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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(RULE 14d-101)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SIERRACITIES.COM INC.
(NAME OF SUBJECT COMPANY)
SIERRACITIES.COM INC.
(NAME OF PERSONS FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(INCLUDING THE ASSOCIATED SHARE PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
826521 10 6
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
ALAN L. LANGUS
CORPORATE SECRETARY, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
SIERRACITIES.COM INC.
399 KNOLLWOOD ROAD, SUITE G-10
WHITE PLAINS, NEW YORK 10603
(914) 286-6365
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSONS FILING STATEMENT)
WITH A COPY TO:
RICHARD D. PRITZ
DEWEY BALLANTINE LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 259-8000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is SierraCities.com
Inc., a Delaware corporation ("SierraCities"). The address of the principal
executive offices of SierraCities is 600 Travis Street, Suite 7050, Houston,
Texas 77002. The telephone number of the principal executive offices of
SierraCities is 713-221-8822.
The title of the class of equity securities to which this Schedule 14D-9
relates is the common stock, par value $0.01 per share (the "Shares"), of
SierraCities, including the associated rights issued pursuant to the Rights
Agreement, dated as of December 30, 1998, as amended (the "Rights Agreement"),
between SierraCities and Harris Trust and Savings Bank, as rights agent. As of
November 13, 2000, there were 19,048,640 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The name, business address and business telephone number of SierraCities,
which is the person filing this Schedule 14D-9, are set forth in Item 1 above.
This Schedule 14D-9 relates to the offer by VerticalNet, Inc., a
Pennsylvania corporation ("VerticalNet"), through its wholly owned subsidiary,
Truckee Acquisition Co., a Delaware corporation (the "Purchaser"), disclosed in
a Tender Offer Statement on Schedule TO (the "Schedule TO"), dated November 16,
2000, to exchange each outstanding Share for a number of shares of common stock,
par value $0.01 per share (the "VerticalNet Shares"), of VerticalNet equal to
$7.00 divided by the Average VerticalNet Price (as defined below), subject to
the collar described below (the "Merger Consideration"), upon the terms and
subject to the conditions set forth in the prospectus contained in the
registration statement on Form S-4 filed by VerticalNet with the SEC on November
16, 2000 (the "Prospectus"), and in the related Letter of Transmittal (which,
together with the Prospectus, as each may be amended or supplemented from time
to time, collectively constitute the "Offer"). "Average VerticalNet Price" means
the average of the closing prices per VerticalNet Share on Nasdaq (as reported
by Bloomberg Financial Markets or, if not reported thereby, any other
authoritative source) over the ten consecutive trading days ending on the
trading day that is two trading days prior to the date on which the Shares are
accepted for payment in the Offer.
The collar functions as follows: if the Average VerticalNet Price is (1)
less than $21.00, the SierraCities stockholders shall receive 0.3333 of a
VerticalNet Share for each Share, (2) at least $21.00 but less than or equal to
$35.00, SierraCities stockholders shall receive a fraction of a VerticalNet
Share equal to $7.00 divided by the Average VerticalNet Price for each Share,
(3) more than $35.00 but less than or equal to $51.00, the SierraCities
stockholders shall receive 0.20 of a VerticalNet Share for each Share, and (4)
greater than $51.00, SierraCities stockholders shall receive a fraction of a
VerticalNet share equal to $10.20 divided by the Average VerticalNet Price for
each Share. SierraCities will have the right to terminate the Merger Agreement
and abandon the Merger if the Average VerticalNet Price is less than $15.00. The
Average VerticalNet Price cannot be determined at this time.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 6, 2000 (the "Merger Agreement"), among VerticalNet, the
Purchaser and SierraCities. The Merger Agreement provides that, among other
things, as soon as practicable following the satisfaction or waiver of the
conditions set forth in the Merger Agreement, the Purchaser will be merged with
SierraCities (the "Merger"). At the effective time of the Merger, each Share
outstanding immediately prior to the effective time of the Merger (other than
Shares held by VerticalNet, the Purchaser or SierraCities or, if applicable, by
stockholders who perfect appraisal rights under Delaware law), will be converted
into the right to receive the same number of VerticalNet Shares as will be paid
in the Offer. As a result of the Offer and the Merger, SierraCities will become
a wholly owned subsidiary of VerticalNet.
On November 15, 2000, the closing price for the VerticalNet Shares was
$20.1875. If the Average VerticalNet Price were equal to this closing price, a
SierraCities stockholder would receive VerticalNet
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Shares in the Offer with a value of approximately $6.73 per SierraCities share.
We urge you to obtain a current quote for the VerticalNet Shares.
The Schedule TO states that the principal executive offices of VerticalNet
and the Purchaser are located at 700 Dresher Road, Horsham, Pennsylvania 19044.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
The information contained under the caption "Interests of Certain Persons"
in the Prospectus, and in the Information Statement which is attached hereto as
Schedule I, is incorporated herein by reference. Except as described in this
Schedule 14D-9 or incorporated herein by reference, to the knowledge of
SierraCities, as of the date of this Schedule 14D-9, there exists no material
agreement, arrangement or understanding or any actual or potential conflict of
interest between SierraCities or its affiliates and (1) SierraCities' executive
officers, directors or affiliates or (2) VerticalNet or the Purchaser or their
respective executive officers, directors or affiliates.
EMPLOYMENT AGREEMENTS.
In connection with the negotiation of the Merger Agreement, VerticalNet
required that the employment agreements and any change in control agreements of
Thomas Depping, Sandy Ho and Roger Gebhart be replaced with new employment
agreements in order to help retain these officers following the consummation of
the Offer. These new agreements, which will become effective only upon the
consummation of the Offer, provide for three-year employment terms. The
agreements provide for initial base salaries of $250,000 for Mr. Depping,
$200,000 for Ms. Ho and $200,000 for Mr. Gebhart, subject to annual review by
the board of directors for merit increases. The agreements provide for annual
target bonuses of up to 30% of base salary, and up to 40% of base salary in the
case of Mr. Depping, based upon achievement of targets set by the board of
directors. The agreements provide that on the effective date of the agreement,
Mr. Depping, Ms. Ho and Mr. Gebhart will be granted stock options to purchase
150,000, 75,000 and 125,000 VerticalNet Shares, respectively, one-half of which
will vest over three years (based upon continued employment), and one-half of
which will vest fully after 5 years (based upon continued employment) unless
specified performance criteria have been achieved at an earlier time. Mr.
Gebhart's agreement provides for a sign-on bonus of $600,000, payable on the
closing date of the Offer. The agreements for Mr. Depping and Ms. Ho provide
that in the event he or she is terminated "without cause" or quits for "good
reason," he or she will receive (provided the officer executes a release in
favor of VerticalNet) a lump sum severance payment of $1,200,000 for Mr. Depping
and $836,530 for Ms. Ho (with such amount to be reduced pro rata for each month
into the employment term that the termination occurs). Each of the agreements
also provide for certain restrictive covenants on behalf of the officers in
favor of VerticalNet including noncompetition, nonsolicitation, nondisclosure of
confidential information and assignment of inventions provisions.
This summary of the terms of the new employment agreements is qualified in
its entirety by reference to the complete text of the amended employment
agreements, a form of which has been filed as Exhibit (e)(4) hereto and is
incorporated herein by reference. Information regarding the prior employment
agreements with certain executive officers is included in Schedule I hereto.
Michael Sabel, Executive Vice President and Chief E-Commerce Officer of
SierraCities, is a party to an employment agreement with SierraCities, dated May
27, 1998, which provides that in the event of a change in control of
SierraCities (as defined in the agreement, which includes the consummation of
the Offer), he shall be paid a lump sum payment equal to 2.99 times the cash
compensation paid to him in the year prior to the change in control. In
addition, in the event that the payment under the agreement, together with any
other payments due to him on account of such change in control, are deemed to be
excess parachute payments under Section 280G of the Internal Revenue Code, the
severance payment will be reduced so that there would be no excess parachute
payment.
David Pederson, Executive Vice President and Chief Information Officer of
SierraCities, is a party to an employment agreement with SierraCities dated
April 13, 1998, which provides that if Mr. Pederson's employment is terminated
following the acquisition of SierraCities by another entity where SierraCities
is not
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the surviving entity, Mr. Pederson is entitled to receive a termination fee
equal to the amount of his base salary due over the remaining months in the
five-year term of the employment agreement. Further information regarding Mr.
