<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TELCOBUY.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5065 43-1881103
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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127 WELDON PARKWAY
ST. LOUIS, MISSOURI 63043-3101
(314) 301-2700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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JAMES P. KAVANAUGH
TELCOBUY.COM, INC.
127 WELDON PARKWAY
ST. LOUIS, MISSOURI 63043-3101
(314) 301-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES OF ALL CORRESPONDENCE TO:
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JAMES A. KEARNS LELAND E. HUTCHINSON
MICHAEL I. OBERLANDER WINSTON & STRAWN
BRYAN CAVE LLP 35 WEST WACKER DRIVE
ONE METROPOLITAN SQUARE CHICAGO, ILLINOIS 60601-9703
211 NORTH BROADWAY, SUITE 3600 (312) 558-5600
ST. LOUIS, MISSOURI 63102-2750 (312) 558-5700 (FAX)
(314) 259-2000
(314) 259-2020 (FAX)
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.01 par value per share................. $100,000,000 $26,400
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933 and includes shares
that may be purchased by the underwriters to cover over-allotments, if any.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE 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 SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 17, 2000
[TELCOBUY.COM LOGO]
SHARES
COMMON STOCK
telcobuy.com, Inc. is offering shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "TBUY." We anticipate that the initial
public offering price will be between $ and $ per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to telcobuy.com, Inc............................... $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
SG COWEN
U.S. BANCORP PIPER JAFFRAY
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 3
Inside Front Cover
Text: "Where do multi-billion dollar telecommunications giants, emerging
CLECs and contractors do their buying, selling and collaboration?
telcobuy.com - The premier B2B marketplace to the service provider
community."
Inside Front Cover Graphic
Description: Graphic of marketplace participants with two-way arrows between
participants and telcobuy.com name and logo.
Text: List of representative marketplace customers and suppliers on right
side of page; telcobuy.com name and logo on bottom of page; legend
explaining marketplace participant abbreviations.
<PAGE> 4
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "COMPANY,"
"TELCOBUY.COM," "WE," "US" AND "OUR" REFER TO TELCOBUY.COM, INC., A DELAWARE
CORPORATION, AS SUCCESSOR TO TELCOBUY.COM LLC.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 24
Management.................................................. 34
Related Party Transactions.................................. 40
Principal Stockholders...................................... 44
Description of Capital Stock................................ 46
Shares Eligible for Future Sale............................. 50
Underwriting................................................ 52
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find More Information......................... 54
Index to Financial Statements............................... F-1
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We have applied to the U.S. Patent and Trademark Office for registration of
"telcobuy.com" and the design of our logo. All other trademarks and service
marks mentioned in this prospectus are the property of their respective owners.
All references in this prospectus to the financial statements of
telcobuy.com are to the financial statements of telcobuy.com LLC. Unless
otherwise indicated, all information contained in this prospectus assumes that
telcobuy.com LLC has merged into telcobuy.com, Inc. and that the underwriters'
over-allotment option is not exercised.
<PAGE> 5
SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding us and the
common stock being sold in this offering.
OUR COMPANY
We provide a comprehensive, vendor-neutral, Internet-based,
business-to-business marketplace for the buying and selling of
telecommunications infrastructure products and services. Our marketplace helps
participants build-out and upgrade telecommunications networks more quickly,
more efficiently and at a lower cost than by traditional means. We have a
proven, scalable operating model as evidenced by our revenue growth from $53.0
million in 1998 to $246.1 million in 1999. Our vendor-neutral approach creates
an open marketplace that allows telecommunications companies access to a
comprehensive database that aggregates over 500,000 products representing over
1,000 different suppliers. Led by a management team with extensive experience in
the telecommunications industry, we have attracted industry leading participants
to our marketplace, including SBC Communications, Inc., GTE Corporation, Fujitsu
Network Communications, Inc., Lucent Technologies, Inc. and Tellabs, Inc.
The telecommunications infrastructure market has experienced tremendous
change in recent years. Increased carrier competition, expanded service
offerings, the emergence of the Internet, increased demand for bandwidth,
advancements in technology and the convergence of voice and data have all placed
new pressure on telecommunications providers to quickly build-out networks to
meet the growing demands of the market. Dataquest, a leading technology market
research firm, estimates that the market for telecommunications infrastructure
equipment will be $277 billion in 2000. As telecommunications companies attempt
to meet increasing time-to-market demands, their progress is hindered by manual
and paper-based processes, a fragmented supplier base and other limitations
inherent in the traditional procurement process.
Our marketplace provides multiple benefits to purchasers and suppliers,
including:
- bringing market participants together to transact business;
- enabling participants to gain quick and complete access to information
about the market and their own procurement processes;
- providing participants with a forum for sharing market knowledge; and
- creating customized business processes to meet the needs of both
purchasers and suppliers.
Our strategic objective is to become the leading marketplace for
telecommunications infrastructure products and services. We intend to achieve
this objective through the following strategies:
Capitalize on First Mover Advantage and Build Brand Equity. We believe
that we are the first provider of a comprehensive, Internet-based solution to
all participants in the telecommunications industry and we intend to increase
our brand equity and visibility within the market by significantly increasing
our investment in sales and marketing.
Increase and Leverage Recurring Marketplace Participation. Many large
purchasers and suppliers transact business with us on a recurring basis and we
believe that we can increase the volume of transactions and leverage our
existing relationships to attract new participants.
Extend Our Technology Leadership Position. We intend to expand our
front-end and back-office technology, including our use of extensible markup
language (XML) technology, to attract more participants to our marketplace.
Expand Our Service Offerings. We intend to introduce new services to
further engage and support existing participants of our marketplace, all of
which will be structured to save time, effort and money.
Expand Into International Markets. We intend to expand into international
markets and to leverage our existing technology to attract service providers,
contractors and engineers in Europe, Latin America and Asia to our marketplace.
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CORPORATE INFORMATION
Prior to October 1999, we operated as a division of World Wide Technology,
Inc., our majority stockholder. In October 1999, we began operating as a
separate limited liability company. We formed a separate corporation in March
2000, and prior to the completion of this offering we will merge telcobuy.com
LLC into telcobuy.com, Inc. Our principal executive offices are located at 127
Weldon Parkway, St. Louis, Missouri 63043-3101, and our telephone number is
(314) 301-2700. The address of our Web site is www.telcobuy.com. The information
contained on our Web site is not part of this prospectus.
THE OFFERING
Common stock offered by telcobuy.com.... shares
Common stock to be outstanding after the
offering................................ shares
Use of proceeds......................... We intend to use the net proceeds
from this offering to redeem the
shares of our preferred stock, to
repay certain indebtedness, to pay
a licensing fee and for working
capital and general corporate
purposes. See "Use of Proceeds" on
page 15.
Proposed Nasdaq National Market
symbol.................................. TBUY
The number of shares to be outstanding after the offering is based on
shares outstanding as of March 16, 2000 and excludes:
- 1,790,750 shares of common stock issuable upon the exercise of
options outstanding under our Unit Option Plan at an exercise price
of $4.05 per share and 2,709,250 additional shares of common stock
reserved for issuance under this plan; and
- 2,500,000 shares reserved for issuance under our 2000 Stock Option
Plan.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS)
You should read the following summary financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which are included
elsewhere in this prospectus. Prior to October 1999, we operated as a division
of World Wide Technology, and summary financial data from January 1, 1997
through September 30, 1999 are derived from the financial statements of World
Wide Technology. Our Statements of Operations, Statements of Shareholder's Net
Investment/Members' Equity and Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and our Balance Sheets as of December 31, 1998
and 1999 have been audited by KPMG LLP. The financial information of
telcobuy.com, when we operated as a division of World Wide Technology, is not
necessarily indicative of the results of operation, financial position and cash
flows of telcobuy.com had it been a separate entity at such times. It is also
not necessarily indicative of our future results of operations, financial
position and cash flows. The summary financial data set forth below for the
periods ended December 31, 1997, 1998 and 1999 has been derived from our audited
financial statements included elsewhere in this prospectus.
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YEAR ENDED DECEMBER 31,
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1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Revenues................................................... $19,328 $52,962 $246,133
Cost of revenues........................................... 17,481 50,356 235,169
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Gross profit............................................... 1,847 2,606 10,964
------- ------- --------
Total operating expenses................................... 1,152 2,679 7,864
------- ------- --------
Operating income (loss).................................... 695 (73) 3,100
------- ------- --------
Net income (loss).......................................... $ 339 $ (188) $ 1,589
======= ======= ========
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DECEMBER 31, 1999
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ACTUAL AS ADJUSTED(1)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $
Working capital............................................. 1,693
Total assets................................................ 115,369
Shareholder's net investment/members' equity................ 1,693
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(1) As adjusted amounts give effect to the sale by us of shares of
common stock offered hereby at an offering price of $ , after deducting
underwriting discounts and commissions and estimated offering expenses.
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RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition would likely suffer.
In these circumstances, the market price of our common stock could decline, and
you may lose all or part of the money you paid to buy our common stock.
RISKS RELATED TO OUR BUSINESS
OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE IN FUTURE PERIODS, WHICH MIGHT
LEAD TO REDUCED PRICES FOR
OUR STOCK.
Our annual or quarterly operating results are difficult to predict and are
likely to fluctuate significantly in the future as a result of numerous factors,
many of which are outside of our control. Factors that could impact our
operating results include:
- our limited operating history;
- variations in purchasing patterns due to purchasers' budgets, seasonality
and other factors;
- the rate at which telecommunications carriers install their equipment;
- decreases in our selling prices due to competition;
- our ability to obtain products cost-effectively from original equipment
manufacturers and distributors of telecommunications equipment;
- our ability to provide equipment and service offerings on a timely basis
to satisfy purchaser demand;
- inventory write-offs;
- the sales cycle for equipment we sell, which can be relatively lengthy;
- delays in penetrating new markets and geographic regions; and
- costs relating to possible acquisitions and integration of new
businesses.
For example, our net revenue decreased in the quarter ended September 30,
1998 compared to our net revenue for the quarter ended June 30, 1998. If our
annual or quarterly operating results do not meet the expectations of securities
analysts and investors, the trading price of our stock could significantly
decline.
OUR E-COMMERCE BUSINESS MODEL IS NEW AND MAY NOT BE SUCCESSFUL.
Our business-to-business e-commerce model is based on the development of
our marketplace for the purchase and sale of telecommunications infrastructure
products. This business model is new and its success depends upon our ability
to, among other things:
- develop and market solutions that are widely accepted by purchasers and
suppliers;
- maintain our current suppliers and enter into agreements with additional
suppliers;
- generate significant revenues from the use of our Internet-based
purchasing solution; and
- obtain higher transaction volumes and increase productivity.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. We cannot be
certain that business-to-business commerce on the Internet in general, or our
marketplace in particular, will achieve broad market acceptance. For example,
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purchasers may continue purchasing products through their existing methods and
may not adopt an Internet-based purchasing solution because of:
- their comfort with existing purchasing habits and direct supplier
relationships;
- the costs and resources required to switch purchasing methods;
- the need for products not offered through our marketplace;
- security and privacy concerns; or
- general reticence about technology or the Internet.
If we are unable to successfully motivate a broad range of purchasers and
suppliers of telecommunications infrastructure products and services to adopt
our e-commerce solution, or if we incur substantial expenses in attempting to do
so, our revenues and earnings could be materially and adversely affected.
WE RELY ON A LIMITED NUMBER OF LARGE PURCHASERS FOR A SIGNIFICANT PORTION OF OUR
REVENUES AND LOSING ANY ONE OF THEM MAY ADVERSELY AFFECT OUR REVENUES.
We expect that for the foreseeable future we will generate a significant
portion of our revenues from three purchasers, SBC Communications, Inc., Bell
Atlantic Corporation and GTE Corporation. These three purchasers represented 94%
of our revenues in 1999. We have several agreements with SBC Communications, the
earliest of which expires in December 2001. Our agreement with GTE expires in
November 2002, and our agreement with Bell Atlantic expires in January 2002.
However, these agreements can be terminated by the respective purchasers upon
little or no notice.
We may not be able to keep SBC Communications, Bell Atlantic and GTE as
purchasers in the future. The loss or partial loss of any of these purchasers
would significantly diminish our revenues and operating results and harm our
reputation, forcing us to curtail our growth plans and incur greater losses.
Even if we keep one or all of these customers, we may not be successful in
growing and diversifying our purchaser base.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH OUR LARGE SUPPLIERS OR LIST
A BROAD RANGE OF PRODUCTS AND SERVICES, OUR MARKETPLACE WILL BE LESS ATTRACTIVE
TO POTENTIAL PURCHASERS.
In 1999, Fujitsu and Lucent accounted for 88% of the total supply of
products purchased through our marketplace. Many of our supplier agreements,
including those with Fujitsu and Lucent, may be terminated by either party on
little or no notice or our suppliers may seek to renegotiate their agreements
which may result in new agreement terms that are less favorable to us. If a
significant number of suppliers terminate their agreements with us, the range of
products we can offer would be adversely affected. Moreover, if suppliers
consolidate or sign exclusive arrangements with our competitors, it could
significantly reduce the number of products and services listed on our
marketplace. If we are unable to maintain our relationships with our large
suppliers or the number of products and services that are available for listing
is reduced, the effectiveness of our marketplace and its attractiveness to
potential purchasers could be materially and adversely affected.
WE ANTICIPATE FUTURE LOSSES.
Although we achieved a profit for the years 1997 and 1999, we anticipate
future losses. In an effort to increase market share and expand our supplier
base, we expect to incur significant sales and marketing and other operational
expenses. We may also incur expenses in connection with acquisitions or other
strategic relationships. As a result of these expenses, we will need to generate
significant revenue increases to achieve and maintain profitability. We expect
that we will incur significant losses for the next two years, and losses may
continue.
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IF WE DO NOT SUCCESSFULLY MARKET THE TELCOBUY.COM BRAND, OUR BUSINESS MAY
SUFFER.
We believe that establishing, maintaining and enhancing the telcobuy.com
brand is critical in attracting participants to our marketplace. We believe that
increased competition may make establishing our brand significantly more
expensive. The promotion of our brand will depend largely on expanding our sales
and marketing capabilities and providing a high-quality online experience. We
intend to use a portion of the net proceeds of this offering to expand our sales
and marketing activities and further develop our online services. We cannot be
certain that we will be successful in marketing the telcobuy.com brand. If we
are unable to successfully promote our brand, or if we incur substantial
expenses in attempting to do so, our revenues and earnings could be materially
and adversely affected.
IF WE ARE UNABLE TO INCREASE OUR TRANSACTION VOLUME, OUR FUTURE REVENUES MAY
SUFFER.
Our revenues are dependent on the dollar volume of transactions conducted
through our marketplace. To maintain revenue growth, we will need to increase
the total dollar value of transactions conducted through our marketplace. In
order to increase our transaction volume, we will need to:
- generate higher and continuously increasing levels of traffic to our
marketplace from both new and repeat visitors;
- increase the percentage of visitors to our marketplace who purchase
telecommunications infrastructure products and services; and
- increase the average transaction size.
Failure to do one or more of the foregoing could have a material adverse effect
on our revenues.
SHOULD WE BE UNABLE TO MAINTAIN OUR STATUS AS A CERTIFIED MINORITY/WOMAN-OWNED
BUSINESS ENTERPRISE (MWBE) CONTRACTOR, IT COULD MATERIALLY ADVERSELY IMPACT OUR
REVENUE.
We are a certified MWBE. As such, certain business opportunities are made
available to us that may not otherwise be made available, or we may be selected
for a program or contract where we otherwise may not have been chosen, because
of our MWBE status. Should this status or certification no longer be available
to us -- because of changes in the political or regulatory environment or
because our certification is terminated -- or should purchasers require
standards higher than those required to maintain this certification, it may have
a material adverse impact on our revenue.
IF WE ARE NOT ABLE TO SUCCESSFULLY INTEGRATE OUR SYSTEM WITH THE INTERNAL
SYSTEMS OF OUR KEY SUPPLIERS AND PURCHASERS, OUR OPERATING COSTS AND
RELATIONSHIPS WITH OUR SUPPLIERS AND PURCHASERS WILL BE ADVERSELY AFFECTED.
The key benefits of our marketplace are the efficiencies created for
suppliers and purchasers through our online system. In order to create these
efficiencies, it will often be necessary for our system to integrate with each
supplier's and purchaser's internal systems, such as inventory, customer
service, technical service, freight programs and financial systems. In addition,
because there is little uniformity in the systems used by our suppliers and
purchasers, we must expend resources to download a significant amount of data in
order to integrate our system with our suppliers' and purchasers' systems. If
these systems are not successfully integrated, our operating costs and
relationships with our suppliers and purchasers would be adversely affected.
IF WE ARE UNABLE TO ADAPT OUR SERVICES TO RAPID CHANGES IN ONLINE COMMERCE, OUR
REVENUES AND PROFITS COULD BE ADVERSELY AFFECTED.
The Internet and the online commerce industry undergo rapid changes in
technology, products and services and operating standards. These changes could
render our Web site and proprietary technology and
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system obsolete. We must continually improve the performance, features and
reliability of our online services, particularly in response to our competition.
Our success will depend, in part, on our ability to:
- enhance our existing services;
- develop new services and technology that address the increasingly
sophisticated and varied needs of our target markets; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
We cannot be certain that we will accomplish the foregoing. If we are
unable, for technical, legal, financial or other reasons, to adapt to changing
market conditions or purchaser requirements, our market share could be
materially adversely affected.
IF OUR WEB SITE AND TRANSACTION PROCESSING SYSTEM ARE NOT ABLE TO ADEQUATELY
SERVICE INCREASING TRAFFIC LEVELS, OUR ABILITY TO SATISFY PURCHASERS AND
MAINTAIN REVENUE GROWTH MAY SUFFER.
Our success depends in large part on the number of purchasers who use our
marketplace to purchase telecommunications infrastructure products and services.
Accordingly, our Web site, transaction-processing system and network
infrastructure must be able to service increasing traffic levels while
maintaining adequate purchaser service levels. Any system interruptions or
delays in our transaction system would reduce the volume of sales and the
attractiveness of our service offerings, which could have a material adverse
effect on our customer satisfaction and our ability to maintain revenue growth.
We have experienced infrequent system interruptions in the past during
implementation of system upgrades. These interruptions could continue to occur
from time to time and could have a material adverse effect on our service
offerings. Substantial increases in the transaction volume and traffic on our
Web site will require expansion and upgrades of our technology,
transaction-processing system and network infrastructure. We cannot be certain
that our transaction-processing system and network infrastructure will be able
to accommodate increased traffic in the future.
WE MAY FAIL TO CONTINUE TO ATTRACT, DEVELOP AND RETAIN KEY MANAGEMENT AND OTHER
PERSONNEL, WHICH COULD NEGATIVELY IMPACT OUR OPERATING RESULTS.
We depend on the performance of our senior management and other key
employees. The loss of any member of our senior management or other key
employees could negatively impact our operating results and our ability to
execute our business strategy. In addition, we depend on our sales professionals
to promote our marketplace. The loss of any of our sales professionals could
significantly disrupt our business relationships. We do not have "key person"
life insurance policies on any of our employees except for Mr. Kavanaugh.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in the Internet and
telecommunications infrastructure industries is intense. Additionally, we depend
on our ability to train and develop skilled technical and sales personnel and an
inability to do so would significantly harm our growth prospects and operating
performance. We have experienced, and we expect to continue to experience,
difficulty in hiring and retaining highly skilled employees.
IF WE FAVOR ONE SUPPLIER OVER ANOTHER, WE MAY BE NOT BE ABLE TO ATTRACT
PURCHASERS AND SUPPLIERS TO OUR MARKETPLACE.
The telecommunications infrastructure market consists of a complex set of
relationships among manufacturers, suppliers, distributors and purchasers.
Adoption of our solution by suppliers and purchasers is dependent on their
perception that we provide a neutral, unbiased marketplace to purchase and sell
telecommunications infrastructure products and services. If we favor one
supplier over another, purchasers and suppliers may lose confidence in our
marketplace as a neutral marketplace and choose alternative solutions. If we
accept advertising from our suppliers we may be perceived as favoring suppliers
who advertise over those who do not. Any bias, whether perceived or actual,
could have a negative impact on our ability to maintain or
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increase our supplier base, which in turn may limit our ability to maintain or
increase our purchaser base. This would reduce our revenues and therefore have a
negative impact on our business, results of operations and financial condition.
THE TIME IT TAKES TO SELL AND IMPLEMENT OUR SOLUTION CAN BE LONG, WHICH COULD
NEGATIVELY AFFECT OUR REVENUES AND MAKE IT DIFFICULT TO PREDICT OUR RESULTS OF
OPERATIONS.
The time it takes to sell and implement our solution can be long and we
devote significant sales, marketing and management resources to the sales
process without any assurance that the purchaser will use our marketplace.
Generally, we are required to provide a significant level of education to
potential purchasers regarding the use and benefits of our Internet-based
purchasing solution. Furthermore, potential purchasers typically engage in
extensive internal reviews and analyses before making purchase decisions. The
sale and implementation of our solution are subject to delays due to factors
over which we have little or no control, including the following:
- potential purchasers' internal budgetary approval processes;
- implementation of systems integration solutions;
- purchasers' concerns about implementing a new strategy and method of
doing business; and
- seasonal and other timing effects.
Increasing sales to larger purchasers is an important element of our
business strategy. As we sell more sophisticated solutions to larger
organizations, we expect the time from initial contact to final approval to
increase. As the sales cycle lengthens, we expend substantial funds and
management resources without any corresponding revenue. If approval is delayed
or does not occur, our financial condition and operating results for a
particular period may be adversely affected. Increased sales to larger
purchasers may result in lower profit margins as they typically have greater
leverage in negotiating pricing and other business terms. We also typically
incur costs associated with customization of our systems for larger purchasers.
If we do not generate sufficient transaction volume to offset any lower margins
or these increased costs, our operating results may be materially and adversely
affected. Also, the time between billing and receipt of revenues is often longer
when dealing with larger purchasers due to increased administrative overhead.
UNLESS WE NEGOTIATE FAVORABLE PRICING TERMS WITH OUR SUPPLIERS, OUR PROFIT
MARGINS WILL BE ADVERSELY AFFECTED.
Our profits depend upon the prices we are able to negotiate with our
suppliers. We anticipate that the prices we negotiate with our suppliers will
vary based on a number of factors such as:
- the size of supplier and its product portfolio;
- suppliers' relationships with telcobuy.com purchasers;
- the degree to which products and services are critical to purchasers;
- the extent to which transactions are conducted electronically; and
- the extent to which costs are shared with us.
Our profit margins may decline in the future, particularly as competition
in the telecommunications infrastructure industry increases. A significant
decline in profit margins without a corresponding increase in transaction volume
would adversely affect our earnings.
WE BEAR THE RISK OF CREDIT SALES, WHICH COULD PUT A SIGNIFICANT STRAIN ON OUR
LIQUIDITY AND CAPITAL RESOURCES.
Our supplier agreements generally require us to pay the supplier for any
orders processed through our marketplace. Accordingly, we are obligated to pay
the supplier even if a purchaser fails to pay us for the products it purchased.
Thus, we bear the risk of collection. We also may be required to refund payments
to
8
<PAGE> 13
purchasers for products returned to suppliers. Slow payment by purchasers for
products purchased would negatively impact our cash flows. As our transaction
volume and average transaction size grow, these risks will increase. If a
significant number of purchasers default on their payment obligations, suppliers
fail to refund payments to us for products returned by purchasers or if
purchasers do not pay their obligations to us on time, we could incur
significant and immediate cash payment obligations or suffer significant cash
flow constraints. These obligations could put a significant strain on our
liquidity and capital resources, which could prevent us from using our working
capital to further expand our business or require us to obtain additional
financing.
TO THE EXTENT WE RELY ON THIRD-PARTY SUPPLIERS AND CARRIERS TO FULFILL ORDERS
FOR PURCHASERS, WE MAY NOT BE ABLE TO GUARANTEE CUSTOMER SATISFACTION.
We generally rely on our suppliers and carriers for rapid order fulfillment
and other customer service functions to ensure purchaser satisfaction. Although
suppliers frequently are responsible for product shipment, we designate the
carrier and are responsible for carrier charges. If our suppliers do not provide
high quality customer service, or our carriers fail to deliver products
accurately and on a timely basis, our business reputation and purchaser
satisfaction could be materially and adversely affected. Most of our supplier
arrangements do not guarantee the availability of merchandise. As a result, we
may not be able to control the fulfillment of purchasers' orders. In order to be
successful, we must maintain relationships with suppliers that will produce,
stock and deliver high quality products and services to purchasers through our
marketplace.
IN ADDITION TO THIS OFFERING, WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO FUND
FUTURE OPERATIONS AND THE FAILURE TO OBTAIN ADDITIONAL CAPITAL WHEN NEEDED OR ON
SATISFACTORY TERMS COULD DAMAGE OUR BUSINESS.
