<PAGE>
As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 333-68053
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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VERTICALNET, INC.
(Exact name of registrant as specified in its charter)
----------------
Pennsylvania 7319 23-2815834
(State or other (Primary Standard Industrial(I.R.S Employer
jurisdiction of Classification Code No.) Identification
incorporation or No.)
organization)
2 Walnut Grove Drive
Horsham, PA 19044
(215) 328-6100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MARK L. WALSH
President and Chief Executive Officer
2 Walnut Grove Drive
Horsham, PA 19044
(215) 328-6100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications to:
JAMES W. McKENZIE, JR. BARBARA L. BECKER
Morgan, Lewis & Bockius LLP Chadbourne & Parke LLP
1701 Market Street 30 Rockefeller Plaza
Philadelphia, PA 19103-2921 New York, NY 10112
(215) 963-5000 (212) 408-5100
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title of each class of maximum aggregate Amount of
securities to be registered offering price(1) registration fee
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<S> <C> <C>
Common Stock, $.01 par value................. $40,250,000 $11,189.50
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2) $8,850 of the registration fee was paid on November 27, 1998 in connection
with the initial filing of the Registration Statement. An additional
registration fee of $2,339.50 has been paid with this filing.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may change. We may not +
+sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated January 22, 1999
PROSPECTUS
3,500,000 Shares
[LOGO OF VERTICALNET APPEARS HERE]
Common Stock
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This is our initial public offering of shares of common stock. We are offering
3,500,000 shares.
No public market currently exists for our shares.
We propose to list the shares on the Nasdaq National Market under the symbol
"VERT."
Anticipated Price Range $8.00 to $10.00 per share.
Investing in the shares involves risks. Risk Factors begin on page 8.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discount.......................................... $ $
Proceeds to VerticalNet........................................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to 525,000
additional shares of common stock on the same terms and conditions as set forth
above solely to cover over-allotments, if any.
Up to 5% of the common stock offered in this prospectus may be reserved for
employees, directors and friends of VerticalNet. See "Underwriting".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 1999.
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Lehman Brothers
Hambrecht & Quist
Volpe Brown Whelan & Company
Wit Capital Corporation
as e-ManagerTM
, 1999
<PAGE>
[IMAGE SHOWING LOGOS OF OUR VERTICAL TRADE COMMUNITIES WITH HEADING
"VISIT OUR PORTFOLIO OF BUSINESS-TO-BUSINESS COMMUNITIES OF COMMERCE"]
[INSIDE GATEFOLD: GRAPHIC SHOWING VERTICALNET'S WATER ONLINE HOME PAGE, AND
PAGES FOR A STOREFRONT, NEWS AND ANALYSIS, CAREER CENTER, PRODUCT SHOWCASE AND
VIRTUAL OFFICE ON WATER ONLINE; GRAPHIC LISTING 33 VERTICAL TRADE COMMUNITIES
AND HEADING "OUR PORTFOLIO OF BUSINESS-TO-BUSINESS COMMUNITIES OF COMMERCE"]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 7
Use of Proceeds..................... 18
Dividend Policy..................... 18
Capitalization...................... 19
Dilution............................ 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Our Business........................ 32
Management.......................... 49
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Transactions and Stock Issuances with Executive Officers, Directors and Our Largest Shareholder.. 59
Principal Shareholders................................................................................... 61
Description of Capital Stock............................................................................. 62
Shares Eligible for Future Sale.......................................................................... 67
Underwriting............................................................................................. 69
Experts.................................................................................................. 72
Legal Matters............................................................................................ 72
Additional Information................................................................................... 73
Reports to Security Holders.............................................................................. 73
Index to the Company's Financial Statements.............................................................. F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this offering.
Among other things, this preliminary prospectus describes our company as we
currently expect it to exist at the time of this offering.
Our subsidiaries include Boulder Interactive Technology Services Co., known
as RF Globalnet, and Informatrix Worldwide, Inc., both of which we acquired in
September 1998. The acquisition of RF Globalnet is reflected in the financial
information contained in this prospectus on a pro forma basis giving effect to
the acquisition as if it had occurred on January 1, 1997, and the acquisition
of Informatrix as if it had occurred on October 15, 1997 ("on a pro forma
basis").
See the section of this prospectus entitled "Risk Factors" for a discussion
of certain factors that you should consider before investing in the common
stock offered in this prospectus. All trademarks and trade names appearing in
this prospectus are the property of their respective holders.
Until , 1999, all dealers selling shares of the common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
Our Company
VerticalNet owns and operates 33 industry-specific communities of commerce on
the Internet. These vertical trade communities are business-to-business Web
sites that act as comprehensive sources of information, interaction and
electronic commerce--the buying and selling of goods and services over the
Internet.
Each of our communities is individually branded, focuses on one business
sector and caters to individuals with similar professional interests. We design
each of our vertical trade communities to attract professionals responsible for
selecting and purchasing highly specialized industry related products and
services.
For example, our vertical trade community for the chemical industry, chemical
online (www.chemicalonline.com), serves the needs of buyers and suppliers
involved in the manufacturing and processing of chemicals.
Our communities combine:
. product
information
. requests for
proposals
. discussion forums
. electronic
commerce
opportunities
. industry news
. directories
. classifieds
. job listings
. online professional education courses
We satisfy a developing market not currently being adequately served through
traditional channels, such as trade publishers, trade shows and trade
associations. We also believe that this market is not currently being served by
Internet companies, which tend to focus on the consumer and not on the
business-to-business market.
Our vertical trade communities exploit the interactive features and global
reach of the Internet, allowing buyers to research, source, contact and
purchase from suppliers.
----------------
Our 33 Vertical Trade Communities
Process Group
chemical online
(chemicalonline.com)
semiconductor online
(semiconductoronline.com)
hydrocarbon online
(hydrocarbononline.com)
pharmaceutical online (pharmaceuticalonline.com)
adhesives and sealants online
(adhesivesandsealants.com)
food online (foodonline.com)
oil and gas online
(oilandgasonline.com)
paint and coatings online
(paintandcoatings.com)
Communications Group
fiber optics online
(fiberopticsonline.com)
photonics online
(photonicsonline.com)
RF Globalnet (rfglobalnet.com)
premises networks.com
(premisesnetworks.com)
wireless design online
(wirelessdesignonline.com)
Electronics Group
computerOEM online
(computeroemonline.com)
medical design online (medicaldesignonline.com)
plant automation.com
(plantautomation.com)
test and measurement
(testandmeasurement.com)
Environmental Group
pollution online (pollutiononline.com)
public works online (publicworks.com)
water online (wateronline.com)
power online (poweronline.com)
solid waste online (solidwaste.com)
pulp and paper online
(pulpandpaperonline.com)
Food & Packaging Group
bakery online (bakeryonline.com)
beverage online (beverageonline.com)
dairy network.com (dairynetwork.com)
food ingredients online (foodingredientsonline.com)
meat and poultry online (meatandpoultryonline.com)
packaging network.com
(packagingnetwork.com)
Sciences Group
bioresearch online
(bioresearchonline.com)
laboratory network.com
(laboratorynetwork.com)
Services Group
property and
casualty.com(propertyandcasualty.com)
safety online (safetyonline.com)
1 Prospectus Summary
<PAGE>
We believe we are currently the only company operating a portfolio of
specialized business-to-business communities. A portfolio strategy permits us
to:
. offer consistent content and services in our current vertical trade
communities, and replicate these offerings as we launch new communities;
. realize cost savings and operating efficiencies in our technology, marketing,
infrastructure and management resources; and
. increase our overall audience, making our individual sites more appealing to
a broad array of advertisers and suppliers who sell their goods and services
over the Internet.