Sabel's and Mr. Pederson's employment agreements is included in Schedule I
hereto.
STOCK OPTIONS.
The Merger Agreement provides that all outstanding options to purchase
Shares under the SierraCities stock option plans will be cancelled in exchange
for a cash payment (less applicable withholding tax) equal to the number of
Shares subject to each option multiplied by the excess, if any, of (1) the
fraction of a VerticalNet Share paid per Share in the Offer multiplied by the
Average VerticalNet Price over (2) the exercise price per share of each such
option. As of November 6, 2000, executive officers and directors held options to
purchase a total of 1,840,941 Shares, with an average exercise price of
approximately $11.87.
It is anticipated that options to purchase an aggregate of 1,000,000
VerticalNet Shares will be awarded to SierraCities employees following
completion of the Merger.
MERGER AGREEMENT AND TENDER AGREEMENTS.
A summary of the material terms of the Merger Agreement and the Tender
Agreements, dated as of November 6, 2000, between VerticalNet and certain
stockholders of SierraCities is contained under the caption "The Merger
Agreement and The Tender Agreements" in the Prospectus and is incorporated
herein by reference. The summary is qualified in its entirety by reference to
the complete texts of the Merger Agreement and a form of the Tender Agreements,
which have been filed as Exhibits (e)(1) and (e)(2) hereto and are incorporated
herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
As described above, the SierraCities Board has approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, and determined that the transactions contemplated by the Merger
Agreement, including the Offer and the Merger, are fair to and in the best
interests of SierraCities and its stockholders. The SierraCities Board
unanimously recommends that SierraCities' stockholders accept the Offer and
tender their Shares pursuant to the Offer.
A letter to SierraCities' stockholders communicating the SierraCities
Board's recommendation and a press release announcing the execution of the
Merger Agreement are filed as Exhibits (a)(3) and (a)(4) hereto and are
incorporated herein by reference.
(b) BACKGROUND AND REASONS FOR THE SIERRACITIES BOARD'S RECOMMENDATION.
Background
In October 1999, SierraCities engaged an investment banking firm to explore
a possible sale. From October 1999 through April 2000, that firm contacted
approximately 20 parties. In April 2000, SierraCities terminated the engagement
of that investment bank.
In April 2000, SierraCities announced that it had retained Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") to advise on the potential
division of the SierraCities' technology and finance operations. In the next
four months, DLJ contacted approximately 55 parties to determine their interest
in purchasing or investing in the technology or finance operations or other
strategic transactions involving SierraCities. Twenty-seven of these parties
executed confidentiality agreements and were sent confidential information
memoranda. By September 2000, five of these parties submitted preliminary
indications of interest.
In August and September 2000, these five parties conducted due diligence
investigations. Three of these parties submitted further proposals, as set forth
below. SierraCities circulated a form of merger agreement for these parties to
review and use as the basis for proposals.
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On September 18, 2000, VerticalNet submitted a proposal to acquire
SierraCities for $7.00 per share, subject to adjustment based on the amount of
cash realized from the disposition of assets prior to closing. The purchase
price would be payable in VerticalNet Shares. SierraCities and VerticalNet
commenced negotiation of a possible merger agreement.
On October 12, 2000, a third party submitted a proposal to acquire
SierraCities. The proposal contained a price, payable in cash or the third
party's stock, that was lower than $7.00 per share. On October 19, 2000, this
party increased its proposed price, although the revised price was still lower
than $7.00 per share. The parties commenced negotiations regarding a possible
merger agreement.
On October 19, 2000, the SierraCities Board met with its financial and
legal advisors to consider the status of discussions with parties interested in
a combination with SierraCities. The Board instructed management and its
advisors to continue to seek the most favorable proposal that may be available.
On October 20, 2000, VerticalNet reaffirmed its proposed price of $7.00 per
Share, payable in VerticalNet Shares. The reaffirmed proposal, however, did not
provide for a price adjustment mechanism, although it was conditioned on
SierraCities realizing specified financial and operational milestones by the
closing of the transaction.
On October 23, 2000, another third party submitted a proposal to acquire
SierraCities. The proposal contained a price, payable in the third party's
stock, that was lower than $7.00 per Share.
On October 30, 2000, the SierraCities Board met to consider the three
proposals. SierraCities management and representatives of DLJ and Dewey
Ballantine LLP discussed the three proposals with the Board. At the direction of
the Board, DLJ contacted the three parties to inform them that they were in a
competitive situation and ask them to improve the terms of their proposals.
SierraCities continued negotiations with VerticalNet and VerticalNet was told
that their proposal was the only one of the three which was conditioned upon
achieving specified financial and operational milestones. VerticalNet agreed to
drop its condition that SierraCities realize specified pre-closing financial and
operational milestones in exchange for SierraCities' agreement to use its
reasonable best efforts to undertake certain actions designed to achieve such
financial and operational milestones. Neither of the other parties improved the
terms of its proposal.
On November 5, 2000, the SierraCities Board met to consider the Merger
Agreement and related agreements. Following a discussion of the issues and
presentations by its financial and legal advisors, the SierraCities Board by the
unanimous vote of directors present, voted to approve the Merger Agreement and
related agreements, subject to the resolution of open issues. SierraCities and
VerticalNet completed negotiations of the proposed combination and executed the
Merger Agreement and related agreements following the close of business on
November 6, 2000. Shortly thereafter, SierraCities and VerticalNet issued a
press release announcing the proposed combination.
On November 16, 2000, VerticalNet commenced the Offer.
Reasons for the SierraCities Board's Recommendation
In reaching its recommendation described in paragraph (a) of this Item 4,
the SierraCities Board considered a number of factors, including the following
material factors:
- The business, assets, financial condition, results of operations and
prospects of SierraCities and VerticalNet.
- The fact that the market value of the VerticalNet Shares, based on the
exchange ratio described herein and the closing price of such shares on
Nasdaq on November 3, 2000, to be exchanged for each Share pursuant to
the Offer and the Merger represents a premium of approximately 66% over
the closing price of the Shares on Nasdaq on November 3, 2000, and a
premium of approximately 86% over the average of the closing prices of
the Shares on Nasdaq for the 30 calendar days prior to November 3, 2000.
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- The recent and historical stock price performance of the Shares and the
VerticalNet Shares.
- Presentations by DLJ to the SierraCities Board and the opinion of DLJ to
the effect that, as of the date of the opinion and based on and subject
to the matters set forth therein, the consideration to be received in the
Offer and the Merger by the holders of Shares was fair to such holders
from a financial point of view. DLJ's written opinion is attached as
Schedule II and should be read carefully and in its entirety. See
"Opinion of Financial Advisor," below, for a description of DLJ's
opinion.
- The terms of the Merger Agreement, including:
- that the Offer provides for a prompt exchange offer for all Shares to
be followed by a second-step merger at the same consideration, thereby
enabling SierraCities' stockholders to obtain the benefits of the
transaction at the earliest possible time.
- SierraCities' ability, if required by the SierraCities Board's
fiduciary duties, to provide information to and negotiate with third
parties and to terminate the Merger Agreement upon the payment of a
termination fee, and the SierraCities Board's business judgment that
these provisions would not significantly deter a more attractive offer
from a bona fide bidder for SierraCities. See "The Merger Agreement" in
the Prospectus.
- the design of the "collar" mechanism in the Merger Agreement, including
that stockholders would receive less than $7.00 of VerticalNet Shares
if the Average VerticalNet Price is below $21.00 and more than $7.00 if
the Average VerticalNet Price is above $35 and that SierraCities could
terminate the Merger Agreement if the Average VerticalNet Price is
below $15.00. See Item 2, above. The Board also considered the fact
that the trading price of the VerticalNet Shares might not be equal to
the Average VerticalNet Price. See "Risk Factors" in the Prospectus.
- That the Offer and Merger are expected to be tax-free to the stockholders
of SierraCities. See "Material Federal Income Tax Consequences" in the
Prospectus.
- The potential strategic alternatives available to SierraCities and the
benefits and risks associated with each alternative, including the
prospects for SierraCities on a stand-alone basis and the risks
associated with achieving and executing upon SierraCities' business plan.
- The belief that, based on a review of SierraCities' strategic
alternatives and the process described in "Background," it was unlikely
that any party would propose an alternative transaction that would be
more favorable to SierraCities and its stockholders than the Offer and
the Merger.
