actual or threatened violation of the foregoing provisions, i2 will
not have an adequate monetary remedy and shall be entitled to seek immediate
injunctive relief without any requirement to post bond, in addition to any
other available remedies. Any information disclosed by Customer to i2 and
identified by Customer as being confidential shall be subject to the same
degree of security, protection and confidentiality as i2 uses to preserve
information of a similar nature. Provisions of this Confidentiality paragraph
shall survive termination or expiration of this Agreement.
3. MAINTENANCE. i2 reserves the right to alter its standard Maintenance
Services policy from time to time using reasonable discretion. i2 shall provide
Customer with sixty (60) days prior written notice of any material changes to
the level of Maintenance Services. Maintenance Service are as outlined at
www.support.i2.com.
4. CONSULTING AND TRAINING. i2 may, at Customer's request, provide
consulting and training services, as described in the then current i2 Schedule
of Prices, all as designated on Addendum B hereto ("Consulting"). The
Consulting to be provided herein is designed to assist Customer in the use of
the System in Customer's business and such services may be requested as needed
by Customer thereafter. Customer shall reimburse i2 for all reasonable travel,
living and delivery expenses incurred in rendering Consulting.
5. PAYMENT. Customer shall make all payments in US dollars. All payments
shall be due within thirty (30) days of receipt by Customer of an invoice or as
otherwise specified within this Agreement. Any amount not paid within fifteen
(15) days after the due date shall bear interest from the due date at the rate
of the lower of one and one-half (1 1/2%) percent per month or as permitted by
law. All costs of collection, including reasonable attorney's and expert's fees
and costs of court, shall be paid by Customer.
6. TAXES. License fees and all other amounts mentioned in this Agreement
do not include any sales, property, use, value added or ad valorem taxes, or
any other taxes, based upon this Agreement, all of which shall be paid by
Customer. In the event i2 is required to pay such taxes, Customer shall
reimburse i2. Customer shall withhold foreign withholding taxes only as
required by relevant local country tax law. Customer shall provide i2 with
notice of withholding of any such tax payment. Customer shall not pay for taxes
on i2's net income and sales and use taxes for which Customer has provided a
valid tax exemption certificate within sixty (60) days of the Agreement Date.
Page 2
<PAGE> 3
7. TERM AND TERMINATION. This Agreement shall be terminable three (3)
years after the Agreement Date; provided that, unless the parties hereto agree
to terminate this Agreement at the end of such term, this Agreement shall
continue in full force and effect for up to two (2) successive three-year
terms. In addition to i2's termination rights specified elsewhere in this
Agreement, i2 may terminate this Agreement or any license granted under this
Agreement if Customer (i) fails to pay any fees due under this Agreement and
such failure is not cured within thirty (30) days written notice from i2, (ii)
defaults under any Customer/third party agreement, providing for the finance by
such third party to Customer, of any fees due from Customer under this
Agreement or (iii) materially breaches its obligations to i2 pursuant to that
certain Warrant Purchase Agreement dated as of the date hereof by and between
i2 and Customer. i2 or Customer may terminate this Agreement or any license
granted under this Agreement if the other party breaches any other provision of
this Agreement for any reason, which breach has not been cured within thirty
(30) days of written notice. Customer shall be obligated to pay all charges
which have accrued up to the date of termination. Upon termination for any
reason, Customer's license shall be revoked and Customer's rights under the
license shall cease. In the event of such termination, Customer shall
immediately de-install the System and promptly return to i2 the System, any and
all materials related to the System, and all proprietary and confidential
information of i2 held by Customer. Customer shall provide a certificate of
return. Those provisions of this Agreement which by their nature should survive
termination or expiration shall remain in effect in the event of such
termination or expiration. These provisions include, but are not limited to,
Paragraphs 2, 8, 10, 11 and 12.
8. OWNERSHIP. All rights, title, and interest, including trademarks,
patent rights, copyright interests, and other forms of intellectual property,
in and to the System and any services provided hereunder (including any copies
thereof) including any and all enhancements delivered to Customer herein, and
materials or Consulting provided by i2 are the exclusive property of i2.