Our objective is to continue to be the largest owner and operator of industry
specific vertical trade communities on the Internet. Our strategy includes:
. expanding our user base;
. enhancing the user's experience with new content, features and services;
. establishing and expanding multiple revenue streams;
. continuing to rapidly develop new vertical trade communities;
. forming alliances to enhance our distribution, marketing and technology;
. pursuing strategic acquisitions; and
. expanding internationally.
We currently generate the majority of our revenues from Internet advertising,
including the development of "storefronts." A storefront is a Web page posted
on one of our vertical trade communities that provides information on an
advertiser's products, links a visitor to the advertiser's Web site and
generates sales inquiries from interested visitors.
As our vertical trade communities expand, we expect to generate increasing
revenues from services such as:
. banner ads, which are advertisements that provide a link to the advertiser's
Web page;
. education/career services;
. sponsorships, which are sponsored newsletters and discussion forums;
. virtual trade shows;
. electronic commerce;
. online industrial auctions; and
. other special services.
For the nine months ended September 30, 1998, we generated more than 98% of
our revenues from the sale of Internet advertising.
Internet advertising and electronic commerce are projected to experience
significant growth in the future:
. Internet advertising, according to Jupiter Communications, is projected to
grow from $1.9 billion in 1998 to $7.7 billion in 2002;
. Business-to-business Internet advertising, according to Forrester Research,
is projected to grow from $290 million in 1998 to $2.6 billion in 2002;
. Business-to-business electronic commerce, according to Forrester Research, is
projected to grow from $17 billion in 1998 to $327 billion in 2002; and
. Online business auctions, according to Forrester Research, are projected to
grow from $8.7 billion in 1998 to $52.6 billion in 2002.
We believe that industry professionals using our vertical trade communities
possess the demographic characteristics that are attractive to our advertisers.
As of December 31, 1998, we had more than 700 advertisers including, Asea Brown
Boveri, FMC Corporation, Hewlett-Packard, Koch Industries, Motorola,
Schlumberger and U.S. Filter.
2
Prospectus Summary
<PAGE>
Marketing and Distribution Alliances
As part of our strategy to increase the number of users that visit our
vertical trade communities and to develop electronic commerce activities, we
actively pursue marketing and distribution alliances. To date, we have entered
into several marketing and distribution alliances including content
distribution alliances with Excite, Inc. and AltaVista and an
electronic commerce alliance with Junglee Corp.
Acquisitions
On September 1, 1998, we acquired RF Globalnet which operates
rfglobalnet.com, a vertical trade community focused on professionals in the
radio frequency and wireless communications industry. We also acquired
Informatrix on September 30, 1998. Informatrix operates
propertyandcasualty.com, a vertical trade community that caters to risk
managers, agents, brokers and other professionals in the insurance industry.
About VerticalNet
Principal Executive Offices:
VerticalNet, Inc.
2 Walnut Grove Drive
Horsham, Pennsylvania 19044
Phone: (215) 328-6100
Incorporation: 1995 in Pennsylvania.
After the offering, Internet Capital Group will beneficially own 6,248,773
shares of common stock and warrants to purchase 119,656 shares of common stock,
which represent approximately 38.5% of the issued and outstanding shares of
common stock, at an assumed initial public offering price of $9.00 per share.
Recent Developments
Revenues (unaudited)
We generated revenues of $1.27 million for the three months ended December
31, 1998, giving us revenues of $3.13 million for the year ended December 31,
1998. For the three months ended December 31, 1998, we generated 95% of our
revenues from the sale of Internet advertising and 5% of our revenues from
electronic commerce. At December 31, 1998, we had deferred revenues of $2.10
million.
The revenue growth from $897,000 for the three months ended September 30,
1998 to $1.27 million for the three months ended December 31, 1998 is
attributable to the expansion of our sales and sales support personnel, the
acquisition of Informatrix and a full quarter of revenues for the acquisition
of RF Globalnet, and the addition of new revenue streams. We believe that the
higher revenue levels for the three months ended December 31, 1998 will not
translate into correspondingly lower net losses for that period. In
management's opinion, we have recorded all adjustments necessary to present
fairly the revenues for the three months ended December 31, 1998.
Safety Online Acquisition
On January 13, 1999, we purchased the online business, operated as safety
online, from Coastal Video Communication Corp. for $260,000 in cash and a
$50,000 note which is payable without interest no earlier than 90 days from
such date. We also provided Coastal with an advertising commitment on our Web
site, which will be subsequently valued. This Web site is used by professionals
in the safety industry.
3
Prospectus Summary
<PAGE>
Forward-Looking Statements
This prospectus contains forward-looking statements that address, among other
things, electronic commerce strategy, acquisition and expansion strategy,
development of services, use of proceeds, projected capital expenditures,
liquidity, development of additional revenue sources, development and
maintenance of profitable marketing and distribution alliances, market
acceptance of the Internet, acquisition and/or development of profitable new
vertical trade communities, technological advancement, ability to develop
"brand" identification, and global expansion. These statements may be found in
the sections of this prospectus entitled "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Our Business" and in this prospectus generally.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including all the
risks discussed in "Risk Factors" and elsewhere in this prospectus.
This summary highlights some information from this prospectus and may not
contain all the information that is important to you.
4
Prospectus Summary
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock offered by VerticalNet .. 3,500,000 shares
Common Stock outstanding after the
offering ............................ 16,424,783 shares
Use of proceeds....................... We estimate that we will receive net
proceeds from this offering of
approximately $28.3 million or $32.7
million if the underwriters exercise
their over-allotment option in full.
We will use approximately $2.0 million
of the net proceeds to repay the note
issued to Progress Bank. We expect to
use the remaining proceeds for
investments in existing and future
vertical trade communities, general
corporate purposes and potential
strategic acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol............................... "VERT"
</TABLE>
There are $5.0 million of notes which will convert into common stock at the
initial public offering price. Assuming a $9.00 initial public offering price,
we will issue 555,556 shares of common stock which is reflected in "Common
Stock outstanding after the offering" in the table above.
In addition to the 16,424,783 shares of common stock to be outstanding after
the offering, we may issue:
. 3,600,000 shares issuable upon the exercise of grants under the 1996
Equity Compensation Plan consisting of:
.2,276,224 options outstanding at a weighted average exercise price of
$2.86 per share of which 366,162 were exercisable;
.102,564 options authorized to be issued before the offering at an
exercise price per share equal to the initial public offering
price;
.1,221,212 options available for future awards after the offering;
. 235,871 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $5.37 per share; and
.300,000 shares available for issuance under the Employee Stock Purchase
Plan.
5
Prospectus Summary
<PAGE>
Summary Financial Data
The following table summarizes the financial data for our business. The pro
forma statement of operations data gives effect to our acquisition of RF
Globalnet as if it had occurred on January 1, 1997 and our acquisition of
Informatrix as if it had occurred on October 15, 1997, the inception of
Informatrix.