We may need to raise additional funds in the future in order to meet our
strategic objectives. If we raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our
stockholders will be reduced, stockholders may experience additional dilution
and these securities may have powers, preferences and rights that are senior to
those of the rights of our common stock. We cannot be certain that additional
financing will be available on terms favorable to us, if at all. Currently, our
bank credit facility restricts our ability to obtain additional equity or debt
financing. We cannot ensure that our lender, or any future lender, will consent
to our raising additional capital, or that we could find an alternative source
for working capital. If adequate funds are not available or not available on
acceptable terms, we may be unable to fund our future operations.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, OUR BUSINESS COULD
BE ADVERSELY AFFECTED.
Our software technology is not patented and existing copyright laws offer
only limited practical protection. We cannot guarantee that the legal
protections that we rely on will be adequate to prevent misappropriation of our
technology. Also, these protections do not prevent independent third-party
development of competitive products or services. Failure to protect against the
misappropriation of our intellectual property could have a material adverse
effect on our business operations.
WE ARE DEPENDENT ON PROPRIETARY TECHNOLOGY LICENSED FROM THIRD PARTIES, AND IF
WE LOSE SUCH LICENSES OUR BUSINESS COULD BE DAMAGED IF WE ARE UNABLE TO OBTAIN
COMPARABLE TECHNOLOGY IN THE FUTURE.
We license a portion of the technology for our system from third parties.
These third-party licenses may not be available to us on favorable terms, or at
all, in the future. In addition, we must be able to successfully integrate this
technology in a timely and cost-effective manner. If we fail to obtain necessary
technology on favorable terms or are unable to successfully integrate this
technology, it could have a material adverse effect on our business operations.
9
<PAGE> 14
OUR COMPUTER AND TELECOMMUNICATIONS SYSTEMS ARE IN A SINGLE LOCATION, WHICH
MAKES THEM MORE VULNERABLE TO DAMAGE OR INTERRUPTION.
Substantially all of our computer and telecommunications systems are
located at our St. Louis, Missouri campus. These systems are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
break-ins and similar events. While we have business interruption insurance,
this coverage may not adequately compensate us for lost business. Although we
have implemented network security measures, our systems, like all systems, are
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. These disruptions could lead to interruptions, delays, loss of data
or the inability to accept and confirm purchases.
RISKS RELATING TO OUR INDUSTRY
A DOWNTURN IN THE TELECOMMUNICATIONS INFRASTRUCTURE INDUSTRY OR A TREND TOWARD
REDUCING OR DELAYING ADDITIONAL EQUIPMENT PURCHASES COULD REDUCE DEMAND FOR OUR
PRODUCTS AND SERVICES.
We rely significantly upon purchasers concentrated in the
telecommunications infrastructure industry as a source of our revenues. We
believe that a downturn in the telecommunications infrastructure industry in
general or a decrease in carrier financial performance could result in
postponement of network upgrades and reduced sales to purchasers. If purchasers
choose to defer or curtail their capital spending programs, it could have a
negative impact on our sales, which would harm our business. A significant
portion of our growth will rely on sales to emerging telecommunications carriers
who compete against existing telephone companies. These new participants only
recently began to enter these markets, and many of these carriers are still
building their networks and implementing services. They require substantial
capital for the development, construction and expansion of their networks and
the introduction of their services. If these efforts are unsuccessful, carriers
could be forced to reduce their capital spending programs. These reduced sales
could negatively impact our ability to generate revenue.
THE MARKET FOR SUPPLYING EQUIPMENT TO TELECOMMUNICATIONS CARRIERS IS
COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
Competition among companies who supply equipment to telecommunications
carriers is intense. We currently face competition primarily from three sources:
original equipment manufacturers, distributors and secondary market dealers who
sell new and de-installed telecommunications equipment. If we are unable to
compete effectively against our current or future competitors, we may have to
lower our selling prices and may experience reduced gross margins and loss of
market share, either of which could harm our business. Competition is likely to
increase as new companies enter this market, as current competitors expand their
products and services or as our competitors consolidate.
ONLINE COMMERCE AND DATABASE SECURITY CONCERNS COULD ADVERSELY AFFECT TRAFFIC ON
OUR WEB SITE AND OUR REVENUES.
The secure transmission of confidential information over the Internet is a
fundamental requirement for online commerce. Concerns over the security of
transactions and commercial online services and other privacy issues may also
inhibit the growth of the Internet and the online commerce industry.
Technological advances, including new discoveries in the field of cryptography,
could result in a compromise or breach of our security systems. Security
breaches could have a material adverse effect on our reputation, financial
condition and results of operations. An intruder who breaches our security
measures could misappropriate proprietary information or cause interruptions in
our operations. We could be required to spend a significant amount of time and
money to protect against security breaches or to alleviate problems caused by
such breaches. Security breaches could also expose us to a risk of loss or
litigation and possible liability. We cannot be certain that our security
measures will prevent security breaches.
10
<PAGE> 15
ADDITIONAL REGULATION OF ONLINE COMMERCE COULD ADVERSELY AFFECT DEMAND FOR OUR
PRODUCTS AND SERVICES.
Currently, there are few laws and regulations directly applicable to the
Internet and online services. However, we expect that additional regulations may
be adopted covering issues such as user privacy, pricing, content, copyrights,
distribution, antitrust and the quality of products and services. In addition,
the growth and development of e-commerce may require more stringent purchaser
protection laws imposing additional burdens on those companies conducting
business online. The adoption of any additional laws or regulations may decrease
the growth of the Internet or commercial online services, which could, in turn,
decrease the demand for our products and services. Additional regulation could
also increase our cost of doing business.
THE APPLICATION OF SALES AND OTHER TAXES TO ONLINE COMMERCE COULD ADVERSELY
AFFECT DEMAND FOR OUR PRODUCTS AND SERVICES AND ARE ADMINISTRATIVELY BURDENSOME.
The application of sales and other taxes by state and local governments to
online commerce is uncertain and may take years to resolve. In particular, a
number of states are currently reviewing the appropriate tax treatment of online
commerce, and new state tax regulations may subject us and/or the suppliers and
purchasers that use our marketplace to additional state sales and income taxes.
The imposition of additional sales taxes on transactions conducted through our
marketplace could make this service less valuable to purchasers and adversely
impact transaction volume. The imposition of any such taxes or other regulations
could have a material adverse effect on our revenues and earnings. In addition,
the collection and payment of such taxes may cause us to incur significant
administrative effort and expense. Our failure to properly collect and pay such
taxes in any jurisdiction could subject us to penalties that could adversely
affect our earnings.
RISKS RELATING TO THE OFFERING
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK AND TRADING PRICES OF
OUR COMMON STOCK MAY BE VOLATILE.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. If a market for our common stock does not develop
or is not sustained, it may be difficult or impossible for you to sell your
shares of common stock at a price that is attractive to you. The initial public
offering price of our common stock will be determined through negotiations
between the representatives of the underwriters and us and may not be
representative of the price that will prevail in the open market. The stock
market from time to time experiences significant price and volume fluctuations
that are unrelated to the operating performance of particular companies. The
trading prices of high technology companies, and Internet companies in
particular, have been volatile despite the actual performance of the individual
companies. Our common stock price is likely to be volatile in the future. Broad
market fluctuations may adversely affect the market price of our common stock.
Some specific factors which may have a significant effect on the market price of
our common stock include:
- actual or anticipated fluctuations in our quarterly or annual operating
results;
- our announcements or our competitors' announcements of developments, such
as joint ventures, strategic partnerships, consolidation or new products
or services;
- developments regarding proprietary rights; and
- changes in stock market analyst recommendations regarding our common
stock, other comparable companies or the Internet or telecommunications
infrastructure industries generally.
In the past, following periods of downward volatility in the market price of a
company's securities, class action litigation has often been pursued against
such companies. If similar litigation were pursued against us, it could result
in substantial costs and a diversion of our management's attention and
resources.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the
pro-forma net tangible book value (deficit) per share of the outstanding common
stock. As a result, investors purchasing common stock in this
11
<PAGE> 16
offering will incur immediate and substantial dilution in the amount of $
per share. Investors will incur additional dilution upon the exercise of
outstanding stock options. See "Dilution" on page 17.
ONE OF OUR STOCKHOLDERS WILL EXERT SUBSTANTIAL INFLUENCE OVER US, AND MAY MAKE
FUTURE BUSINESS DECISIONS WITH WHICH SOME OF OUR STOCKHOLDERS MIGHT DISAGREE.
After this offering, David L. Steward will control, either directly or
indirectly through his ownership of World Wide Technology, % of our
outstanding common stock and will control % of the outstanding common stock
if the underwriters' over-allotment option is exercised in full. In addition,
World Wide Technology will alone control % of the outstanding common stock,
and will control % of the outstanding common stock if the underwriters'
over-allotment option is exercised in full. As a result, David L. Steward will
be able to control all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Mr.
Steward's interests may differ from the interests of the other stockholders.
This concentration of ownership may have the effect of delaying, preventing or
deterring a change in control of our company, could deprive our stockholders of
an opportunity to receive a premium for their common stock as part of a sale or
merger of our company and might affect the market price of our stock.
DELAWARE LAW AND PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER ACQUISITION
BIDS FOR US.
There are provisions in our charter documents and other provisions under
Delaware law that could make it more difficult for a third party to acquire us,
even if doing so would benefit our stockholders. Our certificate of
incorporation provides our board of directors the authority, without stockholder
action, to issue up to 20,000,000 shares of preferred stock in one or more
series. Our board will determine if and when we will issue preferred stock and
the rights, preferences and privileges (including voting rights) of any
preferred stock. We do not presently intend to issue shares of preferred stock
(other than shares issued in connection with our conversion to a corporation,
which such shares will be redeemed following the completion of this offering).
However, your rights as a holder of common stock will be subject to, and may be
adversely affected by, the rights of any future preferred stockholders.
Preferred stock issuances may also cause significant dilution in your interests
as a stockholder. By issuing preferred stock, we could also make it more
difficult for a third party to acquire us. Our certificate of incorporation will
not allow our stockholders to cumulate their votes to elect directors. In
addition, our bylaws will establish an advance notice procedure for stockholder
proposals and for nominating candidates for election as directors. In addition,
we are subject to the anti-takeover provisions of Section 203 of the Delaware
General Corporation Law. These provisions, along with the ability of our board
of directors to issue shares of preferred stock, could prevent or delay any
change in our control. In turn, this could adversely affect the market price of
our common stock. See "Description of Capital Stock" beginning on page 46.
A SIGNIFICANT NUMBER OF SHARES ARE OR WILL BECOME AVAILABLE FOR SALE IN THE
PUBLIC MARKET AND THEIR SALE COULD DEPRESS OUR COMMON STOCK PRICE.
Sales of a substantial number of shares of our common stock in the public
market after this offering could adversely affect the market price for our
common stock and make it more difficult for us to sell equity securities at
times and prices that we determine to be appropriate. Of our shares of
common stock outstanding after this offering, shares sold in this offering
will be freely tradable. We expect that all of our existing stockholders will
agree that they will not, without the prior written consent of FleetBoston
Robertson Stephens Inc. on behalf of the underwriters, offer or sell any of
their shares for 180 days after the date of this prospectus. However,
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without prior notice, release all or some portion of the common stock subject to
the lock-up agreements. We have granted registration rights to certain of our
current stockholders, and at any time that they are not subject to the lock-up
they can demand that we register 7,455,737 shares of common stock for sale. An
additional 33,075,000 shares held by our affiliates may be sold in the public
market to the extent permitted by Rule 144 or exemptions under the Securities
Act. Public sales after this offering may include shares issued under
outstanding options. We have granted options to purchase up to 1,790,750 shares
of common stock,
12
<PAGE> 17
which vest between November 2000 and May 2004. We intend to file a registration
statement on Form S-8 following this offering to register all of the common
stock issuable under our option plans. Under this registration statement,
holders of vested stock options may generally exercise and immediately sell
their shares to the public. See "Shares Eligible for Future Sale" beginning on
page 50.
WE DO NOT PAY DIVIDENDS.
We intend to use any future earnings to grow our business and do not intend
to declare or pay dividends in the foreseeable future. Currently, our credit
facility restricts us from paying dividends. See "Dividend Policy" on page 15.
13
<PAGE> 18
FORWARD-LOOKING STATEMENTS
This prospectus includes forward looking statements based on our current
expectations and projections about future events. These statements are found in
the sections entitled "Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus. They include
statements concerning:
- our business strategy;
- our liquidity and capital expenditures;
- our use of the proceeds of the offering;
- future sources and nature of our revenues;
- our future expenses and investments;
- our future profitability;
- expansion of our products and services;
- sales and industry trends;
- actions of our competitors;
- trends in Internet activity generally; and
- our payment of dividends.
You can identify these statements by forward-looking words such as
"expect," "anticipate," "believe," "goal," "plan," "intend," "estimate,"
"predict," "potential," "continue," "may," "will" and "should" or similar words.
You should be aware that these statements are subject to known and unknown
risks, uncertainties and other factors, including those discussed in the section
entitled "Risk Factors." Any of these factors could cause actual results to
differ materially from those suggested by the forward-looking statements.
14
<PAGE> 19
USE OF PROCEEDS
We estimate our net proceeds from this offering, after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us, will be approximately $ , or $ if the underwriters
exercise their over-allotment option in full, based on the initial public
offering price of $ per share.
We plan to use the net proceeds of this offering for the following:
- To redeem the shares of our preferred stock held by entities affiliated
with Highland Capital Partners and Summit Partners and by Donaldson,
Lufkin & Jenrette Securities Corporation for $27.5 million plus a
cumulative preferred return of approximately $332,000, as of March 16,
2000. Two of our directors are affiliated with Highland Capital Partners
or Summit Partners. We are required to redeem all of the shares of our
preferred stock upon completion of this offering. The cumulative
preferred return is eight percent compounded annually.
- To pay an aggregate of $735,000 to entities affiliated with Highland
Capital Partners and Summit Partners.
- To pay $4.5 million to World Wide Technology, our majority stockholder.
- To pay a one-time licensing fee of $75,000 to World Wide Technology. See
"Related Party Transactions" beginning on page 40.
Our management will have significant flexibility in applying any remaining
net proceeds of the offering. We intend to use the net proceeds from this
offering to expand our sales and marketing efforts, enhance our technology, add
to our online content and for general corporate purposes, including working
capital needs. We also may use a portion of the net proceeds of this offering to
acquire or invest in complementary businesses or technologies, although we have
no present commitments or agreements with respect to any material acquisition or
investment. Pending the application of the proceeds towards one of the above
uses, we intend to invest the net offering proceeds in short-term,
interest-bearing, investment-grade securities.
The description above represents our intentions based upon present plans
and business conditions. They may vary significantly and are subject to change
at our discretion depending upon certain factors, including economic or industry
conditions, changes in the competitive environment and strategic opportunities
that may arise.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and we
do not anticipate declaring or paying any cash dividends for the foreseeable
future. We currently expect to retain all earnings, if any, for investment in
our business. Any dividends will be at the discretion of our board of directors
and will depend on our financial condition, results of operations, capital
requirements and such other factors as our board of directors may deem relevant.
Currently, our credit facility restricts us from paying dividends.
15
<PAGE> 20
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on a historical basis, assuming the merger of telcobuy.com LLC into
telcobuy.com, Inc.; and
- on an as adjusted basis giving effect to our sale of shares of
common stock offered hereby at an assumed initial public offering price
of $ per share, after deducting the underwriting discounts,
commissions and estimated offering expenses and applying the estimated
net proceeds as described above under "Use of Proceeds."
You should read this table in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on page 19
and our financial statements and the notes related thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ --
-------
Due to affiliate(2)......................................... 13,073
-------
Stockholder's equity:
Common stock, $.01 par value, shares authorized;
shares issued and outstanding..................... --
Additional paid-in capital................................ --
Retained earnings......................................... 1,693
-------
Total stockholder's equity........................ 1,693
-------
Total capitalization.............................. $ 1,693
=======
</TABLE>
- ---------------
(1) Assumes no exercise of the underwriters' over-allotment option and excludes
(i) 1,790,750 shares of common stock issuable upon the exercise of currently
outstanding options each at an exercise price of $4.05 per share and (ii) an
aggregate of 5,209,250 shares available for future issuance under our Unit
Option Plan and 2000 Stock Option Plan. New investors will be further
diluted if any shares of common stock are issued upon exercise of currently
outstanding options or if other rights are granted in the future or are
reserved for future issuance under our stock plans. See "Management -- Unit
Option Plan, -- Recent Option Grants and -- 2000 Stock Option Plan"
beginning on page 34.
(2) Represents borrowings from World Wide Technology to fund working capital.
See "Related Party Transactions" on page 40.
16
<PAGE> 21
DILUTION
The dilution information presented below assumes the merger of telcobuy.com
LLC into telcobuy.com, Inc. Our net tangible book value, as of December 31,
1999, was $1.7 million, or $ per share of common stock. Net tangible book
value per share represents the amount of total tangible assets less total
liabilities divided by the number of shares of common stock outstanding at that
date. After giving effect to our sale of the shares of common stock being
offered hereby at an assumed initial public offering price of $ per share,
and after deducting estimated underwriting discounts and commissions and
estimated offering expenses, our pro forma net tangible book value as of
December 31, 1999, would have been $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders, and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1999.... $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors in this offering........ $
========
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the number of shares of common stock purchased from us by existing
stockholders and by new investors in this offering, the total consideration paid
and the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION PAID AVERAGE
------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. % % $
New investors..........................
-------- ----- -------- --------
Total............................. 100% 100%
======== ===== ======== ========
</TABLE>
If the underwriters exercise their over-allotment option in full, the
number of shares of common stock held by new investors will be increased to
or % of the total number of shares of common stock to be
outstanding immediately after this offering. In addition, existing stockholders
will hold % of the total number of shares of common stock to be outstanding
immediately after this offering. The foregoing discussion and tables assume no
exercise of any outstanding stock options. As of March 16, 2000, there were
outstanding options to purchase 1,790,750 shares of common stock, at an exercise
price of $4.05 per share. To the extent that any shares reserved for issuance
under telcobuy.com's option plans are issued, there will be further dilution to
new investors. If all outstanding options were exercised, the total dilution per
share to new investors would be $ .
17
<PAGE> 22
SELECTED FINANCIAL DATA
You should read the selected financial data set forth below in conjunction
with our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" which are included
elsewhere in this prospectus. Prior to October 1999, we were operated as a
division of World Wide Technology, and selected financial data from January 1,
1995 through September 30, 1999 are derived from the financial statements of
World Wide Technology. Our Statements of Operations, Statements of Shareholder's
Net Investment/Members' Equity and Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and our Balance Sheets as of December 31, 1998
and 1999 have been audited by KPMG LLP. The financial information of
telcobuy.com, when we operated as a division of World Wide Technology, is not
necessarily indicative of the results of operation, financial position and cash
flows of telcobuy.com had it been a separate entity at such times. It is also
not necessarily indicative of our future results of operations, financial
position and cash flows. The selected financial data set forth below for the
periods ended December 31, 1997, 1998 and 1999 has been derived from our audited
financial statements included elsewhere in this prospectus. The selected
financial data set forth below for the periods ended December 31, 1995 and 1996
has been derived from our unaudited financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ------- ------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................. $2,758 $3,978 $19,328 $52,962 $246,133
Cost of revenues..................... 2,466 3,336 17,481 50,356 235,169
------ ------ ------- ------- --------
Gross profit....................... 292 642 1,847 2,606 10,964
Operating expenses:
Corporate allocation............... 41 238 478 1,306 5,405
Other operating expenses........... 282 425 674 1,373 2,459
------ ------ ------- ------- --------
Total operating expenses........ 323 663 1,152 2,679 7,864
------ ------ ------- ------- --------
Operating income (loss).............. (31) (21) 695 (73) 3,100
Interest expense and other, net...... -- 2 128 234 671
------ ------ ------- ------- --------
Income (loss) before income taxes.... (31) (23) 567 (307) 2,429
Income tax expense (benefit)......... -- (8) 228 (119) 840
------ ------ ------- ------- --------
Net income (loss).................... $ (31) $ (15) $ 339 $ (188) $ 1,589
====== ====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ------ ------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ -- $ -- $ -- $ -- $ --
Working capital (deficit)............. (31) (46) 293 104 1,693
Total assets.......................... -- 558 7,964 11,378 115,369
Shareholder's net investment/members'
equity (deficit).................... (31) (46) 293 104 1,693
</TABLE>
18
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and accompanying notes, which appear elsewhere in this prospectus.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forwarding-looking statements as a result of various factors, including
those discussed below and elsewhere in this prospectus, particularly under the
heading "Risk Factors."
OVERVIEW
We provide a comprehensive, vendor-neutral, Internet-based,
business-to-business marketplace for the buying and selling of
telecommunications infrastructure products and services. Our marketplace helps
participants build-out and upgrade telecommunications networks more quickly,
more efficiently and at a lower cost than by traditional means.
We were established as a separate operating division of World Wide
Technology during 1995 and began recognizing revenue that same year. In early
1997, we began to place significant emphasis on the building of our marketplace
in order to provide this Internet-based, business-to-business solution to the
telecommunications infrastructure market. On October 1, 1999, we began operating
as a limited liability company and became a majority-owned subsidiary of World
Wide Technology.
We have an aggressive strategy to capitalize on our first mover advantage
and build our brand equity, increase marketplace participation, extend our
technology leadership position and expand our service offerings and geographic
reach. Implementation of this strategy will have the following impact on these
key financial indicators:
Operating Expenses -- We expect our operating expenses will
significantly increase as we continue to enhance our technology leadership
position, increase spending on sales and marketing and increase the
administrative costs necessary to support our strategy.
Net Income (Loss) -- Since 1995, we have generated cumulative net
income of $1.7 million. As a result of implementing our strategy, we expect
we will incur significant losses for the next two years, and losses may
continue.
As a result of this offering, we believe we will have sufficient liquidity
and capital resources to financially implement our strategy and achieve our
objective to become the leading marketplace for telecommunications
infrastructure products and services.
REVENUE AND COST OF REVENUES
Our revenue consists primarily of product sales to customers and charges to
customers for other logistical services. Cost of revenues consists primarily of
the costs of acquiring products from our suppliers for sale to our customers.
Revenue and cost of revenue are recognized upon the shipment of product. Our
contracts with our purchasers and suppliers require that we take title to the
products sold through our marketplace.
During our operating history, we have experienced fluctuations in
quarter-to-quarter revenues. These fluctuations can result in increased or
decreased revenue in any given quarter. We attribute these fluctuations to the
following factors:
- large, one-time purchases through our marketplace;
- purchasers' annual budgetary, procurement and network installation
cycles; and
- purchasers' spending patterns influenced by other events such as mergers,
acquisitions or regulatory issues.
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While we expect these quarterly fluctuations to continue, we believe the
relative impact on our revenues will be minimized over the next two years as we
broaden our customer base. Furthermore, we believe that any quarterly
fluctuations during this period will not impair our ability to grow revenues on
an annualized basis.
OPERATING EXPENSES
Corporate allocation expenses consist primarily of personnel and other
related costs attributable to telcobuy.com, as we operated as a division or
majority-owned subsidiary of World Wide Technology. The allocations are based on
the actual costs of the services provided or management's pro rata estimate of
the percentage of actual costs directly attributable to telcobuy.com's
operations. In addition, other operating expenses are separately tracked and
recorded on our statement of operations. Other operating expenses consist
primarily of direct telcobuy.com personnel expenses and related direct expenses
such as rent, travel and telephone. Functional classifications of operating
expenses are as follows: marketplace technology expenses, sales and marketing
expenses and general and administrative expenses. The following table details
the functional classifications of operating expenses for the years ended
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Marketplace technology expenses............................. $ 110 $ 309 $3,215
Sales and marketing expenses................................ 488 860 1,797
General and administrative expenses......................... 554 1,510 2,852
------ ------ ------
Total operating expenses.......................... $1,152 $2,679 $7,864
====== ====== ======
</TABLE>
We intend to categorize future operating expenses consistent with the above
presentation.
INTEREST EXPENSE
Interest expense represents our cost of borrowings from World Wide
Technology.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0%
Cost of revenues..................................... 90.4 95.1 95.5
----- ----- -----
Gross margin......................................... 9.6 4.9 4.5
Operating expenses:
Marketplace technology expenses.................... 0.6 0.6 1.3
Sales and marketing expenses....................... 2.5 1.6 0.7
General and administrative expenses................ 2.9 2.8 1.2
----- ----- -----
Total operating expenses................... 6.0 5.0 3.2
----- ----- -----
Income (loss) from operations........................ 3.6 (0.1) 1.3
Other expense-interest on due to affiliate........... 0.7 0.5 0.3
----- ----- -----
Income (loss) before income tax expense (benefit).... 2.9 (0.6) 1.0
Income tax expense (benefit)......................... 1.2 (0.2) 0.3
----- ----- -----
Net income (loss).................................... 1.7% (0.4)% 0.7%
===== ===== =====
</TABLE>
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YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues
Revenues increased to $246.1 million for the year ended December 31, 1999
from $53.0 million for the year ended December 31, 1998. This 364.7% increase
was primarily due to $181.0 million in additional revenues generated from sales
to SBC Communications, Bell Atlantic Corporation and GTE. This increase was a
result of the purchasers' greater utilization of the marketplace related to both
new and existing contracts.