9. PUBLICITY. Within thirty (30) days of the Agreement Date, i2 may, at
its option, upon Customers written approval, which will not be unreasonably
withheld, issue a press release to the general public announcing the license of
the System to Customer. In addition, upon Customers written approval, which
shall not be unreasonably withheld, i2 shall be permitted to bring in potential
i2 customers to Customer's Site Locations, provided such potential customers
are not direct Customer competitors and provided i2 maintains confidentiality
in accordance with Section 2 of this Agreement. The purpose is for Customer to
explain why the System was selected and the System's anticipated benefits.
Customer shall have the sole authority to determine the timing of each Site
Location visit.
10. WARRANTY. i2 warrants to Customer that during the first eight (8)
months following the Agreement Date ("Warranty Period"), the System furnished
by i2 will function substantially in accordance with the Documentation
delivered to Customer under this Agreement. If during the Warranty Period, the
System does not function substantially in accordance with the Documentation,
Customer shall promptly notify i2 in writing of any claimed deficiency.
Provided that i2 determines that such deficiency exists and is i2's sole
responsibility, i2 shall, within thirty (30) days, (a) correct such deficiency;
(b) provide Customer with a plan acceptable to Customer for correcting the
deficiency; or (c) upon i2's determination that neither (a) nor (b) can be
accomplished, then i2 may terminate the license. If this license is terminated
under the provision of this Paragraph, Customer shall de-install the System and
return all copies of the System to i2. Upon return of the System, i2 shall
refund any license fees paid to i2 under this Agreement, including the return
of the Warrant executed by Customer pursuant to the terms of that certain
Warrant Purchase Agreement by and between i2 and Customer (the "Customer
Securities"). The preceding shall constitute i2's entire liability and
Customer's exclusive remedy for breach of the warranty set forth herein.
10.1. WARRANTY LIMITATIONS. i2 MAKES NO OTHER WARRANTIES, EXPRESSED OR
IMPLIED, INCLUDING BUT NOT LIMITED TO, MERCHANTABILITY, SUITABILITY, OR FITNESS
FOR A PARTICULAR PURPOSE. i2 DOES NOT WARRANT THAT THE LICENSED SOFTWARE WILL
MEET CUSTOMER'S REQUIREMENTS OR OPERATE IN THE COMBINATIONS WHICH MAY BE
SELECTED
Page 3
<PAGE> 4
FOR USE BY CUSTOMER, OR THAT THE OPERATION OF THE LICENSED SOFTWARE WILL BE
UNINTERRUPTED OR ERROR FREE.
11. LIMITATION ON LIABILITY. THE PARTIES HAVE NEGOTIATED THIS AGREEMENT
WITH DUE REGARD FOR CUSTOMER'S BUSINESS RISK ASSOCIATED WITH ITS USE OF
LICENSED SOFTWARE. IN ANY EVENT, EITHER PARTY'S LIABILITY FOR DAMAGES UNDER
THIS AGREEMENT SHALL NOT EXCEED THE VALUE OF THE CUSTOMER SECURITIES ON THE
AGREEMENT DATE (AS SET FORTH ON ADDENDUM A), AND ANY LIABILITY THAT i2 MAY
INCUR MAY BE SATISFIED IN FULL BY THE RETURN TO CUSTOMER OF SUCH SECURITIES. IN
NO EVENT SHALL EITHER PARTY OR THE LICENSOR OF ANY THIRD PARTY SOFTWARE
EMBEDDED IN THE SYSTEM BE LIABLE FOR LOST PROFITS OR OTHER INCIDENTAL, SPECIAL,
EXEMPLARY OR CONSEQUENTIAL DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
12. INDEMNIFICATION. i2 represents that, to the best of i2's knowledge, as
of the Agreement Date, it is the owner or licensee of the System, that it has
the right to grant the license set forth in this Agreement, and that Customer's
use of the System in accordance with the terms of this Agreement do not
infringe upon any third party's copyright, patent or trade secret. i2 shall
indemnify and hold Customer harmless against liability to third parties (only
for liability solely the fault of i2) arising from the violation of any third
party's trade secrets, proprietary rights, copyright or patent rights in
connection with the use by Customer of the System (a) as delivered by i2 to
Customer herein or as modified by i2 (but not Customer) and (b) in accordance
with the Documentation and this Agreement, provided that (i) i2 shall have the
right to conduct any defense and/or settlement in any such third party action
arising as described herein, (ii) Customer shall fully cooperate with such
defense, and (iii) i2 receives prompt written notice from Customer. This
indemnification is limited to the System delivered to Customer or as modified
by i2 and does not cover third party claims arising from modifications not
authorized by i2 or its licensor. i2 shall have no liability for any claim of
infringement based on (a) use of other than a current release of the System if
such infringement would have been avoided by use of a current release, or (b)
use or combination of the System with non i2 software or data if such
infringement would have been avoided by the use of the System without the use
of other software or data.