- That the Offer and the Merger will present the opportunity for the
holders of Shares to participate in a larger and more diversified company
and, as stockholders of the combined company, to have greater liquidity
in their Shares and to benefit from any future growth of the combined
company, subject to the risks of the combined company, the risks that the
potential benefits of the combination will not be realized and the risks
applicable to VerticalNet's business. See "Risk Factors" in the
Prospectus.
- The fact that certain key employees would be entering into new employment
agreements and the other matters described in Item 3 above.
The foregoing discussion of the information and factors considered by the
SierraCities Board is not intended to be exhaustive, but includes the material
factors considered by the SierraCities Board. In view of the variety of factors
considered in connection with the evaluation of the proposed Offer and Merger
and the terms of the Merger Agreement, the SierraCities Board did not deem it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its conclusion. Individual directors
may have given different weights to different factors.
Opinion of Financial Advisor
SierraCities asked DLJ, in its role as financial advisor to SierraCities,
to render an opinion to the SierraCities Board as to the fairness of the
consideration to be received in the Offer and the Merger, from a financial point
of view, to the holders of SierraCities common stock. On November 5, 2000, DLJ
delivered to
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the SierraCities Board its oral opinion, subsequently confirmed in writing on
November 6, 2000, to the effect that, as of that date, based on and subject to
the assumptions, limitations and qualifications set forth in its written
opinion, the Merger Consideration was fair to the holders of Shares from a
financial point of view. The full text of DLJ's opinion is attached as Schedule
II to this Schedule 14D-9.
SierraCities selected DLJ as its financial advisor because DLJ is an
internationally recognized investment banking firm that has substantial
experience providing strategic advisory services, DLJ, as part of its investment
banking services, is regularly engaged in the valuation of businesses and
securities in connection with mergers, acquisitions, underwritings, sales and
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In arriving at its opinion, DLJ, among other things:
- reviewed the Merger Agreement;
- reviewed financial and other information that was publicly available or
furnished to it by SierraCities, including information provided during
discussions with SierraCities management. Included in the information
provided to DLJ were certain financial projections of SierraCities for
the period beginning January 1, 2000 and ending December 31, 2003;
- compared certain financial and securities data of SierraCities and
VerticalNet with various other companies whose securities are traded in
public markets;
- reviewed the historical stock prices and trading volumes of the common
stock of the Company and VerticalNet, reviewed prices and premiums paid
in certain other business combinations; and
- conducted such other financial studies, analyses and investigations as
DLJ deemed appropriate for purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by SierraCities or its
representatives, or that was otherwise reviewed by DLJ. With respect to the
financial projections supplied to it, DLJ relied on representations that the
projections were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of SierraCities as to the
future operating and financial performance of SierraCities on a standalone
basis. DLJ has not assumed any responsibility for making any independent
evaluation or appraisal of the assets or liabilities or for making any
independent verification of any of the information reviewed by it.
DLJ necessarily based its opinion on economic, market, financial and other
conditions as they existed on, and on the information made available to DLJ as
of, the date of its opinion. DLJ states in its opinion that, although subsequent
developments may affect the conclusions reached in its opinion, DLJ does not
have any obligation to update, revise or reaffirm its opinion.
DLJ's opinion does not constitute an opinion as to the price at which the
Shares or VerticalNet Shares will actually trade at any time. The Merger
Consideration was determined in arms' length negotiations between SierraCities
and VerticalNet, in which negotiations DLJ advised SierraCities. No restrictions
or limitations were imposed by SierraCities upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering its opinion.
DLJ's opinion was prepared for the SierraCities board of directors and is
directed only to the fairness of the Merger Consideration to the SierraCities
stockholders from a financial point of view and does not address the merits of
the underlying decision by SierraCities to engage in the Merger or other
business strategies considered by the SierraCities board of directors. DLJ's
opinion does not constitute a recommendation to any SierraCities stockholder as
to whether such stockholder should tender Shares in the Offer.
Summary of Financial Analyses Performed by DLJ
The following is a summary of the financial analyses DLJ presented to the
SierraCities board of directors on November 5, 2000 in connection with the
preparation of DLJ's opinion. No company or transaction used
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in the analyses described below is directly comparable to SierraCities,
VerticalNet or the contemplated transaction. In addition, mathematical analysis
such as determining the average, mean or median is not in itself a meaningful
method of using selected company or transaction data. The analyses DLJ performed
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses. The
information summarized in the tables which follow should be read in conjunction
with the accompanying text.
Common Stock Trading History. DLJ examined the historical closing prices
of SierraCities common stock from October 1, 1999 to November 3, 2000. During
this time period, SierraCities common stock reached a high of $24.00 per share
and a low of $1.97 per share. DLJ also examined the historical closing prices of
VerticalNet common stock from November 2, 1999 to November 3, 2000. During this
time period, VerticalNet common stock reached a high of $138.88 per share and a
low of $21.31 per share.
Discounted Cash Flow ("DCF") Analysis. DLJ performed a DCF analysis of the
projected cash flows of SierraCities for the three- and one-quarter year period
beginning on October 1, 2000 and ending on December 31, 2003, using projections
and assumptions provided by the management of SierraCities. The DCFs for
SierraCities were estimated using discount rates ranging from 16% to 20%, based
on estimates related to the weighted average costs of capital of SierraCities,
and terminal multiples of estimated earnings for SierraCities' fiscal year
ending December 31, 2003 ranging from 7.5x to 9.5x. Based on this analysis, DLJ
estimated a value per share of SierraCities common stock ranging from $4.75 to
$6.00.
Premiums Paid Analysis. DLJ determined the premium over the common stock
trading prices for one day, one week and four weeks prior to the announcement
date in all publicly announced domestic merger transactions of companies ranging
from $100 million to $300 million in size between January 1, 1998 through
November 2, 2000. DLJ obtained the premiums for these transactions from
Securities Data Company. The median premiums for the selected transactions over
the common stock trading prices for one day, one week and four weeks prior to
the announcement date were 33.7%, 41.8% and 52.8%, respectively. Applying the
above premiums to the closing price of the Shares on comparable days, using
November 3, 2000 as the reference date, DLJ estimated a value per Share ranging
from $4.75 to $6.25.
Company Orderly Liquidation Analysis. Based on an orderly liquidation
analysis of SierraCities provided by SierraCities' management, DLJ performed a
DCF analysis to quantify the net present value per share of common stock of
SierraCities which would result from SierraCities undergoing an orderly
disposition and liquidation of its assets, liabilities and operations. This
analysis was based on principal assumptions presented to DLJ by SierraCities
management and does not include corporate tax considerations or take into
account the viability of executing an orderly liquidation. DLJ estimated net
present values per Share based on SierraCities's operating and performance
assumptions of its financial assets, and on a cumulative loss sensitivity in
which the future cumulative losses projected to be experienced by certain loans
in portfolios in which SierraCities maintains a direct or residual interest in
aggregate were increased by 100 basis points over the life of the assets. By
discounting the cash flows estimated to result from the above scenarios, DLJ
estimated a net present value per Share ranging from $4.75 to $5.25.
Comparable Publicly Traded Company Analysis. DLJ analyzed the market
values and trading multiples of selected publicly traded finance companies that
DLJ believed were reasonably comparable to SierraCities. These comparable
companies consisted of:
- Financial Federal Corporation
- DVI Inc.
- Microfinancial Inc.
- Amplicon Inc.
In examining these comparable companies, DLJ calculated the equity value of
each company as a multiple of its respective: (i) 1999 earnings per share, (ii)
LTM earnings per share, (iii) projected NTM earnings per share, (iv) projected
calendar year 2000 earnings per share, (v) projected calendar year 2001 earnings
per share, (vi) book value at November 3, 2000 and (vii) tangible book value at
November 3, 2000.