Cost of Revenues
Total cost of revenues increased to $235.2 million for the year ended
December 31, 1999 from $50.4 million for the year ended December 31, 1998. This
367.0% increase was primarily due to product costs related to the increase in
products sold through our marketplace. We purchased the majority of these
products from Lucent and Fujitsu.
Gross Profit
Gross profit increased to $11.0 million for the year ended December 31,
1999 from $2.6 million for the year ended December 31, 1998. This 320.8%
increase was primarily due to purchasers' greater utilization of the marketplace
related to both new and existing contracts. Gross profit as a percentage of
sales for the year ended December 31, 1999 decreased to 4.5% from 4.9% for the
year ended December 31, 1998. This decrease was primarily due to a significant
increase in low margin equipment sold through our marketplace. We expect that
gross profit as a percentage of sales may continue to decline over the next two
years as we encourage maximum purchaser and supplier participation in our
marketplace.
Operating Expenses
Marketplace technology expenses. Marketplace technology expenses represent
direct and allocated expenses related to marketplace development and integrated
back-office systems. These expenses primarily are comprised of personnel costs.
The increase to $3.2 million for the year ended December 31, 1999 from $309,000
for the year ended December 31, 1998 was primarily due to the increased number
of employees enhancing, developing and supporting our marketplace and
infrastructure. We expect that our marketplace technology expenses will
significantly increase during the next two years as we continue to enhance and
develop functionality on our Web site, implement and execute on our XML strategy
and continue the development of customized private extranet sites for major
purchasers.
Sales and marketing expenses. Sales and marketing expenses represent
direct expenses such as personnel costs and advertising. Sales and marketing
expenses increased to $1.8 million for the year ended December 31, 1999 from
$860,000 for the year ended December 31, 1998 due to increased advertising in an
effort to develop brand recognition for telcobuy.com and increased personnel
costs. We anticipate that our sales and marketing expenses will significantly
increase during the next two years as we add sales and marketing personnel to
assist in this process.
General and administrative expenses. General and administrative expenses
represent direct and allocated operating expenses, the largest component of
which is personnel cost. The general and administrative expenses increased to
$2.9 million for the year ended December 31, 1999 from $1.5 million for the year
ended December 31, 1998. General and administrative expenses increased primarily
as a result of increased personnel costs, professional fees and other allocated
costs incurred to support the growth of our business. We expect that our general
and administrative expenses will significantly increase during the next two
years due to the administrative resources needed to continue to support the
growth of our business.
Interest Expense
Interest expense increased to $691,000 for the year ended December 31, 1999
from $234,000 for the year ended December 31, 1998. The increase was primarily
the result of interest expense on increased
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<PAGE> 26
borrowings from World Wide Technology to cover higher working capital
requirements for the year ended December 31, 1999 over the year ended December
31, 1998.
Income Tax Expense (Benefit)
Income tax expense increased to $840,000 for the year ended December 31,
1999 from an income tax benefit of $119,000 for the year ended December 31,
1998. The income tax expense (benefit) is the result of applying the appropriate
tax rate to the taxable net income for the respective period. However, for the
period from October 1, 1999 through December 31, 1999, we were was a separate
limited liability company and elected partnership tax treatment. As a result,
the income tax effect for this period was passed through to its members.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues
Revenues increased to $53.0 million for the year ended December 31, 1998
from $19.3 million for the year ended December 31, 1997. This 174.0% increase
was primarily due to $32.6 million in additional revenues generated from sales
to SBC Communications and GTE. This increase was a result of the purchasers'
greater utilization of the marketplace related to both new and existing
contracts.
Cost of Revenues
Total cost of revenues increased to $50.4 million for the year ended
December 31, 1998 from $17.5 million for the year ended December 31, 1997. This
188.1% increase was primarily due to product costs related to the increase in
products sold through the marketplace. We purchased the majority of these
products from Lucent and Fujitsu.
Gross Profit
Gross profit increased to $2.6 million for the year ended December 31, 1998
from $1.8 million for the year ended December 31, 1997. This 41% increase was
primarily due to purchasers' greater utilization of the marketplace related to
both new and existing contracts. Gross profit as a percentage of sales for the
year ended December 31, 1998 decreased to 4.9% from 9.6% for the year ended
December 31, 1997. This decrease was primarily due to a significant increase in
lower margin equipment sold through the marketplace.
Operating Expenses
Marketplace technology expenses. Marketplace technology expenses increased
to $309,000 for the year ended December 31, 1998 from $110,000 for the year
ended December 31, 1997 due primarily to the increased number of employees
enhancing, developing and supporting our marketplace and infrastructure.
Sales and marketing expenses. Sales and marketing expenses increased to
$860,000 for the year ended December 31, 1998 from $488,000 for the year ended
December 31, 1997 due primarily to increased personnel costs.
General and administrative expenses. General and administrative expenses
increased to $1.5 million for the year ended December 31, 1998 from $554,000 for
the year ended December 31, 1997. General and administrative expenses increased
primarily as a result of increased personnel costs.
Interest Expense
Interest expense increased to $234,000 for the year ended, December 31,
1998 from $128,000 for the year ended December 31, 1997. The increase was
primarily the result of interest expense on increased borrowings from World Wide
Technology to cover higher working capital requirements for the year ended
December 31, 1998 over the year ended December 31, 1997.
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Income Tax Expense (Benefit)
Income tax benefit increased to $119,000 for the year ended December 31,
1998 from an income tax expense of $228,000 for the year ended December 31,
1997. The income tax expense (benefit) is the result of applying the appropriate
tax rate to the taxable net income for the respective period.
LIQUIDITY AND CAPITAL RESOURCES
Prior to March 13, 2000, we primarily funded our operations through
borrowings from World Wide Technology. As of December 31, 1999, we had cash and
cash equivalents of zero and borrowings due to World Wide Technology of $13.1
million.
Cash used in operating activities during the year ended December 31, 1999
was $11.5 million. Cash provided by operating activities during the year ended
December 31, 1998 was $465,000 while cash used in operating activities during
the year ended December 31, 1997 was $2.0 million. Cash used in operating
activities was principally for the development of our Web site, the development
of our marketplace and e-business enabled infrastructure, the expansion of our
sales and marketing force, the expansion of the administrative and operations
staff to support our growth and the expansion of working capital necessary to
support the receivables, inventory, accounts payable and accrued expenses and
other current liabilities associated with the revenue growth.
Effective March 13, 2000, we secured a $20.0 million line of credit with
Mercantile Business Credit Inc. to fund working capital requirements. The amount
available under the line is based on a percentage of eligible accounts
receivable and is secured by our accounts receivable, inventory, property and
equipment and general business assets. Borrowings on the line bear interest at
rates based on prime or LIBOR. We pay a fee of 0.25% on the unused portion of
the line of credit. The line of credit includes certain restrictive covenants
including, among others, the maintenance of minimum tangible net worth, a funded
debt to tangible net worth ratio and a limit on capital expenditures.
Taking into consideration the $20.0 million line of credit, we believe that
our existing liquidity and capital resources, including the proceeds resulting
from the sale of our common stock in this offering, will be sufficient to
satisfy our cash requirements for the next two years. To the extent that the
offering proceeds and the amount available under the line of credit are
insufficient, we will be required to raise additional funds through equity or
debt financing. There can be no assurance that we will be able to raise such
funds on favorable terms, or at all.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and supercedes a number of
existing standards. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. As we do not currently engage in derivative
or hedging activities, the adoption of SFAS No. 133, as amended, is not expected
to have a material impact on our financial position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest expense is sensitive to changes in the general level of
interest rates, as the interest on our borrowings are based on floating rates.
We believe, however, that we are currently not subject to material interest rate
risk.
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BUSINESS
OVERVIEW
We provide a comprehensive, vendor-neutral, Internet-based,
business-to-business marketplace for the buying and selling of
telecommunications infrastructure products and services. Our marketplace helps
participants build-out and upgrade telecommunications networks more quickly,
more efficiently and at a lower cost than by traditional means.
As a one-stop e-commerce destination, telcobuy.com is more than a site to
buy and sell network equipment. Our services also enable purchasers to
Web-manage some of their common responsibilities such as product availability
inquiries, delivery coordination, inventory tracking and online network design
and collaboration. Our vendor-neutral approach and open and scalable market is
attractive to both purchasers and suppliers. We believe this comprehensive and
unbiased solution provides purchasers and suppliers with a unique online
marketplace for telecommunication products and services. Our marketplace
includes a comprehensive database that aggregates over 500,000 products
representing over 1,000 different suppliers. We have established our marketplace
as an effective medium of transacting business evidenced by revenue of $246.1
million in 1999, a 364.7% increase over the $53.0 million in revenue earned in
1998.
INDUSTRY BACKGROUND
Growth of the Internet and Business-to-Business Electronic Commerce
The Internet is rapidly changing the competitive landscape of many
industries, creating significant opportunities for companies to expand and
improve their businesses. Companies are increasingly using the Internet to
create business-to-business networks to streamline complex processes, to
purchase and supply goods and services and to exchange information among
fragmented groups of purchasers, manufacturers and distributors. Forrester
Research has estimated that business-to-business e-commerce in the U.S. will
increase from $109 billion in 1999 to $2.7 trillion in 2004.
Business-to-business e-commerce enables purchasers and suppliers in
fragmented markets to reduce procurement process inefficiencies. Purchasers can
reduce their time-to-market pressures, improve their purchasing processes and
easily access current product information and a broad range of products and
services. Suppliers are able to cost-effectively access global markets,
streamline their sales, marketing and distribution operations, thereby
satisfying demand and efficiently distributing updated product information.
Because a growing number of businesses are establishing their own e-commerce Web
sites, it is difficult for any individual business to attract a significant
number of online purchasers. As a result, companies are increasingly realizing
the value of a global online marketplace that aggregates purchasers and
suppliers.
Telecommunications Infrastructure Market
The telecommunications infrastructure market has experienced tremendous
change in recent years, spurred by factors such as increased carrier
competition, expanded service offerings, emergence of the Internet, increased
demand for bandwidth, advancements in technology and the convergence of voice
and data. These factors have placed increasing pressure on telecommunications
providers to quickly build-out networks to meet the growing demand for
telecommunications services. As a result, telecommunications companies are
making substantial expenditures on infrastructure to build, maintain and upgrade
their networks. According to Dataquest, a technology market research firm, the
market for telecommunications infrastructure equipment is estimated to be $277
billion in 2000.
Purchasers of telecommunications infrastructure equipment and services
comprise a diverse group. They include companies that provide local telephone
service (local exchange carriers, or LECs) and companies that provide
long-distance telephone service (interexchange carriers, or IXCs), as well as
Internet service providers (ISPs). Prior to the enactment of the
Telecommunications Act of 1996, each state granted a regulated monopoly for
local telephone service to specific LECs in particular territories, known as the
incumbent local exchange carriers (ILECs). One of the objectives of the
Telecommunications Act of 1996 was to open the
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<PAGE> 29
local telephone service market to greater competition. As a result, since 1996
many competitive local exchange carriers (CLECs) have entered the business of
offering local telephone service in competition with the ILECs.
The traditional process for procuring the infrastructure products and
services that these telecommunications companies require is highly fragmented,
time-consuming and costly. For example, a single purchasing agent within one of
these organizations may purchase products and services from hundreds of
suppliers. In the U.S. alone, products are supplied by over 1,000 manufacturers
and distributors, ranging from Fortune 500 corporations, such as Lucent, Tellabs
and GTE, with extensive offerings to small companies offering a limited range of
products and services. Purchases may range in value from over $1 million for
complex network switches to a few dollars for commodity products, such as
connectors or bolts.
Limitations of the Traditional Procurement Process
Both purchasers and suppliers of telecommunications infrastructure products
and services are under increasing pressure to reduce their time-to-market and
costs. However, the traditional procurement process is burdened by the use of
manual and paper-based processes, the fragmentation of the market, the lack of
transparency in the order and delivery process and the constraints imposed by
legacy technology systems.
Manual and Paper-Based Processes. Traditionally, companies have prepared
and processed purchase orders for telecommunications infrastructure products and
services using paper-based systems and manual processes, such as telephone
calls, fax transmittals, and mail or overnight courier deliveries. These
processes are time-consuming, costly and unreliable. For example, manual and
paper-based processes make it difficult to collect data from various departments
within both supplier and purchaser organizations, thereby hampering their
ability to manage large projects effectively, to meet strict deadlines and to
settle transactions on a timely basis. In addition, product information and
pricing data change so frequently that it is difficult and expensive to provide
or obtain accurate and current information through paper-based sources.
Moreover, manual and paper-based processes require multiple entries of the same
data, consuming valuable time and giving rise to increased chances for error.
Fragmented Supplier Base. A telecommunications network project could
necessitate the procurement of hundreds of products and services from a wide
variety of sources. For each product or service required, the purchaser may
often contact several different suppliers in order to determine which can best
meet the purchaser's technical specifications and cost and delivery
requirements. The purchaser must then coordinate the fulfillment and delivery of
the purchase orders placed with the various suppliers in order to ensure that
all of the project requirements are met. Difficulty or delay in procuring even
the most basic components could hold up an entire project. The cumulative impact
of procuring numerous products and services from a fragmented supplier base can
result in substantial delays and increased costs.
Lack of Process Transparency. With traditional procurement processes, a
purchaser may expend much time and effort to determine inventory availability,
track order status and otherwise closely monitor the progress of each purchase
order. The lack of access to current and complete information relating to the
preparation and status of a purchase order at each step in the process could
impede a purchaser's ability to meet its time-to-market pressures.
Legacy System Constraints. The legacy technology systems of both
purchasers and suppliers are often large, complex installations that are the
products of many years of customized development. As a result, these systems
frequently cannot be easily adapted to Internet-based technologies for
communicating with their trading partners. These legacy systems also often make
it difficult for both purchasers and suppliers to integrate the procurement
process within their own back-office systems. For example, the duplicate entry
of data at various points within the systems increases the time, effort and risk
of error in the procurement process.
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THE TELCOBUY.COM SOLUTION
We provide a comprehensive, Internet-based procurement process in the
telecommunications infrastructure market. Our marketplace provides multiple
benefits to both purchasers and suppliers. Telecommunications service providers,
including SBC Communications, Bell Atlantic and GTE, use our marketplace
primarily to reduce time-to-market and costs, to increase efficiencies and to
gain access to a wide range of products and services in a one-stop environment.
Telecommunications equipment manufacturers, including Fujitsu, Lucent and Sun
Microsystems, Inc., use our marketplace primarily to reduce time-to-market and
costs and to improve product demand forecasting. In addition, our marketplace
enables suppliers to efficiently and cost-effectively serve their existing
purchaser base and to gain access to additional purchasers at little marginal
cost.
Faster, Simpler, More Efficient Processes. Through our marketplace,
purchasers quickly and easily access the products and services of many
suppliers. Suppliers may make available to participants comprehensive and
current information and pricing for their products and services. Because our Web
site is vendor-neutral, a purchaser has access to products and services from a
wide variety of suppliers, and may identify the appropriate supplier for each
product or service required and place the purchase order. Because the entire
process of placing orders for products and services is made simpler, faster and
more efficient, participants are able to reduce their transaction costs and meet
their time-to-market needs.
Centralized Market. Our marketplace provides purchasers with access not
only to the suppliers of the core products and services required for the
installation of telecommunications networks, but also to the many suppliers of
complementary products. This enables suppliers to concentrate on the sale of
their core products and services. It also enables purchasers to assemble a
single bill of materials with products from multiple suppliers and to receive
only one invoice for that bill of materials. The enhanced communication between
purchasers and suppliers makes it easier for them to collaborate in the timely
and accurate delivery of products and services, project management and other
value-added services.
Increased Process Transparency. The technology we use in our marketplace
provides purchasers with access to information on inventory availability, order
status, and other data which provides greater visibility on the placement and
processing of purchase orders. Furthermore, our technology allows suppliers to
better manage the demand for their products and services. The greater
transparency of the purchase order process enables both purchasers and suppliers
to speed the network build-out process and to make better, more informed
decisions.
Integration with Legacy Systems. We use extensible mark-up language (XML)
and other Internet-based technology to integrate companies using a wide variety
of legacy systems into each other through our marketplace. Once a purchaser or
supplier has become a participant in and integrates with our marketplace, it can
readily connect to each new trading partner that enters our marketplace. The
integration of these legacy systems with our back-office technology facilitates
the end-to-end automation of the procurement process, thereby expediting the
entire process and reducing the risks of error, such as those that arise from
the duplicate entry of data.
Comprehensive Industry Community. We provide an Internet-based community
of trading partners in the telecommunications infrastructure industry. Our
services are designed to accumulate knowledge for individual market
participants, as well as for the market as a whole. Market participants can use
knowledge accumulated through our services that pertains to themselves and their
trading partners to simplify and organize the procurement process. Participants
can also customize their own business processes using our services. By
participating in our marketplace, companies are able to negotiate mutually
beneficial arrangements for customized contract pricing between particular
purchasers and suppliers, or volume discount pricing for suppliers that are
publicly accessible through our marketplace. We believe that by providing a
vendor-neutral marketplace, we increase the attractiveness of our marketplace to
a large number of purchasers and suppliers. By providing purchasers with access
to products and services from a wide range of suppliers, we can attract more
purchasers to our marketplace, further increasing the value of our services to
suppliers.
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STRATEGY
Our objective is to be the leading marketplace for telecommunications
infrastructure products and services. We intend to achieve this objective
through the following strategies:
Capitalize on First Mover Advantage and Build Brand Equity. We believe
that we are the first provider of a comprehensive, Internet-based solution in
the telecommunications infrastructure market. We intend to increase our brand
equity and visibility within the market by significantly increasing our
investment in marketing, sales, advertising and public relations. We believe
that once participants use and become integrated with our marketplace, the
benefits they achieve and the significant costs to switching to an alternative
procurement solution will encourage them to continue to use our marketplace. Our
goal is to capitalize on our first mover position in this market and to become
the industry standard for providing a comprehensive, single-source procurement
solution for market participants. As we continue to build our brand equity, we
intend to attract new participants to our marketplace, including emerging
telecommunications service providers, such as CLECs and ISPs.
Increase and Leverage Recurring Marketplace Participation. Most of our
large purchasers and suppliers transact business with us on a recurring basis.
We believe that there are other purchasers and suppliers that we can introduce
to our marketplace, and that we can leverage off of the existing relationships
of our current marketplace participants to attract new participants. For
example, if a supplier recognizes benefits from selling to certain purchasers
through our marketplace, we believe that the supplier will be motivated to
direct its other purchasers to our marketplace. Likewise, once a purchaser
becomes accustomed to procuring products and services through our marketplace,
we believe it will direct suppliers who do not already participate in our
marketplace to us. We believe that we will develop recurring relationships with
purchasers and suppliers once they have been introduced to our marketplace.
Extend Our Technology Leadership Position. We believe that our robust,
scalable and fully integrated front-end and back-office technology provides us
with a competitive advantage. We have over three years of in-market experience
using our back-office technology to support our Internet-based marketplace.
Because we have already built our logistical systems, the cost of extending
existing successful programs to additional purchasers or suppliers is lower than
establishing entirely new programs. We will continue to invest in technology
advances in order to extend our technology leadership position.
Expand Our Service Offerings. We intend to introduce new services to more
fully engage and support the existing participants of our marketplace, each of
which will be structured to save time, effort and money. We are currently
developing such services as applications hosting, on-line content, advertising,
bulletin boards, chat rooms and auctions for surplus and used telecommunications
equipment.
Expand Into International Markets. We believe that the global reach of the
Internet and the fragmented nature of many international markets for
telecommunications infrastructure equipment provide a significant opportunity
for the creation of a global marketplace. We have designed our marketplace to be
easily adaptable to international participants in the telecommunications
infrastructure industry. We intend to leverage our marketplace to attract
service providers, contractors and engineers in Europe, Latin America and Asia.
We may pursue strategic acquisitions to establish distribution channels to
facilitate our international expansion.
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THE TELCOBUY.COM MARKETPLACE
The primary benefit of our Internet-based marketplace is our electronic
purchasing service that allows participants to inquire about, order and schedule
delivery of over 500,000 telecommunications products from our growing database
of over 1,000 suppliers. Our product offerings range from complex network
switches costing more than $1 million to basic components costing a few dollars.
Purchasers are able to:
- search our proprietary online stores and access multiple suppliers'
products simultaneously;
- compare product attributes;
- order products from multiple suppliers on one consolidated order form;
- receive a single invoice;
- have a single point of contact for customer service;
- check order status through the delivery phases; and
- create a customized list of frequently purchased products for easy and
scheduled reordering.
Once a purchaser submits an order to us, our customer service
representatives oversee the order fulfillment process. In the majority of cases,
we purchase the items from suppliers at either pre-negotiated prices or at a
discount from the suppliers' list prices and arrange for shipment from the
suppliers directly to the purchaser. In situations where we have an existing
inventory of particular products, we will ship directly from our warehouse.
After the suppliers ship the items, we can present to the purchaser a
consolidated invoice for the products and services purchased from all suppliers.
Purchasers then pay us by credit card through a private and secure Web
connection, through electronic data interchange (EDI), or through a more
traditional system of open accounts.
We offer customized interactions for purchasers with specific requirements,
such as pre-negotiated pricing discounts from preferred suppliers and more
advanced integration with enterprise systems. This prearranged process
facilitates internal approval of the order, routing of the workflow and
integration with the purchaser's financial system.
Online Project Management. Effective project management requires real-time
availability of current and complete information. We provide an Internet-based
repository that can be used by participants in a particular project to
accumulate and store data that is immediately accessible for project management
or collaboration.
Resources. We offer a broad range of information and reference materials
for engineers, project managers and purchasing agents. Our Request List service
helps purchasers locate hard-to-find items by enabling them to contact our staff
engineers and purchasing agents. Our Mail and project collaboration service
allow purchasers to simultaneously broadcast requests for technical data,
product information and price quotations to multiple suppliers. We intend to
further expand our resources to offer a broader array of information and
reference materials for all purchasers and suppliers.
E-SWAT Team. Our E-SWAT Team assists our purchasers and suppliers by
integrating a number of manual business processes into the telcobuy.com
solution. The E-SWAT Team will help to automate and integrate product
information and other content from suppliers with a purchaser's ordering
systems. This service will provide current product pricing and availability data
from multiple suppliers directly into a purchaser's procurement system, without
the need to maintain separate supplier catalogs. Purchase orders can be sent
directly from a purchaser's procurement system to our Web-hosted electronic
ordering system.
Web Conferencing. Our Web conferencing system gives purchasers and
suppliers the competitive advantage of stronger, more direct relationships with
each other, regardless of time or distance. With our comprehensive capabilities
to provide or host online presentations, application viewing and Web touring,
purchasers and suppliers can present, demonstrate, train and collaborate with
each other and with their own employees, partners or customers, live and
on-demand. Our system allows real-time presentations to as many as 500
geographically dispersed conference attendees without the time, expense and
disruption of physical travel.
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Technical and Engineering Services. We have built a professional services
staff that provides specialized services to the service provider community. Our
staff performs specific services, including design, systems integration, detail
engineering, project management, and product tests and acceptance. Our
professional services staff has grown to more than 40 professionals with
expertise in all facets of telecommunications network services. Many of our
services professionals have been hired from leading telecommunications services
companies such as Lucent, SBC Communications and Ameritech Corporation.
MARKETPLACE PARTICIPANTS
Our marketplace is used by a wide range of participants in the
telecommunications infrastructure industry, including ILECs, CLECs, ISPs, IXCs,
contractors, suppliers, distributors and manufacturers. In 1999, we generated
approximately 94% of our revenue from three customers: SBC Communications, Bell
Atlantic, and GTE. While we have contracts with many customers, including our
three largest customers, the contracts are terminable upon little or no notice.
In 1999, two suppliers, Fujitsu and Lucent, accounted for approximately 88% of
the total supply of products purchased through our marketplace.
A representative list of participants who have transacted business through
our marketplace include:
<TABLE>
<CAPTION>
PURCHASERS SUPPLIERS
- ---------- ---------
<S> <C>
AT&T Corporation ADC Telecommunications, Inc.
Bell Atlantic Corporation ALLTEL Corporation
Global Crossing Ltd. Fujitsu Network Communications, Inc.
GTE Corporation GTE Supply
KNK Telecom LLC Lucent Technologies, Inc.
Pinkerton Cables Inc. Sun Microsystems, Inc.
Primary Network Communications Inc. Tellabs, Inc.
SBC Communications, Inc.
</TABLE>
CASE STUDIES
The following case studies illustrate how a select group of participants
are using our marketplace.
SBC Communications, Inc. SBC Communications provides comprehensive
telecommunications products and services through a global network of operations
in the U.S. and internationally. Its subsidiaries include ILECs such as
Southwestern Bell, Ameritech and Pacific Bell, and a CLEC, SBC Telecom.