12.1. If a third party's claims substantially interfere with Customer's use
of the System or if i2 believes that a third party claim may substantially
interfere with Customer's use of the System, i2, at its sole discretion, may
(a) replace the System, without additional charge, with a functionally
equivalent and non-infringing product; (b) modify the System to avoid the
infringement; (c) obtain a license for the Customer to continue use of the
System and pay any additional fee required for such license: or (d) if none of
the foregoing alternatives are commercially reasonable, i2 may terminate the
license for the infringing software. In such event Customer shall de-install
the infringing software and return all copies to i2. Upon return, i2 shall
refund to Customer a prorated portion of the Customer Securities related to the
infringing software. For every year following the Agreement Date, the
refundable portion of the Customer Securities shall be reduced by 25%. The
licensor of any Third Party Software is excluded from liability under this
Agreement and Customer shall look solely to i2 for liabilities relating to the
System. The Section 12 shall constitute i2's entire liability and Customer's
exclusive remedy for a claim of infringement.
13. EXPORT OF SYSTEM. Customer agrees that it will not, directly or
indirectly, export or reexport, or knowingly permit the export or re-export of,
the System, or any technical information about the System, to any country for
which the United States Export Administration Act, any regulation thereunder,
or any similar United States law or regulation, requires an export license or
other United States Government approval, unless the appropriate export license
or approval has been obtained.
14. MISCELLANEOUS. This Agreement, including Addendum A, Addendum B, and
Addendum C, attached hereto and made a part hereof, may be modified or amended
only by a written instrument signed by duly authorized representatives of both
Customer and i2. Customer may not, without the prior written
Page 4
<PAGE> 5
consent of i2, assign or transfer this Agreement or any obligation incurred
herein; provided that any factoring or assignment of receivables shall not be
treated as an assignment for this purpose. Any attempt to do so in
contravention of this Section shall be void and of no force and effect. The
pre-printed terms and conditions of any purchase order or other ordering
document issued by Customer in connection with this Agreement which are in
addition to or inconsistent with the terms and conditions of this Agreement
shall not be binding on i2 and shall not be deemed to modify this Agreement. No
term or provision contained herein shall be deemed waived and no breach excused
unless such waiver or consent shall be in writing and signed by i2. Neither
party hereto shall be liable to the other for any failure, delay or
interruption in the performance of any of the terms or conditions contained in
this Agreement due to causes entirely beyond the control of that party,
including, without limiting the generality of the foregoing, strikes, boycotts,
labor disputes, embargoes, acts of God, acts of public enemy, acts of
governmental authority, floods, riots or rebellion. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.
The parties agree that any action regarding this Agreement shall be brought
exclusively in the state or federal courts located in the State of Texas. All
notices which either party hereto is required or may desire to give the other
herein shall be given by addressing the communication to the address set forth
on the first page of this Agreement, and shall be given by certified or
registered mail.
THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT, UNDERSTANDING AND
REPRESENTATIONS, EXPRESSED OR IMPLIED, BETWEEN CUSTOMER AND i2 WITH RESPECT TO
THE SYSTEM, CONSULTING AND MAINTENANCE TO BE FURNISHED HEREIN. THIS AGREEMENT
SUPERSEDES ALL PRIOR COMMUNICATIONS BETWEEN THE PARTIES INCLUDING, BUT NOT
LIMITED TO, COMMUNICATIONS WITH i2's SALES REPRESENTATIVES.
