<PAGE>
As filed with the Securities and Exchange Commission on September 7, 1999
Registration No. 333-80165
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 5
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
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>
---------------
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)
---------------
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)
---------------
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. Andrew P. Johnson, Esq.
Jeffrey S. Harrell, Esq. Orrick, Herrington & Sutcliffe LLP
Pillsbury Madison & Sutro LLP 1020 Marsh Road
235 Montgomery Street Menlo Park, CA 94025
San Francisco, CA 94104 (650) 614-7400
(415) 983-1000
</TABLE>
---------------
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. [_]
---------------
Calculation of Registration Fee
<TABLE>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
<CAPTION>
Proposed maximum Amount of
Title of each class of securities to be registered offering price(1) registration fee(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $.01 par value........ $59,800,000 $16,625
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION -- SEPTEMBER 7, 1999
- --------------------------------------------------------------------------------
4,000,000 Shares
[PURCHASEPRO.COM LOGO APPEARS HERE]
Common Stock
- --------------------------------------------------------------------------------
PurchasePro.com, Inc. is offering 4,000,000 shares of its common stock. Prior
to this offering there has been no public market for PurchasePro.com's common
stock.
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.
Office Depot, Inc. has indicated an interest in purchasing up to 400,000 shares
of our common stock in this offering at the public offering price. A director
of our company is also a director and the chief executive officer of Office
Depot, Inc.
We anticipate that the public offering price will be between $11.00 and $13.00
per share. The shares of PurchasePro.com will be quoted in the Nasdaq National
Market under the symbol "PPRO."
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price............................... $ $
Underwriting discounts and commissions.............. $ $
Proceeds, before expenses, to PurchasePro.com....... $ $
</TABLE>
See "Risk Factors" on pages 7 to 17 for factors that you should consider
beforeinvesting in the shares of common stock of PurchasePro.com.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
The underwriters may purchase up to 600,000 additional shares of common stock
from PurchasePro.com at the public offering price, less underwriting discounts
and commissions, to cover over-allotments. Delivery and payment for these
shares will be on , 1999.
Prudential Securities Jefferies & Company, Inc.
, 1999
<PAGE>
[Description of Inside Front Cover]
Centered in upper middle: PurchasePro.com logo. Below logo, text reading
"Connecting Buyers and Suppliers"
Centered middle: Text reading "The Business-to-Business E-Marketplace For
Your Company"
Lower middle: Text reading "Just Log On!"
"Watermarked" Background of a computer and keyboard.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 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 Stockholders..................................................... 56
Description of Capital Stock............................................... 58
Shares Eligible for Future Sale............................................ 61
Underwriting............................................................... 62
Legal Matters.............................................................. 64
Experts.................................................................... 64
Where You Can Find More Information........................................ 64
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
3
<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.
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>
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.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Shares offered by PurchasePro.com.......... 4,000,000 shares
Total shares to be outstanding after the 18,009,999 shares
offering..................................
Use of proceeds............................ We have no current specific plans
for the use of the net proceeds
from this offering other than
repayment of a $550,000 note
payable to our Chief Executive
Officer. We generally intend to
use the net proceeds to expand
our sales and marketing
activities and for working
capital and other general
corporate purposes.
Proposed 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 June 30, 1999, and does not
include the following:
. 2,733,780 shares of common stock issuable upon the exercise of stock
options outstanding as of June 30, 1999 and 1,766,220 shares of common
stock reserved for issuance under our stock option plans.
. 500,000 shares of common stock issuable upon exercise of warrants issued
after June 30, 1999.
Unless otherwise noted, the information in this prospectus assumes:
. the mandatory conversion of all outstanding shares of our preferred stock
under the terms of our articles of incorporation into the same number of
shares of common stock upon closing of this offering,
. warrants for the purchase of 106,666 shares of common stock outstanding
as of June 30, 1999 have been exercised, and
. that the underwriters have not exercised their over-allotment option.
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. See
"Risk Factors" for a discussion of these risks.
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. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
5
<PAGE>
Summary Consolidated Financial Data
<TABLE>
<CAPTION>
Inception Year Ended Six Months Ended
(October 8, 1996) December 31, June 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 $ 529,865 $ 1,679,908
Cost of revenues........ -- 213,857 445,639 212,225 349,740
Gross profit............ -- 461,533 1,224,599 317,640 1,330,168
Operating expenses...... 119,314 3,326,362 7,708,014 3,580,697 7,462,105
Operating loss.......... (119,314) (2,864,829) (6,483,415) (3,263,057) (6,131,937)
Other income (expense).. (3,638) (120,497) (316,595) (217,818) (439,092)
Net loss................ (122,952) (2,985,326) (6,800,010) (3,480,875) (6,571,029)
Preferred stock
dividends, accretion of
preferred stock to
redemption value and
value of preferred
stock beneficial
conversion feature..... -- -- (335,438) (35,000) (9,781,846)
Net loss applicable to
common stockholders.... $(122,952) $(2,985,326) $(7,135,448) $(3,515,875) $(16,352,875)
========= =========== =========== =========== ============
Loss per share
Basic.................. $ (0.02) $ (0.39) $ (0.83) $ (0.37) $ (2.09)
========= =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.36) $ (0.78) $ (0.35) $ (1.99)
========= =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 7,700,000 7,700,000 8,600,000 9,600,000 7,826,667
========= =========== =========== =========== ============
Diluted................ 8,259,999 8,259,999 9,159,999 10,159,999 8,234,999
========= =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
--------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ----------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 3,014,572 $ 3,015,639 $46,295,639
Working capital......... 2,522,349 2,523,416 45,803,416
Total assets............ 6,639,975 6,641,042 49,921,042
Notes payable........... 50,000 50,000 50,000
Redeemable convertible
preferred stock........ 16,121,284 -- --
Total stockholders'
equity (deficit)....... (10,940,094) 5,182,257 48,462,257
</TABLE>
The pro forma consolidated balance sheet data gives effect to the mandatory
conversion of all outstanding shares of preferred stock under the terms of our
articles of incorporation into the same number of shares of common stock upon
closing of this offering, and the exercise of warrants into 106,666 shares of
common stock. Additionally, the pro forma as adjusted consolidated balance
sheet data gives effect to the sale of the 4,000,000 shares of common stock at
an assumed initial public offering price of $12.00 per share, after deducting
the underwriting discounts and commissions and estimated offering expenses
payable by PurchasePro.com and the application of the estimated net proceeds.
See "Use of Proceeds" and "Capitalization."
6
<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 12 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 June 30, 1999, we had an accumulated deficit of $23.5
million. Our financial statements for 1997 had a qualified opinion from our
auditors regarding our ability to continue as a going concern. 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 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 increased
revenues. 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.
7
<PAGE>
We have historically received substantially all of our revenue from
companies serving the hospitality industry. A downturn in the hospitality
industry could adversely affect us.
Historically, we have received substantially all of our revenue from
members associated with the hospitality industry, and expect these revenues
will account for a substantial majority of our revenues for the foreseeable
future. 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.
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. 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 may devote substantially more resources to product
development.
If we fail to improve our financial and managerial controls and reporting
systems and procedures, and if we do not effectively expand, train and
manage our workforce, our business will suffer dramatically and we may not
be able to implement our business plan.
Successful 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 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
167 employees as of June 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 complimentary 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
8
<PAGE>
effectively could harm our operating results, business and growth. At present,
we have no commitments or agreements and are not currently engaged in
discussions for any material acquisitions or investments. 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 . intense and increased competition;
of our products and services;
. introductions of new services or
. inconsistent growth, if any, of enhancements, or changes in
our member base; pricing policies, by us and our
competitors;
. loss of key customers or
strategic partners; . our ability to control costs; and
. timing of the recognition of . reliable continuity of service and
revenue for large contracts; network availability.
. variations in the dollar volume
of transactions effected through
our e-marketplaces;
</TABLE>
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
9
<PAGE>
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 six months ended
June 30, 1999, approximately 72% 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. In particular, we believe
that our future success will depend, in part, upon market acceptance of
PurchasePro 4.0 which has only recently been released. We may not be
successful in developing and marketing quickly and effectively future versions
or upgrades of our software, 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.
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, 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
10
<PAGE>
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 one
patent pending in the United States and we may seek additional patents in the
future. We do not know if our patent application or 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 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.
Our inability to continue licensing third-party technologies would
seriously harm our business.
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.
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 the 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.
11
<PAGE>
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.
We have no specific contingency plan to address the issues that could result
from Year 2000 complications. 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; and
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world.
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 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.
A lack of development of the e-commerce market would negatively affect us.
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;
12
<PAGE>
. 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.
Failure to predict capacity constraints and provide for additional capacity
on our network would severely harm our business.
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.
13
<PAGE>
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 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.
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.
If we are not able to acquire or maintain effective Web addresses, our
business will suffer.
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, our business could be seriously harmed. The
acquisition and maintenance of Web addresses generally is regulated by
governmental agencies
14
<PAGE>
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, directors and principal stockholders will 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, directors and principal
stockholders will, in the aggregate, beneficially own approximately 37% of our
outstanding common stock following the completion of this offering (36% if the
underwriters' over-allotment option is exercised in full). 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 dilution with respect to your shares. We may
need additional capital and raising additional capital may dilute existing
stockholders.
You will incur immediate and substantial dilution of $9.30 per share, based
upon an assumed initial public offering price of $12.00 per share, in the net
tangible book value of your shares as a result of this offering. See
"Dilution."
Historically, we have financed our business and operations through the sale
of equity. 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.
Our stock has not been publicly traded before this offering and our stock
price may be volatile.
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. We and the underwriters
will determine the initial public offering price. The price at which our
common stock will trade after this offering is likely to be highly volatile
and may fluctuate substantially due to factors such as:
. 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;
15
<PAGE>
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
common stocks of technology companies, particularly Internet companies. These
broad market fluctuations may result in a material decline in the market price
of our common stock. In the past, following periods of volatility in the
market price of a particular company's securities, securities class action
litigation has often been brought against that company. We may become involved
in this type of litigation in the future. Litigation is often expensive and
diverts management's attention and resources which is needed to successfully
run our business.
Shares eligible for future sale by our existing stockholders may adversely
affect our stock price.
The market price of our common stock could drop due to the 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, 18,009,999 shares of common stock will be outstanding.
Of these shares, the 4,000,000 shares sold in this offering will be freely
tradeable without restrictions under the Securities Act of 1933, except for
any shares purchased by our "affiliates," as defined in Rule 144 under the
Securities Act. The number of shares of common stock outstanding would
increase to 18,609,999 and the number of freely tradeable shares would
increase to 4,600,000 if the underwriters exercise their over-allotment option
in full. Our officers and directors and all stockholders have entered into
lock-up agreements pursuant to which they have agreed not to offer or sell any
shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Prudential Securities, on
behalf of the underwriters. 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. Upon expiration of
this 180-day lock-up period, the shares owned by these persons prior to
completion of this offering may be sold into the public market without
registration under the Securities Act in compliance with the volume
limitations and other applicable restrictions of Rule 144 under the Securities
Act. After the date of this prospectus, we intend to file a registration
statement under the Securities Act to register all shares of common stock
issuable upon the exercise of outstanding stock options and reserved for
issuance under our stock option plans. This registration statement is expected
to become effective immediately upon filing, and subject to the vesting
requirements and exercise of the related options (as well as the terms of the
lock-up agreements), shares covered by this registration statement will be
eligible for sale in the public markets. See "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 would
materially and adversely harm our business.
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 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.
16
<PAGE>
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.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements based largely on our
current expectations and projections about future events and financial trends
affecting the financial condition of our business. The words "believe," "may,"
"will," "estimate," "continue," "anticipate," "intend," "expect" and similar
expressions identify these forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and assumptions,
including those described above under the caption "Risk Factors." In light 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 in the 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.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 4,000,000 shares of common stock in
this offering are estimated to be approximately $43.3 million ($50.0 million if
the underwriters' over-allotment option is exercised in full), at an assumed
initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses.
We have no current specific plans for use of the net proceeds from this
offering other than repayment of a $550,000 note payable to our Chief Executive
Officer. 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.
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.
In addition, we may 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.
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.
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 initial 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.
. As of June 30, 1999, our pro forma net tangible book value was $5.7
million, or $0.40 per share of common stock after giving effect to the
conversion of all outstanding shares of preferred stock into shares of
common stock, the exercise of warrants into 106,666 shares of common
stock, and the exercise of currently exercisable options to purchase
155,000 shares of common stock.
. As of June 30, 1999, our pro forma net tangible book value as adjusted
for the sale of the 4,000,000 shares offered in this offering and
application of the estimated net proceeds of $43.3 million (at an assumed
initial public offering price of $12.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses),
would have been approximately $2.70 per share.
This represents an immediate increase of $2.30 per share to existing
stockholders and an immediate and substantial dilution of $9.30 per share to
new investors purchasing common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price.......................... $12.00
Pro forma net tangible book value as of June 30, 1999......... $0.40
Increase attributable to new investors........................ 2.30
-----
Pro forma net tangible book value after the offering........... 2.70
------
Dilution to new investors...................................... $ 9.30
======
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1999 the
differences between the total consideration paid and the average price per
share paid by the existing stockholders, including the assumed exercise of
warrants to purchase 106,666 shares, and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed initial
public offering price of $12.00 per share and before deducting the underwriting
discounts and commissions and our estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 14,009,999 78% $18,721,382 28% $ 1.34
New investors............... 4,000,000 22 48,000,000 72 $12.00
---------- --- ----------- ---
Total..................... 18,009,999 100% $66,721,382 100%
========== === =========== ===
</TABLE>
The above discussion and tables assume no exercise of the underwriter's
over-allotment option and except as set forth above no exercise of any stock
options outstanding as of June 30, 1999. As of June 30, 1999, there were
options outstanding to purchase a total of 2,733,780 shares of common stock at
a weighted average exercise price of $3.25 per share, of which 155,000 were
exercisable as of June 30, 1999. If these options are exercised in the future
it will be further dilutive to investors who purchase shares at the initial
public offering price. 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 at the initial public offering price.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PurchasePro.com as of
June 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to (1) the mandatory
conversion of all outstanding shares of preferred stock under the terms
of our articles of incorporation into the same number of shares of
common stock upon closing of the offering, including a total of
2,100,000 shares of Series A Preferred Stock issued in June 1998 and
3,300,000 shares of Series B Preferred Stock issued in June 1999, and
(2) the assumed exercise of warrants to purchase 106,666 shares of
common stock outstanding at June 30, 1999; and
. on a pro forma basis as adjusted to reflect our receipt of the
estimated net proceeds from the sale of the 4,000,000 shares of common
stock in this offering at an assumed public offering price of
$12.00 per share, 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>
June 30, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Notes payable........................ $ 50,000 $ 50,000 $ 50,000
Redeemable convertible preferred
stock
Series A: $0.001 par value; 8%
convertible; $2.50 liquidation
preference; 2,100,000 shares
authorized, issued and outstanding;
pro forma--no shares authorized,
issued or outstanding; pro forma as
adjusted--no shares authorized,
issued or outstanding.............. 4,641,808 -- --
Series B: $0.001 par value; 8%
convertible; $3.50 liquidation
preference; 3,300,000 shares
authorized, issued and outstanding;
pro forma--no shares authorized,
issued or outstanding; pro forma as
adjusted--no shares authorized,
issued or outstanding.............. 11,479,476 -- --
Stockholders' equity (deficit):
Common stock: $0.01 par value;
40,000,000 shares authorized;
8,503,333 shares issued and
outstanding; pro forma--
40,000,000 shares authorized,
14,009,999 shares issued and
outstanding; pro forma as
adjusted--40,000,000 shares
authorized, 18,009,999 issued and
outstanding(1)..................... 85,033 140,100 180,100
Additional paid-in capital.......... 20,128,338 36,195,622 79,435,622
Deferred stock-based compensation... (7,665,142) (7,665,142) (7,665,142)
Accumulated deficit................. (23,488,323) (23,488,323) (23,488,323)
------------ ------------ ------------
Total stockholders' equity
(deficit).......................... (10,940,094) 5,182,257 48,462,257
------------ ------------ ------------
Total capitalization.............. $ 5,231,190 $ 5,232,257 $ 48,512,257
============ ============ ============
</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 June 30, 1999, and does
not include the following:
. 2,733,780 shares of common stock issuable upon the exercise of stock
options outstanding as of June 30, 1999 and 1,766,220 shares of common
stock reserved for issuance under our stock option plans.
. 500,000 shares of common stock issuable upon exercise of warrants
issued after June 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 quarters ended June 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 Six Months Ended
(October 8, 1996) Year Ended December 31, June 30,
through ------------------------ -------------------------
Statement of Operations December 31, 1996 1997 1998 1998 1999
Data: ----------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Subscription fees...... $ -- $ 512,761 $ 1,307,611 $ 414,085 $ 1,211,695
Transaction fees....... -- -- 153,828 -- 181,646
Other.................. -- 162,629 208,799 115,780 286,567
--------- ----------- ----------- ----------- ------------
Total revenues........ -- 675,390 1,670,238 529,865 1,679,908
--------- ----------- ----------- ----------- ------------
Cost of revenues........ -- 213,857 445,639 212,225 349,740
--------- ----------- ----------- ----------- ------------
Gross profit ........... -- 461,533 1,224,599 317,640 1,330,168
Operating expenses
Sales and marketing ... 22,592 1,179,327 3,840,776 1,850,407 2,171,592
General and
administrative ....... 9,860 1,344,860 2,895,779 1,270,640 3,422,814
Programming and
development .......... 86,862 802,175 971,459 459,650 778,507
Amortization of stock-
based compensation.... -- -- -- -- 1,089,192
--------- ----------- ----------- ----------- ------------
Total operating
expenses ............ 119,314 3,326,362 7,708,014 3,580,697 7,462,105
--------- ----------- ----------- ----------- ------------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (3,263,057) (6,131,937)
Other income (expense)
Interest expense....... (3,638) (120,497) (332,895) (228,243) (160,085)
Other.................. -- -- 16,300 10,425 (279,007)
--------- ----------- ----------- ----------- ------------
Total other income
(expense)............ (3,638) (120,497) (316,595) (217,818) (439,092)
--------- ----------- ----------- ----------- ------------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (3,480,875) (6,571,029)
Benefit for income
taxes.................. -- -- -- -- --
--------- ----------- ----------- ----------- ------------
Net loss................ (122,952) (2,985,326) (6,800,010) (3,480,875) (6,571,029)
--------- ----------- ----------- ----------- ------------
Preferred stock
dividends.............. -- -- (245,000) (35,000) (287,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) -- (94,846)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
--------- ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $(122,952) $(2,985,326) $(7,135,448) $(3,515,875) $(16,352,875)
========= =========== =========== =========== ============
Loss per share
Basic.................. $ (0.02) $ (0.39) $ (0.83) $ (0.37) $ (2.09)
========= =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.36) $ (0.78) $ (0.35) $ (1.99)
========= =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 7,700,000 7,700,000 8,600,000 9,600,000 7,826,667
========= =========== =========== =========== ============
Diluted................ 8,259,999 8,259,999 9,159,999 10,159,999 8,234,999
========= =========== =========== =========== ============
Supplemental operating
data
Total subscribers, end
of period............. -- 629 1,831 1,248 2,569
========= =========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
As of As of December 31, As of
December 31, ------------------------ June 30,
1996 1997 1998 1999
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $ 835 $ 7,894 $ 1,689,288 $ 3,014,572
Working capital
(deficit)............... (49,254) (1,907,159) 907,276 2,522,349
Total assets............. 70,269 608,565 2,744,757 6,639,975
Notes payable............ 133,132 2,567,000 1,544,939 50,000
Redeemable convertible
preferred stock......... -- -- 6,339,438 16,121,284
Total stockholders'
equity (deficit)........ (112,952) (2,708,896) (5,880,944) (10,940,094)
</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 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 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.