<TABLE>
<CAPTION>
July 28, 1995
(Inception) Year Ended December 31, Nine Months Ended September 30,
to ---------------------------------- ----------------------------------
December 31, 1997 1998
1995 1996 1997 Pro Forma 1997 1998 Pro Forma
------------- ---------- ---------- ---------- ---------- ---------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 16 $ 285 $ 792 $ 1,118 $ 551 $ 1,862 $ 2,332
Operating loss.......... (210) (703) (4,664) (5,674) (2,813) (8,349) (9,813)
Net loss................ (211) (709) (4,779) (5,789) (2,842) (8,334) (9,801)
Basic and diluted net
loss per share......... $ (0.19) $ (0.27) $ (1.89) $ (2.28) $ (1.12) $ (3.27) $ (3.77)
Shares used in basic and
diluted net loss per
share
calculation............ 1,096,679 2,583,648 2,526,865 2,536,480 2,526,865 2,550,619 2,596,604
Pro forma basic and
diluted net loss
per share ............. $ (0.19) $ (0.21) $ (0.77) $ (0.93) $ (0.50) $ (0.83) $ (0.97)
Shares used in pro forma
basic and diluted net
loss per common share
calculation ........... 1,096,679 3,326,284 6,184,326 6,193,941 5,677,540 10,052,180 10,098,165
</TABLE>
The following table indicates a summary of our balance sheet as of September
30, 1998. The Pro Forma column reflects the issuance and conversion of $5.0
million of convertible notes into common stock at the consummation of the
offering, the issuance of the $2.0 million note to Progress Bank and the
issuance of warrants, valued at $200,000. The Pro Forma As Adjusted column
reflects the repayment of the $2.0 million note to Progress Bank and the sale
of 3,500,000 shares of common stock in the offering at an assumed initial
public offering price of $9.00 per share, after deducting estimated
underwriting discounts and commissions and offering expenses. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of September 30, 1998
--------------------------
Pro Pro Forma
Actual Forma As Adjusted
------ ------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $3,794 $10,794 $37,089
Working capital...................................... 1,122 6,122 34,417
Total assets......................................... 9,158 16,158 42,453
Long-term debt, less current portion................. 374 374 374
Total shareholders' equity........................... 4,709 9,709 38,004
</TABLE>
6
Prospectus Summary
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares of our common stock.
We Have Only Been Operating Our Business Since October 1995
We launched our first vertical trade community in October 1995. Accordingly,
we have a limited operating history upon which you may evaluate us. In
addition, our revenue model is evolving. Currently, our revenues are primarily
generated from the sale of advertising on our vertical trade communities. In
the future, we expect to generate revenue from multiple sources, including
electronic commerce and business services. We may not be able to sustain our
current revenues or successfully generate electronic commerce or business
services revenue. If we do not generate such revenue, our business, financial
condition and operating results will be materially adversely affected.
We Anticipate We Will Incur Continued Losses For the Forseeable Future
To date, we have not been profitable. We may never be profitable or, if we
become profitable, we may be unable to sustain profitability. We have incurred
significant losses since inception. We reported a net loss of $8.3 million for
the nine months ended September 30, 1998. We expect to continue to incur
significant losses for the foreseeable future. As of September 30, 1998, our
accumulated deficit was $14.0 million. Our limited operating history makes
predicting our future operating results, including operating expenses,
difficult. Although our revenues have grown in recent periods, they may not
continue to grow or even continue at their current level.
Some of our expenses are fixed, including non-cancellable agreements,
equipment leases and real estate leases. If our revenues do not increase, we
may not be able to compensate by reducing expenses in a timely manner. In
addition, we plan to significantly increase our operating expenses to:
. launch additional vertical trade communities;
. increase our sales and marketing operations;
. enter into additional sponsorship agreements;
. broaden our customer support capabilities; and
. pursue marketing and distribution alliances.
Expenses may also increase due to the potential impact of goodwill and other
charges resulting from completed and future acquisitions.
Additionally, leading Web sites, browser providers and other Internet
distribution channels may begin to charge us to provide access to our products
and services. If any of these expenses are not accompanied by increased
revenues, our business, financial condition and operating results would be
materially adversely affected.
Our Quarterly Results May Fluctuate
We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:
. the seasonality of our revenues;
. the uncertain adoption of the Internet as an advertising medium;
. potential dependence on development of the electronic commerce market;
7
Risk Factors
<PAGE>
. intense competition;
. our dependence on content providers;
. license fees payable to content providers;
. uncertain acceptance of our Internet content;
. management of our growth; and
. risks associated with potential acquisitions.
All of these factors are described in more detail in the "Risk Factors"
below. Many of these factors are beyond our control.
Due to the limited history of businesses relying on the Internet as a
commercial medium, we believe that period-to-period comparisons of our
operating results are not meaningful. Additionally, if our operating results in
one or more quarters do not meet the securities analysts' or your expectations,
the price of our common stock could be materially adversely affected.
The Seasonality of Our Advertising Revenues and Usage Causes Our Overall
Revenues to Be Seasonal
Some of our revenue is seasonal. We experience seasonality in our advertising
revenue because advertising and media buying tends to be highest in the first
and fourth quarters of each calendar year. We also experience seasonality in
our traffic. User traffic on our vertical trade communities and the Web sites
of our partners is lower during the summer and year-end vacation and holiday
periods, when business usage of the Web and our services typically declines.
We Currently Rely Heavily on Advertising Revenues
We currently rely on revenues generated from the sale of advertising on our
vertical trade communities for substantially all of our revenues. To be
successful, we must continue to develop advertising and other sources of
revenues. Our ability to increase our advertising revenues may depend, among
other things, on many factors, including:
. advertisers' acceptance of the Internet as a legitimate advertising medium;
. the development of a large base of users on our vertical trade communities
who possess demographic characteristics attractive to advertisers; and
. the expansion of our sales force.
It is difficult to predict advertising revenues because a wide range of rates
are quoted and a variety of pricing models are offered by different vendors for
a variety of advertising services. For example, we currently base our
storefront advertising rates on a variety of factors including the maturity of
the particular vertical trade community, the number of storefronts and amount
of other advertising purchased and the length of the advertising contract. In
the future, advertising rates may be based on different parameters such as the
number of sales inquiries generated or visitors sent from our vertical trade
communities to advertisers' Web sites. Changes in industry pricing practices
could materially adversely affect our revenues in the future. Other factors
could also affect our revenues. For example, widespread use of "filter"
software programs that limit access to storefront advertising from the Internet
user's browser could reduce advertising on the Internet, which would materially
adversely affect our business, financial condition and operating results.
Adoption of the Internet as an Advertising Medium is Uncertain
The growth of Internet advertising requires validation of the Internet as an
effective advertising medium. This validation has yet to fully occur.
Acceptance of the Internet among advertisers will also depend on growth in the
commercial use of the Internet. If widespread
8
Risk Factors
<PAGE>
commercial use of the Internet does not develop, or if the Internet does not
develop as an effective and measurable medium for advertising, our business,
financial condition and operating results could be materially adversely
affected.
No standards have been widely accepted to measure the effectiveness of
Internet advertising. If such standards do not develop, existing advertisers
may not continue their current levels of Internet advertising and advertisers
who are not currently advertising on the Internet may be reluctant to do so.
Our business, financial condition and operating results would be adversely
affected if the market for Internet advertising fails to develop or develops
slower than expected.
We May Not Develop Additional Revenue Sources
For the nine months ended September 30, 1998, approximately 2% of our
revenues were generated from electronic commerce. If we do not generate
increased revenue from electronic commerce, our business, financial condition
and operating results could be materially adversely affected. We plan to
generate revenues through revenue-sharing relationships with electronic
commerce partners in addition to selling advertising. To generate significant
electronic commerce revenues, we will have to continue to build or license an
electronic commerce platform in addition to our Junglee relationship.
Our Long-Term Success Depends on the Development of the Electronic Commerce
Market
If electronic commerce does not grow or grows slower than expected, our
business will suffer. Our long-term success depends on widespread market-
acceptance of electronic commerce.
