PURCHASEPRO COM INC, S-1, 1999-12-08

PURCHASEPRO COM INC
S-1, 1999-12-08
BUSINESS SERVICES, NEC

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<PAGE>

As filed with the Securities and Exchange Commission on December 8, 1999
Registration No. 333-

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933

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PURCHASEPRO.COM, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
Nevada 7389 88-0385401
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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3291 N. Buffalo Drive, Las Vegas, Nevada 89129, (702) 316-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Christopher P. Carton
President and Chief Operating Officer
3291 N. Buffalo Drive, Las Vegas, Nevada 89129
(702) 316-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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with a copy to:
<TABLE>
<S> <C>
Michael J. Halloran, Esq. Peter Cohn, Esq.
James P. Clough, Esq. Scott D. Elliott, Esq.
Patrick J. Devine, Esq. Lori Fuller, Esq.
Linda P. Shih, Esq. Orrick, Herrington & Sutcliffe LLP
Pillsbury Madison & Sutro LLP 1020 Marsh Road
50 Fremont Street Menlo Park, CA 94025
San Francisco, CA 94105 (650) 614-7400
(415) 983-1000
</TABLE>
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APPROXIMATE COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement

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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement numbers of the earlier
effective registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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Calculation of Registration Fee
<TABLE>
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<CAPTION>
Proposed maximum Amount of
Title of each class of securities to be registered offering price(1) registration fee(2)
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<S> <C> <C>
Common stock, $.01 par value........ $323,150,000 $85,312
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</TABLE>
(1) Includes 450,000 shares that the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(c) promulgated under the Securities
Act of 1933, as amended, on the basis of the average of the high and low
prices on December 6, 1999 reported on the Nasdaq National Market and
adjusted to reflect a three-for-two stock split to be effected on December
13, 1999.

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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+PurchasePro.com may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities and it is not +
+soliciting an offer to buy these securities in any state where the offer or +
+sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DECEMBER 8, 1999
PROSPECTUS
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3,000,000 Shares

[PURCHASEPRO.COM LOGO APPEARS HERE]

Common Stock

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PurchasePro.com, Inc. is offering 2,000,000 shares and the selling stockholders
are offering 1,000,000 shares of common stock. These share numbers reflect a
three-for-two stock split in the form of a stock dividend to be effected on
December 13, 1999. PurchasePro.com will not receive any proceeds from the sale
of shares by the selling stockholders.

PurchasePro.com provides Internet business-to-business electronic commerce
services. Our e-commerce solution is comprised of public and private e-
marketplaces where businesses can buy and sell a wide range of products and
services over the Internet.

Charles E. Johnson, Jr., PurchasePro.com's Chairman and Chief Executive
Officer, has indicated an interest in purchasing up to $5,000,000 worth of our
common stock in this offering at the public offering price.

The shares of PurchasePro.com are quoted in the Nasdaq National Market under
the symbol "PPRO." On December 6, 1999, the last reported sale price in the
Nasdaq National Market was $150.0625 per share ($100.04 per share after giving
effect to the three-for-two stock split).

<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price................................ $ $
Underwriting discounts and commissions............... $ $
Proceeds, before expenses, to PurchasePro.com........ $ $
Proceeds to selling stockholders..................... $ $
</TABLE>

See "Risk Factors" on pages 6 to 16 for factors that you should consider
beforeinvesting in the shares of common stock of PurchasePro.com.

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Neither the Securities and Exchange Commission nor any state securities
commission hasapproved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.

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The underwriters may purchase up to 450,000 additional shares of common stock
from the selling stockholders at the public offering price, less underwriting
discounts and commissions. Delivery and payment for these shares will be on
December , 1999.

Prudential Securities
Bear, Stearns & Co. Inc.
Volpe Brown Whelan & Company
Jefferies & Company, Inc.
Needham & Company, Inc.
PrudentialSecurities.com
, 1999
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3

Risk Factors............................................................. 6

Forward-Looking Statements............................................... 17

Use of Proceeds.......................................................... 18

Dividend Policy.......................................................... 18

Price Range of Common Stock.............................................. 18
Dilution................................................................. 19

Capitalization........................................................... 20

Selected Consolidated Financial and Operating Data....................... 21

Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 31

Management................................................................. 43

Certain Transactions....................................................... 51

Principal and Selling Stockholders......................................... 56

Description of Capital Stock............................................... 58

Shares Eligible for Future Sale............................................ 61

Underwriting............................................................... 63

Legal Matters.............................................................. 65

Experts.................................................................... 65

Where You Can Find More Information........................................ 65

Index to Financial Statements.............................................. F-1
</TABLE>

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The PurchasePro logo is a registered trademark and PurchasePro and
PurchasePro.com are trademarks of PurchasePro.com, Inc. This prospectus
contains trademarks and trade names of other companies.

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You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of the securities in any jurisdiction where the offer or
sale is not permitted.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully before investing in the common
stock of PurchasePro.com. Except as otherwise noted, all information in this
prospectus assumes that the underwriters have not exercised their over-
allotment option and reflects the three-for-two stock split to be effected in
the form of a stock dividend on December 13, 1999 to stockholders of record on
December 1, 1999.

PurchasePro.com

PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. Our e-commerce solution is comprised of public
and private e-marketplaces where businesses can buy and sell a wide range of
products and services in an efficient, competitive and cost-effective manner.
Forrester Research estimates that the business-to-business e-commerce market
will grow from $43 billion in 1998 to $1.3 trillion by 2003. Our target
customers are primarily the small and medium sized businesses that constitute
over 99% of the businesses in the United States according to estimates by the
U.S. Small Business Administration. We have designed our e-marketplaces to meet
the needs of these customers and their large business partners.

We designed our solution for quick deployment and immediate use. With a
standard Internet connection, a Web browser and a PurchasePro.com membership,
our e-marketplace members can participate in interactive buying and selling
communities. Our e-marketplaces have many features and can be integrated with
our members' existing resource planning and accounting systems.

Our solution takes advantage of the growth, pervasiveness, low costs and
community building nature of the Internet as a basis for e-commerce for the
broad business-to-business market. We believe our e-marketplaces grow in value
as each new member brings new products or services and buying power to our
communities.

Our e-marketplaces are designed to streamline the procurement cycle for our
members--from sourcing to bidding to order to payment. Our e-marketplaces
enable each member to participate as both a buyer and a seller. When acting as
buyers, our members can reduce processing costs, improve pricing, enforce
corporate purchasing policies and maintain an audit trail for evaluating
purchasing programs. When acting as suppliers, our members can strengthen
customer relationships, reach new buyers and lower sales, marketing and
administrative costs.

We pursue relationships with large organizations to gain access to, and
assistance in recruiting, their numerous small and medium sized business
partners. Our public e-marketplace members include:

<TABLE>
<S> <C>
. Caesars Palace, . Mission Industries,
. Carnival Cruise Lines, . Nevada Power Company,
. MeriStar Management . Park Place Entertainment, and
Company, . Phoenix Suns.
. MGM Grand,
</TABLE>

In addition, we provide services to develop and maintain private e-
marketplaces for:

<TABLE>
<S> <C>
. Best Western . Marriott International, and
International, . Prime Hospitality.
. Building One Services,
</TABLE>

A key element of our strategy is to develop sales and marketing
relationships. These relationships include:

<TABLE>
<S> <C>
. Office Depot, . ZoomTown.com, a Cincinnati Bell
. VerticalNet, and subsidiary.
</TABLE>

3
<PAGE>

Recent Developments

Since our initial public offering in September 1999, we have entered into
strategic relationships with:

<TABLE>
<S> <C>
. Advanstar, .Primavera Systems,
. Ariba, .Sprint, and
. DigitalWork, .Workflow Management.
</TABLE>

In some cases we issued warrants to purchase our common stock. For more
information on our strategic relationships see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Strategic Relationships."

Our predecessor was formed in October 1996, and we began offering commercial
access to our network in April 1997. Our headquarters are located at 3291 N.
Buffalo Drive, Las Vegas, Nevada 89129 and our telephone number is (702) 316-
7000. Our website address is www.purchasepro.com. The information on our
website is not a part of this prospectus.

The Offering

<TABLE>
<C> <S>
Shares offered by PurchasePro.com.......... 2,000,000 shares

Shares offered by the selling 1,000,000 shares
stockholders..............................

Total shares outstanding after the 30,094,710 shares
offering..................................

Use of proceeds by PurchasePro.com......... To expand our sales and marketing
activities, for working capital
and other general corporate
purposes and for potential
acquisitions.

Nasdaq National Market symbol.............. PPRO
</TABLE>

The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of September 30, 1999 and reflects
the three-for-two stock split to be effected in the form of a stock dividend on
December 13, 1999, and does not include the following:

. 4,917,465 shares of common stock issuable upon the exercise of stock
options outstanding as of September 30, 1999 and 1,652,824 shares of
common stock reserved for issuance under our stock option plans.

. 750,000 shares of common stock issuable upon exercise of warrants issued
and outstanding as of September 30, 1999, and 3,225,000 shares of common
stock issuable upon exercise of warrants issued subsequent to September
30, 1999.

Unless otherwise noted, the information in this prospectus assumes warrants
for the purchase of 80,000 shares of common stock outstanding as of September
30, 1999 have been exercised.

Risk Factors

You should consider the risk factors before investing in PurchasePro.com and
the impact from various events which could adversely affect our business.

4
<PAGE>

Summary Consolidated Financial Data

<TABLE>
<CAPTION>
Inception Year Ended Nine Months Ended
(October 8, 1996) December 31, September 30,
Through December ------------------------ -------------------------
31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ -- $ 675,390 $ 1,670,238 $ 1,031,713 $ 3,349,998
Cost of revenues........ -- 213,857 445,639 335,411 567,669
Gross profit............ -- 461,533 1,224,599 696,302 2,782,329
Operating expenses...... 119,314 3,326,362 7,708,014 5,458,676 16,519,932
Operating loss.......... (119,314) (2,864,829) (6,483,415) (4,762,374) (13,737,603)
Other income (expense).. (3,638) (120,497) (316,595) (211,319) (359,154)
Net loss................ (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Preferred stock
dividends, accretion of
preferred stock to
redemption value and
value of preferred
stock beneficial
conversion feature..... -- -- (335,438) (184,981) (10,042,037)
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Loss per share
Basic.................. $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 11,550,000 11,550,000 12,900,000 13,650,000 13,002,895
========== =========== =========== =========== ============
Diluted................ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
As of September 30, 1999
----------------------------
Actual As Adjusted
----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............. $48,477,852 $237,994,385
Working capital....................... 46,990,205 236,506,738
Total assets.......................... 55,005,879 244,522,412
Notes payable......................... 50,000 50,000
Total stockholders' equity (deficit).. 51,387,602 240,904,135
</TABLE>

The as adjusted consolidated balance sheet data gives effect to the sale of
the 2,000,000 shares of common stock by us at an assumed public offering price
of $100.04 per share, after deducting the underwriting discounts and
commissions and estimated offering expenses payable by us and the application
of the estimated net proceeds. See "Use of Proceeds" and "Capitalization."

5
<PAGE>

RISK FACTORS

You should carefully consider the following risk factors, in addition to
the other information in this prospectus, before purchasing shares of common
stock of PurchasePro.com. Each of these risk factors could adversely affect
our business, financial condition and results of operations as well as
adversely affect the value of an investment in our common stock. This offering
involves a high degree of risk.

Risks Related to Our Business

We are an early stage company. Our limited operating history makes it
difficult to evaluate our future prospects.

We only began offering access to our network in April 1997. We have entered
into the majority of our contracts and significant relationships only within
the last 15 months. Our extremely limited operating history makes it difficult
to evaluate our future prospects. Our prospects are subject to risks and
uncertainties frequently encountered by start-up companies in new and rapidly
evolving markets such as the business-to-business e-commerce market. Many of
these risks are unknown, but include the lack of widespread acceptance of the
Internet as a means of purchasing products and services and managing our
growth. Our failure to identify the challenges and risks in this new market
and successfully address these risks would harm our business.

We have a history of losses and anticipate continued losses, and we may be
unable to achieve profitability.

We have never been profitable and expect to continue to incur operating
losses on both a quarterly and annual basis for at least the foreseeable
future. We may be unable to achieve profitability in the future. We have
incurred net losses in each accounting period since our organization in
October 1996. As of September 30, 1999, we had an accumulated deficit of $31.3
million. For a detailed discussion of our losses, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview." We
expect to continue to make significant expenditures for sales and marketing,
programming and development and general and administrative functions. As a
result, we will need to generate significant revenues to achieve
profitability. We cannot assure you that revenues will grow in the future or
that we will achieve sufficient revenues for profitability. If revenues grow
more slowly than we anticipate, or if operating expenses exceed our
expectations, our business would be severely harmed.

The revenue and profit potential of our business model is unproven. Our
success is dependent on our ability to expand our membership base and
expand into new markets and industries.

Our business model is to generate revenues from the development of both
public and private e-marketplaces for business-to-business e-commerce. Our
business model is new and our ability to generate revenue or profits is
unproven. We have initially focused on the hospitality industry and our
success is dependent on our ability to expand our membership base within the
hospitality industry. Our success is also dependent on our ability to expand
into new markets and industries. We cannot assure you that we will be
successful.

We depend on sales and marketing strategic relationships for growth. These
relationships may not contribute to increased use of our services, help us
add new members, or increase our revenue. We may not be able to enter into
new relationships or maintain our existing relationships.

We have used and plan to continue to establish sales and marketing
strategic relationships with large organizations as part of our growth
strategy. These arrangements may not generate any new members or increase
revenues and may not achieve the anticipated member or revenue growth. We may
not be able to enter into new relationships or renew existing relationships on
favorable terms, if at all. We may not be able to recover our costs and
expenses associated with these efforts which could severely harm our business.

6
<PAGE>

Potential investors should not rely on statements made in our press
releases and interviews when deciding whether to purchase our common stock
as a number of such statements are based on internal estimates and
projections that may not be achieved by us, our partners or our customers.

We from time to time issue press releases and give press interviews
concerning our products, business and strategic relationships. Some of our
recent press releases and interviews contained statements about the potential
revenue that may be achieved as a result of these strategic relationships,
including our recently announced relationship with Sprint. These statements
were based on our internal projections, combined with estimates made by
certain of our strategic partners, which we received in the course of
negotiating agreements with those strategic partners. At the time of those
press releases and interviews, we believed the statements regarding the
potential revenue that may be achieved from these relationships, including our
relationship with Sprint, to be reasonable based upon these estimates. These
estimates are subject to substantial uncertainties. As a result, actual
results could vary significantly from the projected results contained in our
press releases and interviews. In addition, many of the risks described
elsewhere in this risk factors section apply to these statements. You should
not rely on any of the statements from our press releases or interviews when
deciding whether to purchase our common stock. Instead, you should rely only
on the information contained in this prospectus when making such a decision.

We have historically received substantially all of our revenue from
companies serving the hospitality industry. A serious downturn in the
hospitality industry could adversely affect us.

Our dependence on members associated with the hospitality industry makes us
vulnerable to downturns in this industry. Such a downturn could lead our
members associated with this industry to reduce their level of activity on our
e-marketplace and cause some to cancel their membership.

We face intense competition in the business-to-business e-commerce market,
and we cannot assure you that we will be able to compete successfully.

The business-to-business e-commerce market is new, rapidly evolving and
intensely competitive, and we expect competition to intensify in the future.
Barriers to entry are minimal, and competitors may develop and offer similar
services in the future. Our business could be severely harmed if we are not
able to compete successfully against current or future competitors. Although
we believe that there may be opportunities for several providers of products
and services similar to ours, a single provider may dominate the market. We
believe there is no current dominant provider in our market. We expect that
additional companies will offer competing e-commerce solutions in the future.

In addition, our members and partners may become competitors in the future.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any of which could harm our business. Our
competitors vary in size and in the scope and breadth of the services they
offer. In addition to competition from several e-commerce trade communities,
we primarily encounter competition from enterprise software purchasing systems
providers such as Ariba, Commerce One and TRADE'ex. We may also encounter
competition from enterprise software developers such as Peoplesoft, Oracle and
SAP.

We will need to improve and implement new systems, procedures and controls
in order to effectively manage our growth and expansion.

Continued implementation of our business plan requires an effective
planning and management process. Our business will suffer dramatically if we
do not effectively manage our growth. We expect that we will need

7
<PAGE>

to continue to improve our financial and managerial controls and reporting
systems and procedures, and we will need to continue to expand, train and
manage our workforce. We continue to increase the scope of our operations both
domestically and internationally, and we have grown our workforce
substantially. Our growth has placed, and our anticipated future growth in our
operations will continue to place, a significant strain on our management
systems and resources. We have grown from eight employees in January 1997 to
227 employees as of September 30, 1999. In addition, we plan to continue to
add to our sales and marketing, customer support and product development
personnel. Our future performance may also depend on the effective integration
of acquired businesses. This integration, even if successful, may take a
significant period of time and expense, and may place a significant strain on
our resources.

We may pursue the acquisition of new and complementary business, products
and technologies to grow our business. Unsuccessful acquisitions could harm
our operating results, business and growth.

We may acquire businesses, products and technologies that complement or
augment our existing businesses, services and technologies. The inability to
integrate any newly acquired entities or technologies effectively could harm
our operating results, business and growth. Integrating any newly acquired
businesses or technologies may be expensive and time consuming. To finance any
acquisitions, we may need to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may be on
terms that are not favorable to us and, in the case of equity financings, may
result in dilution to our stockholders. We may not be able to operate any
acquired businesses profitably or otherwise implement our business strategy
successfully.

Our long sales cycle for large corporate accounts could cause delays in
revenue growth.

Our sales cycle for large corporate accounts typically takes six to nine
months to complete and varies from contract to contract, but has taken up to
18 months for some contracts. A large number of our members are introduced to
our e-marketplaces through such accounts. Our lengthy sales cycle for large
corporate accounts could cause delays in revenue growth, and result in
significant fluctuations in our quarterly operating results. The length of the
sales cycle may vary depending on a number of factors over which we may have
little or no control, including the internal decision-making process of the
potential customer and the level of competition that we encounter in our
selling activities. Additionally, since the market for business-to-business e-
commerce is relatively new, we often have to educate potential customers about
the use and benefits of our products and services, which can prolong the sales
process. In some cases, we provide access to our e-marketplaces on a trial
basis for customer evaluation, which can again prolong the sales process. Our
sales cycle can be further extended for product sales made through third
parties.

Our quarterly results are subject to significant fluctuations, and our
stock price may decline if we do not meet expectations of investors and
analysts.

We expect that our quarterly operating results will fluctuate significantly
due to many factors, many of which are outside our control, including:

<TABLE>
<S> <C>
. demand for and market acceptance of . intense and increased competition;
our products and services;

. inconsistent growth, if any, of our . introductions of new services or
member base; enhancements, or changes in pricing
policies, by us and our competitors;

. loss of key customers or strategic . our ability to control costs; and
partners;

. timing of the recognition of revenue . reliable continuity of service and
for large contracts; network availability.

. variations in the dollar volume of
transactions effected through our e-
marketplaces;
</TABLE>

8
<PAGE>

We believe that quarterly revenues, expenses and operating results are
likely to vary significantly in the future, that period-to-period comparisons
of results of operations are not necessarily meaningful and that, as a result,
such comparisons should not be relied upon as indications of future
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Due to these and other factors, it is likely that
our operating results will be below market analysts' expectations in some
future quarters, which would cause the market price of our stock to decline.

Some small and medium sized businesses that supply larger organizations
have been reluctant to join or continue as a member of our e-marketplaces.
Our failure to attract and retain a large number of members would severely
harm our business.

Our public e-marketplace operates as an open bidding process allowing
buyers to instantaneously compare the prices of suppliers. In some instances,
suppliers have been reluctant to join or continue as a member of our
e-marketplaces and participate in an open bidding process because of the
increased competition and comparisons this environment creates. We must add
and retain a substantial number of small to medium sized businesses as
members. Our ability to attract and retain members will depend in part on the
continued willingness of our large organization members who buy from them to
support us in our recruiting and retention efforts. A significant number of
our members using an older version of our software allowed their e-marketplace
memberships to lapse at the end of 1998.

Our revenue is derived from providing e-marketplace access to members under
short-term, pilot and verbal agreements. The cancellation or non-renewal of
these agreements would adversely affect us.

We have generated substantially all of our revenues through member
subscription and license fees for access to our e-marketplaces. A failure of
our members to continuously renew their contracts, or a high rate of
termination, would significantly reduce our revenues. For the nine months
ended September 30, 1999, approximately 60% of our revenues were comprised of
member subscription fees. Generally, our subscription and license fee
contracts are entered into on a month-to-month basis. Although we have
executed contracts of a longer duration, generally these longer contracts may
be terminated on short-term notice. Some of our agreements with members are
verbal and may be terminated at any time. Moreover, several of our significant
member agreements are pilot programs. We have expended significant financial
and personnel resources and have expanded our operations on the assumption
that these will be long-term contracts. If these become contracts of short-
term duration because of an early termination or non-renewal by the member, we
may be unable to recover the costs we incurred and our business could suffer
dramatically.

Our success depends on our ability to continuously enhance our services.

Our future success will depend on our ability to enhance our e-marketplace
software, and to continue to develop and introduce new services that keep pace
with competitive introductions and technological developments, satisfy diverse
and evolving member requirements, and otherwise achieve market acceptance. Any
failure by us to anticipate or respond adequately to changes in technology and
member preferences, or any significant delays in our development efforts,
could make our services unmarketable or obsolete. We may not be successful in
developing and marketing quickly and effectively future versions or upgrades
of our e-marketplace software and browser system, or offer new services that
respond to technological advances or new market requirements.

We depend upon our key personnel and they would be difficult to replace.

We believe that our success will depend on the continued employment of our
senior management team and key sales and technical personnel. If one or more
members of our senior management team were unable or unwilling to continue in
their present positions, our business would suffer.

9
<PAGE>

We plan to expand our employee base to manage our anticipated growth. Most
importantly, we plan to hire additional members of senior management.
Competition for personnel, particularly for senior management personnel and
employees with technical and sales expertise, is intense. The success of our
business is dependent upon hiring and retaining suitable personnel.

If our intellectual property protection is inadequate, competitors may gain
access to our technology and undermine our competitive position, causing us
to lose members. Infringement by us on the intellectual property rights of
others could expose us to substantial liabilities which would severely harm
our business.

We regard our copyrights, service marks, trademarks, patents, trade secrets
and similar intellectual property as important to our success, and rely on
trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers and business partners
to protect our proprietary rights. Despite our precautions, unauthorized third
parties may copy certain portions of our services or reverse engineer or
obtain and use information that we regard as proprietary. End-user license
provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed program may be unenforceable under the laws of
certain jurisdictions and foreign countries. The status of United States
patent protection in the software industry is not well defined and will evolve
as the U.S. Patent and Trademark Office grants additional patents. We have
been granted one patent in the United States and we may seek additional
patents in the future. We do not know if any future patent application will be
issued with the scope of the claims we seek, if at all, or whether any patents
we receive will be challenged or invalidated. In addition, the laws of some
foreign countries do not protect proprietary rights to the same extent as do
the laws of the United States. Our means of protecting our proprietary rights
in the United States or abroad may not be adequate and competitors may
independently develop similar technology.

Third parties may infringe or misappropriate our copyrights, trademarks,
patents and similar proprietary rights. In addition, other parties may assert
infringement claims against us. We cannot be certain that our services do not
infringe patents or other intellectual property rights that may relate to our
services. In addition, because patent applications in the United States are
not publicly disclosed until the patent is issued, applications may have been
filed which relate to our services. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties. If our services violate third-party
proprietary rights, we cannot assure you that we would be able to obtain
licenses to continue offering such services on commercially reasonable terms,
or at all. Any claims against us relating to the infringement of third-party
proprietary rights, even if not meritorious, could result in the expenditure
of significant financial and managerial resources and in injunctions
preventing us from distributing these services. These claims could severely
harm our business. Ranel Erickson, Ph.D., a co-founder, has threatened to file
a lawsuit in which he would seek a return of certain rights in intellectual
property. PurchasePro.com believes it has a right to practice the technology
used in its business without violating the rights of others. See "Business--
Legal Proceedings."

Our inability to continue licensing third-party technologies could delay
product development which could result in a loss of members or slow our
growth.

We intend to continue to license technology from third parties, including
our Web server and encryption technology. Our inability to obtain any of these
licenses could delay product development until equivalent technology could be
identified, licensed and integrated. Any such delays in services could result
in a loss of members, and slow our growth and severely harm our business. The
market is evolving and we may need to license additional technologies to
remain competitive. We may not be able to license these technologies on
commercially reasonable terms or at all. In addition, we may fail to
successfully integrate any licensed technology into our services. These third-
party licenses may expose us to increased risks, including risks associated
with the integration of new technology, the diversion of resources from the
development of our own proprietary technology and our ability to generate
revenues from new technology sufficient to offset associated acquisition and
maintenance costs.

10
<PAGE>

Our agreements with affiliates may not have been the result of arm's-length
negotiations, and may be less favorable to us than those we could obtain
from unaffiliated third parties. Entering into agreements on less than the
most favorable terms available could harm our business or limit our revenue
growth.

Our agreements with some of our sales and marketing partners may not have
been the result of arm's-length negotiations. To the extent our agreements
with our affiliates, such as E-MarketPro, were not negotiated at arm's-length,
they may contain terms and conditions less favorable to us than we could have
obtained from unaffiliated third parties. Although we have no current plans to
enter into any additional agreements with affiliates, any future agreements or
relationships with affiliates may not necessarily result from arm's-length
negotiations and may not be on terms that are most favorable to us, which
could severely harm our business or limit our revenue growth.

If we do not adequately address "Year 2000" issues, we may incur
significant costs and our business could suffer.

Failure of our internal computer systems or third-party equipment or
software, or systems maintained by our members and strategic sales and
marketing partners, to operate properly with regard to the Year 2000 and
thereafter could require us to incur significant unanticipated expenses to
remedy any problems and could cause system interruptions and loss of data. Any
of these events could harm our reputation and adversely affect our business.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Year 2000 Readiness."

If we expand our international sales and marketing activities, our business
will be exposed to the numerous risks associated with international
operations.

We intend to have operations in a number of international markets. To date,
we have limited experience in developing localized versions of our e-
marketplace enabling software and in marketing, selling and distributing our
solutions internationally.

International operations are subject to many risks, including:

. the impact of recessions in economies outside the United States,
especially in Asia;

. changes in regulatory requirements;

. reduced protection for intellectual property rights in some countries;

. potentially adverse tax consequences;

. difficulties and costs of staffing and managing foreign operations;

. political and economic instability;

. fluctuations in currency exchange rates;

. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and

. tarriffs, export controls and other trade barriers.

Risks Related to the Internet and E-commerce Industries

Our success depends on the Internet's ability to accommodate growth in e-
commerce.

The use of the Internet for retrieving, sharing and transferring
information among businesses, buyers, suppliers and partners has only recently
begun to develop. If the Internet is not able to accommodate growth in e-
commerce, our business would suffer. The recent growth in the use of the
Internet has caused frequent

11
<PAGE>

periods of performance degradation. Our ability to sustain and improve our
services is limited, in part, by the speed and reliability of the networks
operated by third parties. Consequently, the emergence and growth of the market
for our services is dependent on improvements being made to the Internet
infrastructure to alleviate overloading and congestion.

We are dependent upon the growth of the Internet as a means of commerce.

If the e-commerce market does not grow or grows more slowly than expected,
our business will suffer. The possible slow adoption of the Internet as a means
of commerce by businesses may harm our prospects. A number of factors could
prevent the acceptance and growth of e-commerce, including the following:

. 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 e-commerce applications on these
networks;

. increased government regulation 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

. adverse publicity and consumer concern about the reliability, cost, ease
of access, quality of services, capacity, performance and security of e-
commerce transactions could discourage its acceptance and growth.

Even if the Internet is widely adopted as a means of commerce, the adoption
of our network for procurement, particularly by companies that have relied on
traditional means of procurement, will require broad acceptance of the new
approach. In addition, companies that have already invested substantial
resources in traditional methods of procurement, or in-house e-commerce
solutions, may be reluctant to adopt our e-commerce solution.

Security risks of electronic commerce may deter use of our products and
services.

A fundamental requirement to conduct business-to-business e-commerce is the
secure transmission of information over public networks. If members are not
confident in the security of e-commerce, they may not effect transactions on
our e-marketplaces or renew their memberships which would severely harm our
business. We cannot be certain that advances in computer capabilities, new
discoveries in the field of cryptography, or other developments will not result
in the compromise or breach of the algorithms we use to protect content and
transactions on our e-marketplaces or proprietary information in our databases.
Anyone who is able to circumvent our security measures could misappropriate
proprietary, confidential member information, place false orders or cause
interruptions in our operations. We may be required to incur significant costs
to protect against security breaches or to alleviate problems caused by
breaches. Further, a well-publicized compromise of security could deter people
from using the Internet to conduct transactions that involve transmitting
confidential information. Our failure to prevent security breaches, or well-
publicized security breaches affecting the Internet in general could adversely
affect our business.

Failure to maintain accurate databases could seriously harm our business and
reputation.

We update and maintain extensive databases of the products, services and e-
marketplace transactions for our members. Our computer systems and databases
must allow for expansion as a member's business grows without losing
performance. Database capacity constraints may result in data maintenance and
accuracy problems which could cause a disruption in our service and our ability
to provide accurate information to our members. These problems may result in a
loss of members which could severely harm our business. Some of our customer
contracts provide for service level guarantees for the accuracy of data. Our
failure to satisfy these service level guarantees could result in liability or
termination of the contract and a loss of business, and our business and our
reputation would suffer.

12
<PAGE>

We may not be able to accurately predict the rate of increase in the usage
of our network, which may affect our timing and ability to expand and
upgrade our systems.

Traffic in our e-marketplaces has increased to the point where we must
expand and upgrade some of our transaction processing systems and network
hardware and software. We may not be able to accurately predict the rate of
increase in the usage of our network. This may affect our timing and ability
to expand and upgrade our systems and network hardware and software
capabilities to accommodate increased use of our network. If we do not upgrade
our systems and network hardware and software appropriately, we may experience
downgraded service which could damage our business reputation, relationship
with members and our operating results.

If we encounter system failure, service to our customers could be delayed
or interrupted. Service delays or interruptions could severely harm our
business and result in a loss of customers.

Our ability to successfully maintain an e-commerce marketplace and provide
acceptable levels of customer service largely depends on the efficient and
uninterrupted operation of our computer and communications hardware and
network systems. Any interruptions could severely harm our business and result
in a loss of customers. Our computer and communications systems are located in
Las Vegas, Nevada. Although we periodically back up our databases to tapes and
store the backup tapes offsite, we do not maintain a redundant site. Our
systems and operations are vulnerable to damage or interruption from human
error, sabotage, fire, flood, earthquake, power loss, telecommunications
failure and similar events. Although we have taken certain steps to prevent a
system failure, we cannot assure you that our measures will be successful and
that we will not experience system failures in the future. Moreover, we have
experienced delays and interruptions in our telephone and Internet access
which have prevented members from accessing our e-marketplaces and customer
service department. Furthermore, we do not have a formal disaster recovery
plan and do not carry sufficient business interruption insurance to compensate
us for losses that may occur as a result of any system failure. The occurrence
of any system failure or similar event could harm our business dramatically.
In addition, we may move to third-party hosting of our servers. We cannot
assure you that this transition, if undertaken, would be effected without
interruptions. Further, any such third-party host could be subject to the same
risks of system failure as our current site.

Our services depend on complex software. Unknown defects in this software
could result in service and development delays.

Our e-marketplace services depend on complex software developed internally
and by third parties. Software often contains defects, particularly when first
introduced or when new versions are released. Our testing procedures may not
discover software defects that affect our new or current services or
enhancements until after they are deployed. These defects could cause service
interruptions, which could damage our reputation or increase our service
costs, cause us to lose revenue, delay market acceptance or divert our
development resources, any of which could severely harm our business. In the
past, we have missed internal software development and enhancement deadlines.
Some of our contracts contain software enhancement and development milestones.
If we are unable to meet these milestones, whether or not the failure is
attributable to us or a third party, we may be in breach of our contractual
obligations. Such a breach could damage our reputation, lead to termination of
the contract, and adversely affect our business.

Governmental regulation and legal uncertainties could impair the growth of
the Internet and decrease demand for our services and increase our cost of
doing business.

The laws governing Internet transactions remain largely unsettled, even in
areas where there has been some legislative action. The adoption or
modification of laws or regulations relating to the Internet could increase
our costs and administrative burdens. It may take years to determine whether
and how existing laws such as those governing intellectual property, privacy,
libel, consumer protection and taxation apply to the Internet.

13
<PAGE>

Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. We must comply with new regulations
in the United States and other countries where we conduct business. The growth
and development of the business-to-business e-commerce market may prompt calls
for more stringent laws governing consumer protection and the taxation of e-
commerce. Non-compliance with any newly adopted laws and regulations could
expose us to significant liabilities.

The inability to acquire or maintain effective Web domain names could create
confusion and direct traffic away from our e-marketplaces.

We currently hold various Internet Web addresses relating to our network. If
we are not able to prevent third parties from acquiring Web addresses that are
similar to our addresses third parties could acquire similar domain names which
could create confusion that diverts traffic to other websites away from our e-
marketplaces thereby adversely affecting our business. The acquisition and
maintenance of Web addresses generally is regulated by governmental agencies
and their designees. The regulation of Web addresses in the United States and
in foreign countries is subject to change. As a result, we may not be able to
acquire or maintain relevant Web addresses in all countries where we conduct
business. Furthermore, the relationship between regulations governing such
addresses and laws protecting proprietary rights is unclear.

We may be subject to legal liability for communication on our network.

We may be subject to legal claims relating to the content in our network, or
the downloading and distribution of such content. Claims could involve matters
such as fraud, defamation, invasion of privacy and copyright infringement.
Providers of Internet products and services have been sued in the past,
sometimes successfully, based on the content of material. Our insurance may not
cover claims of this type, or may not provide sufficient coverage. Even if we
are ultimately successful in our defense of these claims, any such litigation
is costly and these claims could harm our reputation and our business.

Risks Related to this Offering

Our executive officers and directors will continue to exercise significant
control over PurchasePro.com and could limit the ability of our other
stockholders to influence the outcome of director elections and other
transactions submitted to a vote of our stockholders.

We anticipate that our executive officers and directors will, in the
aggregate, beneficially own approximately 36% of our outstanding common stock
following the completion of this offering. These stockholders will be able to
exercise substantial influence over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the
effect of delaying or preventing a change in control of PurchasePro.com. See
"Principal Stockholders."

You will experience immediate and substantial dilution with respect to your
shares. We may need to raise additional capital which may further dilute
existing stockholders.

You will incur immediate and substantial dilution of $92.05 per share in the
net tangible book value of your shares as a result of this offering based upon
an assumed public offering price of $100.04 per share. This share price has
been adjusted for the three-for-two stock split to be effected in the form of a
stock dividend on December 13, 1999. See "Dilution."

Historically, we have financed our business and operations through the sale
of equity, including our initial public offering. We believe that the net
proceeds from this offering will enable us to maintain our current and planned
operations for at least the next 18 months. After that, we may need to raise
additional funds. If our capital requirements vary materially from those
currently planned, we may require additional financing sooner than anticipated.
Such financing may not be available in sufficient amounts or on terms
acceptable to us, or at all, and may be dilutive to existing stockholders.

14
<PAGE>

We expect to experience volatility in our stock price.