To date, substantially all of our revenues have come from monthly membership
subscription fees for access to our e-marketplaces. Most of our members are
companies that sell products and services to large hotels and resorts in Nevada
and Florida. 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,
one in as little as 7 days. Some of our agreements with members are verbal and
as such may be terminated at any time. In August 1998, our HPS subsidiary 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 fees are initially deferred and recognized
over the period that the private e-marketplace is created and the maintenance
fees are 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.
In the future, we plan to derive revenues from sources other than
subscription fees within our private e-marketplaces, including transaction
fees. In addition, we intend to generate transaction fee revenue from
transactions consummated by our members with value added merchandise and
service providers. Also we believe we will generate advertising fees from
banner and classified advertisements. We cannot assure you that we will be
successful in generating any of these additional revenues and fees. See "Risk
Factors--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."
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
22
<PAGE>
losses applicable to common stock were $3.0 million and $7.1 million,
respectively. For the six months ended June 30, 1998 and 1999, we had net
losses of $3.5 million and $16.4 million, respectively. Through June 30, 1999,
our accumulated deficit totaled $23.5 million.
Results of Operations
Six Months Ended June 30, 1998 and June 30, 1999
Revenues. Our revenues consist primarily of subscription fees charged to our
members. 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 hosting services, from
catalog development services and for electronically processing our members'
payments. Our net revenues increased from $530,000 for the six months ended
June 30, 1998, to $1.7 million for the six months ended June 30, 1999.
Substantially all of this increase resulted from growth in our membership and
from new license arrangements. Our subscription revenue increased from $414,000
for the six months ended June 30, 1998 to $1.2 million for the six months ended
June 30, 1999. HPS transaction fees increased from $0 for the six months ended
June 30, 1998 to $182,000 for the six months ended June 30, 1999. Other
revenues increased from $116,000 for the six months ended June 30, 1998, to
$287,000 for the six months ended June 30, 1999, including license fees which
increased from $0 for the six months ended June 30, 1998 to $132,000 for the
six months ended June 30, 1999. Web site development and hosting and catalog
fees increased from $85,000 for the six months ended June 30, 1998 to $118,000
for the six months ended June 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
revenue increased from $212,000 for the six months ended June 30, 1998, to
$350,000 for the six months ended June 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 $168,000 for the six months ended June 30, 1998 to
$297,000 for the six months ended June 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. This reflects the
increased 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
$318,000 for the six months ended June 30, 1998 to $1.3 million for the six
months ended June 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 $1.9 million for the six months ended June
30, 1998, to $2.2 million for the six months ended June 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 $802,000 for the six months ended June 30, 1998 to $1.5 million for the
six months ended June 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 $168,000 for the six months ended June 30, 1998,
to $313,000 for the six months ended June 30, 1999. Costs associated with our
marketing activities increased from $125,000 for the six months ended June 30,
1998, to $262,000 for the six months ended June 30, 1999. We expect that our
sales and marketing expenditures will increase significantly, both in absolute
dollars and as a percentage of net revenues, as we open sales offices in new
geographic regions, increase our marketing efforts and incur 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
23
<PAGE>
communications costs. Our general and administrative expenses increased from
$1.3 million for the six months ended June 30, 1998, to $3.4 million for the
six months ended June 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
$574,000 for the six months ended June 30, 1998 to $1.1 million for the six
months ended June 30, 1999. Facilities costs increased from $52,000 for the six
months ended June 30, 1998, to $154,000 for the six months ended June 30, 1999,
as the result of our move into our new corporate location. Our communications
costs increased from $114,000 for the six months ended June 30, 1998, to
$136,000 for the six months ended June 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 $14,000 for the six months ended June 30, 1998, as compared to $155,000
for the six months ended June 30, 1999. The increase corresponds to the
increase in our revenues, and a better knowledge of the estimated bad debt
percentage based on our collection experience since June 30, 1998. We believe
that our allowance for doubtful accounts will decrease as a percentage of
revenues in future periods as we implement more efficient membership credit
reviews and as more members convert to electronic fund transfer or credit card
payment methods. Further, we recognized a non-cash charge of $800,000 related
to the issuance of stock options to our directors at an exercise price below
fair value. We expect that our general and administrative expenses will
increase in absolute dollars as we continue to expand our operations but remain
relatively constant as a percentage of net revenues.
Programming and Development Expenses. Programming and development expenses
consist primarily of compensation for our product development staff and
payments to outside contractors. Our product development expenses increased
from $460,000 for the six months ended June 30, 1998, to $779,000 for the six
months ended June 30, 1999. The increase is primarily attributable to an
increase in our programming staff. Expenses related to program and development
personnel increased from $389,000 for the six months ended June 30, 1998 to
$733,000 for the six months ended June 30, 1999. We expect that our programming
and development expenses will increase in absolute dollars as we continue to
develop and enhance our service offerings but remain relatively constant as a
percentage of net revenues.
Deferred Stock-Based Compensation. During the six months ended June 30,
1999, we recorded aggregate deferred stock compensation of $8.8 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 six months ended June 30, 1999,
amortization of deferred stock-based compensation totaled $1.1 million. We
expect that $3.6 million of deferred stock-based compensation will be amortized
to expense in the three months ended September 30, 1999, based on the vesting
schedules of stock options outstanding as of June 30, 1999.
Interest Expense. Interest expense primarily relates to borrowings from our
principal stockholder in 1997, notes payable outstanding from January 1998
through June 1998 and notes payable outstanding since September 1998 and
December 1998. Our interest expense decreased from $228,000 for the six months
ended June 30, 1998, to $160,000 for the six months ended June 30, 1999. The
decrease resulted from the repayment of $2,300,000 of notes payable in June
1998, offset by notes payable and advances made in late 1998 and early 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
24
<PAGE>
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 and legal fees and, to a lesser extent, and communication
costs and an increase in 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.
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.
25
<PAGE>
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 six most recent quarters ended June 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 six
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,
1998 1998 1998 1998 1999 1999
----------- ----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 236,373 $ 293,492 $ 501,848 $ 638,525 $ 673,907 $ 1,006,001
Cost of revenues........ 97,917 114,308 123,186 110,228 162,870 186,870
Gross profit............ 138,456 179,184 378,662 528,297 511,037 819,131
Operating expenses...... 1,317,403 2,263,294 1,877,979 2,249,338 2,428,692 5,033,413
Operating loss.......... (1,178,947) (2,084,110) (1,499,317) (1,721,041) (1,917,655) (4,214,282)
Other income (expense).. (78,896) (138,922) 6,499 (105,276) (118,655) (320,437)
Net loss................ (1,257,843) (2,223,032) (1,492,818) (1,826,317) (2,036,310) (4,534,719)
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)
Net loss applicable to
common stockholders.... (1,257,843) (2,258,032) (1,642,799) (1,976,774) (2,710,106) (13,642,769)
</TABLE>
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 operating activities.
For the six months ended June 30, 1999, we used a total of $4.3 million of cash
in our operating activities. Cash used in operating activities in each period
resulted primarily from net loss in those periods. For the year ended December
31, 1998, and for the six months ended June 30, 1999, our cash used in
operating activities included increases in our trade accounts receivable of
$324,000 and $690,000, respectively. This reflects our efforts to expand the
membership base by allowing for payment terms up to 90 days and billings for
our new license revenues in the second quarter of 1999. Since our inception, we
have used cash totaling $2.4 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. For the period from inception
through December 31, 1996, we used $72,000 of cash for investing activities.
For the years ended December 31, 1997 and 1998, we used $655,000 and $360,000,
respectively, of cash for investing activities. For the six months ended June
30, 1999, we used $1.3 million of cash for investing activities.
26
<PAGE>
Since inception, we have financed our operations primarily from the issuance
of common stock, proceeds of notes payable, and the sale of Series A Preferred
and Series B Preferred Stock. 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 plan to repay the entire
amount of this loan plus accrued interest from the proceeds of the 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 may
draw down on these commitments at any time through the earlier of the closing
of this offering or December 31, 1999, except for Mr. Gallagher's $1 million
loan commitment which expires on the earlier of the closing of this offering or
October 31, 1999. The loans mature on the earlier of the closing of this
offering or March 31, 2000. In connection with Mr. Gallagher's $1 million loan
commitment the company agreed to pay him a commitment fee of $20,000 and, if
the company draws down on his commitment, to grant him a warrant to purchase
shares of common stock at an exercise price of $0.01 per share. The number of
shares covered by the warrant will equal the percentage of his loan commitment
drawn down multiplied by 70,000 shares. Mr. Gallagher holds approximately 6.3%
of the company's 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.
As of June 30, 1999, our principal source of liquidity was approximately
$3.0 million of cash and cash equivalents. In addition, we have $3 million
available under loan commitments as described above. As of June 30, 1999, we
had no material commitments for capital expenditures, but we expect such
expenditures to be approximately $1.0 million during the remainder of 1999.
Such expenditures will primarily be for computer equipment to expand and
enhance our network. We have entered into several non-cancelable lease
commitments that will require payments of approximately $2.3 million over the
next five years.
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. If additional funds are raised through the
issuance of equity securities, additional dilution could result. In addition,
any equity securities issued might have rights, preferences or privileges
senior to our common stock.
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
27
<PAGE>
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 12/31/1999, 02/28/2000, 02/29/2000,
12/31/2000, 02/28/2001, 02/28/2004, 12/31/2019, and 09/08/1999 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
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. To date we have
received positive reassurances from half of them and are diligently in pursuit
of responses from the rest. This effort will be completed by October 1, 1999.
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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.
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 judgements, 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.
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board 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 Office Depot, 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:
Office Depot. In July 1999, we entered into an agreement with Office Depot,
Inc., a national office supplies retailer. Office Depot has designated us as a
preferred e-commerce solutions provider to Office Depot and we have designated
Office Depot as the exclusive preferred provider of office supplies and
products for our e-marketplaces. Under the agreement, we will create a private
e-marketplace for Office Depot. We have agreed with Office Depot to engage in
joint promotional activites and provide links to each other's Web sites. We
will share fees from transactions originated from Office Depot Internet sites
and marketing activities. We also
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issued to Office Depot a warrant to purchase 500,000 shares of our common stock
that can be exercised over the next four years at a price per share equal to
the initial public offering price in this offering.
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.
Greater Phoenix Chamber of Commerce. In January 1999, we entered into a
revenue sharing and joint marketing agreement with the Greater Phoenix Chamber
of Commerce, a 3,600 member regional chamber of commerce that promotes business
and civic causes within Maricopa County, Arizona. Under the agreement the
chamber became our exclusive distributor of our e-marketplace services in this
territory under the Phoenix Marketplace brand. Through this alliance,
PurchasePro holds regular seminars at the chamber's facilities and the chamber
actively solicits businesses in the greater Phoenix area to participate in the
e-marketplace. The agreement terminates in January 2001.
Hospitalitycity pte ltd. In June 1999, we entered into an agreement with
Hospitalitycity pte ltd, a Singapore company that is an e-commerce solution
provider to the hospitality and travel industries in Southeast Asia and the
South Pacific. Under this agreement, we have granted to Hospitalitycity an
exclusive license to our proprietary technology to create e-marketplaces in
Australia, China, Indonesia, Malaysia, New Zealand, the Philippines, Singapore,
Taiwan and Thailand until June 2002. Pursuant to the license, Hospitalitycity
may market our e-commerce solution and provide support services to persons or
entities engaged in the hospitality and travel sectors as an independent party
authorized by PurchasePro.com. In return, we receive a percentage of all gross
revenue received by Hospitalitycity and its affiliates in connection with this
arrangement.
National Association of Women Business Owners. In April 1999, we entered
into a two year alliance agreement with the National Association of Women
Business Owners, a national organization dedicated to the promotion of women's
businesses and commercial activities. Under this agreement, the association
will promote PurchasePro.com to its members, and PurchasePro.com will provide
special pricing and services to association members and access to our e-
marketplace through which other organizations can contact and do business with
women-owned businesses.
American Association of Franchisees and Dealers. In June 1999, we entered
into an agreement with the American Association of Franchisees and Dealers, a
California nonprofit trade association representing the rights and interests of
franchisees and independent dealers throughout the United States. We agreed to
jointly host and manage a private e-marketplace for Association members. Under
the agreement, we are the exclusive e-commerce provider for the Association.
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Our E-marketplace Members
The following is a representative list of our major e-marketplace members:
<TABLE>
<CAPTION>
National Accounts Nevada Florida
<S> <C> <C>
American Association of Marnell Corrao Construction The Breakers Hotel
Franchise and Dealers MGM Grand Carnival Cruise Lines
American Hotel Register Mission Industries Loews Hotels
Best Western International Nevada Power Company Registry Resort
Building One Services Rio Hotel and Casino Seaway Hotel Corporation
Caesars Palace State of Nevada
Mandalay Resort Group
Marriott International
MeriStar Management Company
Mirage Resorts
Park Place Entertainment
Prime Hospitality
Richfield Hospitality
Tropicana Casino and Resort
<CAPTION>
Lexington/Louisville, Kentucky
and Cincinnati, Ohio Arizona
<S> <C> <C>
Amtek Electrical America West Arena
Ball Homes Arizona Diamondbacks
Clay Ingels Company Embassy Suites Scottsdale
Central Baptist Hospital Bank One Ballpark
Fidelity National Credit Services ILX Resorts
Host Communications, Inc. Greater Phoenix Chamber of Commerce
Lodestar Energy Phoenix Suns
Montgomery Inn Scottsdale Princess
St. Joseph Hospital
University of Louisville Hospital
</TABLE>
These relationships provide us with access to and assistance in recruiting a
large number of small to medium sized companies for our e-marketplaces.
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 June 30, 1999
we had 75 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.
38
<PAGE>
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.
High-speed. Communications between members using our client software and our
servers are increased up to four times faster than standard data transfer rates
utilizing our proprietary data structure and communication technologies.
Because our communications technology utilizes industry-standard compression
techniques and HTTP protocols, it permits high-speed data communication across
firewalls and proxy servers.
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.
Compatibility. Our software makes significant use of standard software
programming languages, interfaces and protocols, including Visual Basic, C++,
HTTP and Transact-SQL. The use of ODBC (Open Database Connectivity) compliant
databases and plug-in technologies allows integration with enterprise
accounting and management systems such as Stratton-Warren and Oracle systems.
Data transfer protocols such as EDI, OBI and XML are also supported.
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 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.
39
<PAGE>
Intellectual Property
We rely on a combination of 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 in products,
services, know-how and information. We have one patent pending in the United
States and we may seek additional patents in the future. We do not know if our
patent application or 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 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.
40
<PAGE>
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.
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.
41
<PAGE>
Employees
As of June 30, 1999, we had 167 full time employees. Of these, 41 were in
programming and technical support, 75 in sales and marketing, 17 in customer
support and operations and 34 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.
42
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of PurchasePro.com and their ages as of
August 31, 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 Senior Vice President, Chief Financial Officer and Treasurer
Michael L. Ford......... 41 Chief Technical Officer
Jeffrey A. Neppl........ 37 Vice President--Sales
Richard T. Moskal....... 55 Vice President--Hospitality Purchasing Systems
Robert G. Layne......... 33 Vice President--Strategic Development
Scott H. Miller......... 40 Vice President--Finance, Chief Accounting Officer
Patrick O. Rogers....... 41 Vice President--Marketing
John G. Chiles(1)(2).... 47 Director
David I. Fuente(2)...... 53 Director
J. Terrence
Lanni(1)(2)............ 56 Director
Michael D. O'Brien(1)... 43 Director
Bradley D. Redmon....... 36 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 joined PurchasePro.com in July 1999 as
Senior Vice President, Chief Financial Officer and Treasurer. 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 since April
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 July 1996 to August 1998, Mr. Neppl was Vice President of Sales for
43
<PAGE>
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 since April 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.
Patrick O. Rogers. Mr. Rogers joined PurchasePro.com in May 1999 as Vice
President--Marketing. Since September 1998, Mr. Rogers has been the Chief
Executive Officer of R&M Companies, LLC, a marketing consulting firm in Las
Vegas. From July 1998 to May 1999, Mr. Rogers was the Vice President of Eastern
European Marketing for Mirage Resorts, Inc. From 1987 to May 1997, Mr. Rogers
served in various capacities with Players International, including Vice
President and General Manager of Players Island Resort located near Las Vegas.
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 10,000
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."
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 four
most highly compensated executive officers other than the Chief Executive
Officer whose total annual salary and bonus exceeded $100,000 (collectively,
the "Named Executive Officers"), for services rendered in all capacities to
PurchasePro.com during the fiscal year ended December 31, 1998.
45
<PAGE>
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)............................... $ -- -- --
Vice President--Sales
Robert G. Layne(5) ............................... $ 72,850 -- --
Vice President--Strategic Development
</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 325,000 shares of common stock
at $3.50 per share. The Compensation Committee have accelerated the vesting
of these options to vest in full upon completion of this 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 200,000 shares of common stock at
$3.50 per share. The Compensation Committee have accelerated the vesting of
these options to vest in full upon completion of this 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 190,870 shares of
common stock at $3.50 per share, of which 25,000 vested upon grant.