A number of factors could prevent such acceptance, including the following:
. electronic commerce is at an early stage and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors;
. the necessary network infrastructure for substantial growth in usage of the
Internet may not be adequately developed;
. increased government regulation or taxation may adversely affect the
viability of electronic commerce;
. insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
. adverse publicity and consumer concern about the security of electronic
commerce transactions could discourage its acceptance and growth.
There is Intense Competition for Internet Products and Services, Advertising
and Sales of Goods and Services
Competition for Internet products and services, advertising and electronic
commerce is intense. We expect that competition will continue to intensify.
Barriers to entry are minimal, and competitors can launch new Web sites at a
relatively low cost. We compete for a share of a customer's advertising budget
with online services and traditional off-line media, such as print and trade
associations. Although we believe that there may be opportunities for several
suppliers of products and services similar to ours, a single supplier may
dominate the market. Although to date we believe there are no companies with a
larger portfolio of vertical trade communities than ours, several companies
offer competitive vertical trade communities. We expect that additional
companies will offer competing vertical trade communities on a standalone or
portfolio basis.
9
Risk Factors
<PAGE>
Our competitors may develop Internet products or services that are superior
to, or have greater market acceptance than, our solutions. If we are unable to
compete successfully against our competitors, our business, financial condition
and operating results will be adversely affected.
Many of our competitors have greater brand recognition and greater financial,
marketing and other resources than ours. This may place us at a disadvantage in
responding to our competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives.
Concerns Regarding Security of Transactions and Transmitting Confidential
Information Over the Internet
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevents many
potential customers from engaging in online transactions. If we do not add
sufficient security features to future product releases, our products may not
gain market acceptance or there may be additional legal exposure to us. We have
included basic security features in some of our products to protect the privacy
and integrity of customer data, such as password requirements for access to
portions of our vertical trade communities. We do not currently use
authentication technology, which requires passwords and other information to
prevent unauthorized persons from accessing a customer's information, or
encryption, which transforms information into a "code" designed to be
unreadable by third parties, to protect confidential information such as credit
card numbers. However, we intend to license encryption technology to protect
confidential transaction data.
Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins, viruses or similar problems. If
a person circumvents our security measures, he or she could misappropriate
proprietary information or cause interruptions in our operations. Security
breaches that result in access to confidential information could damage our
reputation and expose us to a risk of loss or liability. We may be required to
make significant investments and efforts to protect against or remedy security
breaches. Additionally, as electronic commerce becomes more prevalent (and
consequently becomes the focus of our development of direct marketing
products), our customers will become more concerned about security. If we do
not adequately address these concerns, this could materially adversely affect
our business, financial condition and operating results.
Our Potential Dependence on Marketing and Distribution Alliances with Other
Internet Companies
We use marketing and distribution alliances with other Internet companies to
create traffic on our vertical trade communities and consequently, to generate
revenues. These marketing and distribution alliances allow us to link our
vertical trade communities to search engines such as those offered by Excite,
and on other Web sites such as AltaVista. The success of these relationships
depends on the amount of increased traffic we receive from the alliance
partners' Web sites. These arrangements may not generate the expected number of
new customers.
Our content distribution agreement with Excite has a term of three years and
is renewable for annual periods thereafter, but is terminable on 15 days prior
written notice at the end of any year. Our marketing and distribution agreement
with AltaVista has a term of one year, renews annually and may be terminated on
30 days notice prior
10
Risk Factors
<PAGE>
to renewal. If any of these agreements, or other agreements we enter into, are
terminated, the traffic on our vertical trade communities could decrease or
our advertising revenues derived from the sales of advertising on co-branded
pages could decrease.
We are interested in entering into additional partnerships with search
engine providers to increase traffic to our vertical trade communities but we
cannot assure you that we will be able to enter into any new partnerships. We
also cannot assure you that we will be able to renew successful marketing and
distribution alliance agreements. Additionally, we rely upon relationships
with several third parties that are not based upon a written agreement and may
be terminated at any time by either party.
If any of these relationships are terminated or if we are unable to further
develop and successfully administer our marketing and distribution alliances
and advertising campaigns, the traffic on our vertical trade communities could
decrease. Fewer visits could lead to less advertising revenue and fewer
purchases on our sites.
Our Business Depends on the Growth of the Internet
Our market is new and rapidly evolving. Our business would be adversely
affected if Internet usage does not continue to grow. Internet usage may be
inhibited by a number of reasons, such as:
. infrastructure;
. security concerns;
. inconsistent quality of service; and
. lack of availability of cost-effective, high-speed service.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth or its performance or
reliability may decline. In addition, Web sites may from time to time
experience interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, Internet usage, as well as
usage of our vertical trade communities, could be adversely affected.
Our Internet Content May Not Attract Users With Demographic Characteristics
Valuable to Our Advertisers
Our future success depends upon our ability to deliver compelling Internet
content about various industries that will attract users with demographic
characteristics valuable to our advertising customers. If we are unable to
develop Internet content that attracts a loyal user base possessing
demographic characteristics attractive to advertisers, it could have a
material adverse effect on our business, financial condition and operating
results. In addition, we may be unable to anticipate or respond to rapidly
changing buyer preferences to attract enough users to our vertical trade
communities. Internet users can freely navigate and instantly switch among a
large number of Web sites. Many of these Internet sites offer original
content. Thus, it is difficult for us to distinguish our content and attract
users.
We Depend on Third Parties to Provide the Content For Our Vertical Trade
Communities
We rely on third parties, such as trade publications and news wires, to
provide the content for our vertical trade communities. It is critical to our
business that we maintain and build our existing relationships with content
providers. Many of our agreements with content providers are for initial terms
of one to two years. The content providers may choose not to renew the
agreements or may terminate the
11
Risk Factors
<PAGE>
agreements early if we do not fulfill our contractual obligations, including
our payment obligations. If a significant number of content providers terminate
our agreements with them, it could result in decreased traffic on our vertical
trade communities and decreased advertising revenue. Because our agreements
with certain of our content providers are nonexclusive, a competitor could
offer content similar to or the same as ours.
The Licensee Fees We Pay to Content Providers May Increase
If licensing fees increase, it could materially adversely affect our
business, financial condition and operating results. License fees to content
providers may increase as competition for such content increases. Our content
providers may not enter into new agreements with us on similar terms as our
current agreements.
The Development of the "VerticalNet" Brand and Our Vertical Trade Community
Brands is Important to Our Success
To be successful, we must establish and strengthen the brand awareness of the
"VerticalNet" brand as well as the brands associated with each individual
vertical trade community (e.g. wateronline.com). If our brand awareness is
weakened, it could decrease the attractiveness of our audiences to advertisers,
which could result in decreasing advertising revenues. We believe that brand
recognition will become more important in the future with the growing number of
Internet sites. Our brand awareness could be diluted, which could adversely
affect our business, finanical condition and operating results if users do not
perceive our products and services to be of high quality.
Effectively Managing Our Growth May Be Difficult
We have grown and expect to continue to grow rapidly both by adding new
products and hiring new employees. This growth is likely to place a significant
strain on our resources and systems. To manage our growth, we must implement
systems and train and manage our employees.
Many of our senior management have only recently joined us. Of the eleven
employees listed in the management section of this prospectus, six have worked
for us less than one year. We cannot assure you that our management will be
able to effectively or successfully manage our growth.
We May Not Be Able to Protect Our Proprietary Rights and We May Infringe the
Proprietary Rights of Others
Proprietary rights are important to our success and our competitive position.
We have applied for several trademarks, none of which has been issued to date.
Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. We currently have two pending trademark applications. Generally, our
domain names for our vertical trade communities are not protectible as
trademarks because they are too generic. In addition, effective copyright and
trademark protection may be unenforceable or limited in certain countries, and
the global nature of the Internet makes it impossible to control the ultimate
destination of our work. We also license content from third parties and it is
possible that we could become subject to infringement actions based upon the
content licensed from those third parties. We generally obtain representations
as to the origin and ownership
12
Risk Factors
<PAGE>
of such licensed content; however, this may not adequately protect us. Any of
these claims, with or without merit, could subject us to costly litigation and
the diversion of our technical and management personnel.
We May Not Be Able to Acquire or Maintain Effective Web Addresses
We currently hold various Internet Web addresses relating to our brand.
These Web addresses include wateronline.com, wirelessdesignonline.com,
pollutiononline.com and other Web addresses. We may not be able to prevent
third parties from acquiring Web addresses that are similar to our addresses,
which could materially adversely affect our business, financial condition and
operating results. The acquisition and maintenance of Web addresses generally
is regulated by governmental agencies and their designees. For example, in the
United States, the National Science Foundation has appointed Network
Solutions, Inc. as the exclusive registrar for the ".com," ".net" and ".org"
generic top-level addresses. The regulation of Web addresses in the United
States and in foreign countries is subject to change. As a result, we may not
be able to acquire or maintain relevant Web addresses in all countries where
we conduct business. Furthermore, the relationship between regulations
governing such addresses and laws protecting trademarks is unclear.
Our Acquisition Strategy Has Certain Risks
Our acquisition strategy is subject to the following risks:
. we may not be able to identify additional suitable acquisition candidates
available for sale at reasonable prices;
. we may not be able to consummate any acquisition or successfully integrate
services, products and personnel of any acquisition into our operations;
. acquisitions may cause a disruption in our ongoing business, distract our
management and other resources and make it difficult to maintain our
standards, controls and procedures in acquisitions;
. we may acquire companies in markets in which we have little experience; and
. we may be required to incur debt or issue equity securities, which may be
dilutive to existing shareholders, to pay for acquisitions.
Our acquisitions may not result in any return on our investment and we may
lose our entire investment.
We have made and plan to continue to make investments in complementary
companies, technologies and assets. Recently we acquired Informatrix and RF
Globalnet. These companies are in an early stage of development and we expect
them to incur substantial losses.
We May Be Subject to Legal Liability for Publishing or Distributing Content
Over the Internet
We may be subject to legal claims relating to the content in our vertical
trade communities, or the downloading and distribution of such content. For
example, persons may bring claims against us if material that is inappropriate
for viewing by young children can be accessed from our vertical trade
communities. Claims could also involve matters such as defamation, invasion of
privacy, and copyright infringement. Providers of Internet products and
services have been sued in the past, sometimes successfully, based on the
content of material. In addition, some of the content provided on our vertical
trade communities is drawn from data compiled by other parties, including
governmental and commercial sources, and we re-key the data. This data may
have errors. If our content is improperly used or if we supply
13
Risk Factors
<PAGE>
incorrect information, it could result in unexpected liability. Our insurance
may not cover claims of this type, or may not provide sufficient coverage. Our
business, financial condition and operating results could suffer a material
adverse effect if costs resulting from these claims are not covered by our
insurance or exceed our coverage.
Risk of Failure of Our Computer and Communications Hardware Systems Increases
Without Redundant Facilities
Our business depends on the efficient and uninterrupted operation of our
computer and communications hardware systems. Any system interruptions that
cause our vertical trade communities to be unavailable to Web browsers may
reduce the attractiveness of our vertical trade communities to advertisers and
could materially adversely affect our business, financial condition and
operating results. We maintain most of our computer systems in two Web-hosting
facilities in New Jersey. Interruptions could result from natural disasters as
well as power loss, telecommunications failure and similar events.
Capacity Constraints on Our Technology, Transaction Processing System and
Network Hardware and Software May Be Difficult to Project
As traffic in our vertical trade communities continues to increase, we must
expand and upgrade our technology, transaction processing systems and network
hardware and software. We may not be able to accurately project the rate of
increase in our vertical trade communities. In addition, we may not be able to
expand and upgrade our systems and network hardware and software capabilities
to accommodate increased use of our vertical trade communities. If we do not
appropriately upgrade our systems and network hardware and software, our
business, financial condition and operating results will be materially
adversely affected.
Our Market is Characterized by Rapid Technological Change
Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing vertical trade community technology obsolete. If we are unable to
successfully respond to these developments or do not respond in a cost-
effective way, our business, financial condition and operating results will be
materially adversely affected. To be successful, we must adapt to our rapidly
changing market by continually improving the responsiveness, services and
features of our vertical trade communities and by developing new features to
meet customer needs. Our success will depend, in part, on our ability to
license leading technologies useful in our business, enhance our existing
services and develop new services and technology that address the needs of our
customers. We will also need to respond to technological advances and emerging
industry standards in a cost-effective and timely basis.
Our Success is Dependent on Our Key Personnel
We believe that our success will depend on continued employment of our senior
management team and key technical personnel. If one or more members of our
senior management team were unable or unwilling to continue in their present
positions, our business, financial condition and operating results could be
materially adversely affected. Most of our senior management do not have
employment agreements. We carry key person life insurance on certain, but not
on all, of our senior management personnel.
Our success also depends on having a highly trained sales force and telesales
group. Our telesales group was formed recently. We will need to continue to
hire additional personnel as our business grows. A shortage in the number of
trained salespeople could limit our ability to increase sales in our existing
14
Risk Factors
<PAGE>
vertical trade communities and to sell as we launch new vertical trade
communities.
We plan to expand our employee base to manage our anticipated growth.
Competition for personnel, particularly for employees with technical
expertise, is intense. Our business, financial condition and operating results
will be materially adversely affected if we cannot hire and retain suitable
personnel.
Our Systems May Not Be Year 2000 Compliant
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in
similar normal business activities.
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. We are currently in the
process of analyzing whether our systems are Year 2000 compliant. We expect to
resolve Year 2000 compliance issues primarily through normal upgrades of our
software or by replacing existing software with Year 2000 compliant
applications. The cost of these upgrades or replacements is included in our
capital expenditure budget and is not expected to be material to our financial
position or results of operations. However, we cannot assure you that such
upgrades and replacements can be completed on schedule or within estimated
costs or will successfully address our Year 2000 compliance issues.
In addition, we are currently conducting an analysis to determine the extent
to which key distributors, vendors and suppliers have Year 2000 issues. If
they are not yet Year 2000 compliant, we are asking them to provide a
description of their plans to become so.
In the event that our production and operational facilities that support our
Web sites are not Year 2000 compliant, small portions of our Web sites may
become unavailable. Our review of our systems has shown that there is no
single application that would make our Web sites totally unavailable and we
believe that we can quickly address any difficulties that may arise.
In the event that our Web hosting facilities are not Year 2000 compliant,
our production Web sites would be unavailable and we would not be able to
deliver services to our users.
If our present efforts to address the Year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with which
we conduct business do not successfully address such issues, our business,
operating results and financial position could be materially and adversely
affected.
The Offering Will Benefit Our Current Shareholders
Our current shareholders, including members of management, will recognize
significant benefits from the offering. These benefits include the creation of
a public market for our common stock which will afford existing stockholders
the ability to liquidate their investments, subject, in certain cases, to
volume limitations and other limitations and restrictions upon the sale of the
common stock, including any applicable lock-up arrangements. The excess of
market value of the publicly traded shares over amounts paid for common stock,
including common stock issuable upon conversion of the convertible preferred
stock, by our executive officers and directors is
15
Risk Factors
<PAGE>
approximately $11.1 million, or $9.00 per share. In addition, the excess of the
assumed initial public offering price over the aggregate exercise price of
options and warrants held by our executive officers and directors is
approximately $9.0 million, or $6.97 per share.