Historically, SBC Communications and its subsidiaries encountered delays in
trying to meet aggressive accelerated network build-out schedules due to the
complexity in synchronizing the purchasing and delivery of many products from
many suppliers. Manual, paper-based processes were unable to meet the demand of
accelerated schedules. SBC Communications now turns to telcobuy.com to
coordinate product selection, order fulfillment and delivery schedules. Through
our marketplace, SBC Communications is now able to meet network deployment
deadlines with fewer procurement resources and more accurate and timely
information and delivery.
GTE Supply. GTE Supply, a division of GTE Corporation, specializes in
providing domestic and international logistics, procurement and electronic
repair services to national telecommunications service providers, original
equipment manufacturers and contractors. Prior to becoming a participant in our
marketplace, GTE Supply faced the challenge of cost-effectively transacting
business with a growing, fragmented customer base of engineering and
installation contractors. Manual communication of changing product, price and
availability and processing paper-based and phone-in orders was time-consuming
and costly. Through our marketplace, GTE Supply now presents current product,
price and availability information on thousands of materials from hundreds of
suppliers and can supply these materials to a diverse contractor base. As a
supplier to telcobuy.com, GTE Supply has reached additional new customers while
reducing its cost per transaction.
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<PAGE> 34
Primary Network Communications Inc. Primary Network is a CLEC and ISP that
provides voice, data and Internet services in the Midwest. Rapidly building out
its networks in new cities required a high degree of coordination to prevent
delays. Attempting to buy, stage, assemble, test and install the network
elements strained Primary Network's limited in-house resources. By using our
marketplace, Primary Network accesses a single source through which all facets
of deployment are managed. With volume equipment and contracted services
purchasing power, we help them reduce build-out costs and ensure on-time network
implementation. Our Internet-based project management services provides timely
information and performance data to Primary Network.
Stockton Telecommunications. Stockton installs telecommunications
equipment under contracts and provides engineering services for a variety of
telecommunications companies, including US WEST, Inc., Southwestern Bell
Telephone, Tellabs, Sprint Corporation, and MCI WorldCom, Inc. Stockton's
customers place stringent demands on its engineer and installation services to
complete network build-out projects on time and under budget. Calling multiple
supplier sources to determine best price and ready availability was costing
Stockton valuable time and money. By using our marketplace, Stockton has
substantially reduced time searching for materials and now obtains favorable
pricing and availability. Allowing procurement flexibility, simple re-order
processing and self-service shipment status, telcobuy.com delivers the products
Stockton needs to satisfy its customers and increase its profitability.
SALES AND MARKETING
We market and sell our solution through direct sales, traditional and
Internet marketing initiatives and co-marketing relationships. Our efforts are
directed primarily to engineers, purchasing managers, project managers and
executives who are looking for a comprehensive e-commerce solution to their
telecommunications purchasing and supply needs.
Our experienced sales force concentrates on selling our larger scale
solutions to larger service providers. We also sell our purchasing solutions to
medium-sized and smaller service providers, such as CLECs and ISPs. In addition,
our sales team assists suppliers in offering solutions related to their product
offerings. Our sales professionals average over 15 years of experience in the
telecommunications infrastructure industry. By taking advantage of their
experience, we expect to continue to attract and retain purchasing professionals
and suppliers, grow our purchaser base and increase recurring business. We have
demonstrated the ability not only to obtain multi-million dollar programs with
many of our key purchasers and suppliers, such as SBC Communications, Bell
Atlantic, GTE, Fujitsu, Lucent and Tellabs, but also to leverage those successes
into additional recurring business. We will continue to focus on all of our
existing purchasers and suppliers while simultaneously marketing to new ones.
We use a variety of marketing channels to build recognition of our
Internet-based solution, as well as to promote our solutions to both purchasers
and suppliers. These channels include direct marketing, print and online
advertising, trade shows and seminars. We intend to communicate new product and
service offerings and other enhancements to industry analysts and business media
on a regular basis through press releases, phone briefings, in-person meetings
and trade show appointments. We also may enter into strategic relationship
agreements with key suppliers which provide incentives in the form of warrants
or other equity interests based upon the attainment of certain performance based
criteria.
TECHNOLOGY
We have expended significant resources in developing all the necessary
components to operate our marketplace and services successfully. We are hosted
at a third-party data center based in St. Louis, Missouri and are accessible by
standard Web browsers, requiring minimal software installation at the purchaser
site and enabling rapid deployment of applications, enhancements and updates. We
use technology including Cisco Systems, Inc. network technology, Sun
Microsystems servers, BEA Systems, Inc. WebLogic server software, webMethods,
Inc. business-to-business integration software and enterprise-class database, as
well as enterprise resource planning (ERP) applications from Oracle Corporation.
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The Systems Architecture for our marketplace consists of five technology
layers: Network, Operating Systems, Databases and Directories, Middleware and
Applications. In addition, systems management and control is built into each
technology layer of the architecture.
We have developed our e-commerce solutions utilizing XML technology and
other advanced development methodologies and Internet-based tools that enable
rapid development and deployment of customized versions of our marketplace and
services. We believe this will allow us to quickly deliver purchaser-specific
solutions while minimizing development time and costs. Our systems architecture
is designed to accommodate the expected growth in the number of products
offered. Using custom-developed data management applications, we also provide a
scalable marketplace environment to convert and maintain the product data
provided by suppliers for inclusion in our product catalog databases.
We own or lease from World Wide Technology all of our front-office and
back-office production servers and Web site hardware. Our Web site runs on
multiple redundant product application servers. The third-party data center in
St. Louis provides us with environmentally controlled space, 24-hour systems
support and high bandwidth Internet connectivity via redundant high-speed
connections.
INTELLECTUAL PROPERTY
We entered into a Licensing Agreement with World Wide Technology on January
21, 2000, effective as of October 1, 1999. This agreement grants us a
non-exclusive, world-wide, perpetual license to use, modify, develop
applications for, market, distribute and sub-license the business-to-business
Internet technology used by telcobuy.com. Our use of this technology is
unlimited while World Wide Technology, the owner of the technology, is
restricted as follows:
- World Wide Technology cannot use the technology to provide products or
services to vendors or purchasers who derive more than 25% of their
revenue from telecommunications equipment sales or whose revenues from
such sales exceeds $100 million; and
- we have the first right to take advantage of any business opportunities
to strategically use the technology, even if World Wide Technology first
learns of the opportunity.
As enhancements to the technology are developed while the technology is
resident at World Wide Technology, those enhancements go with this license.
Should we so choose, we may install and maintain, at our expense, a duplicate of
the technology at our own facilities. Once the technology is transferred to our
facilities, World Wide Technology is required to deliver a copy of the source
code to us and we can create and use derivative works of the technology.
We rely on a combination of trade secret, copyright, service mark and
trademark laws, license agreements, nondisclosure and other contractual
provisions and technical measures to protect our proprietary rights in our
products, technology and processes. We have applied for registration of the mark
"telcobuy.com" and the telcobuy.com logo in the United States; however, we may
not be able to secure adequate protection for our service marks and trademarks
in the United States and other countries. Our software technology is not
patented and existing copyright laws offer only limited practical protection. We
cannot guarantee that the legal protections on which we rely will be adequate to
prevent misappropriation of our technology. Moreover, these protections do not
prevent independent third-party development of competitive products or services.
Furthermore, the validity, enforceability and scope of protection of
intellectual property in Internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States. We believe our
proprietary rights do not infringe upon the proprietary rights of third parties.
However, we cannot provide any guarantees about the third party products or
services sold in our marketplace or that third parties will not assert
infringement claims against us in the future or that any such assertion will not
require us to enter into a license agreement or royalty agreement with the party
asserting a claim. If the products or services sold in our marketplace infringe
the proprietary rights of third parties, we may be deemed to infringe those
rights by selling such products or services. Even the successful defense of an
infringement claim could result in substantial costs and diversion of our
management's efforts.
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World Wide Technology and we rely on licenses with third parties such as
Oracle, Sun Microsystems and Microsoft Corporation for the use of their
technology. Should these licenses be terminated for any reason, this could have
a material adverse effect on our business.
COMPETITION
The market for the services that we offer is new, competitive and rapidly
evolving. Our primary competition includes the following:
E-Commerce Providers. A number of e-commerce providers have established
online marketplaces in other industries such as the life sciences, energy,
chemicals and telecommunications services. Although these companies do not
currently compete in the telecommunications infrastructure industry, it is
possible that any of these companies or other e-commerce providers will build an
online telecommunications infrastructure community. In addition, BellSouth
Corporation and Commerce One, Inc. have announced that they intend to form a
joint venture to develop an Internet marketplace for the telecommunications
infrastructure industry. A BellSouth/Commerce One joint venture may prove to be
a formidable competitor as together they have significant resources and
knowledge and experience in the telecommunications and Internet business-to-
business industries.
Traditional Telecommunications Distributors. Competition will come from
traditional distributors. There are numerous traditional distributors that offer
telecommunications products. Primary competition within this market segment will
come from distributors such as Graybar Inc. and Anixter Inc. who purchase
thousands of products from manufacturers, offer them to purchasers and provide
distribution services. Most traditional distributors have only rudimentary,
static and informational Web site catalogs.
Suppliers' E-Commerce Initiatives. Many suppliers have developed their own
e-commerce Web sites. As the online market for products and services grows, we
expect that these and other suppliers will further develop their own online
services. Every telcobuy.com supplier represents a potential competitor; these
include suppliers such as GTE Supply, manufacturers such as Fujitsu, engineering
and installation contractors such as Butler Telecom Inc. and telephone companies
such as SBC Communications.
We believe that companies in this market compete based on brand
recognition, breadth of products and services, price, ease of use, customer
service and fulfillment capabilities. Competition is likely to intensify as this
market matures. As competitive conditions intensify, competitors may enter into
strategic or commercial relationships with larger, more established and
well-financed companies and devote substantially more resources to Web site and
systems development. Our current and potential competitors' Internet-based
marketplaces may achieve greater market acceptance than ours. Many of our
existing and potential competitors, including large traditional distributors,
have longer operating histories in the market for telecommunications
infrastructure equipment and services, greater name recognition, larger
purchaser bases and greater financial, technical and market resources than we
do.
In addition, new technologies and the expansion of existing technologies
may increase competitive pressures. As a result of increased competition, we may
experience reduced operating margins, as well as loss of market share and brand
recognition. We cannot be certain that we will be able to compete successfully
against current and future competitors and competition could have a material
adverse effect on our revenue growth and earnings.
GOVERNMENT REGULATIONS
We are subject to various laws and regulations relating to our business.
Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted or interpreted in the United
States and abroad with particular applicability to the Internet. In addition, it
is possible that governments may enact legislation that may be applicable to us
in areas such as content, product distribution, network security, encryption and
the use of key escrow, data and privacy protection, electronic authentication or
"digital" signatures, illegal and harmful content, access charges and
re-transmission activities. Moreover, the applicability to the Internet of
existing laws governing issues such as property ownership, content,
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taxation, defamation, personal privacy, product liability and environmental
protection, as well as the necessity for governmental permits, labeling,
certifications and the need to supply information to relevant parties, is
uncertain. Most of these laws were adopted before the widespread use and
commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any export
or import restrictions, new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase our cost of doing business or increase our legal exposure. Any of these
factors could have a negative effect on our business, revenues, results of
operations and financial condition.
Because we are a certified minority contractor, to the extent there are
changes of a regulatory or political nature that discourages the use of minority
companies such as ours, it may have a material adverse effect on our business.
We collect sales taxes in the jurisdictions where we are required to do so.
Our failure to properly collect and pay such taxes in all of such jurisdictions
could subject us to penalties that could adversely affect our earnings. Even if
we do collect taxes properly for each of the jurisdictions required, the
collection and payment of such taxes causes us to incur significant
administrative effort and expense.
FACILITIES
Our headquarters are located in St. Louis, Missouri, where, pursuant to an
agreement with World Wide Technology, we currently occupy approximately 114,000
square feet of office and warehouse space owned or leased by World Wide
Technology. World Wide Technology's lease on the property expires in February
2005. We also occupy approximately 22,000 square feet of office space in Dallas,
Texas through February 2002. We currently lease approximately 150,000 square
feet of office and warehouse space in Plano, Texas through March 2005. We expect
these facilities to be sufficient for the foreseeable future.
EMPLOYEES
As of March 10, 2000, we had 97 full-time employees. None of our employees
are covered by a collective bargaining agreement. We consider our relations with
our employees to be good.
LEGAL PROCEEDINGS
While we may be subject to legal proceedings arising out of the ordinary
course of business, we are not a party to any material legal proceedings.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to our directors
and executive officers as of March 16, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David L. Steward.......................... 49 Chairman of the Board of Directors
James P. Kavanaugh........................ 37 Chief Executive Officer and Director
Mark J. Catalano.......................... 45 President and Chief Operating Officer
Thomas W. Strunk.......................... 32 Chief Financial Officer and Director
Robert M. Olwig........................... 39 Chief Technology Officer
Julene J. Tojo............................ 36 Vice President of Business Operations
Alan T. Hirabayashi....................... 39 Vice President of E-Business
Ann W. Marr............................... 42 Vice President of Human Resources
Scott C. Collins.......................... 34 Director
Sean M. Dalton............................ 29 Director
Robert T. Ebert, Jr. ..................... 37 Director
</TABLE>
David L. Steward co-founded telcobuy.com and has served as Chairman of the
Board since January 2000. In 1990, Mr. Steward co-founded World Wide Technology,
our majority stockholder, where he currently serves as the Chief Executive
Officer. Before founding World Wide Technology, Mr. Steward held various sales
and marketing positions with Wagner Electric, Missouri Pacific Railroad and
Federal Express. He currently serves on the board of directors of The St. Louis
Regional Commerce and Growth Association, Missouri Technology Corporation,
Webster University, BJC Health System, Union Memorial Outreach Center, St. Louis
Science Center, The United Way of Greater St. Louis and The Greater St. Louis
Area Council Boy Scouts of America. Mr. Steward holds a bachelors degree in
business management from Central Missouri State University.
James P. Kavanaugh co-founded telcobuy.com and has served as our Chief
Executive Officer since our inception in October 1999 and has served as a
director since January 2000. Mr. Kavanaugh co-founded World Wide Technology
where he served from 1990 until October 1999, most recently as President and
Chief Operating Officer. Before founding World Wide Technology, Mr. Kavanaugh
was employed by Future Electronics where he worked in sales and management for
two years. Mr. Kavanaugh holds a bachelors degree in marketing from St. Louis
University. After graduating from St. Louis University, Mr. Kavanaugh was
drafted as the second pick in the Professional Soccer Draft and was a member of
the U.S. Olympic Soccer Team in 1984.
Mark J. Catalano has served as our President and Chief Operating Officer
since our inception in October 1999. From July 1997 to October 1999, Mr.
Catalano served as Vice President and General Manager of World Wide Technology's
Telco Business Unit. Prior to joining World Wide Technology, Mr. Catalano was a
Regional Vice President at TIE Communications, Inc., a telecommunications voice
and network solutions company. Mr. Catalano holds a bachelors degree from the
University of Missouri - Columbia.
Thomas W. Strunk has served as our Chief Financial Officer and has served
as a director since our inception in October 1999. From 1994 until October 1999,
Mr. Strunk served as the Vice President of Finance of World Wide Technology.
Before joining World Wide Technology, Mr. Strunk served as Controller for a
privately held construction company. Mr. Strunk is a Certified Public Accountant
and holds a bachelors degree in accounting from St. Louis University.
Robert M. Olwig has served as our Chief Technology Officer since our
inception in October 1999. From 1996 to October 1999, Mr. Olwig was employed by
World Wide Technology, most recently serving as Vice President of Information
Technology. Mr. Olwig has over 14 years of experience in the information
technology industry, including technical, sales and sales management
responsibilities at McDonnell Douglas
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Corporation, Digital Equipment Corporation and most recently at Novell, Inc.
where he served as a Regional Channel Manager. Mr. Olwig holds a bachelors
degree from St. Louis University.
Julene J. Tojo has served as our Vice President of Business Operations
since our inception in October 1999. Ms. Tojo, along with David Steward and Jim
Kavanaugh, was a member of the team that founded World Wide Technology, most
recently serving as Director of Business Operations. Ms. Tojo has over 12 years
experience in the technology industry, having worked for Future Electronics in
sales for two years prior to joining World Wide Technology in 1990. Ms. Tojo
graduated with a bachelors degree from Southeast Missouri State University.
Alan T. Hirabayashi has served as our Vice President of E-Business since
our inception in October 1999. Mr. Hirabayashi joined World Wide Technology in
1997. Mr. Hirabayashi has over 17 years of experience in the information
technology industry, including technical, sales and sales management
responsibilities at Digital Equipment Corporation where he worked from 1984 to
1997, most recently as Channel Business Manager. Mr. Hirabayashi holds a
bachelors degree and a master of business administration both from St. Louis
University.
Ann W. Marr has served as our Vice President of Human Resources since our
inception in October 1999. Ms. Marr joined World Wide Technology in 1997, as
Director of Human Resources. Ms. Marr has over 12 years of human resources
experience. Prior to joining World Wide Technology she was employed as the Human
Resources Manager at Enterprise Rent-A-Car and Anheuser-Busch Companies. Ms.
Marr attended Webster University.
Scott C. Collins has served as a director since January 2000. Mr. Collins
is a Principal at Summit Partners, a venture capital firm based in Boston and
Palo Alto, California. Mr. Collins has worked at Summit since 1996 and
specializes in communications related investments. He serves as a director of
numerous private companies. Prior to Summit, Mr. Collins was employed as a
strategy consultant at McKinsey & Co., a global management consulting firm. Mr.
Collins holds a bachelors degree in economics from Harvard College where he
graduated magna cum laude and a J.D. from Harvard Law School where he graduated
cum laude.
Sean M. Dalton has served as a director since January 2000. Mr. Dalton is a
General Partner of Highland Capital Partners, a venture capital firm, which he
joined in May 1998. Previously, Mr. Dalton was a product manager for GTE where
he developed network-based solutions for internet service providers, and was
also responsible for leading the first U.S. Asymmetric Digital Subscriber Line
Internet trial in 1996. He serves as a director of several private
communications companies. Mr. Dalton holds a bachelors degree in engineering
from the University of Delaware, a masters degree in electrical engineering from
the University of Pennsylvania, and a masters of business administration from
Harvard Business School.
Robert T. Ebert, Jr. has served as a director since March 2000. He is a
partner in the law firm of Bryan Cave LLP. Since February 1998, while the
company operated as a division of World Wide Technology, Mr. Ebert served as
member of the advisory Board of Directors of World Wide Technology. Mr. Ebert
holds a bachelors degree in accounting from the University of Notre Dame, where
he graduated magna cum laude and a J.D. from the University of Missouri -
Columbia, where he graduated cum laude and Order of the Coif.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of between
five and 20 directors as determined by the board. Currently our board consists
of six directors. Each director will stand for election at each annual
stockholders' meeting. There are no family relationships among any of our
directors and executive officers.
AUDIT COMMITTEE
We have established an audit committee of our Board of Directors. The audit
committee currently consists of Messrs. Collins, Dalton and Ebert. Our audit
committee will recommend for approval by the board of directors a firm of
certified public accountants to audit our financial statements. The audit
committee will also monitor the effectiveness of the audit effort, our financial
accounting organization and controls.
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DIRECTOR COMPENSATION
We do not currently compensate our directors for their services as members
of our board of directors, although we do reimburse them for travel and lodging
expenses in connection with attendance at board and committee meetings. Our
directors are eligible to receive options under our Unit Option Plan and 2000
Stock Option Plan. We will review our board compensation prior to the completion
of this offering. We recently granted options to certain of our directors. See
"-- Recent Option Grants" on page 37.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
total remuneration paid to our chief executive officer and each of our other
four most highly compensated executive officers in fiscal year 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(1)
--------------------------- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
James P. Kavanaugh..................... $100,000 $403,368 -- $3,093
Chief Executive Officer and Director
Mark J. Catalano....................... 78,600 188,223 -- --
President and Chief Operating Officer
Thomas W. Strunk....................... 60,000 110,823 -- 2,777
Chief Financial Officer and Director
Robert M. Olwig........................ 70,000 81,273 -- --
Chief Technology Officer
Julene J. Tojo......................... 50,000 81,273 -- 564
Vice President of Business Operations
</TABLE>
- ---------------
(1) Represents insurance premiums paid on behalf of the employee by us.
UNIT OPTION PLAN
Our Unit Option Plan was adopted by the board of managers of telcobuy.com
LLC on February 15, 2000, effective January 27, 2000. The Unit Option Plan
allows for the issuance of 4,500,000 Class C membership units. These grants may
be made to our employees, directors, consultants, advisors, strategic partners
and other key individuals associated with us or World Wide Technology. Of the
units reserved for issuance under the Unit Option Plan, 2,709,250 Class C
membership units remain available for future issuance as of March 16, 2000.
The Unit Option Plan is administered by our chief executive officer who
may:
- select the individuals eligible to receive awards and the amount of each
award;
- determine the terms and conditions of the awards granted, including the
exercise price of options granted under the plan;
- prescribe, amend and rescind rules and regulations; and
- administer and interpret the plan.
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<PAGE> 41
Options are subject to vesting schedules, terminate ten years from the date
of grant and may be exercised for specified periods after the termination of the
holder's employment or other service relationship with us. Upon the exercise of
options, the option exercise price must be paid in full by one of the following
means:
- cash;
- at the discretion of our chief executive officer, by delivery of units
that have been owned by the holder for at least six months; and
- at the discretion of our chief executive officer, by any combination of
cash and units.
In the event of a conversion into a corporation, the option agreements
contain provisions that allow for the substitution and/or the adjustment of
shares of common stock or other equity securities subject to each outstanding
option, as determined at our sole discretion. The term of the Unit Option Plan
is ten years, unless sooner terminated by our chief executive officer.
RECENT OPTION GRANTS
Effective as of February 16, 2000, we granted options to purchase 1,790,750
shares of common stock under the Unit Option Plan to approximately 375
employees, consultants, directors and advisory directors of telcobuy.com and
World Wide Technology. These options are exercisable at a price of $4.05 per
share and have varying vesting schedules, with 331,500 options vesting in
November 2000, 528,000 vesting in May 2001, 166,500 vesting in November 2001,
410,875 vesting in May 2002, 153,000 vesting in May 2003 and 200,875 vesting in
May 2004.
We granted options to certain of our executive officers and directors:
- 315,000 options to each of Messrs. Catalano and Strunk, with one-half of
the options vesting in November 2000 and one-half of the options vesting
in May 2001;
- 120,000 options to Mr. Olwig, with one-half of the options vesting in May
2001 and one-half of the options vesting in May 2002;
- 60,000, 40,000 and 20,000 options to Ms. Tojo, Mr. Hirabayashi and Ms.
Marr, respectively, with one-half of the options vesting in November 2001
and one-half of the options vesting in May 2003; and
- 6,000 options to Mr. Ebert, for his services as an advisory director to
World Wide Technology, with one-half of the options vesting in November
2000 and one-half of the options vesting in May 2001.
2000 STOCK OPTION PLAN
Our 2000 Stock Option Plan was approved by the board of directors on March
16, 2000. We have reserved 2,500,000 shares of common stock for issuance under
this plan and all of these shares are available for future issuance. The number
of shares reserved and available for grant and issuance under this plan will be
increased annually by an amount equal to the least of:
- 2,500,000 shares of common stock;
- the number of shares of common stock subject to options granted under the
2000 Stock Option Plan in the previous one-year period; or
- an amount determined by the board of directors.
In no event, however, will the total number of shares subject to options under
this plan exceed 20% of the then outstanding shares.
The following shares will be available for grant and issuance under our
2000 Stock Option Plan:
- shares issuable upon exercise of an option granted under this plan that
is terminated or canceled before the option is exercised; and
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- shares used by the option holder as full or partial payment of the
exercise price issued upon exercise of an option granted under this plan
that are subsequently repurchased by us at the original purchase price.
Our 2000 Stock Option Plan will terminate in ten years, unless earlier
terminated in accordance with the terms of the plan. Our 2000 Stock Option Plan
authorizes the award of incentive stock options, non-qualified stock options and
stock appreciation rights. No person will be eligible to receive more than
1,000,000 shares in any calendar year under this plan. This plan is administered
by our board of directors or a committee of the board of directors. The board of
directors or the committee has the authority to interpret this plan and any
agreement made under the plan, grant awards and make all other determinations
for the administration of this plan.
The exercise price of options granted under the 2000 Stock Option Plan is
determined by the board of directors or the committee. Under present law,
incentive stock options may not be granted at an exercise price less than the
fair market value of the common stock on the date of grant, or less than 110% of
the fair market value in the case of incentive stock options granted to persons
holding more than 10% of the voting power of our stock. In addition, the maximum
aggregate fair market value of the common stock with respect to incentive stock
options which are exercisable for the first time is $100,000 for any calendar
year.
Non-qualified stock options may be granted at prices which are less than
the fair market value of the underlying shares on the date granted. Options are
subject to vesting schedules, terminate ten years from the date of grant and may
be exercised for specified periods after the termination of the holder's
employment or other service relationship with us. Upon the exercise of options,
the option exercise price must be paid in full by one of the following means:
- cash;
- in the discretion of the board of directors or the committee, by delivery
of shares of common stock; or
- in the discretion of the board of directors or the committee, by any
combination of cash and shares of common stock.
