Fulton BreenPresident & CEO

My BackgroundMy Background

Ether

FinishedStatistics

Marketing, J.Huber

FoundedXS, Inc.

LeftRhone Poulenc

SurvivedBudget cycles

Dot com crash

Timeline

Started WEMBAProgramJan. 1996

Breakeven!

OverviewOverview

The US ag market and key trends

Who we are; what we do

Building liquidity

The US ag market and key trends

Who we are; what we do

Building liquidity

The US Agricultural Market and Key TrendsThe US Agricultural Market and Key Trends

US Agriculture 101:Grower ConcentrationUS Agriculture 101:Grower Concentration

The 80/20 rule applies in agricultural production

The 80/20 rule applies in agricultural production

2 million U.S. farms

950 million acres

$209 billion outputs

Target XS customers

18%

60%

87%

Source: USDA, 2000

US Agriculture 101:Inputs and OutputsUS Agriculture 101:Inputs and Outputs

Lower prices are driving operating margins to less than 10% Lower prices are driving operating margins to less than 10%

Seed

Chemicals

Fertilizer

Livestock

Feed

Other operating exp. and capital

$112b crops

$97b livestock

$102-104b

$25b

$15b$11b

$9-10b$6-7b

Outputs=$209b Inputs=$184b

$14b

Equipment

Source: USDA, 2000

Industry Trends Require Efficient Markets Industry Trends Require Efficient Markets

Deregulation

Globalization

Consolidation

Technology

Deregulation

Globalization

Consolidation

Technology

Source: USDA, July 2001

Agricultural inputs move through traditional, complex channels…Agricultural inputs move through traditional, complex channels…

$0$0

$2$2

$4$4

$6$6

$8$8

$10$10

$12$12

ManufacturersManufacturers DistributorsDistributors DealersDealers GrowersGrowers

$B$B

1.0 To Dealers

6.1 To Dist

$7.1

Inter-DistributorTrading = $0.3B

Inter-DealerTrading = $0.3B

5.4

$10.0

4.6

Source: NuVentures Consultants, Industry Interviews, XS AnalysisSource: NuVentures Consultants, Industry Interviews, XS Analysis

COGS3.2

$5.4

5.4 To Growers

Program Margin 0.7

Invoice Margin 0.5

COGS1.0

Invoice Margin 0.8

4.6 To Growers

3.2 To Dealers

$7.8

COGS6.1

Program Margin 0.9

Information

Information

Agriculture Is “Wired”Agriculture Is “Wired”

History of Technology Adoption and Innovation

Catalog purchasesSatellite Communications, cell phones, Rural Telephone NetworkChicago Board of Trade, New York Cotton ExchangeGPS systemsRoundup® Ready Soybeans

All of which is why…

History of Technology Adoption and Innovation

Catalog purchasesSatellite Communications, cell phones, Rural Telephone NetworkChicago Board of Trade, New York Cotton ExchangeGPS systemsRoundup® Ready Soybeans

All of which is why…

>80% of Farmers with revenue over $500,000 have Internet access

>80% of Farmers with revenue over $500,000 have Internet access

Source: US Ag Census

ExternalForces

BuyersSellers

Substitution

IndustryCompetition

•>85% post patent•Generics•Biotech•Consolidation•Costs (inv, overhead)•Internet marketing

•Globalization•Internet procurement

•Internet (channel)•Generics (manufacturers)•Biotech (products)

•Deregulation of markets•Increased regulation of products •Government subsidies

“Power” Is Shifting Towards Buyers“Power” Is Shifting Towards Buyers

Farms Purchasing Inputs Over The InternetFarms Purchasing Inputs Over The Internet

1

Percent of growers buying

8 to 10 (6)

7 to 8 (6)

6 to 7 (6)

5 to 6 (5)

1 to 5 (11)