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LTM means the last twelve-month period for which financial data for the company
at issue has been reported. NTM means the next twelve-month period for which
financial data for the company at issue has been projected. All historical data
was derived from publicly available sources and all projected data was obtained
from FactSet Data Systems, SNL Database, and First Call. DLJ's analysis of the
comparable companies yielded the following multiple ranges:
EQUITY VALUE/
<TABLE>
<CAPTION>
TANGIBLE
2000 P 2001 P BOOK BOOK
1999 EPS LTM EPS NTM EPS EPS EPS VALUE VALUE
-------- ------- ------- ------ ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
High................................ 15.7x 12.9x 12.6x 14.8x 11.7x 2.0x 2.0x
Low................................. 9.8x 10.7x 9.6x 10.5x 9.2x 1.4x 1.4x
Average............................. 10.4x 10.0x 9.4x 10.7x 8.9x 1.3x 1.4x
Median.............................. 6.3x 5.7x 6.1x 6.7x 5.8x 0.7x 0.7x
</TABLE>
Based on an analysis of this data and SierraCities' projected results for
comparable periods, DLJ derived a reference range of multiples ranging from 7.5x
to 9.5x 2001 projected earnings and from 0.7x to 1.2x tangible book value and
from this reference range DLJ estimated a value per Share ranging from $3.75 to
$7.50.
VerticalNet Comparable Publicly Traded Company Analysis. DLJ analyzed the
market values and trading multiples of selected publicly traded e-commerce
solutions companies that DLJ believed were reasonably comparable to VerticalNet.
These comparable companies consisted of:
- Ariba, Inc.
- Commerce One, Inc.
- FreeMarkets, Inc.
- PurchasePro.com, Inc.
- eMerge Interactive, Inc.
- Neoforma.com, Inc.
- Ventro Corporation
- SciQuest.com, Inc.
In examining these comparable companies, DLJ calculated the enterprise
value of each company as a multiple of its respective: (i) projected calendar
year 2000 net revenues and (ii) projected calendar year 2001 net revenues. All
historical data was derived from publicly available sources and all projected
data was obtained from FactSct Data Systems, SNL Database, and First Call. DLJ's
analysis of the comparable companies yielded the following multiple ranges:
ENTERPRISE VALUE/
<TABLE>
<CAPTION>
2000E 2001E
REVENUE REVENUE
------- -------
<S> <C> <C>
High........................................................ 125.2x 57.5x
Low......................................................... 6.5x 2.1x
Average..................................................... 42.9x 16.8x
Median...................................................... 31.0x 7.3x
</TABLE>
The summary set forth above does not purport to be a complete description
of the analyses performed by DLJ but describes, in summary form, the material
elements of the presentation that DLJ made to the SierraCities board on November
5, 2000 in connection with the preparation of DLJ's fairness opinion. The
8
<PAGE> 10
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. DLJ conducted each of the
analyses in order to provide a different perspective on the transaction and to
add to the total mix of information available. DLJ did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness from a financial point of view. Rather, in
reaching its conclusion, DLJ considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. DLJ did not place any particular reliance or weight
on any individual analysis, but instead concluded that its analyses, taken as a
whole, supported its determination. Accordingly, notwithstanding the separate
factors summarized above, DLJ has indicated to SierraCities that it believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion.
Other Relationships
In the ordinary course of business, DLJ may actively trade the securities
of SierraCities or VerticalNet for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
(c) INTENT TO TENDER.
To the knowledge of SierraCities, certain executive officers, directors,
affiliates and subsidiaries of SierraCities will tender, pursuant to the Offer,
all Shares held of record or beneficially owned by them (other than options to
acquire Shares). The foregoing does not include any Shares over which, or with
respect to which, any such executive officer, director or affiliate acts in a
fiduciary or representative capacity or is subject to the instructions of a
third party with respect to such tender. Holders of approximately 20% of the
outstanding Shares have signed Tender Agreements under which they agreed to
tender their Shares in the Offer. See Item 3 above.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to the terms of an engagement letter dated May 3, 2000, as amended
on September 18, 2000, SierraCities agreed to pay to DLJ a fee that is customary
in transactions of this nature, a substantial portion of which is contingent
upon the consummation of the merger. In addition, SierraCities agreed to
reimburse DLJ promptly for all out-of-pocket expenses, including the reasonable
fees and out-of-pocket expenses of counsel, incurred by DLJ in connection with
its engagement, and to indemnify DLJ and related persons against liabilities in
connection with its engagement, including liabilities under the federal
securities laws. The terms of the fee arrangement with DLJ were negotiated by
SierraCities and DLJ.
Except as set forth above, neither SierraCities nor any person acting on
its behalf has employed, retained or agreed to compensate any person or class of
persons to make solicitations or recommendations in connection with the Offer or
the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in the Shares have been effected during the past 60 days by
SierraCities or, to the knowledge of SierraCities, any of its executive
officers, directors, affiliates or subsidiaries.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Schedule 14D-9, SierraCities is not currently
undertaking or engaged in any negotiations in response to the Offer that relate
to: (1) a tender offer for or other acquisition of SierraCities' securities by
SierraCities, any subsidiary of SierraCities or any other person, (2) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving SierraCities or any of its subsidiaries, (3) a purchase, sale or
transfer of a material amount of assets of SierraCities or any of its
subsidiaries or
9
<PAGE> 11
(4) any material change in the present dividend rate or policy, or indebtedness
or capitalization of SierraCities.
There are no transactions, resolutions of the SierraCities Board,
agreements in principle, or signed contracts in response to the Offer that
relate to one or more of the events referred to in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
Under Delaware law, if the Purchaser becomes the owner of 90% of the
outstanding Shares, the Purchaser will be able to effect the Merger without
approval of SierraCities' stockholders. However, if the Purchaser does not
become the owner of 90% of the outstanding Shares, a meeting of stockholders
will be required to approve the Merger. Assuming the Minimum Condition (as
defined in the Merger Agreement) is satisfied, the Purchaser will be able to
approve the Merger without the vote of any other stockholder. The SierraCities
Board has amended SierraCities' Rights Agreement to exempt the Offer, the Merger
Agreement, the Tender Agreements and the transactions contemplated thereby from
the Rights Agreement.
ITEM 9. EXHIBITS.
<TABLE>
<C> <S>
(a)(1) Prospectus, dated November 16, 2000 (incorporated herein by
reference to the prospectus included in the Registration
Statement on Form S-4 of VerticalNet filed on November 16,
2000).
(a)(2) Letter of Transmittal (incorporated herein by reference to
Exhibit 99.1 to the Registration Statement on Form S-4 of
VerticalNet filed on November 16, 2000).
(a)(3) Chairman's Letter to Stockholders of SierraCities, dated
November 16, 2000.*
(a)(4) Joint Press Release, issued on November 6, 2000, by
VerticalNet and SierraCities (incorporated herein by
reference to VerticalNet's filing pursuant to Rule 425 on
November 6, 2000).
(e)(1) Agreement and Plan of Merger, dated as of November 6, 2000,
among VerticalNet, the Purchaser and SierraCities
(incorporated herein by reference to Annex A to the
prospectus included in the Registration Statement on Form
S-4 of VerticalNet filed on November 16, 2000).
(e)(2) Form of Tender Agreement, dated as of November 6, 2000,
among VerticalNet and certain stockholders of SierraCities
(incorporated herein by reference to Annex B to the
prospectus included in the Registration Statement on Form
S-4 of VerticalNet filed on November 16, 2000).
(e)(3) Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation to the board of directors of SierraCities, dated
November 6, 2000 (included as Schedule II to this Schedule
14D-9).*
(e)(4) Form of Employment Agreement.
(e)(5) Amendment No. 1 to Rights Agreement, dated as of December
30, 1998, between SierraCities and Harris Trust and Savings
Bank, as rights agent.
</TABLE>
---------------
* Included in copies mailed to stockholders of SierraCities.
10
<PAGE> 12
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
SIERRACITIES.COM INC.
By: /s/ THOMAS J. DEPPING
------------------------------------
Name: Thomas J. Depping
Title: President and Chief
Executive Officer
Dated: November 16, 2000
11
<PAGE> 13
SCHEDULE I
SIERRACITIES.COM INC.
600 TRAVIS STREET
SUITE 7050
HOUSTON, TEXAS 77002
(713) 221-8822
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about November 16, 2000 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of SierraCities.com Inc. ("SierraCities" or the "Company").
You are receiving this Information Statement in connection with the possible
election of persons designated by VerticalNet, Inc. ("VerticalNet") to a
majority of seats on the Board of Directors of SierraCities (the "Board").