No shares of common stock may be tendered in the exercise of an incentive
stock option unless such shares have been held by the option holder for at least
one year and at least two years have elapsed since the incentive stock option
was granted.
Stock appreciation rights, commonly called "SARs," represent a right to
receive a benefit equal to the appreciation in the value of a given number of
shares over a specified period. The board of directors or the committee, in its
discretion, may grant a SAR for all or any part of the number of shares covered
by a holder's option. To exercise a SAR, the holder must deliver a written
notice to us specifying the number of shares and the exercise amount the holder
requests to be paid in cash and the portion, if any, the holder requests to be
paid in common stock. The board of directors or the committee, in its sole
discretion, determines what portion of the exercise amount will be paid in cash
and what portion will be paid in common stock.
Except as provided under the 2000 Stock Option Plan, awards granted under
the plan may not be transferred in any manner other than by will or by the laws
of descent and distribution.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving on our board of directors.
EMPLOYMENT AGREEMENTS
Mr. Kavanaugh's employment agreement, dated January 21, 2000, provides for
an initial annual salary of $160,000 and an annual bonus based upon our
achievement of performance goals determined by the board of directors or a
committee of the board of directors.
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In the event of Mr. Kavanaugh's death during the term of his employment or
his incapacity or inability to perform his employment services, he or his legal
representative will receive his annual salary for the remainder of the calendar
year, benefits (as applicable) for the remainder of the calendar year and six
months of the following year, and 100% of Mr. Kavanaugh's options will become
fully vested and exercisable. If Mr. Kavanaugh is terminated by the Company
without cause, he is terminated following the occurrence of a change in control
event or he terminates the agreement for good reason, then he will receive a
severance package. Such package includes his annual salary at the time of
termination payable for two years, a pro rata bonus for the period through the
date of termination, an additional bonus for the twelve-month period following
termination and 100% of Mr. Kavanaugh's options will become fully vested and
exercisable. Mr. Kavanaugh is subject to a two-year non-compete agreement in the
event of his termination.
Each of Messrs. Catalano, Olwig and Strunk has an employment agreement,
dated March 16, 2000 and effective as of January 21, 2000, and will be paid an
initial annual salary of $140,000, $90,000 and $100,000, respectively. Each may
also earn an annual bonus based upon the achievement of performance goals as
established for each officer by our chief executive officer.
In the event of the death of one of these officers during the term of his
employment or his incapacity or inability to perform his employment services, he
or his legal representative will receive his annual salary for the remainder of
the calendar year, benefits (as applicable) for the remainder of the calendar
year and six months of the following year and 100% of his options will become
fully vested and exercisable. If the officer is terminated by the Company
without cause, he will receive severance payments equal to his annual salary at
the time of termination payable for one year, a pro rata bonus for the period
through the date of termination, an additional bonus for the twelve-month period
following termination and 100% of his options will become fully vested and
exercisable. Messrs. Catalano, Olwig and Strunk are each subject to a one-year
non-compete agreement in the event of termination.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We will enter into agreements to indemnify our directors and officers in
addition to the indemnification provided for in our certificate of incorporation
and bylaws. See "Description of Capital Stock -- Limitation of Liability and
Indemnification" beginning on page 46.
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RELATED PARTY TRANSACTIONS
FORMATION, RECAPITALIZATION AND CONVERSION TO CORPORATION
On October 1, 1999, we began operating as a limited liability company under
the laws of Delaware. Our initial members were World Wide Technology, James P.
Kavanaugh and David L. Steward, who each owned percentage interests in the
limited liability company. We were initially capitalized by the contribution of
certain assets, including inventories, contract rights and accounts receivable,
by World Wide Technology and we agreed to assume certain liabilities of World
Wide Technology associated with the contributed assets. These contributed assets
were independently valued at $81.5 million, and World Wide Technology owned all
of the capital interests in the limited liability company. Messrs. Kavanaugh and
Steward were issued profits interests in the limited liability company. Prior to
our formation, we were operated as a division of World Wide Technology.
On January 21, 2000, we recapitalized the limited liability company and
issued and sold an aggregate of 100,000 Class A membership units and 6,750,000
Class C membership units to entities affiliated with Highland Capital Partners,
Inc. and Summit Partners, L.P. and entered into an agreement to pay them an
aggregate of $735,000 upon certain major capital events. Also, as of January 21,
2000, we entered into the following transactions in exchange for the capital and
percentage interests in the limited liability company that each owned prior to
the recapitalization:
- issued to World Wide Technology 100,000 Class B membership units and
17,358,525 Class C membership units and entered into an agreement to pay
World Wide Technology $4.5 million upon certain major capital events;
- issued to David L. Steward 2,700,000 Class C membership units; and
- issued to James P. Kavanaugh 6,525,000 Class C membership units.
On March 2, 2000, effective as of January 21, 2000, we issued and sold 10,000
Class A membership units and 675,000 Class C membership units to Donaldson,
Lufkin & Jenrette Securities Corporation for an aggregate of $2.5 million and
30,737 Class C membership units to LeadingEdge Investors 2000, L.L.C. for
$75,000. In connection with the recapitalization, we and our investors entered
into an Amended and Restated Operating Agreement.
Prior to March 13, 2000, we had access to funds under World Wide
Technology's then existing credit agreement with its lender, Mercantile Business
Credit Inc. When World Wide Technology contributed assets to us, its lender
required that we guarantee all of World Wide Technology's obligations under the
credit agreement, in addition to the obligations that were advanced to us. Our
guarantee was secured by all of our assets. When we were recapitalized, we
entered into an agreement with World Wide Technology whereby World Wide
Technology would advance credit to us to be funded by borrowings made by World
Wide Technology under its existing credit agreement. The advances that World
Wide Technology made to us were at the same rates as those charged by World Wide
Technology's lender. Also when we were recapitalized, Messrs. Kavanaugh and
Steward guaranteed any amounts that we would be required to pay under our
guarantee of World Wide Technology's obligations under its credit agreement. The
guarantee of Messrs. Kavanaugh and Steward was secured by a pledge of their
Class C membership units and was limited to amounts that exceed the amount that
World Wide Technology advanced to us. Recently, we entered into our own credit
agreement with Mercantile Business Credit Inc. and our guarantee of World Wide
Technology's obligations and security agreement and the guarantee and pledge of
Messrs. Kavanaugh and Steward will be canceled. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" on page 23.
We will convert to a corporation prior to the completion of this offering
pursuant to the merger of telcobuy.com LLC into telcobuy.com, Inc. In connection
with this merger, each of the Class A membership units will convert into one
share of Series A Preferred Stock, the 100,000 Class B membership units will
convert into 6,491,475 Class C membership units and each of the Class C
membership units will convert into one share of common stock. Upon completion of
this offering, we will redeem all of the shares of Series A
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<PAGE> 45
Preferred Stock and pay $12.5 million to entities affiliated with Highland
Capital Partners, $12.5 million to entities affiliated with Summit Partners and
$2.5 million to Donaldson, Lufkin & Jenrette Securities Corporation, in each
case plus a cumulative preferred return of eight percent compounded annually. We
will use some of the proceeds of this offering to redeem the shares of Series A
Preferred Stock. See "Description of Capital Stock" beginning on page 46 and
"Use of Proceeds" on page 15.
Also in connection with this merger, we will issue to World Wide
Technology, as the former holder of all of the Class B membership units, a
promissory note in the amount of $4.5 million, and we will issue to entities
affiliated with Highland Capital Partners and Summit Partners promissory notes
in the aggregate amount of $735,000, based upon their proportionate ownership of
Class C membership units. The amounts due under such promissory notes will
become payable upon the completion of this offering. We will use some of the
proceeds of this offering to make the payments due under such promissory notes.
See "Use of Proceeds" on page 15.
In addition, we will enter into a stockholders' agreement with entities
affiliated with Highland Capital Partners and Summit Partners and other
investors. The stockholders' agreement will provide for "come along" rights and
certain rights to sell their common stock back to us if we do not consummate a
public offering prior to January 21, 2005, which rights will terminate upon the
completion of this offering.
The stockholders' agreement will also provide for certain registration
rights. Subject to certain restrictions, entities affiliated with Highland
Capital Partners and Summit Partners and the other investors who are a party to
the stockholders' agreement will have the right to require that we register the
sale of their shares of common stock under the Securities Act. The stockholders
are limited to two demand registrations. A demand registration must be requested
by holders of shares of common stock holding at least two-thirds in number of
the number of registrable shares held by all stockholders making the demand. The
stockholders are also entitled to certain "piggy-back" registration rights; the
right to include their registrable shares in a registered offering of common
stock by us for our own account or for the account of another stockholder,
subject to certain restrictions. In addition to their demand and piggy-back
registration rights, once we are eligible to use a registration statement on
Form S-3, the stockholders have the right to request us to register their
registrable shares on Form S-3. We are not required to file a registration
statement on Form S-3 more than twice in any twelve-month period. We will pay
all expenses (except for underwriting discounts and commissions) in connection
with a registration of the stockholders shares. We and the stockholders have
agreed to customary indemnification obligations in connection with the
registration and sale of any registrable shares. We agreed that we will not
enter into any agreement with respect to the registration of securities that is
inconsistent with, or superior to, the rights granted to the stockholders. The
stockholders may transfer their registration rights to any person acquiring any
registrable shares.
TRANSACTIONS WITH WORLD WIDE TECHNOLOGY
World Wide Technology is our majority stockholder. World Wide Technology's
common stock is beneficially owned 85% by Mr. Steward and 15% by Mr. Kavanaugh.
After the completion of this offering, World Wide Technology will own
approximately % of our outstanding common stock, or approximately % if
the underwriters' over-allotment option is exercised in full. World Wide
Technology is a Missouri corporation which is principally engaged in the sale of
technology services and products, especially as they relate to business
solutions using the Internet.
General Services Agreement
We entered into a General Services Agreement with World Wide Technology on
January 21, 2000, effective as of October 1, 1999. This agreement governs the
relationship between us and World Wide Technology when we elect to use World
Wide Technology's resources for certain services. Under the terms of the
agreement, World Wide Technology will provide back-office and information
technology services to us in accordance with past practices when we were
operated as a separate division of World Wide Technology. The agreement allows
us to take advantage of experience, efficiencies and resources in place at World
Wide Technology for both back-office services as well as consulting services.
Because World Wide Technology has
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been hosting and operating the critical business-to-business Internet technology
from its inception in 1996, it is currently in the best position to handle
certain day-to-day operational issues, such as information technology support
and web hosting, accounts payable processing and accounts receivable processing.
By outsourcing this work, we free-up critical time and resources that we believe
can be better spent expanding our business. The agreement has a one-year term,
and we have the option to extend the term for two additional one-year periods.
The agreement provides that for six months after expiration or termination,
World Wide Technology is required to provide, for a fee, transition assistance
to help us take over the functions World Wide Technology was performing.
We agreed to pay World Wide Technology for back-office services, the actual
direct costs incurred by World Wide Technology for hourly personnel providing
such services, plus an allocation of World Wide Technology's indirect costs
incurred in providing such services as determined on a consistent basis with
World Wide Technology's cost allocations to its business units and up to 20% of
the sum of the direct and indirect costs. World Wide Technology and we will meet
quarterly to discuss the prices for the back-office services based on the
current and expected levels of back-office services and World Wide Technology's
staffing and cost structure in providing the back-office services. If we do not
agree each quarter on the price of the back-office services to be provided, the
agreements provide for the use of alternative dispute resolution procedures. We
will agree on the prices to be paid for consulting services on a case-by-case
basis.
If World Wide Technology's ownership of our outstanding equity falls below
30%, then either World Wide Technology or we may terminate the agreement upon 90
days' notice, and World Wide Technology may terminate the agreement if we breach
the agreement or fail to pay World Wide Technology for services provided under
the agreement. Pursuant to the agreement, we agreed to indemnify World Wide
Technology for certain damages, including any damages that World Wide Technology
may suffer as a result of our actions under certain subcontracts. In 1999, World
Wide Technology allocated to us expenses of approximately $5.4 million for
services of the kind that World Wide Technology will provide to us under the
agreement. We expect to pay World Wide Technology not less than $8.0 million in
2000 for such services.
Licensing Agreement
We entered into a Licensing Agreement with World Wide Technology on January
21, 2000, effective as of October 1, 1999. Pursuant to this agreement, World
Wide Technology granted to us a non-exclusive, world-wide, perpetual license to
use, modify, develop applications for, market, distribute and sub-license the
business-to-business Internet technology used by us. Our use of this technology
is unlimited while World Wide Technology, the owner of the technology, is
restricted as follows:
- World Wide Technology cannot use the technology to provide products or
services to vendors or purchasers who derive more than 25% of their
revenue from telecommunications equipment sales or whose revenues from
such sales exceeds $100 million; and
- we have the first right to take advantage of any business opportunities
to strategically use the technology, even if World Wide Technology first
learns of the opportunity.
As enhancements to the technology are developed while the technology is
resident at World Wide Technology, those enhancements go with this license.
Should we choose, we may install and maintain, at our expense, a duplicate of
the technology at our facilities. Once transferred to our facilities, World Wide
Technology must deliver a copy of the source code to us and we can create and
use derivative works of the technology.
We will pay a one-time $75,000 license fee to World Wide Technology, within
10 days of the completion of this offering, as consideration for this license.
GENERAL
Some of our directors and executive officers are or were also directors and
executive officers of World Wide Technology. These officers may have had a
conflict of interest in negotiating these arrangements. Although we believe that
the terms of such agreements are at least as favorable to us as those that we
could
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negotiate with unrelated parties, these agreements may be modified in the future
and additional agreements or transactions may be entered into between World Wide
Technology or its affiliates and us. Conflicts of interest could arise between
World Wide Technology and us with respect to any of the foregoing, or any future
agreements or arrangements between World Wide Technology and us.
In addition, Mr. Steward will be able to direct the outcome of matters
requiring approval by our stockholders, including the election of its directors.
Such control could delay or prevent a change of control of telcobuy.com.
One of our directors, Mr. Ebert, is a partner of Bryan Cave LLP, our legal
counsel.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of March 16, 2000, and as adjusted to reflect the sale of
the shares of common stock offered by this prospectus, by:
- each person known to us who beneficially owns more than 5% of our common
stock;
- each of our directors, each of our executive officers named in the
summary compensation table; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Beneficial ownership also includes shares of
stock subject to options and warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of the date of this prospectus.
Percentage of beneficial ownership is based on 40,530,737 shares of common stock
outstanding as of March 16, 2000 and shares of common stock
outstanding after completion of this offering, assuming the underwriters do not
exercise their over-allotment option. Unless otherwise indicated, to our
knowledge, all persons listed have sole voting and investment power with respect
to their shares of common stock, except to the extent authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
--------------------- ----------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ---------- ------- ---------- --------
<S> <C> <C> <C> <C>
David L. Steward(1)............................ 26,550,000 65.51% 26,550,000
James P. Kavanaugh............................. 6,525,000 16.10 6,525,000
Mark J. Catalano............................... -- -- --
Thomas W. Strunk............................... -- -- --
Robert M. Olwig................................ -- -- --
Julene J. Tojo................................. -- -- --
Alan T. Hirabayashi............................ -- -- --
Ann W. Marr.................................... -- -- --
Scott C. Collins(2)............................ 3,375,000 8.33 3,375,000
Sean M. Dalton(3).............................. 3,375,000 8.33 3,375,000
Robert T. Ebert, Jr............................ -- -- --
World Wide Technology, Inc.(4)................. 23,850,000 58.84 23,850,000
Highland Capital Partners(5)................... 3,375,000 8.33 3,375,000
Summit Partners(6)............................. 3,375,000 8.33 3,375,000
All directors and executive officers as a group
(11 persons)................................. 39,825,000 98.26% 39,825,000
</TABLE>
- ------------
(1) Consists of 23,850,000 shares owned by World Wide Technology and 2,700,000
shares owned by Mr. Steward personally. Mr. Steward beneficially owns 85% of
the outstanding common stock of World Wide Technology and may be deemed to
be a beneficial owner of its shares. James P. Kavanaugh beneficially owns
15% of the outstanding common stock of World Wide Technology.
(2) Includes:
- 3,083,667.03 shares held by Summit Ventures V, L.P.
- 176,705.82 shares held by Summit V Advisors Fund (QP), L.P.
- 54,000.00 shares held by Summit V Advisors Fund, L.P.
- 60,627.15 shares held by Summit Investors III, L.P.
The general partner of Summit V Advisors Fund (QP), L.P. and Summit V
Advisors Fund, L.P. is Summit Partners, LLC. The general partner of Summit
Ventures V, L.P. is Summit Partners V, L.P. and the general partner of Summit
Partners V, L.P. is Summit Partners, LLC. Mr. Collins, one of our directors,
is a member of Summit Partners, LLC.
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<PAGE> 49
Summit Partners, LLC, through an investment committee, has voting and
dispositive authority over the shares held by each of these entities and Summit
Investors III. Mr. Collins does not have voting or dispositive authority over
these shares and disclaims beneficial ownership of the shares held by Summit
Ventures V, L.P., Summit V Advisors Fund (QP), L.P., Summit V Advisors Fund,
L.P., and Summit Investors III, L.P. except to the extent of his pecuniary
interest therein arising from his general partnership interest in these
funds.
(3) Includes:
- 2,382,750.00 shares held by Highland Capital Partners V Limited
Partnership
- 614,250.00 shares held by Highland Subfund V -- TCB Limited Partnership
- 378,000.00 shares held by Highland Entrepreneurs' Fund V Limited
Partnership
The general partner of Highland Capital Partners V Limited Partnership and
Highland Subfund V -- TCB Limited Partnership is Highland Management Partners
V Limited Partnership and the general partner of Highland Management Partners
V Limited Partnership is Highland Management Partners V, Inc. The general
partner of Highland Entrepreneurs' Fund V Limited Partnership is HEF V
Limited Partnership and the general partner of HEF V Limited Partnership is
Highland Management Partners V, Inc. Mr. Dalton, one of our directors, is a
managing director of Highland Management Partners V, Inc. Mr. Dalton
disclaims beneficial ownership of the shares held by Highland Capital
Partners V Limited Partnership, Highland Subfund V -- TCB Limited
Partnership, and Highland Entrepreneurs' Fund V Limited Partnership except to
the extent of his pecuniary interest therein arising from his general
partnership interest in these funds.
(4) The address of World Wide Technology is 127 Weldon Parkway, St. Louis, MO
63043-3101.
(5) Includes:
- 2,382,750.00 shares held by Highland Capital Partners V Limited
Partnership
- 614,250.00 shares held by Highland Subfund V -- TCB Limited Partnership
- 378,000.00 shares held by Highland Entrepreneurs' Fund V Limited
Partnership
The general partner of Highland Capital Partners V Limited Partnership and
Highland Subfund V -- TCB Limited Partnership is Highland Management Partners
V Limited Partnership and the general partner of Highland Management Partners
V Limited Partnership is Highland Management Partners V, Inc. The general
partner of Highland Entrepreneurs' Fund V Limited Partnership is HEF V
Limited Partnership and the general partner of HEF V Limited Partnership is
Highland Management Partners V, Inc. The address of record for entities
affiliated with Highland Capital Partners, Inc. is Two International Place,
22nd Floor, Boston, MA 02210.
(6) Includes:
- 3,083,667.03 shares held by Summit Ventures V, L.P.
- 176,705.82 shares held by Summit V Advisors Fund (QP), L.P.
- 54,000.00 shares held by Summit V Advisors Fund, L.P.
- 60,627.15 shares held by Summit Investors III, L.P.
The general partner of Summit V Advisors Fund (QP), L.P. and Summit V
Advisors Fund, L.P. is Summit Partners, LLC. The general partner of Summit
Ventures V, L.P. is Summit Partners V, L.P. and the general partner of Summit
Partners V, L.P. is Summit Partners, LLC. Summit Partners, LLC, through an
investment committee, has voting and dispositive authority over the shares
held by each of these entities and Summit Investors III. The address of
record for entities affiliated with Summit Partners, L.P. is 600 Atlantic
Avenue, Suite 2800, Boston, MA 02210-2227.
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<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation authorizes us to issue up to 250,000,000
shares, par value $0.01 per share, of our common stock, and 20,000,000 shares,
par value $0.01 per share, of our preferred stock, 110,000 of which have been
designated as Series A Preferred Stock.
As of March 16, 2000, assuming that we merge into a corporation and the
simultaneous conversion of limited liability membership units into shares of
common stock and preferred stock, there were outstanding 40,530,737 shares of
our common stock held of record by 12 stockholders and 110,000 shares of Series
A Preferred Stock held of record by eight stockholders. As of March 16, 2000,
there were options to purchase 1,790,750 shares of our common stock at an
exercise price of $4.05 per share outstanding. Of the outstanding options, none
are now exercisable, but become exercisable at various times from November 2000
to May 2004. Upon the completion of this offering, we will have
outstanding shares of common stock.
The following description of provisions of our certificate of
incorporation, the certificate of designation with respect to the Series A
Preferred Stock and our bylaws is only a summary, and does not purport to be
complete. For a full understanding of these documents and the terms of our
capital stock, you should read the original documents, which we included as
exhibits to the registration statement of which this prospectus forms a part.
COMMON STOCK
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board from time to time may determine. Holders
of common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not authorized by our certificate of incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. This means that World Wide Technology may
elect all of our directors. The common stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon our liquidation,
dissolution or winding up, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the common stock
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will upon payment therefor be, duly and validly issued, fully paid
and nonassessable.
PREFERRED STOCK
The board is authorized, subject to any limitations prescribed by the
Delaware General Corporation Law, to issue preferred stock in one or more
series. The board can fix the rights, preferences and privileges of the shares
of each series and any qualifications, limitations or restrictions thereon. The
board may authorize the issuance of preferred stock with voting or conversion
rights that could adversely affect the voting power or other rights of the
holders of common stock. We currently have designated 110,000 shares of
preferred stock as Series A Preferred Stock, all of which were issued in
connection with our conversion to a corporation to the former holders of Class A
membership units. The issuance of preferred stock, while providing flexibility
in connection with possible acquisitions and other corporate purposes, could,
among other things, have the effect of delaying, deterring or preventing a
change in control of telcobuy.com. We have no current plans to issue any shares
of preferred stock, other than the shares of Series A Preferred Stock issued in
connection with our conversion to a corporation. See "Risk Factors -- Delaware
law and provisions in our charter documents might deter acquisition bids for us"
on page 12.
Holders of shares of Series A Preferred Stock are not entitled to dividends
and, except as may be required by law, are not entitled to vote. The Series A
Preferred Stock is mandatorily redeemable upon the completion of this public
offering. Holders of Series A Preferred Stock will be entitled to receive an
aggregate of $27.5 million ($250 for each share of Series A Preferred Stock),
plus a cumulative preferred return of eight percent interest compounded annually
commencing on the dates we received the funds to
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<PAGE> 51
purchase Class A membership units. The holders of Series A Preferred Stock are
entitled to a preference upon our liquidation, dissolution or winding up equal
to the amount that they would be paid upon a redemption following the
consummation of a public offering. Once we redeem the shares of Series A
Preferred Stock, such shares may be reissued, but only as part of a new series
of preferred stock to be designated by the board.
CERTAIN CHARTER AND BYLAW PROVISIONS
Some provisions of our certificate of incorporation and bylaws may have an
anti-takeover effect and may delay, deter or prevent a tender offer or takeover
attempt that a stockholder might consider in our best interest, including those
attempts that might result in a premium over the market price for the shares
held by our stockholders. These provisions include:
Board of Directors. Our certificate of incorporation authorizes our board
to fill vacant directorships or increase the size of the board. This may deter a
stockholder from removing incumbent directors and simultaneously gaining control
of the board by filling the vacancies created by such removal with its own
nominees.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely written
notice. To be timely, a stockholder's notice must be delivered to or mailed and
received by our corporate secretary not less than 120 days prior to the first
anniversary of the date of our notice of annual meeting provided with respect to
the previous year's annual meeting of stockholders. However, if no annual
meeting of stockholders was held in the previous year or the date of the annual
meeting of stockholders has been changed to a date more than 30 calendar days
from the time contemplated at the time of the previous year's proxy statement,
then a proposal must be received no later than the close of business on the
tenth day following the date on which notice of the date of the meeting was
mailed or a public announcement was made, whichever occurs first. The bylaws
also include a similar requirement for making nominations at special meetings
and specify certain requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at an
annual or special meeting of stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Delaware General
Corporation Law and the Nasdaq National Market. These additional shares may be
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved common stock and
preferred stock could render more difficult or discourage an attempt to obtain
control of telcobuy.com by means of a proxy contest, tender offer, merger or
otherwise.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers. Section 203, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the
47
<PAGE> 52
right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation and our bylaws limit the liability of
directors to the fullest extent permitted by the Delaware General Corporation
Law.