(5) In April 1999, Mr. Layne, an employee of the Company, was appointed Vice
President--Strategic Development. 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 75,000 shares of common stock as of May
1999. In January 1998, Mr. Johnson granted to Mr. Layne options to purchase
125,000 shares of Mr. Johnson's common stock at $0.50 per share. Mr. Layne
exercised his option to acquire 125,000 shares from Mr. Johnson in June
1999.
46
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information regarding options granted to our
executive officers listed in the Summary Compensation Table during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Percentage Potential Realizable
of Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees Exercise or for Option Term(3)
Options in Fiscal Base Price Expiration ---------------------
Name Granted Year(1) ($/Share)(2) Date 5% 10%
- ---- ---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Layne......... 125,000(4) 13.4% $0.50 Jan. 2008 $101,806 $162,109
25,000(5) 2.7 2.50 Aug. 2003 79,768 100,657
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 705,850 shares of common stock
granted during fiscal 1998 and options granted by Mr. Johnson to two
employees to acquire 225,000 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
125,000 shares of Mr. Johnson's common stock at an exercise price of $0.50.
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......... -- $ -- 125,000/25,000 $1,437,500/$237,500
</TABLE>
- --------
(1) Assumes a per share fair market value equal to $12.00, the mid-point of the
estimated per share price of the common stock offered hereby.
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 3,000,000 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 750,000. 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 with out 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 June 30, 1999, no shares had been issued upon exercise of options
granted under the 1998 Plan, options to purchase 2,725,280 shares of common
stock were outstanding and options to purchase 274,720 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 25,000 in each
instance under the 1999 Stock Plan to employees. As of June 30, 1999, 1,500,000
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 500,000 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, if
earlier, 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.
Employment Agreements and Change in Control Agreements
We have entered into the following employment agreements with our Named
Executive Officers:
<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 Vice President--Sales
Robert G. Layne.......... May 1999-May 2001 $120,000 Vice President--Strategic Development
</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 190,870 shares of common stock at
an exercise price of $3.50 per share, of which 25,000 vested upon his hire.
Options to purchase 75,870 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 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 employment for one year.
49
<PAGE>
In addition, in July 1999 we entered into an employment agreement with
Richard C. St. Peter. He serves as our Senior 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 150,000 shares of common
stock at an exercise price of $6.00 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 6,165,000 shares of common stock to Mr. Johnson, at
$0.01 per share and we sold 767,500 shares of common stock to Dr. Erickson at
$0.01 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 300,000 shares of common stock in connection with
this loan. In June 1998, Mr. Redmon purchased 120,000 shares of common stock
held by Mr. Johnson at a sale price of $2.50 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 607,500 and 317,500
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 192,391 shares of common stock back to PurchasePro.com.
51
<PAGE>
In June 1998, John G. Chiles purchased 40,000 shares of common stock from
Mr. Johnson at $2.50 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 230,000 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 47,619 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 plan to repay the entire amount of
the loan plus accrued interest from the proceeds of the 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 may
draw down on those commitments at any time through the earlier of the closing
of this offering or December 31, 1999, except for Mr. Gallagher's $1 million
loan commitment which expires on the earlier of the closing of this offering or
October 31, 1999. The loans mature on the earlier of the closing of this
offering or March 31, 2000. In connection with Mr. Gallagher's $1 million loan
commitment the company agreed to pay him a commitment fee of $20,000 and, if
the company draws down on his commitment, to grant him a warrant to purchase
shares of common stock at an exercise price of $0.01 per share. The number of
shares covered by the warrant will equal the percentage of his loan commitment
drawn down multiplied by 70,000 shares. Mr. Gallagher holds approximately 6.3%
of the company's 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.
52
<PAGE>
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.
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 5,400,000 shares of our
preferred stock for an aggregate consideration of $16,800,000. We sold an
aggregate of 2,100,000 shares of our Series A Preferred Stock in June 1998 at a
sale price of $2.50 per share, and we sold an aggregate of 3,300,000 shares of
our Series B Preferred Stock in June 1999 at a sale price of $3.50 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 450,000 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.
53
<PAGE>
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
Average
Directors and Executive Officers Shares Price Series A(1) Series B(2)
- -------------------------------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Charles E. Johnson, Jr.............. 4,308,333 $0.34 -- --
Christopher P. Carton............... 714,000 $0.01 -- --
Bradley D. Redmon(3)................ 230,976 $1.34 15,712 71,429
John G. Chiles(4)................... 227,571 $0.45 40,000 54,285
David I. Fuente..................... -- -- -- 100,000
J. Terrence Lanni................... -- -- -- --
Michael D. O'Brien(5)............... -- -- -- --
<CAPTION>
5% Shareholders
- ---------------
<S> <C> <C> <C> <C>
Maurice J. Gallagher(6)............. 215,635 $0.24 480,000 190,476
Timothy P. Flynn(7)................. 178,492 $0.01 400,000 190,476
</TABLE>
- --------
(1) Series A shares sold for $2.50 per share.
(2) Series B shares sold for $3.50 per share.
(3) E-MarketPro, of which Mr. Redmon is a principal, may receive options to
purchase up to a maximum of 100,000 shares of PurchasePro.com common stock
at the then current market price based on certain performance criteria
contained in an agreement between E-MarketPro and PurchasePro.com.
(4) Includes 113,000 shares of common stock held by Jefferies & Company, Inc.,
8,571 shares of common stock, 40,000 shares of Series A Preferred Stock and
28,569 shares of Series B Preferred Stock held by the John G. and Cynthia
M. Chiles Revocable Trust and 25,716 shares of Series B Preferred Stock
held by Mr. Chiles' minor children. Does not include 89,144 shares of
common stock, 178,000 shares of Series A Preferred Stock and 130,001 shares
of Series B Preferred 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. Also does
not include 15,144 shares of common stock, 24,000 shares of Series A
Preferred Stock and 21,429 shares of Series B Preferred Stock held by
former employees of Jefferies & Company, Inc.
(5) Does not include 571,429 shares of Series B Preferred Stock held by
Cincinnati Bell, Inc., the parent of ZoomTown.com. Mr. O'Brien is the Chief
Executive Officer of ZoomTown.com. Mr. O'Brien disclaims beneficial
ownership of these shares.
(6) Includes 102,857 shares of common stock held by Gallagher Corporation,
480,000 shares of Series A Preferred Stock held by Gallagher Corporation
and 17,778 shares of common stock issuable upon the exercise of warrants.
(7) Includes 85,714 shares of common stock held by Flynn Corporation, 400,000
shares of Series A Preferred Stock held by Flynn Corporation and 17,778
shares of common stock issuable upon the exercise of warrants.
Options
In January 1998, Mr. Johnson granted Robert G. Layne, our Vice President--
Strategic Development, options to purchase 125,000 shares of common stock held
by Mr. Johnson at a purchase price of $0.50 per share. In June 1999, Mr. Layne
exercised those options.
In August 1998, we granted Mr. Redmon nonqualified stock options to purchase
50,000 shares of common stock at a purchase price of $2.50 per share. These
options vest over a two-year period.
In November 1998, we granted Mr. Chiles nonqualified stock options to
purchase 25,000 shares of common stock at a purchase price of $2.50 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 3,500 shares of common stock at a purchase price of $3.50 per
share.
In May 1999, we granted Mr. Johnson incentive stock options to purchase
325,000 shares of common stock at a purchase price of $3.50 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
200,000 shares of common stock at a purchase price of $3.50 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.
54
<PAGE>
In June 1999, we granted Mr. Chiles, a member of our board of directors,
nonqualified options to purchase 10,000 shares of common stock at a purchase
price of $3.50 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 10,000 shares of common stock
at a purchase price of $3.50 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 10,000 shares of common stock
at a purchase price of $3.50 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 100,000 shares of common
stock at a purchase price of $3.50 per share. These options vested upon grant.
In June 1999, we granted Jeffrey A. Neppl, our Vice President--Sales,
incentive stock options to purchase 190,870 shares of common stock at a
purchase price of $3.50 per share, of which 25,000 shares vested upon grant,
75,870 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 June 1999, we granted Michael L. Ford, our Chief Technical Officer,
incentive stock options to purchase 100,000 shares of common stock at a
purchase price of $3.50 per share, of which 30,000 vested upon grant, and the
remaining shares vest over a three-year period.
In July 1999, we granted Richard C. St. Peter, our Senior Vice President,
Chief Financial Officer and Treasurer, incentive stock options to purchase
150,000 shares of common stock at a purchase price of $6.00 per share, of which
50,000 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 30,000 and 200,000 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
75,000 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 53,333, 17,778 and 17,778 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 STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of August 31, 1999, on a pro forma basis to
reflect: (1) the automatic conversion upon completion of this offering of all
the outstanding shares of Series A Preferred Stock and Series B Preferred
Stock into common stock; and (2) the issuance of 106,666 shares of common
stock upon the exercise of outstanding warrants; for a total of 14,009,999
shares of common stock, 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; and
. all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage of
Total Shares of Common Stock(2)
Common Stock -----------------
Beneficially Before After
Name and Address of Beneficial Owner(1) Owned Offering Offering
- --------------------------------------- --------------- -------- --------
<S> <C> <C> <C>
Charles E. Johnson, Jr.(3).................. 4,883,833 34.1% 26.6%
Christopher P. Carton(4).................... 914,000 6.4% 5.0%
Jeffrey A. Neppl(5)......................... 25,000 * *
Robert G. Layne(6).......................... 200,000 1.4% 1.1%
Bradley D. Redmon(7)........................ 318,117 2.3% 1.8%
John G. Chiles(8)........................... 331,856 2.4% 1.8%
David I. Fuente(9).......................... 200,000 1.4% 1.1%
J. Terrence Lanni(10)....................... 10,000 * *
Michael D. O'Brien(11)...................... 10,000 * *
Maurice J. Gallagher(12).................... 886,111 6.3% 4.9%
3300 North Buffalo Drive
Las Vegas, NV 89129
Timothy P. Flynn(13)........................ 768,968 5.5% 4.3%
3291 North Buffalo Drive
Las Vegas, NV 89129
Lexington Investor Group(14)................ 1,435,912 10.2% 8.0%
c/o Steven Singleton
800 Corporate Drive
Lexington, KY 40503
All directors and executive officers as a
group (14 persons)(15)..................... 6,932,806 46.9% 36.9%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the address for the following stockholders is
c/o PurchasePro.com, Inc., 3921 N. Buffalo Drive, Las Vegas, Nevada
89129, (702) 316-7000.
(2) Assumes no exercise of the underwriters' over-allotment option.
Applicable percentage ownership is based on 14,009,999 shares of common
stock outstanding as of June 30, 1999 and 18,009,999 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. These shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. 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.
(3) Includes options to purchase 325,000 shares of common stock from the
Company and 378,000 shares of common stock from Dr. Erickson, and an
aggregate of 225,000 shares which are subject to options granted by Mr.
Johnson to employees of PurchasePro.com.
(4) Includes options to purchase 200,000 shares of common stock.
56
<PAGE>
(5) In July 1999, Mr. Neppl exercised options to purchase 25,000 shares of
common stock which were exercisable as of June 30, 1999.
(6) Includes options to purchase 75,000 shares of common stock from the
Company.
(7) Does not include 1,117,795 shares held by the other members of the
Lexington Investor Group. Mr. Redmon disclaims beneficial ownership of
these shares.
(8) Includes 113,000 shares held by Jefferies & Company, Inc., 8,571 shares of
common stock, 40,000 shares of Series A Preferred Stock, 28,569 shares of
Series B Preferred Stock held by the John G. and Cynthia M. Chiles
Revocable Trust and 25,716 shares held by Mr. Chiles' minor children, and
options to purchase 10,000 shares of common stock. Does not include 89,144
shares of common stock, 178,000 shares of Series A Preferred Stock,
130,001 shares of Series B Preferred Stock and options to purchase 3,500
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.
(9) Includes options to purchase 100,000 shares of common stock. Mr. Fuente
holds the 100,000 shares of common stock and the options to purchase
100,000 shares of common stock for the benefit of Office Depot. Does not
include warrants to purchase 500,000 shares of common stock held by Office
Depot, Inc. Mr. Fuente disclaims beneficial ownership of the shares of
common stock and options to purchase shares of common stock he holds for
the benefit of Office Depot, and the warrants held by Office Depot, Inc.
(10) Includes options to purchase 10,000 shares of common stock.
(11) Includes options to purchase 10,000 shares of common stock. Does not
include 571,429 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.
(12) Includes 582,857 shares held by Gallagher Corporation and warrants to
purchase 17,778 shares of common stock.
(13) Includes 485,714 shares held by Flynn Corporation and warrants to purchase
17,778 shares of common stock.
(14) 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. Each person in the Lexington Investor Group disclaims
beneficial ownership of the other individual's shares.
(15) Includes options held by the directors and officers to purchase 1,148,000
shares in the aggregate.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our amended and restated articles of incorporation, which will become
effective at the closing of this offering, 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
We have warrants outstanding for the purchase of 606,666 shares of common
stock with a weighted average exercise price of $9.89 per share, assuming an
initial public offering price of $12.00 per share.
Warrants issued to Maurice J. Gallagher and Timothy P. Flynn, former
directors of PurchasePro.com, and RMC Capital in September 1998, entitle each
of Mr. Gallagher and Mr. Flynn to purchase 17,778 shares and RMC Capital to
purchase 17,777 shares of common stock for $.01 per share. In addition,
warrants issued to Samuel A. Boone in September 1998 entitle Mr. Boone to
purchase 53,333 shares of common stock at $.01 per share.
Warrants issued to Office Depot, Inc. in July 1999 entitle Office Depot to
purchase 500,000 shares of common stock at the initial public offering price in
this offering.
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.
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<PAGE>
Registration Rights
After the consummation of the offering, the holders of 5,400,000 shares of
common stock issuable upon conversion of the Series A and B Preferred Stock,
and certain holders of 825,000 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 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 453,333 shares of common stock and holders of warrants to purchase
106,666 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 500,000 shares of common stock has piggyback and S-
3 registration rights as described above.
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 5 years following the closing of this
offering, 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,
59
<PAGE>
. 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.
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
Prior to this offering, there has been no public market for our common
stock. 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, 18,009,999 shares of common stock will be outstanding,
18,609,999 shares if the underwriters exercise their over-allotment option in
full. Of these shares, the 4,000,000 shares sold in this offering, 4,600,000
shares if the underwriters over-allotment option is exercised in full, 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. The remaining 14,009,999 shares 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 have entered into lock-up
agreements under which they have agreed not to offer or sell any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written consent of Prudential Securities, on behalf of the
underwriters. 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.
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 shares without having
to comply with Rule 144's holding period restrictions, in each case commencing
90 days after the date of this prospectus.
As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register 4,500,000
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.
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<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated and Jefferies & Company,
Inc. are acting as representatives. We 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.................................
Jefferies & Company, Inc...........................................
---------
Total............................................................ 4,000,000
=========
</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, an over-allotment option to purchase up
to 600,000 additional shares from us. 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 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. The representatives have informed us that
the underwriters do not intend to sell shares to any investor who has granted
them discretionary authority.
We have agreed to pay to the underwriters the following fees, assuming both
no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by
PurchasePro.com........ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $1,360,000 in
expenses for this offering. We 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
316,715 shares of common stock, 218,000 shares of Series A Preferred Stock,
184,286 shares of Series B Preferred Stock and options to purchase 38,500
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
3,500 shares of common stock out of the total 38,500 shares subject to options
held by associated persons of Jefferies & Company, Inc., are presumed to be
underwriting compensation. Accordingly, the 184,286 shares of Series B
Preferred Stock, options to purchase 3,500 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 after the effective
date of this offering, 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
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<PAGE>
3,500 shares of common stock held by persons associated with Jefferies &
Company, Inc. is the initial public offering price. The calculation of
underwriting compensation by the National Association of Securities Dealers,
Inc. takes into account the payment to us by Jefferies & Company, Inc. of $
as reimbursement for our expenses in this offering.
We, our officers, directors and stockholders have entered into lock-up
agreements pursuant to which we and they have agreed not to offer or sell any
shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock for a period of 180 days from the date
of this prospectus without the prior consent of Prudential Securities. These
individuals or entities may request that Prudential Securities consider an
early release from their lock-up agreement. Prudential Securities may, at any
time during the 180-day lock-up period and without notice, grant an early
release for shares subject to the lock-up agreements. Grant of an early release
will generally be based upon trading factors of PurchasePro.com's common stock
such as timing, price and volume.
Prior to this offering, there has been no public market for our common
stock. The public offering price, negotiated between the representatives and
us, is based upon factors such as our financial and operating history and
conditions, our prospects, the prospects of our industry and prevailing market
conditions.
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 option.
. 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.
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).
Office Depot, Inc. has indicated an interest in purchasing up to 400,000
shares of our common stock at the public offering price. A director of our
company is also a director and the chief executive officer of Office Depot,
Inc.
We have asked the underwriters to reserve approximately 200,000 shares of
common stock for sale at the same offering price directly to our customers,
employees, officers, directors and other business affiliates or related third
parties. Some of our stockholders, including Mr. Redmon, a director of
PurchasePro.com, are entitled to purchase half of these shares. The number of
shares available for sale to the general public in the offering will be reduced
to the extent such persons purchase the reserved shares.
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com communications channel. 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.
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<PAGE>
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 37,143 shares of Series B Preferred Stock of
PurchasePro.com which automatically convert into the same number of shares of
common stock upon completion of 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.
Upon completion of this offering, PurchasePro.com will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms, PurchasePro.com's website and the website of the SEC
referred to above. Information on our website does not constitute a part of
this prospectus.