On November 6, 2000, SierraCities entered into an Agreement and Plan of
Merger (the "Merger Agreement") with VerticalNet and Truckee Acquisition Co., a
Delaware corporation and wholly owned subsidiary of VerticalNet (the
"Purchaser"), pursuant to which the Purchaser has commenced an exchange offer to
exchange all of the outstanding shares of common stock, par value $0.01 per
share (the "Shares"), of SierraCities, including the associated rights issued
pursuant to the Rights Agreement, dated as of December 30, 1998, as amended,
between SierraCities and Harris Trust and Savings Bank, as rights agent, for a
number of shares of common stock, par value $0.01 per share (the "VerticalNet
Shares"), of VerticalNet equal to $7.00 divided by the Average Parent Price (as
defined in the Merger Agreement), subject to a "collar" mechanism, upon the
terms and subject to the conditions set forth in the prospectus contained in the
registration statement on Form S-4 filed by VerticalNet with the SEC on November
16, 2000 (the "Prospectus"), and in the related Letter of Transmittal (the
"Letter of Transmittal," which, together with the Prospectus, as each may be
amended or supplemented from time to time, collectively constitute the "Offer").
The Merger Agreement provides that, among other things, as soon as
practicable following the satisfaction or waiver of the conditions set forth in
the Merger Agreement, the Purchaser will be merged with and into SierraCities
(the "Merger"). At the effective time of the Merger, each Share outstanding
immediately prior to the effective time of the Merger (other than Shares held by
VerticalNet, the Purchaser or SierraCities or, if applicable, by stockholders
who perfect appraisal rights under Delaware law) will be converted into the
right to receive the fraction of a VerticalNet Share paid in the Offer. As a
result of the Offer and the Merger, SierraCities will become a wholly owned
subsidiary of VerticalNet.
This Information Statement is being mailed to you in accordance with
Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1 promulgated
thereunder. Information set forth herein related to VerticalNet, the Purchaser
or the VerticalNet Designees (as defined below) has been provided by
VerticalNet. You are urged to read this Information Statement carefully. You are
not, however, required to take any action in connection with the matters set
forth herein.
The Purchaser commenced the Offer on November 16, 2000. The Offer is
currently scheduled to expire at 12:00 midnight, New York City time, on
Thursday, December 14, 2000, unless the Purchaser extends it.
THE VERTICALNET DESIGNEES
Effective upon the acceptance for purchase by the Purchaser of at least two
thirds of the Shares on a fully-diluted basis, VerticalNet will be entitled to
designate the number of directors, rounded up to the next whole number, on the
Board (the "VerticalNet Designees") that equals the product of (i) the total
number
I-1
<PAGE> 14
of directors on the Board (giving effect to the election of any additional
directors pursuant to this provision) and (ii) the percentage that the number of
Shares owned by VerticalNet or the Purchaser (including Shares accepted for
purchase) bears to the total number of Shares outstanding, and SierraCities will
take all action necessary to cause VerticalNet's designees to be elected or
appointed to the Board, including, without limitation, increasing the number of
directors, or seeking and accepting resignations of incumbent directors, or
both, provided that, prior to the effective time of the Merger (the "Effective
Time"), VerticalNet, the Purchaser and SierraCities will use their respective
best efforts to ensure that at least two members (each, a "Continuing Director")
who were directors of SierraCities prior to consummation of the Offer, shall
remain as directors of SierraCities until the Effective Time. If the number of
Continuing Directors is reduced to less than two for any reason prior to the
Effective Time, the remaining Continuing Directors (or, if there are none, the
other directors) shall be entitled to designate a person to fill the vacancy.
The directors of the Purchaser at the Effective Time shall be the directors
of SierraCities following the Merger, until the earlier of their resignation or
removal or until their successors are duly elected and qualified.
VerticalNet has informed SierraCities that it will choose the VerticalNet
Designees to the Board from the directors and executive officers of VerticalNet
and the Purchaser listed in Schedule I to the Prospectus, a copy of which is
being mailed to SierraCities' stockholders together with the Schedule 14D-9.
VerticalNet has informed SierraCities that each of the directors and executive
officers listed in Schedule I to the Prospectus has consented to act as a
director of SierraCities, if so designated. The information on such Schedule I
is incorporated herein by reference. The name, address, principal occupation or
employment and five year employment history for each such person is set forth in
such Schedule I.
It is expected that the VerticalNet Designees may assume office following
the acceptance for purchase by the Purchaser of the specified minimum number of
Shares pursuant to the Offer.
INFORMATION CONCERNING SHARES
As of November 13, 2000, SierraCities had 19,048,640 Shares issued and
outstanding with the Shares being SierraCities' only class of voting securities
that would be entitled to vote for directors at a stockholder meeting if one
were to be held, each Share being entitled to one vote.
INFORMATION CONCERNING DIRECTORS AND OFFICERS OF SIERRACITIES
SierraCities' board of directors is divided into three approximately equal
classes, having three-year terms that expire in successive years.
The following list sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years, of each director and executive officer of SierraCities. Unless
otherwise indicated, each such person is a citizen of the United States and the
business address of such person is c/o SierraCities.com Inc., 600 Travis Street,
Suite 7050, Houston, Texas 77002.
Thomas J. Depping, age 42. Mr. Depping has served as Chairman of the Board,
President and Chief Executive Officer of the Company since its inception in June
1994. Mr. Depping has over 17 years of experience in the financial services
industry, including 11 years with SunAmerica Financial Resources and its
predecessor company (which was acquired by SunAmerica, Inc. in 1991). From 1991
to May 1994, Mr. Depping served as President of SunAmerica Financial Resources,
the equipment leasing and financial division of SunAmerica, Inc.
David L. Solomon, age 47. Mr. Solomon has served as Chairman and Co-Chief
Executive Officer of Redstone, Inc., general partner of Redstone Group, Ltd.
("Redstone"), since 1996. Redstone is an investment company with investments and
operations in hotels, restaurants and real estate. Mr. Solomon has also served
as an executive officer and director of numerous entities that are affiliated
with Redstone and/or its predecessor entities since 1989. Mr. Solomon was a
Senior Vice President with PaineWebber from August 1994 through October 1998.
Mr. Solomon serves on the Board of Directors of TeleServe, Inc., an affiliate of
Camden Property Trust.
I-2
<PAGE> 15
Robert Ted Enloe, III, age 62. Mr. Enloe has served as Managing General
Partner of Balquita Partners, Ltd., a real estate and securities investment
partnership, since 1996. From April 18, 1999 through July 31, 1999, he served as
Interim CEO of Compaq Computer Corporation ("Compaq"), a manufacturer of
personal computers and servers. From 1975 to 1986, he served as President, and
from 1992 to 1996 as Chief Executive Officer, of Liberte Investors, an entity
seeking new acquisitions. Mr. Enloe currently serves as a director of Compaq,
Leggett & Platt, Inc., a diversified manufacturer of foam, plastic, steel and
wire components for the automotive, home furnishings and office equipment
industries, SIXX Holdings, Incorporated, a restaurant company that operates the
Patrizio Italian restaurants in Dallas, Texas and Liberte Investors, Inc. Mr.
Enloe was initially elected as a director of the Company by the Board of
Directors on April 30, 1998.
Norman J. Metcalfe, age 57. Mr. Metcalfe has served as managing director of
a private investment and consulting firm since January 1977. Mr. Metcalfe serves
as a director of Tejon Ranch Co., a land development and agribusiness company.
From February 1993 to December 1996, Mr. Metcalfe served as Vice Chairman and
Chief Financial Officer of The Irvine Company.
Richard J. Campo, age 46. Mr. Campo has been Chairman of the Board and
Chief Executive Officer of Camden Property Trust, a self-administered,
self-managed real estate investment trust based in Houston, Texas, since May
1993. Mr. Campo has over twenty years of experience in the real estate industry.
David C. Shindeldecker, age 51. Mr. Shindeldecker has been Chairman and
Chief Executive Officer of Northwest Bancorporation Inc. since June 1988. In
addition, he currently serves as President and Co-Chief Executive Officer of
Redstone, Inc., general partner of Redstone, and has served as an executive
officer and director of Redstone, Inc. since 1994. Redstone and Northwest
Bancorporation Inc. are affiliates of each other. Mr. Shindeldecker has also
served as an executive officer and director of numerous entities that are
affiliated with Redstone and/or its predecessor entities since 1989. He
currently serves as a director of Northwest Bank, N.A.