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that:
- we must indemnify our directors, officers, other employees and agents to
the fullest extent permitted by the Delaware General Corporation Law; and
- we must pay expenses of our directors, and may pay expenses of our
officers, other employees, agents or trustees, incurred in connection
with a legal proceeding before the final disposition of such proceeding.
These provisions are permitted under the Delaware General Corporation Law. In
addition, our bylaws provide that we must indemnify our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law. Prior
to the completion of this offering, we intend to enter into indemnification
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance providing indemnification
for our directors, officers and management employees for liabilities arising as
a result of their employment at telcobuy.com. We believe that
48
<PAGE> 53
these indemnification provisions and agreements are necessary to attract and
retain qualified directors and officers. The limitation of liability and
indemnification provisions in our certificate of incorporation and bylaws may
discourage stockholders from bringing a lawsuit against directors for breach of
their fiduciary duty. They may also reduce the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. Furthermore, a
shareholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant to
these indemnification provisions. Except as otherwise described in this
prospectus, there is at present no pending litigation or proceeding involving
any of our directors, officers or employees regarding which indemnification is
sought, nor are we aware of any threatened litigation that may result in claims
for indemnification.
TRANSFER AGENT
The transfer agent and registrar for the common stock is .
LISTING
There is currently no active trading market for our common stock. We intend
to apply to have our common stock approved for quotation on the Nasdaq National
Market under the symbol "TBUY."
49
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
A significant public market for our common stock may not develop or be sustained
after this offering. Future sales of substantial amounts of our common stock in
the public market, or the possibility of these sales occurring, could adversely
affect prevailing market prices for our common stock or our future ability to
raise capital through an offering of equity securities.
Upon completion of this offering, we will have shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of December 31, 1999, and the conversion of all outstanding shares of preferred
stock. Of these shares, the shares sold in this offering ( if
the underwriters' over-allotment option is exercised in full) will be freely
tradable in the public market without restriction or registration under the
Securities Act, unless the shares are held by our "affiliates," as that term is
defined in Rule 144 under the Securities Act.
The remaining shares of common stock outstanding upon completion
of this offering will be "restricted securities," as defined in Rule 144. We
issued and sold these restricted securities in private transactions in reliance
on exemptions from registration under the Securities Act. Restricted securities
may be sold in the public market only if they are registered or if they qualify
for an exemption from registration under Rule 144 or Rule 701 under the
Securities Act, as summarized below.
Under the terms of lock-up agreements, all the executive officers,
directors and stockholders of telcobuy.com, who collectively hold an aggregate
of of these restricted securities, will agree not to offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of any of
these shares for a period of 180 days from the date of this prospectus, subject
to limited exceptions. However, FleetBoston Robertson Stephens Inc. may, in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
Taking into account the lock-up agreements, and assuming FleetBoston
Robertson Stephens Inc. does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the following
times:
- on the date of this prospectus, the shares sold in the offering will be
immediately available for sale in the public market;
- 180 days after the date of this prospectus, approximately
shares will be eligible for sale under Rule 701 or under Rule 144; of
which will be subject to volume, manner of sale and other
limitations under Rule 144; and
- of the remaining shares, will be eligible for sale under
Rule 144 upon the expiration of various one-year holding periods.
Following the expiration of the lock-up period, shares issued upon exercise
of options we granted prior to the date of this prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act or Rule 144. Rule 701 permits resales of these shares beginning
90 days after the date of this prospectus. In general, under Rule 144, after
expiration of the lock-up period, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of our common stock; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale and notice
requirements and the availability of current public information about us. Under
Rule 144(k), a person who has not been our affiliate at any time during the
three months before a sale and who has beneficially owned the shares proposed to
be sold for at least two years can sell these shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
50
<PAGE> 55
After the effective date of this offering, we intend to file a registration
statement on Form S-8 to register shares of our common stock outstanding or
reserved for issuance under our various stock plans. The registration statement
will become effective automatically upon filing. Shares issued under the
foregoing employee benefit plans, after the filing of a registration statement
on Form S-8, may be sold in the open market, subject, in the case of some
holders, to the Rule 144 limitations applicable to affiliates and the lock-up
agreements. We also intend to file a registration statement to register resales
in the open market of shares issued upon exercise of options we granted prior to
the close of this prospectus that are not otherwise eligible for resale under
Rule 701 as described above.
51
<PAGE> 56
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., SG Cowen Securities Corporation and U.S.
Bancorp Piper Jaffray Inc., have severally agreed with us, subject to the terms
and conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc. ........................
SG Cowen Securities Corporation.............................
U.S. Bancorp Piper Jaffray Inc. ............................
------
Total
======
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per shares, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus has been determined through negotiations among the
representatives and us. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent (5%) of the total number of shares
offered.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock to cover
over-allotments, if any, at the public offering price less the underwriting
discount set forth on the cover page of this prospectus. If the underwriters
exercise their over-allotment option to purchase any of the additional
shares of common stock, the underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof as the number of shares to be purchased by each of them bears to the
total number of shares of common stock offered in this offering. If purchased,
these additional shares will be sold by the underwriters on the same terms as
those on which the shares offered hereby are being sold. We will be obligated,
pursuant to the over-allotment option, to sell shares to the underwriters to the
extent the over-allotment option is exercised. The underwriters may exercise the
over-allotment option only to cover over-allotments made in connection with the
sale of the shares of common stock offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
TOTAL
--------------------------------
PER WITHOUT WITH
SHARE OVER-ALLOTMENT OVER-ALLOTMENT
-------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
us.................................................
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .
52
<PAGE> 57
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up Agreements. Each of our executive officers and directors and all
of our other stockholders will agree, subject to specified exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. This restriction terminates after the close
of trading of the shares on the 180th day of (and including) the day the shares
commenced trading on the Nasdaq National Market. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time or from time to time
before the termination of the 180-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no existing
agreements between the representatives and any of our stockholders who have
executed a lock-up agreement providing consent to the sale of shares prior to
the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale" beginning on page 50.
Listing. We have applied for approval for the common stock to be quoted on
the Nasdaq National Market under the symbol "TBUY."
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1933, some persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the shares of common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock on behalf of the
underwriters for the purpose of fixing or maintaining the price of the common
stock. A "syndicate covering transaction" is the bid for or purchase of common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
Directed Share Program. At our request, the underwriters have reserved up
to five percent of the shares of common stock for sale at the initial public
offering price to persons who are directors, officers or employees of
telcobuy.com, or who are otherwise associated with us and our affiliates, and
who have advised us of their desire to purchase such shares. The number of
shares of common stock available for sale to the general public will be reduced
to the extent of sales of the directed shares to any of the persons for whom
they have been reserved. Any shares not so purchased will be offered by the
underwriters on the same basis as all other shares of common stock offered
hereby. We have agreed to indemnify the underwriters against certain liabilities
and expenses, including liabilities under the Securities Act, in connection with
the sales of directed shares.
53
<PAGE> 58
LEGAL MATTERS
Bryan Cave LLP, St. Louis, Missouri, as our counsel, will issue an opinion
as to the legality of the common stock. Certain matters will be passed upon for
the underwriters by Winston & Strawn, Chicago, Illinois. Bryan Cave LLP from
time to time serves as legal counsel to us and to some of our affiliates,
including World Wide Technology. LeadingEdge Investors 2000, L.L.C., an
investment vehicle comprised of partners of Bryan Cave LLP, owns 30,737 shares
of our common stock and Robert T. Ebert, Jr., a director of telcobuy.com and a
partner of Bryan Cave LLP, holds options to purchase 6,000 shares.
EXPERTS
Our financial statements as of December 31, 1998 and 1999, and for each of
the years in the three-year period ended December 31, 1999, have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and related exhibits and schedules. For
further information with respect to telcobuy.com and our common stock, we refer
you to the registration statement and the exhibits and schedules filed as a part
of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other document referred to are
not necessarily complete; we refer you to the copy of each contract or document
filed as an exhibit to the registration statement. Each such statement is
qualified in all respects by reference to that exhibit. Upon completion of the
offering, we will be subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and will file periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information, as well as the registration statement,
exhibits and schedules, may be inspected, without charge, or copied, at
prescribed rates, at the public reference facility maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information on the operation of the public reference room by
calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains
an Internet site that contains reports, proxy and information statements, and
other information regarding issuers that file electronically with the
Commission. The address of the Commission's Internet site is http://www.sec.gov.
54
<PAGE> 59
TELCOBUY.COM LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Shareholder's Net Investment/Members' Equity
for the years ended December 31, 1997, 1998 and 1999...... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Managers
telcobuy.com LLC:
We have audited the accompanying balance sheets of telcobuy.com LLC as of
December 31, 1998 and 1999, and the related statements of operations,
shareholder's net investment/members' equity, and cash flows for the three-year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 telcobuy.com LLC as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
St. Louis, Missouri
February 4, 2000, except as to note 9,
which is as of March 13, 2000
F-2
<PAGE> 61
TELCOBUY.COM LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
----------- ------------
<S> <C> <C>
ASSETS
Accounts receivable, net of allowance of $52,828 in 1999.... $ 6,811,228 $ 46,468,789
Inventories................................................. 4,410,260 68,285,854
Prepaid expenses and other current assets................... 156,627 614,358
----------- ------------
Total assets...................................... $11,378,115 $115,369,001
=========== ============
LIABILITIES AND SHAREHOLDER'S NET INVESTMENT/ MEMBERS'
EQUITY
Accounts payable............................................ $ 9,141,209 $ 98,553,323
Due to affiliate............................................ 1,574,490 13,073,395
Accrued expenses and other current liabilities.............. 558,145 2,048,820
----------- ------------
Total liabilities................................. 11,273,844 113,675,538
----------- ------------
Shareholder's net investment/members' equity:
Shareholder's net investment.............................. 104,271 --
Members' equity........................................... -- 1,693,463
----------- ------------
Total shareholder's net investment/members'
equity.......................................... 104,271 1,693,463
----------- ------------
Total liabilities and shareholder's net
investment/members' equity...................... $11,378,115 $115,369,001
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE> 62
TELCOBUY.COM LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Revenues........................................... $19,327,954 $52,962,266 $246,133,364
Cost of revenues................................... 17,481,034 50,356,535 235,169,407
----------- ----------- ------------
Gross profit............................. 1,846,920 2,605,731 10,963,957
----------- ----------- ------------
Operating expenses:
Corporate allocation............................. 478,029 1,306,483 5,405,398
Other operating expenses......................... 674,127 1,372,627 2,458,482
----------- ----------- ------------
Total operating expenses................. 1,152,156 2,679,110 7,863,880
----------- ----------- ------------
Income (loss) from operations............ 694,764 (73,379) 3,100,077
----------- ----------- ------------
Other income (expense):
Interest on due to affiliate..................... (127,727) (233,656) (691,265)
Other income..................................... -- -- 19,954
----------- ----------- ------------
Total other expenses..................... (127,727) (233,656) (671,311)
----------- ----------- ------------
Income (loss) before income tax
expense (benefit)...................... 567,037 (307,035) 2,428,766
Income tax expense (benefit)....................... 228,502 (118,637) 839,574
----------- ----------- ------------
Net income (loss)........................ $ 338,535 $ (188,398) $ 1,589,192
=========== =========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE> 63
TELCOBUY.COM LLC
STATEMENTS OF SHAREHOLDER'S NET INVESTMENT/MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SHAREHOLDER'S MEMBERS'
NET INVESTMENT EQUITY TOTAL
-------------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1996......................... $ (45,866) $ -- $ (45,866)
Net income........................................... 338,535 -- 338,535
----------- ---------- ----------
Balance at December 31, 1997......................... 292,669 -- 292,669
Net loss............................................. (188,398) -- (188,398)
----------- ---------- ----------
Balance at December 31, 1998......................... 104,271 -- 104,271
Net income through September 30, 1999................ 1,190,420 -- 1,190,420
Contribution of net assets into telcobuy.com LLC..... (1,294,691) 1,294,691 --
Net income from October 1 to December 31, 1999....... -- 398,772 398,772
----------- ---------- ----------
Balance at December 31, 1999......................... $ -- $1,693,463 $1,693,463
=========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE> 64
TELCOBUY.COM LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 338,535 $ (188,398) $ 1,589,192
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Deferred income taxes due to effect of change
in tax status................................ -- -- 39,242
Changes in operating assets and liabilities:
Accounts receivable.......................... (3,452,540) (2,936,215) (39,657,561)
Inventories.................................. (3,948,649) (330,075) (63,875,594)
Prepaid expenses and other current assets.... (4,438) (148,159) (457,731)
Accounts payable............................. 1,608,245 6,653,974 89,412,114
Accrued expenses and other current
liabilities............................... 3,478,046 (2,586,235) 1,490,675
----------- ----------- ------------
Net cash provided by (used in) operating
activities.............................. (1,980,801) 464,892 (11,459,663)
Cash flows from financing activities -- net increase
(decrease) in due to affiliate.................... 1,980,801 (464,892) 11,459,663
----------- ----------- ------------
Net increase in cash...................... -- -- --
Cash, beginning of the year......................... -- -- --
----------- ----------- ------------
Cash, end of the year............................... $ -- $ -- $ --
=========== =========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE> 65
TELCOBUY.COM LLC
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF THE BUSINESS
telcobuy.com LLC (telcobuy.com or the Company) provides an Internet-based
business-to-business marketplace, which facilitates all facets of network
deployment to the telecommunications industry. Target segments of the
telecommunications infrastructure market include the incumbent local exchange
carriers, competitive local exchange carriers and the highly fragmented
telecommunications contractor community. Major customers of the Company include
companies such as SBC Communications, Bell Atlantic, GTE, Ameritech and AT&T.
Major suppliers include Lucent Technologies, Fujitsu, Tellabs, Sun Microsystems,
GTE Supply and ADC Communications. In addition to providing specialized
applications to facilitate the deployment of telecommunications infrastructure
equipment and services, the Company provides important content pertinent to the
telecommunications industry.
Through September 30, 1999, telcobuy.com operated as one of three divisions
of World Wide Technology, Inc. (WWT). On October 1, 1999, telcobuy.com began
operating as a limited liability company (LLC). WWT contributed 100% of the net
assets in the newly formed LLC at WWT's historical cost, as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 20,732,104
Prepaid expenses and other.................................. 162,094
Inventories................................................. 58,067,857
Accounts payable............................................ (55,147,098)
Due to affiliate............................................ (21,418,962)
Accrued expenses and other.................................. (1,101,304)
------------
Total............................................. $ 1,294,691
============
</TABLE>
The profits interests in the Company at the time of the contribution and at
December 31, 1999 were to allocate profits or losses as follows: 68% to WWT and
32% to WWT shareholders. WWT also had a right to receive a preferred return of
$81.5 million in the event of liquidation or certain other events, before any
profits interests were paid. In January 2000, the Company received an additional
capital infusion and was recapitalized. See note 9 for a discussion of the
recapitalization.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Prior to October 1, 1999, the accompanying financial statements have been
prepared using WWT's historical basis in the assets and liabilities of the
Company, and on the accrual basis of accounting. The financial statements for
the period prior to October 1, 1999 reflect the results of operations, financial
condition and cash flows of the Company as a division of WWT. Management
believes the statements of operations include a reasonable allocation of
administrative costs, as further described in note 5, incurred by WWT on behalf
of the Company. Financial reporting for periods prior to October 1, 1999
accumulate the equity accounts of the Company into a single disclosure caption
entitled shareholder's net investment. For the period from October 1 to December
31, 1999, administrative costs have been allocated to the Company pursuant to
the General Services Agreement described in note 5.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. As such, actual results could differ from such estimates.
REVENUE RECOGNITION
Sales of telecommunications infrastructure equipment and related software
are recorded upon shipment.
F-7
<PAGE> 66
TELCOBUY.COM LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on the average cost basis, which approximates the first-in, first-out (FIFO)
method.
INCOME TAXES
The operations of the Company through September 30, 1999 are included in
WWT's consolidated income tax returns. Current and deferred taxes were allocated
to the Company as if taxes were computed on a stand-alone basis. Income taxes
were accounted for under the asset and liability method. Through September 30,
1999, deferred tax assets and liabilities were recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and measured at enacted tax rates expected to apply to taxable income in
the years the tax consequences are projected to be recovered or settled.
Effective October 1, 1999, with the contribution of the net assets into
telcobuy.com, the federal and state income tax effects of the Company's results
of operations are recorded by the members of telcobuy.com in their respective
tax returns. Therefore, no provision for federal and state income taxes is
reported in the Company's financial statements for the period October 1 through
December 31, 1999. Net deferred tax assets totaling $39,242 had been recorded on
the Company's balance sheet as of September 30, 1999. Upon the contribution of
the net assets to telcobuy.com these deferred tax assets have been charged to
income tax expense.
(3) SIGNIFICANT CONCENTRATIONS
One customer accounted for 94% of revenues for the year ended December 31,
1997; two customers accounted for 96% of revenues for the year ended December
31, 1998; and three customers accounted for 94% of revenues for the year ended
December 31, 1999. In 1998, the two significant customers accounted for
approximately $5.7 million, or 84%, of total accounts receivable outstanding.
Total accounts receivable for the three largest customers at December 31, 1999
amounted to $44.0 million, or 95%, of total accounts receivable outstanding.
The Company relied on two suppliers who represented 65%, 97% and 88% of the
total supply of products purchased in 1997, 1998 and 1999, respectively.
(4) INVENTORIES
Inventories consist primarily of hardware for telecommunication systems and
totaled approximately $4.4 million and $68.3 million at December 31, 1998 and
1999, respectively.
(5) RELATED PARTY TRANSACTIONS
Cash requirements are satisfied by interdivisional/affiliated company
borrowings between WWT and the Company. Such interdivisional/affiliated company
borrowings are included in due to affiliate in the accompanying balance sheets.
Interdivisional/affiliated company borrowings are unsecured and bear interest at
a rate equal to the rate paid by WWT on its borrowings (9.25% at December 31,
1999). Interest expense of approximately $128,000, $234,000 and $691,000 was
incurred for the years ended December 31, 1997, 1998 and 1999, respectively. The
Company has made no cash payments for interest during the periods presented.
Upon the contribution of net assets by WWT into telcobuy.com, WWT's lender
required telcobuy.com to guarantee all of WWT's obligations under its credit
agreement. In connection with the new line of credit entered into in March 2000
(see note 9) this guarantee will be eliminated.
Effective October 1, 1999, WWT began providing services to the Company
under a General Services Agreement (GSA) for management, accounting, human
resources, information systems, legal, taxes, facilities
F-8
<PAGE> 67
TELCOBUY.COM LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and equipment and other corporate activities. These expenses provided by WWT to
the Company as an operating division or under the GSA, totaled approximately
$478,000, $1.3 million and $5.4 million during the years ended December 31,
1997, 1998 and 1999, respectively. The allocations of expenses from WWT to the
Company are based on the actual costs of the services provided or management's
pro rata estimate of the percentage of actual costs directly attributable to the
Company's operations.
On October 1, 1999, the Company and WWT also entered into a Licensing
Agreement that grants to the Company a license to use, modify, develop
applications for, market, distribute and sublicense the business-to-business
Internet technology owned by WWT. No payments have been made through December
31, 1999 to WWT related to this license. A payment of $75,000 will be made upon
the consummation of certain events, as defined in the agreement.
The Company subcontracted consulting services to WWT totaling approximately
$970,000 and $444,000 in 1997 and 1998, respectively. No consulting services
were subcontracted to WWT during 1999.
(6) INCOME TAXES
The results of operations for the Company are included in the tax returns
filed by WWT through September 30, 1999. telcobuy.com will file a separate
partnership return for the period October 1 through December 31, 1999. No income
tax provision has been calculated since October 1, 1999, the date the Company
began operations as an LLC. Income tax expense (benefit) related to the Company
was allocated as if it was calculated on a separate return basis. Income tax
expense (benefit) consists of the following for the years ended December 31,
1997, 1998 and 1999:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- -------- ---------
<S> <C> <C> <C>
Year ended December 31, 1997:
Current............................................... $177,636 $ 52,243 $ 229,879
Deferred.............................................. (1,066) (311) (1,377)
-------- -------- ---------
Total............................................ $176,570 $ 51,932 $ 228,502
======== ======== =========
Year ended December 31, 1998:
Current............................................... $(92,441) $(27,186) $(119,627)
Deferred.............................................. 767 223 990
-------- -------- ---------
Total............................................ $(91,674) $(26,963) $(118,637)
======== ======== =========
Year ended December 31, 1999:
Current............................................... $645,906 $192,932 $ 838,838
Deferred.............................................. 568 168 736
-------- -------- ---------
Total............................................ $646,474 $193,100 $ 839,574
======== ======== =========
</TABLE>
F-9
<PAGE> 68
TELCOBUY.COM LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense (benefit) using the statutory
Federal income tax rate of 34% to the actual income tax expense (benefit)
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Expected income tax expense (benefit)..................... $192,793 $(104,392) $ 825,780
Tax effect on net income from October 1, 1999 through
December 31, 1999....................................... -- -- (148,924)
State income tax, net of Federal tax expense (benefit).... 34,275 (17,796) 120,050
Effect of change in tax status............................ -- -- 39,242
Other..................................................... 1,434 3,551 3,426
-------- --------- ---------
Total........................................... $228,502 $(118,637) $ 839,574
======== ========= =========
</TABLE>
At December 31, 1998, the Company had approximately $6,000 in deferred tax
assets which are included in prepaid expenses and other receivables on the
balance sheet. Significant components of deferred tax assets are accounts
receivable, due to allowance for doubtful accounts, inventory valuation and
deferred compensation. At December 31, 1998, the Company also had approximately
$5,000 of deferred tax liabilities. The significant component of deferred tax
liabilities is prepaid expenses.
(7) RETIREMENT PLAN
WWT provides a 401(k) defined contribution plan (the Plan) that includes
substantially all employees of the Company. The Plan allows participants to
elect to defer up to 10% of their annual compensation, which can be matched up
to 100% by the Company. The Company expensed approximately $28,000, $48,000 and
$64,000 for the years ended December 31, 1997, 1998 and 1999, respectively,
related to its employees in this plan.
(8) COMMITMENTS AND CONTINGENT LIABILITIES
The Company is not a party to any litigation other than ordinary, routine
litigation incidental to its business. In the opinion of management, the
ultimate liability, if any, resulting from the aforementioned contingencies will
not have a material adverse effect on the Company's results of operations or
financial position.
(9) SUBSEQUENT EVENTS
RECAPITALIZATION
During January 2000, the Company authorized the following three classes of
membership units:
- 110,000 Class A redeemable membership units (Class A units). Class A
units will be redeemed upon the earlier of a major capital event, as
defined, an initial public offering, or at the election of the holders in
2004 and 2005 for cash equal to the issue amount plus a cumulative Class
A Preferred Return. The Class A Preferred Return is cumulative from the
effective date of issue at a fixed rate of 8%. The Class A units are
non-voting and provide the holders with a priority position with respect
to any class of the Company's stock in the event of dissolution. The
Company may call the Class A units outstanding at anytime.
- 100,000 Class B membership units (Class B units). The Class B units are
convertible into approximately 6.5 million Class C membership units at
the election of the holder or automatically upon a change in corporate
structure. In the event of liquidation or certain other capital events,
the Class B unit holders receive a payment preference over Class C unit
holders of $81.5 million. The holders of Class B units vote on an as
converted basis with the holders of Class C membership units.
F-10
<PAGE> 69
TELCOBUY.COM LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- 100,000,000 Class C membership units (Class C units). The Class C units
are convertible into common stock upon change in ownership, as defined.
Under certain circumstances, the Company may be required to purchase
approximately 7.5 million Class C units at fair market value after
January 2005.
As a result of the recapitalization, the Company issued WWT 100,000 Class B
units, which are convertible into approximately 6.5 million Class C units, and
approximately 17.4 million Class C units. The Company also issued the
shareholders of WWT approximately 9.2 million Class C units.
In conjunction with the recapitalization, the Company sold all of the
110,000 Class A units and approximately 7.5 million Class C units to several
additional investors for aggregate proceeds of approximately $27.6 million.
CONTINGENT LIABILITIES
In conjunction with the recapitalization, the Company committed to make
payments of $4.5 million to WWT and $735,000 to certain other members in the
event of an initial public offering.
UNIT OPTION PLAN
The Board of Managers of the Company adopted and approved the 2000 Unit
Option Plan on February 15, 2000, effective January 27, 2000. Under this plan,
the Company may issue options to purchase one Class C unit of telcobuy.com up to
an aggregate of 4.5 million units. Under this plan, the Company issued a total
of 1,790,750 options for $4.05 per unit. Of the options issued, 1,042,500
options were issued to telcobuy.com employees and 748,250 options were issued to
WWT employees and an advisory director.
LINE OF CREDIT
On March 13, 2000, the Company entered into a $20.0 million line of credit
which expires in March 2002. The amount available under the line is based on a
percentage of eligible accounts receivable and is secured by accounts
receivable, inventory, property and equipment and general business assets of the
Company. Borrowings on the line bear interest at rates based on prime or LIBOR.
The Company incurs a fee of .25% on the unused portion of the line of credit.