The Interests of Our Controlling Shareholder May Conflict With Our Interests.
Internet Capital Group will own 6,248,773 shares of common stock after the
conversion of their preferred stock and convertible notes in the offering at an
assumed initial public offering price of $9.00 per share. Internet Capital
Group also owns warrants to purchase 119,656 shares of common stock. Based on
its ownership of common stock and warrants after the offering, Internet Capital
Group will beneficially own 38.5% of the common stock and will have two
representatives on our board of directors.
As a result of its stock ownership and board representation, Internet Capital
Group will be in a position to affect corporate actions such as mergers or
takeover attempts in a manner that could conflict with the interests of our
public shareholders.
Shares Eligible for Future Sale By Our Current Shareholders May Adversely
Affect Our Stock Price
If our shareholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market following the offering, then the market price of our common stock
could fall. Restrictions under the securities laws and certain lock-up
agreements limit the number of shares of common stock available for sale in the
public market. The holders of 1,305,468 shares of common stock, 7,805,667
shares of convertible preferred stock that will automatically convert to
9,307,495 shares of common stock before the offering and warrants and options
exercisable into an aggregate of 462,074 shares of common stock have agreed not
to sell any such securities for 180 days after the offering without the prior
written consent of Lehman Brothers. In addition, the holders of the convertible
notes that will automatically convert into 555,556 shares of common stock,
assuming an initial public offering price of $9.00, have also agreed to such
restrictions. However, Lehman Brothers may, in its sole discretion, release all
or any portion of the securities subject to such lock-up agreements.
The holders of 7,805,667 shares of preferred stock that will automatically
convert to 9,307,495 shares of common stock prior to the offering and warrants
to purchase 235,871 shares of common stock have demand and piggy-back
registration rights. In addition, the holders of the convertible notes that
will automatically convert into 555,556 shares of common stock, assuming an
initial public offering price of $9.00 per share, have similar registration
rights. The exercise of such rights could adversely affect the market price of
our common stock. We also may shortly file a registration statement to register
all shares of common stock under our stock option plans. After such
registration statement is effective, shares issued upon exercise of stock
options will be eligible for resale in the public market without restriction.
Anti-Takeover Provisions and Our Right to Issue Preferred Stock Could Make a
Third-Party Acquisition of Us Difficult
VerticalNet is a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a third party to acquire
control of us, even if such change in control would be beneficial to
shareholders. Our articles of incorporation provide that our board of directors
may issue preferred stock without
16
Risk Factors
<PAGE>
shareholder approval. In addition, our bylaws provide for a classified board,
with each board member serving a staggered three year term. The issuance of
preferred stock and the existence of a classified board could make it more
difficult for a third-party to acquire us.
Our Common Stock Has Never Been Publicly Traded
There has not been a public market for our common stock. We cannot predict
the extent to which a trading market will develop or how liquid that market
might become. The initial public offering price will be determined by
negotiations between representatives of the underwriters and us and may not be
indicative of prices that will prevail in the trading market.
Our Common Stock Price is Likely to Be Highly Volatile
The market price of our common stock is likely to be highly volatile as the
stock market in general, and the market for Internet-related and technology
companies in particular, has been highly volatile. Investors may not be able
to resell their shares of our common stock following periods of volatility
because of the market's adverse reaction to such volatility. The trading
prices of many technology and Internet-related companies' stocks have reached
historical highs within the last 52 weeks and have reflected relative
valuations substantially above historical levels. During the same period, such
companies' stocks have also been highly volatile and have recorded lows well
below such historical highs. We cannot assure you that our stock will trade at
the same levels of other Internet stocks or that Internet stocks in general
will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new sales formats or new products or services;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet industry;
. changes in the market valuations of other Internet companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
. capital commitments;
. additions or departures of key personnel; and
. sales of common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance.
17
Risk Factors
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the offering to be approximately $28.3
million or $32.7 million if the underwriters' exercise their over-allotment
option in full, assuming an initial public offering price of $9.00 per share
and after deducting estimated underwriting discounts and commissions and
expenses of the offering.
We expect to use the net proceeds from the offering to repay the debt
described below for investments in existing and future vertical trade
communities and for general corporate purposes. A portion of the net proceeds
may be used for consummation of strategic acquisitions. Although we are not
contemplating any specific acquisitions at this time, we expect that
acquisition candidates would be operators of vertical trade communities or
businesses with complementary technologies. We expect to use $2.0 million of
the net proceeds to repay a note issued to Progress Bank. This note bears
interest at the prime rate plus 1.5%. As of the date of this prospectus, we
cannot specify with certainty all of the particular uses for the remaining net
proceeds we will have upon completion of the offering. Accordingly, our
management will have broad discretion in the application of the net proceeds.
Pending such uses, we intend to invest the net proceeds in interest-bearing,
investment-grade instruments, certificates of deposit, or direct or guaranteed
obligations of the United States.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant.
18
Use of Proceeds/Dividend Policy
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1998.
Our capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to:
. the automatic conversion of all outstanding shares of preferred
stock into common stock upon the consummation of the offering;
. the issuance and conversion of $5.0 million of convertible notes
into common stock upon the consummation of the offering;
. the issuance of the $2.0 million note to Progress Bank;
. the issuance of warrants valued at $200,000; and
. on a pro forma as adjusted basis to reflect our receipt of the
estimated net proceeds from the sale of 3,500,000 shares of common
stock offered in the offering at an assumed initial public offering
price of $9.00 per share, after deducting underwriting discounts and
commissions and estimated offering expenses and the repayment of the
$2.0 million note to Progress Bank.
<TABLE>
<CAPTION>
As of September 30, 1998
--------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- ------------
(in thousands)
<S> <C> <C> <C>
Short-term debt............................... $ -- $ 2,000 $ --
Long-term debt, less current portion.......... $ 374 $ 374 $ 374
Shareholders' equity:
Preferred stock, $.01 par value; 40,000,000
shares authorized; 7,805,667 shares issued
and outstanding, actual; none issued and
outstanding, pro forma and pro forma as
adjusted................................... 78 -- --
Common stock, $.01 par value; 40,000,000
shares authorized; 2,629,999 shares issued
and outstanding, actual; 12,920,401 shares
issued and outstanding, pro forma; and
16,420,401 outstanding, pro forma as
adjusted................................... 26 129 164
Additional paid-in capital.................... 18,837 24,012 52,272
Deferred compensation......................... (139) (139) (139)
Accumulated deficit........................... (14,033) (14,233) (14,233)
Treasury stock (at cost)...................... (60) (60) (60)
-------- -------- --------
Total shareholders' equity................ 4,709 9,709 38,004
-------- -------- --------
Total capitalization.................... $ 5,083 $ 12,083 $ 38,378
======== ======== ========
</TABLE>
We expect there to be 16,424,783 shares of common stock outstanding after the
offering, which includes after September 30, 1998, shares issued upon option
exercises and 2,200 shares earned but not distributed to the former Informatrix
shareholders under the terms of a purchase agreement with Informatrix. In
addition to the shares of common stock to be outstanding after the offering, we
may issue additional shares of common stock under the following plans and
arrangements:
. 3,600,000 shares issuable upon the exercise of grants under the 1996
Equity Compensation Plan;
. 235,871 shares issuable upon the exercise of warrants outstanding at
a weighted average exercise price of $5.37 per share; and
. 300,000 shares available for issuance under the Employee Stock
Purchase Plan.
Please read the capitalization table together with the sections of this
prospectus entitled "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements included in this prospectus.