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<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,
--------------------- June 30,
1997 1998 1999
--------- ---------- -----------
(Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents................. $ 7,894 $1,689,288 $3,014,572
Trade accounts receivable, net of
allowance for doubtful accounts of
$72,796, $200,000 and $256,000
(unaudited), respectively................ 18,443 215,234 750,695
Other receivables......................... 17,602 99,078 90,461
Prepaid expenses and other................ 113 20,000 75,406
--------- ---------- ----------
Total current assets.................... 44,052 2,023,600 3,931,134
Property and equipment
Computer equipment........................ 517,057 714,465 1,353,922
Communication equipment................... 47,775 65,160 65,160
Furniture and fixtures.................... 130,536 155,328 192,239
Leasehold improvements.................... 26,666 44,090 50,623
--------- ---------- ----------
722,034 979,043 1,661,944
Less--accumulated depreciation and
amortization............................. (162,424) (415,039) (603,592)
--------- ---------- ----------
559,610 564,004 1,058,352
Other assets................................ 4,903 157,153 1,650,489
--------- ---------- ----------
Total assets............................ $ 608,565 $2,744,757 $6,639,975
========= ========== ==========
</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,
------------------------ June 30,
1997 1998 1999
----------- ----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C> <C>
Current liabilities
Accounts payable..................... $ 300,347 $ 98,799 $ 205,841
Accrued salaries and benefits........ 43,289 207,635 296,100
Accrued payroll taxes................ 285,501 63,167 58,179
Accrued interest..................... 23,645 59,256 45,625
Other accrued liabilities............ 51,138 147,655 625,370
Deferred revenues.................... 46,541 164,812 177,670
Notes payable, current portion....... 1,200,750 375,000 --
----------- ----------- ------------
Total current liabilities.......... 1,951,211 1,116,324 1,408,785
Notes payable, net of current portion.. 1,366,250 1,169,939 50,000
Commitments and contingencies (Note 4)
Redeemable convertible preferred stock
Preferred stock, Series A: $0.001 par
value; 8% convertible; $2.50
liquidation preference; 0, 2,100,000
and 2,100,000 (unaudited) shares
authorized, issued and outstanding,
respectively........................ -- 4,339,438 4,641,808
Preferred stock, Series B: $0.001 par
value; 8% convertible; $3.50
liquidation preference; 3,300,000
shares authorized; 0, 0, and
3,300,000 (unaudited) issued and
outstanding, respectively........... -- 2,000,000 11,479,476
Stockholders' equity (deficit)
Common stock: $0.01 par value;
40,000,000 shares authorized;
7,700,000, 7,600,000 and 8,503,333
(unaudited) shares issued and
outstanding, respectively........... 77,000 76,000 85,033
Additional paid-in capital........... 322,382 1,178,504 20,128,338
Deferred stock-based compensation.... -- -- (7,665,142)
Accumulated deficit.................. (3,108,278) (7,135,448) (23,488,323)
----------- ----------- ------------
Total stockholders' equity
(deficit)......................... (2,708,896) (5,880,944) (10,940,094)
----------- ----------- ------------
Total liabilities and stockholders'
equity (deficit).................. $ 608,565 $ 2,744,757 $ 6,639,975
=========== =========== ============
</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
<TABLE>
<CAPTION>
Period From
Inception
(October 8, 1996) Year Ended Six Months Ended
Through December 31, June 30,
December 31, ------------------------ -------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Subscription fees...... $ -- $ 512,761 $ 1,307,611 $ 414,085 $ 1,211,695
Transaction fees....... -- -- 153,828 -- 181,646
Other.................. -- 162,629 208,799 115,780 286,567
--------- ----------- ----------- ----------- ------------
Total revenues........ -- 675,390 1,670,238 529,865 1,679,908
--------- ----------- ----------- ----------- ------------
Cost of revenues........ -- 213,857 445,639 212,225 349,740
--------- ----------- ----------- ----------- ------------
Gross profit............ -- 461,533 1,224,599 317,640 1,330,168
Operating expenses
Sales and marketing.... 22,592 1,179,327 3,840,776 1,850,407 2,171,592
General and
administrative........ 9,860 1,344,860 2,895,779 1,270,640 3,422,814
Programming and
development........... 86,862 802,175 971,459 459,650 778,507
Amortization of stock-
based compensation.... -- -- -- -- 1,089,192
--------- ----------- ----------- ----------- ------------
Total operating
expenses............. 119,314 3,326,362 7,708,014 3,580,697 7,462,105
--------- ----------- ----------- ----------- ------------
Operating loss.......... (119,314) (2,864,829) (6,483,415) (3,263,057) (6,131,937)
Other income (expense)
Interest expense....... (3,638) (120,497) (332,895) (228,243) (160,085)
Other.................. -- -- 16,300 10,425 (279,007)
--------- ----------- ----------- ----------- ------------
Total other income
(expense)............ (3,638) (120,497) (316,595) (217,818) (439,092)
--------- ----------- ----------- ----------- ------------
Net loss before benefit
for income taxes....... (122,952) (2,985,326) (6,800,010) (3,480,875) (6,571,029)
Benefit for income
taxes.................. -- -- -- -- --
--------- ----------- ----------- ----------- ------------
Net loss................ (122,952) (2,985,326) (6,800,010) (3,480,875) (6,571,029)
Preferred stock
dividends.............. -- -- (245,000) (35,000) (287,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) -- (94,846)
Value of preferred stock
beneficial conversion
feature................ -- -- -- -- (9,400,000)
--------- ----------- ----------- ----------- ------------
Net loss applicable to
common stockholders.... $(122,952) $(2,985,326) $(7,135,448) $(3,515,875) $(16,352,875)
========= =========== =========== =========== ============
Loss per share
Basic.................. $ (0.02) $ (0.39) $ (0.83) $ (0.37) $ (2.09)
========= =========== =========== =========== ============
Diluted................ $ (0.01) $ (0.36) $ (0.78) $ (0.35) $ (1.99)
========= =========== =========== =========== ============
Weighted average shares
outstanding
Basic.................. 7,700,000 7,700,000 8,600,000 9,600,000 7,826,667
========= =========== =========== =========== ============
Diluted................ 8,259,999 8,259,999 9,159,999 10,159,999 8,234,999
========= =========== =========== =========== ============
</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.......... 2,100,000 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............ 2,100,000 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.... 7,700,000 77,000 (67,000) -- -- 10,000
Net loss for the
period.......... -- -- -- -- (122,952) (122,952)
----------- --------- ------------ ------------- ------------- -------------
Balance,
December 31,
1996............ 7,700,000 77,000 (67,000) -- (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............ 7,700,000 77,000 322,382 -- (3,108,278) (2,708,896)
Effect of
recapitalization.. -- -- (3,108,278) -- 3,108,278 --
Issuance of
common stock.... 2,300,000 23,000 44,000 -- -- 67,000
Redemption and
retirement of
common stock.... (2,400,000) (24,000) 24,000 -- -- --
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............ 7,600,000 76,000 1,178,504 -- (7,135,448) (5,880,944)
(Unaudited):
Exercise of
warrants........ -- -- -- --
Issuance of
Series B
preferred stock,
net of issuance
costs........... -- -- 3,300,000 --
Issuance of
common stock to
Series A
preferred
stockholders.... -- -- -- --
Directors stock
option grant.... -- -- -- --
Deferred stock-
based
compensation.... -- -- -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- --
Preferred stock
dividends....... -- 210,000 -- 77,000
Accretion of
preferred stock
to redemption
value........... -- 92,370 -- 2,476
Value of
preferred stock
beneficial
conversion
feature......... -- -- -- 9,400,000
Net loss........ -- -- -- --
--------- ---------- --------- -----------
Balance, June
30, 1999
(Unaudited)..... 2,100,000 $4,641,808 3,300,000 $11,479,476
========= ========== ========= ===========
(Unaudited):
Exercise of
warrants........ 453,333 4,533 -- -- -- 4,533
Issuance of
Series B
preferred stock,
net of issuance
costs........... -- -- 9,400,000 -- -- 9,400,000
Issuance of
common stock to
Series A
preferred
stockholders.... 450,000 4,500 (4,500) -- -- --
Directors stock
option grant.... -- -- 800,000 -- -- 800,000
Deferred stock-
based
compensation.... -- -- 8,754,334 (8,754,334) -- --
Amortization of
deferred stock-
based
compensation.... -- -- -- 1,089,192 -- 1,089,192
Preferred stock
dividends....... -- -- -- -- (287,000) (287,000)
Accretion of
preferred stock
to redemption
value........... -- -- -- -- (94,846) (94,846)
Value of
preferred stock
beneficial
conversion
feature......... -- -- -- -- (9,400,000) (9,400,000)
Net loss........ -- -- -- -- (6,571,029) (6,571,029)
----------- --------- ------------ ------------- ------------- -------------
Balance, June
30, 1999
(Unaudited)..... 8,503,333 $ 85,033 $20,128,338 $(7,665,142) $(23,488,323) $(10,940,094)
=========== ========= ============ ============= ============= =============
</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 Six Months Ended
Through December 31, June 30,
December 31, ------------------------ -------------------------
1996 1997 1998 1998 1999
----------------- ----------- ----------- ----------- ------------
Cash flows from operating
activities (Unaudited)
<S> <C> <C> <C> <C> <C>
Net loss............... $(122,952) $(2,985,326) $(6,800,010) $(3,480,875) $(6,571,029)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization.......... 2,983 159,441 252,892 117,550 188,553
Amortization of stock-
based compensation.... -- -- -- -- 1,089,192
Imputed interest....... -- -- 67,000 67,000 --
Amortization of debt
discount.............. -- -- 43,339 -- 355,061
Provision for doubtful
accounts.............. -- 72,796 127,204 14,205 154,728
Non-cash services...... -- 250,000 720,000 720,000 800,000
(Increase) decrease in:
Trade accounts
receivable........... -- (91,239) (323,995) (13,968) (690,189)
Other receivables..... -- (17,602) (81,476) (53,287) 8,617
Prepaid expenses and
other................ -- (113) (19,887) -- (55,406)
Increase (decrease) in:
Accounts payable...... 3,500 140,681 (201,548) (70,642) 107,042
Accrued liabilities... 46,589 513,150 74,140 (25,335) 347,561
Deferred revenues..... -- 46,541 118,271 168,712 12,858
--------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities.......... (69,880) (1,911,671) (6,024,070) (2,556,640) (4,253,012)
--------- ----------- ----------- ----------- ------------
Cash flows from
investing activities
Purchase of property
and equipment......... (72,417) (649,617) (257,009) (101,627) (682,901)
Other assets........... -- (4,903) (102,527) (36,088) (619,586)
--------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities.......... (72,417) (654,520) (359,536) (137,715) (1,302,487)
--------- ----------- ----------- ----------- ------------
Cash flows from
financing activities
Proceeds from notes
payable and advances.. 133,132 2,433,868 4,427,000 2,577,000 200,000
Repayment of notes
payable and advances.. -- -- (3,362,000) (3,362,000) (1,350,000)
Issuance of common
stock, net............ 10,000 -- -- -- 4,533
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 4,215,000 6,880,783
--------- ----------- ----------- ----------- ------------
Increase in cash and
cash equivalents....... 835 7,059 1,681,394 1,520,645 1,325,284
Cash and cash
equivalents
Beginning of period.... -- 835 7,894 7,894 1,689,288
--------- ----------- ----------- ----------- ------------
End of period.......... $ 835 $ 7,894 $ 1,689,288 $ 1,528,539 $ 3,014,572
========= =========== =========== =========== ============
Non-cash investing and
financing activities
Other assets acquired
with note payable..... $ -- $ -- $ 50,000 $ -- $ --
========= =========== =========== =========== ============
Other assets acquired
with preferred stock.. $ -- $ -- $ -- $ -- $ 673,750
========= =========== =========== =========== ============
Contribution of notes
payable to equity..... $ -- $ -- $ 1,782,000 $ 1,782,000 $ 700,000
========= =========== =========== =========== ============
Cash paid for:
Interest............... $ 3,638 $ 96,852 $ 166,424 $ 166,424 $ 118,087
========= =========== =========== =========== ============
</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 June 30, 1999 and for the six months endedJune 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 7,700,000 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.
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.
F-8
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
To date, 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. 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.
The Company has experienced operating losses and negative cash flows from
its operations since inception. For the foreseeable future, the Company expects
to experience continuing operating losses and negative cash flows as management
executes its current business plan. At December 31, 1998, the Company had cash
and cash equivalents totaling approximately $1,690,000. In June 1999, the
Company completed its Series B Preferred Stock Offering and received aggregate
proceeds of $11,550,000. The Company's Board of Directors has authorized the
filing of a registration statement with the Securities and Exchange Commission
(the "SEC") that would permit the Company to sell shares of the Company's
common stock in connection with a proposed initial public offering. Management
believes that it has sufficient funds, including the proceeds from this
offering, to sustain its current business plan through June 30, 2000.
Management believes that additional financing would be required to support its
current business plan past that time and further believes that such additional
financing would come through public or private equity financing. If the IPO is
not completed in a timely manner, the Company would seek such additional
financing through a private financing or through collaborative or other
arrangements with corporate sources.
(2) Significant Accounting Policies
Unaudited Interim Financial Information
The unaudited interim consolidated financial statements of the Company for
the six months ended June 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 six months ended June 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
F-9
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-10
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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 six months ended June 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 $0.01 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.
Recently Issued Accounting Standards
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. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The FASB
F-11
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 2,300,000 shares of the Company's common stock; however, if the
Company repaid the Lenders' Notes Payable within 120 days, 1,150,000 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 1,475,000 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 159,999 warrants to the note holders. Each warrant provides the holder
the right to purchase one share of Company common stock for $0.01 per share
through September 2003. Using the Black-Scholes pricing model, the Company
determined the value of these warrants to be $2.49 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 200,000
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
Preferred Stock
The Company has authorized 10,000,000 shares of preferred stock. The Company
designated 2,100,000 of these shares as 8% Series A Convertible Preferred
Stock, par value $0.001 ("Series A"). In June 1998, the Company sold the
2,100,000 Series A shares at $2.50 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.
Each Series A share has a liquidation price of $2.50 and is convertible into
one share of the Company's common stock. The Series A is redeemable at the
option of the holders commencing on June 1, 2003, at an aggregate liquidation
value of $5,250,000. The Company recorded the Series A shares at their fair
value, net of issuance costs. The Company is accreting the Series A to an
aggregate liquidation value of $5,250,000 for
F-13
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounting purposes. Upon completion of a public offering of the Company's
common stock, each outstanding share of Series A converts into one share of
common stock and all rights of Series A stockholders shall cease.
Dividends on Series A accrue at the rate of 8% per annum and are payable
when, and if, declared by the Board of Directors. At December 31, 1998 and June
30, 1999, cumulative unpaid dividends were $245,000 and $455,000, respectively.
In connection with the issuance of the Series A, the Company granted
warrants to purchase a total of 400,000 shares of common stock, including
warrants to purchase 380,000 shares 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 $0.01 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 authorized 3,300,000 shares as 8% Series B
Convertible Preferred Stock, par value $0.001 ("Series B"). Each Series B share
has a liquidation price of $3.50 and is convertible into one share of common
stock. The Series B is redeemable at the option of the holders commencing on
June 1, 2003, at an aggregate liquidation value of $11,550,000. In June 1999,
the Company completed its Series B offering of 3,300,000 shares 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 $3.50 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.
Of the 3,300,000 Series B shares issued, 200,000 shares were issued to
holders of the September 1998 Notes, including a former member of the Company's
Board of Directors (see Note 3). 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 (see Note
3).
The Company issued 150,000 shares of Series B to acquire the assets of a
software development company and for non-compete agreements with the owners of
the company (see Note 10). In May 1999, the Company issued 42,500 shares of
Series B to an individual in exchange for his rescission of a future right to
acquire up to 35% of HPS.
Dividends on Series B accrue at the rate of 8% per annum and are payable
when, and if, declared by the Board of Directors. At June 30, 1999, cumulative
unpaid dividends were $77,000.
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.
F-14
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the repayment of the Lenders' Notes Payable in June 1998
(see Note 3), the Company and the Lenders entered into an agreement whereby
1,475,000 shares were contributed back to the Company. Accordingly, the number
of shares held by the Lenders was reduced to 825,000. In connection with the
same agreement and in connection with the Series A Preferred Stock offering,
two of the founders of the Company contributed an aggregate of 925,000 shares
of common stock to the Company.
In June 1998, the Principal Stockholder sold 300,000 of his shares to an
unrelated third party for $0.10 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 $2.50 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 1,470,000 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 450,000 shares of common stock pursuant to certain anti-dilution
rights of the holders of Series A Preferred Stock.
(6) 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 3,000,000.
As of December 31, 1998 and June 30, 1999, the Company had granted options
totaling 705,850 and 2,355,280, 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 June 30, 1999, the Company had
issued a total of 144,000 and 370,000, respectively options to non-employees,
including 75,000 and 205,000, respectively, issued to members of the Board of
Directors. Options were issued with exercise prices ranging from $2.50 to
$5.00. 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 six months ended June 30, 1999, the value of these options was
determined to be approximately $1,100,000, of which $800,000 was charged to
general and administrative expense for options granted to directors. 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 1,500,000 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 year-end.
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 25,000 options in each instance to employees, with the exercise
price to be approved by the compensation committee of the Company's Board of
Directors.
F-15
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the options granted to employees under the Company's plans as
of December 31, 1998 and June 30, 1999 is presented below (this does not
include 144,000 and 370,000 options granted to non-employees as of December 31,
1998 and June 30, 1999, respectively):
<TABLE>
<CAPTION>
December 31,
1998 June 30, 1999
---------------- -------------------
(Unaudited)
Weighted Weighted
Average Average
Exercise Exercise
Number Price Number Price
------- -------- --------- --------
<S> <C> <C> <C> <C>
Options Outstanding, Beginning of
period.............................. -- $ -- 705,850 $2.50
Granted.............................. 705,850 2.50 1,761,430 $3.50
Exercised............................ -- -- -- --
Cancelled............................ -- -- (112,000) $2.53
------- ----- ---------
Options Outstanding, End of period... 705,850 $2.50 2,355,280 $3.25
======= ===== =========
</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>
$2.50 705,850 1.8 $2.50 -- $ --
</TABLE>
For stock options granted to employees from January through June 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.................................................. $ (0.83)
===========
Pro Forma.................................................... $ (0.84)
===========
Diluted Loss per Share
As Reported.................................................. $ (0.78)
===========
Pro Forma.................................................... $ (0.79)
===========
</TABLE>
F-16
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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%.