The stock market has, from time to time, experienced significant price and
volume fluctuations that have affected the market prices for the common stock
of technology companies, particularly Internet companies. These broad market
fluctuations may result in a material decline in the market price of our
common stock. You may be unable to resell your stock at or above the public
offering price due to factors including:

. actual or anticipated fluctuations in our results of operations;

. changes in or failure by us to meet securities analysts' expectations;

. announcements of technological innovations;

. introduction of new services by us or our competitors;

. developments with respect to intellectual property rights;

. conditions and trends in the Internet and other technology industries;
and

. general market conditions.

We are at risk of securities class action litigation due to our expected
stock price volatility.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources.

There may be sales of a substantial amount of our common stock after this
offering, which could depress our stock price.

After this offering, approximately 30,094,710 shares of common stock will
be outstanding. All of the 3,000,000 shares sold in this offering will be
freely tradable. Of the remaining shares of common stock outstanding after
this offering, 20,194,710 shares will be restricted as a result of securities
laws or lock-up agreements. These remaining shares will be available for sale
in the public market as shown in the chart below. As restrictions on resale
end, the market price could drop significantly if the holders of these
restricted shares sell them or are perceived by the market as intending to
sell them.

<TABLE>
<CAPTION>
Number of
Shares Date of Availability for Resale into Public Market
--------- --------------------------------------------------
<C> <S>
13,016,745 March 13, 2000, based on the expiration of an 180 day lock-up
agreement. Prudential Securities can waive this restriction at
any time and without notice.

7,177,965 At various times thereafter, due to the requirements of the
federal securities laws.
</TABLE>

See "Underwriting" and "Shares Eligible for Future Sale."

Our management will have broad discretion over the use of the net proceeds.
Failure to use the net proceeds in an effective and beneficial manner could
impede our ability to expand our sales and marketing activities and make
strategic investments.

We have no current specific plans for the use of the net proceeds from this
offering. We intend generally to use the net proceeds from this offering to
expand our sales and marketing activities and for general corporate purposes,
including working capital and strategic investments. We have not yet
determined the actual expected expenditures and thus cannot estimate the
amounts to be used for each specified purpose. The actual amounts and timing
of these expenditures will vary significantly depending on a number of
factors, including, but not

15
<PAGE>

limited to, the amount of cash generated by our operations and the market
response to the introduction of any new service offerings. Depending on future
developments and circumstances, we may use some of the proceeds for uses other
than those described above. Our management will therefore have significant
flexibility in applying the net proceeds of this offering. Our success and
growth depends on the beneficial use of the net proceeds.

Our articles of incorporation and bylaws and Nevada law contain provisions
which could delay or prevent a change in control and could also limit the
market price of your stock.

Our articles of incorporation and bylaws will contain provisions that could
delay or prevent a change in control. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. Some of these provisions:

. divide our board of directors into three classes;

. authorize the issuance of preferred stock which can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock;

. prohibit stockholder action by written consent; and

. establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.

In addition, certain provisions of Nevada law make it more difficult for a
third party to acquire us. Some of these provisions:

. establish a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest; and

. impose time restrictions or require additional approvals for an
acquisition of us by an interested stockholder.

These provisions could also limit the price that investors might be willing
to pay in the future for shares of our common stock. See "Description of
Capital Stock" for additional discussion of these provisions.

16
<PAGE>

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends affecting the financial condition of our business. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions
about PurchasePro.com, including, among other things:

. general economic and business conditions, both nationally and in our
markets;

. our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;

. anticipated trends in our business;

. existing and future regulations affecting our business;

. our successful implementation of our business strategy;

. our relationship with our strategic partners;

. fluctuations in our operating results;

. technological changes in the Internet industry; and

. other risk factors described under "Risk Factors" in this prospectus.

In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to PurchasePro.com, our business or our management,
are intended to identify forward-looking statements.

We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise
after the date of this prospectus. Because of these risks and uncertainties,
the forward-looking events and circumstances discussed in this prospectus may
not occur and actual results could differ materially from those anticipated or
implied in the forward-looking statements.

17
<PAGE>

USE OF PROCEEDS

The net proceeds to us from the sale of 2,000,000 shares of common stock
offered by us in this offering will be approximately $189.5 million based upon
a public offering price of $100.04 per share, after deducting underwriting
discounts and commissions and estimated offering expenses. This price is
adjusted for the three-for-two stock split to be effected in the form of a
stock dividend on December 13, 1999.

Our management will have broad discretion over the use of the net proceeds.
We generally intend to use the net proceeds of this offering for the following:

. expansion of our sales and marketing activities; and

. working capital and other general corporate purposes.

In addition, we plan to use a portion of the net proceeds of this offering
to acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to these
transactions. We have not yet established criteria for evaluating acquisitions
or investments. We intend to invest the net proceeds of this offering in short-
term, interest bearing, investment grade securities or guaranteed obligations
of the U.S. government pending the above uses.

We have not yet determined the actual expected expenditures and thus cannot
estimate the amounts to be used for each purpose discussed above. The amounts
and timing of these expenditures will vary significantly depending on a number
of factors, including, but not limited to, the amount of cash generated by our
operations and the market response to our introduction of any new services.

We will not receive any proceeds from the sale of common stock by the
selling stockholders.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future. We
currently intend to retain any future earnings for the expansion of our
business.

PRICE RANGE OF COMMON STOCK

Since September 14, 1999, PurchasePro.com's common stock has been quoted in
the Nasdaq National Market under the symbol "PPRO."

The following table sets forth the high and low sales prices of the common
stock as reported by the Nasdaq National Market and as adjusted for the three-
for-two stock split:

<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
----
Third Quarter (September 14, 1999 through September 30,
1999)..................................................... $ 31.83 $14.66
Fourth Quarter (through December 7, 1999).................. $108.50 $18.33
</TABLE>

On December 7, 1999, the last reported sale price of the common stock in the
Nasdaq National Market was $100.04 per share as adjusted for the three-for-two
stock split. As of December 6, 1999, there were approximately 160 shareholders
of record.

18
<PAGE>

DILUTION

Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock
from the public offering price. Net tangible book value per share represents
the amount of our total tangible assets reduced by the amount of our total
liabilities, divided by the number of shares of common stock outstanding. These
numbers are adjusted for the three-for-two stock split to be effected in the
form of a stock dividend on December 13, 1999.

. As of September 30, 1999, our net tangible book value was $50.8 million,
or $1.81 per share.

. As of September 30, 1999, our net tangible book value as adjusted for the
sale of the 2,000,000 shares offered by us in this offering and
application of the estimated net proceeds to us of $189.5 million
(assuming a public offering price of $100.04 per share after deducting
the underwriting discounts and commissions and estimated offering
expenses), would have been approximately $7.99 per share.

This represents an immediate increase of $6.18 per share to existing
stockholders and an immediate and substantial dilution of $92.05 per share to
new investors purchasing common stock in this offering. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price................................. $100.04
Net tangible book value as of September 30, 1999............. $1.81
Increase attributable to new investors....................... 6.18
-----
Net tangible book value after the offering.................... 7.99
-------
Dilution to new investors..................................... $ 92.05
=======
</TABLE>

The following table summarizes as of September 30, 1999 the differences
between the total consideration paid and the average price per share paid by
the existing stockholders and the new investors with respect to the number of
shares of common stock purchased from us assuming a public offering price of
$100.04 per share and before deducting the underwriting discounts and
commissions and our estimated offering expenses. The following table does not
give effect to sales of shares by selling stockholders:

<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 28,094,710 93% $ 74,251,500 27% $ 2.64
New investors.............. 2,000,000 7 200,080,000 73 $100.04
---------- --- ------------ ---
Total.................... 30,094,710 100% $274,331,500 100%
========== === ============ ===
</TABLE>

The above discussion and tables assume no exercise of the underwriter's
over-allotment options and except as set forth above no exercise of any stock
options outstanding as of September 30, 1999. As of September 30, 1999, there
were options outstanding to purchase a total of 4,917,465 shares of common
stock at a weighted average exercise price of $2.95 per share, of which
1,333,934 were exercisable as of September 30, 1999. If these options are
exercised in the future it will be further dilutive to investors who purchase
shares in this offering. Options available for grant under our stock option
plans may be granted at exercise prices less than the market value of common
stock on the grant date. If we grant options below fair market value it could
be dilutive to investors who purchase shares in this offering.

19
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of PurchasePro.com as of
September 30, 1999:

. on an actual basis; and

. as adjusted, to reflect the receipt of the estimated net proceeds from
the sale of the 2,000,000 shares of common stock by us in this offering
at an assumed public offering price of $100.04 per share as adjusted to
reflect the three-for-two stock split, after deducting underwriting
discounts and commissions and estimated offering expenses.

You should read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes included in this prospectus.

<TABLE>
<CAPTION>
September 30, 1999
--------------------------
Actual As Adjusted
------------ ------------
<S> <C> <C>
Notes payable...................................... $ 50,000 $ 50,000
Stockholders' equity (deficit):
Common stock: $0.01 par value; 40,000,000 shares
authorized; 28,014,710 shares issued and
outstanding; as adjusted--40,000,000 shares
authorized, 30,094,710 issued and
outstanding(1)................................... 280,147 300,947
Additional paid-in capital........................ 87,154,900 276,650,633
Deferred stock-based compensation................. (4,773,203) (4,773,203)
Accumulated deficit............................... (31,274,242) (31,274,242)
------------ ------------
Total stockholders' equity (deficit).............. 51,387,602 240,904,135
------------ ------------
Total capitalization............................ $ 51,437,602 $240,954,135
============ ============
</TABLE>
- --------
(1) The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999, and
does not include the following:

. 750,000 shares of common stock issuable upon exercise of warrants
issued and outstanding as of September 30, 1999, and 3,225,000 shares
of common stock issuable upon exercise of warrants issued subsequent to
September 30, 1999.

20
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

We derived the selected consolidated financial data presented below from our
historical financial statements and related notes included elsewhere in this
prospectus. You should read the selected consolidated financial data together
with our historical financial statements, related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Arthur Andersen LLP, independent public accountants, audited our historical
financial statements for the period from inception (October 8, 1996) through
December 31, 1996, and for each of the two years in the period ended December
31, 1998. Their report appears in another part of this prospectus. Our
historical financial statements for the nine months ended September 30, 1998
and 1999 are unaudited, and in our opinion include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results for the unaudited period. You should not rely on interim results as
being indicative of results we may experience for future periods.

<TABLE>
<CAPTION>
Inception Nine Months Ended
(October 8, 1996) Year Ended December 31, September 30,
through ------------------------ -------------------------
Statement of Operations December 31, 1996 1997 1998 1998 1999
Data: ----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Subscription fees...... $ -- $ 512,761 $ 1,461,439 $ 819,546 $ 1,993,346
Other.................. -- 162,629 208,799 212,167 1,356,652
---------- ----------- ----------- ----------- ------------
Total revenues........ -- 675,390 1,670,238 1,031,713 3,349,998
---------- ----------- ----------- ----------- ------------
Cost of revenues........ -- 213,857 445,639 335,411 567,669
---------- ----------- ----------- ----------- ------------
Gross profit ........... -- 461,533 1,224,599 696,302 2,782,329

Operating expenses
Sales and marketing ... 22,592 1,179,327 3,840,776 2,766,137 5,404,783
General and
administrative ....... 9,860 1,344,860 2,895,779 2,005,234 4,637,895
Programming and
development .......... 86,862 802,175 971,459 687,305 1,530,973
Amortization of stock-
based compensation.... -- -- -- -- 4,946,281
---------- ----------- ----------- ----------- ------------
Total operating
expenses ............ 119,314 3,326,362 7,708,014 5,458,676 16,519,932
---------- ----------- ----------- ----------- ------------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (4,762,374) (13,737,603)

Other income (expense)
Interest income
(expense), net........ (3,638) (120,497) (332,895) (218,176) (80,147)
Other.................. -- -- 16,300 6,857 (279,007)
---------- ----------- ----------- ----------- ------------
Total other income
(expense)............ (3,638) (120,497) (316,595) (211,319) (359,154)
---------- ----------- ----------- ----------- ------------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Benefit for income
taxes.................. -- -- -- -- --
---------- ----------- ----------- ----------- ------------
Net loss................ (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
---------- ----------- ----------- ----------- ------------
Preferred stock
dividends.............. -- -- (245,000) (140,000) (511,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) (44,981) (131,037)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
---------- ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Loss per share
Basic.................. $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 11,550,000 11,550,000 12,900,000 13,650,000 13,002,895
========== =========== =========== =========== ============
Diluted................ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
</TABLE>

<TABLE>
<CAPTION>
As of December 31, As of
----------------------------------- September 30,
1996 1997 1998 1999
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $ 835 $ 7,894 $ 1,689,288 $48,477,852
Working capital (deficit).. (49,254) (1,907,159) 907,276 46,990,205
Total assets............... 70,269 608,565 2,744,757 55,005,879
Notes payable.............. 133,132 2,567,000 1,544,939 50,000
Redeemable convertible
preferred stock........... -- -- 6,339,438 --
Total stockholders' equity
(deficit)................. (112,952) (2,708,896) (5,880,944) 51,387,602
</TABLE>

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of
operations should be read together with the consolidated financial statements
and the related notes included elsewhere in this prospectus and which are
deemed to be incorporated into this section. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results may differ materially from those anticipated in these forward-
looking statements as a result of a number of factors, including but not
limited to those set forth under "Risk Factors" and included elsewhere in this
prospectus.

Overview

PurchasePro.com, Inc. is a leading provider of Internet business-to-business
electronic commerce services. We develop public and private online business e-
marketplace communities. Our e-marketplaces provide businesses of all sizes
with a low cost and efficient e-commerce solution for buying and selling a wide
range of products and services over the Internet.

Our predecessor company was incorporated in October 1996. In January 1998,
we incorporated PurchasePro.com, Inc. and acquired all of the assets and
assumed all the liabilities of our predecessor. In August 1998, we acquired our
subsidiary company, Hospitality Purchasing Systems (HPS). From October 1996 to
the commercial release of our service in April 1997, we were primarily engaged
in raising capital and developing our e-marketplace software and network
infrastructure.

In April 1997, we released PurchasePro 1.0, enabling our members to transact
e-commerce over our network. Our next release in July 1997 provided this
capability over the Internet. In September 1998, we released PurchasePro 3.0,
our e-marketplace enabling software. In February 1999, we released PurchasePro
4.0, which allows members the additional capability of building private e-
marketplaces.

From inception through June 30, 1999, substantially all of our revenues were
derived from monthly membership subscription fees for access to our e-
marketplaces. Beginning in 1999, we began to earn revenues from other sources,
including transaction fees, license fees and advertising. Most of our members
are companies that sell products and services to large hotels and resorts.
Generally, our subscription and license fee contracts are entered into on a
month-to-month basis. Although we have executed contracts of a longer duration,
generally these contracts may be terminated at any time on 30 to 60 days'
notice. Some of our contracts may be terminated on even shorter notice,
however, and in certain cases in as little as seven days. Some of our
agreements with members are verbal and as such may be terminated at any time.
In August 1998, HPS began generating transaction fees from group buying
services provided to the hospitality industry. In 1999, with the release of
version 4.0, we began contracting with larger corporate customers to create
customized, private e-marketplaces. Typically, we charge these companies
licensing and maintenance fees for this service. The licensing and maintenance
fees are initially deferred and recognized ratably over the period of service.
In order to build our subscriber base we have also provided Web site
development and hosting services and fees for catalog building services. We
also charge our members a fee for processing their subscription payments by
electronic funds transfer or credit card.

During the three months ended September 30, 1999, we began generating
transaction fee revenues from transactions consummated by our members with
value added merchandise and service providers. Also, we began generating
advertising fees, which we believe will continue to generate both transaction
fees and advertising revenues in the future, and that these revenue streams
will become a more significant portion of our total revenues. As of November
30, 1999, we believe that there are approximately 16,000 users that have been
provided with the capability to access and use our network. We cannot assure
you that we will be successful in generating any of these additional revenues
and fees. See "Risk Factors--Risks Related to our Business--The revenue and
profit potential of our business model is unproven. Our success is dependent on
our ability to expand our membership base and expand into new markets and
industries."

22
<PAGE>

Since our inception on October 8, 1996, we have incurred significant net
losses. From inception through December 31, 1996, we had a net loss of
$123,000. For the years ended December 31, 1997 and 1998, our net losses
applicable to common stockholders were $3.0 million and $7.1 million,
respectively. For the nine months ended September 30, 1998 and 1999, we had net
losses applicable to common stockholders of $5.2 million and $24.1 million,
respectively. As of September 30, 1999, our accumulated deficit totaled
$31.3 million.

Subsequent to September 30, 1999, we entered into agreements with certain
strategic partners in which we issued warrants to purchase an aggregate of
3,225,000 shares of our common stock at a weighted average exercise price per
share of $86.31. We will incur a charge of approximately $50 million related to
a portion of the warrants in the fourth quarter of 1999 based on the estimated
fair value of such warrants. Another portion of these warrants are exercisable
only if certain performance criteria are met. We may incur additional charges
if such performance criteria are met based on the then-fair value of such
warrants.

Results of Operations

Comparison of the Nine Months Ended September 30, 1998 and September 30, 1999

Revenues. Our revenues consist primarily of subscription fees, transaction
fees, license fees and advertising for our public and private e-marketplaces.
Through HPS, we earn transaction fees for providing a service that consolidates
the buying power of its participating members. We also charge license fees to
larger buyer companies for creating and developing their private e-marketplaces
along with an annual maintenance fee. In addition, we earn revenues from the
sale of Web site development and host services, from catalog development
services and for electronically processing our members' payments. Our net
revenues increased from $1.0 million for the nine months ended September 30,
1998, to $3.3 million for the nine months ended September 30, 1999.
Substantially all of this increase resulted from growth in our membership, new
license arrangements and advertising revenues. Our subscription revenue
increased from $820,000 for the nine months ended September 30, 1998 to $2.0
million for the nine months ended September 30, 1999. Other revenues, including
license fees, Web site development and hosting fees, catalog fees, advertising
and HPS transactions fees, increased from $212,000 for the nine months ended
September 30, 1998, to $1.4 million for the nine months ended September 30,
1999. HPS transaction fees increased from $0 for the nine months ended
September 30, 1998 to $231,000 for the nine months ended September 30, 1999.

Cost of Revenues. Our cost of revenues consists primarily of costs for
member support and Web site operations, including fees for independent
contractors, compensation for our member support and site operations personnel
and, to a lesser extent, bank and credit card processing charges. Our cost of
revenues increased from $335,000 for the nine months ended September 30, 1998,
to $568,000 for the nine months ended September 30, 1999. The increase was
primarily the result of the increase in personnel in our member service
department. Expenses related to personnel costs of our member service and web
site operations departments increased from $272,000 for the nine months ended
September 30, 1998 to $476,000 for the nine months ended September 30, 1999. We
expect that our cost of revenues will increase in absolute dollars, but will
remain constant or decrease as a percentage of revenues in future periods, as a
result of an anticipated increase in the efficiency of our member service
department to provide service to our customers and the decrease in the number
of member service calls per member as our members gain experience using the
network. Our gross profit increased from $696,000 for the nine months ended
September 30, 1998 to $2.8 million for the nine months ended September 30,
1999.

Sales and Marketing Expenses. Our sales and marketing expenses are comprised
primarily of compensation for our sales and marketing personnel, travel and
related costs, and costs associated with our marketing activities, such as
advertising, trade show and other promotional activities. Our sales and
marketing expenses increased from $2.8 million for the nine months ended
September 30, 1998, to $5.4 million for the nine months ended September 30,
1999. This increase is primarily attributable to an increase in the size of our
sales force. Expenses related to personnel costs of sales and marketing
personnel increased from $1.4 million

23
<PAGE>

for the nine months ended September 30, 1998 to $3.2 million for the nine
months ended September 30, 1999. We plan to continue to increase the size of
our sales force and to expand our advertising and marketing activities. Travel
and related costs increased from $298,000 for the nine months ended September
30, 1998, to $621,000 for the nine months ended September 30, 1999. Costs
associated with our marketing activities increased from $249,000 for the nine
months ended September 30, 1998, to $757,000 for the nine months ended
September 30, 1999. In the nine months ended September 30, 1999, we recognized
a non-cash charge of $800,000 related to the issuance of stock options offered
to a strategic marketing partner at an exercise price below fair value. We
expect that our sales and marketing expenditures will increase significantly,
both in absolute dollars and as a percentage of net revenues, as a result of
the anticipated opening of sales offices in new geographic regions, increased
marketing efforts and additional sales commissions.

General and Administrative Expenses. Our general and administrative expenses
consist primarily of compensation for personnel and, to a lesser extent, fees
for professional services, facility costs and communications costs, charges for
doubtful accounts and depreciation and amortization. Our general and
administrative expenses increased from $2.0 million for the nine months ended
September 30, 1998, to $4.6 million for the nine months ended September 30,
1999. The increase is primarily attributable to the increased size of our
executive and administrative staff. Expenses related to personnel costs of our
general and administrative personnel increased from $884,000 for the nine
months ended September 30, 1998, to $1.9 million for the nine months ended
September 30, 1999. Facilities costs increased from $82,000 for the nine months
ended September 30, 1998, to $280,000 for the nine months ended September 30,
1999, as the result of our move into our new corporate location. Our
communications costs increased from $191,000 for the nine months ended
September 30, 1998, to $216,000 for the nine months ended September 30, 1999,
as a result of our expansion into new geographic areas throughout late 1998 and
early 1999. Other general and administrative expenses increased primarily as a
result of a larger amount charged to our reserve for doubtful accounts. The
charge for doubtful accounts totaled $60,000 for the nine months ended
September 30, 1998, as compared to $351,000 for the nine months ended September
30, 1999. Our depreciation and amortization increased from $182,000 for the
nine months ended September 30, 1998, to $403,000 for the nine months ended
September 30, 1999. The increase resulted primarily from the increase in our
revenues in such period, and a better knowledge of the estimated bad debt
percentage based on our collection experience since September 30, 1998. We
believe that our allowance for doubtful accounts will decrease as a percentage
of revenues in future periods as we anticipate implementing more efficient
membership credit reviews and as we expect more members will convert to
electronic fund transfer or credit card payment methods. We expect that our
general and administrative expenses will increase in absolute dollars but
remain relatively constant as a percentage of net revenues, as we anticipate
continuing to expand our operations.

Programming and Development Expenses. Programming and development expenses
consist primarily of compensation for our programming and development staff and
payments to outside contractors. Our programming and development expenses
increased from $687,000 for the nine months ended September 30, 1998, to $1.5
million for the nine months ended September 30, 1999. The increase is primarily
attributable to an increase in our programming staff. Expenses related to
programming and development personnel increased from $589,000 for the nine
months ended September 30, 1998, to $1.4 million for the nine months ended
September 30, 1999. We expect that our programming and development expenses
will increase in absolute dollars but remain relatively constant as a
percentage of revenues as we anticipate continuing to develop and enhance our
service offerings.

Deferred Stock-Based Compensation. During the nine months ended September
30, 1999, we recorded aggregate deferred stock compensation of $9.7 million in
connection with certain stock options granted to employees as additional paid-
in capital. The deferred stock compensation is being amortized over the vesting
periods of the related options. For the nine months ended September 30, 1999,
amortization of deferred stock-based compensation totaled $4.9 million.

Other Income (Expense). Interest expense primarily relates to borrowings
from our Chairman and Chief Executive Officer in 1997, notes payable
outstanding from January 1998 through September 1998 and notes payable
outstanding since September 1998 and December 1998. Interest income relates to
interest earned

24
<PAGE>

on initial public offering proceeds that were invested in short-term
investments. Our net interest expense decreased from $218,000 for the nine
months ended September 30, 1998, to $80,000 for the nine months ended September
30, 1999. The decrease resulted from the repayment of $2.3 million of notes
payable plus interest earned on the proceeds from our initial public offering.
Other expense includes the write-off of debt issuance costs related to $1.5
million of notes payable issued in September 1998 and repaid in June 1999.

Years Ended December 31, 1997 and December 31, 1998

Revenues. Revenues increased from $675,000 for 1997 to $1.7 million for
1998. Substantially all of this increase resulted from growth in our
membership. For the year ended December 31, 1997, $513,000 of our revenues were
from member subscription services and $163,000 were from Web site development
and hosting fees, and other fees. For the year ended December 31, 1998, our
member subscription fees totaled $1.3 million, our revenues from our HPS
subsidiary totaled $154,000, and our revenues from Web site development and
hosting fees totaled $145,000.

Cost of Revenues. Our cost of revenues increased from $214,000 for the year
ended December 31, 1997, to $446,000 for the year ended December 31, 1998. The
increase was primarily the result of the increase in personnel in our member
service department. Expenses related to personnel costs of our member service
and web site operations departments increased from $159,000 for the year ended
December 31, 1997, to $357,000 for the year ended December 31, 1998. Our gross
profit increased from $462,000 for 1997 to $1.2 million for 1998.

Sales and Marketing Expenses. Our sales and marketing expenses increased
from $1.2 million for 1997 to $3.8 million for 1998. This increase was
primarily attributable to expansion of our sales force into several geographic
regions throughout the country, plus expanded marketing activities that
included attendance at numerous trade shows, advertising campaigns and costs of
producing marketing materials. Further, we recognized a non-cash charge of
$720,000 related to the issuance of common stock to a stockholder at a price
below fair value in connection with services provided by a stockholder.
Expenses related to personnel costs of our sales and marketing department
increased from $686,000 for the year ended December 31, 1997, to $2.2 million
for the year ended December 31, 1998. Travel and related costs increased from
$117,000 for the year ended December 31, 1997, to $437,000 for the year ended
December 31, 1998. Costs associated with our marketing activities increased
from $131,000 for the year ended December 31, 1997, to $362,000 for the year
ended December 31, 1998.

General and Administrative Expenses. Our general and administrative expenses
increased from $1.3 million for 1997 to $2.9 million for 1998. This increase
was primarily attributable to increasing the size of our executive and
administrative staffs, legal fees and, to a lesser extent, communication costs
and our reserve for doubtful accounts. Expenses related to personnel costs of
our general and administrative personnel increased from $695,000 for the year
ended December 31, 1997, to $1.3 million for the year ended December 31, 1998.
The increase is primarily attributable to the increased size of our executive
and administrative staff. Our communications costs increased significantly from
$94,000 for the year ended December 31, 1997, to $257,000 for the year ended
December 31, 1998, as a result of our expansion into new geographic areas
throughout 1998. Other general and administrative expenses increased primarily
as a result of a larger amount charged to our reserve for doubtful accounts.
The charge for doubtful accounts totaled $73,000 for the year ended December
31, 1997, as compared to $127,000 for the year ended December 31, 1998. The
increase corresponds to the increase in our revenues between years.

Programming and Development Expenses. Our programming and development
expenses increased from $802,000 for 1997 to $971,000 for 1998. The increase is
primarily attributable to increased salaries, payroll taxes and employee
benefits associated with the development of new versions of our network during
1998.

Interest Expense. Our interest expense increased from $120,000 for 1997 to
$333,000 for 1998. This increase resulted from the issuance of $2.3 million of
notes payable in January 1998 that were repaid in June 1998, $1.5 million of
notes payable in September 1998 and $350,000 of notes payable in December 1998.

25
<PAGE>

Period from Inception (October 8, 1996) through December 31, 1996 and Year
Ended December 31, 1997

Revenues. We did not have any revenues prior to April 1, 1997. Prior to that
time, we were principally engaged in the development of our basic service. In
April 1997, we released PurchasePro 1.0 and began generating revenues. Our
revenues were $675,000 in 1997.

Cost of Revenues. We did not have any cost of revenues prior to April 1,
1997. After we commenced offering our services, we began to incur cost of
revenues due to the establishment of our customer service department and bank
and credit card processing charges. In 1997, our cost of revenues was $214,000,
and our gross profit was $462,000.

Sales and Marketing Expenses. Sales and marketing expenses increased from
$23,000 for 1996 to $1.2 million for 1997. We began limited marketing of our
service in 1996, and in 1997, we expanded our sales and marketing force,
entered new markets and began various marketing activities.

General and Administrative Expenses. Our general and administrative expenses
increased from $10,000 for 1996 to $1.3 million for 1997. In 1997, we
significantly increased our administrative staff, incurred professional fees
and facilities costs, and established a reserve for estimated doubtful
accounts.

Programming and Development Expenses. Our programming and development
expenses increased from $87,000 for 1996 to $802,000 for 1997. In 1997, we
continued to upgrade our network capacity and functionality.

Interest Expense. Interest expense increased from $4,000 for 1996 to
$120,000 for 1997. In 1997, interest expense was primarily related to a note
payable issued to our principal stockholder.

Quarterly Results of Operations

The following table sets forth our unaudited quarterly results of operations
data for our seven most recent quarters ended September 30, 1999. You should
read the following table in conjunction with our consolidated financial
statements and related notes included elsewhere in this prospectus. We have
prepared this unaudited information on the same basis as the audited
consolidated financial statements. This table includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. We have experienced and expect to continue to experience
fluctuations in operating results from quarter to quarter. We incurred net
losses in each of the last seven quarters and expect to continue to incur
losses for the foreseeable future. You should not draw any conclusions about
our future results from the results of operations for any quarter, or for any
period.

<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
----------- ----------- ----------- ----------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 236,373 $ 293,492 $ 501,848 $ 638,525 $ 673,907 $ 1,006,001 $ 1,670,090
Cost of revenues........ 97,917 114,308 123,186 110,228 162,870 186,870 217,929
Gross profit............ 138,456 179,184 378,662 528,297 511,037 819,131 1,452,161
Operating expenses...... 1,317,403 2,263,294 1,877,979 2,249,338 2,428,692 5,033,413 9,057,827
Operating loss.......... (1,178,947) (2,084,110) (1,499,317) (1,721,041) (1,917,655) (4,214,282) (7,605,666)
Other income (expense).. (78,896) (138,922) 6,499 (105,276) (118,655) (320,437) 79,938
Net loss................ (1,257,843) (2,223,032) (1,492,818) (1,826,317) (2,036,310) (4,534,719) (7,525,728)
Preferred stock
dividends, accretion of
preferred stock to
redemption value and
value of preferred
stock beneficial
conversion feature..... -- (35,000) (149,981) (150,457) (673,796) (9,108,050) (36,191)
Net loss applicable to
common stockholders.... (1,257,843) (2,258,032) (1,642,799) (1,976,774) (2,710,106) (13,642,769) (7,785,919)
</TABLE>

26
<PAGE>

Liquidity and Capital Resources

Since our inception on October 8, 1996, we have had significant negative
cash flows from our operations. For the period from inception through December
31, 1996, we were in the development stage and used $70,000 of cash for
operations. For the years ended December 31, 1997 and 1998, we used $1.9
million and $6.0 million of cash, respectively, in our operations. For the nine
months ended September 30, 1998 and 1999, we used a total of $4.3 million and
$8.4 million of cash in our operating activities. Cash used in operating
activities in each period resulted primarily from net losses in those periods.
For the year ended December 31, 1998, and for the nine months ended September
30, 1998 and 1999, our cash used in operating activities included increases in
our trade accounts receivable of $324,000, $191,000 and $1.7 million. The
increase is primarily attributable to billings under terms of our license and
advertising contracts entered into during the three months ended September 30,
1999, as well as member receivables that reflect our efforts to expand the
membership base by allowing for payment terms up to 90 days and billings for
our new license and advertising revenues in the third quarter of 1999. For the
nine months ended September 30, 1998 and 1999, we used cash totaling $142,000
and $2.3 million in our investing activities, which have consisted primarily of
expenditures for computer and related equipment, furniture and fixtures,
communication equipment and leasehold improvements as well as deposits on
various equipment leases.

Since inception, we have financed our operations primarily from the issuance
of common stock, proceeds of notes payable, the sale of Series A Preferred and
Series B Preferred Stock and the proceeds of our initial public offering.
During the period from inception through December 31, 1997, Charles E. Johnson,
Jr., our principal stockholder and Chief Executive Officer, contributed
$139,000 in capital and loaned us $2.5 million. In January 1998, we borrowed
$2.3 million from various individuals and used $813,000 of the proceeds to
repay a portion of the previous borrowings from Mr. Johnson. In April 1998, Mr.
Johnson advanced an additional $387,000 to us. In June 1998, we completed our
Series A Preferred Stock offering and received net proceeds of $5.0 million. We
used a portion of the proceeds from the Series A Preferred Stock offering to
repay the $2.3 million notes payable from our January 1998 borrowing and repaid
Mr. Johnson $310,000. In connection with the closing of the Series A Preferred
Stock offering, Mr. Johnson contributed his remaining notes payable totaling
$1.8 million to us as equity. We did not issue any new shares to Mr. Johnson in
exchange for this contribution. Between September and November 1998, we
obtained financing in the form of notes payable totaling $1.5 million,
including $500,000 from Mr. Johnson. In December 1998, Mr. Johnson loaned an
additional $250,000 and in March 1999 he loaned another $200,000 to us. In
December 1998, we commenced our Series B Preferred Stock offering. Through
December 31, 1998, we had received $2.0 million in cash pursuant to
subscription agreements for shares of Series B Preferred Stock. In June 1999,
we completed the Series B Preferred Stock offering and received aggregate
proceeds of $11.6 million. In June 1999, Mr. Johnson was repaid the total
amount of those outstanding loans from the proceeds of the Series B Preferred
Stock offering. See "Certain Transactions."

In September 1999, Mr. Johnson loaned us $550,000 at an interest rate of 10%
per annum, which is payable on March 31, 2000. We repaid the entire amount of
this loan plus accrued interest from the proceeds of our initial public
offering.

Net cash provided by financing activities for the nine months ended
September 30, 1999, was $57.5 million. Funds provided by financing activities
included the completion of our initial public offering, with net proceeds of
approximately $50 million after underwriting discounts and commissions and
other offering costs, and the issuance of Series B Preferred Stock. Funds used
in financing activities related to the repayment of the September 1998 Notes.

As of September 30, 1999, our principal source of liquidity was
approximately $48.5 million of cash and cash equivalents. As of September 30,
1999, we had material commitments for capital expenditures of $1.1 million. We
expect such expenditures to be approximately $1.5 million during the remainder
of 1999. We expect such expenditures will primarily be for computer equipment
to expand and enhance our network. We have also entered into several non-
cancelable lease commitments that will require payments of approximately $2.3
million over the next five years.

27
<PAGE>

We believe that we have sufficient cash and cash equivalents, including the
proceeds from this offering, to fund our operating and investing activities for
at least the next 18 months. However, we may need to raise additional funds in
future periods through public or private financings, or other arrangements. Any
additional financings, if needed, might not be available on reasonable terms or
at all. Failure to raise capital when needed could harm our business, financial
condition and results of operations.

Year 2000 Readiness

The Year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able
to distinguish whether "00" means 1900 or 2000, which may result in failures or
the creation of erroneous results.

We have defined Year 2000 compliant as the ability to:

. correctly handle date information needed for the December 31, 1999, to
January 1, 2000, date change;

. function according to the product documentation for this date change,
without changes in operation resulting from the advent of a new century,
assuming correct configuration;

. respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;

. store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and

. recognize Year 2000 as a leap year.

We have designed all of our products to be Year 2000 compliant when
configured and used in accordance with related documentation.

We have completed an assessment of most of our material information
technology systems, including both our own software products and third-party
software and hardware technology. We have tested the flow of data through our
electronic commerce platform for regular bids (RFQs), automatic bids and
purchase orders as the date rolled from 09/08/1999, 12/31/1999, 02/28/2000,
02/29/2000, 12/31/2000, 02/28/2001, 02/28/2004 and 12/31/2019, and to the next
day and found all transactions processed correctly. We have not individually
tested each computer that supports the electronic commerce platform for these
specific dates. The computer systems that support key customer activities all
have the most current operating system and third-party software patches
applied. Based on the representations of third-party software providers and the
testing performed in house, we believe all information technology systems that
support our electronic commerce platform and our customers are Year 2000
compliant. Unknown date-related errors or defects in our products could result
in damage to our reputation, increased service costs, or loss of our customers,
any of which could materially and adversely harm our business.