The prices specified in the Agreement assume acceptance by Customer of the
terms and conditions set forth herein.
In the event of an inconsistency between the terms of this Agreement and the
terms of the attached Addenda, the terms of the Addenda shall take precedence
to the extent of the inconsistency.
<TABLE>
<S> <C>
Accepted: Accepted:
CUSTOMER I2 TECHNOLOGIES, INC.
Signed: /s/ Mark E. Patten Signed: /s/ Robert Donohoo
--------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
Printed Name: Mark E. Patten Printed Name: Robert Donohoo
--------------------------- -----------------------------
Title: Chief Financial Officer Title: Corporate Counsel
--------------------------------- -----------------------------------
</TABLE>
Page 5
<PAGE> 6
SOFTWARE LICENSE
ADDENDUM A (CONTINUES ON NEXT PAGE)
LICENSED SOFTWARE
Customer Name: WORLD COMMERCE ONLINE, INC. ("Customer")
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
ATTACHED TO AND MADE PART OF THE SOFTWARE LICENSE AGREEMENT BETWEEN i2 AND
CUSTOMER.
Licensed Software: The following software that is commercially available as of
the date hereof:
RHYTHM SUPPLY CHAIN PLANNER BASE SERVER
Supply Chain Planner - User License (Type C)
Rhythm Supply Chain Planner Expansion Units
Rhythm Master Planner Extension
Rhythm Master Planner User License (Type C)
Rhythm Master Planner Optimizer
Rhythm Distribution Planner Extension
Rhythm Distribution Planner User License (Type C)
Rhythm Supply Chain Planner - Analyzer
Rhythm Supply Chain Planner - Analyzer User License (Type B)
Rhythm Supply Chain Planner - Analyzer User License (Type D)
Analyzer Web Extension For Supply Chain Planner
Analyzer Web Extension For Supply Chain Planner User License (Type B)
RHYTHM DEMAND PLANNER BASE SERVER
Rhythm Demand Planner Expansion Units
Rhythm Demand Planner - User License (Type C)
Rhythm Demand Planner - Analyzer
Rhythm Demand Planner - Analyzer - User License (Type B)
Rhythm Demand Planner - Analyzer - User License (Type D)
Rhythm Demand Planner Extension
Analyzer Web Extension For Demand Planner
Analyzer Web Extension For Demand Planner - User License (Type C)
Inventory Planner Extension
Rhythm Customer Management Base Server
Rhythm Customer Management User Fee Per Server (1000 User Sites)
Rhythm Marketing
Rhythm Promotion Planner
Page 6
<PAGE> 7
Rhythm Commerce
Rhythm Sales Pricer
Rhythm Sales Configuration
SOFTWARE LICENSE
ADDENDUM A (CONTINUES ON NEXT PAGE)
LICENSED SOFTWARE
Customer Name: WORLD COMMERCE ONLINE, INC. ("Customer")
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
ATTACHED TO AND MADE PART OF THE SOFTWARE LICENSE AGREEMENT BETWEEN i2 AND
CUSTOMER.
Rhythm Application Author
Rhythm Sales Maintenance
Rhythm Sales Administration
Rhythm Sales Pricer Maintenance
Rhythm eBusiness Framework (Ref)
COLLABORATION PLANNING
Collaboration Planner Base
Procurement Planning Extension
Demand Collaboration Extension
Global Procurement Manager Extension
LOGISTICS EXCHANGE
Transportation Manager
Transportation Optimizer
Carrier Bid Optimizer
Global Logistics Manager
Internet Fulfillment Server
Demand Fulfillment server
Vastera Import/Export Engine
Total License Fees $6,574,000.00
Less 5% Discount $ 328,700.00
PAYMENT BALANCE $6,245,300.00
Payment Schedule. The Payment Balance shall be satisfied by the Customer
granting to i2 the Warrant and the Promissory Note (each as defined in that
certain Warrant Purchase Agreement by and between the parties hereto). So long
as the Royalty is being paid, i2 shall provide maintenance in accordance with
its "Silver" maintenance plan (or its functional equivalent). Consulting fees,
if any, shall be paid as set forth herein.