(7) Earnings Per Share
The computations of basic and diluted earnings per share for each period
were as follows:
<TABLE>
<CAPTION>
Inception For the Year For the Year For the Six
(October 8, 1996) Ended Ended For the Six Months
Through December 31, December 31, Months Ended Ended
December 31, 1996 1997 1998 June 30, 1998 June 30, 1999
----------------- ------------ ------------ ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Loss (Numerator)
Net loss................ $(122,952) $(2,985,326) $(6,800,010) $(3,480,875) $ (6,571,029)
Preferred stock
dividends.............. -- -- (245,000) (35,000) (287,000)
Accretion of preferred
stock to redemption
value.................. -- -- (90,438) -- (94,846)
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) $(3,515,875) $(16,352,875)
========= =========== =========== =========== ============
Diluted EPS
Net loss applicable to
common stockholders
after assumed
conversions............ $(122,952) $(2,985,326) $(7,135,448) $(3,515,875) $(16,352,875)
========= =========== =========== =========== ============
Shares (Denominator)
Basic EPS
Net loss applicable to
common stockholders.... 7,700,000 7,700,000 8,600,000 9,600,000 7,826,667
Effect of Dilutive
Securities
Warrants................ 559,999 559,999 559,999 559,999 559,999
Exercise of Warrants.... -- -- -- -- (151,667)
--------- ----------- ----------- ----------- ------------
Diluted EPS
Net loss applicable to
common stockholders
after assumed
conversions............ 8,259,999 8,259,999 9,159,999 10,159,999 8,234,999
========= =========== =========== =========== ============
Per Share Amount
Basic EPS............... $ (0.02) $ (0.39) $ (0.83) $ (0.37) $ (2.09)
========= =========== =========== =========== ============
Diluted EPS............. $ (0.01) $ (0.36) $ (0.78) $ (0.35) $ (1.99)
========= =========== =========== =========== ============
</TABLE>
Options to purchase 0, 0, and 849,850 shares of common stock were
outstanding as of December 31, 1996, 1997, and 1998, respectively, and options
to purchase 0 and 2,725,280, respectively, shares of common stock were
outstanding as of June 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-17
<PAGE>
PURCHASEPRO.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) 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>
(9) 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-18
<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.
(10) Subsequent Events
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 40,000
shares of Series B preferred stock valued at $3.50 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 110,000 shares of Series B preferred stock (see
Note 5).
F-19
<PAGE>
- -------------------------------------------------------------------------------
Until , 1999 all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------------------------------
[PurchasePro.com logo]
Prudential Securities
Jefferies & Company, Inc.
- -------------------------------------------------------------------------------
<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............................................. $ 16,625
National Association of Securities Dealers, Inc. filing fee...... 6,480
Blue Sky fees and expenses....................................... 5,000
Accounting fees and expenses..................................... 250,000
Legal fees and expenses.......................................... 600,000
Printing and engraving expenses.................................. 300,000
Registrar and Transfer Agent's fees.............................. 50,000
Miscellaneous fees and expenses.................................. 131,895
----------
Total.......................................................... $1,360,000
==========
</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 7,700,000
shares of common stock to three founders for an aggregate purchase price of
$399,382. Of these shares, 925,000 were subsequently contributed to capital and
2,228,000 were sold by affiliates of PurchasePro.com as follows:
. January 15, 1998: 800,000 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 $0.01 per share, for cash
consideration in the aggregate amount of $8,000.
. January 15, 1998: Mr. Johnson granted Robert G. Layne options to purchase
125,000 shares of common stock owned by Mr. Johnson at $0.50 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
100,000 shares of common stock owned by Mr. Johnson at $0.50 per share.
. June 4, 1998: 75,000 shares of common stock from Mr. Johnson to Thomas
Leahy at a purchase price of $0.10 per share, for cash consideration in
the aggregate amount of $7,500.
. June 4, 1998: 75,000 shares of common stock from Mr. Johnson to John
Patrick Leahy at a purchase price of $0.10 per share, for cash
consideration in the aggregate amount of $7,500.
. June 4, 1998: 75,000 shares of common stock from Mr. Johnson to American
Hotel Register at a purchase price of $0.10 per share, for cash
consideration in the aggregate amount of $7,500.
. June 4, 1998: 75,000 shares of common stock from Mr. Johnson to Robert
Schmidt at a purchase price of $0.10 per share, for cash consideration in
the aggregate amount of $7,500.
. June 4, 1998: 6,000 shares of common stock from Mr. Carton to Peter
Keseric at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $15,000.
. June 4, 1998: 40,000 shares of common stock from Mr. Johnson to John
Chiles at a purchase price of $2.50 per share, for cash consideration in
the aggregate amount of $100,000.
. June 4, 1998: 100,000 shares of common stock from Mr. Johnson to James N.
Gray Co. at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $250,000.
. June 4, 1998: 40,000 shares of common stock from Mr. Carton and 40,000
shares of common stock from Dr. Erickson to SC Holdings LLC at a purchase
price of $2.50 per share, for cash consideration in the aggregate amount
of $200,000.
. June 4, 1998: 120,000 shares of common stock from Mr. Johnson to Bradley
D. Redmon at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $300,000.
. August 5, 1998: 80,000 shares of common stock from Mr. Johnson and 20,000
shares of common stock from Mr. Carton to Black Mountain Investment Group
at a purchase price of $2.50 per share, for cash consideration in the
aggregate amount of $250,000.
. September 1, 1998: 20,000 shares of common stock from Mr. Carton to
Richard Yukes at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $50,000.
. September 14, 1998: 10,000 shares of common stock from Mr. Johnson to
Bruce D. Smith at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $25,000.
. October 1, 1998: 20,000 shares of common stock from Mr. Johnson to
Scheiner Family Trust at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $50,000.
. October 1, 1998: 15,000 shares of common stock from Mr. Johnson to
Millenium Partners LLC at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $37,500.
. November 6, 1998: 20,000 shares of common stock from Mr. Johnson to
Gerald F. Healy at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $50,000.
. November 6, 1998: 20,000 shares of common stock from Mr. Johnson to Traxx
Irrevocable Trust at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $50,000.
. December 10, 1998: 10,000 shares of common stock from Mr. Johnson to
Sigma XIII Irrevocable Trust at a purchase price of $2.50 per share, for
cash consideration in the aggregate amount of $25,000.
. December 10, 1998: 10,000 shares of common stock from Mr. Johnson to
Woodford Webb at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $25,000.
. January 12, 1999: 300,000 shares of common stock from Mr. Johnson to
Earnest Hanna at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $750,000.
II-2
<PAGE>
. January 22, 1999: 8,000 shares of common stock from Dr. Erickson to
Gerard Turiano at a purchase price of $2.50 per share, for cash
consideration in the aggregate amount of $20,000.
. March 8, 1999: 4,000 shares of common stock from Dr. Erickson to
McDonalds Investment, Inc., for the benefit of Nicholas A. Perrino, at a
purchase price of $2.50 per share, for cash consideration in the
aggregate amount of $10,000.
. May 17, 1999: 20,000 shares of common stock from Dr. Erickson to Maurice
Gallagher at a purchase price of $2.50 per share, for cash consideration
in the aggregate amount of $50,000.
. June 3, 1999: 225,000 shares of common stock from Mr. Johnson to Stephen
Dawahare at a purchase price of $3.50 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 378,000 shares of common stock owned
by Dr. Erickson from Dr. Erickson to Mr. Johnson for $13.23 per share.
On January 15, 1998, Registrant sold and issued an aggregate of 2,300,000
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 $0.03. The Lexington Investor Group subsequently contributed
1,475,000 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 2,100,000 shares
of Series A Preferred Stock, at a purchase price of $2.50 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 200,000 shares of common stock at a purchase price of $0.01 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 200,000 shares of common
stock.
On June 4, 1998, Registrant issued warrants to John G. Chiles, at the
direction of Jefferies & Company, Inc., to purchase 30,000 shares of common
stock at a purchase price of $0.01 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 30,000 shares of common stock.
On June 4, 1998, Registrant issued warrants to purchase 170,000 shares of
common stock to Ron Booth, Mr. Gallagher and Timothy Flynn at a purchase price
of $0.01 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 170,000 shares of common stock.
On September 18, 1998, Registrant issued warrants to purchase an aggregate
of 159,999 shares of common stock to Mr. Johnson, Alex Boone, Mr. Gallagher,
Mr. Flynn and RMC Capital Corporation at a purchase price of $0.01 per share,
in connection with a loan made to Registrant by such individuals. Mr. Johnson
exercised his warrant for 53,333 shares of common stock in June 1999.
On June 2, 1999, Registrant sold and issued an aggregate of 3,300,000 shares
of Series B Preferred Stock, at a purchase price of $3.50 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.
On June 2, 1999, Registrant issued an aggregate of 450,000 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.
II-3
<PAGE>
As of June 30 1999, we have granted options to purchase 2,733,780 shares of
common stock to employees, consultants and other service providers of
PurchasePro.com under our 1998 Stock Option and Incentive Plan.
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.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the 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 19th day of August, 1999.
PURCHASEPRO.COM, INC.
By /s/ Charles E. Johnson, Jr.
-----------------------------------
Charles E. Johnson, Jr.
Chief Executive Officer and
Chairman
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 Amendment
No. 5 to the 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 and Chairman August 19, 1999
____________________________________
Charles E. Johnson, Jr.
* Chief Operating Officer, President, August 19, 1999
____________________________________ Secretary and Director
Christopher P. Carton
* Senior Vice President, Chief August 19, 1999
____________________________________ Financial Officer and Treasurer
Richard C. St. Peter
* Vice President--Finance, Chief August 19, 1999
____________________________________ Accounting Officer
Scott H. Miller
* Director August 19, 1999
____________________________________
John G. Chiles
* Director August 19, 1999
____________________________________
David I. Fuente
* Director August 19, 1999
____________________________________
J. Terrence Lanni
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
* Director August 19, 1999
____________________________________
Michael D. O'Brien
* Director August 19, 1999
____________________________________
Bradley D. Redmon
</TABLE>
*By: ___________________________
/s/ Charles E. Johnson, Jr.
Charles E. Johnson, Jr.
(Attorney-in-Fact)
II-6
<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.
3(i).2** Form of Amended and Restated Articles of Incorporation to be
effective upon completion of this offering.
3(ii).1** Bylaws of the Registrant, as amended.
3(ii).2** Form of Amended and Restated Bylaws to be effective upon completion
of this offering.
4.1** Form of Common Stock Certificate.
5.1** Opinion of Pillsbury Madison & Sutro LLP.
10.1** Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2** 1998 Stock Option and Incentive Plan and forms of agreements
thereunder.
10.3** 1999 Stock Plan.
10.4** Securities Purchase Agreement dated as of June 1, 1998 between
Registrant and the purchasers of its Series A Preferred Stock.
10.5** Securities Purchase Agreement dated as of April 30, 1999 between
Registrant and the purchasers of its Series B Preferred Stock.
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.
10.7+** Agreement dated as of January 4, 1999 between Registrant and the
Greater Phoenix Chamber of Commerce.
10.8+ Software Agency and Services Agreement dated as of May 3, 1999
among Registrant, ZoomTown.com, Inc. and Bradley D. Redmon.
10.9+** Agreement dated as of May 1, 1999, between Registrant and
Hospitalitycity pte ltd.
10.10** Agreement dated as of January 1999 between Registrant and E-
Marketpro, LLC.
10.11** Letter of Employment between Registrant and Charles E. Johnson, Jr.
10.12** Letter of Employment between Registrant and Christopher P. Carton.
10.13** Employment Agreement between Registrant and Jeffrey A. Neppl.
10.14** Letter of Employment between Registrant and Robert G. Layne.
10.15** Warrant dated as of July 22, 1999, by and between Registrant and
Office Depot, Inc.
10.16** Letter of Employment between Registrant and Richard C. St. Peter.
10.17 Promissory Note dated September 2, 1999 between Registrant Charles
E. Johnson, Jr.
10.18 Loan Commitment dated September 3, 1999 between Registrant and John
G. Chiles.
10.19 Loan Commitment dated September 3, 1999 between Registrant and
Maurice J. Gallagher.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.20 Loan Commitment dated September 3, 1999 between Registrant and Charles
E. Johnson, Jr.
10.21 Loan Commitment dated September 3, 1999 between Registrant and Bradley
D. Redmon.
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.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been requested with respect to certain portions
of these agreements.
II-8
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
- ------------------------------------------------------------------------------
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
- ----------------------------------------------------------------
SOFTWARE AGENCY AND SERVICES AGREEMENT
This Software Agency and Services Agreement ("Agreement") is entered into
this 3rd day of May, 1999 ("Effective Date"), between Purchase Pro
International, Inc., a Nevada Corporation whose address is 3291 North Buffalo
Drive, Las Vegas, Nevada 89129 (hereinafter "Purchase Pro"); ZoomTown.com, Inc.,
an Ohio corporation with headquarters at 201 East Fourth Street, Cincinnati,
Ohio 45202 (hereinafter "ZoomTown.com"); and E-MarketPro, LLC, a Kentucky
limited liability company whose address is 2623 Regency Road, Lexington,
Kentucky 40503 (hereinafter "E-MarketPro").
1. Definitions
-----------
Unless otherwise specified herein, the following terms shall be defined as
follows:
(a) Access shall mean the sale, license for use, or other means by which
------
Purchase Pro enables customers to use Software products.
(b) Advertising Revenue shall mean all revenue from advertising, banners,
-------------------
directories, and the like on the co-branded ZoomTown.com/Purchase Pro form of
the Software (i.e., the page(s) or areas of the co-branded Software that
Customers see when they Access the same).
(c) Agreed Deductions shall mean the amount to be deducted from the Bundled
-----------------
Revenues from a given Bundled Transaction in order to derive the portion thereof
that equitably is attributable to the Access included therein, as mutually
agreed by Purchase Pro and ZoomTown.com.
(d) Bundled Revenues shall mean the aggregate of all revenues attributable
----------------
to Bundled Transactions.
(e) Bundled Transaction shall mean a sale, license, lease or other
-------------------
transaction with a Customer in which Access is bundled together with other goods
and/or services (e.g., an ASDL line) in a single or combined economic package.
The simultaneous, but separate, sale of Access and other good(s) and services to
a Customer, per se, will not give rise to Bundled Transaction if such sale of
Access is for full price (without discount).
(f) Contiguous States shall mean the States of Indiana, Michigan, Missouri,
-----------------
Pennsylvania, Tennessee, Virginia and West Virginia.
(g) Customer Guaranteed Minimum shall mean the sum of $29.00 per Customer
---------------------------
per month; provided, however, the term Customer Guaranteed Minimum shall apply
only to Customers located within the Initial Market Area.
(h) Customer ID shall mean a unique combination of a user-ID number or
-----------
code (or other identifier) and a password that enables a user of the Software to
have Access.
(i) Customers shall mean companies (which term is understood to include all
---------
types of business entities as well as sole proprietorships and individuals doing
business under their own or any
Confidential
<PAGE>
other name) located within the Market Area that are granted Access to the
Software (determined based on whether such entity has a Customer ID and has
local telephone "dial tone" within the Market Area). Notwithstanding the
foregoing, Customers shall not include those existing customers of E-MarketPro
within the state of Kentucky as are set forth in Exhibit D, hereto, which may be
amended in the future by mutual agreement of ZoomTown.com and E-MarketPro. For
those parties identified on Exhibit D, rights and obligations shall instead be
governed by the provisions of the E-MarketPro Agreement.
(j) Dedicated Support Facility shall mean a suitably staffed and equipped
--------------------------
facility (which can serve one or more areas) maintained by Zoomtown.com that is
dedicated to providing First Tier Support in a specific geographic area. The
Dedicated Support Facility initially will serve the Initial Market Area.
(k) Defect shall mean any replicable Software programming error that
------
causes a material non-compliance by the then most recent release of the Software
with Purchase Pro's published or external specifications and/or operating
manuals (or similar documentation) for that Software release.
(l) Disruption shall mean the occurrence of any material disruption in the
----------
services to Customers in the ZoomTown.com networks that is solely caused by a
Severity Level 1 or Severity Level 2 (as those terms are defined in Exhibit A)
Defect in the then most recent release of the Software. For purposes of this
Agreement, the term Disruption shall not include (i) any scheduled maintenance
periods or any impairment, interruption or failure to perform or respond in the
services to Customers in the ZoomTown.com networks that is not caused by use of
the Software, in the form provided by Purchase Pro, in accordance with its
specifications and documentation or (ii) any thirty (30) day period during which
the Software is operational, on average, at least 99% of the time.
(m) E-MarketPro Agreement shall mean the agreement between E-MarketPro and
---------------------
Purchase Pro dated the 1st day of February 1999, as amended.
(n) Gross Revenue shall mean (1) all revenues attributable to use of the
-------------
Software by Customers, including but not limited to fees charged for Access,
Transaction Fees, Bundled Revenues less associated Agreed Deductions, fees for
or revenue from additional services, and Advertising Revenues minus (2) if
applicable, credit card fees and similar charges payable for merchant and/or
billing and collections services on Gross Revenues paid by credit card and, for
the avoidance of doubt, any royalties payable under subparagraph .2(d).
(o) Initial Market Area shall mean the States of Ohio and Kentucky.
-------------------
(p) Launch Date shall mean the date the parties mutually agree that the
-----------
Software in its co-branded ZoomTown.com/Purchase Pro form is operational and
Customers may commence to Access the Software.
(q) Launch Period shall mean the period commencing on the Effective Date
-------------
and ending on May 17, 1999 (or such other date the parties mutually agree upon
in writing).
(r) Market Area shall mean the Initial Market Area, together with the
-----------
ZoomTown.com network in the Initial Market Area, plus any expansion(s) of the
Market Area pursuant to subparagraph.
Confidential
-2-
<PAGE>
2.2(b) or the next sentence. Market Area shall also include any mutually agreed
(agreement to be in writing and not to be unreasonably withheld) future
expansions of the ZoomTown.com network or networks to any additional geographic
area(s) in which ZoomTown.com will actively market Access to the Software and
will provide First Tier Support for Customers via a Dedicated Support Facility.
(s) Net Revenue shall mean (I) Gross Revenue less the Customer Guaranteed
-----------
Minimum with respect to the Initial Market Area and (ii) Gross Revenue outside
of the Initial Market Area.
(t) Purchase Pro House Account Customers shall mean those customers of
------------------------------------
Purchase Pro that enter into a regional, national or international contract with
Purchase Pro for Access to the Software, together with their respective
suppliers and customers that have Access or use the Software under or pursuant
to such a contract, including without limitation those Purchase Pro House
Account Customers set forth in Exhibit B hereto.