The Year 2000 readiness of information technology systems used by our staff
to support our internal business enterprises is under review. Our internal
technical support personnel have checked many of the desktop systems used by
our staff. Any updates to operating system or application software provided by
the various third-party software vendors as part of their Year 2000 compliance
efforts are applied on a case by case basis. We will have completed this
activity for all of our desktop systems before the end of 1999.

The status of our non-information technology systems is not known. A review
of such systems and all required remediation and testing is scheduled to be
complete by the end of 1999.

Other than the probability of Year 2000 issues with the telephone system in
use at our corporate headquarters in Las Vegas, Nevada, we are not currently
aware of any material operational issues or costs associated with preparing our
internal information technology and non-information technology systems for the

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Year 2000. However, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal
information technology and non-information technology systems. Also, we are
subject to external forces that might generally affect industry and commerce,
such as utility or transportation company Year 2000 compliance failure
interruptions.

Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is
uncertain whether or to what extent we may be affected by it.

To date we have responded to all requests from our customers for information
regarding our Year 2000 compliance. We have appointed a Year 2000 Project
Coordinator. Our Year 2000 Project Coordinator has sent letters to our key
vendors requesting information about their Year 2000 readiness, and they have
all responded with positive reassurances.

We do not have any information concerning the Year 2000 compliance status of
our customers. Our current or future customers may incur significant expenses
to achieve Year 2000 compliance. If our customers are not Year 2000 compliant,
they may experience material costs to remedy problems, or they may face
litigation costs. If our customers' systems or applications are not Year 2000
compliant, our customers may not be able to use our products or services. In
either case, Year 2000 issues could reduce or eliminate the budgets that
current or potential customers could have for, or delay purchases of, our
products and services. As a result, our business could be seriously harmed.

We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. We believe these costs have
not been material. We could incur additional costs related to the Year 2000
plan for administrative personnel to manage the project, outside contractor
assistance, technical support for our products, product engineering and
customer satisfaction. We expect any additional costs to be funded from
operating cash flows and do not expect these additional Year 2000 compliance
costs to be material. However, we may experience material problems and costs
with Year 2000 compliance that could seriously harm our business.

Our Year 2000 Compliance Plan is in effect; however, there is no guarantee
that it addresses all situations that may result if our critical operations
prove not to be Year 2000 ready. We will have staff and tools standing by
during each century event date should unexpected problems occur. If an
adjustment is needed, these experts will make and test the changes and install
any software updates on our Web site making the software available for download
by our customers. We cannot guarantee that we will be able to make these
changes in a timely manner, which could significantly impact our business and
the ability of our customers to conduct business.

If, in the future, it comes to our attention that some of our products need
modification, or some of our third-party hardware and software is not Year 2000
compliant, then we will seek to make modifications. In such case, we expect
such modifications to be made on a timely basis, and we do not believe that the
cost of such modifications will materially harm our operating results. We may
not be able to modify our products, services and systems in a timely and
successful manner to comply with the Year 2000 requirements.

There has been no independent verification or validation to assure our Year
2000 readiness other than by our clients. Various customers have been concerned
about Year 2000 readiness and have tested our software under different date
scenarios. We have received no report of Year 2000 problems as a result of this
testing. However, we can make no assurance that this testing was sufficient or
adequate.

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The worst case scenario for Year 2000 issues would be if we ceased normal
operations for an indefinite period of time while we attempted to respond to
our own and/or our customers' Year 2000 problems without having full internal
operational capabilities. Year 2000 issues affecting our business, if not
adequately addressed by us, our third-party vendors, or our customers, could
have a number of "worst case" consequences. These include:

. the inability of our customers to use our products and services to
procure and manage their operating resources;

. claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and

. our inability to manage our own business.

To date we have experienced one Year 2000 problem. One component of software
obtained from a third-party vendor was not compliant. We reported the problem
to the third-party vendor, received and applied an update to the software, and
have experienced no further problems in this area. We cannot assure you that
other such problems will not occur or that we will be able to modify our
products, services and systems in a timely and successful manner to comply with
Year 2000 requirements.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. The FASB recently issued SFAS No. 137, which defers the effective
date of SFAS No. 133. SFAS No. 133 will be effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. We currently do not engage in, nor
do we expect to engage in, derivative or hedging activities, and, therefore, we
do not believe that SFAS No. 133 will have a material impact on our results of
operations or financial position.

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BUSINESS

PurchasePro.com, Inc.

PurchasePro.com is a leading provider of Internet business-to-business
electronic commerce services. Our members can buy and sell a wide range of
products and services on our e-marketplaces in an efficient, competitive and
cost-effective manner. We have designed our e-marketplaces to meet the needs of
small and medium sized businesses and their large business partners.

We began developing our service in 1996 by closely evaluating the purchasing
process of the hospitality industry that is characterized by high volume,
frequent purchases of a broad range of goods and services by a large number of
geographically distributed buyers. We capitalized on the large-property
purchasing expertise of several Las Vegas-based hotels and resorts to develop,
test and validate our service. These hotels have provided important marketing
references for the expansion of our e-marketplaces. Since launching our public
e-marketplace in April 1997, we have continuously upgraded the functionality of
our service. Our most recent enhancement enables the creation of private e-
marketplace communities for access on an invitation-only basis.

Industry Overview

Growth of Internet Usage and E-Commerce. The Internet and related
technologies are revolutionizing the way businesses and consumers communicate,
share information and conduct business. As the number of Internet users and the
sophistication of Internet-enabled content and development tools have
increased, the Internet's functionality has expanded from a medium primarily
for publishing information to one that enables more complex business-to-
business communications and commerce. At the same time, businesses across many
industries are facing increasing competitive pressures to lower costs, decrease
inventories and improve sales and marketing productivity. To address these
challenges, businesses are increasingly replacing paper-based transactions with
Internet e-commerce solutions that provide cost-effective and efficient
channels for connecting and transacting with global suppliers, distributors and
customers. Forrester Research estimates that the business-to-business e-
commerce market will grow from $43 billion in 1998 to $1.3 trillion by 2003,
representing a compound annual growth rate of approximately 98%.

Inefficiencies in Corporate Purchasing and Supply. Historically, the
purchasing of supplies and services has involved significant manual processes
and in many industries has been highly fragmented and decentralized.
Decentralized purchasing makes it difficult for businesses to manage employee
purchases, control spending and prevent duplicative or unauthorized orders.
Many companies do not have an efficient and easy-to-use means of executing and
managing purchases of supplies and services. According to the Center of
Advanced Purchasing Studies, corporate purchases of goods and services
represent on average 38% of a company's revenues. Cost-effective purchasing is
an important contributor to improving a company's profitability. Despite the
importance of the purchasing function and the prevalence of information
technology systems in many enterprises, purchasing at many companies remains
heavily paper-based, labor-intensive and decentralized. AMR Research estimates
that the cost per procurement transaction for non-production supplies and
services ranges from $75 to $175. These costs can exceed the cost of the items
being purchased. In addition, these time consuming processes often result in
fulfillment delays to end-users, leading to productivity losses.

Traditional Electronic Purchasing. A number of companies have attempted to
use information technology to reduce the inefficiencies that characterize most
corporate purchasing functions. Although existing electronic purchasing methods
have helped facilitate e-commerce, we believe that these current methods have
limitations that prevent widespread adoption by buyers and sellers:

. Conventional Electronic Data Interchange. Electronic data interchange, or
EDI, systems involve a set of uniform formats for commercial documents
such as invoices and purchase orders that allow computers to exchange
such documents across private networks without human intervention.
Forrester Research estimates that of the 2 million U.S. companies with 10
or more employees, only five percent have deployed conventional EDI
systems. Barriers to implementation include the high cost of

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installation and maintenance as well as significant, on-going transaction
fees. Because EDI systems rely on the execution of pre-defined
transactions, they generally are not well suited for dynamic procurement
environments involving many buyers and suppliers or a wide variety of
goods and services.

. Enterprise Purchasing Software Systems. A number of vendors have
developed purchasing software systems designed to improve the
coordination of the purchasing function across large enterprises. Most of
these systems are expensive to license, with up-front licensing fees that
can exceed $1 million. Users also typically pay ongoing maintenance fees.
Additionally, the complexity of these systems typically requires a
lengthy and expensive implementation process.

Furthermore, most EDI and enterprise purchasing software systems do not
offer a full spectrum of online procurement functions, such as sourcing from
multiple suppliers and placing simultaneous bid requests with multiple
suppliers. Due to the expense and complexity of these systems, they are
generally unsuitable for all but the largest organizations.

The PurchasePro.com Opportunity. Companies recognize the necessity to
establish an electronic platform that can be utilized by both large and small
business partners cost effectively, with limited hurdles to rapid
implementation and use. The Internet provides a cost-effective medium for
businesses, regardless of size, to link directly to their communities of
customers, suppliers and other business partners. PurchasePro.com takes
advantage of the low costs and community building nature of the Internet to
deliver our business-to-business e-commerce solution.

The PurchasePro.com Solution

PurchasePro.com's business-to-business e-commerce solution is comprised of
public and private e-marketplaces where businesses can buy and sell a wide
range of products and services over the Internet in an efficient and cost-
effective manner. With a PurchasePro.com membership, large and small companies
can participate in an interactive e-marketplace community of businesses seeking
to expand sales and lower costs. We believe our service enables companies and
their trading partners to quickly realize the benefits of increased efficiency,
faster turnaround and more timely information. Our user-friendly solution is
scalable in its application, provides many features and is designed to provide
the following benefits:

Lower Operating Costs. By eliminating many costly and time-consuming
functions of traditional, paper-based buying and selling, our e-marketplaces
may allow companies to reduce operating costs and shorten cycle times in the
purchasing and selling processes. Our solution enables members to rapidly
prepare bid requests and simultaneously distribute them electronically to
multiple parties. Responding bids are automatically aggregated and compiled in
line-item comparison reports for easy analysis, enabling purchase orders to be
expedited. Moreover, our service operates as a rapidly deployable outsourced
solution that does not require companies to install expensive enterprise
purchasing software systems and hire costly information technology specialists
to maintain and manage these systems.

Lower Prices. We believe many of our members have realized significant
reductions in the cost of the goods and services they have purchased as members
of our e-marketplaces. Our e-marketplaces support competitive bidding in
response to bid requests from buyers. By automating the sourcing process, our
solution allows companies to send out bid requests for smaller quantities more
efficiently and expand the number of suppliers from which they request bids.
Furthermore, buyers can achieve economies of scale by aggregating purchasing
among subsidiaries and divisions and benefit from group buying discounts that
we plan to negotiate with national suppliers participating in our e-
marketplaces.

Improved Management and Control. Our solution allows companies to
proactively manage procurement through user-defined approval procedures.
Procurement managers, for example, can pre-set the level of access and
purchasing authority for each staff member. Utilizing the workflow features of
our service, managers can quickly view, analyze and manage employee activities,
providing improved control and more informed

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purchasing decisions. In addition, our solution automatically generates inquiry
and transaction records facilitating improved documentation and auditing. We
also maintain records of procurement activity by our members that can be used
to verify or validate transactions.

Better Information. Our service provides members with up-to-date pricing,
product and supplier profile information on a 24-hour, 7-day a week basis. Our
solution allows suppliers to maintain real-time control of pricing and other
descriptive information about products and services they offer, helping to
ensure that potential buyers obtain accurate information in a customizable
format.

Greater Access to Business Partners. We believe that our e-marketplaces
enable members to access new customers and suppliers. With our public e-
marketplace, members can communicate with and conduct business among a broad
array of companies in a highly efficient manner. In addition, we believe that
our solution enables many of our members to offer, for the first time, their
goods and services for sale over the Internet.

Our Strategies

Our objective is to be the preferred business-to-business e-commerce
solution through our public and private e-marketplaces. Key strategies to
achieve our objective include:

Expand Our Membership. We intend to expand our membership through the
following:

. Build Upon Our Leadership Position Serving the Hospitality Industry. We
believe we are the leading provider of business-to-business e-commerce
solutions to the hospitality industry and its suppliers. We have grown
our e-marketplace membership by focusing on major hospitality buyers with
large supplier bases. Through our direct and indirect sales channels and
by using our existing relationships, we plan to develop new partnerships
within the hospitality industry to further increase our membership base.

. Pursue New Vertical Markets. We are applying our solutions to markets
with similar procurement characteristics to the hospitality industry.
These markets include:
<TABLE>
<S> <C>

.architecture, engineering and construction
.food services
.colleges and universities .healthcare
.facilities management .janitorial supply distribution
</TABLE>

. Enter New Geographic Markets. We are expanding into new geographic
markets by establishing new relationships or leveraging our current
relationships with large buyers or suppliers with operations in those
locations. These business partners provide us access to their business
partners, allowing us to establish a foothold in new major metropolitan
areas. In addition, we recently licensed our e-marketplace software to a
third party that will market our solution to the hospitality and travel
industry in Asia and the South Pacific.

Encourage Users to Rely on Our E-marketplaces. We believe that as members
increase their usage of our e-marketplaces, they become more reliant on the
PurchasePro.com solution as an important part of their procurement processes.
Our service often reduces repetitive clerical tasks associated with the
procurement process for both buyers and sellers. Moreover, the benefits of our
service are increased when it is integrated with existing enterprise
information systems. Active buyers have reported significant cost savings
realized from reductions in forms, communication charges and other labor and
materials as well as improved pricing arising from the competitive bidding on
the e-marketplace.

Develop Multiple Revenue Streams. Substantially all of our current revenues
are derived from member subscription fees paid for access to our public e-
marketplace. However, we are in the process of developing a number of
additional revenue sources including:

. public and private e-marketplace transaction fees;

. advertising revenues including banners, classified ads and other
electronic promotions;

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. licensing and recurring maintenance fees from larger corporate accounts
that create and sponsor private e-marketplace communities; and

. network hosting fees and administration charges.

Although the costs associated with developing these revenue sources may be
substantial and the timing of the development of each revenue source is
uncertain, we believe that the revenues from these and other sources will
eventually become a larger part of our overall revenue mix.

Provide Value Added Services. We intend to expand the value-added services
that we offer to our members. We plan to make available products and services
such as reduced rates and fees from long distance telephone carriers, cellular
service providers and worker's compensation insurers. In addition, we intend to
offer discounts on office products and other business consumables through our
sales and marketing partners. We intend to make these discounts available to
all members so that even smaller companies can realize cost savings associated
with participating in a large buying group.

Pursue Strategic Sales and Marketing Relationships. We intend to continue to
pursue strategic sales and marketing relationships to expand our membership,
extend our marketing reach, provide value-added merchandise or services and
further develop our e-marketplaces in a rapid and cost-effective manner. Our
current sales and marketing partners include Ariba, Office Depot, Sprint,
VerticalNet and ZoomTown.com, a subsidiary of Cincinnati Bell, Inc.

Strengthen the PurchasePro.com Brand. We plan to expand and enhance our
marketing initiatives to increase our brand awareness and identity. These
initiatives will include traditional and Internet-based advertising targeted at
selected audiences, interviews and articles in business media and trade
publications and direct sales and telemarketing. We also engage in joint-
marketing and sales efforts with our business partners.

Our Services

Our e-marketplaces are designed to streamline the procurement cycle for our
members--from sourcing to bidding to order to payment. Our e-marketplaces
enable each member to participate as both a buyer and a seller. When acting as
buyers, our members can realize a reduction in processing costs, achieve
improved pricing, enforce corporate purchasing policies and maintain an audit
trail for evaluating purchasing programs. When acting as suppliers, our members
can strengthen relationships with existing customers, reach new buyers and
lower sales, marketing and administrative costs. Our e-marketplaces are online
business-to-business e-commerce communities. With the recent enhancements to
our e-marketplace software, members can create private e-marketplaces.

Basic Membership Services

Online Buying and Selling. Our e-marketplace solution enables our members to
interact as buyers and suppliers, streamlining their purchase and sale process
over the Internet. Members using the e-marketplace's competitive bidding
function send a request for a bid (including requests for line item price
quotes) to suppliers who respond electronically with pricing and availability
information. The request for bids can be "sealed" electronically so that the
buyer cannot view the responses until a specified date and time. Through our
competitive bidding function, we believe that buyers can achieve cost savings
on the prices of products purchased.

Our e-marketplaces provide members with a marketing tool that enables them
to sell to all the other members of our e-marketplaces. Small suppliers can
compete on a more equal footing with larger suppliers. As a result, we believe
our e-marketplace is an effective tool for suppliers to achieve deeper
marketing and sales penetration in their primary markets and to enter new
geographic markets on a cost-effective basis.

Access to a Broad Electronic Database of Potential Business Partners. Our e-
marketplaces allow members to query and shop from the offerings of our members.
This provides users with the opportunity to purchase from their existing
suppliers as well as develop new supplier relationships.

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Real-Time Information. Our e-marketplaces provide for the real-time updating
of database information. After suppliers have responded with bids, buyers can
analyze the responses through line item comparison reports with the opportunity
to select one supplier's bid or to select specific items from selected
suppliers. Since the information provided by the suppliers can be analyzed
quickly, response time on bids can be significantly reduced. After a bid is
accepted, our e-marketplaces allow buyers to create and send electronic
purchase orders, and to finalize the payment and delivery instructions to
complete the purchase. In addition, suppliers can create online catalogs that
provide real-time dissemination of accurate information in a more cost
efficient manner than with printed materials.

Reporting Services. E-marketplace members can review their bids and purchase
orders through keyword, date, supplier or purchase order number searches.
Members can generate comprehensive reports on their activity based on their
search results. Further line-by-line detail can be obtained for each bid or
purchase order by using the analytical tools available on our e-marketplaces.
For example, the Quick Check Report compares the responses of every line item
for each of the suppliers, calculating the price per unit and indicating which
supplier has the lowest price per item for that particular item. The report
also provides the necessary information for purchasing agents to make future
decisions based on price, service or possible long-term contracts. The
information can be exported via ASCII, EDI, ODBC-compliant files, or Excel
worksheets, so that members can transfer the information to their enterprise
resource planning and accounting systems for further reporting and data
archiving.

Procurement Controls. Members can restrict employee access to the various
levels of our e-marketplaces. A client password file is checked at each member
login and whenever members access the database. Members can monitor employee
requests for proposals and purchase orders. Members can also select options
that limit employee access to selected suppliers, specific items, quantities
and service features. Through such protocols, control over corporate purchasing
is significantly enhanced without the installation of expensive enterprise
purchasing software systems.

Community. We continue to expand our services to help foster interaction
among e-marketplace members. Our members currently have access to e-mail
accounts, and we plan to introduce additional features such as industry trade
news, discussion forums, chat rooms and bulletin boards, all of which foster
active community participation among our members. We expect to continue to add
features, content and services that enhance the benefits of membership in the
PurchasePro.com community.

Purchasing Discounts for Members. We intend to negotiate group discounts
with national suppliers for our e-marketplace members. In return for our
providing electronic access to our large membership base, we expect these
suppliers to provide discounts to our members irrespective of size. As such, we
plan to expand our value proposition to our community, particularly to those
smaller companies that do not normally benefit from the pricing economies of
their larger competitors.

Other Membership Services

Private E-marketplaces. With the recent enhancements to our e-marketplace
software, members can create private e-marketplaces. Private e-marketplaces
allow buyers or suppliers to sponsor a community of selected business partners
on an invitation-only basis. In these communities, the sponsoring company
invites selected trading partners to participate in customized programs such as
special pricing arrangements and product offerings. We are developing private
e-marketplaces for Best Western International, Building One Services, Marriott
International and Prime Hospitality.

E-marketplace Catalogs. We create customized electronic catalogs for our
members that enable buyers to browse through a supplier's product and service
offerings and "drag and drop" their desired selections directly into a purchase
order. We also offer a catalog maintenance service.

Web Site Development, Hosting and Maintenance. We construct Web sites for
our members on a trial basis. After the initial trial period, members are
charged a monthly hosting fee. These sites enable members to

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provide additional information on their products and services to other members.
We also market to our members upgrades to these Web sites, which have resulted
in additional fees.

Banner Advertisements. We offer banner advertisements on our e-marketplace
as a direct marketing tool for our members. When a buyer sources products, a
banner advertisement appears promoting a related product offered by a
particular supplier.

Classified Advertising. Our classified advertising section provides real-
time advertising directly from members. All advertisements can be accessed by
keyword searches and can be posted and terminated in real-time.

Group Buying Services

In addition to our public and private e-marketplaces, we offer group buying
services to the hospitality industry through our Hospitality Purchasing Systems
subsidiary. This subsidiary consolidates the buying power of the properties
that it represents to obtain volume discounts that might otherwise only be
available to larger buyers. We receive fees from buyers and rebates from
suppliers. We are marketing our PurchasePro.com solution to participants of
this buying group.

Our Revenue Sources

To date, our primary source of revenues has been subscription fees paid by
our members. In order to build our e-marketplace membership, we have provided
free access to our public e-marketplace and technical support to large
corporate members. In return we have gained access to and assistance in
recruiting their small and medium sized business partners as members of our e-
marketplace.

We plan to expand our revenue sources over time to include the following:

Transaction Fees. We intend to charge transaction fees on purchases
consummated by our members with our strategic partners and value added
merchandise and service providers. In addition, in certain of our private e-
marketplaces we intend to derive revenues from transaction fees levied on sales
within the community.

Licensing, Maintenance and Network Hosting Fees. We charge a one-time
licensing fee and annual maintenance fees for private e-marketplaces in place
of or in certain cases in addition to transaction fees. We also charge
recurring fees for hosting the network upon which these private e-marketplaces
are deployed.

Other Revenue Sources. Other revenue sources include advertising and Web
site development, hosting and maintenance. As our membership grows, we intend
to charge for banner and classified advertisements that we presently offer as a
free service. We also construct Web sites for our members and charge monthly
hosting and maintenance fees after an initial trial period.

Strategic Relationships

A key element of our strategy is to expand our sales, marketing and
distribution channels through strategic relationships with entities that are
commercial partners, and in some cases, equity investors. We have established,
and will continue to pursue, these strategic relationships in order to grow
revenues, to provide indirect sales and marketing of our e-marketplaces, and to
enhance our e-marketplace services. The following are examples of our strategic
relationships:

Sprint. In December 1999, we entered into a strategic e-commerce marketing
agreement with Sprint Corporation, a global communications company, and one of
the largest carriers of Internet traffic. Under the agreement, we will develop
a co-branded website, which will be marketed by Sprint as its preferred
business-to-business e-commerce solution for the procurement of goods and
services to its business customers in long distance, paging and collaborative
services. Sprint will become the preferred communications provider of long
distance, paging and collaborative services on the PurchasePro.com Network. We
will pay Sprint a quarterly sales commission from the sales of subscriptions
generated by promoting PurchasePro.com to the Sprint

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marketplace. In connection with the strategic e-commerce agreement, we issued
to Sprint a warrant to purchase up to 2,700,000 shares of our common stock at a
price per share of $95.79. One half vested upon issuance and the actual number
of shares issuable upon exercise of the remainder is based on the actual net
annualized revenue that is generated for us under the strategic e-commerce
agreement.

Advanstar. In November 1999, we entered into an agreement with Advanstar,
Inc., a leading worldwide business information company with more than 100
business and professional publications and directories, 113 exhibitions and
conferences, numerous web sites and direct marketing, database and reference
products. Under the agreement, we will create twenty web-based industry-
specific business communities for Advanstar. The communities will utilize our
e-commerce solutions and provide access to our e-marketplace. Advanstar will
pay us development and maintenance fees for these communities. In addition, we
will share subscription fees, transaction fees, and advertising fees generated
from these communities. We have also issued to Advanstar a warrant to purchase
525,000 shares of our common stock that can be exercised prior to the six-month
anniversary of the signing of the agreement at a price per share of $37.58.

Ariba. On September 28, 1999 we announced our intent to form a strategic
alliance with Ariba, Inc., a provider of intranet and Internet-based business-
to-business electronic commerce solutions for operating resources, that
includes a revenue sharing arrangement. Under terms of the proposed
arrangement, we will connect our business community to the Ariba Network(TM)
platform and our subscribers will be able to buy from the suppliers already
integrated with the Ariba Network platform, and will gain access to Ariba
Network services. This agreement has not yet been formalized, but we believe
that it will be finalized in the fourth quarter of 1999.

Workflow Management. In November and December 1999, we entered into
agreements with Workflow Management, Inc., which provides customers with an
innovative electronic outsourcing and facilities management system,
iGetSmart(TM) serving over 30,000 businesses throughout North America. Workflow
Management has designated us as a preferred e-commerce solutions provider to
Workflow Management. We have designated Workflow Management as the preferred
provider of printing needs, including corporate stationery, business cards and
forms. We will receive an annual fee for this preferred provider status. Under
the agreement, we will also create a co-branded private e-marketplace for
Workflow Management. Workflow Management will prepay supplier subscription fees
and pay us a commission on gross sales to PurchasePro.com network customers and
we will share transaction fees.

Primavera Systems. In September 1999, we formed a strategic relationship
with Primavera Systems, Inc., a developer of integrated, scalable project
management software solutions, to develop an e-marketplace for construction
companies, subcontractors, project owners and suppliers. This strategic
alliance was formed as part of our efforts to move into the Architectural,
Engineering and Construction vertical. The agreement provides for Primavera to
pay subscription fees per user and for sharing of transaction fees generated
from users of the e-marketplace.

DigitalWork. In June and July 1999, we entered into agreements with
DigitalWork.com, an online business services portal enabling growing businesses
to complete critical business tasks online. DigitalWork will pay us to create a
co-branded e-marketplace and prepay subscriptions for their registered members
to access the PurchasePro.com network. We will share subscription, transaction
and advertising fees related to this e-marketplace. We also agreed to provide
access to DigitalWork's online services to members of our public e-marketplace.
We will share revenue from transaction and other fees.

Office Depot. In October 1999, we announced a strategic e-business
relationship and marketing agreement with Office Depot, Inc., the world's
largest seller of office supplies. Under terms of the agreement, we will be the
recommended business-to-business e-commerce solution to be marketed to the
Office Depot customers and clients. Office Depot will be featured as the
exclusive preferred provider in our business-to-business e-marketplace. Terms
of the agreement provide that transaction fees of 1% will be shared, with 25%
to Office Depot and the remaining 75% to us.

37
<PAGE>

VerticalNet. In July 1999, we entered into an agreement with VerticalNet,
Inc., an owner and operator of online business-to-business vertical
communities. Under the agreement, we will assist VerticalNet in launching and
promoting hospitality and food service vertical communities. We will provide e-
commerce solutions to VerticalNet and its users will have access to our public
e-marketplace. We will engage in joint promotional activites and provide links
to each other's Web sites. We will share transaction fees.

ZoomTown.com. In May 1999, we entered into an agreement with ZoomTown.com, a
subsidiary of Cincinnati Bell, Inc. We have granted to ZoomTown.com, as our
agent and representative, the exclusive right to market and offer access to our
e-marketplaces in Ohio, a co-exclusive right in Kentucky, and a nonexclusive
right in other domestic markets until April 2001. Under the agreement
ZoomTown.com may co-brand our e-marketplaces. In addition, ZoomTown.com can
extend its exclusive rights to market and offer access to our e-marketplaces
under a ZoomTown.com co-brand to include the states neighboring Ohio and
Kentucky. ZoomTown.com receives sales commissions for members it adds to the
co-branded e-marketplaces.

Our E-marketplace Members

The following is a representative list of our major e-marketplace members:

National Accounts Nevada Florida
American Association of Aladdin Hotel and Casino The Breakers Hotel
Franchisees and Dealers Marnell Corrao ConstructionCarnival Cruise Lines
American Hotel Register MGM Grand Loews Hotels
Barton Management Mission Industries Registry Resort
Best Western International Nevada Power Company Seaway Hotel
Building One Services Rio Hotel and Casino Corporation
Caesars Palace State of Nevada
Handy Source
Mandalay Resort Group Lexington/Louisville, Kentucky
Marriott International and Cincinnati, Ohio Arizona
Memphis Chamber of Commerce Amtek Electrical America West Arena
MeriStar Management Company Ball Homes Arizona Diamondbacks
MGC Communications Clay Ingels Company Bank One Ballpark
Mirage Resorts Central Baptist Hospital Embassy Suites
National Association of Women Scottdale
Fidelity National Credit Services
Business Owners Host Communications, Inc. ILX Resorts
National Black Chamber of Lodestar Energy Greater Phoenix
Commerce Montgomery Inn Chamber of
National Minority Supplier St. Joseph Hospital Commerce
Development Council Phoenix Suns
University of Louisville Hospital
1800Wedding.com Scottsdale Princess
Park Place Entertainment
Prime Hospitality
Richfield Hospitality
Sunstone Hotels
Tarsadia Hotels
Travelscape
Tropicana Casino and Resort
These relationships provide us with access to and assistance in recruiting a
large number of small to medium sized companies for our e-marketplaces.

38
<PAGE>

Sales and Marketing

Sales Strategy

We sell through direct and indirect channels. Our direct sales group targets
buyers, suppliers and their respective business partners. As of September 30,
1999 we had 106 people in our sales and marketing group, and we plan to
significantly expand this group over the next 12 months. Sales offices in the
United States currently include Las Vegas, Nevada and Phoenix, Arizona. We also
have sales representatives located in Washington, D.C., Orlando, Florida and
Atlantic City, New Jersey.

The sales forces of our sales and marketing partners offer our services to
their business partners. For example, we have entered into an agreement with
ZoomTown.com, a subsidiary of Cincinnati Bell, Inc., to co-brand our e-
marketplace. Under this agreement, ZoomTown.com receives sales commissions on
revenues from members added to the e-marketplace through their efforts. To gain
market presence and exposure to potential new members, we plan to team with
large buyers and suppliers that have strong industry backgrounds and market
presence in their respective markets and geographic regions.

Marketing Strategy

Our marketing strategy focuses on increasing our brand awareness and
identity. We intend to continue to market ourselves through traditional and on-
line business media and trade publications. Co-branded relationships, such as
our ZoomTown.com partnership, and cooperative direct mail initiatives support
our direct marketing efforts. We participate in events, conferences and trade
shows to promote our business-to-business brand presence.

Member Service and Support

We provide member service support on a 24-hour per day, 7-day per week
basis. Our customer support department is responsible for day-to-day contact
with members and responds to questions from members through e-mail and a 24-
hour toll-free number. This department is responsible for retaining and
increasing use by existing members and is an important aspect of member
satisfaction.

Technology and Operations

PurchasePro.com's proprietary e-marketplace technology serves as the
enabling platform for all of our solutions. This community-oriented, trading
network technology resides centrally on our servers located at our
headquarters. Members access our service using either a standard Web browser or
our proprietary client software. We have designed our technology and operations
with the following key characteristics, many of which are based on our
centralized architecture:

Scalability. Our architecture is scalable, enabling us to accommodate
membership growth. This scalability permits us to quickly add our members'
business partners to our e-marketplaces without those members incurring
infrastructure costs.

Accuracy. We have designed our system to enable each member to maintain
their information on our databases so that other users can access the most
current data. In addition, by using custom interfaces to our client software,
members can automate the process of maintaining their data.

Reliability. We currently maintain four T1 Internet connections. The client
connections are load balanced over our application servers. Database servers
are configured to be fault-tolerant and their hard drives can be swapped while
the system is operating. These databases are replicated on additional back-up
servers for quick access. Uninterruptible power supplies support all production
servers.

Security. Multiple layers of security, including secure socket layer
technology from Verisign, protect the service network and data. Our network
uses up to 128-bit standard encryption technology, along with

39
<PAGE>

rigorously monitored firewalls and other restrictions and physical or
electronic separations to prevent harm to the service. Servers add, update and
retrieve data through procedures designed to prevent improper access to data.
Additionally, our staff has restricted access to our e-marketplace data and
network. All servers are equipped with virus detection and removal software,
including an enhanced version on our mail server.

Recovery. In addition to the redundant database servers, all member data is
backed-up to tape every thirty minutes and removed from the premises on a daily
basis for off-site storage.

Intellectual Property

We rely on a combination of trademark, copyright and patent law, trade
secret protection and confidentiality and/or license agreements with our
employees, customers and business partners to protect our proprietary rights in
products, services, know-how and information. We have been granted one patent
in the United States and we may seek additional patents in the future. We do
not know if any future patent application will be issued with the scope of the
claims we seek, if at all, or whether any patents we receive will be challenged
or invalidated. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and competitors may independently develop
similar technology. We cannot be certain that our services do not infringe
patents or other intellectual property rights that may relate to our services.
Like other technology and internet based businesses, we face the risk that we
will be unable to protect our intellectual property and other proprietary
rights, and the risk that we will be found to have infringed the proprietary
rights of others.

Competition

The e-commerce market is new, rapidly evolving and intensely competitive,
and we expect competition to intensify in the future. Barriers to entry are
minimal, and competitors may develop and offer similar services in the future.
Although we believe that there may be opportunities for several providers of
products and services similar to ours, a single provider may dominate the
market. We expect that additional companies will offer competing e-commerce
solutions in the future.

We have encountered and expect to encounter competition from other e-
commerce solutions providers including:

. companies such as Microsoft Corporation, America Online and its Netscape
subsidiary, and Yahoo! that offer a broad array of Internet-related
services and either offer business-to-business e-commerce services
presently or have announced plans to introduce such services in the
future;

. enterprise software purchasing system providers such as Ariba, Commerce
One and TRADE'ex;

. electronic data interchange providers such as GE Information Services,
Harbinger Corp., IBM and Sterling Commerce;

. enterprise resource planning software developers such as PeopleSoft,
Oracle and SAP;

. e-commerce trade communities; and

. e-commerce Web sites of business retailers.

Virtually all of our current and potential competitors have longer operating
histories, larger customer bases and greater brand recognition in business and
Internet markets and significantly greater financial, marketing, technical and
other resources than PurchasePro.com. In addition, other e-commerce service
providers may be acquired by, receive investments from or enter into other
commercial or strategic relationships with larger, well established and well-
financed companies as use of Internet and other online services increases.
Therefore, certain of our competitors may be able to devote significantly
greater resources to marketing and promotional campaigns, may adopt more
aggressive pricing policies or may try to attract users by offering services
for free and devote substantially more resources to product development than
PurchasePro.com. Increased competition

40
<PAGE>

may result in reduced operating margins, loss of market share and diminished
value in our brand, any of which could materially and adversely affect our
business, financial condition and results of operations. New technologies and
the expansion of existing technologies may increase the competitive pressures
on us by enabling our competitors to offer a similar but lower-cost service. We
cannot assure you that we will be able to compete successfully against current
and future competitors. Further, as a strategic response to changes in the
competitive environment or otherwise, we may, from time to time, make certain
pricing, service or marketing decisions or acquisitions that could materially
and adversely affect our business, financial condition and results of
operations. New technologies and the expansion of existing technologies may
increase the competitive pressures on us by enabling our competitors to offer a
similar but lower-cost service.

Although we have established several strategic relationships, there can be
no assurance that these arrangements will be renewed on commercially reasonable
terms or that they will otherwise continue to result in increased users of the
PurchasePro.com service. In addition, companies that control access to ISP
services used to connect to our network could promote our competitors or charge
our clients substantial fees for Internet access.

Government Regulation

We are subject to various laws and regulations relating to our business. Few
laws or regulations are currently directly applicable to access to the
Internet. However, because of the Internet's popularity and increasing use, new
laws and regulations may be adopted. Such laws and regulations may cover issues
such as:

. user privacy;

. pricing;

. tax;

. content;

. copyrights;

. distribution; and

. characteristics and quality of products and services.

In addition, the growth of the Internet and e-commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.

Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding online copyright infringement. Although not yet
enacted, Congress is considering laws regarding Internet taxation. The European
Union recently enacted new privacy regulations. These are all recent
enactments, and there is uncertainty regarding their marketplace impact. In
addition, various jurisdictions already have enacted laws that are not
specifically directed to e-commerce but that could affect our business. The
applicability of many of these laws to the Internet is uncertain and could
expose us to substantial liability.

Any new legislation or regulation regarding the Internet, or the application
of existing laws and regulations to the Internet, could materially adversely
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
materially adversely affect us.

We believe that our use of third-party material on our e-marketplace
communities is permitted under current provisions of copyright law. However,
because legal rights of certain aspects of Internet content and commerce are
not clearly settled, our ability to rely upon exemptions or defenses under
copyright law is uncertain.

41
<PAGE>

Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the
same manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet providers and online service providers in a manner similar to long
distance telephone carriers and to impose access fees on such providers. If
either of these petitions is granted, the costs of communicating on the
Internet could increase substantially. This, in turn, could slow the growth of
use of the Internet. Any such legislation or regulation could materially
adversely affect our business, financial condition and operating results.

Employees

As of September 30, 1999, we had 227 full time employees. Of these, 54 were
in programming and technical support, 106 in sales and marketing, 20 in
customer support and operations and 47 in finance and administration. None of
our employees is represented by a labor union. We have not experienced any work
stoppages, and we consider our relations with our employees to be good.

Facilities

Our corporate headquarters are located at 3291 North Buffalo Drive, Suite 2,
Las Vegas, Nevada where we lease approximately 15,980 square feet of office
space for a monthly fee of $29,297 under a lease that expires July 31, 2003.
This facility houses significantly all of our operations, including the
executive staff, marketplace operations, customer support and programming and
development. We also maintain sales and office sites in Phoenix, Arizona for a
fee of $2,620 per month on a month-to-month basis.

Legal Proceedings

We are not a party to any material legal proceedings, except as discussed
below.

In December 1999, we received a letter from attorneys representing Ranel
Erickson, PhD, a co-founder, asserting that contracts entered into between him
and Charles E. Johnson Jr., also a co-founder and Chairman and Chief Executive
Officer, that give Mr. Johnson the right to buy 450,000 shares of our common
stock owned by Dr. Erickson at a price of $8.82 per share, are not enforceable
because of claims the contracts were entered into under duress or based on
statements made that were not true. The letter requests Mr. Johnson's agreement
to rescind these contracts and threatens a lawsuit if these contracts are not
rescinded. In the lawsuit, Dr. Erickson would seek a rescission of the
contracts and a return of certain rights in intellectual property, according to
the letter. We are investigating this threatened claim. PurchasePro.com
believes it has a right to practice the technology used in its business without
violating the rights of others.

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<PAGE>

MANAGEMENT

Executive Officers and Directors

The executive officers and directors of PurchasePro.com and their ages as of
December 1, 1999 are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles E. Johnson,
Jr. ................... 38 Chairman and Chief Executive Officer
Christopher P. Carton... 40 President, Chief Operating Officer, Secretary and Director
Richard C. St. Peter.... 51 Executive Vice President, Chief Financial Officer and Treasurer
Michael L. Ford......... 45 Chief Technical Officer
Jeffrey A. Neppl........ 37 Senior Vice President--Sales
Richard T. Moskal....... 56 Senior Vice President--Hospitality Purchasing Systems
Robert G. Layne......... 34 Senior Vice President--Strategic Development and e-Commerce
Scott H. Miller......... 41 Vice President--Finance, Chief Accounting Officer
John G. Chiles(1)(2).... 47 Director
David I. Fuente(2)...... 54 Director
J. Terrence
Lanni(1)(2)............ 56 Director
Michael D. O'Brien(1)... 43 Director
Bradley D. Redmon....... 37 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee

Charles E. Johnson, Jr. Mr. Johnson has served as Chairman and Chief
Executive Officer of PurchasePro.com since its inception in 1996. In 1996, Mr.
Johnson founded and is the chief executive officer of Cart-it & Cabinetry LLC,
a company that manufactures casino carts and cabinetry. Mr. Johnson also
currently owns several video stores in Cincinnati, Ohio. From 1984 to August
1996, Mr. Johnson was the owner and President of Johnson Safety and Security, a
family owned security business located in Lexington, Kentucky.

Christopher P. Carton. Mr. Carton joined PurchasePro.com as President, Chief
Operating Officer and Secretary in November 1996 and was elected to the board
of directors of PurchasePro.com in April 1999. Prior to joining
PurchasePro.com, Mr. Carton was Chief Operating Officer of Wilmington County
Country Club in Wilmington, Delaware from August 1995 to January 1996. From
1987 to August 1995, Mr. Carton was Chief Operating Officer of the Idle Hour
Country Club in Lexington, Kentucky. In addition, Mr. Carton has held the
position of Chief Operating Officer at both West Lake Country Club and Augusta
Country Club in Augusta, Georgia.

Richard C. St. Peter. Mr. St. Peter has served as Senior Vice President,
Chief Financial Officer and Treasurer from July 1999 to October 1999, and as
Executive Vice President, Chief Financial Officer and Treasurer since October
1999. Since November 1998, Mr. St. Peter has served as a consultant to Petco
Animal Supplies Inc., a retailer of pet supplies. From September 1990 to
October 1998, Mr. St. Peter was the Executive Vice President, Administration
and Chief Financial Officer of Petco. From 1986 to 1990, Mr. St. Peter was Vice
President and Chief Financial Officer at Stor, a furniture retailer. From 1982
to 1986, Mr. St. Peter held various positions at W.R. Grace's Home Centers
West, including Vice President and Chief Financial Officer.

Michael L. Ford. Mr. Ford joined PurchasePro.com as Chief Technology Officer
in July 1999. Prior to joining PurchasePro.com, Mr. Ford was the Chief
Information Officer of Best Western International from August 1995 through May
1999 where he was responsible for coordinating Best Western's technical
businesses initiatives. From 1988 through December 1995, Mr. Ford was a
corporate director of Holding Inn WorldWide.

Jeffery A. Neppl. Mr. Neppl has served as Vice President--Sales from April
1999 to October 1999, and as Senior Vice President--Sales since October 1999.
Prior to joining PurchasePro.com, Mr. Neppl served as Managing Director of
Field Sales and Marketing for Coca-Cola USA from August 1998 to April 1999.
From

43
<PAGE>

July 1996 to August 1998, Mr. Neppl was Vice President of Sales for the
Campbell's Soup Company. From 1983 through June 1996, Mr. Neppl was employed by
Procter & Gamble where he held a number of positions including National
Accounts Managers and Customer Business Development Manager.

Richard T. Moskal. Mr. Moskal has served as Vice President--Hospitality
Purchasing Systems since September 1999 and has served as chief executive
officer of our Hospitality Purchasing Systems subsidiary since joining our
company in January 1999. From March 1997 to January 1999, Mr. Moskal was the
Vice President of Purchasing Management for Promus Hotels and its predecessor
Doubletree Hotels Corporation. From 1986 to March 1997, Mr. Moskal served as
Vice President--Hotel Operations/Services for Prime Hospitality Corp.

Robert G. Layne. Mr. Layne has served as Vice President--Strategic
Development of PurchasePro.com from April 1999 to October 1999, and as Senior
Vice President--Strategic Development and e-Commerce since October 1999. From
December 1996 to April 1999, Mr. Layne was PurchasePro.com's National Sales
Director. From 1988 to December 1996, Mr. Layne was a Regional Sales Manager
with Fisher Scientific, a manufacturer of laboratory supplies, and its
predecessor, Curtin Matheson Scientific.

Scott H. Miller. Mr. Miller has served as Vice President--Finance, Chief
Accounting Officer of PurchasePro.com since July 1999. From April 1999 through
June 1999, Mr. Miller served as our Chief Financial Officer. From October 1998
through April 1999, Mr. Miller served as our Controller. From September 1997
through September 1998, Mr. Miller was the Chief Financial Officer of Max Riggs
Construction Company in Las Vegas, Nevada. From 1984 to September 1997, Mr.
Miller held various management positions at Arthur Andersen LLP in Denver and
Las Vegas, most recently as senior manager.

John G. Chiles. Mr. Chiles has served as a member of the board of directors
of PurchasePro.com since June 1998. Mr. Chiles has served as a Managing
Director in Corporate Finance Department at Jefferies & Company, Inc. since
1993. He is the manager of the firm's Business, Information & Internet Services
Group. For the fifteen years prior to joining Jefferies & Company, Mr. Chiles
held various positions at Dean Witter Reynolds, including Managing Director and
Co-Manager of its Consumer Businesses Group.

David I. Fuente. Mr. Fuente has served as a member of the board of directors
of PurchasePro.com since June 1999. Mr. Fuente has been the Chairman of the
Board and Chief Executive Officer of Office Depot, Inc. since December 1987.
Mr. Fuente is also a director of Vista Eye Care, Inc. and Ryder System, Inc.

J. Terrence Lanni. Mr. Lanni has served as a member of the board of
directors of PurchasePro.com since June 1999. Mr. Lanni has been the Chairman
of MGM Grand, Inc. since July 1995, and Chief Executive Officer of MGM Grand,
Inc. since June 1995. He also served as President of MGM Grand, Inc. from June
1995 to July 1995. Prior thereto, he was President and Chief Operating Officer
of Caesars World, Inc. from April 1981 to February 1995.

Michael D. O'Brien. Mr. O'Brien has served as a member of the board of
directors of PurchasePro.com since June 1999. Mr. O'Brien has served as the
President of ZoomTown.com, a subsidiary of Cincinnati Bell, Inc. since January
1998. From January 1992 through December 1997, Mr. O'Brien served as President
of Europe Chiquita Brands, Inc.

Bradley D. Redmon. Mr. Redmon has served as a member of the board of
directors of PurchasePro.com since August 1998. Mr. Redmon is the Chairman of
E-MarketPro, LLC, an e-commerce service company Mr. Redmon founded in 1999.
Since March 1996, Mr. Redmon has owned and operated three Pretzelmaker
franchises, and since January 1992, Mr. Redmon has owned and operated several
Blockbuster Video franchises. Mr. Redmon is a cousin of Mr. Johnson.

44
<PAGE>

Mr. St. Peter, Petco and some of its other officers have been named as
defendants in class action lawsuits filed in 1998. The complaints allege the
defendants violated various federal securities laws through material
misrepresentations and omissions during the class period and seek unspecified
monetary damages. The lawsuits are in the discovery stage. Petco and
Mr. St. Peter have stated they believe the allegations contained in these
lawsuits are without merit and intend to defend themselves vigorously.

Staggered Board of Directors

Our articles of incorporation and bylaws provide that our board of directors
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. Mr. Fuente and Mr. Lanni will serve as
Class I directors, whose terms expire at the 2000 annual meeting of
stockholders. Mr. Chiles and Mr. O'Brien will serve as Class II directors,
whose terms expire at the 2001 annual stockholders meeting. Mr. Johnson,
Mr. Carton and Mr. Redmon will serve as Class III directors, whose terms expire
at the 2002 annual meeting of the stockholders.

Board Committees

We have established an Audit Committee and a Compensation Committee. The
Audit Committee reviews the internal accounting procedures of PurchasePro.com
and consults with and reviews the services provided by our independent
auditors. The Compensation Committee reviews and determines the compensation
and benefits of all officers of PurchasePro.com and establishes and reviews
general policies relating to the compensation and benefits of employees of
PurchasePro.com and administers our Stock Option Plans.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for our directors, officers and
other employees and administering various incentive compensation and benefit
plans. We did not have a Compensation Committee during 1998. Our board of
directors was responsible for these matters for that year. The Compensation
Committee consists of Mr. Chiles, Mr. Fuente and Mr. Lanni. Charles E. Johnson,
Jr., Chairman and Chief Executive Officer, participates in all discussions and
decisions regarding salaries and incentive compensation for all employees and
consultants of PurchasePro.com, except that he is excluded from discussions
regarding his own salary and incentive compensation. No member of the
Compensation Committee has at any time been an officer or employee of
PurchasePro.com or its subsidiary. The Compensation Committee members, however,
own capital stock of PurchasePro.com and have interests in certain transactions
of PurchasePro.com as described in the "Certain Transactions--Transactions with
Management and Others" section of this prospectus. No interlocking relationship
exists between any member of our Compensation Committee and any member of any
other company's board of directors or compensation committee. No interlocking
relationship existed between any member of our board of directors and any
member of any other company's board of directors or compensation committee in
1998.

Director Compensation

We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. Each non-
employee member of our board currently receives $10,000 cash compensation per
year for their service as a member of the board of directors. Under our 1999
Stock Plan, non-employee directors also receive options to purchase 15,000
shares of common stock annually and are eligible to receive additional stock
option grants at the discretion of the Compensation Committee. See "--Stock
Option Plans."

45
<PAGE>

Executive Compensation

The following table summarizes all compensation earned by or paid to
PurchasePro.com's Chief Executive Officer and to each of PurchasePro.com's
three most highly compensated executive officers other than the Chief Executive
Officer whose total annual salary and bonus exceeded $100,000, for services
rendered in all capacities to PurchasePro.com during the fiscal year ended
December 31, 1998.

Summary Compensation Table for Last Fiscal Year

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
-----------------------------
Securities
Underlying
Name and Principal Position Salary Bonus Options (#)
- --------------------------- --------- -------------------
<S> <C> <C> <C>
Charles E. Johnson, Jr.(2)....................... $ 236,461 $ -- --
Chairman and Chief Executive Officer
Christopher P. Carton(3)......................... $ 141,877 -- --
President, Chief Operating Officer and Secretary
Jeffrey A. Neppl(4).............................. $ -- -- --
Senior Vice President--Sales
Robert G. Layne(5) .............................. $ 72,850 -- --
Senior Vice President--Strategic Development and
e-Commerce
</TABLE>
- --------
(1) Other than the salary described herein, PurchasePro.com did not pay any
executive officer named in the Summary Compensation Table any fringe
benefits, perquisites or other compensation in excess of 10% of such
executive officer's salary and bonus during fiscal 1998.

(2) In July 1999, we entered into a new employment agreement with Mr. Johnson
that provides for an annual salary of $240,000 as of May 1999. In May 1999,
Mr. Johnson was granted options to acquire 487,500 shares of common stock
at $2.33 per share. The Compensation Committee accelerated the vesting of
these options to vest in full upon completion of the initial public
offering.

(3) In July 1999, we entered into a new employment agreement with Mr. Carton
that provides for an annual salary of $200,000 as of May 1999. In May 1999,
Mr. Carton was granted options to acquire 300,000 shares of common stock at
$2.33 per share. The Compensation Committee accelerated the vesting of
these options to vest in full upon completion of the initial public
offering.

(4) Mr. Neppl joined PurchasePro.com in April 1999 and entered into an
employment agreement that provided for an initial annual salary of
$135,000. Mr. Neppl's annual salary increased to $175,000 in July 1999. In
April 1999, Mr. Neppl was granted options to acquire 286,305 shares of
common stock at $2.33 per share, of which 37,500 vested upon grant. Mr.
Neppl exercised his option to acquire 37,500 shares of common stock in July
1999.

(5) In July 1999, we entered into an employment agreement with Mr. Layne that
provides for an annual salary of $120,000 and options to purchase 112,500
shares of common stock as of May 1999. Mr. Layne's salary was increased to
$175,000 per year in September 1999. In January 1998, Mr. Johnson granted
to Mr. Layne options to purchase 187,500 shares of Mr. Johnson's common
stock at $0.33 per share. Mr. Layne exercised his option to acquire
187,500 shares from Mr. Johnson in June 1999.

46
<PAGE>

Option Grants in Last Fiscal Year

The following table sets forth information regarding options granted to our
executive officers listed in the Summary Compensation Table during the fiscal
year ended December 31, 1998.

<TABLE>
<CAPTION>
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise or for Option Term(3)
Options in Fiscal Base Price Expiration ---------------------
Name Granted Year(1) ($/Share)(2) Date 5% 10%
- ---- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Layne......... 187,500(4) 13.4% $0.33 Jan. 2008 $101,806 $162,109
37,500(5) 2.7 1.67 Aug. 2003 79,768 100,657
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 1,064,775 shares of common
stock granted during fiscal 1998 and options granted by Mr. Johnson to two
employees to acquire 337,500 of his shares. Under the terms of
PurchasePro.com's 1998 Stock Option and Incentive Plan and 1999 Stock Plan,
the committee designated by the board of directors to administer each stock
option plan retains the discretion, subject to certain limitations within
each plan, to modify, extend or renew outstanding options and to reprice
outstanding options. Options may be repriced by canceling outstanding
options and reissuing new options with an exercise price equal to the fair
market value on the date of reissue, which may be lower than the original
exercise price of such cancelled options. See "Stock Option Plans."

(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant as determined by the board of directors.

(3) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent
PurchasePro.com's estimate or projection of the future common stock price.
There can be no assurance that any of the values reflected in the table
will be achieved.

(4) In January 1998, Mr. Johnson granted to Mr. Layne options to purchase
187,500 shares of Mr. Johnson's common stock at an exercise price of $0.33.
These options vested upon grant. Mr. Layne exercised these options in June
1999.

(5) These options originally became exercisable at a rate of 50% per year
commencing on the first anniversary of the date of grant. Pursuant to the
employment agreement entered into with Mr. Layne in July 1999, these
options became fully vested in July 1999.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End(1)
Shares Acquired Value -------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert G. Layne......... -- $ -- 187,500/37,500 $1,437,500/$237,500
</TABLE>
- --------
(1) Assumes a per share fair market value equal to $8.00.

Stock Option Plans

1998 Stock Option and Incentive Plan

Our 1998 Stock Option and Incentive Option Plan was approved by
PurchasePro.com's board of directors and shareholders in August 1998. The 1998
Plan, as amended, provides for grants of incentive stock options and
nonqualified stock options to purchase up to 4,500,000 shares of common stock.
The maximum number of shares of common stock with respect to which options may
be granted to an individual grantee is 1,125,000. Awards may be made to any
employee of PurchasePro.com.

The 1998 Plan is administered by the Compensation Committee of
PurchasePro.com's board of directors, which has the authority to interpret the
1998 Plan and to prescribe, amend and rescind rules and regulations relating to
the 1998 Plan. The Compensation Committee may also determine the amount of and
to whom awards are made under the 1998 Plan. The exercise price of options
granted under the 1998 Plan may not be less

47
<PAGE>

than 100% of the fair market value of a share of common stock on the date of
grant. The determination by the Compensation Committee on all matters relating
to the 1998 Plan or any award agreement will be final and binding.

Our board of directors may authorize the Compensation Committee to modify
any outstanding award so long as this modification does not confer upon any
grantee a right or benefit which could not have been conferred at the time of
such grant or impair the award without the consent of the grantee.

The vesting of options issued to a grantee pursuant to the 1998 Plan will
accelerate upon the grantee's termination within one year following a change in
control.

Our board of directors may from time to time alter, amend or suspend the
1998 Plan or any option granted under the 1998 Plan, except that shareholder
approval is required to increase the number of shares for which options may be
granted under the 1998 Plan or materially modify the class of employees
eligible to receive option grants.

As of September 30, 1999, 179,711 shares had been issued upon exercise of
options granted under the 1998 Plan, options to purchase 4,308,465 shares of
common stock were outstanding and options to purchase 11,824 shares of common
stock were available for future grant. We do not plan to issue any additional
shares of common stock under the 1998 Plan after the consummation of this
offering.

1999 Stock Plan

Our 1999 Stock Plan was adopted by the board of directors on June 2, 1999.
The 1999 Stock Plan provides selected employees, directors, independent
contractors and advisers an opportunity to acquire a proprietary interest in
the success of PurchasePro.com or to increase their interest. The 1999 Stock
Plan is administered by the Compensation Committee of the board of directors.
However, the Chief Executive Officer may grant options up to 37,500 in each
instance under the 1999 Stock Plan to employees. As of September 30, 1999,
2,250,000 shares had been authorized for issuance.

The 1999 Stock Plan provides for the grant of incentive stock options and
nonqualified stock options. However, eligibility for the grant of incentive
stock options is limited to common law employees. Options need not have
identical terms with respect to each optionee. Options shall have such terms
and be exercisable in such manner and at such times as the Compensation
Committee may determine. Each option must expire within 10 years from the grant
date.

In no event will the exercise price for incentive stock options be less than
100% of the fair market value of the stock on the date of grant. The exercise
price of incentive stock options granted an employee who owns 10% or more of
the total combined voting power of all classes of outstanding stock of
PurchasePro.com or any subsidiary of PurchasePro.com must equal at least 110%
of the fair market value of the common stock on the date of grant and the term
of such an incentive stock option may not be greater than five years.

The 1999 Stock Plan defines "fair market value" as:

. the closing price of a share on the principal exchange on which the
shares are trading,

. if the shares are not traded on an exchange but are traded on the Nasdaq
National Market or a successor quotation system, the closing price, or

. if the shares are not traded on an exchange or the Nasdaq National Market
or a successor quotation system, the fair market value of a share, as
determined by the Compensation Committee in good faith.

Upon exercise of an option, payment of the exercise price shall be made in
lawful money of the United States. If an option agreement so provides, payment
may be made by delivery of shares owned by the optionee or his representative
at least 12 months or via an irrevocable direction to a securities broker to
sell shares and to deliver all or part of the sale proceeds to PurchasePro.com.
Each option shall be transferable only by will or the law of descent and
distribution and shall only be exercisable by the optionee during his or her
lifetime.

48
<PAGE>

No person shall be granted options to purchase more than 750,000 shares of
common stock in any calendar year.

The terms of each award or sale of shares are determined by the Compensation
Committee. Such awards or sales may be subject to forfeiture, rights of
repurchase, rights of first refusal or other transfer restrictions, and may not
be transferred. A right to acquire shares shall automatically expire if not
exercised within 30 days after the grant of the right is communicated to the
offeree. The purchase price of any share may be paid in lawful money of the
United States or services previously rendered.

The 1999 Stock Plan shall remain in effect until June 1, 2009 or earlier, if
it is terminated by the board of directors. Any amendment of the 1999 Stock
Plan shall be subject to the approval of the stockholders of PurchasePro.com
only to the extent required by applicable laws, regulations or rules. Rights
and obligations under any option may not be materially altered or impaired
without the optionee's consent.

As of September 30, 1999, no shares had been issued upon exercise of options
granted under the 1999 Stock Plan, options to purchase 609,000 shares were
outstanding and options to purchase 1,641,000 shares of common stock were
available for future grant.

Employment Agreements and Change in Control Agreements

We have entered into the following employment agreements with our executive
officers listed in the Summary Compensation Table:

<TABLE>
<CAPTION>
Officer Term Salary Position
------- ---- ------ --------
<S> <C> <C> <C>
Charles E. Johnson, Jr... May 1999-May 2001 $240,000 Chairman and Chief Executive Officer
Christopher P. Carton.... May 1999-May 2001 $200,000 President, Chief Operating Officer and Secretary
Jeffrey A. Neppl......... April 1999-April 2002 $175,000 Senior Vice President--Sales
Robert G. Layne.......... May 1999-May 2001 $175,000 Senior Vice President--Strategic Development and
e-Commerce
</TABLE>

Mr. Johnson's and Mr. Carton's agreements provide for a discretionary annual
bonus as determined by the Compensation Committee of the board of directors. We
provide each of Mr. Johnson and Mr. Carton with a company car. We may terminate
either for cause at any time. If we terminate them without cause or because of
their disability or death, or if they terminate their employment because we
breach the agreements, change their title or duties or relocate their
employment outside of Las Vegas, we must pay, in the case of Mr. Johnson, three
times his annual base salary plus the greater of his last paid bonus or one
half of his annual base salary, and, in the case of Mr. Carton, twice his
annual base salary plus the greater of his last paid bonus or one half of his
annual base salary. We also pay for life insurance for each of them under their
agreements. The agreements contain nonsolicitation and noncompetition
provisions that are intended to survive the termination of their employment for
one year.

We provide Mr. Neppl with a monthly car allowance. Under his agreement, Mr.
Neppl has received stock options pursuant to our 1998 Stock Option and
Incentive Plan to purchase in the aggregate 286,305 shares of common stock at
an exercise price of $2.33 per share, of which 37,500 vested upon his hire.
Options to purchase 113,805 shares vest over the three year term of his
agreement. The remaining shares vest over the term of the agreement subject to
his achieving the performance goals under his agreement and as determined by
our Chief Executive Officer and our Compensation Committee. We may terminate
him for cause at any time. If we terminate him without cause or we terminate
the agreement because we breach the agreement, change his title or duties or
change the person to whom he reports, we must pay Mr. Neppl his accrued salary
and bonus, his vested stock options, the preceding year's total compensation
and one year's base salary. The agreement contains noncompetition provisions
that are intended to survive the termination of Mr. Neppl's employment for one
year.

Mr. Layne's agreement provides for a discretionary, annual bonus up to the
amount of his base salary. We provide Mr. Layne with a monthly car allowance.
We may terminate him for cause at any time. If we terminate him without cause
or if Mr. Layne terminates his agreement for good reason, we must pay Mr. Layne
his salary

49
<PAGE>

for 24 months. If we terminate him because of disability or death, we must pay
him or his heirs his salary for 24 months. The agreement contains
noncompetition and nonsolicitation provisions that are intended to survive the
termination of Mr. Layne's employment for one year.

In addition, in July 1999, we entered into an employment agreement with
Richard C. St. Peter. He serves as our Executive Vice President, Chief
Financial Officer and Treasurer and receives an annual salary of $190,000.
Under his agreement, Mr. St. Peter has received stock options pursuant to our
1998 Stock Option and Incentive Plan to purchase an aggregate of 225,000 shares
of common stock at an exercise price of $4.00 per share. These stock options
vest over the two year term of his agreement. We may terminate Mr. St. Peter at
any time. If we terminate him without cause or because of his disability or
death, or we terminate the agreement because we breach the agreement or change
his title or duties, we must pay Mr. St. Peter his accrued salary and bonus,
his vested stock options and one year's base salary. The agreement contains
nonsolicitation and noncompetition provisions that are intended to survive the
termination of Mr. St. Peter's employment for one year.

50
<PAGE>

CERTAIN TRANSACTIONS

Transactions with Management and Others

Since our inception in October 1996, there has not been any transaction or
series of transactions to which we were or are a party in which the amount
involved exceeded or exceeds $60,000 and in which any director, executive
officer, holder of more than 5% of any class of our voting securities or any
member of the immediate family of any of the foregoing persons had or will have
a direct or indirect material interest, other than the transactions described
below.

In October 1996, Charles E. Johnson, Jr., one of our founders and Chairman
and Chief Executive Officer, contributed $139,000 in capital to our
predecessor.

Dr. Ranel Erickson, a founder, provided services in designing our network.
Dr. Erickson was paid $77,000 for his services through December 31, 1996. For
the years ended December 31, 1997, and December 31, 1998, he was paid $105,000
and $72,000, respectively. Through May 31, 1999, we paid him $30,000 for his
services this year.

In January 1998, we sold 9,247,500 shares of common stock to Mr. Johnson, at
$0.007 per share and we sold 1,151,250 shares of common stock to Dr. Erickson
at $0.007 per share.

In January 1998, we purchased all of the assets of our predecessor by
assuming the liabilities of our predecessor in the amount of $2,747,000, of
which $2,518,000 was owed to Mr. Johnson. Mr. Johnson was a director, executive
officer and 5% shareholder of our predecessor, and Dr. Erickson was a 5%
shareholder of our predecessor. When we purchased all of the assets of our
predecessor, Mr. Johnson and Dr. Erickson assigned to us their right, title and
interest to certain intellectual property.

Over the course of 1997, Mr. Johnson loaned an aggregate of $2,518,000 to
our predecessor at an interest rate of prime plus 1% per annum. PurchasePro.com
assumed this liability as part of the asset purchase referenced above. In
January 1998, we repaid Mr. Johnson $813,000. In April 1998, Mr. Johnson
advanced a non-interest bearing loan of $387,000 to us. In June 1998, Mr.
Johnson was repaid $310,000 from the proceeds of the sale of our Series A
Preferred Stock and contributed his remaining notes and advances totaling
$1,782,000 to us as equity. Between September and November 1998, Mr. Johnson
loaned an aggregate of $500,000 at an interest rate of 15% per annum to us. In
December 1998, Mr. Johnson loaned an additional $250,000 and in March 1999 he
loaned another $200,000 to PurchasePro.com, in each case at an interest rate of
10%. In June 1999, Mr. Johnson was repaid the total amount of his outstanding
loans from the proceeds of our Series B Preferred Stock offering.

In January 1998, Bradley D. Redmon loaned $300,000 to us at an interest rate
of 8% per annum and received 450,000 shares of common stock in connection with
this loan. In June 1998, Mr. Redmon purchased 180,000 shares of common stock
held by Mr. Johnson at a sale price of $1.67 per share. In June 1998,
Mr. Redmon was repaid the entire amount of his $300,000 loan plus accrued
interest from the proceeds of our Series A Preferred Stock. Mr. Redmon is a
member of our board of directors and a cousin of our Chief Executive Officer.

In May 1998, Maurice J. Gallagher and Timothy P. Flynn loaned a total of
$200,000 to us at an interest rate of 12% per annum. In June 1998, Mr.
Gallagher and Mr. Flynn were repaid the entire amount plus accrued interest
from the proceeds of our Series A Preferred Stock. Mr. Gallagher and Mr. Flynn
were each members of our board of directors from January 1998 through May 1999.

In June 1998, Mr. Johnson and Dr. Erickson contributed 911,250 and 476,250
shares of common stock, respectively, back to PurchasePro.com in connection
with our Series A Preferred Stock financing. Pursuant to the same agreement,
and in connection with the repayment of the loan he made to us in January 1998,
Mr. Redmon contributed 288,587 shares of common stock back to PurchasePro.com.

51
<PAGE>

In June 1998, John G. Chiles purchased 60,000 shares of common stock from
Mr. Johnson at $1.67 per share. Mr. Chiles is a member of our board of
directors.

In June 1998, we paid $250,000 to Jefferies & Company, Inc., and issued
warrants to Mr. Chiles and Jefferies & Company, Inc. to purchase an aggregate
of 345,000 shares of common stock, for its services as placement agent in
connection with our Series A Preferred Stock financing. See "--Warrants."

In September 1998, Mr. Gallagher and Mr. Flynn each loaned us $167,000 at an
interest rate of 15% per annum. In May 1999, Mr. Gallagher and Mr. Flynn each
converted these loans into 71,429 shares of Series B Preferred Stock. In
December 1998, Mr. Gallagher and Mr. Flynn each subscribed for an additional
$500,000 of Series B Preferred Stock.

In December 1998, Christopher P. Carton, our President and a member of our
board of directors, loaned us $100,000 at an interest rate of 10% per annum. In
June 1999, Mr. Carton was repaid the entire amount of this loan plus accrued
interest from the proceeds of our Series B Preferred Stock.

In September 1999, Mr. Johnson, our Chief Executive Officer and Chairman of
our board of directors, loaned us $550,000 at an interest rate of 10% per
annum. The note matures March 31, 2000. We repayed the entire amount of the
loan plus accrued interest from the proceeds of the initial public offering.

In September 1999, we also entered into loan commitment agreements with
Messrs. Johnson, Redmon, Chiles and Gallagher to provide up to an additional
$2.5 million in debt financing at an interest rate of 15% per annum. We did not
draw down on any of these commitments and the commitments expired upon the
closing of the initial public offering. In connection with Mr. Gallagher's $1.0
million loan commitment we agreed to pay him a commitment fee of $20,000.
Mr. Gallagher holds approximately 6.3% of our outstanding capital stock,
Messrs. Johnson, Redmon and Chiles are members of our board of directors and
Mr. Johnson is our Chairman and Chief Executive Officer.

We lease our headquarters in Las Vegas, Nevada from Cheyenne Investments LLC
for a monthly fee of $29,297. The lease expires in July 2003. Cheyenne
Investments is owned and controlled by Mr. Gallagher and Mr. Flynn. We believe
the terms of the lease are similar to those terms we would have received from
an unaffiliated third party. Mr. Carton has guaranteed PurchasePro.com's
obligations under the lease for which he receives no compensation.

Transactions with E-MarketPro, LLC and ZoomTown.com

In January 1999, we entered into an agreement with E-MarketPro, LLC pursuant
to which we granted E-MarketPro the exclusive right to market our services to
persons and entities located within Ohio and Kentucky and to out-of-state
entities doing business with subscribers within those two states. Mr. Redmon, a
director of our company and cousin of our chief executive officer, is a
principal of E-MarketPro. E-MarketPro was granted a right of first-refusal for
exclusive marketing rights of network subscriptions in all states contiguous to
Kentucky and Ohio, excepting Illinois. This right of first refusal
automatically terminates when Mr. Redmon no longer owns a majority of the
equity interest in and exercises managerial control over E-MarketPro.

The term of this agreement is for one year. However, the rights granted
under the contract are automatically renewed at the end of the first year and
in each subsequent year if E-MarketPro generates specified levels of revenue
from the sale of PurchasePro network subscriptions.

E-MarketPro is compensated based on the volume of sales of our services
generated by E-MarketPro. In addition, E-MarketPro may receive options to
purchase up to a maximum of 100,000 shares of our common stock at the then
current market price based on the number of members E-MarketPro adds to our
e-marketplaces. In connection with the ZoomTown.com agreement described below,
E-MarketPro has agreed not to market or offer access to the e-marketplaces in
Ohio.

52
<PAGE>

In May 1999, we entered into an agreement with ZoomTown.com, a subsidiary of
Cincinnati Bell, Inc., and E-MarketPro, LLC. This agreement modified our
agreement with E-MarketPro described above and granted ZoomTown.com, as our
agent and representative, the exclusive right to market and offer access to our
e-marketplaces in Ohio, a co-exclusive right with E-MarketPro in Kentucky, and
a nonexclusive right in other domestic markets until April 2001. Under the
agreement ZoomTown.com may co-brand our e-marketplaces. Before granting other
parties similar exclusive rights to market and access our public e-
marketplaces, we must first offer the exclusive rights to ZoomTown.com.
Accordingly, ZoomTown.com can extend its exclusive rights to market and offer
access to our public e-marketplace under a ZoomTown.com co-brand to include the
states neighboring Ohio and Kentucky. In the event ZoomTown.com does not elect
to expand its exclusive rights, we must offer the same rights of exclusivity to
E-MarketPro prior to entering into exclusive arrangements in these areas with
any third parties.

As reflected in the agreement and in accordance with our commitments to E-
MarketPro described above, we are obligated to pay sales commissions on
revenues generated by ZoomTown.com derived from licenses or sublicenses of our
software. We are obligated to pay E-MarketPro a sales commission of 37.5% of
the revenues generated by ZoomTown.com from customers in Ohio and Kentucky
during the first year after the launch date and a sales commission of 25% of
these revenues in subsequent years. Mr. Redmon may gain significant
compensation from the ZoomTown.com and E-MarketPro agreements. Mr. Redmon, on
behalf of E-MarketPro, assisted us in the negotiation of this agreement with
ZoomTown.com. We do not believe, in light of the circumstances of our company
and our early stage of development, that we could have obtained more favorable
terms if we had negotiated directly with ZoomTown.com or through an independent
third party.

Equity Financings

Between June 1998 and May 1999, we sold and issued 8,100,000 shares of our
preferred stock for an aggregate consideration of $16,800,000. We sold an
aggregate of 3,150,000 shares of our Series A Preferred Stock in June 1998 at a
sale price of $1.67 per share, and we sold an aggregate of 4,950,000 shares of
our Series B Preferred Stock in June 1999 at a sale price of $2.33 per share.
Each share of Series A Preferred Stock and Series B Preferred Stock mandatorily
converts into one share of common stock upon completion of this offering under
the terms of our articles of incorporation. Upon closing of the Series B
Preferred Stock private placement, we issued an aggregate 675,000 shares of
common stock to the holders of Series A Preferred Stock in consideration of
these holders' waiver of certain anti-dilution rights triggered by the issuance
of the Series B Preferred Stock.