Additional License Restrictions: The license granted to Customer for use of the
Licensed Software is limited to use only by Customer (which license may not be
sublicensed or assigned, by operation of law or otherwise, without the written
consent of i2) to directly facilitate, through its global trading communities,
the purchase and sale of Agribusiness Products (as defined below). The Licensed
Software may not be
Page 7
<PAGE> 8
used in an environment that competes with i2 or any of its affiliates without
the express written consent of i2, which consent will not be unreasonably
withheld. For purposes of this Agreement, the term "Agribusiness Products"
shall mean perishable agribusiness products and related farming products other
than equipment.
SOFTWARE LICENSE
ADDENDUM A (CONTINUED)
LICENSED SOFTWARE
Customer Name: WORLD COMMERCE ONLINE, INC. ("Customer")
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
ATTACHED TO AND MADE PART OF THE SOFTWARE LICENSE AGREEMENT BETWEEN i2 AND
CUSTOMER.
Royalty: In addition to the foregoing, i2 shall be entitled to an annual
royalty (the "Royalty") of 5% of the gross revenues of Customer, determined in
accordance with generally accepted accounting principles, consistently applied;
provided, however, that (i) for the first year after the Launch Date (as
defined below), the Royalty payable to i2 shall be no less than $500,000; (ii)
for the second year after the Launch Date the Royalty payable to i2 shall be no
less than $750,000; and (iii) after the second anniversary of the Launch Date,
the annual minimum Royalty shall be $1,000,000. The Royalty shall be calculated
on a quarterly basis and shall be due and owing within thirty (30) days after
the end of each quarter with any shortfall with respect to the minimum amount
due being paid within 30 days of the applicable anniversary date. For purposes
of this paragraph, the "Launch Date" shall be the earlier of (i) September 14,
2000 or (ii) the date upon which a trading community using the Licensed
Software becomes commercially available.
Instructions for Payments:
<TABLE>
<S> <C> <C>
FOR WIRE TRANSFERS - US FOR WIRE TRANSFERS - NON-US
LOCKBOX ADDRESS: DENOMINATED ONLY: DENOMINATED ONLY:
i2 Technologies, Inc. i2 Technologies, Inc. i2 Technologies, Inc.
P. O. Box 910371 Account #32407006380 Account #4311262398
Dallas, Texas 75391-0371 Chase Bank Texas Wells Fargo Bank
Dallas, Texas 75201 Dallas, Texas 75202
FOR COURIER OR FED-EX ABA# 113000609 ABA #121000248
DELIVERY TO LOCKBOX: SWIFT Code TCBKUS44
i2 Technologies, Inc.
Lockbox #910371
c/o Chase Bank Texas
717 N. Harwood Street, 6th Floor
Dallas, Texas 75201-6507
</TABLE>
<TABLE>
<S> <C>
CUSTOMER I2 TECHNOLOGIES, INC.
Signed: Signed:
--------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
Printed Name: Printed Name:
--------------------------- -----------------------------
Title: Title:
--------------------------------- -----------------------------------
</TABLE>
Page 8
<PAGE> 9
SOFTWARE LICENSE
ADDENDUM B
CONSULTING AND TRAINING
Customer Name: WORLD COMMERCE ONLINE, INC. ("Customer")
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
ATTACHED TO AND MADE PART OF THE SOFTWARE LICENSE BETWEEN i2 AND CUSTOMER.