(u) Software shall mean the Purchase Pro proprietary software for the
--------
supply, purchase, bid for, offer for sale, lease, trade, barter or exchange
goods or services through use of the internet, including all updates and
upgrades thereto, offered by Purchase Pro for use by customers, including
Customers of ZoomTown.com.
(v) Support
-------
(i) First Tier Support shall mean all initial direct Customer
------------------
contact and follow-up contact as appropriate regarding Customer calls
or inquiries for technical support, maintenance and error correction
for the Software and includes, without limitation, (i) information
gathering; (ii) handing off of support calls and pass through of
problem reports, in the format prescribed by Purchase Pro, to the
appropriate Second Tier Support personnel; and (iii) the distribution
of Software work-arounds, patches and fixes to Customers directly or
by download from the ZoomTown Website (unless Purchase Pro elects to
distribute the same as part of a general availability release of the
Software or the same is available by download from other internet
website(s)). Unless Purchase Pro agrees otherwise, all First Tier
Support will be provided on a 7 X 24 basis in accordance with Purchase
Pro's then standard Software support policies and procedures.
(ii) Second Tier Support shall mean problem isolation and
-------------------
identification and follow-up with the Customer and/or First Tier
Support personnel, as appropriate.
(iii) Third Tier Support shall mean providing prompt corrective
------------------
maintenance for the Software in accordance with Exhibit A and Purchase
Pro's standard guidelines as in effect from time to time. Corrective
maintenance will include action to verify a problem's existence and
determine conditions under which the problem may recur. After such
verification, one of the following will be provided (unless said
guidelines provide otherwise, in which said guidelines will be
followed): an appropriate prompt fix for the problem or a temporary
solution or workaround for the problem to be followed by a permanent
solution in a subsequent Software release, whichever is more
reasonable and suitable under the circumstances.
Confidential
-3-
<PAGE>
(w) Transaction Fees shall mean fees charged Customers for Access to the
----------------
Software based on or measured by the number, dollar volume or other attribute of
transactions between Customers or between Customers and third parties for the
internet sale, lease, trade, barter or exchange of goods or services via Access
to the Software.
(x) ZoomTown Website shall mean the internet website that ZoomTown.com
----------------
maintains to provide information about itself and the goods and services
(including the co-branded ZoomTown.com/Purchase Pro form of the Software) that
it markets and sells.
2. Appointment/Market Area
-----------------------
2.1 E-MarketPro Agreement Amendment
-------------------------------
During the term of this Agreement, (i) the E-MarketPro Agreement is hereby
amended to the extent it is inconsistent with this Agreement as it applies to
the Initial Market Area and the Contiguous States and (ii) E-MarketPro hereby
waives all rights under the E-MarketPro Agreement to market and offer Access
with respect to those specific geographic areas (which instead shall be governed
by this Agreement).
2.2 ZoomTown.com
------------
Purchase Pro, E-MarketPro and ZoomTown.com agree that this Agreement grants
ZoomTown.com the right, as Purchase Pro's agent and representative and on the
terms set forth herein, to market and offer (which terms may include the right
to issue Customer IDs in accordance with Purchase Pro's standard policies and
practices to Customers), on behalf of Purchase Pro, Access to Purchase Pro's
Software worldwide. ZoomTown.com also is granted a non-exclusive license to use
the Software and other proprietary materials of Purchase Pro as and for the
purposes set forth herein. The rights granted ZoomTown.com hereunder and
ZoomTown.com's appointment hereunder as Purchase Pro's agent to market and offer
Access to the Software are subject to the following:
(a) ZoomTown.com's right to market and offer Access in geographic
areas comprising the Initial Market Area shall be, subject to Purchase Pro's
rights with respect to Purchase Pro House Account Customers, (i) exclusive in
the State of Ohio and (ii) co-exclusive, with E-MarketPro's similar appointment
under Paragraph 2.3 below, in the State of Kentucky. Subject to subparagraphs
2.2(b) and 2.2(c) below, ZoomTown.com's right to market and offer Access in
geographic areas outside the Initial Market Area shall be non-exclusive,
notwithstanding any future expansions of the Market Area due to an expansion of
the ZoomTown.com network to geographic locations pursuant to subparagraph 1(r)
above.
(b) Purchase Pro reserves the right to grant third parties exclusive
rights to market and offer Access to the Software in specific geographic area(s)
within the Contiguous States, subject to the provisions of this subparagraph
2.2(b). If PurchasePro desires to grant exclusive rights to market and offer
Access to the Software in specific geographic area(s) within the Contiguous
States, then Purchase Pro shall offer that exclusivity in writing to
ZoomTown.com under the terms of this Agreement as an expansion of the Market
Area. If ZoomTown.com accepts Purchase Pro's offer in
Confidential
-4-
<PAGE>
writing within thirty (30) days, then the Market Area shall be expanded to
include said geographic area(s) on an exclusive basis (even as to E-MarketPro,
except for Access to the co-branded Software by persons or entities located in
that geographic area that result from E-MarketPro customers requesting Access
for their suppliers or customers who are in that geographic area). If
ZoomTown.com does not so accept Purchase Pro's offer, then E-MarketPro shall
have a right of first refusal to acquire exclusive rights (even as to
ZoomTown.com, except for Access by persons or entities located in that
geographic area that result from Customers requesting Access for their suppliers
or customers who are in that geographic area) in those geographic area(s) on a
"match-offer" basis (which right shall be exercisable, if at all, during the ten
(10) day period that follows the lapse of ZoomTown.com's thirty (30) day
acceptance period described in the preceding sentence). If ZoomTown.com does not
so accept exclusivity and expansion of the Market Area and E-MarketPro does not
so exercise its right of first refusal in a given geographic area, then if
Purchase Pro enters into such exclusive agreement with a third party, neither
ZoomTown.com nor E-MarketPro shall have any further right to market and offer
Access to the Software in that geographic area thereafter, except for Access by
persons or entities located in that geographic area that result from Customers
requesting Access for their suppliers or customers who are in that geographic
area.
(c) Purchase Pro reserves the right to grant third parties exclusive
rights to market and offer Access to the Software in specific geographic area(s)
outside of the Initial Market Area and the Contiguous States.
(d) ZoomTown.com may elect to provide (and license, to the extent of
any proprietary rights of ZoomTown.com therein) to Purchase Pro, and Purchase
Pro may in turn provide and, if applicable, sublicense to the third party, a
turnkey type package that will allow the third party to replicate ZoomTown.com's
First Tier Support structure and ZoomTown Website page(s) relating to the
Software and to develop, host, maintain, train and market and offer Access to
the Software in the third party's geographic area in a manner that is comparable
to ZoomTown.com's efforts in the Market Area. If a third party is so provided a
turnkey package pursuant to this subparagraph 2.2(d), then Purchase Pro shall
pay, quarterly, royalties equal to (i) ** of the Gross Revenue from such third
--
party's customers located (determined in the same manner as Customers are
determined; see subparagraph 1(r) above) in such third party's geographic area
to ZoomTown.com and (ii) two and one-half percent (2.5%) of such Gross Revenue
to E-MarketPro. Any amounts owed to ZoomTown.com pursuant to this provision
shall be in addition to any amounts that may otherwise be owed to ZoomTown
pursuant to Paragraph 5, below.
(e) ZoomTown.com's exclusive rights to market and offer Access to
the Software as provided in this Agreement notwithstanding, ZoomTown.com's
rights to market and offer Access to the Software to Purchase Pro House Account
Customers always shall be non-exclusive. Purchase Pro House Account Customers
that are located in the Market Area (see subparagraph 1(r) above) shall be
granted Access to (i) a fully-featured version of the co-branded Software, if
charged the full price determined according to Paragraph 5.1 below, or (ii) a
restricted version of the Software that is not co-branded and does not include
the ability to access the "public network" national market place that is a
feature of the co-branded Software, if charged less than the full price
determined according to Paragraph 5.1 below. ZoomTown.com may market and offer
an upgrade up to the fully-featured version of the Software to Purchase Pro
House Account Customers located in the Market Area that receive the restricted
version.
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
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CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
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BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
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SECURITIES AND EXCHANGE COMMISSION.
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(f) ZoomTown.com is hereby authorized to enter into binding
agreements (licenses) granting Access to Customers that are obtained through the
efforts of ZoomTown.com hereunder, provided that each such Customer meets the
credit approval criteria employed by ZoomTown.com and Cincinnati Bell Inc. in
the ordinary course of business and that all such agreements shall be in a
standard form agreement provided by Purchase Pro from time-to-time, with only
such changes (other than Customer-specific information such as name, address and
the like) as Purchase Pro approves in writing. Purchase Pro shall consult with
ZoomTown.com regarding the form and content of such standard form agreement, and
ZoomTown.com shall have the right to approve any provision thereof that it
reasonably determines would create any obligation or liability on the part of
ZoomTown.com.
(g) ZoomTown.com shall only execute or otherwise enter into
agreements with Customers pursuant to subparagraph 2.2(f) as Purchase Pro's
agent and on Purchase Pro's behalf, and Purchase Pro and Customer shall be the
contracting parties under all such agreements.
2.3 E-MarketPro
-----------
Purchase Pro, E-MarketPro and ZoomTown.com agree that this Agreement grants
E-MarketPro the right, as Purchase Pro's agent and representative and on the
terms set forth herein, to market and offer (which terms may include the right
to issue Customer IDs in accordance with Purchase Pro's standard policies and
practices to Customers), on behalf of Purchase Pro, Access to Purchase Pro's
Software. The rights granted E-MarketPro hereunder and E-MarketPro's appointment
hereunder as Purchase Pro's agent to market and offer Access to the Software is
(i) co-exclusive, subject to Purchase Pro's rights with respect to Purchase Pro
House Account Customers, with the rights of ZoomTown.com under Paragraph 2.2 in
the State of Kentucky and (ii) except as otherwise provided in subparagraphs
2.2(b) and 2.2(c), non-exclusive in the Contiguous States. During the term of
this Agreement, E-MarketPro shall not have any rights to market or offer Access
in the State of Ohio, or in those areas of Kentucky which are part of the
Cincinnati Bell Telephone local service area or the ZoomTown.com networks except
for Access to the co-branded Software (as set forth in Paragraph 4.1(ix) below)
for E-MarketPro customers or E-MarketPro customers requesting Access for their
suppliers or customers who are in that geographic area. For sales of Access by
E-MarketPro in the State of Ohio or in those areas of Kentucky specified above,
payment to E-MarketPro shall be pursuant to paragraph 5.2(ii), below. E-
MarketPro's right to market and offer Access in geographic areas outside the
Initial Market Area and the Contiguous States shall remain as stated in the E-
MarketPro Agreement.
3. Responsibilities of ZoomTown.com
--------------------------------
3.1 Sales and Support Responsibilities
----------------------------------
In addition to its other rights, understandings and obligations created by
this Agreement, ZoomTown.com shall, during the term of this Agreement:
(i) Co-brand Purchase Pro's Software in the Market Area by altering,
with technical assistance from Purchase Pro, the look and graphics of
its advertising and promotional
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materials and the pages of the ZoomTown Website so as to reflect ZoomTown.com's
offering of Access to the Software coupled with the statement "powered by
Purchase Pro" and to include on the ZoomTown Website information on how a
Customer may order Access to the Software.
(ii) Use its best commercially reasonable efforts to achieve the
Launch Date on or before the end of the Launch Period.
(iii) Use its best commercially reasonable efforts to promote, market
and offer Access to Purchase Pro's Software to Customers and to
maximize sales of Access throughout the Market Area.
(iv) Act solely as an independent organization, without authority to
commit Purchase Pro except as specifically provided in subparagraphs
2.2(f) and 2.2(g) above, and to employ its own facilities at its own
expense to perform its obligations hereunder.
(v) Complete and/or carry out before the Launch Date training of its
personnel, where applicable based on the training offered by Purchase
Pro on a "train-the-trainer" basis (see subparagraph 4.1(vi) below),
as reasonably required to maintain an informed and suitably qualified
and knowledgeable sales, technical support, and application
engineering organization and to maximize sales of Access in the Market
Area, to provide First Tier Support and carry out ZoomTown.com's other
obligations and duties hereunder and to assist Purchase Pro's
personnel with the application and service of the Software.
(vi) Provide Purchase Pro with electronic copies of any marketing
materials and web-specific content regarding the Software developed by
or for ZoomTown.com. Purchase Pro will be responsible for production,
at its expense, of literature and materials and/or web pages based on
content provided by ZoomTown.com. Any such production by Purchase Pro
may include quantities ordered by ZoomTown.com.
(vii) Provide First Tier Support to Customers in good standing in the
Market Area that are using Purchase Pro Software.
(viii) Provide such additional services as may be agreed upon with
Purchase Pro.
4. Responsibilities of Purchase Pro
--------------------------------
4.1 Support and Sales Responsibilities
----------------------------------
In addition to its other rights, understandings and obligations created by
this Agreement, Purchase Pro shall, during the term of this Agreement:
(i) Use its best commercially reasonable efforts to assist
ZoomTown.com in achieving the Launch Date on or before the end of the
Launch Period.
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(ii) Promptly upon their general availability, provide all fully-
featured releases of the Software to ZoomTown.com, free of charge. The
parties may also enter into a mutually agreeable, separate written
beta-test agreement pursuant to which ZoomTown.com will receive and
undertake to test "beta" and other pre-general availability releases
of the Software.
(iii) Develop, install and maintain all client software necessary to
co-brand with ZoomTown.com the Purchase Pro Software as provided in
subparagraph 3.1(i) above, at no charge to ZoomTown.com.
(iv) Provide, at ZoomTown.com's cost for reasonable travel and living
expenses, an on-site subject matter expert to install, test and
maintain any Purchase Pro Software at any ZoomTown.com location at
mutually scheduled time(s) during the Launch Period.
(v) Provide Access to standard services and generally available
Software upgrades to Customers on the same basis and at the same cost
as to all other similarly situated customers of Purchase Pro. This
provision shall not prevent Purchase Pro from developing and offering
customized and/or dedicated solutions to particular customers.
(vi) Conduct mutually scheduled training sessions for the
ZoomTown.com's sales and support personnel, both before the Launch
Date and thereafter. Such training will be at no charge, except that
if conducted at ZoomTown.com's location, ZoomTown.com will bear the
reasonable travel and living expenses of the Purchase Pro personnel
involved. After the first anniversary of the Launch Date, any such
training will be provided on a "train-the-trainer" basis only.
(vii) Provide ZoomTown.com with electronic copies of any marketing
materials and web-specific content regarding the Software developed by
or for Purchase Pro. ZoomTown.com will be responsible for production,
at its expense, of literature and materials and/or web pages based on
content provided by Purchase Pro. Any such production by ZoomTown.com
may include quantities ordered by Purchase Pro.
(viii) Provide Second Tier Support and Third Tier Support, within the
time limitations specified in Exhibit A, to ZoomTown.com and to all
Customers in good standing that are using Purchase Pro Software.
(ix) Offer and allow Access only to the ZoomTown.com co-branded
Software (see subparagraph 4.1(ii)) to any Customers in the Cincinnati
Bell Telephone service area and to any Customer on the ZoomTown.com
networks, with the exception of Purchase Pro House Account Customers
as set forth herein.
(x) Provide such additional services as may be agreed upon with
ZoomTown.com.
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4.2 Scope and Limitation of Purchase Pro's Authority
------------------------------------------------
Neither E-MarketPro nor Purchase Pro shall have any power or authority to
act for, bind or commit ZoomTown.com. Purchase Pro may not use the name of the
ZoomTown.com in any sales promotion literature, news release, or advertising
outside of that which is permitted under or contemplated by the terms of this
Agreement, without the express written consent of the ZoomTown.com in each
instance.
4.3 Quality Standards
-----------------
Purchase Pro shall provide a general availability release of the Software
in accordance with Purchase Pro's normal quality assurance that is free of any
Defects that are known to Purchase Pro and not corrected or subject to a
reasonable software patch or problem work-around, no later than the Launch Date.
Purchase Pro will not knowingly release any general availability version of the
Software that Purchase Pro believes is likely to have a substantial incidence of
Disruptions without notifying ZoomTown.com.
4.4 No Warranties
-------------
Subject to paragraph 4.6. (i) ZoomTown.com acknowledges that the Software
is provided "AS-IS" and (ii) Purchase Pro does not warrant its Software to be
free from any Defects or that its operation will be free from Disruption. In
lieu any warranty in respect of the Software, Purchase Pro will provide
ZoomTown.com with error correction services for the Software in accordance with
Exhibit A, free of charge.
4.5 Correction of Software Defects
------------------------------
In the event the Software is found to contain a Defect, Purchase Pro shall
take steps to remedy the Defect in accordance with the applicable provisions of
Exhibit A.
4.6 Year 2000 Compliance
--------------------
Purchase Pro represents and warrants as follows: that the Software is
designed to be used prior to, during, and after the year 2000 A. D. and that it
will operate during such time periods without error relating to its internal
processing of date data that is presented to the Software in an industry-
standard, year 2000 compliant format (referred to herein as being in a "Y2K
Compliant Date Format") which represent or reference different centuries or more
than one century; that no value for current date in Y2K Compliant Date Format
will cause interruptions in normal operation; that all manipulations of
calendar-related data (dates, duration, days of week, etc.) in Y2K Compliant
Date Format will produce correct results for all valid date values; that date
elements in interfaces and data storage within the Software permits specifying
century or uses another industry-standard technique to eliminate date ambiguity
by using a Y2K Compliant Date Format; and that for any date element represented
without century, the correct century is unambiguous for all manipulations
involving that element which occur during the warranty period set forth in the
next sentence. The Year 2000 Compliance Warranty set forth herein shall expire
on the date on which the Software has operated without a material breach of this
Year 2000 Compliance Warranty for a consecutive 12-month period after January 1,
2000. Any
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failure of the Software to comply with this Year 2000 Compliance Warranty shall
be promptly repaired by Purchase Pro in accordance with the applicable
provisions of Exhibit A.
4.7 Disruption of the ZoomTown.com Network
--------------------------------------
Notwithstanding anything in this Agreement to the contrary, in the event
that there is any Disruption in the ZoomTown.com network which is caused by or
under the control of Purchase Pro, Purchase Pro shall take all commercially
reasonable actions necessary to terminate the Disruption as soon as practicable.
In the event the Disruption of in the ZoomTown.com network is not caused by or
under the control of Purchase Pro, Purchase Pro shall cooperate in
ZoomTown.com's efforts to terminate such Disruption as reasonably requested by
ZoomTown.com, at ZoomTown.com's expense.