Sandy B. Ho, age 41. Ms. Ho has served as Executive Vice President and
Chief Financial Officer of the Company since January 1995. Ms. Ho has over 15
years of experience in the financial services industry, including 10 years with
SunAmerica Financial Resources and its predecessor company (which was acquired
by SunAmerica, Inc. in 1991). From 1991 through 1994, Ms. Ho served as Vice
President of SunAmerica Financial Resources and Managing Director of SunAmerica
Corporate Finance.
Michael A. Sabel, age 33. Mr. Sabel has served as Executive Vice President
and Chief E-Commerce Officer of the Company since July 1999. From January 1999
through June 1999, Mr. Sabel served as Executive Vice President -- Business
Development. From May 1998 through December 1998, Mr. Sabel served us as
Executive Vice President -- Global Mergers and Acquisitions. Since joining us in
May 1998, Mr. Sabel also served as President of First Sierra (UK) Limited. From
September 1994 until May 1998, Mr. Sabel was a member of the Investment Banking
Group at Friedman, Billings, Ramsey & Co., Inc., most recently serving as a
Managing Director. From August 1991 until August 1994, Mr. Sabel was a member of
Sandler, O'Neil and Partners' Corporate Strategies Group, most recently as a
Vice President.
David L. Pederson, age 41. Mr. Pederson has served as Executive Vice
President and Chief Information Officer of the Company since April 1998. Prior
to joining SierraCities, Mr. Pederson was President of Nexsoft, Inc., which he
founded in 1993. Nexsoft designed and developed the systems and communications
network for SierraCities. Mr. Pederson has over 15 years of experience in
directing technology initiatives in the equipment leasing industry.
E. Roger Gebhart, age 43. Mr. Gebhart has served as Executive Vice
President, Capital Markets and Treasurer of the Company since October of 1999.
From 1997 through October of 1999, Mr. Gebhart served as Senior Vice President
and Treasurer. From 1986 through May 1997, Mr. Gebhart served as a Vice
President at First Union Capital Markets Corp. in their equipment finance group.
Mr. Gebhart has over 13 years of experience in middle market commercial lending,
specializing in the equipment leasing and finance industry providing
asset-backed securitization financing funding facilities. Mr. Gebhart has
experience in all aspects of structured finance including asset-backed
commercial paper, revolving credit facilities, interest rate hedging
I-3
<PAGE> 16
instruments, commercial paper conduit financing, and the public and private term
asset-backed funding markets.
COMMITTEES OF THE SIERRACITIES BOARD; MEETINGS
The Board of Directors has an Audit Committee, a Compensation Committee and
a Stock Option Committee.
The Audit Committee reviews with the Company's independent auditors the
scope of their annual and interim examinations and consults with the auditors
during any audit when appropriate. The Audit Committee is also responsible for
appraising the effectiveness of the audit effort, determining that no
restrictions were placed by management on the scope of the examination or its
implementation, inquiring into the effectiveness of the Company's accounting and
internal control functions, exercising supervision over the Company's policies
that permit improper or illegal payments, reporting to the Board of Directors on
the results of the Committee's activities and recommending any changes in the
appointment of the independent auditors which the Committee deems to be in the
best interests of the Company and its stockholders. The Audit Committee held one
meeting during the fiscal year ended December 31, 1999. The sole current member
of the Audit Committee is Mr. Campo.
The Compensation Committee determines the cash compensation of the officers
of the Company. The Compensation Committee held one meeting during the fiscal
year ended December 31, 1999. The current members of the Compensation Committee
are Messrs. Campo, Metcalfe and Solomon.
The Stock Option Committee administers the Company's 1997 Stock Option
Plan. The Stock Option Committee held one meeting during the fiscal year ended
December 31, 1999, and also acted from time to time by unanimous written
consent. The current members of the Stock Option Committee are Messrs. Campo,
Metcalfe and Solomon.
The Board of Directors held six meetings during the fiscal year ended
December 31, 1999, and also acted from time to time by unanimous written
consent. During 1999, no director attended fewer than 75% of the aggregate of
the total number of meetings of the Board and all committees on which he served.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company or any of
its subsidiaries or affiliated with Redstone Group, Ltd. (each, an "Outside
Director") is eligible to receive, (i) as of the date of each annual meeting of
stockholders, at the election of the Outside Director either (a) a cash retainer
of $25,000 or (b) options to purchase (at an exercise price equal to the fair
market value of the Shares on the date of grant) a number of Shares equal to
$25,000 divided by one-half of the closing price of the Shares on the date of
grant, and (ii) at the time that the Company grants annual stock options to its
employees, options to purchase 2,500 Shares at an exercise price equal to the
fair market value of the Shares on the date of grant. In addition, directors are
reimbursed for their out-of-pocket expenses incurred in connection with
attending meetings of the Board of Directors and committees thereof.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Shares as of
November 13, 2000 by (i) each stockholder known by the Company to be the
beneficial owner of more than 5% of the outstanding Shares, (ii) each director,
(iii) each executive officer named in the Summary Compensation Table, and (iv)
all directors and executive officers as a group. Unless otherwise indicated,
each such person (alone or with family members) has sole voting and dispositive
power with respect to the shares listed opposite such person's name. The address
of Redstone Group, Ltd., Redstone, Inc. and Messrs. Shindeldecker and Solomon is
109 North Post Oak Lane, Suite 200, Houston, Texas 77024. Except as otherwise
indicated, the address of all other named individuals is c/o SierraCities.com
Inc., 600 Travis Street, Suite 7050, Houston, Texas 77002. The
I-4
<PAGE> 17
following information is based in part on documents filed with the SEC and in
part on information provided by former beneficial owners of more than 5% of the
outstanding Shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY OWNED CLASS
------------------ ----------
<S> <C> <C>
Thomas J. Depping........................................... 2,001,935(2) 10.5%
Redstone Group, Ltd.(3)..................................... 1,183,151 6.2%
David L. Solomon............................................ 1,895,696(4) 10.0%
David C. Shindeldecker...................................... 1,350,714(4) 7.1%
Sandy B. Ho................................................. 352,355(5) 1.8%
Richard J. Campo............................................ 89,361(6) *
Norman J. Metcalfe.......................................... 63,001(6) *
Michael A. Sabel............................................ 220,484(7) 1.2%
Robert Ted Enloe, III....................................... 15,503(8) *
E. Roger Gebhart............................................ 45,750(9) *
David L. Pederson........................................... 27,100(10) *
All directors and executive officers as a group
(11 persons).............................................. 4,878,748 25.61%
</TABLE>
---------------
* Less than one percent
(1) The applicable percentage of ownership is based upon 19,048,640 Shares
outstanding as of November 13, 2000.
(2) Includes 328,735 shares issuable pursuant to options exercisable within
sixty days and 1,595,800 shares held of record by the Depping 1999
Investment Limited Partnership.
(3) According to an amended Schedule 13G filed as of February 14, 2000,
Redstone Group Ltd. ("Redstone") is a Texas limited partnership, of which
Redstone, Inc., a Texas corporation ("Redstone, Inc."), is the general
partner.
(4) Includes 82,696 shares issuable pursuant to options exercisable within
sixty days and 1,183,151 shares which are owned of record by Redstone.
Messrs. Shindeldecker and Solomon are Co-Chief Executive Officers of
Redstone, Inc., the general partner of Redstone.
(5) Includes 106,365 shares issuable pursuant to options exercisable within
sixty days.
(6) Includes 25,001 shares issuable pursuant to options exercisable within
sixty days.
(7) Includes 140,484 shares issuable pursuant to options exercisable within
sixty days. 167 additional shares issuable pursuant to options become
exercisable for each day after January 14, 2001.
(8) Consists entirely of shares issuable pursuant to options exercisable within
sixty days.
(9) Includes 36,000 shares issuable pursuant to options exercisable within
sixty days.
(10) Includes 27,000 shares issuable pursuant to options exercisable within
sixty days.
(11) Includes 861,241 shares issuable pursuant to options exercisable within
sixty days.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of the Shares, to
file with the SEC initial reports of ownership and reports of changes in
ownership of Shares and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders also are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms that
are filed with the SEC.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations that no other reports were
required, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with.