The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock and of common stock by directors, executive officers
and 5% shareholders of PurchasePro and persons and entities associated with
them:
<TABLE>
<CAPTION>
Common Preferred
----------------------- -----------------
Weighted
Directors and Executive Officers Shares Average Price Series A Series B
- -------------------------------- --------- ------------- -------- --------
<S> <C> <C> <C> <C>
Charles E. Johnson, Jr............... 6,083,750 $0.23 -- --
Christopher P. Carton................ 1,071,000 $0.01 -- --
Bradley D. Redmon.................... 383,964 $0.92 23,568 107,144
John G. Chiles....................... 341,357 $0.30 60,000 81,428
David I. Fuente...................... -- -- -- 150,000
J. Terrence Lanni.................... -- -- -- --
Michael D. O'Brien................... -- -- -- --
<CAPTION>
5% Shareholders
- ---------------
<S> <C> <C> <C> <C>
Maurice J. Gallagher................. 323,453 $0.16 720,000 285,714
Timothy P. Flynn..................... 261,738 $0.01 600,000 285,714
</TABLE>

53
<PAGE>

Options

In January 1998, Mr. Johnson granted Robert G. Layne, our Senior Vice
President--Strategic Development and e-Commerce, options to purchase 187,500
shares of common stock held by Mr. Johnson at a purchase price of $0.33 per
share. In June 1999, Mr. Layne exercised those options.

In August 1998, we granted Mr. Redmon nonqualified stock options to purchase
75,000 shares of common stock at a purchase price of $1.67 per share. These
options vest over a two-year period. In September 1999, Mr. Redmon exercised
37,500 of those options.

In November 1998, we granted Mr. Chiles nonqualified stock options to
purchase 37,500 shares of common stock at a purchase price of $1.67 per share.
These options vest over a one-year period. In addition, in May 1999 certain
persons associated with Jefferies & Company, Inc. received options to purchase
an aggregate of 5,250 shares of common stock at a purchase price of $2.33 per
share.

In May 1999, we granted Mr. Johnson incentive stock options to purchase
487,500 shares of common stock at a purchase price of $2.33 per share. These
options vest over an 18-month period. The options when granted vested over an
18-month period; however, in July 1999, the Compensation Committee accelerated
the vesting and the options are currently fully vested.

In May 1999, we granted Mr. Carton incentive stock options to purchase
300,000 shares of common stock at a purchase price of $2.33 per share. The
options, when granted, vested over an 18-month period; however, in July 1999,
the Compensation Committee accelerated the vesting and the options are
currently fully vested.

In June 1999, we granted Mr. Chiles, a member of our board of directors,
nonqualified options to purchase 15,000 shares of common stock at a purchase
price of $2.33 per share. These options vested upon grant.

In June 1999, we granted Michael D. O'Brien, a member of our board of
directors, nonqualified stock options to purchase 15,000 shares of common stock
at a purchase price of $2.33 per share. These options vested upon grant.

In June 1999, we granted J. Terrence Lanni, a member of our board of
directors, nonqualified stock options to purchase 15,000 shares of common stock
at a purchase price of $2.33 per share. These options vested upon grant.

In June 1999, we granted David I. Fuente, a member of our board of
directors, nonqualified stock options to purchase 150,000 shares of common
stock at a purchase price of $2.33 per share. These options vested upon grant.
Mr. Fuente's rights under these options were subsequently assigned to Office
Depot.

In June 1999, we granted Jeffrey A. Neppl, our Senior Vice President--Sales,
incentive stock options to purchase 286,305 shares of common stock at a
purchase price of $2.33 per share, of which 37,500 shares vested upon grant,
113,805 shares vest over a three-year period, and the remaining shares vest
over a five-year period subject to his achievement of performance goals. In
July 1999, Mr. Neppl exercised 37,500 of those options.

In June 1999, we granted Michael L. Ford, our Chief Technical Officer,
incentive stock options to purchase 150,000 shares of common stock at a
purchase price of $2.33 per share, of which 45,000 vested upon grant, and the
remaining shares vest over a three-year period.

In June 1999, Dr. Ranel Erickson, a founder, granted Mr. Johnson options to
purchase 567,000 shares of common stock owned by Dr. Erickson at a purchase
price of $8.82 per share. These options vested upon grant. These options were
to expire on October 29, 1999. On October 28, 1999, Dr. Erikson extended the
term of these options with respect to 450,000 shares at a purchase price of
$8.82 per share. These contracts are under dispute.

54
<PAGE>

In July 1999, we granted Richard C. St. Peter, our Executive Vice President,
Chief Financial Officer and Treasurer, incentive stock options to purchase
225,000 shares of common stock at a purchase price of $4.00 per share, of which
75,000 shares vest after six months from date of grant, with the remaining
shares vesting over a two-year period.

Warrants

In June 1998, we issued warrants to Mr. Chiles at the direction of Jefferies
& Company, Inc., one of our underwriters, and directly to Jefferies & Company,
Inc. to purchase 45,000 and 300,000 shares, respectively, of our common stock
at a per share exercise price of $0.01 for services provided by Jefferies &
Company, Inc. in connection with our Series A Preferred Stock financing. Mr.
Chiles is a director of PurchasePro.com and a Managing Director of Jefferies &
Company, Inc. Mr. Chiles and Jefferies & Company, Inc. each exercised their
warrants in May 1999.

In June 1998, we issued warrants to Mr. Gallagher and Mr. Flynn to purchase
112,500 shares each of our common stock at a per share exercise price of $0.01
in connection with their investment in our Series A Preferred Stock. Mr. Flynn
and Mr. Gallagher were directors of PurchasePro.com from January 1998 through
May 1999. Mr. Gallagher and Mr. Flynn each exercised their warrants in February
1999.

In September 1998, we issued warrants to Mr. Johnson, Mr. Gallagher and Mr.
Flynn to purchase 80,000, 26,667 and 26,667 shares, respectively, of our common
stock at a per share exercise price of $0.01 in connection with a loan made by
Mr. Johnson, Mr. Gallagher and Mr. Flynn to PurchasePro.com. Mr. Johnson
exercised his warrants in June 1999.

We believe that the foregoing transactions were in our best interests. It is
our current policy that all transactions with officers, directors, 5%
stockholders and their affiliates will be entered into only if such
transactions are approved by a majority of our disinterested independent
directors, are on terms no less favorable to PurchasePro.com than could be
obtained from unaffiliated parties and are reasonably expected to benefit us.

For information concerning indemnification of directors and officers, see
"Description of Capital Stock-- Nevada Law and Articles of Incorporation and
Bylaws Provisions Affecting Stockholders--Indemnification of Directors and
Officers."

55
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of December 1, 1999, on a pro forma basis to
reflect the completion of this offering by:

. each person or group of affiliated persons known by us to own
beneficially more than 5% of our common stock;

. each of our directors;

. each of our Named Executive Officers;

. all of our directors and executive officers as a group; and

. each selling stockholder.

The address for the following stockholders, unless otherwise indicated, is
c/o PurchasePro.com, Inc., 3921 N. Buffalo Drive, Las Vegas 89129, (702) 316-
7000. The percentage of common stock column assumes no exercise of the
underwriters' over-allotment option. Applicable percentage ownership is based
on 28,014,710 shares of common stock outstanding as of September 30, 1999 and
30,014,710 shares outstanding immediately following completion of this
offering. Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission.

In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of the date of this prospectus are deemed outstanding, including the
following shares held by the following individuals: Mr. Johnson-937,500
shares; Mr. Carton-300,000 shares; Mr. St. Peter-75,000, Mr. Neppl-66,750; Mr.
Layne-112,500 shares; Mr. Chiles-52,500 shares; Mr. Lanni-15,000 shares; and
Mr. O'Brien-15,000 shares. Options and warrants to purchase 2,534,250 shares
are deemed held by all directors and officers as a group. These shares,
however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. Information about those options is
disclosed under "Certain Transactions--Options." Except as indicated in the
footnotes to this table and pursuant to applicable community property laws,
each shareholder named in the table has sole voting and investment power with
respect to the shares set forth opposite such shareholders' name.

<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to the Offering After the Offering
--------------------- Shares ---------------------
Name and Address of Being
Beneficial Owner Number Percentage Offered Number Percentage
- ------------------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Executive Officers and
Directors:
Charles E. Johnson,
Jr.(1).................. 7,021,250 24.6% -- 7,021,250 23.0%
Christopher P. Carton.... 1,371,000 4.8% -- 1,371,000 4.5%
Richard St. Peter........ 75,000 * -- 75,000 *
Jeffrey A. Neppl......... 104,250 * -- 104,250 *
Robert G. Layne.......... 300,000 1.1% -- 300,000 *
Bradley D. Redmon(2)..... 514,676 1.8% -- 514,676 1.7%
John G. Chiles(3)........ 535,284 1.9% --
David I. Fuente(4)....... 1,650,000 5.7%
J. Terrence Lanni........ 15,000 * -- 15,000 *
Michael D. O'Brien(5).... 15,000 * -- 15,000 *
All directors and
executive officers as a
group (13 persons)...... 11,661,460 38.6% -- 11,661,460 36.2%

Principal and Selling
Stockholders:
Lexington Investor
Group(2)................ 2,191,368 7.8%
c/o Steven Singleton
800 Corporate Drive
Lexington, KY 40503
Office Depot, Inc.(6).... 1,650,000 5.7%
2200 Old Germantown Road
Del Rey Beach, FL 33445
</TABLE>

56
<PAGE>

- --------
* Less than 1%.
(1) Does not include any of the up to $5,000,000 worth of our common stock Mr.
Johnson has indicated an interest in puchasing in this offering.
(2) Each person in the Lexington Investor Group disclaims beneficial ownership
of the other individuals' shares. The Lexington Investor Group includes the
following persons: Pat Madden, Harry Cohen, Steve Singleton,
Cornelia Lockstadt, John Burrus, Robert Langely, Wally Langely, Frank
Cassell, Ron Gaudiano, Charles Lisle, Tom Padgett, Sara Levy and
Brad Redmon, a member of our board of directors.
(3) Includes 169,500 shares held by Jefferies & Company, Inc., 12,857 shares of
common stock, 60,000 shares of Series A Preferred Stock, 42,854 shares of
Series B Preferred Stock held by the John G. and Cynthia M. Chiles
Revocable Trust and 38,574 shares held by Mr. Chiles' minor children, and
options to purchase 52,500 shares of common stock. Does not include 133,716
shares of common stock, 267,000 shares of Series A Preferred Stock, 195,002
shares of Series B Preferred Stock and options to purchase 5,250 shares of
common stock held by persons associated with Jefferies & Company, Inc.
Mr. Chiles is a Managing Director of Jefferies & Company, Inc. Mr. Chiles
disclaims beneficial ownership of these shares.
(4) Includes options to purchase 150,000 shares of common stock, warrants to
purchase 750,000 shares of common stock and 750,000 shares of common stock
owned by Office Depot, Inc., of which Mr. Fuente is the Chairman and Chief
Executive Officer. Mr. Fuente disclaims beneficial ownership of the shares
of common stock and options and warrants to purchase shares of common stock
held by Office Depot, Inc.
(5) Does not include 857,144 shares of Series B Preferred Stock held by
Cincinnati Bell, Inc., the parent of ZoomTown.com. Mr. O'Brien disclaims
beneficial ownership of shares held by Cincinnati Bell, Inc.
(6) Includes options to purchase 150,000 shares of common stock and warrants to
purchase 750,000 shares of common stock owned by Office Depot, Inc. Mr.
Fuente, a director of PurchasePro.com, is the Chairman and Chief Executive
Officer of Office Depot, Inc.

57
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our amended and restated articles of incorporation, authorize the issuance
of up to 40,000,000 shares of common stock, par value $.01 per share, and
5,000,000 shares of preferred stock, par value $.001 per share.

Common Stock

Holders of the common stock are entitled to receive, as, when and if
declared by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to any dividend preferences that may be
attributable to preferred stock that may be authorized. Holders of common stock
are entitled to one vote for each share held of record on all matters on which
stockholders may vote, except with respect to the election of directors in
which case stockholders are entitled to multiply the number of shares held of
record by the number of directors to be elected and distribute such number of
votes for one or among two or more nominees.

There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the assets
available for distribution.

Preferred Stock

Our board of directors, without further action by the stockholders, is
authorized to issue an aggregate of 5,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and we have no plans to issue a new
series of preferred stock. Our board of directors may, without stockholder
approval, issue preferred stock with dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting rights and
any other preferences, which rights and preferences could adversely affect the
voting power of the holders of common stock. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock. Additionally, the issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to holders of common stock, may have the effect of decreasing the
market price of the common stock, and may adversely affect the voting and other
rights of the holders of common stock.

Common Stock Warrants

As of September 30, 1999 we had warrants outstanding for the purchase of
750,000 shares of common stock with a weighted average exercise price of $8.00
per share. Subsequent to September 30, 1999 we have issued 3,225,000 warrants
to strategic partners at a weighted average exercise price of $86.31.

The exercise price and number of shares of common stock issuable upon the
exercise of each of the warrants may be adjusted upon the occurrence of certain
events, including stock splits, stock dividends, reorganization,
recapitalization, merger, or sale of all or substantially all of our assets.
All warrants and shares of stock issuable upon exercise of all warrants have
certain registration rights as described under "Registration Rights" below. For
purposes of this prospectus, we have assumed all outstanding warrants have been
exercised.

Registration Rights

After the consummation of the offering, the holders of 8,100,000 shares of
common stock issuable upon conversion of the Series A and B Preferred Stock,
and certain holders of 1,237,500 shares of common stock have the right to cause
us to register such shares under the Securities Act as follows:

. Demand Registration Rights. Six months after this offering the holders of
a majority of the common stock issued upon conversion of the Series A
Preferred Stock and the holders of a majority of the shares

58
<PAGE>

of common stock issued upon conversion of the Series B Preferred Stock may
request PurchasePro.com to register their shares with respect to all or
part of their registerable securities having aggregate proceeds of at
least $10,000,000. The $10,000,000 proceeds threshold was negotiated as
part of the Series A Preferred Stock financing.

. Piggyback Registration Rights. The holders of registerable securities can
request to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others.

. S-2 and S-3 Registration Rights. The holders of a majority of the common
stock issued upon conversion of the Series A Preferred Stock and the
holders of a majority of the common stock issued upon conversion of the
Series B Preferred Stock may request us to register their shares if we
are eligible to use either Form S-2 or Form S-3 and if the aggregate
price is at least $500,000.

Holders of 759,999 shares of common stock and holders of warrants to purchase
80,000 shares of a common stock have substantially the same registration
rights as described above, however, the aggregate price of the registerable
securities in demand registrations need only be $500,000. Office Depot, which
holds a warrant to purchase 750,000 shares of common stock has piggyback and
S-3 registration rights as described above. Each holder with piggyback
registration rights described above has been given notice of and an
opportunity to participate in this offering.

Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-2 or S-3 registration
rights under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act immediately upon the
effectiveness of such registration. See "Risk Factors--Shares eligible for
future sale by our existing stockholders may adversely affect our stock
price," "Shares Eligible for Future Sale" and "Certain Transactions."

We will pay all registration expenses, other than underwriting discounts
and commissions and other selling expenses, in connection with any
registration. The registration rights terminate in September 2004, or, with
respect to each holder of registerable securities, when the holder can sell
all of its shares in any 90 day period under Rule 144 of the Securities Act.

Nevada Law and Articles and Bylaws Provisions Affecting Stockholders

Articles and Bylaws. Our articles of incorporation and bylaws provide that
our board of directors will be divided into three classes of directors, with
the classes to be as nearly equal in number as possible. The bylaws provide
that Class I shall be comprised of directors who shall serve until the annual
meeting of stockholders in 2000 and until their successors shall have been
elected and qualified. Class II shall be comprised of directors who shall
serve until the annual meeting of stockholders in 2001 and until their
successors shall have been elected and qualified. Class III shall be comprised
of directors who shall serve until the annual meeting of stockholders in 2002
and until their successors shall have been elected and qualified.

Our articles of incorporation and bylaws:

. require advance notice for stockholders to submit nominations for the
election of directors,

. require the approval of at least two-thirds of the shares entitled to
vote at an election of directors to amend our articles of incorporation,

. require a majority vote of our board of directors or a two-thirds
stockholders' vote to amend our bylaws,

. allow us to indemnify our directors and officers to the fullest extent
permitted by Nevada law, and

. grant the board of directors the power to authorize the issuance of up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of
those shares without further vote or action by the stockholders.

59
<PAGE>

Nevada Anti-Takeover Statutes. Nevada law provides that an acquiring person
who acquires a controlling interest in a corporation may only exercise voting
rights on any control shares if these voting rights are conferred by a majority
vote of the corporation's disinterested stockholders at a special meeting held
upon the request of the acquiring person. If the acquiring person is accorded
full voting rights and acquires control shares with at least a majority of all
the voting power, any of our stockholders, who did not vote in favor of
authorizing voting rights for the control shares, are entitled to payment for
the fair value of his shares. A "controlling interest" is an interest that is
sufficient to enable the acquiring person to exercise at least one-fifth of the
voting power of the corporation in the election of directors. "Control shares"
are outstanding voting shares that an acquiring person or associated persons
acquire or offer to acquire in an acquisition and those shares acquired during
the 90-day period before the person involved became an acquiring person.

In addition, Nevada law restricts the ability of a corporation to engage in
any combination with an interested stockholder for three years from when the
interested stockholder acquires shares that cause the stockholder to become an
interested stockholder, unless the combination or the purchase of shares by the
interested stockholder is approved by the board of directors before the
stockholder became an interested stockholder. If the combination was not
previously approved, the interested stockholder may only effect a combination
after the three-year period if the stockholder receives approval from a
majority of the disinterested shares or the offer meets certain fair price
criteria.

An "interested stockholder" is a person who is:

. the beneficial owner, directly or indirectly, of 10% or more of the
voting power of the outstanding voting shares of the corporation or

. an affiliate or associate of the corporation and, at any time within
three years immediately before the date in question, was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the
then outstanding shares of the corporation.

Our articles of incorporation and bylaws do not exclude us from these
restrictions.

These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage some types of transactions that may involve actual or
threatened change of control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all of our outstanding shares or an
unsolicited proposal for the potential restructuring or sale of all or a part
of our company. However, these provisions could discourage potential
acquisition proposals and could delay or prevent a change in control of our
company. They may also have the effect of preventing changes in our management.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.

60
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.

After this offering, 30,094,710 shares of common stock will be outstanding.
Of these shares, 3,000,000 sold in this offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
"affiliates" of PurchasePro.com as defined in Rule 144 under the Securities
Act. Of the remaining shares of common stock outstanding after this offering,
20,194,710 shares of common stock are "restricted securities" within the
meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act
or are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act.

Our officers, directors and all stockholders holding shares prior to the
initial public offering, including the selling stockholders, entered into lock-
up agreements in connection with the initial public offering which are still in
effect. Under these lock-up agreements, they have agreed not to offer or sell
any shares of common stock for a period of 180 days following the initial
public offering without the prior written consent of Prudential Securities, on
behalf of the underwriters. These lock-ups expire on March 13, 2000. See
"Underwriting." These individuals or entities may request that Prudential
Securities consider an early release from their lock-up agreement. Prudential
Securities may, at any time and without notice, grant an early release for
shares subject to these lock-up agreements. Following the lock-up period, these
shares will not be eligible for sale in the public market without registration
under the Securities Act unless such sales meet the applicable conditions and
restrictions of Rule 144 as described below.

7,177,965 At various times thereafter, due to the requirements of federal
securities laws.
</TABLE>

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for a
period of at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:

. 1% of the then-outstanding shares of common stock, and

. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of such
sale on Form 144 is filed with the Securities and Exchange Commission.

Sales under Rule 144 are also subject to provisions, relating to notice and
manner of sale and the availability of current public information about us. In
addition, a person (or persons whose shares are aggregated) who has not been an
affiliate of us at any time during the 90 days immediately preceding a sale,
and who has beneficially owned the shares for at least two years, would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and other conditions described above. The above summary of Rule 144
is not intended to be a complete description.

In addition, our employees, directors, officers, advisors or consultants who
were issued shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits affiliates to sell their Rule 701

61
<PAGE>

shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this prospectus.

On November 23, 1999, we filed a registration statement under the Securities
Act to register 6,750,000 shares of common stock issuable upon the exercise of
outstanding stock options or reserved for issuance under our stock option
plans. See "Management--Stock Option Plans." After the effective date of such
registration statement, these shares will be available for sale in the open
market subject to the lock-up agreements described above and, for our
affiliates, to the conditions and restrictions of Rule 144.

62
<PAGE>

UNDERWRITING

We and the selling stockholders have entered into an underwriting agreement
with the underwriters named below, for whom Prudential Securities Incorporated,
Bear, Stearns & Co. Inc., Volpe Brown Whelan & Company, Jefferies & Company,
Inc., Needham & Company, Inc. and PrudentialSecurities.com are acting as
representatives. We and the selling stockholders are obligated to sell, and the
underwriters are obligated to purchase, all of the shares of the common stock
offered on the cover page of this prospectus, if any are purchased. Subject to
conditions set forth in the underwriting agreement, each underwriter has
severally agreed to purchase from us the number of shares of common stock set
forth below opposite its name:

<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated.....................................
Bear, Stearns & Co. Inc. ..............................................
Volpe Brown Whelan & Company, LLC......................................
Jefferies & Company, Inc. .............................................
Needham & Company, Inc. ...............................................
PrudentialSecurities.com...............................................
---------
Total................................................................ 3,000,000
=========
</TABLE>

The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, over-allotment options to purchase up to
450,000 additional shares from the selling stockholders. If any of the
additional shares are purchased, the underwriters will severally purchase the
additional shares in the same proportion as set forth above.

The representatives of the underwriters have advised us and the selling
stockholders that the shares will be offered to the public at the public
offering price set forth on the cover page of this prospectus. The underwriters
may allow to selected dealers a concession not in excess of $ per share and
those dealers may reallow a concession not in excess of $ per share to
other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and the concessions.

We and the selling stockholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the
underwriters' over-allotment options to purchase additional shares:

<TABLE>
<CAPTION>
Total Fees
---------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Options Over-Allotment Options
--------- ---------------------- ----------------------
<S> <C> <C> <C>
Fees paid by
PurchasePro.com........ $ $ $
Fees paid by the selling
stockholders........... $ $ $
</TABLE>

In addition, we estimate that we will spend approximately $560,000 in
expenses for this offering including those of the selling stockholders. We and
the selling stockholders have agreed to indemnify the underwriters against some
liabilities, including liabilities under the Securities Act or contribute to
payments that the underwriters may be required to make in respect of these
liabilities.

Jefferies & Company, Inc. has, from time to time, performed various
investment banking and financial advisory services for us on a fee services
basis. A Managing Director of Jefferies & Company, Inc. is a member of our
board of directors. Jefferies & Company, Inc. and associated persons own
475,073 shares of common stock, 327,000 shares of Series A Preferred Stock,
276,429 shares of Series B Preferred Stock and options to purchase 57,750
shares of common stock. Pursuant to the rules of the National Association of
Securities Dealers, Inc., the interests of persons associated with Jefferies &
Company, Inc. in the shares of Series B Preferred Stock and options to purchase
5,250 shares of common stock out of the total 57,750 shares subject to options
held by associated persons of Jefferies & Company, Inc., were presumed to be
underwriting

63
<PAGE>

compensation in connection with the initial public offering. Accordingly, the
276,429 shares of Series B Preferred Stock, options to purchase 5,250 shares of
common stock and any shares of common stock issued upon the conversion or
exercise of these shares or options, as the case may be, cannot be sold,
transferred, assigned, pledged or hypothecated by any person for a period of
two years until September 2001, except to officers or partners of the
underwriters and members of the selling group and their officers or partners.
The exercise price of the options to purchase 5,250 shares of common stock held
by persons associated with Jefferies & Company, Inc. was the initial public
offering price. The calculation of underwriting compensation by the National
Association of Securities Dealers, Inc. took into account the payment to us by
Jefferies & Company, Inc. of $280,065 as reimbursement for our expenses in our
initial public offering. Jefferies & Company, Inc. and associated persons have
indicated their interest in selling in this offering a portion of the shares
owned by them that are not subject to the lock-up agreements.

Our officers, directors and all stockholders holding shares prior to the
initial public offering, including the selling stockholders, entered into lock-
up agreements in connection with the initial public offering which are still in
effect. Under these lock-up agreements, they have agreed not to offer or sell
any shares of common stock for a period of 180 days following the initial
public offering without the prior written consent of Prudential Securities, on
behalf of the underwriters. These lock-ups expire on March 13, 2000. Prudential
Securities may, at any time and without notice, grant an early release for
shares subject to these lock-up agreements. Following the lock-up period, these
shares will not be eligible for sale in the public market without registration
under the Securities Act unless such sales meet the applicable conditions and
restrictions of Rule 144 as described below.

The representatives of the underwriters may engage in the following
activities in accordance with applicable securities rules:

. Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment options.

. Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.

. Penalty bids permit the representatives to reclaim commissions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.

These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise. Also and prior to the pricing of the shares, and until such time
when a stabilizing bid may have been made, some or all of the underwriters who
are market makers in the shares may make bids for or purchases of shares
subject to certain restrictions, known as passive market making activities.

Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:

. the Public Offers of Securities Regulations 1995,

. the Financial Services Act 1986, and

. the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1996 (as amended).

64
<PAGE>

In October 1999, Prudential Securities provided Charles E. Johnson, Jr. with
a line of credit of up to $50 million bearing interest at prevailing market
rates. As security for the loan, Mr. Johnson pledged to Prudential Securities
2.5 million shares of our common stock. Prudential Securities also provided a
line of credit of up to $8 million to Christopher P. Carton and a line of
credit of up to $500,000 to Robert G. Layne, each at prevailing interest rates.
As security for these loans, Messrs. Carton and Layne pledged 300,000 shares
and 125,000 shares of our common stock, respectively, to Prudential Securities.
Prudential Securities also provided a line of credit of up to $650,000 to other
employees at prevailing interest rates, for which such employees pledged an
aggregate of 213,250 shares of our common stock.

Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
AdvisorSM, a full service brokerage firm program, may view offering terms and a
prospectus online and place orders through their financial advisors.

LEGAL MATTERS

The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Pillsbury Madison & Sutro LLP, San
Francisco, California. Partners of Pillsbury Madison & Sutro LLP and an
investment partnership comprised of partners and former partners of that firm
own in the aggregate 55,715 shares of common stock of PurchasePro.com. Certain
partners, including one or more partners working on this offering, and the
investment partnership may be selling some of these shares in this offering.
Selected legal matters relating to the shares of common stock offered in this
offering will be passed upon for the underwriters by Orrick, Herrington &
Sutcliffe LLP, Menlo Park, California.

EXPERTS

The consolidated financial statements of PurchasePro.com as of December 31,
1997 and 1998 and for the period from inception (October 8, 1996) through
December 31, 1996 and for each of the two years in the period ended December
31, 1998, included in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock offered hereby. This prospectus, which constitutes a part
of the registration statement, does not contain all of the information set
forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
PurchasePro.com and the common stock, reference is made to the registration
statement and the exhibits and schedules thereto. You may read and copy any
document we file at the SEC's public reference room in Washington, DC. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public from the SEC's website
at http://www.sec.gov.

65
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................................. F-2

Consolidated Balance Sheets............................................... F-3

Consolidated Statements of Operations..................................... F-5

Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit)........................................... F-6

Consolidated Statements of Cash Flows..................................... F-7

Notes to Consolidated Financial Statements................................ F-8

</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of PurchasePro.com, Inc.:

We have audited the accompanying consolidated balance sheets of
PurchasePro.com, Inc. (a Nevada corporation) and subsidiary as of December 31,
1997 and 1998, and the related consolidated statements of operations,
redeemable convertible preferred stock and stockholders' equity (deficit) and
cash flows for the period from inception (October 8, 1996) through December 31,
1996, and for each of the two years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PurchasePro.com, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from inception (October 8, 1996)
through December 31, 1996, and for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Las Vegas, Nevada
June 2, 1999

F-2
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
--------- ---------- -------------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents............... $ 7,894 $1,689,288 $48,477,852
Trade accounts receivable, net of
allowance for doubtful accounts of
$72,796, $200,000 and $242,000
(unaudited), respectively.............. 18,443 215,234 1,600,012
Other receivables....................... 17,602 99,078 127,130
Prepaid expenses and other.............. 113 20,000 403,488
--------- ---------- -----------
Total current assets.................. 44,052 2,023,600 50,608,482

Property and equipment
Computer equipment...................... 517,057 714,465 3,684,942
Communication equipment................. 47,775 65,160 65,160
Furniture and fixtures.................. 130,536 155,328 262,882
Leasehold improvements.................. 26,666 44,090 52,413
--------- ---------- -----------
722,034 979,043 4,065,397
Less--accumulated depreciation and
amortization........................... (162,424) (415,039) (776,023)
--------- ---------- -----------
559,610 564,004 3,289,374

Other assets.............................. 4,903 157,153 1,108,023
--------- ---------- -----------
Total assets.......................... $ 608,565 $2,744,757 $55,005,879
========= ========== ===========
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-3
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)

<S> <C> <C> <C>
Current liabilities
Accounts payable..................... $ 300,347 $ 98,799 $ 1,554,213
Accrued salaries and benefits........ 43,289 207,635 402,600
Accrued payroll taxes................ 285,501 63,167 58,947
Accrued interest..................... 23,645 59,256 --
Other accrued liabilities............ 51,138 147,655 1,271,099
Deferred revenues.................... 46,541 164,812 281,418
Notes payable, current portion....... 1,200,750 375,000 50,000
----------- ----------- ------------
Total current liabilities.......... 1,951,211 1,116,324 3,618,277

Notes payable, net of current portion.. 1,366,250 1,169,939 --

Commitments and contingencies (Note 4)

Redeemable convertible preferred stock
Preferred stock, Series A: $0.001 par
value; 8% convertible; $1.67
liquidation preference; 0 and
3,150,000 shares authorized, issued
and outstanding, mandatorily
converted to common stock in
September 1999 ..................... -- 4,339,438 --
Preferred stock, Series B: $0.001 par
value; 8% convertible; $2.33
liquidation preference; 4,950,000
shares authorized;
0 and 0, issued and outstanding,
mandatorily converted to common
stock in September 1999............. -- 2,000,000 --

Stockholders' equity (deficit)
Common stock: $0.01 par value;
40,000,000 shares authorized;
11,550,000, 11,400,000 and
28,014,710 (unaudited) shares issued
and outstanding, respectively....... 115,500 114,000 280,147
Additional paid-in capital........... 283,882 1,140,504 87,154,900
Deferred stock-based compensation.... -- -- (4,773,203)
Accumulated deficit.................. (3,108,278) (7,135,448) (31,274,242)
----------- ----------- ------------
Total stockholders' equity
(deficit)......................... (2,708,896) (5,880,944) 51,387,602
----------- ----------- ------------
Total liabilities and stockholders'
equity (deficit).................. $ 608,565 $ 2,744,757 $ 55,005,879
=========== =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.

F-4
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Operating expenses
Sales and marketing.... 22,592 1,179,327 3,840,776 2,766,137 5,404,783
General and
administrative........ 9,860 1,344,860 2,895,779 2,005,234 4,637,895
Programming and
development........... 86,862 802,175 971,459 687,305 1,530,973
Amortization of stock-
based compensation.... -- -- -- -- 4,946,281
---------- ----------- ----------- ----------- ------------
Total operating
expenses............. 119,314 3,326,362 7,708,014 5,458,676 16,519,932
---------- ----------- ----------- ----------- ------------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (4,762,374) (13,737,603)

Other income (expense)
Interest income
(expense), net........ (3,638) (120,497) (332,895) (218,176) (80,147)
Other.................. -- -- 16,300 6,857 (279,007)
---------- ----------- ----------- ----------- ------------
Total other income
(expense)............ (3,638) (120,497) (316,595) (211,319) (359,154)
---------- ----------- ----------- ----------- ------------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Benefit for income
taxes.................. -- -- -- -- --
---------- ----------- ----------- ----------- ------------
Net loss................ (122,952) (2,985,326) (6,800,010) (4,973,693) (14,096,757)
Preferred stock
dividends.............. -- -- (245,000) (140,000) (511,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) (44,981) (131,037)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
---------- ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Loss per share
Basic.................. $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 11,550,000 11,550,000 12,900,000 13,650,000 13,002,895
========== =========== =========== =========== ============
Diluted................ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.

F-5
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Redeemable Convertible Preferred Stock
-------------------------------------------------
Series A Series B
----------------------- ------------------------
Shares Amount Shares Amount
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, October
8, 1996......... -- $ -- -- $ --
Issuance of
common stock.... -- -- -- --
Net loss for the
period.......... -- -- -- --
---------- ----------- ---------- ------------
Balance,
December 31,
1996............ -- -- -- --
Contribution
from
stockholder..... -- -- -- --
Services donated
by stockholder.. -- -- -- --
Net loss........ -- -- -- --
---------- ----------- ---------- ------------
Balance,
December 31,
1997............ -- -- -- --
Effect of
recapitalization.. -- -- -- --
Issuance of
common stock.... -- -- -- --
Redemption and
retirement of
common stock.... -- -- -- --
Contribution by
principal
stockholder..... -- -- -- --
Charge for
services........ -- -- -- --
Issuance of
Series A
preferred stock,
net of issuance
costs and value
of warrants
issued.......... 3,150,000 4,004,000 -- --
Issuance of
warrants to
holders of notes
payable......... -- -- -- --
Issuance of
Series B
preferred stock
pursuant to
subscription
agreements...... -- -- -- 2,000,000
Preferred stock
dividends....... -- 245,000 -- --
Accretion of
preferred stock
to redemption
value........... -- 90,438 -- --
Net loss........ -- -- -- --
---------- ----------- ---------- ------------
Balance,
December 31,
1998............ 3,150,000 4,339,438 -- 2,000,000
<CAPTION>
Stockholders' Equity (Deficit)
----------------------------------------------------------------------------
Common Stock Additional Deferred
--------------------- Paid-in Stock-Based Accumulated
Shares Amount Capital Compensation Deficit Total
----------- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October
8, 1996......... -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock.... 11,550,000 115,500 (105,500) -- -- 10,000
Net loss for the
period.......... -- -- -- -- (122,952) (122,952)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1996............ 11,550,000 115,500 (105,500) -- (122,952) (112,952)
Contribution
from
stockholder..... -- -- 139,382 -- -- 139,382
Services donated
by stockholder.. -- -- 250,000 -- -- 250,000
Net loss........ -- -- -- -- (2,985,326) (2,985,326)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1997............ 11,550,000 115,500 283,882 -- (3,108,278) (2,708,896)
Effect of
recapitalization.. -- -- (3,108,278) -- 3,108,278 --
Issuance of
common stock.... 3,450,000 34,500 32,500 -- -- 67,000
Redemption and
retirement of
common stock.... (3,600,000) (36,000) 36,000 -- -- --
Contribution by
principal
stockholder..... -- -- 1,782,000 -- -- 1,782,000
Charge for
services........ -- -- 720,000 -- -- 720,000
Issuance of
Series A
preferred stock,
net of issuance
costs and value
of warrants
issued.......... -- -- 996,000 -- -- 996,000
Issuance of
warrants to
holders of notes
payable......... -- -- 398,400 -- -- 398,400
Issuance of
Series B
preferred stock
pursuant to
subscription
agreements...... -- -- -- -- -- --
Preferred stock
dividends....... -- -- -- -- (245,000) (245,000)
Accretion of
preferred stock
to redemption
value........... -- -- -- -- (90,438) (90,438)
Net loss........ -- -- -- -- (6,800,010) (6,800,010)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1998............ 11,400,000 114,000 1,140,504 -- (7,135,448) (5,880,944)

(Unaudited):
Exercise of
warrants........ -- -- -- --
Exercise of
options......... -- -- -- --
Issuance of
Series B
preferred stock,
net of issuance
costs........... -- -- 4,950,000 --
Issuance of
common stock to
Series A
stockholders.... -- -- -- --
Directors stock
option grant.... -- -- -- --
Deferred stock-
based
compensation.... -- -- -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- --
Mandatory
conversion of
Series A and
Series B
preferred stock
to shares of
common stock.... (3,150,000) (4,743,029) (4,950,000) (11,638,446)
Issuance of
common stock,
net of offering
costs........... -- -- -- --
Preferred stock
dividends....... -- 280,000 -- 231,000
Accretion of
preferred stock
to redemption
value........... -- 123,591 -- 7,446
Value of
preferred stock
beneficial
conversion
feature......... -- -- -- 9,400,000
Net loss........ -- -- -- --
---------- ----------- ---------- ------------
Balance
September 30,
1999............ -- $ -- -- $ --
========== =========== ========== ============
(Unaudited):
Exercise of
warrants........ 759,999 7,600 (2,533) -- -- 5,067
Exercise of
options......... 179,711 1,797 322,720 -- -- 324,517
Issuance of
Series B
preferred stock,
net of issuance
costs........... -- -- 9,400,000 -- -- 9,400,000
Issuance of
common stock to
Series A
stockholders.... 675,000 6,750 (6,750) -- -- --
Directors stock
option grant.... -- -- 800,000 -- -- 800,000
Deferred stock-
based
compensation.... -- -- 9,719,484 (9,719,484) -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- 4,946,281 -- 4,946,281
Mandatory
conversion of
Series A and
Series B
preferred stock
to shares of
common stock.... 8,100,000 81,000 16,300,475 -- -- 16,381,475
Issuance of
common stock,
net of offering
costs........... 6,900,000 69,000 49,481,000 -- -- 49,550,000
Preferred stock
dividends....... -- -- -- -- (511,000) (511,000)
Accretion of
preferred stock
to redemption
value........... -- -- -- -- (131,037) (131,037)
Value of
preferred stock
beneficial
conversion
feature......... -- -- -- -- (9,400,000) (9,400,000)
Net loss........ -- -- -- -- (14,096,757) (14,096,757)
----------- --------- ------------ ------------- ------------- -------------
Balance
September 30,
1999............ 28,014,710 $280,147 $87,154,900 $(4,773,203) $(31,274,242) $ 51,387,602
=========== ========= ============ ============= ============= =============
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.