Source: USDA, July 2001

Who We Are, What We DoWho We Are, What We Do

XS, Inc. Profile XS, Inc. Profile Public exchange offering security, full service fulfillment, and precise customer relationship management (XSAG.com)

Private exchanges (Nterline)

Targeting highly fragmented, $50 billion, U.S. agricultural inputs market

ag chemicals seeds vet supplies Turf equipment parts animal nutrition PCO

Launched ag chemicals in 1999, expanded into seed, vet, parts, PCO and turf

Highly scalable, comprehensive, and proprietary system

>65,000 registered users

Public exchange offering security, full service fulfillment, and precise customer relationship management (XSAG.com)

Private exchanges (Nterline)

Targeting highly fragmented, $50 billion, U.S. agricultural inputs market

ag chemicals seeds vet supplies Turf equipment parts animal nutrition PCO

Launched ag chemicals in 1999, expanded into seed, vet, parts, PCO and turf

Highly scalable, comprehensive, and proprietary system

>65,000 registered users

Targeted U.S. Agricultural Inputs MarketTargeted U.S. Agricultural Inputs Market

Source: USDA, Industry Reports, Industry Interviews

Chemicals $9-10 b

Seeds $6-7 b

Fertilizer $11 b

Vet Supplies $6 b

Equipment Parts $15 b

TOTAL MARKET OPPORTUNITY $47-50 b

Conservative 2X multiplierConservative 2X multiplier $100 b$100 b

Building LiquidityBuilding Liquidity

How Hard Can This Be To Sell?How Hard Can This Be To Sell?

Buyer Value Proposition:

Free service

No risk

Save up to 30% or more

Buyer Value Proposition:

Free service

No risk

Save up to 30% or more $136.29 $136.29

$14.87

$34.35

XS $2.73

$185.51

$140.41

24% Savings

Example

Traditional

Freight $1.39

Dealer

Distributor

Manufacturer Manufacturer

NYP

Best in Class Merchandizing Flexibility for SellersBest in Class Merchandizing Flexibility for Sellers

Real time quotes or “free” deliveryReal time quotes or “free” delivery

Nterline ManagedNterline ManagedSeller ManagedSeller ManagedLogisticsLogistics

DEGREES OF FREEDOM FOR EACH LISTINGDEGREES OF FREEDOM FOR EACH LISTINGLEVERLEVER

AnonymousAnonymousIdentifiedIdentifiedSeller IDSeller ID

Customer Specific OffersCustomer Specific Offers

Sell via or to ChannelSell via or to Channel

Sell to AnyoneSell to AnyoneCustomerCustomer

Products and PromotionsProducts and Promotions

Bundled ProductsBundled ProductsSingle ProductSingle ProductProductProduct

Seller CreditSeller CreditThird Party CreditThird Party CreditCreditCredit Cash SalesCash Sales

Dynamic PricingDynamic PricingFixed PricingFixed PricingPricingPricing Contract PricingContract Pricing

VenueVenue Your SiteYour Site Affiliated Site(s)Affiliated Site(s)

Broadly DefinedBroadly DefinedGeographyGeography County Level DetailCounty Level DetailNo RestrictionNo Restriction

Linked from AdvertisingLinked from Advertising

Linked from Editorial Content Linked from Editorial Content

Straight ListingsStraight ListingsProduct Info

Product Info

Single Event PromoSingle Event PromoNoneNone Rewards ProgramRewards ProgramPromotionsPromotions

Demand Starts The Ball RollingDemand Starts The Ball Rolling

Degreeof

Adoption

Degreeof

Adoption

TimeTime

Six Components of E-commerce Trust• Icons, Seals of Approval• Brand• Navigation• Fulfillment• Presentation• Technology

Six Components of E-commerce Trust• Icons, Seals of Approval• Brand• Navigation• Fulfillment• Presentation• Technology