Consulting prices in effect as of the Agreement Date:
<TABLE>
<S> <C>
SIA Analysts $10,000 p/wk
Executive Sponsor $ 500 p/h
Director, Customer Service Unit Manager $ 400 p/h
Program Manager $ 375 p/h
Sr. Solutions Architect, Sr. Modeling Specialist, Sr. Integration Specialist $ 350 p/h
Solutions Architect, Modeling Specialist, Integration Specialist $ 325 p/h
Project Leader $ 300 p/h
Senior Consultant $ 275 p/h
Consultant $ 250 p/h
</TABLE>
All Consulting prices do not include travel, living, or other incidental
expenses. These expenses shall be reimbursed by Customer. All services are
provided on a time and material basis and are charged portal to portal. Sales
tax and import fees to be borne by Customers. i2 reserves the right to modify
Consulting prices effective upon proper notification to Customer.
Contracting with third party provider for consulting services for
implementation effort will be Customer`s responsibility unless indicated below.
<TABLE>
<S> <C> <C>
Estimated Consulting: Estimated Fees
Estimated Training: Estimated Fees
Estimated Strategic Services: Estimated Fees
Strategic Impact Assessment (SIA) A 2 week SIA to be completed approximately 9 to 12 $60,000
months after the completion of the first Business
Release
</TABLE>
Training Fees in effect as of the Agreement Date:
Standard Training Fees represent one student spending one day in an i2 standard
training class in an i2 training center. Private Training Fees represent one
student spending one day in a private i2 training class offered to a single
customer only and do not include instructor's travel, set up or living
expenses. Customization Fees are charged for 5 person-days of customization
effort. Customization is a required
Page 9
<PAGE> 10
feature of private classes. Tuition for all classes must be remitted to i2 in
advance in order for students to have a confirmed seat, and can be paid by
company check or credit card.
<TABLE>
<CAPTION>
Location Standard Training Fee Private Fee per Customization Fee
- -------- ----------------------- ------------------- -----------------
per person per day person per day
------------------ --------------
<S> <C> <C> <C>
US & Canada $600 $800 $10,000
Latin America $480 $640 $ 8,000
Asia/Pacific $450 $600 $ 7,500
Japan $350 $470 $ 6,000
Europe $600 $800 $10,000
South Africa $300 $400 $ 5,000
</TABLE>
<TABLE>
<S> <C>
CUSTOMER I2 TECHNOLOGIES, INC.
Signed: Signed:
--------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
Printed Name: Printed Name:
--------------------------- -----------------------------
Title: Title:
--------------------------------- -----------------------------------
</TABLE>
Page 10
<PAGE> 11
SOFTWARE LICENSE
ADDENDUM C
ADDITIONAL TERMS
Customer Name: WORLD COMMERCE ONLINE, INC. ("Customer")
9677 TRADEPORT DRIVE
ORLANDO, FLORIDA 32827
ATTACHED TO AND MADE PART OF THE SOFTWARE LICENSE BETWEEN i2 AND CUSTOMER.
1. Customer will place the i2 brand (as designated by i2) on the home
pages of each of its service offerings. The logo and branding shall comply with
Customer's and i2's trademark usage guidelines, will be Above the Fold (as
defined below) and will demonstrate that all the Customer's content is powered
by i2, and will include, at a minimum, a logo and the hyperlinked tagline
"Powered by i2's TradeMatrix" that links to www.i2.com or such other website as
i2 shall determine.
2. "Above the Fold" means situated within that portion of a page that is
designed to be visible on a standard computer screen with a resolution of 800
pixels by 600 pixels without requiring the user to scroll horizontally or
vertically through the page.
3. Customer agrees to allow i2 or its agent to perform reasonable and
appropriate audits of Customer's books and records to insure compliance with
the rights and obligations described herein and to verify the accuracy of
calculations of payments due hereunder. Such audits shall not occur more than
twice within a twelve (12) month period.
4. Hosting services shall be provided by Customer.
5. For a period of six (6) months following the date hereof, i2 agrees
not to develop and execute a "go to market" strategy with the
following perishable goods exchanges that compete with Freshplex: (i)
Buyproduce.com; (ii) Produceonline.com; (iii) DTN; and (iv) World of
Fruit.
<TABLE>
<S> <C>
CUSTOMER I2 TECHNOLOGIES, INC.
Signed: Signed:
--------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
Printed Name: Printed Name:
--------------------------- -----------------------------
Title: Title:
--------------------------------- -----------------------------------
</TABLE>
Page 11