F-6
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Period From
Inception
(October 8, 1996) Year Ended Nine Months Ended
Through December 31, September 30,
December 31, ------------------------ -------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
Cash flows from operating
activities
<S> <C> <C> <C> <C> <C>
Net loss............... $(122,952) $(2,985,326) $(6,800,010) $(4,973,693) $(14,096,757)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization.......... 2,983 159,441 252,892 181,877 403,042
Amortization of stock-
based compensation.... -- -- -- -- 4,946,281
Imputed interest....... -- -- 67,000 67,000 --
Amortization of debt
discount.............. -- -- 43,339 -- 355,061
Provision for doubtful
accounts.............. -- 72,796 127,204 60,205 351,372
Non-cash services...... -- 250,000 720,000 720,000 800,000
(Increase) decrease in:
Trade accounts
receivable........... -- (91,239) (323,995) (190,509) (1,736,150)
Other receivables..... -- (17,602) (81,476) (48,883) (28,052)
Prepaid expenses and
other................ -- (113) (19,887) -- (383,488)
Increase (decrease) in:
Accounts payable...... 3,500 140,681 (201,548) 47,211 355,414
Accrued liabilities... 46,589 513,150 74,140 (322,630) 513,717
Deferred revenues..... -- 46,541 118,271 197,295 116,606
--------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities.......... (69,880) (1,911,671) (6,024,070) (4,262,127) (8,402,954)
--------- ----------- ----------- ----------- ------------
Cash flows from
investing activities
Purchase of property
and equipment......... (72,417) (649,617) (257,009) (145,672) (1,986,354)
Other assets........... -- (4,903) (102,527) 3,535 (319,178)
--------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities.......... (72,417) (654,520) (359,536) (142,137) (2,305,532)
--------- ----------- ----------- ----------- ------------
Cash flows from
financing activities
Proceeds from notes
payable and advances.. 133,132 2,433,868 4,427,000 3,765,000 200,000
Repayment of notes
payable and advances.. -- -- (3,362,000) (3,362,000) (1,350,000)
Issuance of common
stock, net............ 10,000 -- -- -- 50,620,800
Issuance of preferred
stock and warrants,
net................... -- -- 7,000,000 5,000,000 8,026,250
Contribution from
stockholder........... -- 139,382 -- -- --
--------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities.......... 143,132 2,573,250 8,065,000 5,403,000 57,497,050
--------- ----------- ----------- ----------- ------------
Increase in cash and
cash equivalents....... 835 7,059 1,681,394 998,736 46,788,564
Cash and cash
equivalents
Beginning of period.... -- 835 7,894 7,894 1,689,288
--------- ----------- ----------- ----------- ------------
End of period.......... $ 835 $ 7,894 $ 1,689,288 $ 1,006,630 $ 48,477,852
========= =========== =========== =========== ============
Non-cash investing and
financing activities
Other assets acquired
with note payable..... $ -- $ -- $ 50,000 $ 50,000 $ --
========= =========== =========== =========== ============
Other assets acquired
with preferred stock.. $ -- $ -- $ -- $ -- $ 673,750
========= =========== =========== =========== ============
Conversion of notes
payable to equity..... $ -- $ -- $ 1,782,000 $ 1,782,000 $ 700,000
========= =========== =========== =========== ============
Conversion of preferred
shares to common
stock................. $ -- $ -- $ -- $ -- $ 16,381,475
========= =========== =========== =========== ============
Cash paid for:
Interest............... $ 3,638 $ 96,852 $ 166,424 $ 189,051 $ 124,375
========= =========== =========== =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.

F-7
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Information as of September 30, 1999 and for the nine months endedSeptember
30, 1998 and 1999 is unaudited)

(1) The Company

Organization

Purchase Pro, Inc., a Nevada corporation, was incorporated on October 8,
1996 as an S corporation for federal income tax purposes. On January 12, 1998,
PP International was incorporated in Nevada as a C corporation for federal
income tax purposes. On January 15, 1998, PP International, Inc. changed its
name to Purchase Pro International, Inc., and on June 1, 1999, changed its name
to PurchasePro.com, Inc. (the "Company"). The Company initially authorized the
issuance of 20,000,000 shares, $0.01 par value stock. On January 12, 1998, the
Company issued 11,550,000 shares of common stock to the three stockholders of
Purchase Pro, Inc. The Company's principal and controlling stockholder was the
controlling stockholder of Purchase Pro, Inc. On January 15, 1998, the Company
acquired substantially all of the assets and assumed substantially all of the
liabilities of Purchase Pro, Inc. The purchase has been accounted for as a
reorganization of companies under common control in a manner similar to a
pooling of interests. Accordingly, the financial position and results of
operations of the Company and Purchase Pro, Inc. have been included in the
accompanying consolidated financial statements. In August 1998, the Company
formed its wholly owned subsidiary, Hospitality Purchasing Systems, Inc.,
("HPS"), a Nevada corporation.

Nature of Business

The Company is a provider of Internet business-to-business electronic
commerce services. The Company's e-commerce solution is comprised of public and
private communities called "e-marketplaces" where businesses can buy and sell a
wide range of products and services over the Internet in an efficient,
competitive and cost-effective manner. Subscribers to the Company's e-
marketplaces need only an Internet connection, a Web browser and a
PurchasePro.com membership in order to participate in interactive buying and
selling communities. The e-marketplaces are customizable and scalable,
utilizing an open-architecture platform that can be integrated with members'
existing enterprise resource planning and accounting systems. The Company's
solution leverages the growth, pervasiveness, low costs and community building
nature of the Internet as a basis for e-commerce for the broad business-to-
business market. The Company began developing its service in 1996 by closely
evaluating the purchasing processes of the hospitality industry. The purchasing
process of this industry is characterized by high volume, frequent purchases of
a broad range of goods and services by a large number of geographically
distributed buyers. The Company capitalized on the large-property purchasing
expertise of several Las Vegas-based hotels and resorts to develop, test and
validate its service.

The Company began testing the first working model of its primary software
product in early 1997 and began selling membership subscriptions in April 1997.
Until that time, the Company was considered a development-stage enterprise.
HPS' principal operation is negotiating contracts on behalf of independent
hotels and hotel management companies for which it receives fees and rebates.
In August 1998, HPS acquired the rights to certain contracts previously managed
by General Network Management Services, Inc. for $100,000 in the form of
$50,000 cash and a $50,000 note payable.

In May 1999, the Company acquired substantially all of the assets of a
software development company for $215,000 consisting of $75,000 cash and 60,000
shares of Series B preferred stock valued at $2.33 per share. The company has
developed programs for the architectural, engineering and construction industry
that provide an extension of Company's e-commerce services into that industry.
The Company entered into five-year non-compete agreements with these
individuals in exchange for 165,000 shares of Series B preferred stock (see
Note 5).

F-8
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

From October 1996 to the commercial release of the service in April 1997,
the Company primarily engaged in raising capital and recruiting employees to
develop the e-marketplace software and network infrastructure. In April 1997,
the Company released version 1.0 of its software, enabling members to transact
e-commerce over its network and in late 1997, members were provided network
connectivity over the Internet. In September 1998, the Company released version
3.0 that provides members access to e-marketplace enabling software and in
February 1999, the Company released version 4.0, which allows members the
additional capability of building private e-marketplaces.

From inception to June 30, 1999, substantially all of the Company's revenues
have come from monthly membership subscription fees for access to e-
marketplaces. Most members are companies that sell products and services to
large hotels and resorts in Nevada and Florida. Subscription contracts can be
cancelled by either party on as little as 30 days notice. The Company also
provides Web site hosting services and ISP connectivity services for a fee and
charges members a fee for processing their payments by electronic funds
transfer or by credit card. In August 1998, HPS began generating transaction
fees from group buying services provided to the hospitality industry. In 1999,
the Company has begun generating fees from contracts with larger corporate
customers to create customized, private e-marketplaces and transaction fees
from members. The Company considers its operations to be part of one operating
segment.

The Company is subject to risks common to rapidly growing, technology-based
companies, including rapid technological change, growth and commercial
acceptance of the Internet, dependence on principal products, new product
development, new product introductions and other activities of competitors, and
a limited operating history.

(2) Significant Accounting Policies

Unaudited Interim Financial Information

The unaudited interim consolidated financial statements of the Company for
the nine months ended September 30, 1998 and 1999, included herein, have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the SEC. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. In the opinion of
management, the accompanying unaudited interim consolidated financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the nine months ended September 30, 1998 and
1999. The accompanying unaudited interim consolidated financial statements are
not necessarily indicative of full year results.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.

Management's 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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

F-9
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with high credit quality
financial institutions. The Company's accounts receivable are derived from
revenue earned from customers located in the U.S. and are denominated in U.S.
dollars. Portions of the Company's accounts receivable balances are settled
either through customer credit cards or electronic fund transfers. As a result,
the majority of accounts receivable are collected upon processing of those
transactions. The Company maintains an allowance for doubtful accounts based
upon the expected collectibility of accounts receivable. During the years ended
December 31, 1998 and 1997, no customers accounted for more than 10% of net
revenues or net accounts receivable.

Fair Value of Financial Instruments

The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.

Cash and Cash Equivalents

Cash equivalents consist of investments in bank certificates of deposit and
other interest bearing instruments with initial maturities of three months or
less. Such investments are carried at cost which approximates fair value.

Property and Equipment

Property and equipment is stated at cost. Costs incurred for additions,
improvements and betterments are capitalized as incurred. Costs for maintenance
and repairs are charged to expense as incurred. Gains or losses on dispositions
of property and equipment are included in the determination of income.
Depreciation and amortization are computed using the straight-line method over
the following estimated service lives of the related assets:

<TABLE>
<S> <C>
Computer equipment............................................... 3 years
Communication equipment.......................................... 3 years
Furniture and fixtures........................................... 5 years
Leasehold improvements........................................... 3 years
</TABLE>

Revenue Recognition

Revenues are recorded, net of discounts, ratably over the period services
are provided to subscribers and deferred revenues are recognized for amounts
received before services are provided. The Company does not charge initial
sign-up fees to new subscribers. Transaction fees from group buying services
represent fees from buyers and rebates from suppliers and are recorded at the
time the transactions occur. Other revenues include license fees, which are
recognized ratably over the period services are provided. Other services,
primarily website development, are recognized as services are provided.

Research and Development Costs

All costs in the development of the network, which are classified as
research and development, are expensed as incurred. These costs generally
consist of salaries and related benefits of personnel in developing

F-10
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

enhanced or new functionality of the network. These costs are included in
programming and development costs in the accompanying statements of operations.

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation expense is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.

Income Taxes

The Company accounts for income taxes according to SFAS No. 109, "Accounting
for Income Taxes." Prior to 1998, PurchasePro, Inc., with the consent of its
stockholders, elected to be taxed under Section 1372 of the Internal Revenue
Code (the "Code") as an S corporation, which provides that, in lieu of
corporate income taxes, the stockholders account for their pro rata share of
the Company's items of income, deductions, losses, and credits. In connection
with the reorganization of the Company in January 1998 (see Note 1), the
Company, with the consent of its stockholders, elected to be taxed under the
provisions of Subchapter C of the Code. As a result, the Company reclassified
its cumulative net losses totaling $3,108,278 through the date of the
reorganization to additional paid-in capital in the accompanying consolidated
balance sheets.

Earnings (Loss) per Share

The Company follows the provisions of SFAS No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, basic earnings per share ("EPS") is computed by
dividing net loss applicable to common stock by the weighted average common
shares outstanding during the period. Pursuant to SEC Staff Accounting Bulletin
No. 98, shares of common stock or convertible preferred stock are considered
outstanding for all periods presented in the computation of basic and diluted
EPS if issued for nominal consideration. Options, warrants or other common
stock equivalents are considered outstanding for all periods presented in the
computation of diluted EPS if issued for nominal consideration. For the period
from inception (October 8, 1996) through December 31, 1996, for the years ended
December 31, 1997 and 1998, and for the nine months ended September 30, 1998
and 1999, the weighted average common shares outstanding used to compute
diluted EPS includes the effect of warrants issued by the Company to acquire
shares of common stock for $0.007 per share.

For those periods in which potentially dilutive securities such as stock
options and convertible preferred stock have a dilutive effect, the weighted
average shares outstanding used for computation of diluted EPS includes the
effect of these potentially dilutive securities.

All share and per share amounts in the accompanying consolidated financial
statements have been restated to give effect to the stock split discussed in
Note 11.

Recently Issued Accounting Standards

F-11
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The FASB recently proposed an amendment to SFAS No. 133,
which would delay the effective date for one year. The Company currently does
not engage in, nor does it expect to engage in, derivative or hedging
activities, and therefore, the Company anticipates there will be no impact to
its consolidated financial statements.

(3) Notes Payable

Principal Stockholder

The Company's principal stockholder and Chief Executive Officer (the
"Principal Stockholder") provided funds to finance development of the Company's
product. As of December 31, 1997, the total obligation to the Principal
Stockholder was $2,518,000. In January 1998, the Company paid $813,000 to the
Principal Stockholder with proceeds from the Lenders' Notes Payable (see
below). The remaining obligation of $1,705,000 was formalized with a note
payable. In April 1998, the Principal Stockholder advanced an additional
$387,000 to the Company. In June 1998, the Company repaid $310,000 from the
proceeds of the Series A Preferred Stock offering (see Note 5), and the
Principal Stockholder contributed his remaining notes payable and advances
totaling $1,782,000 to the Company in consideration for previously issued
shares of common stock. The Company has included the $1,782,000 as additional
paid-in capital in the accompanying consolidated balance sheets.

Lenders' Notes Payable

In January 1998, the Company issued promissory notes totaling $2,300,000
(the "Lenders' Notes Payable") to several individuals (the "Lenders"). Terms of
the Lenders' Notes Payable provided for interest at 8% payable quarterly and 48
monthly principal payments beginning January 1999. In addition, the Lenders
were issued 3,450,000 shares of the Company's common stock; however, if the
Company repaid the Lenders' Notes Payable within 120 days, 1,725,000 of these
shares were to be contributed back to the Company. The Company did not repay
the Lenders' Notes Payable within 120 days; however, the Lenders' Notes Payable
were repaid in June 1998 with proceeds from the Series A Preferred Stock
offering. The Lenders ultimately contributed 2,212,500 shares of common stock
back to the Company (see Note 5).

The Company allocated the $2,300,000 of proceeds between the Lenders' Notes
Payable and the shares issued based on their estimated fair values.
Accordingly, an additional $67,000 of interest expense was recorded with a
corresponding credit to additional paid-in capital.

September 1998 Notes Payable

In September 1998, the Company issued promissory notes to three individuals,
including the Principal Stockholder and a member of the Company's Board of
Directors, totaling $1,500,000 (the "September 1998 Notes"). Terms of the
September 1998 Notes require quarterly payments of interest at 15% and mature
September 2000. In connection with the issuance of these notes, the Company
issued 239,999 warrants to the note holders. Each warrant provides the holder
the right to purchase one share of Company common stock for $0.007 per share
through September 2003. Using the Black-Scholes pricing model, the Company
determined the value of these warrants to be $1.66 per share, or $398,400. The
Company recognized the $398,400 as an original issue discount and is amortizing
the discount to interest expense over the period from grant to maturity.

In June 1999, $700,000 of the notes payable were converted into 300,000
shares of Series B Preferred Stock, and the Company used $800,000 of the Series
B proceeds to repay the remaining amounts outstanding (see Note 5).

F-12
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Other Notes Payable

In January 1998, the Company repaid its obligation to a stockholder in
connection with the sale of that stockholder's common shares to the Principal
Stockholder. In addition to the outstanding principal of $49,000, the Company
agreed to make payments of $60,000 to charities selected by the stockholder
that was charged to interest expense.

In December 1998, the Principal Stockholder and the President of the Company
advanced a total of $350,000 to the Company. In March 1999, the Principal
Stockholder advanced an additional $200,000 to the Company. In connection with
Series B Preferred Stock offering (see Note 5) the Company used proceeds of
$450,000 and $100,000 to repay the Principal Stockholder and the President,
respectively, for their advances.

HPS Note Payable

In connection with HPS' acquisition of certain assets from Network
Management Services, Inc. (see Note 1), HPS issued a note payable for $50,000
that requires two payments of $25,000 each on July 31, 1999 and July 31, 2000.

(4) Commitments and Contingencies

Operating Leases

The Company is party to several non-cancelable lease agreements for certain
equipment as well as its principal administrative offices. Rent expense under
non-cancelable operating leases totaled $0, $148,298, and $279,872 for the
period from inception (October 8, 1996) through December 31, 1996, and for the
years ended December 31, 1997 and 1998, respectively. Minimum future lease
obligations under non-cancelable operating leases in effect at December 31,
1998, are as follows:

<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1999.......................................................... $ 576,657
2000.......................................................... 569,544
2001.......................................................... 505,754
2002.......................................................... 407,370
2003.......................................................... 205,077
----------
Total....................................................... $2,264,402
==========
</TABLE>

(5) Stockholders' Equity

Common Stock

The Company has authorized the issuance of 40,000,000 shares of common
stock. For the period from inception (October 8, 1996) through December
31,1997, the Principal Stockholder contributed cash of $139,382 and services
valued at $250,000 for his shares of common stock. The Principal Stockholder
served as the Company's Chief Executive Officer during 1997 and did not receive
a salary. The Company recognized compensation expense in the amount of $250,000
and a contribution to capital relating to the Principal Stockholder's services.

In connection with the repayment of the Lenders' Notes Payable in June 1998
(see Note 2), the Company and the Lenders entered into an agreement whereby
2,212,500 shares were contributed back to the Company. Accordingly, the number
of shares held by the Lenders was reduced to 1,237,500. In connection with the
same

F-13
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

agreement and in connection with the Series A Preferred Stock offering, two of
the founders of the Company contributed an aggregate of 1,387,500 shares of
common stock to the Company.

In June 1998, the Principal Stockholder sold 450,000 of his shares of common
stock to an unrelated third party for $0.07 per share. The Company recognized a
charge of $720,000 that reflects the difference between the fair value of its
stock on that date of $1.67 per share and the sales price. The third party
provided significant assistance to the Company in obtaining subscriber
contracts and, accordingly, the Company recorded the full amount of the charge
to sales and marketing expense at the time the transaction occurred. During
1998, the Principal Stockholder sold an additional 2,205,000 shares of common
stock that he owned to various individuals at prices that reflected their
estimated fair value at the time of each sale.

In connection with the closing of the Series B Preferred Stock private
placement in June 1999, the holders of Series A Preferred Stock were granted an
aggregate 675,000 shares of common stock pursuant to certain anti-dilution
rights of the holders of Series A Preferred Stock.

On September 13, 1999, the Company completed an initial public offering
("IPO") in which it sold 6,900,000 shares of common stock, including 900,000
shares in connection with the exercise of the underwriters' over-allotment
option, at $8.00 per share. The Company received approximately $50 million in
cash, net of underwriting discounts, commissions and other offering costs. At
September 30, 1999, the net proceeds were predominately held in short-term
investments. Upon the closing of the IPO, all of the Company's Series A
preferred stock and Series B preferred stock automatically converted into an
aggregate of 8,100,000 shares of common stock (see below).

Preferred Stock

In June 1998, the Company issued 3,150,000 shares of 8% Series A Convertible
Preferred Stock, par value $0.001 ("Series A"). In June 1998, the Company sold
the 3,150,000 Series A shares at $1.67 per share. Net proceeds from the
offering totaled $5,000,000, net of offering costs of $250,000, which were paid
to a company that employs a member of the Company's Board of Directors. In
connection with the issuance of the Series A, the Company granted warrants to
purchase a total of 600,000 shares of common stock, including warrants to
purchase 570,000 shares of common stock to three members of the Company's Board
of Directors and a company which employs one such director. Each warrant
provides for the holder to purchase one share of Company common stock for
$0.007 per share through June 1, 2003. Using the Black-Scholes pricing model,
the Company determined that the value of the warrants was $996,000, as of the
date of issuance. The value of the warrants has been recognized as a cost of
issuance of the Series A shares.

In May 1999, the Company issued 4,950,000 shares of 8% Series B Convertible
Preferred Stock, par value $0.001 ("Series B") for $2.33 per share and received
aggregate proceeds of $11,400,000, net of offering costs of $150,000.

Prior to the completion of the Series B offering, the Company had received
cash totaling $3,140,000 pursuant to Series B subscription agreements. Of this
amount, $2,000,000 was received in December 1998, $500,000 was received in
March 1999, and the remaining $640,000 was received in April 1999. The Series B
shares subscribed and issued after December 1998 have a beneficial conversion
feature totaling $9.4 million, measured as the difference between the
conversion price of $2.33 per share and the fair value of the underlying common
stock at the time of issuance. The beneficial conversion feature has been
recorded as additional paid-in capital. The value of the beneficial conversion
feature was recognized immediately because the Series B shares are convertible
at the option of the holder.

F-14
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Of the 4,950,000 Series B shares issued, 300,000 shares were issued to
holders of the September 1998 Notes, including a former member of the Company's
Board of Directors (see Note 2). The Company used cash proceeds from the Series
B offering to repay $800,000 of the September 1998 Notes, including $500,000 to
the Principal Stockholder, and to repay $450,000 and $100,000 of advances made
by the Company's Principal Stockholder and President, respectively.

The Company issued 225,000 shares of Series B to acquire the assets of a
software development company and for non-compete agreements with the owners of
the company. In May 1999, the Company issued 63,750 shares of Series B to an
individual in exchange for his rescission of a future right to acquire up to
35% of HPS.

On September 13, 1999, the date of the IPO, all shares of preferred stock
were mandatorily converted to shares of common stock and all amounts included
in the preferred stock accounts, including cumulative unpaid dividends and
associated accretion totaling $642,000, were converted to common stock and
additional paid-in capital.

(6) Deferred Stock-Based Compensation

The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through September 30, 1999, the Company recorded deferred stock-based
compensation of $9.7 million for the difference at the grant date between the
exercise price and the fair value of the common stock underlying the options.
This amount is being amortized over the vesting period of the individual
options.

(7) Stock Option Plans

1998 Stock Option Plan--In 1998, the Company adopted an incentive stock
option plan, the 1998 Plan, that provides for the granting of stock options
pursuant to the applicable provisions of the Internal Revenue Code and
regulations. The aggregate options available under the 1998 Plan are 4,500,000.
As of December 31, 1998 and September 30, 1999, the Company had granted options
totaling 1,064,775 and 3,933,176, respectively, to employees under the 1998
Plan. Generally, the options have five year terms and are exercisable as
follows: Class A options, 50% at the end of each of the first two years after
grant; Class B options, 33% at the end of each of the first three years after
grant; and Class C options, 25% at the end of each of the first four years
after the date of grant. Through December 31, 1998, and September 30, 1999, the
Company had issued a total of 216,000 and 555,000 options, respectively to non-
employees, including 112,500 and 307,500, respectively, issued to members of
the Board of Directors. Options were issued with exercise prices ranging from
$1.67 to $3.33. For the year ended December 31, 1998, the value of these
options was determined to have a de minimis value using the Black-Scholes
pricing model. For the nine months ended September 30, 1999, the value of these
options was determined to be approximately $1,100,000, of which $800,000 was
charged to sales and marketing expense for options granted primarily to a
strategic marketing partner. The remaining amount will be amortized over the
vesting periods of the options.

1999 Stock Option Plan--The 1999 Stock Plan was adopted by the Company's
Board of Directors in June 1999, subject to approval by the Company's
stockholders. The 1999 Stock Plan provides for the issuance of 2,250,000 shares
of common stock, incentive stock options ("ISOs"), or non-statutory stock
options to employees, directors, independent contractors and advisers. The
number of shares eligible for issuance increases each year by 3.25% of the
number of shares of common stock outstanding at the prior calendar

F-15
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

year-end. At September 30, 1999, the Company had granted a total of 1,163,100
options to employees under the 1999 Stock Plan.

The exercise price for ISOs is generally at least 100% of the fair market
value of the stock on the date of grant, and 110% for stockholders with 10% or
more ownership of the Company. Vesting provisions are determined at the time of
grant. The Company's Chairman and Chief Executive Officer is authorized to
grant up to 37,500 options in each instance to employees, with the exercise
price to be approved by the compensation committee of the Company's Board of
Directors.

A summary of the options granted to employees under the Company's plans as
of December 31, 1998 and September 30, 1999 is presented below (this does not
include 216,000 and 517,500 options granted to non-employees as of December 31,
1998 and September 30, 1999, respectively):

<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
------------------ -------------------
(Unaudited)
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options Outstanding, Beginning of
period............................ -- $ -- 1,064,775 $1.67
Granted............................ 1,064,775 1.67 3,647,895 $3.44
Exercised.......................... -- -- (142,210) $1.84
Cancelled.......................... -- -- (170,495) $1.71
--------- ----- ---------
Options Outstanding, End of
period............................ 1,064,775 $1.67 4,399,965 $3.13
========= ===== =========
</TABLE>

The following table summarizes information about the options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Range Weighted Average
of Number Remaining Weighted Average Number Weighted Average
Prices Outstanding Contract Life Exercise Price Exercisable Exercise Price
------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.67 1,064,775 1.8 $1.67 -- $ --
</TABLE>

F-16
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For stock options granted to employees from January through September 1999,
the Company recorded deferred stock-based compensation of $8,800,000 for the
difference at the grant date between the exercise price and the fair value of
the Company's common stock. This amount is being amortized to operating expense
over the vesting period of the individual options in accordance with FASB
Interpretation 28. The Company applies the provisions of APB No. 25 and its
related interpretations in accounting for its stock option plans. Accordingly,
compensation expense recognized was different than what would have been
otherwise recognized under the fair value based method defined in SFAS No. 123.
Had the Company accounted for these plans under SFAS No. 123, the Company's net
loss applicable to common stock and loss per share would have been reduced to
the following pro forma amounts:

<TABLE>
<CAPTION>
Year Ended
December
31, 1998
-----------
<S> <C>
Net Loss Applicable to Common Stockholders
As Reported.................................................. $(7,135,448)
===========
Pro Forma.................................................... $(7,204,634)
===========
Basic Loss per Share
As Reported.................................................. $ (0.55)
===========
Pro Forma.................................................... $ (0.56)
===========
Diluted Loss per Share
As Reported.................................................. $ (0.52)
===========
Pro Forma.................................................... $ (0.52)
===========
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants for the years ended December 31, 1998: risk-free
interest rate of 7%; no expected dividend yield; expected life of 1.5 years for
Class A options, 2.0 years for Class B options, and 2.5 years for Class C
options; and, an expected volatility of 0%.

F-17
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) Earnings Per Share

The computations of basic and diluted earnings per share for each period
were as follows:

<TABLE>
<CAPTION>
For the Nine
Inception For the Year Ended Months Ended
(October 8, 1996) December 31, September 30,
Through ------------------------ -------------------------
December 31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Loss (Numerator)
Net loss................ $ (122,952) $(2,985,326) $(6,800,010) $(4,973,693) $(14,096,757)
Preferred stock
dividends.............. -- -- (245,000) (140,000) (511,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) (44,981) (131,037)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
---------- ----------- ----------- ----------- ------------
Basic EPS
Net loss applicable to
common stockholders.... $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Diluted EPS
Net loss applicable to
common stockholders
after assumed
conversions............ $ (122,952) $(2,985,326) $(7,135,448) $(5,158,674) $(24,138,794)
========== =========== =========== =========== ============
Shares (Denominator)
Basic EPS
Net loss applicable to
common stockholders.... 11,500,000 11,500,000 12,900,000 13,650,000 13,002,895
Effect of Dilutive
Securities
Warrants................ 839,999 839,999 839,999 839,999 839,999
Exercise of Warrants.... -- -- -- -- (404,565)
---------- ----------- ----------- ----------- ------------
Diluted EPS
Net loss applicable to
common stockholders
after assumed
conversions............ 12,389,999 12,389,999 13,739,999 14,489,999 13,438,329
========== =========== =========== =========== ============
Per Share Amount
Basic EPS............... $ (0.01) $ (0.26) $ (0.55) $ (0.38) $ (1.86)
========== =========== =========== =========== ============
Diluted EPS............. $ (0.01) $ (0.24) $ (0.52) $ (0.36) $ (1.80)
========== =========== =========== =========== ============
</TABLE>

Options to purchase 0, 0, and 1,274,775 shares of common stock were
outstanding as of December 31, 1996, 1997, and 1998, respectively, and options
to purchase 982,275 and 4,917,465, respectively, shares of common stock were
outstanding as of September 30, 1998 and 1999, respectively but were not
included in the computation of diluted earnings per share because the Company
incurred a loss in each of the periods presented and the effect would have been
antidilutive.

F-18
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(9) Income Taxes

SFAS No. 109 requires the recognition of deferred tax assets, net of
applicable reserves, related to net operating loss carryforwards and certain
temporary differences. The standard requires recognition of a future tax
benefit to the extent that realization of such benefit is more likely than not.
Otherwise, a valuation allowance is applied. At December 31, 1998, the Company
believes that the "more likely than not" criteria have not been met, and
accordingly, a valuation allowance has been recognized. The Company did not
record any provision (benefit) for income taxes for the year ended December 31,
1998, because it experienced a net loss and generated a net operating loss of
approximately $6,500,000, which expires in 2018. The Company's utilization of
its net operating loss carryforward will be limited pursuant to Internal
Revenue Code Section 382 due to cumulative changes in ownership in excess of
50% within a three-year period. Prior to 1998, Purchase Pro, Inc. was not
subject to Federal or state income taxes.

A reconciliation of income tax benefit provided at the Federal statutory
rate (35%) to income tax benefit is as follows:

<TABLE>
<CAPTION>
Year Ended
December
31, 1998
-----------
<S> <C>
Income tax benefit computed at Federal statutory rate.......... $(2,380,000)
Permanent and other items...................................... 10,600
Change in valuation allowance.................................. 2,369,400
-----------
$ --
===========
</TABLE>

The major tax effected components of the Company's net deferred tax
liability are as follows:

<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred Tax Assets
Net operating loss carryforward.............................. $ 2,278,000
Trade accounts receivable.................................... 70,000
Deferred revenue............................................. 57,700
Accruals and reserves........................................ 36,300
-----------
2,442,000
Less--valuation allowance.................................... (2,369,400)
-----------
Total deferred tax assets.................................. 72,600
Deferred Tax Liabilities
Depreciation and amortization................................ (72,600)
-----------
Total deferred tax liability, net.......................... $ --
===========
</TABLE>

(10) Related Party Transactions

Contract Services

One of the founding stockholders of the Company provided significant
services designing the Company's service. The Company pays the stockholder for
his continued services. Payments totaling $77,200, $105,380 and $72,000 are
included in programming and development expense for the period from inception
(October 8, 1996) through December 31, 1996, and for the years ended December
31, 1997 and 1998, respectively. There were no amounts owed to the stockholder
as of December 31, 1998. In January 1998, concurrent with the

F-19
<PAGE>

PURCHASEPRO.COM, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

acquisition of assets from Purchase Pro, Inc. (see Note 1), the stockholder and
the Principal Stockholder transferred their rights in the technology to the
Company.

Due from Other Companies

The Company has paid certain costs on behalf of a company owned by the
Principal Stockholder. The Company then bills the other company for amounts
owed. At December 31, 1998, there was $15,400 due to the Company, which is
included in other receivables in the accompanying consolidated balance sheets.
At December 31, 1997, there were no amounts due from the other company.

Office Space Rent

In 1998, the Company entered into an agreement to lease its corporate office
space from a company owned by members of the Company's Board of Directors (see
Note 4). Terms of the lease require monthly base payments of $29,297, which is
adjusted on an annual basis, but in no case is the adjustment greater than 5%.
During the year ended December 31, 1998, the Company did not pay any amounts
under terms of the lease agreement and expense related to the lease totaled
approximately $20,000. In management's opinion, the terms of the lease are
comparable to terms that the Company would receive from a third party.

(11) Subsequent Event (Unaudited)

On November 18, 1999, the Company's Board of Directors authorized a three-
for-two stock split effected in the form of a stock dividend payable December
13, 1999 to stockholders of record on December 1, 1999. All share and per share
amounts in the accompanying consolidated financial statements have been
restated to give effect to the stock split.

F-20
<PAGE>

- --------------------------------------------------------------------------------

[PurchasePro.com logo]

Prudential Securities
Bear, Stearns & Co. Inc.
Volpe Brown Whelan & Company
Jefferies & Company, Inc.
Needham & Company, Inc.
PrudentialSecurities.com

- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee and the National Association of Securities Dealers,
Inc. filing fee.

<TABLE>
<CAPTION>
Payable by
Registrant
----------
<S> <C>
SEC registration fee.............................................. $ 85,312
National Association of Securities Dealers, Inc. filing fee....... 30,500
Nasdaq filing fee................................................. 17,500
Blue Sky fees and expenses........................................ 5,000
Accounting fees and expenses...................................... 75,000
Legal fees and expenses........................................... 250,000
Printing and engraving expenses................................... 50,000
Registrar and Transfer Agent's fees............................... 10,000
Miscellaneous fees and expenses................................... 36,688
--------
Total........................................................... $560,000
========
</TABLE>

Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 78.7502 and 78.751 of the Nevada General Corporation Law provides
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). Article VII of
our articles of incorporation (Exhibit 3(i).2 hereto) provides for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by Sections 78.7502 and 78.751 of
the Nevada General Corporation Law. We have also entered into agreements with
our directors and officers that will require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers to the fullest extent permitted by
law.