4.8 Security
--------
Purchase Pro will include and maintain in the Software and/or otherwise use
such encryption and firewall technologies and/or other security systems or
procedures as it believes are reasonable and appropriate for the purpose that
data transmission to and from the Software will be secure. Purchase Pro does
not represent or warrant that the Software cannot be "hacked," that all such
data transmissions will be secure in all circumstances, or that the encryption
and firewall technologies and/or other security systems or procedures that it
maintains in the Software or uses cannot be broken or evaded. In addition, this
paragraph 4.8 shall not require Purchase Pro to use or maintain in the Software
any encryption and firewall technologies and/or other security systems or
procedures in violation of any applicable law or regulation.
4.9 Development of Enhanced Software
--------------------------------
The parties hereto anticipate that, from time-to-time, ZoomTown.com may
request the further development of the Software to include new features or
functions. In such event, ZoomTown.com shall make such requests in writing,
specifying with particularity the desired characteristics and specifications of
said improvements, features, or functions, and Purchase Pro shall promptly
prepare a written preliminary proposal for development of same, said proposal to
include a schedule for development and an estimated cost of completion. In the
event the preliminary proposal is acceptable to ZoomTown.com, the parties shall
negotiate in good faith the terms of a final proposal, including a final set of
design specifications, performance characteristics, development schedule, and
price, which upon written approval and acceptance by both parties shall
constitute a binding addendum to this Agreement.
5. Customer Sales
5.1 Price
-----
Purchase Pro, in consultation with ZoomTown.com, shall determine the market
sale price for all Access and all additional software and services to be
provided to Customers in the Market Area, including, without limitation,
upgrades to fully-featured versions pursuant to subparagraph 2.2(e). An initial
schedule of such fees for Access to the Software and services shall be
memorialized in writing before the Launch Date.
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5.2 Invoicing and Terms of Payment
------------------------------
(i) For the initial 24 months after the Launch Date, Purchase Pro
shall invoice on a regular basis all Customers at the price determined
under paragraph 5.1 plus any amount owed for additional goods or services
provided to the Customer. Beginning with the twenty-fifth (25th) such
month, ZoomTown.com may elect in its sole discretion to invoice on a
regular basis all Customers on behalf of Purchase Pro, whereupon
ZoomTown.com shall invoice the Customers (with appropriate mention of
Purchase Pro's name on the invoice); in such event, the parties shall
cooperate to transition the billing and collection responsibility to
ZoomTown.com. Regardless of the party performing the billing and collection
function, all Gross Revenues subject to this Agreement are revenues of
Purchase Pro. Purchase Pro shall pay sales commissions to ZoomTown.com and
E-MarketPro on such revenues in accordance with subparagraphs 5.2(ii)
through 5.2(iv).
(ii) Purchase Pro shall pay (1) a sales commission to ZoomTown.com
equal to ** of the Net Revenues from Customers in the Initial Market Area
--
during the period ending on the first anniversary of the Launch Date and
(2) a sales commission to E-MarketPro equal to thirty-seven and one-half
percent (37.5%) of such Net Revenues. Purchase Pro shall pay (1) a sales
commission to ZoomTown.com equal to ** of the Net Revenues from Customers
--
in the Initial Market Area after the first anniversary of the Launch Date
and (2) a sales commission to E-MarketPro equal to twenty-five percent
(25%) of such Net Revenues. Purchase Pro shall pay (1) a sales commission
to ZoomTown.com equal to (a) ** of the Net Revenues from Customers in the
--
Contiguous States minus (b) the amount payable to E-MarketPro pursuant to
clause (2) of this sentence, and (2) a sales commission to E-MarketPro
equal to the lesser of fourteen and one-half percent (14.5%) of such Net
Revenues or $14.50 per such Customer per month. Purchase Pro shall pay (1)
a sales commission to ZoomTown.com equal to ** of the Net Revenues, and (2)
--
a sales commission to E-MarketPro equal to two and one half percent (2.5%)
of such Net Revenues from Customers in any expansion of the Market Area
outside of the Initial Market and the Contiguous States.
(iii) For Access by persons or entities located outside the Market
Area that have a Customer ID issued as a result of a sale by ZoomTown.com
pursuant to paragraph 2.2 or that result from Customers requesting Access
for their suppliers or customers who are in an area outside the Market Area
and/or from the marketing and sales efforts by ZoomTown.com outside the
Market Area (i.e., in both cases, persons or entities that ZoomTown.com has
"signed up" to have Access, but for whom ZoomTown.com is not obligated to
provide First Tier Support), Purchase Pro shall pay (1) a sales commission
to ZoomTown.com equal to ** of all Gross Revenue arising from such Access,
--
and (2) a sales commission to E-MarketPro equal to two and one-half percent
(2.5%) of all Gross Revenue arising from such Access, unless such Access is
within the Contiguous States in which case Purchase Pro shall pay (1) a
sales commission to ZoomTown.com equal to **
--
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
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CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
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BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
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SECURITIES AND EXCHANGE COMMISSION.
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of all Gross Revenue arising from such Access and (2) a sales commission to E-
MarketPro equal to two and one-half percent (2.5%) of all Gross Revenue arising
from such Access. The obligations contained in this subparagraph 5.2(iii) shall
extend to first line customers and suppliers only, and not to subsequent
downline customers or suppliers, unless such downline customers or suppliers
themselves are in the Market Area, in which case the applicable sales commission
set forth in subparagraph 5.2(ii), above, shall apply as to them.
(iv) Purchase Pro shall pay a sales commission on the portion of the
Gross Revenues remitted for any given month that is represented by the
Customer Guaranteed Minimum, as follows: (1) ZoomTown.com shall be entitled
to a sales commission equal to the Customer Guaranteed Minimum attributable
to the first ** Customers and (2) E-MarketPro shall be entitled to a sales
--
commission equal to the Customer Guaranteed Minimum attributable to all
remaining Customers times the sales commission percentage under the first
two sentences of subparagraph 5.2(ii) that applies to the corresponding Net
Revenues from such Customers. For avoidance of doubt, this counting of the
"first one thousand (1,000) Customers" applies separately and afresh for
each monthly remittance under subparagraph 5.2(v) and does not refer to the
first one thousand (1,000) Customers since the inception of this Agreement.
(v) The appropriate party (i.e., the party performing billing and
collection functions with respect to the Gross Revenues in question) shall
remit, on an end-of-calendar-month basis one month in arrears (e.g., remit
at the end of February for Net Revenues in January), to the other parties
hereunder the respective amounts to which they are entitled under the
provisions of subparagraph 2.2(d) (if applicable) and this Paragraph 5.2.
The party obligated to remit sums to the other under this paragraph 5.2(v)
shall provide to the other parties, with each monthly remittance, a written
report of all amounts invoiced, amounts collected, and any deductions from
amounts otherwise due to such other party.
(vi) Except as otherwise agreed in any "match-offer" agreement
entered into pursuant to subparagraph 2.2(b), and as to Gross Revenues and
Net Revenues on which E-MarketPro receives a sales commission under this
Agreement, the payment by Purchase Pro to E-MarketPro of sales commissions
on revenues from Access by customers that result from sales by E-MarketPro
shall be governed by the E-MarketPro Agreement.
5.3 Initial Payment
---------------
Upon execution of this Agreement, ZoomTown.com will pay to Purchase Pro the
amount of $500,000, which payment shall be non-refundable. Purchase Pro shall
pay a sales commission to E-MarketPro equal to sixty-five percent (65%) of such
amount.
* CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN INFORMATION
- --------------------------------------------------------------------------------
CONTAINED IN THIS EXHIBIT. THROUGHOUT THIS EXHIBIT CONFIDENTIAL PORTIONS HAVE
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BEEN OMITTED FROM THE PUBLIC FILING AND HAVE BEEN FILED SEPARATELY WITH THE
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SECURITIES AND EXCHANGE COMMISSION.
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5.4 Taxes
-----
The party responsible under law will collect and remit as required by
applicable law any sales, use, value-added or excise taxes, in amounts legally
levied or imposed under the authority of a federal, state or local taxing
jurisdiction, on the Gross Revenues or royalties under subparagraph 2.2(d) (or
any part thereof) subject to this Agreement for Access to the Software, and the
provision of related services.
5.5 Exchange of Necessary Information
---------------------------------
The applicable party, in a timely fashion and periodically as the parties
mutually agree, shall provide the other party with the necessary billing, Gross
or Net Revenue and other information (including any applicable pre-paid amounts
and other offset credits and applicable tax calculations under paragraph 5.4) in
such party's possession or control in order that the party responsible hereunder
may invoice Customers for the correct amounts under paragraph 5.2 and collect
and remit taxes as required by paragraph 5.4.
5.6 Quarterly Settle-Up
-------------------
Not less frequently than quarterly, the parties will settle-up and
reimburse each other as required so that (i) any remittances under paragraph 5.2
that represent bad debt are reimbursed back to the party that made the
remittance and (ii) tax payments under paragraph 5.4 are borne by the parties in
proportion to their respective shares of the pertinent revenue under paragraph
5.2.
6. Intellectual Property
6.1 Ownership of Intellectual Property Rights
-----------------------------------------
The parties agree that all prior patent, copyright, trademark or other
intellectual property rights in and to any product or idea existing prior to the
date of this Agreement shall remain with the party holding such rights. Each
party grants to the other parties a license for use of such intellectual
property to the extent necessary to perform its obligations hereunder. All
materials developed pursuant to any accepted final proposal (including, without
limitation, all preliminary and final plans and all Software and collateral
materials, regardless of the medium) pursuant to Paragraph 4.9 above, and all
corresponding copyrights, trade secret rights, and patent rights, shall be the
property of parties as they may agree pursuant to paragraph 4.9. In no event,
however, will ZoomTown.com acquire any ownership rights to any underlying
intellectual property of Purchase Pro, notwithstanding any agreement under
paragraph 4.9 that ZoomTown.com shall have or acquire any ownership rights in a
derivative work thereof. Purchase Pro and ZoomTown.com shall execute and
deliver all documents reasonably requested by the other as necessary to perfect,
register, and/or enforce all patents, copyrights and other rights and protection
relating to materials subject to paragraph 4.9 in any and all countries.
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6.2 Co-Branding
-----------
The parties acknowledge and agree that the other parties' own valuable
trademarks for various trade names, which will be contributed to the co-branding
of the Software. Each party agrees to take, in consultation with the other
party and at its written request and expense, all actions reasonably necessary
to protect the trademarks of the other and to avoid confusion in the public and
inadvertent loss of trademark rights, and to comply with the other's guidelines
and procedures on trademark usage.
6.3 Patent, Copyright and Trademark Indemnity
-----------------------------------------
Purchase Pro warrants that its Software does not and will not infringe upon
any US patent issued as of the Effective Date, US copyright, US trademark or
trade secret owned by any third party, and shall, at its expense, defend and
indemnify ZoomTown.com for costs and damages and expenses (including reasonable
attorneys fees) incurred in any suit, claim or proceeding brought against
ZoomTown.com alleging that the Software or software sold or offered for use
pursuant to this Agreement infringes any such patents, copyrights, trademarks or
other intellectual property rights, provided Purchase Pro has sole control over
and ZoomTown.com fully cooperates in such defense and any settlement of such
claim. Should Access or the use of any unit of the Software by ZoomTown.com or
its Customers be enjoined, or in the event that Purchase Pro desires to minimize
its liabilities hereunder, Purchase Pro may, at its option, either (i)
substitute a fully equivalent non-infringing unit of the Software, modify the
infringing item so that it no longer infringes but remains fully equivalent, or
obtain for ZoomTown.com and ZoomTown.com's Customers, at its own expense, the
right to continue use of such item or (ii) if the alternatives under clause (i)
are not available at commercially reasonable cost, terminate this Agreement as
to the subject Software.
7. Attorneys Fees
--------------
If any arbitration or litigation is commenced between or among parties to
this Agreement or their personal representatives concerning any of the
provisions of this Agreement or the rights and duties of any person in relation
thereto, the party or parties prevailing in such arbitration or litigation shall
be entitled, in addition to such other relief as may be granted, to a reasonable
sum for their attorneys fees which shall be determined by the Court in such
litigation or in a separate action brought for that purpose.
8. Force Majeure
-------------
A party shall be excused from any delay or failure in its performance
hereunder caused by any labor dispute, governmental requirement, act of God, and
other causes beyond its control. If such delaying cause shall continue for more
than ten (10) days, the party injured by the inability of the other to perform
shall have the right upon ten (10) days prior written notice to terminate this
Agreement.
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9. Governmental Authorities
------------------------
No party shall be required to do anything contrary to any applicable
directive or obligation of any competent governmental authority, and shall
promptly notify the other parties if compelled by law, act, or government decree
to act otherwise than in accordance with this Agreement.
10. Assumption of Liabilities or Obligations
----------------------------------------
Except as specified herein, this Agreement in no way confers upon any party
the right to act as the legal representative or agent of any other party, nor
shall any party have the right or authority to assume any liability or
obligation of any kind on behalf of any other party.
11. Agreement Termination
---------------------
11.1 Termination
-----------
(i) The parties warrant that all identifying signs, literature, logos and
other evidence linking ZoomTown.com and Purchase Pro shall be removed
or destroyed upon termination of this Agreement.
(ii) Should this Agreement be terminated by any party in accordance with
paragraphs 11.2 or 11.3 prior to payment of amounts due hereunder or
pursuant hereto for periods prior to the date of termination, such
amount shall be paid (by the responsible party, as the case may be)
as when due in accordance with the terms hereof.
11.2 Termination by Default
----------------------
This Agreement shall terminate, at the option of a non-defaulting party,
upon substantial default or material breach of any of the terms, conditions, or
obligations hereunder unless the defaulting party is able to fully remedy the
default or breach within thirty (30) days (or one (1) business day in the case
of a default under paragraph 4.7). Upon termination of this Agreement by
substantial default or material breach, all rights and privileges granted under
this Agreement to the defaulting party shall immediately terminate. Termination
of this Agreement by default shall not relieve the defaulting party of its
obligations hereunder.
11.3 Insolvency or Bankruptcy
------------------------
This Agreement shall terminate if any party becomes insolvent or bankrupt,
or admits in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or ceases to function as a going
concern or to conduct its operations in the normal course of business.
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11.4 Provision for Customers in the Event of Termination
---------------------------------------------------
(i) In the event this Agreement is terminated, whether by default or
otherwise, the responsible party shall continue to remit to the other
party all amounts owed, pursuant to Paragraph 5.2, above.
(ii) In the event this Agreement is terminated, ZoomTown.com shall be
permitted to offer to any Customer any such other or additional
software and services, whether competing or not, or access thereto,
without further liability to Purchase Pro or E-MarketPro.
11.5 Escrow Agreement for the Retention of Software
----------------------------------------------
Within sixty (60) days after the Effective Date, ZoomTown.com and Purchase
Pro shall enter into a source code escrow with a mutually agreeable escrow
agent, substantially in the form attached as Exhibit C hereto.
11.6 Limitation of Default Rights and Remedies.
-----------------------------------------
Notwithstanding anything in this Agreement to the contrary, it is expressly
understood and agreed by the parties that the right to declare default hereunder
by E-MarketPro shall be limited to claims of non-payment under Paragraph 5 and
Paragraph 2.2(d) and claims of breach of obligations to offer the right of first
refusal under Paragraph 2.2(c), and E-MarketPro specifically waives any rights
to declare default except for those claims specified above. In the event E-
MarketPro declares default, remedies shall be limited to collection of amounts
found owing to E-MarketPro. In no event shall a declaration of default by E-
MarketPro constitute a default of any other provision hereunder, or relieve any
party including E-MarketPro, from continuing to perform all obligations
hereunder.
12. Assignment
----------
This Agreement may not be assigned in whole or in part by a party without
the consent of the other parties hereto. Such consent shall not be required in
the case of a sale of all or substantially all the assets of the assigning party
or an assignment to an entity directly or indirectly owning or controlling,
owned or controlled by, or under common control with the assigning party and, in
any event, shall not be unreasonably withheld except for good and just cause and
shall not be deemed a waiver of this Article for any proposed subsequent
assignments. Notwithstanding the foregoing, ZoomTown.com shall retain the right
to terminate this Agreement without further obligation or liability to Purchase
Pro or E-MarketPro, its successors or assigns, if, in its sole and exclusive
judgment, any assignment or purported assignment by Purchase Pro or E-MarketPro
is to be made to a competitor of Cincinnati Bell.
13. Sole Agreement
--------------
This Agreement contains the sole and only agreement of the parties and
correctly sets forth the rights, duties, and obligations of each party to the
other parties as of its date together with the standards
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<PAGE>
and any other agreements in writing which the parties mutually agree upon. Any
prior agreements, promises, negotiations, or representations with respect to the
specific subject matter of this Agreement that are not expressly set forth in
this Agreement are of no force and effect. This Paragraph 13 does not affect or
apply to the E-MarketPro Agreement, except so far as this Agreement specifically
supercedes or amends the E-MarketPro Agreement.
14. Paragraph Titles
----------------
Paragraph titles or captions contained herein are inserted only as a matter
of convenience and for reference, and in no way define, limit, extend, or
describe the scope of this Agreement, nor the intent of any provision thereof.
15. Confidentiality and Non-Disclosure
----------------------------------
Each party acknowledges that in the course of its performance hereunder,
and in offering services to Customers, it may obtain confidential information,
including without limitation customer lists, buying habits and marketing
strategies, concerning E-MarketPro, Purchase Pro, Cincinnati Bell Inc.,
ZoomTown.com, and/or the affiliates and/or customers of such entities. Each
party expressly agrees that it shall not, without express written consent of the
other party, disclose any such information of the other party or its affiliates
or customers to any third party, or use such information for purposes not
related to its performance hereunder. The parties will discuss in good faith a
separate agreement regarding the sale of Customer lists and other similar data
generated by operation of the Software as contemplated by this Agreement.
16. Jurisdiction
------------
16.1 Governing Law
-------------
This Agreement, and all of the rights and duties in connection therewith,
shall be governed by and construed under the laws of the State of Ohio, USA.