19
Capitalization
<PAGE>
DILUTION
As of September 30, 1998, our net tangible book value on a pro forma basis
giving effect to the $5.0 million in convertible notes that convert into common
stock upon the consummation of the offering based on an issued initial public
offering price of $9.00 per share and the conversion of our convertible
preferred stock was $7.0 million or $0.55 per share of common stock. "Net
tangible book value" per share represents the amount of our total tangible
assets reduced by the amount of our total liabilities, divided by the number of
shares of common stock outstanding. As of September 30, 1998, our net tangible
book value, on a pro forma basis as adjusted for the sale of the 3,500,000
shares offered in the offering and application of the net proceeds from such
sale of $28.3 million (based on an assumed initial public offering price of
$9.00 per share and after deducting the underwriting discounts and commissions
and other estimated offering expenses), would have been approximately $2.15 per
share. This represents an immediate increase of $1.60 per share to existing
shareholders and an immediate dilution of $6.85 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $9.00
Pro forma net tangible book value per share as of
September 30, 1998......................................... $ .55
Increase per share attributable to new investors............ 1.60
------
Net tangible book value per share after the offering.......... 2.15
-----
Dilution per share to new investors........................... $6.85
=====
</TABLE>
The following table summarizes on a pro forma basis as of September 30, 1998
the differences between the total consideration paid and the average price per
share paid by the existing shareholders and the new investors with respect to
the number of shares of common stock purchased from us based on an assumed
initial public offering price of $9.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 12,920,401 79% $24,602,908 44% $1.90
New investors............... 3,500,000 21 31,500,000 56 9.00
---------- --- ----------- --- -----
Total..................... 16,420,401 100% $56,102,908 100%
========== === =========== ===
</TABLE>
We expect there to be 16,424,783 shares of common stock outstanding after the
offering, which includes after September 30, 1998, shares issued upon option
exercises and 2,200 shares earned but not distributed to the former Informatrix
shareholders under the terms of a purchase agreement with Informatrix. In
addition to the shares outstanding after the offering, we may issue additional
shares of common stock under the following plans and arrangements:
. 3,600,000 shares issuable upon the exercise of grants under the 1996
Equity Compensation Plan;
. 235,871 shares issuable upon the exercise of warrants outstanding at a
weighted average exercise price of $5.37 per share; and
.300,000 shares available for issuance under the Employee Stock Purchase
Plan.
Options available for issuance under the plan may be granted with exercise
prices as low as 80% of the market value of the common stock on the grant date.
If we grant options below fair market value it would be dilutive to investors
who purchase shares at the initial public offering price.
20
Dilution
<PAGE>
SELECTED FINANCIAL DATA
We derived the selected historical and pro forma financial data presented
below from our historical and pro forma financial statements and related notes
included in another part of this prospectus. You should read the selected
financial data together with our historical and pro forma financial statements
and the section of the prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
KPMG LLP, independent certified public accountants, audited our historical
financial statements for the period from July 28, 1995 (inception) to December
31, 1995, for the years ended December 31, 1996 and December 31, 1997 and for
the nine months ended September 30, 1998. Their report appears in another part
of this prospectus. Our historical financial statements for the nine months
ended September 30, 1997 are unaudited, and in our opinion include all
adjustments, consisting of normal adjustments, necessary for a fair
presentation of the results for the unaudited period. You should not rely on
interim results as being indicative of results we may expect for the full year.
We prepared the unaudited pro forma financial information for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 by combining
the historical results of the two companies we acquired, RF Globalnet and
Informatrix, with our historical results using the purchase method of
accounting. This is described in the notes accompanying the information below.
We have presented this information to give you a better picture of what our
business might have looked like if we had owned RF Globalnet since January 1,
1997 and Informatrix since October 15, 1997 (inception). These companies may
have performed differently if they had actually been combined with our
operations. You should not rely on the unaudited pro forma information as being
indicative of the historical results that we would have had or the future
results that we will experience after the acquisitions.
21
Selected Financial Data
<PAGE>
<TABLE>
<CAPTION>
July 28, 1995 Year Ended December 31, Nine Months Ended September 30,
(Inception) to ---------------------------------- ------------------------------------
December 31, 1997 1998
1995 1996 1997 Pro Forma 1997 1998 Pro Forma
-------------- ---------- ---------- ---------- ---------- ----------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................ $ 16 $ 285 $ 792 $ 1,118 $ 551 $ 1,862 $ 2,332
Expenses:
Editorial and
operational............ 24 214 1,056 1,234 674 2,101 2,296
Product development..... 22 214 711 740 451 798 874
Sales and marketing..... 147 268 2,301 2,464 1,348 4,405 4,955
General and
administrative......... 33 292 1,388 2,354 891 2,907 4,020
---------- ---------- ---------- ---------- ---------- ----------- -----------
Operating loss.......... (210) (703) (4,664) (5,674) (2,813) (8,349) (9,813)
Interest, net........... (1) (6) (115) (115) (29) 15 12
---------- ---------- ---------- ---------- ---------- ----------- -----------
Net loss................ $ (211) $ (709) $ (4,779) $ (5,789) $ (2,842) $ (8,334) $ (9,801)
========== ========== ========== ========== ========== =========== ===========
Basic and diluted net
loss per share......... $ (0.19) $ (0.27) $ (1.89) $ (2.28) $ (1.12) $ (3.27) $ (3.77)
Shares outstanding used
in basic and diluted
net loss per share
calculation............ 1,096,679 2,583,648 2,526,865 2,536,480 2,526,865 2,550,619 2,596,604
Pro forma basic and
diluted net loss per
share.................. $ (0.19) $ (0.21) $ (0.77) $ (0.93) $ (0.50) $ (0.83) $ (0.97)
Shares outstanding used
in pro forma basic and
diluted net loss per
common share
calculation............ 1,096,679 3,326,284 6,184,326 6,193,941 5,677,540 10,052,180 10,098,165
</TABLE>
The following balance sheet data is presented:
. on an actual basis;
. on a pro forma basis to give effect to the issuance and conversion of
$5.0 million of convertible notes into common stock upon the
consummation of the offering, the issuance of the $2.0 million note to
Progress Bank and the issuance of warrants valued at $200,000; and
. on a pro forma as adjusted basis to reflect the repayment of the $2.0
million note to Progress Bank and the net proceeds from the sale of
3,500,000 shares of common stock in the offering at an assumed initial
offering price of $9.00 per share, after deducting the estimated
underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
As of
December 31, As of September 30, 1998
------------ ----------------------------
Pro Forma
1996 1997 Actual Pro Forma As Adjusted
---- ------- ------ --------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.......... $329 $ 755 $3,794 $10,794 $37,089
Working capital (deficit).......... 150 (2,536) 1,122 6,122 34,417
Total assets....................... 637 2,104 9,158 16,158 42,453
Short-term borrowings.............. -- 2,500 -- 2,000 --
Deferred revenues.................. 216 710 1,507 1,507 1,507
Long-term debt, less current
portion........................... 167 400 374 374 374
Total shareholders' equity
(deficit)......................... 105 (2,424) 4,709 9,709 38,004
</TABLE>
22
Selected Financial Data
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with the financial statements and the
related notes included in another part of this prospectus and which are deemed
to be incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in those forward-looking statements as a
result of certain factors, including but not limited to, those set forth under
and included in other portions of this prospectus.
We own and operate 33 vertical trade communities. From our founding and
incorporation on July 28, 1995 to October 1995, our principal operating
activities consisted primarily of recruiting employees, performing product and
technology development, raising capital and engaging in marketing activities.