I-5
<PAGE> 18
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table presents summary information concerning compensation of
the Chief Executive Officer and each of the other four most highly compensated
executive officers as of December 31, 1999 (together, the "Named Executive
Officers") for the periods indicated for services rendered to the Company and
its subsidiaries.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- -------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Thomas J. Depping....................... 1999 $349,500 -- 101,067(1) $ 8,089(2)
President, Chairman of the Board and 1998 250,000 $ 350,000(3) -- 5,000(2)
Chief Executive Officer 1997 239,250 -- 587,536(4) 12,750
Sandy B. Ho............................. 1999 200,000 47,880(5) 25,000(1) 8,333(2)
Executive Vice President, Chief 1998 185,000 100,000(3) 60,000(6) 5,000(2)
Financial Officer and Asst. Secretary 1997 160,000 -- 178,941(7) 4,750(2)
Michael A. Sabel(8)..................... 1999 249,999 53,201(5) 55,000(1) 8,750(2)
Executive Vice President and
Chief E-Commerce Officer 1998 148,437 -- 804,521(9) --
E. Roger Gebhart(10).................... 1999 165,667 48,878(5) 45,000(1) 10,000(2)
Executive Vice President, Capital 1998 112,925 100,000(3) 45,000(11) 4,517(2)
Markets and Treasurer 1997 86,050 100,000 50,000(12) 3,442(2)
David L. Pederson(13)................... 1999 204,375 53,200(5) 45,000(1) 6,750(2)
Executive Vice President and Chief
Information Officer 1998 110,738 82,500(3) 45,000 3,063(2)
</TABLE>
---------------
(1) Consists of options granted in 2000 based upon the Named Executive
Officer's performance during 1999.
(2) Consists of amounts contributed by the Company on behalf of the Named
Executive Officer to the Company's 401(k) plan.
(3) This amount was paid during 1999 based upon the Named Executive Officer's
performance during 1998.
(4) Includes 220,000 options that were granted in 1998 based upon Mr. Depping's
performance during 1997 and in lieu of a cash bonus.
(5) This amount was paid during 2000 based upon the Named Executive Officer's
performance during 1999.
(6) Includes 50,000 replacement options granted in November 1998 upon
cancellation of 50,000 options previously granted in March 1998.
(7) Includes 50,000 options that were granted in 1998 based upon Ms. Ho's
performance during 1997 and in lieu of a cash bonus. Such options were
subsequently cancelled and replaced. See footnote (6) above.
(8) Mr. Sabel's employment with the Company began as of May 27, 1998.
(9) Includes 500,000 options granted upon commencement of Mr. Sabel's
employment with the Company in May 1998. Also includes 304,521 replacement
options granted in November 1998 upon cancellation of 449,041 of the
options granted in May 1998.
(10) Mr. Gebhart's employment with the Company began as of May 19, 1997.
(11) Includes 35,000 replacement options granted in November 1998 upon
cancellation of 35,000 options previously granted in March 1998.
(12) Includes 35,000 options that were granted in 1998 based upon Mr. Gebhart's
performance in 1997. Such options were subsequently cancelled and replaced.
See footnote (11) above.
(13) Mr. Pederson's employment with the Company began as of April 13, 1998.
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STOCK OPTIONS
No options were granted during 1999 to the Named Executive Officers. No
options were exercised during 1999 by the Named Executive Officers. The
following table sets forth information concerning fiscal year-end option values:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING OPTIONS AT VALUE OF IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999(1)
---------------------------- ------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Thomas J. Depping......................... 235,015 352,521 $1,341,512 $2,012,254
Sandy B. Ho............................... 63,577 125,364 545,640 1,005,948
Michael A. Sabel.......................... 139,484 215,996 520,085 1,268,976
E. Roger Gebhart.......................... 15,000 45,000 112,125 311,627
David L. Pederson......................... 9,000 36,000 73,125 292,500
</TABLE>
---------------
(1) Calculated as the difference between the aggregate fair market value of such
options based on the last reported sale price of the Shares as of December
31, 1999 ($17.125 per share) and the aggregate exercise price.
CERTAIN TRANSACTIONS
Upon completion of the Company's initial public offering in May 1997, the
Company entered into a $5 million subordinated revolving credit facility with
Redstone, with the commitment level thereunder decreasing by $1 million per
year. Due to availability of funds under other facilities, it was determined
that the revolving credit facility was no longer needed and was terminated in
1999, based upon mutual agreements of all parties involved. Advances under the
subordinated revolving credit facility bore interest at 11.00% per annum.
The Company and an affiliate of Redstone (the "Redstone Affiliate") are
parties to an agreement dated December 20, 1996 (the "Referral Agreement")
whereby the Redstone Affiliate may introduce potential lease customers or
vendors of equipment to the Company. Pursuant to this agreement, the Company is
required to pay a referral fee to the Redstone Affiliate equal to 5.0% of the
total equipment cost funded for each lease the Company enters into with a
customer referred to it by the Redstone Affiliate, which fee is consistent with
referral fees paid by the Company to other referral sources. As of December 31,
1999, the Company had paid less than $1,000.00 to the Redstone Affiliate
pursuant to the Referral Agreement.
During 1998, in the ordinary course of business, the Company entered into
lease financing agreements with Augusta Foods, LLC ("Augusta Foods"), the sole
owner of Cafe Express Holdings ("Cafe Express"), which operates restaurants, for
the financing of restaurant equipment. Augusta Foods and Cafe Express are
affiliates of Redstone. Pursuant to Guaranty Agreements entered into in
connection with these transactions, Redstone guaranteed payment of Augusta
Foods' and Cafe Express's obligations under the leases. The aggregate amount of
equipment financed pursuant to such leases during 1998 was approximately $6.2
million and during 1999 was approximately $1.1 million.
During 1999, in the ordinary course of business, the Company entered into a
lease agreement with Houstonian Golf, Ltd. ("Houstonian Golf"), for the
financing of golf course maintenance equipment related to the Houstonian Golf
Course located at the Houstonian Hotel, Club and Spa in Houston, Texas.
Houstonian Golf is an affiliate of Redstone. Pursuant to Guaranty Agreements
entered into in connection with this transaction, Redstone guaranteed payment of
Houstonian Golf's obligations under the lease. The aggregate amount financed
pursuant to the lease during 1999 was approximately $669,000.
During 2000, in the ordinary course of business, the Company entered into
an agreement with Mr. Pederson and two other employees of the Company to
purchase all right, title and interest of such employees in the Credit Bureau
software used by the Company. The aggregate purchase price for the software was
$250,000, with approximately $83,333 being received by Mr. Pederson.
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<PAGE> 20
The Company entered into a revolving credit agreement with Mr. Sabel for up
to $365,000, which loan is secured by a pledge of Shares beneficially owned by
Mr. Sabel. Such indebtedness bears interest at 10.00% per annum. $380,100
remains outstanding under the loan, including $16,100 of accrued interest as of
October 31, 2000.
The Company believes that the terms of the foregoing transactions are no
less favorable to the Company than the terms of any similar transaction that
could have been obtained through arms' length negotiations with an unaffiliated
third party.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Campo, Metcalfe and Solomon are the members of the Compensation and
Stock Option Committees of the Board of Directors. No member of the Company's
Compensation Committee or Stock Option Committee was an officer or employee of
the Company or any of its subsidiaries during 1999 or was formerly an officer of
the Company or any of its subsidiaries. No executive officer of the Company
served as a director or member of the Compensation Committee or Stock Option
Committee of another entity, one of whose executive officers served as a
director or member of the Compensation Committee or Stock Option Committee of
the Company.
SierraCities does not believe that any interlocks exist between any members
of the Compensation Committee and any third party represented on the Board of
Directors or providing significant services to SierraCities.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has an employment agreement with Mr. Thomas J. Depping,
effective as of May 20, 1997. Mr. Depping's employment agreement has an initial
term of three years with an evergreen three year extension continuing after the
initial term unless either the Company or Mr. Depping gives 90 days' notice of
termination. Pursuant to his employment agreement, Mr. Depping is entitled to
receive an annual salary of not less than $250,000. In addition, if the
agreement is terminated without cause by the Company, or with cause by Mr.
Depping (including certain changes in control of the Company), the Company is
obligated to pay Mr. Depping a termination fee equal to three times the amount
of Mr. Depping's then-current annual rate of total compensation. In addition,
the agreement contains a covenant prohibiting Mr. Depping from competing with
the Company for a period of one year following termination of his employment
with the Company. The agreement also provides for customary benefits and
perquisites.