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourselves, our underwriters and our directors and officers of the underwriters,
for certain liabilities, including liabilities arising under the Securities
Act, and affords certain rights of contribution with respect thereto.

Item 15. RECENT SALES OF UNREGISTERED SECURITIES

On January 12, 1998, Registrant sold and issued an aggregate of 11,550,000
shares of common stock to three founders for an aggregate purchase price of
$399,382. Of these shares, 1,387,500 were subsequently contributed to capital
and 3,342,000 were sold by affiliates of PurchasePro.com as follows:

. January 15, 1998: 1,200,000 shares of common stock from Charles E.
Johnson, Jr., a founder and the Chairman and Chief Executive Officer of
Registrant, to Christopher P. Carton, the President and Chief Operating
Officer of Registrant, at a purchase price of $0.0067 per share, for cash
consideration in the aggregate amount of $8,000.

. January 15, 1998: Mr. Johnson granted Robert G. Layne options to purchase
187,500 shares of common stock owned by Mr. Johnson at $0.33 per share.
Mr. Layne exercised this option on June 2, 1999, for total cash
consideration of $62,500.

II-1
<PAGE>

. January 15, 1998: Mr. Johnson granted Larry Hancock options to purchase
150,000 shares of common stock owned by Mr. Johnson at $0.33 per share.

. June 4, 1998: 112,500 shares of common stock from Mr. Johnson to Thomas
Leahy at a purchase price of $0.067 per share, for cash consideration in
the aggregate amount of $7,500.

. June 4, 1998: 112,500 shares of common stock from Mr. Johnson to John
Patrick Leahy at a purchase price of $0.067 per share, for cash
consideration in the aggregate amount of $7,500.

. June 4, 1998: 112,500 shares of common stock from Mr. Johnson to American
Hotel Register at a purchase price of $0.067 per share, for cash
consideration in the aggregate amount of $7,500.

. June 4, 1998: 112,500 shares of common stock from Mr. Johnson to Robert
Schmidt at a purchase price of $0.067 per share, for cash consideration
in the aggregate amount of $7,500.

. June 4, 1998: 9,000 shares of common stock from Mr. Carton to Peter
Keseric at a purchase price of $1.67 per share, for cash consideration in
the aggregate amount of $15,000.

. June 4, 1998: 60,000 shares of common stock from Mr. Johnson to John
Chiles at a purchase price of $1.67 per share, for cash consideration in
the aggregate amount of $100,000.

. June 4, 1998: 150,000 shares of common stock from Mr. Johnson to James N.
Gray Co. at a purchase price of $1.67 per share, for cash consideration
in the aggregate amount of $250,000.

. June 4, 1998: 60,000 shares of common stock from Mr. Carton and 60,000
shares of common stock from Dr. Erickson to SC Holdings LLC at a purchase
price of $1.67 per share, for cash consideration in the aggregate amount
of $200,000.

. June 4, 1998: 180,000 shares of common stock from Mr. Johnson to Bradley
D. Redmon at a purchase price of $1.67 per share, for cash consideration
in the aggregate amount of $300,000.

. August 5, 1998: 120,000 shares of common stock from Mr. Johnson and
30,000 shares of common stock from Mr. Carton to Black Mountain
Investment Group at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $250,000.

. September 1, 1998: 30,000 shares of common stock from Mr. Carton to
Richard Yukes at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $50,000.

. September 14, 1998: 15,000 shares of common stock from Mr. Johnson to
Bruce D. Smith at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $25,000.

. October 1, 1998: 30,000 shares of common stock from Mr. Johnson to
Scheiner Family Trust at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $50,000.

. October 1, 1998: 22,500 shares of common stock from Mr. Johnson to
Millenium Partners LLC at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $37,500.

. November 6, 1998: 30,000 shares of common stock from Mr. Johnson to
Gerald F. Healy at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $50,000.

. November 6, 1998: 30,000 shares of common stock from Mr. Johnson to Traxx
Irrevocable Trust at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $50,000.

. December 10, 1998: 15,000 shares of common stock from Mr. Johnson to
Sigma XIII Irrevocable Trust at a purchase price of $1.67 per share, for
cash consideration in the aggregate amount of $25,000.

. December 10, 1998: 15,000 shares of common stock from Mr. Johnson to
Woodford Webb at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $25,000.

. January 12, 1999: 450,000 shares of common stock from Mr. Johnson to
Earnest Hanna at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $750,000.

II-2
<PAGE>

. January 22, 1999: 12,000 shares of common stock from Dr. Erickson to
Gerard Turiano at a purchase price of $1.67 per share, for cash
consideration in the aggregate amount of $20,000.

. March 8, 1999: 6,000 shares of common stock from Dr. Erickson to
McDonalds Investment, Inc., for the benefit of Nicholas A. Perrino, at a
purchase price of $1.67 per share, for cash consideration in the
aggregate amount of $10,000.

. May 17, 1999: 30,000 shares of common stock from Dr. Erickson to Maurice
Gallagher at a purchase price of $1.67 per share, for cash consideration
in the aggregate amount of $50,000.

. June 3, 1999: 337,500 shares of common stock from Mr. Johnson to Stephen
Dawahare at a purchase price of $2.33 per share, for consideration in the
aggregate amount of $787,500 consisting of a release and an assignment of
rights.

. June 29, 1999: options to purchase 567,000 shares of common stock owned
by Dr. Erickson from Dr. Erickson to Mr. Johnson for $8.82 per share.
These options were to expire on October 28, 1999. On October 29, 1999,
Dr. Erickson extended the options with respect to 450,000 shares at a
purchase price of $8.82 per share.

On January 15, 1998, Registrant sold and issued an aggregate of 3,450,000
shares of common stock to a group of 13 investors (the "Lexington Investor
Group"), including Mr. Redmon, in connection with such investors' loan of
$2,300,000 to Registrant pursuant to a Loan and Stock Purchase Agreement at a
price per share of $0.02. The Lexington Investor Group subsequently contributed
2,212,500 of these shares of common stock back to Registrant in connection with
the repayment of the investors' loan and the Series A Preferred Stock
financing.

On June 4, 1998, Registrant sold and issued an aggregate of 3,150,000 shares
of Series A Preferred Stock, at a purchase price of $1.67 per share, for cash
in the aggregate amount of $5,250,000 to a group of 38 investors, including the
Gallagher Corporation, Flynn Corporation, Mr. Redmon and Mr. Chiles, pursuant
to a Securities Purchase Agreement.

On June 4, 1998, Registrant issued warrants to Jefferies & Company, Inc. to
purchase 300,000 shares of common stock at a purchase price of $0.0067 per
share, in connection with assisting Registrant with its Series A Preferred
Stock financing and other financial advisory services. These warrants were
exercised in May 1999 and Jefferies & Company, Inc. was issued 300,000 shares
of common stock.

On June 4, 1998, Registrant issued warrants to John G. Chiles, at the
direction of Jefferies & Company, Inc., to purchase 45,000 shares of common
stock at a purchase price of $0.0067 per share, in connection with assisting
Registrant with its Series A Preferred Stock financing and other financial
advisory services. These warrants were exercised in May 1999 and Mr. Chiles was
issued 45,000 shares of common stock.

On June 4, 1998, Registrant issued warrants to purchase 255,000 shares of
common stock to Ron Booth, Mr. Gallagher and Timothy Flynn at a purchase price
of $0.0067 per share, in connection with their investment in Registrant's
Series A Preferred Stock. These warrants were exercised in February 1999 and
these individuals were issued an aggregate of 255,000 shares of common stock.

On September 18, 1998, Registrant issued warrants to purchase an aggregate
of 239,999 shares of common stock to Mr. Johnson, Alex Boone, Mr. Gallagher,
Mr. Flynn and RMC Capital Corporation at a purchase price of $0.0067 per share,
in connection with a loan made to Registrant by such individuals. Mr. Johnson
exercised his warrant for 80,000 shares of common stock in June 1999.

On June 2, 1999, Registrant sold and issued an aggregate of 4,950,000 shares
of Series B Preferred Stock, at a purchase price of $2.33 per share, for cash
in the aggregate amount of $11,550,000 to a group of 57 investors, including
Mr. Gallagher, Mr. Flynn, Mr. Chiles, David I. Fuente and Mr. Redmon, pursuant
to a Securities Purchase Agreement.

II-3
<PAGE>

On June 2, 1999, Registrant issued an aggregate of 675,000 shares of common
stock to the holders of Series A Preferred Stock, consisting of 38 holders,
including the Gallagher Corporation, Flynn Corporation, Mr. Redmon and Mr.
Chiles, in consideration of these holders' waiver of certain anti-dilution
rights triggered by the issuance of the Series B Preferred Stock.

On September 3, 1999, Mr. Johnson gave 3,750 shares of common stock to Mr.
Gene Kilroy.
As of June 30 1999, we have granted options to purchase 4,100,670 shares of
common stock to employees, consultants and other service providers of
PurchasePro.com under our 1998 Stock Option and Incentive Plan.

On July 22, 1999, we issued warrants to Office Depot, Inc. to purchase
750,000 shares of our common stock at a per share exercise price of $8.00.

On November 4, 1999, we issued a warrant to purchase up to 525,000 shares of
our common stock at a per share exercise price of $37.58 to Advanstar, Inc.

On November 29, 1999, we issued a warrant to purchase up to 2.7 million
shares of our common stock at a per share exercise price of $95.79 to Sprint
Communications Company, L.P.

The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each of these transactions represented their intention to acquire
the securities for investment only and not with view to or for sale in
connection with any distribution thereof and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationship with the Registrant,
to information about the Registrant.

Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

See exhibits listed on the Exhibit Index following the signature page of the
Form S-1 which is incorporated herein by reference.

(b) Financial Statement Schedules

Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.

Item 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

II-4
<PAGE>

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) The Registrant will provide to the underwriters at the closing(s)
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on the 7th day of December, 1999.

PURCHASEPRO.COM, INC.

By /s/ Christopher P. Carton
-----------------------------------
Christopher P. Carton
Chief Operating Officer,
President and Secretary

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles E. Johnson, Jr. and Christopher P.
Carton, and each of them, his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each of said attorneys-
in-fact and agents or their substitutes may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----

<C> <S> <C>
/s/ Charles E. Johnson, Jr. Chief Executive Officer December 7, 1999
____________________________________ and Chairman
Charles E. Johnson, Jr.

/s/ Christopher P. Carton Chief Operating Officer, December 7, 1999
____________________________________ President,
Christopher P. Carton Secretary and Director

/s/ Richard C. St. Peter Executive Vice December 7, 1999
____________________________________ President, Chief
Richard C. St. Peter Financial Officer and
Treasurer

/s/ Scott H. Miller Vice President--Finance, December 7, 1999
____________________________________ Chief
Scott H. Miller Accounting Officer

/s/ John G. Chiles Director December 7, 1999
____________________________________
John G. Chiles

/s/ David I. Fuente Director December 7, 1999
____________________________________
David I. Fuente

/s/ J. Terrence Lanni Director December 7, 1999
____________________________________
J. Terrence Lanni

</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----

<C> <S> <C>
/s/ Michael D. O'Brien Director December 7, 1999
____________________________________
Michael D. O'Brien

/s/ Bradley D. Redmon Director December 7, 1999
____________________________________
Bradley D. Redmon
</TABLE>

II-7
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.

3(i).1** Amended and Restated Articles of Incorporation (filed as Exhibit
3(i).1 to our Quarterly Report on Form 10-Q (No. 000-26465), and
incorporated herein by reference).

3(ii).1** Bylaws of the Registrant, as amended (filed as Exhibit 3(ii).1 to
our Quarterly Report on Form 10-Q (No. 000-26465), and incorporated
herein by reference).

4.1** Form of Common Stock Certificate (filed as Exhibit 4.1 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).

5.1 Opinion of Pillsbury Madison & Sutro LLP.

10.1** Form of Indemnification Agreement between the Registrant and each
of its directors and officers (filed as Exhibit 10.1 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).

10.2** 1998 Stock Option and Incentive Plan and forms of agreements
thereunder (filed as Exhibit 10.2 to our Registration Statement on
Form S-1 (No. 333-01865), and incorporated herein by reference).

10.3** 1999 Stock Plan (filed as Exhibit 10.3 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated herein by
reference).

10.4** Securities Purchase Agreement dated as of June 1, 1998 between
Registrant and the purchasers of its Series A Preferred Stock
(filed as Exhibit 10.4 to our Registration Statement on Form S-1
(No. 333-01865), and incorporated herein by reference).

10.5** Securities Purchase Agreement dated as of April 30, 1999 between
Registrant and the purchasers of its Series B Preferred Stock
(filed as Exhibit 10.5 to our Registration Statement on Form S-1
(No. 333-01865), and incorporated herein by reference).

10.6** First Amended and Restated Stockholders Agreement dated as of April
30, 1999 between the Registrant and the holders of Series A
Preferred Stock and Series B Preferred Stock (filed as Exhibit 10.6
to our Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).

10.7+** Agreement dated as of January 4, 1999 between Registrant and the
Greater Phoenix Chamber of Commerce (filed as Exhibit 10.7 to our
Registration Statement on Form S-1 (No. 333-01865), and
incorporated herein by reference).

10.8+** Software Agency and Services Agreement dated as of May 3, 1999
among Registrant, ZoomTown.com, Inc. and Bradley D. Redmon (filed
as Exhibit 10.8 to our Registration Statement on Form S-1 (No. 333-
01865), and incorporated herein by reference).

10.9+** Agreement dated as of May 1, 1999, between Registrant and
Hospitalitycity pte ltd (filed as Exhibit 10.9 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated herein by
reference).

10.10** Agreement dated as of January 1999 between Registrant and E-
Marketpro, LLC (filed as Exhibit 10.10 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated herein by
reference).

10.11** Letter of Employment between Registrant and Charles E. Johnson, Jr.
(filed as Exhibit 10.11 to our Registration Statement on Form S-1
(No. 333-01865), and incorporated herein by reference).

</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.12** Letter of Employment between Registrant and Christopher P. Carton
(filed as Exhibit 10.12 to our Registration Statement on Form S-1 (No.
333-01865), and incorporated herein by reference).

10.13** Employment Agreement between Registrant and Jeffrey A. Neppl (filed as
Exhibit 10.13 to our Registration Statement on Form S-1 (No. 333-
01865), and incorporated herein by reference).

10.14** Letter of Employment between Registrant and Robert G. Layne (filed as
Exhibit 10.14 to our Registration Statement on Form S-1 (No. 333-
01865), and incorporated herein by reference).

10.15** Warrant dated as of July 22, 1999, by and between Registrant and
Office Depot, Inc. (filed as Exhibit 10.15 to our Registration
Statement on Form S-1 (No. 333-01865), and incorporated herein by
reference).

10.16** Letter of Employment between Registrant and Richard C. St. Peter
(filed as Exhibit 10.16 to our Registration Statement on Form S-1 (No.
333-01865), and incorporated herein by reference).

10.17** Promissory Note dated September 2, 1999 between Registrant Charles E.
Johnson, Jr. (filed as Exhibit 10.17 to our Registration Statement on
Form S-1 (No. 333-01865), and incorporated herein by reference).

10.18** Loan Commitment dated September 3, 1999 between Registrant and John G.
Chiles (filed as Exhibit 10.18 to our Registration Statement on Form
S-1 (No. 333-01865), and incorporated herein by reference).

10.19** Loan Commitment dated September 3, 1999 between Registrant and Maurice
J. Gallagher (filed as Exhibit 10.19 to our Registration Statement on
Form S-1 (No. 333-01865), and incorporated herein by reference).

10.20** Loan Commitment dated September 3, 1999 between Registrant and Charles
E. Johnson, Jr. (filed as Exhibit 10.20 to our Registration Statement
on Form S-1 (No. 333-01865), and incorporated herein by reference).

10.21** Loan Commitment dated September 3, 1999 between Registrant and Bradley
D. Redmon (filed as Exhibit 10.21 to our Registration Statement on
Form S-1 (No. 333-01865), and incorporated herein by reference).

10.22* Warrant Purchase Agreement dated November 29, 1999 by the Company and
Sprint Communications Company L.P.

10.23* Warrant to Purchase Common Stock of Company (issued to Sprint
Communications Company, L.P.).

10.24* Amendment to Warrant to Purchase Common Stock of the Company (by
Sprint).

10.25* Strategic e-Commerce Marketing Agreement between the Company and
Sprint.

10.26* Form of Warrant to Purchase Common Stock of the Company dated as of
November 1999 (issued to Advanstar Inc.).

23.1 Consent of Arthur Andersen LLP.

23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).

24.1 Power of Attorney (see Page II-5).

27.1** Financial Data Schedule (filed as Exhibit 27.1 to our Registration
Statement on Form S-8 (No. 333-91533), and incorporated herein by
reference).
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been granted with respect to certain portions of
these agreements.

<PAGE>

EXHIBIT 1.1

PurchasePro.com, Inc.

3,000,000 Shares/1/

Common Stock

UNDERWRITING AGREEMENT
----------------------

December __, 1999

PRUDENTIAL SECURITIES INCORPORATED
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
JEFFERIES & COMPANY, INC.
NEEDHAM & COMPANY, INC.
PRUDENTIALSECURITIES.COM
Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292

Ladies and Gentlemen:

PurchasePro.com, Inc., a Nevada corporation (the "Company"), and the
Selling Securityholders named on Schedule 1 hereto (the "Selling
Securityholders") hereby confirm their agreement with the several underwriters
named in Schedule 2 hereto (the "Underwriters"), for whom you have been duly
authorized to act as representatives (in such capacity, the "Representatives"),
as set forth below in this Underwriting Agreement (the "Agreement").

1. Securities. Subject to the terms and conditions herein contained, the
----------
Company and the Selling Securityholders propose severally to sell to the several
Underwriters an aggregate of 3,000,000 shares (the "Firm Securities") of the
Company's common stock, par value $0.01 per share ("Common Stock"), 2,000,000
of which shares will be issued and sold by the Company (the "Company's Firm
Securities") and 1,000,000 of which shares will be sold by the Selling
Securityholders (the "Selling Securityholders' Firm Securities"). Of the Selling
Securityholders' Firm Securities, each Selling Securityholder will sell the
number of shares listed opposite its name on Schedule 2 hereto. The Selling
Securityholders also propose severally to sell to the several Underwriters not
more than 450,000 additional shares of Common Stock if requested by

- -------------
/1/ Plus an option to purchase from the Selling Securityholders up to 450,000
additional shares to cover over-allotments.
<PAGE>

the Representatives as provided in Section 3 of this Agreement. Any and all
shares of Common Stock to be purchased by the Underwriters pursuant to such
option are referred to herein as the "Option Securities", and the Firm
Securities and any Option Securities are collectively referred to herein as the
"Securities".

2. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Securityholders.
- ---------------

(a) The Company represents and warrants to, and agrees with, each of the
several Underwriters that:

(i) A registration statement on Form S-1 (File No. 333-_____) with respect
to the Securities, including a prospectus subject to completion, has been filed
by the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either clause (i)(A) or (i)(B) of
this sentence as have been provided to and approved by the Representatives prior
to the execution of this Agreement, or (ii) if such registration statement, as
it may have been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration statement, including
a form of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Securities, which registration shall be effective upon filing with
the Commission. As used in this Agreement, the term "Original Registration
Statement" means the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared effective,
including all financial schedules and exhibits thereto and including any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined); the term "Rule 462(b) Registration
Statement" means any registration statement filed with the Commission pursuant
to Rule 462(b) under the Act (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated therein at the time such
Registration Statement becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:

2
<PAGE>

(A) if the Company relies on Rule 434 under the Act, the Term Sheet
relating to the Securities that is first filed pursuant to Rule 424(b)(7)
under the Act, together with the Preliminary Prospectus identified therein
that such Term Sheet supplements;

(B) if the Company does not rely on Rule 434 under the Act, the
prospectus first filed with the Commission pursuant to Rule 424(b) under
the Act; or

(C) if the Company does not rely on Rule 434 under the Act and if no
prospectus is required to be filed pursuant to Rule 424(b) under the Act,
the prospectus included in the Registration Statement;

and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.

(ii) The Commission has not issued any order preventing or suspending use
of any Preliminary Prospectus. When any Preliminary Prospectus was filed with
the Commission it (i) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder and (ii) did
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared effective, it
(i) contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any Term Sheet that is
a part thereof or any amendment or supplement to the Prospectus is filed with
the Commission pursuant to Rule 424(b) (or, if the Prospectus or part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and on the Firm
Closing Date and any Option Closing Date (both as hereinafter defined), the
Prospectus, as amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) do not apply to statements or omissions made in
any Preliminary Prospectus, the Registration Statement or any amendment thereto
or the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein.

(iii) If the Company has elected to rely on Rule 462(b) and the Rule
462(b) Registration

3
<PAGE>

Statement has not been declared effective (i) the Company has filed a Rule
462(b) Registration Statement in compliance with and that is effective upon
filing pursuant to Rule 462(b) and has received confirmation of its receipt and
(ii) the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.

(iv) The Company and each of its subsidiaries have been duly organized and
are validly existing as corporations in good standing under the laws of their
respective jurisdictions of incorporation and are duly qualified to transact
business as foreign corporations and are in good standing under the laws of all
other jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified does not amount to a
material liability or disability to the Company and its subsidiaries, taken as a
whole.

(v) The Company and each of its subsidiaries have full power (corporate
and other) to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus; and the Company has full power (corporate and other) to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it.

(vi) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable and are wholly owned beneficially by the Company free and clear of
any security interests, liens, encumbrances, equities or claims.

(vii) The Company has an authorized, issued and outstanding capitalization
as set forth in the Prospectus or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus. All of the issued shares of capital stock of
the Company (including but not limited to the Selling Securityholders' Firm
Securities) have been duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been duly
authorized and at the Firm Closing Date or the related Option Closing Date (as
the case may be), after payment therefor in accordance herewith, will be validly
issued, fully paid and nonassessable. No holders of outstanding shares of
capital stock of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Securities, and no holder of securities of
the Company has any right which has not been fully exercised or waived to
require the Company to register the offer or sale of any securities owned by
such holder under the Act in the public offering contemplated by this agreement.

(viii) The capital stock of the Company conforms to the description
thereof contained in the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.

(ix) Except as disclosed in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), there are no outstanding
(A) securities or obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital stock of the Company or any
such subsidiary, (B) warrants, rights or options to subscribe for or purchase
from the Company or any such subsidiary any such capital stock or any such
convertible or

4
<PAGE>

exchangeable securities or obligations, or (C) obligations of the Company or any
such subsidiary to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or options.

(x) The consolidated financial statements and schedules of the Company and
its consolidated subsidiaries included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present the financial position of the Company and
its consolidated subsidiaries and the results of operations and changes in
financial condition as of the dates and periods therein specified. Such
financial statements and schedules have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved (except as otherwise noted therein). The selected financial
data set forth under the caption "Selected Financial and Operating Data" in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis stated in the Prospectus
(or such Preliminary Prospectus), the information included therein.

(xi) Arthur Andersen LLP, who have certified certain financial statements
of the Company and its consolidated subsidiaries and delivered their report with
respect to the audited consolidated financial statements and schedules included
in the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), are independent public
accountants as required by the Act and the applicable rules and regulations
thereunder.

(xii) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly executed and
delivered by the Company, and is the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.

(xiii) No legal or governmental proceedings are pending to which the
Company or any of its subsidiaries is a party or to which the property of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not described therein
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and no such proceedings have been threatened against the Company or
any of its subsidiaries or with respect to any of their respective properties;
and no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) or filed as required.

(xiv) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by the
Company with the other provisions of this Agreement and the consummation of the
other transactions herein contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any governmental
authority, except such as have been obtained, such as may be required under
state securities or blue sky laws and, if the registration statement filed with
respect to the Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be obtained as
provided in this Agreement) under the Act, or (ii) conflict with

5
<PAGE>

or result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of their
respective properties are bound, or the charter documents or by-laws of the
Company or any of its subsidiaries, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator applicable to the Company or any of its subsidiaries.

(xv) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus, neither the Company nor any
of its subsidiaries has sustained any material loss or interference with their
respective businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding and there has not been any material
adverse change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise), management, business
prospects, net worth, or results of the operations of the Company or any of its
subsidiaries, except in each case as described in or contemplated by the
Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.

(xvi) The Company has not, directly or indirectly, (i) taken any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

(xvii) The Company has not distributed and, prior to the later of (i) the
Closing Date and (ii) the completion of the distribution of the Securities, will
not distribute any offering material in connection with the offering and sale of
the Securities other than the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or other materials, if any permitted by the Act.

(xviii) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (1) the Company and
its subsidiaries have not incurred any material liability or obligation, direct
or contingent, nor entered into any material transaction not in the ordinary
course of business; (2) the Company has not purchased any of its outstanding
capital stock, nor declared, paid or otherwise made any dividend or distribution
of any kind on its capital stock; and (3) there has not been any material change
in the capital stock, short-term debt or long-term debt of the Company and its
consolidated subsidiaries, except in each case as described in or contemplated
by the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

(xix) The Company and each of its subsidiaries have good and marketable
title in fee simple to all items of real property and marketable title to all
personal property owned by each of

6
<PAGE>

them, in each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not interfere
with the use made or proposed to be made of such property by the Company or such
subsidiary, and any real property and buildings held under lease by the Company
or any such subsidiary are held under valid, subsisting and enforceable leases,
with such exceptions as are not material and do not interfere with the use made
or proposed to be made of such property and buildings by the Company or such
subsidiary, in each case except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

(xx) No labor dispute with the employees of the Company or any of its
subsidiaries exists or is threatened or imminent that could result in a material
adverse change in the condition (financial or otherwise), business prospects,
net worth or results of operations of the Company and its subsidiaries, except
as described in or contemplated by the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).

(xxi) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all material patents, patent applications, trademarks, service
marks, trade names, licenses, copyrights and proprietary or other confidential
information currently employed by them in connection with their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).

(xxii) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

(xxiii) No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

7
<PAGE>

(xxiv) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).

(xxv) The Company will conduct its operations in a manner that will not
subject it to registration as an investment company under the Investment Company
Act of 1940, as amended, and this transaction will not cause the Company to
become an investment company subject to registration under such Act.

(xxvi) The Company has filed all foreign, federal, state and local tax
returns that are required to be filed or has requested extensions thereof
(except in any case in which the failure so to file would not have a material
adverse effect on the Company and its subsidiaries) and has paid all taxes
required to be paid by it and any other assessment, fine or penalty levied
against it, to the extent that any of the foregoing is due and payable, except
for any such assessment, fine or penalty that is currently being contested in
good faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).

(xxvii) Neither the Company nor any of its subsidiaries is in violation of
any federal or state law or regulation relating to occupational safety and
health or to the storage, handling or transportation of hazardous or toxic
materials and the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable federal and state
occupational safety and health and environmental laws and regulations to conduct
their respective businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit, license or
approval, except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals which would not,
singly or in the aggregate, result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or results of operations
of the Company and its subsidiaries, except as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

(xxviii) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters covered thereby.

(xxix) Except for the shares of capital stock of each of the subsidiaries
owned by the Company and such subsidiaries, neither the Company nor any such
subsidiary owns any shares of stock or any other equity securities of any
corporation or has any equity interest in any firm, partnership, association or
other entity, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).

8
<PAGE>

(xxx) The Company has received full and complete waivers from persons
holding that number of shares, who, by reason of the filing of the Registration
Statement, have the right to request the Company to register under the Act, or
to include in the Registration Statement, securities held by them, required to
effect a waiver of such registration rights, including a waiver of notice
thereof.

(xxxi) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(xxxii) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a default in the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties is bound or may be affected in any
material adverse respect with regard to property, business or operations of the
Company and its subsidiaries.

(b) Each Selling Securityholder severally represents and warrants to, and
agrees with, each of the several Underwriters that:

(i) Such Selling Securityholder has full power (corporate, partnership,
trust or other) to enter into this Agreement and to sell, assign, transfer and
deliver to the Underwriters the Securities to be sold by such Selling
Securityholder hereunder in accordance with the terms of this Agreement; the
execution and delivery of this Agreement have been duly authorized by all
necessary corporate action of such Selling Securityholder; and this Agreement
has been duly executed and delivered by such Selling Securityholder.

(ii) Such Selling Securityholder has duly executed and delivered a power of
attorney and custody agreement (with respect to such Selling Securityholder, the
"Power of Attorney" and the "Custody Agreement", respectively), each in the form
heretofore delivered to the Representatives, appointing _______________ as such
Selling Securityholder's attorney-in-fact (the "Attorney-in-Fact") with
authority to execute, deliver and perform this Agreement on behalf of such
Selling Securityholder and appointing _______________, as custodian thereunder
(the "Custodian"). Certificates in negotiable form, endorsed in blank or
accompanied by blank stock powers duly executed, with signatures appropriately
guaranteed, representing the Securities to be sold by such Selling
Securityholder hereunder have been deposited with the Custodian pursuant to the
Custody Agreement for the purpose of delivery pursuant to this Agreement. Such
Selling Securityholder has full power (corporate, partnership, trust or other)
to enter into the Custody Agreement and the Power of Attorney and to perform its
obligations under the Custody Agreement. The execution and delivery of the
Custody Agreement and the Power of Attorney

9
<PAGE>

have been duly authorized by all necessary corporate action of such Selling
Securityholder; the Custody Agreement and the Power of Attorney have been duly
executed and delivered by such Selling Securityholder and, assuming due
authorization, execution and delivery by the Custodian, are the legal, valid,
binding and enforceable instruments of such Selling Securityholder. Such Selling
Securityholder agrees that each of the Securities represented by the
certificates on deposit with the Custodian is subject to the interests of the
Underwriters hereunder, that the arrangements made for such custody, the
appointment of the Attorney-in-Fact and the right, power and authority of the
Attorney-in-Fact to execute and deliver this Agreement, to agree on the price at
which the Securities (including such Selling Securityholder's Securities) are to
be sold to the Underwriters, and to carry out the terms of this Agreement, are
to that extent irrevocable and that the obligations of such Selling
Securityholder hereunder shall not be terminated, except as provided in this
Agreement or the Custody Agreement, by any act of such Selling Securityholder,
by operation of law or otherwise, whether, in the case of any individual Selling
Securityholder, by the death or incapacity of such Selling Securityholder, in
the case of a trust or estate, by the death of the trustee or trustees or the
executor or executors or the termination of such trust or estate, or, in the
case of a corporate or partnership Selling Securityholder, by its liquidation or
dissolution or by the occurrence of any other event. If any individual Selling
Securityholder, trustee or executor should die or become incapacitated or any
such trust should be terminated, or if any corporate or partnership Selling
Securityholder shall liquidate or dissolve, or if any other event should occur,
before the delivery of such Securities hereunder, the certificates for such
Securities deposited with the Custodian shall be delivered by the Custodian in
accordance with the respective terms and conditions of this Agreement as if such
death, incapacity, termination, liquidation or dissolution or other event had
not occurred, regardless of whether or not the Custodian or the Attorney-in-Fact
shall have received notice thereof.

(iii) Such Selling Securityholder is the lawful owner of the Securities to
be sold by such Selling Securityholder hereunder and upon sale and delivery of,
and payment for, such Securities, as provided herein, such Selling
Securityholder will convey good and marketable title to such Securities, free
and clear of any security interests, liens, encumbrances, equities, claims or
other defects.

(iv) Such Selling Securityholder has not, directly or indirectly, (i)
taken any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or (ii) since the filing of the Registration
Statement (A) sold, bid for, purchased, or paid anyone any compensation for
soliciting purchases of, the Securities or (B) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by the Selling Securityholders
under this Agreement).

(v) Such Selling Securityholder has reviewed the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) and the
Registration Statement, and the information regarding such Selling
Securityholder set forth therein under the caption "Principal and Selling
Stockholders" is complete and accurate.

10
<PAGE>

(vi) The sale by such Selling Securityholder of Securities pursuant
hereto is not prompted by any adverse information concerning the Company that is
not set forth in the Registration Statement or the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).

(vii) The sale of the Securities to the Underwriters by such Selling
Securityholder pursuant to this Agreement, the compliance by such Selling
Securityholder with the other provisions of this Agreement, the Custody
Agreement and the consummation of the other transactions herein contemplated do
not (i) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or blue sky laws and,
if the Registration Statement filed with respect to the Securities (as amended)
is not effective under the Act as of the time of execution hereof, such as may
be required (and shall be obtained as provided in this Agreement) under the Act
and the Securities Exchange Act of 1934 (the "Exchange Act"), or (ii) conflict
with or result in a breach or violation of any of the terms and provisions of,
or constitute a default under any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which such Selling Securityholder or any of its
subsidiaries is a party or by which such Selling Securityholder or any of its
subsidiaries or any of their respective properties are bound, or the charter
documents or bylaws of such Selling Securityholder or any of its subsidiaries or
any statute or any judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to such Selling
Securityholder or any of its subsidiaries.

(viii) The Selling Securityholders have not distributed and, prior to the
later of (A) the Firm Closing Date and (B) the completion of the distribution of
the Securities, will not distribute any offering material in connection with the
offering and sale of the Securities other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any
supplement or amendment thereto, or any materials, if any permitted by the Act.

(ix) All information furnished by or on behalf of such Selling
Securityholder relating to such Selling Securityholder and such Selling
Securityholders' Securities that is contained in the representations and
warranties of such Selling Securityholder in such Selling Securityholder's Power
of Attorney or Custody Agreement or set forth in the Registration Statement or
the Prospectus is, and at the time the Registration Statement became or becomes,
as the case may be, effective and at all times subsequent thereto up to and on
the Closing Date, and on any later date on which Option Securities are to be
purchased, was or will be, true, correct and complete, and does not, and at the
time the Registration Statement became or becomes, as the case may be, effective
and at all times subsequent thereto up to and on the Closing Date, and on any
later date on which Option Securities are to be purchased, will not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make such information not misleading.

(x) Such Selling Securityholder will comply with all agreements and satisfy
all conditions on its part to be complied with or satisfied pursuant to this
Agreement on or prior to the Closing Date, or any later date on which Option
Securities are to be purchased, as the case may be, and will advise its counsel
and Prudential Securities Incorporated prior to the Closing Date, or such later
date on which Option Securities are to be purchased, as the case may be, if any
statement to

11
<PAGE>

be made on behalf of such Selling Securityholder in the certificate contemplated
by Section 7(h) would be inaccurate if made as of the Closing Date, or such
later date on which Option Securities are to be purchased, as the case may be.

3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the
---------------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to, and each of the Selling Securityholders, severally and not
jointly, agrees to sell to, each of the Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company and
the Selling Securityholders, at a purchase price of $_____ per share, the number
of Firm Securities set forth opposite the name of such Underwriter in Schedule 2
hereto. One or more certificates in definitive form for the Firm Securities
that the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company and the Attorney-in-Fact for
the Selling Securityholders at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company and the Selling
Securityholders to the Representatives for the respective accounts of the
Underwriters, against payment by or on behalf of the Underwriters of the
purchase price therefor by wire transfer in same-day funds (the "Wired Funds")
to the order of the Company and the Selling Securityholders, as their interests
may appear. Such delivery of and payment for the Firm Securities shall be made
at the offices of Pillsbury Madison & Sutro LLP, 235 Montgomery Street, San
Francisco, California at 9:30 A.M., New York time, on December __, 1999 or at
such other place, time or date as the Representatives and the Company may agree
upon or as the Representatives may determine pursuant to Section 9 hereof, such
time and date of delivery against payment being herein referred to as the "Firm
Closing Date". The Company and the Selling Securityholders will make such
certificate or certificates for the Firm Securities available for checking and
packaging by the Representatives at the offices in New York, New York of the
Company's transfer agent or registrar or of Prudential Securities Incorporated
at least 24 hours prior to the Firm Closing Date.