The line of credit includes certain restrictive covenants with respect to the
maintenance of minimum net worth and a tangible net worth ratio, as well as a
limit on capital expenditures.
F-11
<PAGE> 70
[Telcobuy.com LOGO]
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
discounts and commissions), which other than the SEC registration fee, NASD
filing fee and Nasdaq National Market listing fee are estimates, payable by the
Registrant in connection with the sale and distribution of the shares registered
hereby:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 26,400
NASD filing fee............................................. 10,500
--------
Nasdaq National Market listing fee.......................... 95,000
--------
Printing and engraving expenses............................. 100,000*
--------
Accounting fees and expenses................................ 200,000*
--------
Legal fees and expenses..................................... *
--------
Blue Sky fees and expenses (including legal fees)........... *
--------
Transfer Agent and Registrar fees and expenses.............. *
--------
Miscellaneous expenses...................................... *
--------
Total.................................................. $ *
========
</TABLE>
- ------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities including reimbursement for expenses
incurred arising under the Securities Act of 1933, as amended. As permitted by
the Delaware General Corporation Law, the Registrant's Certificate of
Incorporation includes a provision that eliminates the personal liability of its
directors for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the Delaware General Corporation Law regarding unlawful dividends
and stock purchases or (iv) for any transaction from which the director derived
an improper personal benefit. As permitted by the Delaware General Corporation
Law, the Bylaws of the Registrant provide that (i) the Registrant is required to
indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) the Registrant may indemnify its other
employees and agents as set forth in the Delaware General Corporation Law, (iii)
the Registrant is required to advance expenses, as incurred, to its directors
and executive officers in connection with a legal proceeding to the fullest
extent permitted by the Delaware General Corporation Law, and (iv) the rights
conferred in the Bylaws are not exclusive. The Registrant intends to enter into
Indemnification Agreements with each of its directors and executive officers to
give such directors and officers additional contractual assurances regarding the
scope of the indemnification set forth in the Registrant's Certificate of
Incorporation and to provide additional procedural protections. Except as
described in the prospectus contained in this Registration Statement, at present
there is no pending litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is sought, nor is the
Registrant aware of any threatened litigation that may result in claims for
indemnification. The indemnification provision in the Registrant's Certificate
of Incorporation and Bylaws and the Indemnification Agreements entered into
between the Registrant and each of its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act of 1933, as
amended. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
II-1
<PAGE> 72
Registrant pursuant to such provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
The Registrant, with approval by the Registrant's Board of Directors, expects to
obtain directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Prior to the closing of this offering, telcobuy.com LLC will be merged into
telcobuy.com, Inc. and Class A membership units will convert into shares of
Series A preferred stock at the rate of one share per membership unit, Class B
membership units will be converted into Class C membership units at the rate of
64.9148 Class C membership units per Class B membership unit, and Class C
membership will be converted into common stock of the Registrant at the rate of
one share per Class C membership unit.
Since inception, we have issued and sold the following securities:
1. On September 29, 1999, we were formed as a limited liability company
and issued to World Wide Technology, David L. Steward and James P.
Kavanaugh percentage interests, in exchange for initial capital
contributions valued at $81.5 million, $0 and $0, respectively.
2. On January 21, 2000, we recapitalized the limited liability company and
between January 21, 2000 and March 2, 2000, we issued and sold an
aggregate of 110,000 Class A membership units and 7,425,000 Class C
membership units to entities affiliated with Highland Capital Partners,
entities affiliated with Summit Partners and Donaldson, Lufkin &
Jenrette Securities Corporation, for an aggregate consideration of
$27,500,000. Also, as of January 21, 2000, we issued to World Wide
Technology 100,000 Class B membership units and 17,358,525 Class C
membership units, to David L. Steward 2,700,000 Class C membership
units, and to James P. Kavanaugh 6,525,000 Class C membership units, in
exchange for the percentage interests in the limited liability company
that each owned prior to the recapitalization. Donaldson, Lufkin &
Jenrette Securities Corporation acted as a placement agent in
connection with the issuance and sale of securities to the entities
affiliated with Highland Capital Partners and Summit Partners.
3. On March 2, 2000, we issued to LeadingEdge Investors 2000, L.L.C., an
investment fund comprised of partners of Bryan Cave LLP, including
Robert T. Ebert, Jr., 30,737 Class C membership units for an aggregate
consideration of $75,000.
4. On February 16, 2000, we approved the Unit Option Plan effective as of
January 27, 2000, and shortly thereafter granted options to purchase an
aggregate of 1,790,750 Class C membership units at an exercise price of
$4.05 per Class C membership unit to a total of approximately 375
employees, consultants, directors and advisory directors of
telcobuy.com and World Wide Technology. None of such options have been
exercised.
The issuances 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 with respect to
issuances to employees, directors and consultants, 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 such transaction represented their intentions to acquire the
securities for investment purposes only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and warrants issued in such transactions. These issuances
were made without general solicitation or advertising. All recipients either
received adequate information about us or had adequate access, through their
relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index.
II-2
<PAGE> 73
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Louis, State of
Missouri, on March 17, 2000.
TELCOBUY.COM, INC.
By: /s/ JAMES P. KAVANAUGH
------------------------------------
James P. Kavanaugh
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James P. Kavanaugh, Thomas W. Strunk and
Robert T. Ebert, Jr., and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, and in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this registration statement and all amendments and supplements to
any prospectus relating thereto and an other documents and instruments
incidental thereto, and any registration statement filed pursuant to Rule 462
under the Securities Act of 1933, as amended, and to file the same 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 or necessary or advisable to be done in and about
the premises, as full to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming that each said attorneys-in-fact and
agents and/or any of them, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES P. KAVANAUGH Director and Chief Executive March 17, 2000
- --------------------------------------------------- Officer (Principal Executive
James P. Kavanaugh Officer)
/s/ THOMAS W. STRUNK Director and Chief Financial March 17, 2000
- --------------------------------------------------- Officer (Principal Financial
Thomas W. Strunk Officer and Principal
Accounting Officer)
/s/ DAVID L. STEWARD Chairman of the Board March 17, 2000
- ---------------------------------------------------
David L. Steward
/s/ SCOTT C. COLLINS Director March 17, 2000
- ---------------------------------------------------
Scott C. Collins
/s/ SEAN M. DALTON Director March 17, 2000
- ---------------------------------------------------
Sean M. Dalton
/s/ ROBERT T. EBERT, JR. Director March 17, 2000
- ---------------------------------------------------
Robert T. Ebert, Jr.
</TABLE>
II-4
<PAGE> 75
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Underwriting Agreement
2.1* Form of Merger Agreement to be entered into by telcobuy.com
LLC and the Registrant
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1* Specimen certificate representing the Registrant's Common
Stock
5.1* Opinion of Bryan Cave LLP regarding the validity of the
Common Stock
10.1* General Services Agreement between telcobuy.com LLC and
World Wide Technology, Inc. dated January 21, 2000 and made
effective as of October 1, 1999
10.2* Licensing Agreement between Registrant and World Wide
Technology, Inc. dated January 21, 2000 and made effective
as of October 1, 1999
10.3* Employment Agreement between telcobuy.com LLC and James P.
Kavanaugh dated January 21, 2000
10.4* Employment Agreement between telcobuy.com LLC and Thomas M.
Strunk dated March 16, 2000
10.5* Employment Agreement between telcobuy.com LLC and Mark J.
Catalano dated March 16, 2000
10.6* Employment Agreement between telcobuy.com LLC and Robert M.
Olwig dated March 16, 2000
10.7* Unit Option Plan
10.8* 2000 Stock Option Plan
10.9* Stockholders Agreement by and among the Registrant, certain
entities affiliated with Highland Capital Partners, certain
entities affiliated with Summit Partners, Donaldson Lufkin &
Jenrette Securities Corporation and Leading Edge Investors
2000, L.L.C. dated , 2000
10.10* Form of Indemnification Agreement between the Registrant and
the Members of the Board of Directors
23.1 Consent of KPMG LLP
23.2 Consent of Bryan Cave LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page of
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TELCOBUY.COM, INC.
ARTICLE FIRST
The name of the corporation (herein called the "Corporation") is
telcobuy.com, Inc.
ARTICLE SECOND
Its registered office in the State of Delaware is located at 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name and address
of its registered agent is Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19805.
ARTICLE THIRD
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE FOURTH
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 270,000,000 shares, consisting of
(A) 20,000,000 shares of Preferred Stock, $0.01 par value ("Preferred Stock "),
and (B) 250,000,000 shares of Common Stock, $0.01 par value (the "Common
Stock").
The designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitation or restrictions of each
class of stock are as follows:
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the designation of such series adopted
by the Board of Directors of the Corporation as hereinafter provided. Any shares
of Preferred Stock which may be redeemed, purchased or
<PAGE> 2
acquired by the Corporation may be reissued except as otherwise provided by law
or this Certificate of Incorporation. Different series of Preferred Stock shall
not be construed to constitute different classes of shares for the purposes of
voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to designate the Preferred Stock in one or more series, and in
connection with the designation of any such series, by resolution providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of the State of Delaware.
Without limiting the generality of the foregoing, the resolutions providing for
designation of any series of Preferred Stock may provide that such series shall
be superior or rank equally or be junior to the Preferred Stock of any other
series to the extent permitted by law and this Certificate of Incorporation.
Except as otherwise provided in this Certificate of Incorporation, no vote of
the holders of the Preferred Stock or Common Stock shall be a prerequisite to
the designation or issuance of any shares of any series of the Preferred stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
2
<PAGE> 3
COMMON STOCK
Each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held. Each share of Common Stock issued and outstanding
shall be identical in all respects one with the other, and no dividends shall be
paid on any shares of Common Stock unless the same dividend is paid on all
shares of Common Stock outstanding at the time of such payment. Except for and
subject to those rights expressly granted to the holders of the Preferred Stock
or except as may be provided by the laws of the State of Delaware, the holders
of Common Stock shall have exclusively all other rights of stockholders,
including, but not by way of limitation, (i) the right to receive dividends,
when and as declared by the Board of Directors out of assets lawfully available
therefor and (ii) in the event of any distribution of assets upon liquidation,
dissolution or winding up of the Corporation or otherwise, the right to receive
ratably and equally all the assets and funds of the Corporation remaining after
the payment to the holders of Preferred Stock of the Corporation of the specific
amounts which they are entitled to receive upon such liquidation, dissolution or
winding up of the Corporation as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
ARTICLE FIFTH
The name and mailing address of the incorporator is as follows:
Connie B. Walsh
211 N. Broadway, Suite 3600
St. Louis, MO 63102
ARTICLE SIXTH
For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation, and regulation of the
powers of the Corporation and of its directors and stockholders, it is further
provided:
3
<PAGE> 4
(a) The number of directors of the Corporation shall be fixed in the
manner provided in the By-laws of the Corporation. The election of directors of
the Corporation need not be by ballot unless the By-laws so require.
(b) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and unless
the Board of Directors otherwise determines, vacancies resulting from death,
resignation, retirement, disqualification, removal from office or other cause,
and newly created directorships resulting from any increase in the authorized
number of directors, may be filled only by the affirmative vote of a majority of
the remaining directors (whether or not a quorum of the Board of Directors
remains in office), or by a sole remaining director, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(c) In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
and empowered:
(i) To make, alter, amend or repeal the By-laws in any manner not
inconsistent with the laws of the State of Delaware or this Certificate
of Incorporation.
(ii) Without the assent or vote of the stockholders, to authorize
and issue obligations of the Corporation, secured or unsecured, and to
include therein such provisions as to redemption, conversion or other
terms thereof as the Board of Directors in its sole discretion may
determine, and to authorize the mortgaging
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<PAGE> 5
or pledging, as security therefor, of any property of the Corporation,
real or personal, including after-acquired property.
(iii) To determine whether any, and if any, what part, of the net
profits of the Corporation or of its surplus shall be declared in
dividends and paid to the stockholders, and to direct and determine the
use and disposition of any such net profits or such surplus.
(iv) To fix from time to time the amount of net profits of the
Corporation or of its surplus to be reserved as working capital or for
any other lawful purpose.
(v) By resolution or resolutions, passed by a majority of the whole
Board, to designate one or more committees, each committee to consist
of two or more of the directors of the Corporation, which, to the
extent provided in said resolution or resolutions or in the By-laws of
the Corporation, and subject to the limitations of Section 141(c) of
the General Corporation Law of the State of Delaware, shall have and
may exercise the powers of the Board of Directors in the management of
the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or
names as may be stated in the By-laws of the Corporation, or as may be
determined from time to time by resolution adopted by the Board of
Directors.
(vi) When and as authorized by the affirmative vote of the holders
of a majority of the stock issued and outstanding having voting power
given at a stockholders' meeting duly called for that purpose, the
Board of Directors shall
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have power and authority to sell, lease or exchange all of the property
and assets of the Corporation, including its good will and its
corporate franchises, upon such terms and conditions and for such
consideration, which may be in whole or in part shares of stock in,
and/or other securities of, any other corporation or corporations, as
the Board of Directors shall deem expedient and for the best interests
of the Corporation.
The Corporation may in its By-Laws confer powers upon its Board of
Directors in addition to the foregoing, and in addition to the powers
and authorities expressly conferred upon it by statute.
(d) Any director or any officer elected or appointed by the
stockholders or by the Board of Directors may be removed at any time in such
manner as shall be provided in the By-laws of the Corporation.
(e) A director and a member of any committee designated by the Board of
Directors shall, in the performance of his duties, be fully protected in relying
in good faith upon the books of account or reports made to the Corporation by
any of its officials, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by any
committee thereof, or in relying in good faith upon other records of the
Corporation.
(f) No contract or other transaction of the Corporation shall be
affected by the fact that any of the directors of the Corporation are in any way
interested in or connected with any other party to such contract or transaction,
or are themselves parties to such contract or transaction, provided that at the
meeting of the Board of Directors or of the committee thereof authorizing or
confirming such contract or transaction there shall be present a quorum of
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directors not so interested or connected, and such contract or transaction shall
be approved by a majority of such quorum, which majority shall consist of
directors not so interested or connected.
(g) Any contract or act that shall be approved or ratified by the vote
of the holders of a majority of the Voting Stock of the Corporation having
voting power which is represented in person or by proxy at any annual meeting of
stockholders or at any special meeting called for that purpose, among others, of
considering the approval or ratification of the acts of officers and/or
directors (provided that a lawful quorum of stockholders be there represented in
person or by proxy) shall be as valid and as binding upon the Corporation and
upon all of its stockholders as though it had been approved or ratified by every
stockholder of the Corporation.
(h) From time to time any of the provisions of this Certificate of
Incorporation may be altered, amended or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner and at the time prescribed by said laws, and
all rights at any time conferred upon the stockholders of the Corporation by
this Certificate of Incorporation are granted subject to the provisions of this
paragraph (h).
ARTICLE SEVENTH
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application of any
receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner
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as the said court directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
the Corporation, as the case may be, and also on the Corporation.
ARTICLE EIGHTH
No Director of the Corporation shall have personal liability arising
out of an action whether by or in the right of the Corporation or otherwise for
monetary damages for breach of fiduciary duty as a Director; provided, however,
that the foregoing shall not eliminate or limit the liability of a Director (i)
for any breach of the Director's duty of loyalty to the Corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the General Corporation Law of the State of Delaware or any successor provision;
(iv) for any transaction from which such Director derived an improper personal
benefit; or (v) for acts or omissions occurring prior to the date of the
effectiveness of this provision. Furthermore, notwithstanding the foregoing
provision, in the event that the General Corporation Law of the State of
Delaware is amended or enacted to permit further elimination or limitation of
the personal liability of a Director, the personal liability for the
Corporation's Directors shall be limited or eliminated to the fullest extent
permitted by the applicable law. This provision shall not affect any provision
permitted under the General Corporation Law of the State of Delaware, in this
Certificate of Incorporation, By-laws or
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contract or resolution of the Corporation indemnifying or agreeing to indemnify
a Director of the Corporation against personal liability. Any repeal or
modification of this provision shall not adversely affect any limitation
hereunder on the personal liability of a Director of the Corporation with
respect to acts or omissions occurring prior to such repeal or modification.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, does make this certificate on
the 14th day of March, 2000.
------------------------------------
Connie B. Walsh, Incorporator
9
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
TELCOBUY.COM, INC.
<PAGE> 2
BY-LAWS
OF
TELCOBUY.COM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. Offices............................................................... 1
SECTION 1.1. Registered Office........................................... 1
SECTION 1.2. Other Offices............................................... 1
ARTICLE II. Meetings of Stockholders............................................. 1
SECTION 2.1. Place....................................................... 1
SECTION 2.2. Annual Meetings............................................. 1
SECTION 2.3. Special Meetings............................................ 1
SECTION 2.4. Notice of Meetings.......................................... 1
SECTION 2.5. Adjournments................................................ 2
SECTION 2.6. List of Stockholders........................................ 2
SECTION 2.7. Quorum...................................................... 2
SECTION 2.8. Organization................................................ 3
SECTION 2.9. Notice of Stockholder Nominations at Meeting................ 3
SECTION 2.10. Notice of Stockholder Business at Annual Meeting........... 5
SECTION 2.11. Stockholder Action by Written Consent...................... 5
SECTION 2.12. Proxies; Voting............................................ 6
ARTICLE III. Board of Directors.................................................. 6
SECTION 3.1. General Powers.............................................. 6
SECTION 3.2. Number and Term of Office................................... 7
SECTION 3.3. Resignation and Removal..................................... 7
SECTION 3.4. Meetings.................................................... 7
SECTION 3.5. Compensation................................................ 8
SECTION 3.6. Dividends................................................... 8
SECTION 3.7. Additional Powers........................................... 9
SECTION 3.8. Chairman of the Board....................................... 9
ARTICLE IV. Committees........................................................... 9
SECTION 4.1. Committees.................................................. 9
SECTION 4.2. Meetings and Quorum......................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V. Officers.............................................................. 10
SECTION 5.1. Election and Appointment; Term of Office.................... 10
SECTION 5.2. Resignation; Removal; Vacancies............................. 10
SECTION 5.3. Duties and Functions........................................ 10
SECTION 5.4. Checks, Drafts.............................................. 12
SECTION 5.5. Proxies..................................................... 12
ARTICLE VI. Books and Records.................................................... 12
ARTICLE VII. Shares and Their Transfer; Fixing Record Dates...................... 12
SECTION 7.1. Certificates for Stock...................................... 13
SECTION 7.2. Transfer Agents and Registrars; Facsimile Signatures........ 13
SECTION 7.3. Stock Record................................................ 13
SECTION 7.4. Transfer of Stock........................................... 13
SECTION 7.5. Lost, Stolen, Destroyed or Mutilated Certificates........... 13
SECTION 7.6. Record Dates................................................ 14
ARTICLE VIII. Indemnification.................................................... 14
ARTICLE IX. Transactions with Interested Parties................................. 16
ARTICLE X. Amendments............................................................ 16
ARTICLE XI. Miscellaneous........................................................ 17
SECTION 11.1. Corporate Seal............................................. 17
SECTION 11.2. Fiscal Year................................................ 17
SECTION 11.3. Waiver of Notice........................................... 17
</TABLE>
ii
<PAGE> 4
BY-LAWS
OF
TELCOBUY.COM, INC.
ARTICLE I.
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801. The name of the
registered agent in charge thereof is Corporation Trust Company.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places within or without the State of Delaware as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
SECTION 2.1. PLACE. Meetings of stockholders shall be held at such
place, within or without the State of Delaware, as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on the such date and at such time
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes may be called by a majority of the Board of Directors or
by the Chairman of the Board of the Corporation, to be held at such place,
either within or without the State of Delaware, and at such date and time as
shall be designated in the notice of the meeting. Business transacted at a
special meeting of stockholders shall be confined to the purpose or purposes of
the meeting as stated in the notice of such meeting. Any previously scheduled
special meeting of the stockholders may be postponed by resolution of the Board
of Directors upon notice by public announcement given on or prior to the date
previously scheduled for such special meeting of stockholders.
SECTION 2.4. NOTICE OF MEETINGS. Except as otherwise expressly required
by law, written notice of each meeting of the stockholders shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed given when deposited in the United
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States mail, postage prepaid, directed to the stockholder at the stockholder's
address as it appears on the records of the Corporation. Every such notice shall
state the place, date and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. A written
waiver of notice, signed by the person entitled thereto, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting in person or by proxy shall constitute a waiver of notice of
such meeting, except when the person attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 2.5. ADJOURNMENTS. Any meeting of the stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 2.6. LIST OF STOCKHOLDERS. At least ten (10) days before every
meeting of the stockholders, the Secretary or other officer of the Corporation
who shall have charge of the stock ledger of the Corporation shall prepare and
make, or cause the preparation and making of, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. Such list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger of the Corporation
shall be the only evidence as to the identity of the stockholders entitled (i)
to vote in person or by proxy at any meeting of stockholders, or (ii) to
exercise the rights in accordance with Delaware law to examine the stock ledger,
the list required by this By-law or the books and records of the Corporation.
SECTION 2.7. QUORUM. At each meeting of the stockholders, except as
otherwise expressly required by law or by the Certificate of Incorporation of
the Corporation, the holders of a majority of the voting power of the issued and
outstanding shares of each class of stock of the Corporation entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. For purposes of the foregoing, two or
more classes or series of stock shall be considered a single class if the
holders thereof are entitled to vote together as a single class at the meeting.
The stockholders present at any duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of sufficient
stockholders to render the remaining stockholders less than a quorum. In the
absence of a quorum at any such meeting or any adjournment thereof, any officer
entitled to preside at, or to act as secretary of, such meeting may adjourn the
meeting from time to time in the manner provided in Section 2.5 of these
By-laws, until stockholders holding the amount of
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<PAGE> 6
stock requisite for a quorum shall be present in person or by proxy. At such
adjourned meeting at which the requisite amount of voting stock shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally noticed.
SECTION 2.8. ORGANIZATION. At each meeting of the stockholders, one of
the following shall act as chairman of the meeting and preside thereat, in the
following order of precedence:
(a) the Chairman of the Board;
(b) the Chief Executive Officer;
(c) the President;
(c) any other officer of the Corporation designated by
the Board of Directors to act as chairman of such
meeting and to preside thereat if both of the
above-named officers shall be absent from such
meeting; or
(d) in the absence of any of the foregoing, a stockholder
of record of the Corporation who shall be chosen
chairman of such meeting by a majority in voting
power of the stockholders present in person or by
proxy at the meeting and entitled to vote thereat.
The chairman of the meeting shall have the power to make and enforce rules for
the conduct of the meeting of stockholders and shall determine the order of
business and the procedures at any meeting of stockholders. The Secretary, or,
if the Secretary shall be presiding over the meeting in accordance with the
provisions of this Section or if the Secretary shall be absent from such
meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary, shall be present thereat) whom the chairman of such meeting shall
appoint, shall act as secretary of such meeting and keep the minutes thereof.
SECTION 2.9. NOTICE OF STOCKHOLDER NOMINATIONS AT MEETING. In addition
to the qualifications set out in Article III of these By-Laws, in order to be
qualified for election as a director, persons must be nominated in accordance
with the following procedure:
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the procedures set forth
in this Section 2.9. In order for persons nominated to the Board of Directors,
other than those persons nominated by or at the direction of the Board of
Directors, to be qualified to serve on the Board of Directors, such nominations
shall be made pursuant to timely notice in writing to the Secretary of the
corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received by the Secretary of the corporation (i) in the case of an
annual meeting, not less than ninety (90) days nor more than one hundred twenty
(120) days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than thirty (30) days before or more than sixty (60) days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to such
annual meeting and
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<PAGE> 7
not later than the close of business on the 90th day prior to such annual
meeting or the 10th day following the day on which public disclosure of the date
of such meeting is first made; or (ii) in the case of a special meeting at which
directors are to be elected, not earlier than the 120th day prior to such
special meeting and not later than the close of business on the later of the
90th day prior to such special meeting or the 10th day following the day on
which public disclosure of the date of such meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting is first made. In no
event shall the public disclosure of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. For purposes of these By-Laws "public disclosure" shall mean disclosure
in a press release reported by the Dow Jones, Associated Press, Reuters or
comparable national news service, or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act").
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (A)
the name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number of
shares of the corporation which are beneficially owned by such person, (D) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended, (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected) and (E) if the stockholder(s) making the nomination is an interested
person, (i) details of any relationship, agreement or understanding between the
stockholder(s) and the nominee; and (ii) as to the stockholder(s) making the
nomination (A) the name and address, as they appear on the corporation's books,
of such stockholder(s) and (B) the class and number of shares of the corporation
which are beneficially owned by such stockholder(s). At the request of the Board
of Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
No person shall be qualified for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this Section
2.9. The chairman of a meeting shall, if the facts warrant, determine that a
nomination was not made in accordance with the procedures prescribed by the
By-Laws, and if he or she should so determine, shall so declare to the meeting,
and the defective nomination shall be disregarded. The chairman of a meeting
shall have absolute authority to decide questions of compliance with the
foregoing procedures, and his or her ruling thereon shall be final and
conclusive. Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the 1934 Act
and the rules and regulations thereunder with respect to the matters set forth
in this By-law.