The Company has an employment agreement with Ms. Sandy B. Ho, effective as
of April 1, 1998. The employment agreement has an initial term of three years
with an evergreen three year extension continuing after the initial term unless
either the Company or Ms. Ho gives 90 days' notice of termination. Pursuant to
the agreement, Ms. Ho is entitled to receive an annual base salary of not less
than $185,000. If the agreement is terminated without cause by the Company, the
Company is obligated to pay Ms. Ho termination fees equal to the aggregate of
three times her annual salary and three times the bonus received by Ms. Ho for
the year immediately preceding such termination (each paid over a period of 36
months), and an additional lump sum equal to the bonus received by Ms. Ho for
the year immediately preceding her termination as prorated for the number of
days in the year prior to such termination. In the event of a "Change in
Control" of the Company, Ms. Ho may terminate the agreement and receive an
amount equal to her annual salary plus a bonus equal to the bonus she received
for the year immediately preceding such termination or the bonus she received in
the year immediately preceding the change in control, whichever is greater. The
agreement contains covenants prohibiting Ms. Ho from competing with the Company
for a period of one year following the termination of her employment with the
Company. The agreement also provides for customary benefits and perquisites.
The Company has an employment agreement with Mr. Michael A. Sabel,
effective as of May 27, 1998. Mr. Sabel's employment agreement has a term of
five years. Pursuant to his employment agreement, Mr. Sabel is entitled to
receive an annual salary of not less than $249,999. If the agreement is
terminated without cause by the Company, the Company is obligated to pay Mr.
Sabel a termination fee (over a period of twelve months) equal to the aggregate
of Mr. Sabel's annual salary plus the bonus he received for the year
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<PAGE> 21
immediately preceding such termination. In the event of a "Change in Control" of
the Company, the Company is obligated to pay Mr. Sabel an amount equal to 2.99
times the amount of cash compensation paid to Mr. Sabel for the year immediately
preceding the Change in Control, subject to certain adjustments. In addition,
the agreement contains a covenant prohibiting Mr. Sabel from competing with the
Company for a period of one year following termination of his employment with
the Company. The agreement also provides for customary benefits and perquisites.
The Company has an employment agreement with Mr. David L. Pederson,
effective as of April 13, 1998. Mr. Pederson's employment agreement has a term
of five years. Pursuant to his employment agreement, Mr. Pederson is entitled to
receive an annual salary of not less than $175,000. If the agreement is
terminated without cause by the Company, the Company is obligated to pay Mr.
Pederson a termination fee equal to the balance of the base compensation due Mr.
Pederson over the remaining portion of the five-year term of the agreement
(payable, at the discretion of the Company, on a monthly basis). If Mr.
Pederson's employment is terminated following the acquisition of the Company by
another entity where the Company is not the surviving entity, Mr. Pederson is
entitled to receive a termination fee equal to the amount of his base salary due
over the remaining months in the five-year term of the employment agreement. In
addition, the agreement contains a covenant prohibiting Mr. Pederson from
competing with the Company following the termination of his employment with the
Company until the earlier of (i) if Mr. Pederson is terminated without cause by
the Company, a period of one year after the period through which the Company
agrees to pay Mr. Pederson's termination fee, or (ii) the expiration of six
years from the date of the employment agreement. The agreement also provides for
customary benefits and perquisites.
The Company has an employment agreement with Mr. E. Roger Gebhart,
effective as of October 13, 1998. Mr. Gebhart's employment agreement has a term
of three years. Pursuant to his employment agreement, Mr. Gebhart is entitled to
receive an annual salary of not less than $130,000. If the agreement is
terminated without cause by the Company, the Company is obligated to pay Mr.
Gebhart a termination fee equal to 125% of twelve months of Mr. Gebhart's base
compensation then in effect. In addition, the agreement contains a covenant
prohibiting Mr. Gebhart from competing with the Company for a period of one year
following termination of his employment with the Company. The agreement also
provides for customary benefits and perquisites.
In connection with the execution of the Merger Agreement, SierraCities
entered into new employment agreements with Mr. Depping, Ms. Ho and Mr. Gebhart.
These new agreements are described in Item 3 of the Schedule 14D-9.
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<PAGE> 22
SCHEDULE II
[DONALDSON, LUFKIN & JENRETTE LETTERHEAD]
November 6, 2000
Board of Directors
SierraCities.com Inc.
600 Travis Street, Suite 7050
Houston, Texas 77002
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of SierraCities.com Inc. (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of an
Agreement and Plan of Merger, dated as of November 6, 2000 (the "Agreement"),
among the Company, VerticalNet, Inc. ("VerticalNet"), and Truckee Acquisition
Corp., a wholly owned subsidiary of VerticalNet ("Acquisition Corp."), pursuant
to which Acquisition Corp. will be merged with and into the Company (the
"Merger").
Pursuant to the Agreement, VerticalNet will commence an offer (the "Offer")
for any and all outstanding shares of the Company's common stock, $0.01 par
value per share (the "Company Common Stock") for a number of shares of
VerticalNet common stock, $0.01 par value ("VerticalNet Common Stock") as
described below. The Offer will be followed by the Merger in which the shares of
Common Stock of all stockholders who did not tender their shares of Common Stock
(except for Dissenting Shares, as such term is defined in the Merger Agreement)
would be converted into the right to receive the same number of shares of
VerticalNet Common Stock as would have been received in the Offer. Pursuant to
the Agreement, each share of Company Common Stock tendered in the Offer or
converted in the Merger will be converted (excluding shares of Company Common
Stock held by the Company, VerticalNet, Acquisition Corp. or their respective
wholly-owned subsidiaries) into the right to receive (i) if the average of the
closing prices per share of the VerticalNet Common Stock on Nasdaq for each of
the ten consecutive trading days ending on the trading day that is two trading
days prior to the date on which the shares of Company Common Stock are accepted
for payment in the Offer (the "Average Parent Price") is not more than $35.00
nor less than $21.00, a number of shares of VerticalNet Common Stock equal to
$7.00 divided by the Average Parent Price, (ii) if the Average Parent Price is
less than $21.00, 0.3333 of a share of VerticalNet Common Stock, (iii) if the
Average Parent Price is more than $35.00 but less than or equal to $51.00,
0.2000 of a share of VerticalNet Common Stock, and (iv) if the Average Parent
Price is greater than $51.00, a number of shares of VerticalNet Common Stock
equal to $10.20 divided by the Average Parent Price (the "Merger
Consideration"). The Agreement may be terminated and the Merger may be abandoned
at any time prior to the Effective Time (as defined in the Merger Agreement) by
the Company, prior to the acceptance for payment of Shares in the Offer, if the
Average Parent Price is less than $15.00 (computed as of the initial expiration
date of the Offer or any subsequent date).
In arriving at our opinion, we have reviewed the Agreement. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company including information provided during discussions
with the management of the Company. Included in the information provided during
discussions with the management of the Company was certain financial projections
of the Company for the period beginning January 1, 2000 and ending December 31,
2003. In addition, we have compared certain financial and securities data of the
Company and VerticalNet with various other companies whose securities are traded
in the public markets, reviewed the historical stock prices and trading volumes
of the common stock of the Company and VerticalNet, reviewed prices and premiums
paid in certain other business combinations and conducted such other financial
studies, analyses and investigations as we deemed appropriate for purposes of
this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the
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<PAGE> 23
Board of Directors
SierraCities.com Inc.
Page 2
November 6, 2000
Company or its representatives, or that was otherwise reviewed by us. With
respect to the financial projections supplied to us, we have relied on
representations that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of the
Company as to the future operating and financial performance of the Company. We
have not assumed any responsibility for making an independent evaluation of any
assets or liabilities or for making any independent verification of any of the
information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that although subsequent
developments may affect the conclusion reached in this opinion, we do not have
any obligation to update, revise or reaffirm this opinion. We are expressing no
opinion herein as to the prices at which the Common Stock or the VerticalNet
Common Stock will actually trade at any time. Our opinion does not address the
relative merits of the Merger and the other business strategies being considered
by the Company's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute a recommendation to any
stockholder as to whether such stockholder should tender Shares in the Offer.
Donaldson, Lufkin & Jenrette Securities Corporation, as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Merger Consideration is fair to the stockholders of the
Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ WILLIAM D. ADDAS
------------------------------------
William D. Addas
Managing Director
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