16.2 Subject Matter and Personal Jurisdiction
----------------------------------------
The courts located in the State Ohio shall have full subject matter
jurisdiction, and shall have full personal jurisdiction over E-MarketPro,
Purchase Pro and ZoomTown.com in connection with any controversy, claim, or
award arising out of this Agreement or between the parties. Any suit to enforce
the terms herein or between the parties shall be brought in any court of
competent jurisdiction in Hamilton County, Ohio, and the parties specifically
waive hereby any claims or defenses of personal jurisdiction, improper venue, or
forum non-conveniens with respect to litigation brought in accordance with this
paragraph 16.2.
17. Amendments
----------
This Agreement may be amended only by the mutual written consent of all the
parties hereto.
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<PAGE>
18. Waivers
-------
Except as herein provided to the contrary, failure by any party to insist
upon strict and complete performance of any or all of the terms or conditions
contained in this Agreement shall not constitute nor be construed as a waiver of
that party's right to thereafter enforce any such terms or conditions, nor shall
it be deemed a waiver of any other term or condition contained herein.
19. Construction and Severance
--------------------------
The language in all parts of this Agreement shall be in all cases construed
according to its fair meaning and not strictly for or against any party hereto.
If any term, covenant, condition, or provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unreasonable, the
remainder of the provisions hereof shall remain in full force and effect.
20. Access to Records
-----------------
The parties hereto shall keep accurate records in sufficient detail to
enable the determination of the payments payable to the other parties and each
party shall permit examination and inspection of the records by authorized
representatives of the other parties, upon reasonable notice, during usual
business hours to the extent necessary to verify the reports and payments
required hereunder.
21. Term of Agreement
-----------------
21.1 Initial Term of Agreement
-------------------------
This Agreement shall become effective on the date on which it is executed
and shall continue until the last day of the calendar month in which the third
anniversary of the Launch Date occurs.
21.2 Extensions of Agreement
-----------------------
At the expiration of this Agreement, as described in Paragraph 21.1 above,
and provided that it has not been subject to earlier termination, this Agreement
shall continue on a year to year basis thereafter unless a party advises the
other parties in writing at least thirty (30) days in advance of its intent to
terminate this Agreement, in which event such termination shall become effective
thirty (30) days after receipt of such notice.
22. Counterparts
------------
This Agreement may be executed in counterparts, all of which taken together
shall be deemed one original.
23. Corporate Authority
-------------------
The persons executing this Agreement warrant that they have the right,
power, legal capacity, and appropriate authority to enter into this Agreement on
behalf of the entity for whom they sign.
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<PAGE>
24. Remedies: Non-Exclusive
------------------------
No remedy conferred by any specific provision of this Agreement is intended
to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder now or
hereinafter existing in law, or in equity, or by stature, or by otherwise. The
election of one or more remedies by a party shall not constitute a waiver of the
right to pursue other available remedies.
25. Notices
-------
With the exception of bills, invoices, and shipping papers, all notices or
other communications provided for by this Agreement shall be made in writing and
shall be deemed properly delivered (i) when delivered personally, or (ii) by the
mailing of such notice to the parties entitled thereto, registered or certified
mail, postage prepaid to the parties at their address set forth below: (or such
address designated, in writing, by one party to the other parties).
To ZoomTown.com, Inc. To Purchase Pro, Inc.
--------------------- ---------------------
ZoomTown.com, Inc. Purchase Pro International, Inc.
Attention: Michael O'Brien Attention: Christopher P. Carton
Suite 102-715 3291 North Buffalo Drive
201 East Fourth Street Las Vegas, Nevada 89129
Cincinnati, Ohio 45202
With a copy to:
Purchase Pro International, Inc.
Attention: Brad Redmon
2623 Regency Road
Lexington, Kentucky 40503
To: E-MarketPro
---------------
E-MarketPro, LLC
Attention: Brad Redmon
2623 Regency Road
Lexington, Kentucky 40503
26. Participation on the Software Steering Committee
------------------------------------------------
It is acknowledged that Purchase Pro maintains a committee known as the
Software Steering Committee ("Committee") which is responsible for the design of
all software of Purchase Pro, including the Software, and all alterations,
upgrades and updates thereto, together with the implementation of such changes
to the Software or other Purchase Pro software. In furtherance hereof,
ZoomTown.com shall be entitled to appoint one member of the Committee during the
term of this Agreement, with full power as is granted all other members.
Confidential
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<PAGE>
PURCHASE PRO INTERNATIONAL, INC. ZOOMTOWN.COM
(Purchase Pro)
BY:
Signature: /s/ CHARLES JOHNSON JR. Signature: /s/ MICHAEL O'BRIEN
----------------------- ---------------------------
Typed Name: Charles Johnson, Jr. Typed Name: Michael O'Brien
----------------------- --------------------------
Title: Chief Executive Officer Title: President ZoomTown.com
-------------------------- --------------------------------
Date: 5/19/99 Date: 5/19/99
---------------------------- --------------------------------
E-MARKETPRO, LLC
(E-MarketPro)
BY:
Signature: /s/ BRADLEY REDMON
-----------------------
Typed Name: Bradley Redmon
-----------------------
Title: Sole Member
---------------------------
Date: 5/19/99
----------------------------
Confidential
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<PAGE>
Exhibit A
---------
Confidential
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<PAGE>
Exhibit B
---------
List of the Purchase Pro House Account Customers
------------------------------------------------
as of the Effective Date
------------------------
Office Depot
CompUSA
HPS & Affiliates
Marriott
Hilton
Meristar
Starwood
Best Western
Orlando Chamber of Commerce (Orlando, FL)
Phoenix Chamber of Commerce (Phoenix, AZ)
Confidential
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<PAGE>
Exhibit C
---------
Confidential
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<PAGE>
Exhibit D
---------
Confidential
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<PAGE>
EXHIBIT 10.17
PROMISSORY NOTE
PRINCIPAL AMOUNT: $550,000.00
MAKER: PurchasePro.com, Inc.
DATE: September 2, 1999
1. FOR VALUE RECEIVED, PURCHASEPRO.COM, INC. (the "Borrower"), hereby promises
to pay to the order of CHARLES E. JOHNSON, JR. (the "Lender"), the sum of
Five Hundred Fifty Thousand Dollars ($550,000.00), or so much thereof as
may be outstanding under this Note. The outstanding principal amount of
this Note shall bear interest from the date of any advance(s) of principal
at the rate of ten percent (10%) per annum. Interest shall be calculated
on the actual number of days elapsed on the basis of an assumed year of 365
days. All accrued interest and principal shall be due and payable on March
31, 2000.
2. Borrower may prepay the Note in full or in part at any time without a
prepayment penalty.
3. All rights and remedies of Lender under this Note and under any applicable
law or at equity, are and shall be cumulative to the greatest extent
permitted by law. Any delay or failure of Lender or the holder hereof to
insist upon strict performance of any of the terms of this Note, or to
exercise any rights herein conferred shall not be construed as a waiver or
relinquishment to any extent of Lender's or the holder's right to assert or
rely upon such terms or rights at any subsequent time or in any other
instance.
4. Borrower shall pay to the Lender or the holder hereof all costs and
expenses incurred by Lender or the holder hereof in connection with the
collection or attempted collection of the sums due hereunder including,
without limitation, reasonable attorneys' fees.
5. This Note may not be modified, altered or amended except by an agreement in
writing duly signed and acknowledged by Lender.
6. This Note shall bind the successors and assigns of Borrower and shall inure
to the benefit of Lender and his successors and assigns. Borrower shall
not assign or allow the assumption of its rights and obligations hereunder
without Lender's prior written consent.
7. This Note shall be construed in accordance with and governed by the laws of
the state of Nevada.
PURCHASEPRO.COM, INC.
By: /s/ Christopher P. Carton
-------------------------------------
Christopher P. Carton,
President and Chief Operating Officer
<PAGE>
EXHIBIT 10.18
LOAN COMMITMENT
This Loan Commitment is made and entered into effective September 3, 1999,
by and between PURCHASEPRO.COM, INC., a Nevada corporation, with its principal
office and place of business at 3291 N. Buffalo Drive, Las Vegas, NV 89129
("Company") and (herein "Lender").
1. Commitment to Lend. Lender hereby agrees to lend to Company the sum
------------------
of Five Hundred Thousand Dollars ($500,000) (the "Loan") or as much thereof as
the Company requests be advanced to it by Lender while this commitment is in
effect. Advances to the Company shall be made upon written request to the
Lender, with such advance to be made within 24 hours of such request by wire
transfer to the Company's bank account identified to Lender.
2. Availability of Loan. Lender and Company agree that the Loan shall
--------------------
be unconditionally available to be drawn upon by Company from September 15, 1999
to December 31, 1999, during which time Company may draw upon the Loan up to the
maximum amount stated above. Provided, however, the Company's ability to draw on
the Loan shall terminate upon the Company's receipt of proceeds from its planned
initial public offering.
3. Interest and Repayment. Interest shall accrue on the outstanding
----------------------
advances at the rate of 15% per annum, with all interest and principal payable
at maturity which is the earlier of: (i) March 31, 2000, or (ii) the date of the
Company's receipt of proceeds from its planned initial public offering. .
4. Notices. All notices and other communications given to or made upon
-------
any party hereto in connection with this Agreement shall be in writing and
mailed, faxed, emailed, or delivered to the addresses set forth on page 1
hereof, or at such other address as shall be specifically designated by any such
party.
5. Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereto and thereto shall be governed by and construed and enforced in
accordance with the substantive law of the State of Nevada.
6. Entire Agreement. This Agreement constitutes the entire agreement and
----------------
the understanding between the parties with respect to the subject matter hereof
and supersedes all other previous and contemporaneous negotiations and
agreements between the parties and no parole evidence of any prior or other
agreements shall be permitted to contradict or vary the terms of this Agreement.
Any amendment to this Agreement must be in writing.
<PAGE>
-2-
7. Counterpart Execution. This Agreement may be signed by each party
---------------------
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signature of each party. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement or the terms thereof to produce or account for more than one of such
counterparts.
LENDER
/s/ John G. Chiles
- ---------------------------------
John G. Chiles
PURCHASEPRO.COM, INC.
By: /s/ Christopher P. Carton
-------------------------------------
Christopher P. Carton
President and Chief Operating Officer
<PAGE>
EXHIBIT 10.19
LOAN COMMITMENT
This Loan Commitment is made and entered into effective September 3, 1999,
by and between PURCHASEPRO.COM, INC., a Nevada corporation, with its principal
office and place of business at 3291 N. Buffalo Drive, Las Vegas, NV 89129
("Company") and (herein "Lender").
1. Commitment to Lend. Lender hereby agrees to lend to Company the sum
------------------
of One Million Dollars ($1,000,000) (the "Loan") or as much thereof as the
Company requests be advanced to it by Lender while this commitment is in effect.
Advances to the Company shall be made upon written request to the Lender, with
such advance to be made within 24 hours of such request by wire transfer to the
Company's bank account identified to Lender.
2. Availability of Loan. Lender and Company agree that the Loan shall
--------------------
be unconditionally available to be drawn upon by Company from October 1, 1999 to
October 31, 1999, during which time Company may draw upon the Loan up to the
maximum amount stated above. Provided, however, the Company's ability to draw on
the Loan shall terminate upon the Company's receipt of proceeds from its planned
initial public offering.
3. Commitment Fee, Interest and Repayment. Company shall pay to Lender a
--------------------------------------
fee equal to 2% of the maximum loan amount, which shall be due and payable
whether or not any advances hereunder are requested by Company, which fee shall
be due and payable on the earlier of (i) the date of the first advance to the
Company hereunder, or (ii) the date the Company receives the proceeds from an
initial public offering of stock on the NASDAQ. Interest shall accrue on the
outstanding advances at the rate of 15% per annum, with all interest and
principal payable at maturity which is the earlier of: (i) March 31, 2000, or
(ii) the date of the Company's receipt of proceeds from its planned initial
public offering.
4. Warrants to Lender. As additional consideration to Lender, Company
------------------
hereby grants to Lender a warrant to purchase for $0.01 per share, shares of the
Company's common stock equal to [(i) the total amount of principal advanced to
Company by Lender under this commitment divided by (ii) One Million Dollars
($1,000,000.00)] multiplied by 70,000. Such shares shall be subject to
restrictions on transfer reasonably required by the Company for the purpose of
completing the planned initial public offering. This warrant must be exercised
by Lender on or before March 31, 2000, by written notice to the Company.
5. Notices. All notices and other communications given to or made upon
-------
any party hereto in connection with this Agreement shall be in writing and
mailed, faxed, emailed, or delivered to the addresses set forth on page 1
hereof, or at such other address as shall be specifically designated by any such
party.
6. Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereto and thereto shall be governed by and construed and enforced in
accordance with the substantive law of the State of Nevada.
7. Entire Agreement. This Agreement constitutes the entire agreement and
----------------
the understanding between the parties with respect to the subject matter hereof
and supersedes all other previous and contemporaneous negotiations and
agreements between the parties and no parole evidence of any prior or
<PAGE>
-2-
other agreements shall be permitted to contradict or vary the terms of this
Agreement. Any amendment to this Agreement must be in writing.
<PAGE>
-3-
8. Counterpart Execution. This Agreement may be signed by each party
---------------------
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signature of each party. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement or the terms thereof to produce or account for more than one of such
counterparts.
LENDER
/s/ Maurice J. Gallagher
- -----------------------------------------
Maurice J. Gallagher
PURCHASEPRO.COM, INC.
By: /s/ Christopher P. Carton
--------------------------------------
Christopher P. Carton
President and Chief Operating Officer
<PAGE>
EXHIBIT 10.20
LOAN COMMITMENT
This Loan Commitment is made and entered into effective September 3, 1999,
by and between PURCHASEPRO.COM, INC., a Nevada corporation, with its principal
office and place of business at 3291 N. Buffalo Drive, Las Vegas, NV 89129
("Company") and (herein "Lender").
1. Commitment to Lend. Lender hereby agrees to lend to Company the sum
------------------
of Five Hundred Thousand Dollars ($500,000) (the "Loan") or as much thereof as
the Company requests be advanced to it by Lender while this commitment is in
effect. Advances to the Company shall be made upon written request to the
Lender, with such advance to be made within 24 hours of such request by wire
transfer to the Company's bank account identified to Lender.
2. Availability of Loan. Lender and Company agree that the Loan shall
--------------------
be unconditionally available to be drawn upon by Company from September 15, 1999
to December 31, 1999, during which time Company may draw upon the Loan up to the
maximum amount stated above. Provided, however, the Company's ability to draw on
the Loan shall terminate upon the Company's receipt of proceeds from its planned
initial public offering.
3. Interest and Repayment. Interest shall accrue on the outstanding
----------------------
advances at the rate of 15% per annum, with all interest and principal payable
at maturity which is the earlier of: (i) March 31, 2000, or (ii) the date of the
Company's receipt of proceeds from its planned initial public offering. .
4. Notices. All notices and other communications given to or made upon
-------
any party hereto in connection with this Agreement shall be in writing and
mailed, faxed, emailed, or delivered to the addresses set forth on page 1
hereof, or at such other address as shall be specifically designated by any such
party.
5. Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereto and thereto shall be governed by and construed and enforced in
accordance with the substantive law of the State of Nevada.
6. Entire Agreement. This Agreement constitutes the entire agreement and
----------------
the understanding between the parties with respect to the subject matter hereof
and supersedes all other previous and contemporaneous negotiations and
agreements between the parties and no parole evidence of any prior or other
agreements shall be permitted to contradict or vary the terms of this Agreement.
Any amendment to this Agreement must be in writing.
<PAGE>
-2-
7. Counterpart Execution. This Agreement may be signed by each party
---------------------
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signature of each party. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement or the terms thereof to produce or account for more than one of such
counterparts.
LENDER
/s/ Charles E. Johnson, Jr.
- --------------------------------
Charles E. Johnson, Jr.
PURCHASEPRO.COM, INC.
By: /s/ Christopher P. Carton
-------------------------------------
Christopher P. Carton
President and Chief Operating Officer
<PAGE>
EXHIBIT 10.21
LOAN COMMITMENT
This Loan Commitment is made and entered into effective September 3, 1999,
by and between PURCHASEPRO.COM, INC., a Nevada corporation, with its principal
office and place of business at 3291 N. Buffalo Drive, Las Vegas, NV 89129
("Company") and (herein "Lender").
1. Commitment to Lend. Lender hereby agrees to lend to Company the sum
------------------
of Five Hundred Thousand Dollars ($500,000) (the "Loan") or as much thereof as
the Company requests be advanced to it by Lender while this commitment is in
effect. Advances to the Company shall be made upon written request to the
Lender, with such advance to be made within 24 hours of such request by wire
transfer to the Company's bank account identified to Lender.
2. Availability of Loan. Lender and Company agree that the Loan shall
--------------------
be unconditionally available to be drawn upon by Company from September 15, 1999
to December 31, 1999, during which time Company may draw upon the Loan up to the
maximum amount stated above. Provided, however, the Company's ability to draw on
the Loan shall terminate upon the Company's receipt of proceeds from its planned
initial public offering.
3. Interest and Repayment. Interest shall accrue on the outstanding
----------------------
advances at the rate of 15% per annum, with all interest and principal payable
at maturity which is the earlier of: (i) March 31, 2000, or (ii) the date of the
Company's receipt of proceeds from its planned initial public offering. .
4. Notices. All notices and other communications given to or made upon
-------
any party hereto in connection with this Agreement shall be in writing and
mailed, faxed, emailed, or delivered to the addresses set forth on page 1
hereof, or at such other address as shall be specifically designated by any such
party.
5. Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereto and thereto shall be governed by and construed and enforced in
accordance with the substantive law of the State of Nevada.
6. Entire Agreement. This Agreement constitutes the entire agreement and
----------------
the understanding between the parties with respect to the subject matter hereof
and supersedes all other previous and contemporaneous negotiations and
agreements between the parties and no parole evidence of any prior or other
agreements shall be permitted to contradict or vary the terms of this Agreement.
Any amendment to this Agreement must be in writing.
<PAGE>
-2-
7. Counterpart Execution. This Agreement may be signed by each party
---------------------
upon a separate copy, and in such case one counterpart of this Agreement shall
consist of enough of such copies to reflect the signature of each party. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement or the terms thereof to produce or account for more than one of such
counterparts.
LENDER
/s/ Bradley D. Redmon
- -------------------------------
Bradley D. Redmon
PURCHASEPRO.COM, INC.
By: /s/ Christopher P. Carton
-------------------------------------
Christopher P. Carton
President and Chief Operating Officer
<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
September 3, 1999