SECTION 2.10. NOTICE OF STOCKHOLDER BUSINESS AT ANNUAL MEETING. At any
annual meeting of stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. In addition to any other
requirements imposed by or pursuant to law, the Articles or these By-Laws, each
item of business to be properly brought before an annual meeting must (a) be
specified in the notice of meeting (or any supplement
4
<PAGE> 8
thereto) given by or at the direction of the Board of Directors or the persons
calling the meeting pursuant to the Articles; (b) be otherwise properly brought
before the meeting by or at the direction of the Board of Directors; or (c) be
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received by the Secretary of the corporation not less than ninety
(90) days nor more than one hundred twenty (120) days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is more than thirty (30) days
before or more that sixty (60) days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the 90th day prior to such annual meeting or the 10th day
following the day on which public disclosure of the date of such meeting is
first made.
A stockholder's notice to the Secretary shall set forth as to each matter he or
she proposes to bring before the annual meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as they appear on
the corporation's books, of the stockholder(s) proposing such business, (c) the
class and number of shares of the corporation which are beneficially owned by
the proposing stockholder(s), and (d) any material interest of the proposing
stockholder(s) in such business. Notwithstanding anything in these By-Laws to
the contrary, but subject to Article III hereof, no business shall be conducted
at an annual meeting except in accordance with the procedures set forth in this
Section. The chairman of the annual meeting shall, if the facts warrant,
determine that business was not properly brought before the annual meeting in
accordance with the provisions of this Section; and if he or she should so
determine, shall so declare to the meeting, and any such business not properly
brought before the annual meeting shall not be transacted. The chairman of the
meeting shall have absolute authority to decide questions of compliance with the
foregoing procedures, and his or her ruling thereon shall be final and
conclusive. Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the 1934 Act
and the rules and regulations thereunder with respect to the matters set forth
in this By-law. The provisions of this Section 2.10 shall also govern what
constitutes timely notice for purpose of Rule 14a-4(c) under the 1934 Act.
SECTION 2.11. STOCKHOLDER ACTION BY WRITTEN CONSENT. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
that may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice, and without a vote if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing. If the
action which is consented to is such as would have required the filing of a
certificate under any section of the General Corporation Law of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such section shall state, in lieu of any statement
required by such section concerning any vote of stockholders, that
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written notice and written consent have been given as provided in Section 228 of
the General Corporation Law of Delaware.
SECTION 2.12. PROXIES; VOTING. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for
such stockholder by proxy, but no such proxy shall be voted or acted upon after
three (3) years from its date, unless the proxy provides for a longer period. A
duly executed proxy shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. Voting at meetings of the
stockholders need not be by written ballot and need not be conducted by
inspectors unless otherwise provided in these By-laws or unless so directed by
the chairman of the meeting or unless the holders of a majority of the voting
power of the outstanding shares of all classes of stock entitled to vote thereon
present in person or by proxy at such meeting shall so determine. At all
meetings of the stockholders for the election of directors, a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by law or by the
Certificate of Incorporation of the Corporation or a Certificate of Designation
thereunder, or these By-laws, be decided by the vote of the holders of a
majority of the voting power of the outstanding shares of the Corporation's
stock entitled to vote thereon present in person or by proxy at the meeting,
voting as a single class, provided that (except as otherwise required by law or
by the Certificate of Incorporation of the Corporation) the Board of Directors
may require a larger vote upon any election or question.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.2. NUMBER AND TERM OF OFFICE. The number of directors of the
Corporation which shall constitute the whole Board of Directors shall be not
less than five (5) nor more than twenty (20). The exact number of directors
within the minimum and maximum limitation specified in the preceding sentence
shall be fixed from time to time exclusively by resolution of a majority of the
whole Board. Any vacancy on the Board of Directors, whether arising through
death, resignation, retirement, disqualification, or removal or other cause, or
through an increase in the number of directors, may be filled only by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum. Any director elected to fill a vacancy shall hold office
only until the next election of directors by the stockholders. Directors elected
by the stockholders of the Corporation shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. No decrease in the number of
authorized directors constituting the Board of Directors shall shorten the term
of any incumbent director.
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<PAGE> 10
SECTION 3.3. RESIGNATION AND REMOVAL. Any director may resign at any
time by giving written notice of his resignation to the Board of Directors or to
the Chairman of the Board or the Secretary of the Corporation. Any such
resignation shall take effect upon receipt unless specified to be effective at
some other time and, unless otherwise specified therein, no acceptance of such
resignation shall be necessary to make it effective. A director may be removed
with or without cause by the holders of a majority of the shares of stock
entitled to vote for the election of directors.
SECTION 3.4. MEETINGS.
(A) ANNUAL MEETINGS. As promptly as practicable after each annual
election of directors, the Board of Directors shall meet for the purpose of
organization, the election of officers and the transaction of other business.
(B) REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as the Board of Directors shall from time
to time determine.
(C) SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board, the Chief Executive
Officer if then a member of the Board, or by the Secretary at the written
request of a majority of the Board of Directors. Any and all business may be
transacted at a special meeting which may be transacted at a regular meeting of
the Board of Directors.
(D) PLACE OF MEETING. The Board of Directors may hold its meetings
at such place or places within or without the State of Delaware as the Board of
Directors may from time to time by resolution determine or as shall be
designated in the notice of meeting.
(E) NOTICE OF MEETINGS. Notice of the annual and other regular
meetings of the Board of Directors or of any adjourned meeting need not be
given. Notice of special meetings of the Board of Directors, or of any meeting
of any committee of the Board of Directors, shall be given to each director, or
member of such committee, at least two (2) business days before the day on which
such meeting is to be held, if by mail, and at least twelve a(12) hours before
the time of the meeting, if by telegraph, cable, telex, telecopy or telephone,
or if delivered personally. Such notice shall include the time and place of such
meeting. A written waiver of notice, signed by the director, whether before or
after such meeting shall be deemed equivalent to notice. Attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except when the director attends the meeting for the express purposes of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
(F) QUORUM AND MANNER OF ACTING. A majority of the authorized
number of the directors shall be present in person at any meeting of the Board
of Directors in order to constitute a quorum for the transaction of business at
such meeting. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors
unless the vote of
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<PAGE> 11
a greater number of directors shall be required by the Certificate of
Incorporation of the Corporation or these By-laws.
(G) PARTICIPATION BY COMMUNICATIONS EQUIPMENT. The directors, or
the members of any committee of the Board of Directors, may participate in a
meeting of the Board of Directors, or of such committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
(H) ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and such writing is
filed with the minutes of the proceedings of the Board of Directors or such
committee.
(I) ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, or, if the Chairman of the Board shall be absent from a
meeting, any director chosen by a majority of the directors present thereat,
shall act as chairman of the meeting and preside thereat. The Secretary or, in
the absence of the Secretary, any person (who shall be an Assistant Secretary,
if an Assistant Secretary shall be present thereat) whom the chairman shall
appoint shall act as secretary of such meeting and keep the minutes thereof.
SECTION 3.5. COMPENSATION. The Board of Directors may provide that the
Corporation shall reimburse directors for any expenses incurred on account of
attendance at any meeting of the Board of Directors or any committee thereof,
and may otherwise fix the compensation of directors. Nothing herein shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor or limit the authority of the Board of Directors
to fix such compensation.
SECTION 3.6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation and the law of Delaware, dividends upon the capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
SECTION 3.7. ADDITIONAL POWERS. In addition to the powers and
authorities by these By-laws expressly conferred upon it, the Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
SECTION 3.8. CHAIRMAN OF THE BOARD. David L. Steward shall have the
right to serve as Chairman of the Board so long as he is a member of the Board
of Directors, but Mr. Steward may resign from being Chairman of the Board while
still being a member of the Board. Upon Mr. Steward no longer being Chairman of
the Board, the Board of Directors shall select a Chairman of the Board. The
Chairman of the Board shall preside at all meetings of stockholders and
directors and shall perform such other duties as the Board of Directors may
prescribe.
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<PAGE> 12
ARTICLE IV.
COMMITTEES
SECTION 4.1. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation. Any such committee, to the extent provided in said resolution or
resolutions and subject to any limitations provided by law, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. If at a meeting of any
committee one or more of the members thereof is absent or disqualified, and if
either the Board of Directors has not so designated any alternate member or
members, or the number of absent or disqualified members exceeds the number of
alternate members who are present at such meeting, then the member or members of
such committee (including alternates) present at any meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another Director to act at the meeting in the place of such
absent or disqualified member. The term of office of the members of each
committee shall be as fixed from time to time by the Board; provided, however,
that any committee member who ceases to be a member of the Board shall
automatically cease to be a committee member. The Board of Directors may select
a member of a Committee to chair such Committee, but if the Board does not make
such a selection, the members of the Committee shall have the authority to
select a chair of the Committee.
SECTION 4.2. MEETINGS AND QUORUM. Each Committee shall meet as often as
may be deemed necessary and expedient at such times and places as shall be
determined by such Committee and, except as otherwise provided in these By-Laws
or by resolution of the Board of Directors, make rules for the conduct of its
business.
At all meetings of any Committee, a majority of the members thereof shall
constitute a quorum and the vote of a majority of all of the members thereof at
a meeting at which a quorum is present shall be the act of such Committee. Each
Committee shall keep minutes of its proceedings and report the same to the Board
of Directors when required; but failure to keep such minutes shall not affect
the validity of any acts of the Committee.
ARTICLE V.
OFFICERS
SECTION 5.1. ELECTION AND APPOINTMENT; TERM OF OFFICE. The officers of
the Corporation shall be a Chief Executive Officer, a President, a Chief
Financial Officer and one or more Vice Presidents (the number thereof to be
determined from time to time by the Board of Directors), a Treasurer and a
Secretary. The Board of Directors may also elect one or more Vice Chairmen of
the Board, one or more Executive Vice Presidents, Senior Vice Presidents, Group
Vice Presidents, Deputy and Assistant Secretaries, Deputy and Assistant
Treasurers, a Controller and Deputy and Assistant Controllers and such other
officers as it deems necessary or
9
<PAGE> 13
appropriate, and such officers shall have such authority and shall perform such
duties as the Board of Directors may prescribe. Each such officer shall be
elected by the Board of Directors at its annual meeting and shall hold office
until the next annual meeting of the Board of Directors and until his or her
successor is elected or until his or her earlier death, resignation or removal
in the manner hereinafter provided. If additional officers are elected or
appointed during the year, each of them shall hold office until the next annual
meeting of the Board of Directors at which officers are regularly elected or
appointed and until his or her successor is elected or appointed or until his or
her earlier death, resignation or removal in the manner hereinafter provided.
Any number of offices may be held by the same person.
SECTION 5.2. RESIGNATION; REMOVAL; VACANCIES.
(A) RESIGNATION. Any officer may resign at any time by giving
written notice to the Chairman of the Board or the Secretary of the Corporation,
and such resignation shall take effect upon receipt unless specified therein to
be effective at some other time (subject always to the provisions of Section
5.2B). No acceptance of any such resignation shall be necessary to make it
effective.
(B) REMOVAL. All officers and agents elected or appointed by the
Board of Directors shall be subject to removal at any time by the Board of
Directors with or without cause.
(C) VACANCIES. A vacancy in any office may be filled for the
unexpired portion of the term in the same manner as provided for election or
appointment to such office.
SECTION 5.3. DUTIES AND FUNCTIONS.
(A) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall see that orders and resolutions of the stockholders and Board
of Directors are carried into effect. Subject to the direction and control of
the Board of Directors, the Chief Executive Officer shall have responsibility
for the management and control of the affairs and business of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of the Chief Executive Officer, including the power to enter into
commitments, execute and deliver contracts and do and perform all such other
acts and things as are necessary and appropriate to accomplish the Corporation's
business purposes and to manage the day to day business, operations and affairs
of the Corporation. The Chief Executive Officer may assign such duties to other
officers of the Corporation as he or she deems appropriate.
(B) PRESIDENT. The President shall act under the direction of the
Chief Executive Officer. The President shall be the Chief Operating Officer of
the Corporation and shall have such powers and perform such duties as the Board
of Directors or the Chief Executive Officer may prescribe. In the absence or
incapacity of the Chief Executive Officer, the President shall perform the
duties of the Chief Executive Officer.
(C) VICE PRESIDENTS. The Vice Presidents shall have such powers
and perform such duties as the Board of Directors or the Chief Executive Officer
or the President may prescribe. One or more Vice Presidents may be given and
shall use as part of his or her title such other designations, including,
without limitation, the designations "Executive Vice President" and "Senior Vice
President", as the Board of Directors may designate from time to time. In the
10
<PAGE> 14
absence or incapacity of the President, the powers and duties of the President
shall be vested in and performed by such Vice Presidents as have the designation
"Executive Vice President", in the order of their seniority or as otherwise
established by action of the Board of Directors from time to time, or by such
other officer as the Board of Directors or the Chief Executive Officer or the
President shall have most recently designated for that purpose in a writing
filed with the Secretary.
(D) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall act
under the direction of the Chief Executive Officer. Subject to the direction of
the Chief Executive Officer, the Chief Financial Officer shall have charge of
the accounting records of the Corporation, shall keep full and accurate accounts
of all receipts and disbursements in books belonging to the Corporation, shall
maintain adequate internal control of the Corporation's accounts, and perform
such other duties as may be prescribed by the Chief Executive Officer, the
President or the Board of Directors.
(E) TREASURER. The Treasurer shall act under the direction of the
Chief Executive Officer. Subject to the direction of the Chief Executive
Officer, the Treasurer shall have charge and custody of and be responsible for
all funds and securities of the Corporation and the deposit thereof in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors or by the Treasurer pursuant hereto. The Treasurer
shall be authorized at any time, and from time to time, by a writing
countersigned by the Chief Executive Officer or the President, to open bank
accounts in the name of the Corporation in any bank or trust company for the
deposit therein of any funds, drafts, checks or other orders for the payment of
money to the Corporation; and the Treasurer shall be authorized at any time, and
from time to time, by a writing countersigned by the Chief Executive Officer or
the President, to authorize and empower any representative or agent of the
Corporation to draw upon or sign for the Corporation either manually or by the
use of facsimile signature, any and all checks, drafts or other orders for the
payment of money against such bank accounts which any such bank or trust company
may pay without further inquiry.
(F) SECRETARY. The Secretary shall act under the direction of the
Chief Executive Officer. Subject to the direction of the Chief Executive
Officer, the Secretary shall attend all meetings of the Board of Directors and
the stockholders and record the proceedings in a book to be kept for that
purpose and shall perform like duties for committees designated by the Board of
Directors when required. The Secretary shall give or cause to be given notice of
all meetings of the stockholders and special meetings of the Board of Directors.
The Secretary shall affix the seal of the Corporation to all deeds, contracts,
bonds or other instruments requiring the corporate seal when the same shall have
been signed on behalf of the Corporation by a duly authorized officer. The
Secretary shall be the custodian of all contracts, deeds, documents and all
other indicia of title to properties owned by the Corporation and of its other
corporate records (except accounting records).
SECTION 5.4. CHECKS, DRAFTS. All checks, drafts or other orders for the
payment of money by the Corporation shall be signed by such person or persons as
from time to time may be designated by the Board of Directors or by any officer
or officers authorized by the Board of Directors to designate such signers; and
the Board of Directors or such officer or officers may determine that the
signature of any such authorized signer may be facsimile.
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<PAGE> 15
SECTION 5.5. PROXIES. Except as otherwise provided by resolution of the
Board of Directors, the Chief Executive Officer, the President, the Chief
Financial Officer, any Vice President, the Treasurer and any Assistant
Treasurer, the Controller and any Assistant Controller, the Secretary and any
Assistant Secretary of the Corporation, shall each have full power and
authority, in behalf of the Corporation, to exercise any and all rights of the
Corporation with respect to any meeting of stockholders of any corporation in
which the Corporation holds stock, including the execution and delivery of
proxies therefor, and to consent in writing to action by such corporation
without a meeting.
ARTICLE VI.
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such places within or
without the State of Delaware as the Board of Directors may from time to time
determine.
ARTICLE VII.
SHARES AND THEIR TRANSFER; FIXING RECORD DATES
SECTION 7.1. CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned and designating the class of stock to which such shares belong,
which shall otherwise be in such form as the Board of Directors shall prescribe.
Each such certificate shall be signed by, or in the name of the Corporation by,
the Chief Executive Officer or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the Corporation.
SECTION 7.2. TRANSFER AGENTS AND REGISTRARS; FACSIMILE SIGNATURES. The
Board of Directors shall have the power to appoint one or more transfer agents
and/or registrars for the transfer and/or registration of certificates of stock
of any class, and may require that stock certificates shall be countersigned
and/or registered by one or more of such transfer agents and/or registrars. In
the case of certificates for stock of the Corporation countersigned by a
transfer agent of the Corporation and/or registered by a registrar of the
Corporation, the signatures of the officers of the Corporation thereon may be
facsimiles of their respective autograph signatures, and all such stock
certificates so countersigned and/or registered and signed in facsimile as
aforesaid shall be as valid and effective for all purposes as if the facsimile
signatures thereon of such officers were their respective autograph signatures,
and notwithstanding the fact that any such officer whose facsimile signature
appears thereon may have ceased to be such officer at the time when any such
stock certificate shall be actually issued or delivered.
SECTION 7.3. STOCK RECORD. A record shall be kept of the name of the
person owning the stock represented by each certificate for stock of the
Corporation issued, the number of shares represented by each such certificate,
and the date thereof, and, in the case of cancellation, the date of
cancellation. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes.
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<PAGE> 16
SECTION 7.4. TRANSFER OF STOCK. Transfers of shares of the stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by the attorney of such registered holder thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and upon the surrender to the Corporation or a transfer agent
of the Corporation of the certificate or certificates for such shares properly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer.
SECTION 7.5. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. The
holder of any stock of the Corporation shall promptly notify the Corporation of
any loss, theft, destruction or mutilation of the certificate therefor. The
Corporation may issue a new certificate for stock in the place of any
certificate theretofore issued by it and alleged to have been lost, stolen,
destroyed or mutilated, and the Board of Directors may, in its discretion,
require the owner of the lost, stolen, destroyed or mutilated certificate or the
legal representative of such owner to give the Corporation a bond in such sum,
limited or unlimited, in such form and with such surety or sureties as the Board
of Directors shall in its discretion determine, to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate or the issuance of any
such new certificate.
SECTION 7.6. RECORD DATES. In order that the corporation may determine
the identity of the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any other change, conversion or exchange of
stock or for any other purpose, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) days and not less than ten
(10) days before the date of such meeting, nor more than (60) days prior to any
other action. If, in any case involving the determination of stockholders for
any purpose other than notice of or voting at a meeting of stockholders, a
record date is not fixed, the record date for determining stockholders for such
purpose shall be the close of business on the day on which the Board of
Directors shall adopt the resolution. A determination of stockholders entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
ARTICLE VIII.
INDEMNIFICATION
A. Every person who was or is a party or is threatened to be made
a party to or is involved in any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person or a person of whom such person is a legal
representative is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation or for its benefit as a director,
officer, employee or agent of any other corporation, or as the representative of
the Corporation in a partnership, joint venture, trust or other entity, shall be
indemnified and held harmless by the Corporation to the fullest extent legally
permissible under the General Corporation Law of the State of Delaware, as
amended from time to time, against all expenses, liabilities and losses
(including
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<PAGE> 17
attorneys' fees, judgments, fines and amounts paid or to be paid in settlement)
reasonably paid or incurred by such person in connection therewith. Such right
of indemnification shall be a contract right that may be enforced in any manner
desired by such person. Such right of indemnification shall include the right to
be paid by the Corporation the expenses incurred in defending any such action,
suit or proceeding in advance of its final disposition upon receipt of an
undertaking by or on behalf of such person to repay such amount if ultimately it
should be determined that such person is not entitled to be indemnified by the
Corporation under the General Corporation Law of the State of Delaware. Such
right of indemnification shall not be exclusive of any other right which such
directors, officers or representatives may have or hereafter acquire and,
without limiting the generality of such statement, they shall be entitled to
their respective rights of indemnification under the Certificate of
Incorporation of the Corporation or any agreement, vote of stockholders,
provision of law or otherwise, as well as their rights under this Article X. Any
person or persons who, pursuant to any provisions of the Certificate of
Incorporation of the Corporation, exercises or performs any of the powers or
duties conferred or imposed upon a director of the Corporation, shall be
entitled to the indemnification rights set forth in this Article X.
B. The Corporation shall pay the expenses incurred in defending
any proceeding in advance of its final disposition, provided, however, that if
and to the extent required by law the payment of expenses incurred by any person
covered hereunder in advance of the final disposition of the proceeding shall be
made only upon receipt of an undertaking by or on behalf of the affected person
to repay all amounts advanced if it should ultimately be determined that such
person is not entitled to be indemnified under this Article X or otherwise.
C. If a claim for indemnification or payment of expenses under
this Article X is not paid in full within thirty days, or such other period as
might be provided pursuant to contract, after a written claim therefor has been
received by the Corporation, the claimant may file suit to recover the unpaid
amount of such claim or may seek whatever other remedy might be provided
pursuant to contract. In any such action the Corporation shall have the burden
of proving that the claimant was not entitled to the requested indemnification
or payment of expenses under applicable law. If successful in whole or in part,
claimant shall be entitled to be paid the expense of prosecuting such claim.
Neither the failure of the Corporation (including its Directors, independent
legal counsel or stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because the claimant has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by the Company (including its Directors, independent
legal counsel or stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
D. Any determination regarding whether indemnification of any
person is proper in the circumstances because such person has met the applicable
standard of conduct set forth in the General Corporation Law of the State of
Delaware shall be made by independent legal counsel selected by such person with
the consent of the Corporation (which consent shall not unreasonably be
withheld).
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<PAGE> 18
E. The rights conferred on any person by this Article X shall not
be exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, these By-laws,
agreement, vote of stockholders or disinterested Directors or otherwise.
F. Any repeal or modification of the foregoing provisions of this
Article X shall not adversely affect any right or protection hereunder of any
person with respect to any act or omission occurring prior to or at the time of
such repeal or modification.
G. Notwithstanding anything in this Article X to the contrary, no
person shall be indemnified in respect of any claim, action, suit or proceeding
initiated by any such person or in which any such person has voluntarily
intervened, other than an action initiated by such person to enforce
indemnification rights hereunder or an action initiated with the approval of a
majority of the Board of Directors.
H. The Board of Directors may cause the Corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation or for its benefit as a director, officer, employee
or agent of any other corporation, or as the representative of the Corporation
in a partnership, joint venture, trust or other entity, against any expense,
liability or loss asserted against or incurred by any such person in any such
capacity or arising out of such status, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss.
I. The Board of Directors may adopt further By-laws from time to
time with respect to indemnification and may amend these and such further
By-laws to provide at all times the fullest indemnification permitted by the
General Corporation Law of the State of Delaware, as amended from time to time.
ARTICLE IX.
TRANSACTIONS WITH INTERESTED PARTIES
No contract or transaction between the corporation and one or more of the
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of the
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or a committee of the Board of Directors which authorizes the contract
or transaction or solely because his or their votes are counted for such
purpose, if: (1) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; (2) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders;
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<PAGE> 19
or (3) the contract or transaction is fair as to the corporation as of the time
it is authorized, approved or ratified, by the Board of Directors, a committee
of the Board of Directors, or the stockholders. Common or interested directors
may be counted in determining the presence of a quorum at a meeting of the Board
of Directors or of a committee which authorized the contract or transaction.
ARTICLE X.
AMENDMENTS
These By-laws may be altered, amended or repealed by (i) the affirmative vote of
a majority of the Board of Directors present at a meeting at which a quorum is
present or (ii) the affirmative vote of holders of at least a majority of the
voting power of all the issued and outstanding shares of the Corporation's stock
entitled to vote generally at a meeting of stockholders, voting as a single
class.
ARTICLE XI.
MISCELLANEOUS
SECTION 11.1. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization, and the words
"Corporate Seal Delaware". The seal may be used by causing it or a facsimile to
be impressed or affixed or in any other manner reproduced.
SECTION 11.2. FISCAL YEAR. The fiscal year of the Corporation shall end
on the 31st day of December of each year, or as otherwise fixed by resolution of
the Board of Directors.
SECTION 11.3. WAIVER OF NOTICE. Whenever notice is required to be given
pursuant to the law of Delaware, the Certificate of Incorporation or these
By-laws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting of stockholders or the Board of
Directors or a Committee thereof shall constitute a waiver of notice of such
meeting, except when the stockholder or Director attends such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders or the Board of Directors or
Committee thereof need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or by these By-laws.
16
<PAGE> 1
Exhibit 23.1
Independent Auditors' Consent
The Board of Managers
telcobuy.com LLC:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Summary Financial Data," "Selected Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
St. Louis, Missouri
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1999 AND STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REGISTRATION STATEMENT ON FORM S-1.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
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0
0
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<CGS> 235,169,407
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<INCOME-TAX> 839,574
<INCOME-CONTINUING> 1,589,192
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</TABLE>