Tru

st

Tru

st

Register, Transact (trial), ConfirmRegister, Transact (trial), Confirm

Consider, Validate, AssessConsider, Validate, Assess

Browse, Search, CompareBrowse, Search, Compare

Tra

de

Tra

de Maintaining the Relationship

• Feature Enhancement• Flawless Execution• Customer Intimacy/One to One Marketing

Maintaining the Relationship• Feature Enhancement• Flawless Execution• Customer Intimacy/One to One Marketing Use Habitually,

Transact FullyUse Habitually,Transact Fully

Controllable Activities• 100+ PR articles• Over 500 Radio interviews• Print ads, radio ads, DTN

screens, mailings• TV interviews• Trade Shows• Outbound call center

Controllable Activities• 100+ PR articles• Over 500 Radio interviews• Print ads, radio ads, DTN

screens, mailings• TV interviews• Trade Shows• Outbound call center

Tra

ffic

Tra

ffic

Hear about siteHear about site

How Do You Build Trust (When Your Sellers Are Anonymous)?How Do You Build Trust (When Your Sellers Are Anonymous)?

Leverage “Trust Brokers”

Farm credit

Agricultural education

Teleconference testimonials

Buying Groups; Buying Group Premiums

Build relationships

Phone, E-mail, letters

Tradeshows, personal visits

Educate to clarify value proposition

PR

Speaking engagements

Survey to refine message

Over deliver on service, response time, complaint handling

Leverage “Trust Brokers”

Farm credit

Agricultural education

Teleconference testimonials

Buying Groups; Buying Group Premiums

Build relationships

Phone, E-mail, letters

Tradeshows, personal visits

Educate to clarify value proposition

PR

Speaking engagements

Survey to refine message

Over deliver on service, response time, complaint handling

Identify and Correct MisconceptionsIdentify and Correct Misconceptions

Data required for an ACHtransfer is easily collected

using a simple graphic

Target Segments To Drive Behavior

Info

rmati

on

Ad

op

tion

The UniverseE-mail, Word of Mouth, PR

Site visitCall back

Pre-registerPrice Visibility

Fully register$1 Auction, Group Buying

List;No sale

Bid;No purch.

Haggle, Market Maker Features

1st TradePersonal Letter, premium

Repeat

Beta Testers, special prizes

Adoption Will Begin With Those Who Have The Most To GainAdoption Will Begin With Those Who Have The Most To Gain

Trading Participants to Date

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manufacturer Distributor Dealer Total

Sellers

% o

f T

otal

Sal

es

To Grower

To Dealer

To Distributor

3%7%5%5%

17%

13%

26%

61%

100%

6%

20%

54%

80%

XSAg.com: Gaining Real Traction…XSAg.com: Gaining Real Traction…

2001 vs. 2000• Trade value: ~2x• Net revenue: ~ 4x• Listings: >$1.5

Billion• Members: >65,000• Avg. trade incr:

>50%

2001 vs. 2000• Trade value: ~2x• Net revenue: ~ 4x• Listings: >$1.5

Billion• Members: >65,000• Avg. trade incr:

>50%

Source: XS metrics

OctNov Dec Ja

nFeb M

ar AprM

ay Jun Ju

lAug Sep

1999

2000

2001

2002

What We’ve Learned In 4 Years…What We’ve Learned In 4 Years…

Demand drives transactions (bring customers; the shelves will fill themselves)

Traditional awareness building activities don’t generate demand

Big companies respond to fear, not opportunity

Transparency, anonymity, technology have been the drivers of success, but…

…You can’t build a relationship with ‘anonymity’

Learn how to ‘monetize’ existing relationships

Execution is everything

Demand drives transactions (bring customers; the shelves will fill themselves)

Traditional awareness building activities don’t generate demand

Big companies respond to fear, not opportunity

Transparency, anonymity, technology have been the drivers of success, but…

…You can’t build a relationship with ‘anonymity’

Learn how to ‘monetize’ existing relationships

Execution is everything

Questions?

Fulton Breen: fbreen@xsinc.com