(b) For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Securities as contemplated by the Prospectus,
the Selling Securityholders hereby grant to the several Underwriters an option
to purchase, severally and not jointly, the Option Securities. The purchase
price to be paid for any Option Securities shall be the same price per share as
the price per share for the Firm Securities set forth above in paragraph (a) of
this Section 3. The option granted hereby may be exercised as to all or any
part of the Option Securities from time to time within thirty (30) days after
the date of the Prospectus (or, if such exercise date shall be a Saturday or
Sunday or a holiday, on the next business day thereafter when the New York Stock
Exchange is open for trading). The Underwriters shall not be under any
obligation to purchase any of the Option Securities prior to the exercise of
such option. The Representatives may from time to time exercise the option
granted hereby by giving notice in writing or by telephone (confirmed in
writing) to the Company and the Attorney-in-Fact of the Selling Securityholders
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing

12
<PAGE>

Date. The time and date set forth in such notice, or such other time on such
other date as the Representatives and Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, is herein called the
"Option Closing Date" with respect to such Option Securities. Upon exercise of
the option as provided herein, the Selling Securityholders, shall become
obligated to sell to each of the several Underwriters, and, subject to the terms
and conditions herein set forth, each of the Underwriters (severally and not
jointly) shall become obligated to purchase from the Selling Securityholders,
the same percentage of the total number of the Option Securities as to which the
several Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as adjusted by
the Representatives in such manner as they deem advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.

(c) The Company and the Selling Securityholders hereby acknowledge that
the wire transfer by or on behalf of the Underwriters of the purchase price for
any Securities does not constitute closing of a purchase and sale of the
Securities. Only execution and delivery of a receipt for Securities by the
Underwriters indicates completion of the closing of a purchase of the Securities
from the Company. Furthermore, in the event that the Underwriters wire funds to
the Company prior to the completion of the closing of a purchase of Securities,
the Company hereby acknowledges that until the Underwriters execute and deliver
a receipt for the Securities, by facsimile or otherwise, the Company will not be
entitled to the Wired Funds and shall return the Wired Funds to the Underwriters
as soon as practicable (by wire transfer of same-day funds) upon demand. In the
event that the closing of a purchase of Securities is not completed and the
Wired Funds are not returned by the Company to the Underwriters on the same day
the Wired Funds were received by the Company, the Company agrees to pay to the
Underwriters in respect of each day the Wired Funds are not returned by it, in
same-day funds, interest on the amount of such Wired Funds in an amount
representing the Underwriters' cost of financing as reasonably determined by
Prudential Securities Incorporated.

(d) It is understood that any of you, individually and not as one of the
Representatives, may (but shall not be obligated to) make payment on behalf of
any Underwriter or Underwriters for any of the Securities to be purchased by
such Underwriter or Underwriters. No such payment shall relieve such
Underwriter or Underwriters from any of its or their obligations hereunder.

4. Offering by the Underwriters. Upon your authorization of the release
----------------------------
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.

5. Covenants of the Company and the Selling Securityholders. Covenants of
--------------------------------------------------------
the Company and the Selling Securityholders.

(a) The Company covenants and agrees with each of the Underwriters that:

13
<PAGE>

(i) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, and any
amendments thereto to become effective as promptly as possible. If required,
the Company will file the Prospectus or any Term Sheet that constitutes a part
thereof and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to the Securities is required
to be delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission the prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 2(a) hereof, any amendment or supplement to such Prospectus,
Term Sheet or any amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives previously have been advised
and furnished with a copy for a reasonable period of time prior to the proposed
filing and as to which filing the Representatives shall not have given their
consent. The Company will prepare and file with the Commission, in accordance
with the rules and regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to the
Registration Statement or amendments or supplements to the Prospectus that may
be necessary or advisable in connection with the distribution of the Securities
by the several Underwriters, and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto has been
filed and will provide evidence satisfactory to the Representatives of each such
filing or effectiveness.

(ii) The Company will advise the Representatives, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Original Registration
Statement or any Rule 462(b) Registration Statement or any amendment thereto or
any order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, (iii)
the institution, threatening or contemplation of any proceeding for any such
purpose or (iv) any request made by the Commission for amending the Original
Registration Statement or any Rule 462(b) Registration Statement, for amending
or supplementing the Prospectus or for additional information. The Company will
use its best efforts to prevent the issuance of any such stop order and, if any
such stop order is issued, to obtain the withdrawal thereof as promptly as
possible.

(iii) The Company will arrange for the qualification of the Securities for
offering and sale under the securities or blue sky laws of such jurisdictions as
the Representatives may designate and will continue such qualifications in
effect for as long as may be necessary to complete the distribution of the
Securities, provided, however, that in connection therewith the Company shall
-----------------
not be required to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction.

14
<PAGE>

(iv) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the Act
or (ii) the Option Closing Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would include any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if for any other reason it is necessary at any time to
amend or supplement the Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company will promptly notify the
Representatives thereof and, subject to Section 5(a) hereof, will prepare and
file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.

(v) The Company will, without charge, provide (i) to the Representatives
and to counsel for the Underwriters a conformed copy of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) or any Rule 462(b)
Registration Statement, certified by the Secretary or an Assistant Secretary of
the Company to be true and complete copies thereof as filed with the Commission
by electronic transmission, (ii) to each other Underwriter, a conformed copy of
such registration statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto as the Representatives may reasonably request; without
limiting the application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 P.M., New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 10:00
A.M., New York City time, on such date or (B) 2:00 P.M., New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 10:00 A.M., New York City time, on
such date, will deliver to the Underwriters, without charge, as many copies of
the Prospectus and any amendment or supplement thereto as the Representatives
may reasonably request for purposes of confirming orders that are expected to
settle on the Firm Closing Date. The Company will provide or cause to be
provided to each of the Representatives, and to each Underwriter that so
requests in writing, a copy of each report on Form SR filed by the Company as
required by Rule 463 under the Act.

(vi) The Company, as soon as practicable, will make generally available to
its securityholders and to the Representatives a consolidated earnings statement
of the Company and its subsidiaries that satisfies the provisions of Section
11(a) of the Act and Rule 158 thereunder.

(vii) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.

(viii) The Company will not, directly or indirectly, without the prior
written consent of Prudential Securities Incorporated, on behalf of the
Underwriters, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into, or

15
<PAGE>

exchangeable or exercisable for, shares of Common Stock for a period of 180 days
after the date hereof, except pursuant to this Agreement and except for
issuances pursuant to the exercise of employee stock options outstanding on the
date hereof.

(ix) The Company will not, directly or indirectly, (i) take any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) except as contemplated by this Agreement, sell, bid for,
purchase, or pay anyone any compensation for soliciting purchases of, the
Securities or (B) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.

(x) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date, any
rumor, publication or event relating to or affecting the Company shall occur as
a result of which in your opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.

(xi) If the Company elects to rely on Rule 462(b), the Company shall both
file a Rule 462(b) Registration Statement with the Commission in compliance with
Rule 462(b) and pay the applicable fees in accordance with Rule 111 promulgated
under the Act by the earlier of (i) 10:00 P.M. Eastern time on the date of this
Agreement and (ii) the time confirmations are sent or given, as specified by
Rule 462(b)(2).

(xii) The Company will cause the Securities to be duly included for
quotation on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") prior to the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National Market following
the Firm Closing Date.

(b) Each of the Selling Securityholders covenants and agrees with each of
the Underwriters that:

(i) Such Selling Securityholder will not, directly or indirectly, (A) take
any action designed to cause or result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale of the
Securities or (B) (1) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (2) pay or agree to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company (except for the sale of Securities by the Selling Securityholders
under this Agreement).

(ii) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Internal Revenue Code of 1986, as amended,
with respect to

16
<PAGE>

the transactions herein contemplated, such Selling Securityholder agrees to
deliver to the Representatives prior to or on the Firm Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by the Treasury Department
regulations in lieu thereof).

6. Expenses. The Company will pay all costs and expenses incident to the
--------
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 12 hereof,
including all costs and expenses incident to (i) the printing or other
production of documents with respect to the transactions, including any costs of
printing the registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b) Registration Statement,
any Preliminary Prospectus and the Prospectus and any amendment or supplement
thereto, this Agreement and any blue sky memoranda, (ii) all arrangements
relating to the delivery to the Underwriters of copies of the foregoing
documents, (iii) the fees and disbursements of the counsel, the accountants and
any other experts or advisors retained by the Company, (iv) preparation,
issuance and delivery to the Underwriters of any certificates evidencing the
Securities, including transfer agent's and registrar's fees, (v) the
qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) any
quotation of the Securities on the Nasdaq National Market, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities (other than as
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 12 hereof or because of any failure, refusal or inability on
the part of the Company or any Selling Securityholder to perform all obligations
and satisfy all conditions on its part to be performed or satisfied hereunder
other than by reason of a default by any of the Underwriters, the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket expenses
(including counsel fees and disbursements) that shall have been incurred by them
in connection with the proposed purchase and sale of the Securities. The
Company shall not in any event be liable to any of the Underwriters for the loss
of anticipated profits from the transactions covered by this Agreement.

7. Conditions of the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Securityholders
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers and the Selling Securityholders made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Securityholders of their respective covenants and agreements hereunder and to
the following additional conditions:

17
<PAGE>

(a) If the Original Registration Statement or any amendment thereto filed
prior to the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Original Registration Statement or such amendment and, if
the Company has elected to rely upon Rule 462(b), the Rule 462(b) Registration
Statement shall have been declared effective not later than the earlier of (i)
11:00 A.M., New York time, on the date on which the amendment to the
registration statement originally filed with respect to the Securities or to the
Registration Statement, as the case may be, containing information regarding the
initial public offering price of the Securities has been filed with the
Commission and (ii) the time confirmations are sent or given as specified by
Rule 462(b)(2), or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the Representatives; if
required, the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto shall have been filed with the Commission in
the manner and within the time period required by Rules 434 and 424(b) under the
Act; no stop order suspending the effectiveness of the Registration Statement or
any amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Representatives, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).

(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Pillsbury Madison & Sutro LLP, counsel for the Company, to the
effect that:

(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Nevada.

(ii) The Company has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus.

(iii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company and its subsidiaries considered as one enterprise. To our
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than Hospitality Purchasing
Systems, Inc.

(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company have been duly authorized, duly and
validly issued and are fully paid and nonassessable, and, to our knowledge,
have been issued in compliance with all applicable federal and state
securities laws, and to our knowledge, were not issued in violation of
or subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right.

18
<PAGE>

(v) The Securities to be issued by the Company pursuant to the
terms of the Underwriting Agreement have been duly authorized and, upon
issuance and delivery against payment therefor in accordance with the terms
of the Underwriting Agreement, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right
of first refusal or other similar right.

(vi) The Company has the corporate power and authority to enter into
the Underwriting Agreement and to issue, sell and deliver to the
Underwriters the Securities to be issued and sold by it under the terms of
the Underwriting Agreement.

(vii) The Underwriting Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except insofar as
indemnification and contribution provisions may be limited by applicable
law and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles.

(viii) The Registration Statement has become effective under the
Securities Act, any required filing of the Prospectus has been made in the
manner and within the time period required by Rule 424(b) and, to our
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Securities Act.

(ix) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as to
which we express no opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the
requirements of the Securities Act and the applicable rules and regulations
thereunder.

(x) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by us and is a fair summary
of such matters and conclusions. law.

(xi) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes are
accurate and fairly present the information required to be presented by the
Securities Act and the applicable rules and regulations thereunder.

(xii) To our knowledge, there are no agreements, contracts, leases or
documents to which the Company or Hospitality Purchasing Systems, Inc. is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to

19
<PAGE>

be filed as an exhibit to the Registration Statement which are not
described or referred to therein or filed as required.

(xiii) The performance of the Underwriting Agreement and the
consummation of the transactions therein contemplated (other than
performance of the Company's indemnification and contribution obligations
thereunder, concerning which we express no opinion) will not (a) result in
any violation of the Company's or Hospitality Purchasing Systems, Inc.'s
respective charter or bylaws or (b) to our knowledge, result in a material
breach or violation of any of the terms and provisions of, or constitute a
default under, any bond, debenture, note or other evidence of indebtedness,
or any lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument known to us to which the
Company or Hospitality Purchasing Systems, Inc is a party or by which their
properties are bound, or any applicable statute, rule or regulation known
to us, or to our knowledge, any order, writ or decree of any court,
government or governmental agency or body having jurisdiction over the
Company or Hospitality Purchasing Systems, Inc, or over any of their
properties or operations.

(xiv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations, is necessary in connection with the
consummation by the Company of the transactions contemplated in the
Underwriting Agreement, except such as have been obtained under the
Securities Act or such as may be required under state or other securities
or Blue Sky laws in connection with the purchase and the distribution of
the Securities by the Underwriters.

(xv) To our knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or Hospitality
Purchasing Systems, Inc. of a character required to be disclosed in the
Registration Statement or the Prospectus by the Securities Act or any of
the applicable rules and regulations thereunder, other than those described
therein.

(xvi) Hospitality Purchasing Systems, Inc. has been duly incorporated
and is validly existing as a corporation in good standing in Nevada;
Hospitality Purchasing Systems, Inc. is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction, if any,
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations or business
of the Company and its subsidiaries considered as one enterprise; and all
of the issued shares of capital stock of Hospitality Purchasing Systems,
Inc. have been duly authorized, duly and validly issued, are fully paid and
nonassessable, and are wholly owned directly by the Company, free and clear
of all liens, encumbrances, equities or claims.

(xvii) The Securities have been approved for inclusion on the NASDAQ
National Market System.

20
<PAGE>

Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any jurisdiction other than the State of New York or the
United States, to the extent satisfactory in form and scope to counsel for the
Underwriters, upon the opinion of Jones Vargas, Nevada counsel. The foregoing
opinion shall also state that the Underwriters are justified in relying upon
such opinion of Jones Vargas, Nevada counsel, and copies of such opinion shall
be delivered to the Representatives and counsel for the Underwriters.

References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.

(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Workman, Nydegger & Seeley, intellectual property counsel for
the Company, to the effect that:

Such counsel are familiar with the technology used by the company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:

(i) neither the Registration Statement nor the Prospectus (A)
contains any untrue statement of a material fact with respect to patents,
trade secrets, trademarks, service marks or other proprietary information
or materials owned or used by the Company, or the manner of its use
thereof, or any allegation on the part of any person that the Company is
infringing any patent rights, trade secrets, trademarks, service marks or
other proprietary information or materials of any such person or (B) omits
to state any material fact relating to patents, trade secrets, trademarks,
service marks or other proprietary information or materials owned or used
by the Company, or the manner of its use thereof, or any allegation of
which such counsel have knowledge, that is required to be stated in the
Registration Statement or the Prospectus or is necessary to make the
statement therein not misleading;

(ii) there are no legal or governmental proceedings pending relating
to patent rights, trade secrets, trademarks, service marks or other
proprietary information or materials of the Company, and to the best of
such counsel's knowledge no such proceedings are threatened or contemplated
by governmental authorities or others;

21
<PAGE>

(iii) to the best of such counsel's knowledge, the Company is not
infringing or otherwise violating any patents, trade secrets, trademarks,
service marks or other proprietary information or materials of others, and
to the best of such counsel's knowledge there are no infringements by
others of any of the Company's patents, trade secrets, trademarks, service
marks or other proprietary information or materials which in the judgment
of such counsel could affect materially the use thereof by the Company; and

(iv) the Company owns or possesses sufficient licenses or other
rights to use all patents, trade secrets, trademarks, service marks or
other proprietary information or materials necessary to conduct the
business now being or proposed to be conducted by the Company as described
in the Prospectus, except where the failure to own or possess such rights
would not have a material adverse effect on the Company's business,
financial condition or results of operations.

(d) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Orrick, Herrington & Sutcliffe LLP, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters. In rendering such opinion, such
counsel may rely as to all matters of law upon the opinion of Jones Vargas
referred to in paragraph (b) above.

(e) The Representatives shall have received an opinion, dated the Firm
Closing Date, of ________________, counsel for the Selling Securityholders, to
the effect that:

(i) such Selling Securityholder has full corporate power to enter into
this Agreement, the Custody Agreement and the Power of Attorney and to sell,
transfer and deliver the Securities being sold by such Selling Securityholder
hereunder in the manner provided in this Agreement and to perform its
obligations under the Custody Agreement; the execution and delivery of this
Agreement, the Custody Agreement and the Power of Attorney have been duly
authorized by all necessary corporate action of each Selling Securityholder;
this Agreement, the Custody Agreement and the Power of Attorney have been duly
executed and delivered by each Selling Securityholder; assuming due
authorization, execution and delivery by the Custodian, the Custody Agreement
and the Power of Attorney are the legal, valid, binding and enforceable
instruments of such Selling Securityholder, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);

(ii) the delivery by each Selling Securityholder to the several
Underwriters of certificates for the Securities being sold hereunder by such
Selling Securityholder against payment therefor as provided herein, will convey
good and marketable title to such securities to the several Underwriters, free
and clear of all security interests, liens, encumbrances, equities, claims or
other defects; and

(iii) the sale of the Securities to the Underwriters by such Selling
Securityholder

22
<PAGE>

pursuant to this Agreement, the compliance by such Selling Securityholder with
the other provisions of this Agreement, the Custody Agreement and the
consummation of the other transactions herein contemplated do not (i) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and such as may be
required under state securities or blue sky laws, or (ii) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which such Selling Securityholder or any of its
subsidiaries is a party or by which such Selling Securityholder or any of its
subsidiaries or any of their respective properties are bound, or the charter
documents or by laws of such Selling Securityholder or any of its subsidiaries
or any statute or any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator applicable to such Selling
Securityholder or any of its subsidiaries.

In rendering such opinion, such counsel may rely, as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Company and public officials and, as to matters involving the application of
laws of any jurisdiction other than the State of New York or the United States,
to the extent satisfactory in form and scope to counsel for the Underwriters,
upon the opinion of Jones, Vargas, Nevada counsel. The foregoing opinion shall
also state that the Underwriters are justified in relying upon such opinion of
Jones, Vargas, and copies of such opinion shall be delivered to the
Representatives and counsel for the Underwriters.

References to the Registration Statement and the Prospectus in this
paragraph (e) shall include any amendment or supplement thereto at the date of
such opinion.

(f) The Representatives shall have received from Arthur Andersen LLP a
letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:

(i) they are independent accountants with respect to the Company
and its consolidated subsidiaries within the meaning of the Act and the
applicable rules and regulations thereunder;

(ii) in their opinion, the audited consolidated financial statements
and schedules and pro forma financial statements examined by them and
included in the Registration Statement and the Prospectus comply in form in
all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;

(iii) on the basis of a reading of the latest available interim
unaudited consolidated condensed financial statements of the Company and
its consolidated subsidiaries, carrying out certain specified procedures
(which do not constitute an examination made in accordance with generally
accepted auditing standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this paragraph
(iii), a reading of the minute books of the shareholders, the board of
directors and any committees thereof of the Company and each of its
consolidated subsidiaries, and inquiries of certain officials of the
Company and its consolidated subsidiaries who have

23
<PAGE>

responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that:

(A) the unaudited consolidated condensed financial statements of the
Company and its consolidated subsidiaries included in the Registration
Statement and the Prospectus do not comply in form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder or are not in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited consolidated financial statements
included in the Registration Statement and the Prospectus;

(B) at a specific date not more than five business days prior to the
date of such letter, there were any changes in the capital stock or long-
term debt of the Company and its consolidated subsidiaries or any decreases
in net current assets or stockholders' equity of the Company and its
consolidated subsidiaries, in each case compared with amounts shown on the
September 30, 1999 unaudited consolidated balance sheet included in the
Registration Statement and the Prospectus, or for the period from October
1, 1999 to such specified date there were any decreases, as compared with
the same period in the prior year in revenues, operating loss or total or
per share amounts of net loss of the Company and its consolidated
subsidiaries, except in all instances for changes, decreases or increases
set forth in such letter; and

(C) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information that are derived from the general accounting records
of the Company and its consolidated subsidiaries and are included in the
Registration Statement and the Prospectus and have compared such amounts,
percentages and financial information with such records of the Company and
its consolidated subsidiaries and with information derived from such
records and have found them to be in agreement, excluding any questions of
legal interpretation.

In the event that the letters referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriters that (A) such letters shall be accompanied by a written
explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives, make
it impractical or inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended as of the
date hereof.

References to the Registration Statement and the Prospectus in this
paragraph (e) with respect to any of the letters referred to above shall include
any amendment or supplement thereto at the date of such letter.

(g) The Representatives shall have received a certificate, dated the Firm
Closing Date, of the principal executive officer and the principal financial or
accounting officer of the Company to the effect that:

24
<PAGE>

(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading,
and the Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
the Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Firm
Closing Date;

(ii) no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto has been issued, and no proceedings for
that purpose have been instituted or threatened or, to the best of the
Company's knowledge, are contemplated by the Commission; and

(iii) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, neither the Company
nor any of its subsidiaries has sustained any material loss or interference
with their respective businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any labor dispute or any legal or governmental proceeding, and there has
not been any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth or results of
operations of the Company or any of its subsidiaries, except in each case
as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto).

(h) The Representatives shall have received a certificate from each
Selling Securityholder, signed by the Selling Securityholder or the principal
executive officer and the principal financial or accounting officer of such
Selling Securityholder, if applicable, dated the Closing Date, to the effect
that:

(i) the representations and warranties of such Selling Securityholder in
this Agreement are true and correct as if made on and as of the Closing Date;
and

(ii) such Selling Securityholder has performed all covenants and agreements
on its part to be performed or satisfied at or prior to the Closing Date.

(i) On or before the Firm Closing Date, the Representatives and counsel
for the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.

(j) Prior to the commencement of the offering of the Securities, the
Securities shall have been included for trading on the Nasdaq National Market.

25
<PAGE>

All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.

The respective obligations of the several Underwriters to purchase and pay
for any Option Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.

8. Indemnification and Contribution. (a) The Company agrees to indemnify
--------------------------------
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:

(i) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement;

(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities or
blue sky laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application");

(iii) the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading; or

(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials provided by the
Company or based upon written information furnished by or on behalf of the
Company including, without limitation, slides, videos, films, tape
recordings, used in connection with the marketing of the Securities,
including, without limitation, statements communicated to securities
analysts employed by the Underwriters;

and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in

26
<PAGE>

connection with any such loss, claim, damage, liability or action; provided,
---------
however, that the Company will not be liable in any such case to the extent
- -------
that any such loss, claim, damage or liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein; and provided, further, that the Company will not
-----------------
be liable to any Underwriter or any person controlling such Underwriter with
respect to any such untrue statement or omission made in any Preliminary
Prospectus that is corrected in the Prospectus (or any amendment or supplement
thereto) if the person asserting any such loss, claim, damage or liability
purchased Securities from such Underwriter but was not sent or given a copy of
the Prospectus (as amended or supplemented) at or prior to the written
confirmation of the sale of such Securities to such person in any case where
such delivery of the Prospectus (as amended or supplemented) is required by the
Act, unless such failure to deliver the Prospectus (as amended or supplemented)
was a result of noncompliance by the Company with Section 5(a)(iv) and (a)(v) of
this Agreement. This indemnity agreement will be in addition to any liability
which the Company may otherwise have. The Company will not, without the prior
written consent of the Underwriter or Underwriters purchasing, in the aggregate,
more than fifty percent (50%) of the Securities, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not any such Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of all of the
Underwriters and such controlling persons from all liability arising out of such
claim, action, suit or proceeding.

(b) Each Selling Securityholder severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who signs the
Registration Statement, each Underwriter and each person who controls the
Company or any Underwriter within the meaning of the Act or the Exchange Act and
each other Selling Securityholder against any losses, claims, damages or
liabilities to which the Company, any such director, officer, such Underwriter
or any such controlling person may become subject under Section 15 of the Act or
Section 20 of the Exchange Act, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Selling Securityholder for use therein;
provided, however, that such Selling Securityholder will not be liable to any
Underwriter or any person controlling such Underwriter with respect to any such
untrue statement or omission made in any Preliminary Prospectus that is
corrected in the

27
<PAGE>

Prospectus (or any amendment or supplement thereto) if the person asserting any
such loss, claim, damage or liability purchased Securities from such Underwriter
but was not sent or given a copy of the Prospectus (as amended or supplemented)
at or prior to the written confirmation of the sale of such Securities to such
person in any case where such delivery of the Prospectus (as amended or
supplemented) is required by the Act, unless such failure to deliver the
Prospectus (as amended or supplemented) was a result of noncompliance by the
Company with Section 5(a)(iv) and (a)(v) of this Agreement; and, subject to the
limitation set forth immediately preceding this clause, will reimburse, as
incurred, any legal or other expenses reasonably incurred by the Company, any
such director, officer, such Underwriter or any such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or any action in respect thereof. This indemnity agreement will be in
addition to any liability which any Selling Securityholder may otherwise have.
Each Selling Securityholder will not, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or comprise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of all of the Underwriters and such
controlling persons from all liability arising out of such claim, action, suit
or proceeding.

(c) Each Underwriter, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement, each Selling Securityholder and each person, if any, who
controls the Company or any Selling Securityholder within the meaning of Section
15 of the Act or Section 20 of the Exchange Act against any losses, claims,
damages or liabilities to which the Company or any such director or officer of
the Company, such Selling Securityholder or any such controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or any Application or (ii) the omission or the alleged omission to state therein
a material fact required to be stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or any Application or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representatives
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company or any such director, officer
or controlling person or such Selling Securityholder in connection with
investigating or defending any such loss, claim, damage, liability or any action
in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.

(d) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be

28
<PAGE>

made against the indemnifying party under this Section 8, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
-----------------
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or parties
and such indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and approval by such indemnified party
of counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation, subsequently incurred by
such indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in any
one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
8, representing the indemnified parties under such paragraph (a) who are parties
to such action or actions) or (ii) the indemnifying party does not promptly
retain counsel satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying party
to such indemnified party, the indemnifying party will not be liable for the
costs and expenses of any settlement of such action effected by such indemnified
party without the consent of the indemnifying party.

(e) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 8 is unavailable or insufficient, for any
reason, to hold harmless an indemnified party in respect of any losses, claims,
damages or liabilities (or actions in respect thereof), each indemnifying party,
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect (i) the relative benefits received by
the indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, not only such
relative benefits but also the relative fault of the indemnifying party or
parties on the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or omissions that
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Securityholders on the one hand
and the Underwriters

29
<PAGE>

on the other shall be deemed to be in the same proportion as the total proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Securityholders bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Securityholders or the Underwriters, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company, the Selling Securityholders and the Underwriters
agree that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take into account the equitable considerations referred to above
in this paragraph (d). Notwithstanding any other provision of this paragraph
(d), no Underwriter shall be obligated to make contributions hereunder that in
the aggregate exceed the total public offering price of the Securities purchased
by such Underwriter under this Agreement, less the aggregate amount of any
damages that such Underwriter has otherwise been required to pay in respect of
the same or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section II (f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.

9. Default of Underwriters. If one or more Underwriters default in their
-----------------------
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this

30
<PAGE>

Agreement will terminate without liability on the part of any non-defaulting
Underwriter or the Company other than as provided in Section 11 hereof. In the
event of any default by one or more Underwriters as described in this Section 9,
the Representatives shall have the right to postpone the Firm Closing Date or
the Option Closing Date, as the case may be, established as provided in Section
3 hereof for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case may be. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section 9. Nothing herein shall relieve any
defaulting Underwriter from liability for its default.

10. Default by Selling Securityholders. If on the Firm Closing Date or
----------------------------------
Option Closing Date, as the case may be, any Selling Securityholder fails to
sell the Selling Securityholders' Firm Securities or Option Securities, as the
case may be, which such Selling Securityholder has agreed to sell on such date
as set forth herein, the Company agrees that it will sell that number of shares
of Common Stock to the Underwriters which represents the Selling
Securityholders' Firm Securities or Option Securities which such Selling
Securityholder has failed to so sell, or such lesser number as may be requested
by you.

11. Survival. The respective representations, warranties, agreements,
--------
covenants, indemnities and other statements of the Company and its officers, the
Selling Securityholders and the several Underwriters set forth in this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, any Selling
Securityholders, any Underwriter or any controlling person referred to in
Section 8 hereof and (ii) delivery of and payment for the Securities. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.

12. Termination. (a) This Agreement may be terminated with respect to the
-----------
Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company or the Attorney-in-Fact given prior to
the Firm Closing Date or the related Option Closing Date, respectively, in the
event that the Company or the Selling Securityholders shall have failed, refused
or been unable to perform all obligations and satisfy all conditions on their
part to be performed or satisfied hereunder at or prior thereto or, if at or
prior to the Firm Closing Date or such Option Closing Date, respectively,

(i) the Company or any of its subsidiaries shall have, in the sole
judgment of the Representatives, sustained any material loss or
interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or any
development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except in each
case as described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);

31
<PAGE>

(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally
on the Nasdaq National Market shall have been suspended or minimum or
maximum prices shall have been established on such market system;

(iii) a banking moratorium shall have been declared by New York or
United States authorities; or

(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or material
adverse change in general economic, political or financial conditions
having an effect on the U.S. financial markets that, in the sole judgment
of the Representatives, makes it impractical or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated by
the Registration Statement, as amended as of the date hereof.

(b) Termination of this Agreement pursuant to this Section 12 shall be
without liability of any party to any other party except as provided in Section
11 hereof.

13. Information Supplied by Underwriters. The statements set forth in the
------------------------------------
last paragraph on the front cover page and under the heading "Underwriting" in
any Preliminary Prospectus or the Prospectus (to the extent such statements
relate to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(b) and 8 hereof. The Underwriters confirm that such statements (to
such extent) are correct.

14. Notices. All communications hereunder shall be in writing and, if
-------
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza, New York, New York 10292, Attention: Equity
Transactions Group; if sent to the Company, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to the Company at 3291
North Buffalo Drive, Las Vegas, Nevada 89129; and if sent to the Selling
Securityholders, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to ______________, as Attorney-in-Fact, at
___________________, with a copy to ______________________.

15. Successors. This Agreement shall inure to the benefit of and shall be
----------
binding upon the several Underwriters, the Company, the Selling Securityholders
and their respective successors and legal representatives, and nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
other person any legal or equitable right, remedy or claim under or in respect
of this Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of such persons and for the benefit of no other person except
that (i) the

32
<PAGE>

indemnities of the Company contained in Section 8 of this Agreement shall also
be for the benefit of any person or persons who control any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii)
the indemnities of the Underwriters contained in Section 8 of this Agreement
shall also be for the benefit of the directors of the Company, the officers of
the Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall be
deemed a successor because of such purchase.

16. Applicable Law. The validity and interpretation of this Agreement,
--------------
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any provisions relating to conflicts of laws.

17. Consent to Jurisdiction and Service of Process. All judicial
----------------------------------------------
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of New York, and
by execution and delivery of this Agreement, the Company and each Selling
Securityholder accepts for itself and in connection with its properties,
generally and unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non conveniens and irrevocably agrees to
be bound by any judgment rendered thereby in connection with this Agreement.
The Selling Securityholders designate and appoint ______________, and such other
persons as may hereafter be selected by the Selling Securityholders irrevocably
agreeing in writing to so serve, as their agent to receive on their behalf
service of all process in any such proceedings in any such court, such service
being hereby acknowledged by the Selling Securityholders to be effective and
binding service in every respect. A copy of any such process so served shall be
mailed by registered mail to the Selling Securityholder at its address provided
in Section 14 hereof; provided, however, that, unless otherwise provided by
applicable law, any failure to mail such copy shall not affect the validity of
service of such process. If any agent appointed by the Selling Securityholder
refuses to accept service, the Selling Securityholder hereby agrees that service
of process sufficient for personal jurisdiction in any action against the
Selling Securityholder in the State of New York may be made by registered or
certified mail, return receipt requested, to the Selling Securityholder at its
address provided in Section 14 hereto, and the Selling Securityholder hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of any Underwriter to bring
proceedings against the Selling Securityholder in the courts of any other
jurisdiction.

18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

33
<PAGE>

If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, each Selling
Securityholder and each of the several Underwriters.

Very truly yours,

PURCHASE PRO.COM, INC.

By_______________________________________
Charles E. Johnson, Jr.
Chairman and Chief Executive Officer

SELLING SECURITYHOLDERS

By_______________________________________
_______________, as attorney-in-fact
for the Selling Securityholders listed
in Schedule 1 hereto

The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.

PRUDENTIAL SECURITIES INCORPORATED
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
JEFFERIES & COMPANY, INC.
NEEDHAM & COMPANY, INC.
PRUDENTIALSECURITIES.COM

By: PRUDENTIAL SECURITIES INCORPORATED

By________________________________
Jean-Claude Canfin
Managing Director

For itself and on behalf of the Representatives.

34
<PAGE>

SCHEDULE 1

SELLING SECURITYHOLDERS

<TABLE>
<CAPTION>
Number of Firm Maximum Number of
Selling Securityholder Securities to be Sold Option Securities to be Sold
- ---------------------- --------------------- ----------------------------
<S> <C> <C>
</TABLE>

35
<PAGE>

SCHEDULE 2

UNDERWRITERS

<TABLE>
<CAPTION>
Number of Firm
Securities to
Underwriter be Purchased
----------- ------------
<S> <C>
Prudential Securities Incorporated.............................
Bear, Stearns & Co. Inc. ......................................
Volpe Brown Whelan & Company...................................
Jefferies & Company, Inc. .....................................
Needham & Company, Inc. .......................................
PrudentialSecurities.com.......................................

Total..................................................... 4,500,000
</TABLE>

<PAGE>

EXHIBIT 5.1

PILLSBURY MADISON & SUTRO LLP
P.O. Box 7880
San Francisco, CA 94120
Tel: (415) 983-1000
Fax: (415) 983-1200
December 8, 1999

PurchasePro.com, Inc.
3291 North Buffalo Drive
Las Vegas, NV 89129

Re: Registration Statement on Form S-1

Ladies and Gentlemen:

We are acting as counsel for PurchasePro.com, Inc., a Nevada corporation
(the "Company"), in connection with the registration under the Securities Act
of 1933, as amended, of 3,450,000 shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of the Company, of which 2,000,000 are to be
offered and sold by the Company, 1,000,000 are to be offered and sold by
certain of the stockholders of the common stock of the Company (the "Selling
Stockholders"), and including 450,000 shares subject to the underwriters' over-
allotment option to be offered and sold by the Company. In this regard we have
participated in the preparation of a Registration Statement on Form S-1
relating to such 3,450,000 shares of Common Stock. All share numbers are
adjusted to reflect the three-for-two stock split to be effected on
December 13, 1999 to the stockholders of the Company in the form of a stock
dividend. (Such Registration Statement, as amended, and including any
registration statement related thereto and filed pursuant to Rule 462(b) under
the Securities Act (a "Rule 462(b) registration statement") is herein referred
to as the "Registration Statement.")

We are of the opinion that the shares of Common Stock to be offered and sold
by the Company have been duly authorized and, when issued and sold by the
Company in the manner described in the Registration Statement, will be legally
issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.

Very truly yours,

/s/ Pillsbury Madison & Sutro LLP

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
report dated June 2, 1999 (and to all references to our Firm) included in or
made a part of this Registration Statement on Form S-1.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Las Vegas, Nevada
December 6, 1999