PurchasePro mum on stock probe settlement

Friday, Sept. 13, 2002 | 11:16 a.m.

Representatives of PurchasePro.com Inc. and the Securities and Exchange Commission aren't commenting on a settlement of a securities investigation that was announced the same day PurchasePro filed for bankruptcy and agreed to sell its assets.

PurchasePro, once Las Vegas' largest technology company, said in a press release Thursday that it had reached an agreement in principle with the enforcement division of the Securities and Exchange Commission. The agreement in principle "concerns the settlement of proposed allegations that have been under investigation since the spring of 2001" concerning its publicly traded stock, the release said. The company would not elaborate on the settlement.

An SEC spokesman said the agency had no comment on the release and could not confirm whether an investigation of PurchasePro had been conducted.

It was unclear whether the settlement agreement involves an inquiry confirmed by the company last month involving its relationship with AOL Time Warner Inc.'s America Online Internet unit.

Securities regulators and Justice Department officials investigating AOL Time Warner's accounting practices had questioned that company's executives over their dealings with PurchasePro. The agreement between the two companies was terminated last year.

Perfect Commerce Inc., Palo Alto, Calif., announced Thursday that it had signed a term sheet enabling it to buy PurchasePro's assets for an undisclosed price.

The California company plans to hire the majority of PurchasePro's approximately 70 employees and keep the Las Vegas office open. The company's chief executive said he expects the Las Vegas office eventually would adopt the Perfect Commerce name and there are no plans for the buyer to move from its Palo Alto headquarters.

"PurchasePro's customer base is very synergistic to ours," said Kevin Surace, chief executive officer of Perfect Commerce. "The people they have are really world class and I intend to keep the majority of the employees in Vegas."

Surace said he expects the Las Vegas operation to grow as the economy rebounds. The company has America West Airlines, Bechtel, Unocal and Peabody Energy among its clients.

Like PurchasePro, Perfect Commerce is a technology company specializing in using the Internet for corporate procurement. PurchasePro has been the dominant e-commerce procurement player in the hospitality industry, a segment Perfect Commerce covets.

"PurchasePro has a wonderful trading network and a critical mass of suppliers that will absolutely be a differentiator for Perfect Commerce," said Brook Foust, an analyst with Doculabs, a Chicago research and consulting firm specializing in procurement technologies. "PurchasePro has a vast ownership of customers in the hospitality industry."

Another analyst, Pierre Mitchell of Boston-based AMR Research, said Perfect Commerce's strategy may be to acquire PurchasePro's customer base and then sell off other assets that are not related to its core business.

PurchasePro, a struggling company that at one time had 600 employees, issued a press release about the bankruptcy filing and the sale of the company, but company officials did not answer questions.

In the release, PurchasePro cited increasing costs as the reason for filing for bankruptcy.

"The cost of doing business as a public company has increased significantly over the past year," Richard Clemmer, president and chief executive officer of PurchasePro, said in the release. "After reviewing many of the options available, as well as the opportunity presented by Perfect Commerce, PurchasePro concluded that the terms of the acquisition and subsequent filing were necessary to preserve the assets and values of PurchasePro's business and to protect the interest of the company."

PurchasePro, which in May reported a quarterly loss of $8.8 million or 11 cents a share, has seen revenues shrink and losses mount for the last three years.

Founded in 1996 by former chief executive Charles "Junior" Johnson, PurchasePro established itself as one of the leading e-commerce companies in the nation, building its success by using the Internet to connect casino companies with suppliers with procurement software the company designed.

Johnson was ousted from the company in May 2001 amid accounting and disclosure problems and the company cut its work force and managers' salaries last October. While the company projected annual savings of $14 million with those measures last year, it continued to suffer losses.

The company's stock traded as high as $188 a share on Dec. 13, 1999; Thursday, it closed at 22 cents a share and this morning it plunged to a historic low, 8 cents a share.

AMR Research analyst Mitchell said that like in most dot-com company collapses, shareholders are likely to see the value of their stock evaporate. He said he could not project the exact dollar value of shares, but that they likely would be worthless.

PurchasePro filed for Chapter 11 protection in U.S. Bankruptcy Court in Las Vegas on Thursday after Clemmer had received authorization from the company's board of directors on Monday, according to the filing.

The filing listed assets of $41.9 million and liabilities of $20.1 million. The filing said there are 17.7 million shares of common stock outstanding, held by about 75,000 shareholders.

Most of the major creditors are out-of-state computer and electronics companies. The largest creditor is PurchasePro's landlord, Cheyenne Investments Inc., which leases the company's headquarters at 3391 Buffalo Drive in northwest Las Vegas, and is owed $4.6 million. Compaq Computer Corp., Atlanta, has the second-largest claim at $1.1 million.

Another Las Vegas creditor is MGM MIRAGE, which has a claim of $42,000.

Under bankruptcy law, PurchasePro must submit the sales agreement to the court for consideration. The first meeting of creditors is scheduled Oct. 23.

PurchasePro said that under its agreement with Perfect Commerce it has the option of obtaining debtor-in-possession financing of up to $750,000 while the company continues to operate. In its release, PurchasePro said it would continue to operate as it did prior to the filing and that customers and employees should see no difference in the operation.