Advertising revenues and Web site development fees contributed most of the
revenues for the period from July 28, 1995 to December 31, 1995 (the
"Inception Period") and in the years ended December 31, 1996 and December 31,
1997. Currently, most of our revenues are generated from selling
advertisements to industry suppliers in our vertical trade communities.
We sell storefront and banner advertising and event sponsorships on our
vertical trade communities. The duration of a storefront advertisement is
typically for a period of one year, while banner advertisements are typically
for a period of three months. All advertising revenues are recognized ratably
in the period in which the advertisement is displayed, provided that the
collection is reasonably assured. As of September 30, 1998, we had
approximately $1.5 million of deferred revenue. We also generate revenues from
career services, education and electronic commerce, specifically the sale of
books and third party software for which we receive a transaction fee.
Our relationship with Junglee allows us to sell to our visitors books,
software, travel bookings and other goods offered by third party Web sites. We
receive a portion of the revenue from the products sold on our "store," which
is operated for us by Junglee. This type of revenue sharing or commission
sharing relationship is typical of electronic commerce transactions and
relationships on the Internet.
We plan to expand our electronic commerce relationships to include:
. selling goods and services promoted on our advertisers' storefronts;
. selling goods and services from our owned and operated virtual store; and
. auctioning goods posted on our Web sites by inventory-liquidators.
We expect to receive either a fee per transaction, a percentage of sales
revenue or some other minimum guaranteed payment.
We incurred net losses of approximately $211,000 for the Inception Period,
$709,000 for the year ended December 31, 1996, $4.8 million for the year ended
December 31, 1997, and $8.3 million for the nine months ended September 30,
1998 on an actual basis and $9.8 million for the nine months ended September
30, 1998 on a pro forma basis. At September 30, 1998, we had an accumulated
deficit of $14.0 million. The net
23
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
losses and accumulated deficit resulted from our lack of substantial revenues,
the costs of the significant infrastructure and other costs incurred for the
development and initial rollout of our vertical trade communities. Because of
our aggressive expansion plans, we expect to incur significant operating losses
for the foreseeable future. Although we have experienced revenue growth in
recent periods, such growth may not be sustainable and, therefore, these recent
periods should not be considered indicative of future performance. We may never
achieve significant revenues or profitability, or if we achieve significant
revenues they may not be sustained.
Results of Operations
Nine Months Ended September 30, 1997 and September 30, 1998
Revenues. Revenues increased from $551,000 for the nine months ended
September 30, 1997 to $1.9 million for the nine months ended September 30,
1998. The increase in revenues was due primarily to an increase in the number
of advertisers as a result of our marketing efforts and the increase in the
number of vertical trade communities from 16 as of September 30, 1997 to 29 as
of September 30, 1998. Advertising revenues, including the development of the
storefronts, accounted for the majority of revenues for the periods ended
September 30, 1997 and September 30, 1998. At September 30, 1998, we had
deferred revenues of $1.5 million. We expect that advertising revenue will
continue to account for a substantial share of revenues for the foreseeable
future.
Editorial and Operational Expenses. Editorial and operational expenses
primarily consist of Internet connection charges, cost of acquired content,
depreciation, salaries and benefits of operating and editorial personnel and
other related operating costs. These expenses increased from $674,000 for the
nine months ended September 30, 1997 to $2.1 million for the nine months ended
September 30, 1998. For these periods, expenses increased by $7,000 for
Internet connection charges, $69,000 for cost of acquired content, $102,000 for
depreciation, $1.0 million for salaries and benefits of operating and editorial
personnel and $200,000 for other related operating costs. The increases were
primarily related to the increased number of personnel and amount of equipment
required to maintain and operate our increased number of vertical trade
communities.
Product Development Expenses. Product development expenses consist primarily
of salaries and benefits, consulting expenses and related equipment. These
costs increased from $451,000 as of September 30, 1997 to $798,000 for the nine
months ended September 30, 1998. For these periods, expenses increased by
$214,000 for salaries and benefit costs and by $133,000 for consulting and
equipment costs. This increase in expenses was due to increased staffing and
the costs of enhancing the features, content and services of our vertical trade
communities, as well as increasing the overall number of trade communities. To
date, we have charged to expense all of the product development costs when such
costs have been incurred. We believe that continued investment in product
development is critical to attaining our goals, and therefore expect product
development expenses to increase significantly.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries and commissions for sales and marketing personnel, advertising, and
travel and entertainment, including costs of attending trade shows. These
expenses increased from $1.3 million for the nine months ended September 30,
1997 to $4.4 million for the nine months ended September 30, 1998. For these
periods, expenses increased by $1.6 million for
24
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
advertising, $1.1 million for salary, commissions and benefits, and $464,000
for travel and entertainment expenses, including costs of attending trade
shows. This was primarily due to increasing the number of sales and marketing
personnel, increasing sales commissions and increased expenses related to
promoting our vertical trade communities. We expect these expenses will
continue to grow significantly, as we pursue an aggressive growth strategy and
hire additional sales/marketing personnel.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for our executive,
administrative, finance, human resources and business development personnel,
as well as support services and professional service fees. These expenses
increased from $891,000 for the nine months ended September 30, 1997 to $2.9
million for the nine months ended September 30, 1998. For these periods,
expenses increased by $1.2 million for general and administrative personnel,
$110,000 for depreciation, $359,000 for professional fees, $250,000 for
facility costs and $6,000 for other general and administrative costs. The
increase was primarily due to increases in the number of personnel to support
and grow our business. We expect these expenses to grow as additional
personnel are hired and additional expenses are incurred. These expenses
relate to growing our business and operating as a public company.
Interest, Net. Interest income net of expense includes income from our cash
and cash equivalents and from investments and expenses related to our
financing obligations. Interest income net of interest expense increased from
an expense of $29,000 for the nine months ended September 30, 1997 to income
of $15,000 for the nine months ended September 30, 1998. The increase was
primarily due to a higher investment balance as a result of our sale of
preferred stock, which was partially offset by increased interest expense due
to borrowings on our line of credit, and increased amounts of capital lease
obligations in May and June of 1998. Currently, we invest our cash balances in
money market funds.
Inception Period and Years ended December 31, 1996 and December 31, 1997
Revenues. Revenues were $16,000 for the Inception Period, $285,000 for the
year ended December 31, 1996 and $792,000 for the year ended December 31,
1997. The increases in advertising revenues were due to an increasing number
of advertisers on our vertical trade communities and an increase in the number
of vertical trade communities.
Editorial and Operational Expenses. Editorial and operational expenses were
$24,000 for the Inception Period, $214,000 for the year ended December 31,
1996 and $1.1 million for the year ended December 31, 1997. From the Inception
Period to the year ended December 31, 1996, expenses increased by $21,000 for
Internet connection charges, $1,000 for cost of acquired content, $28,000 for
depreciation, $137,000 for salaries and benefits of operating and editorial
personnel and $3,000 for other related operating costs. From the year ended
December 31, 1996 to the year ended December 31, 1997, expenses increased by
$60,000 for Internet connection charges, $46,000 for cost of acquired content,
$224,000 for depreciation, $469,000 for salaries and benefits of operating and
editorial personnel and $12,000 for other related operating costs. Increases
were primarily related to additional personnel and equipment required to
maintain a larger number of vertical trade communities.
Product Development Expenses. Product development expenses were $22,000 for
the Inception Period, $214,000 for the year ended December 31, 1996 and
$711,000 for the year
25
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
ended December 31, 1997. From the Inception Period to December 31, 1996,
expenses increased by $68,000 for salaries and benefit costs and $124,000 for
consulting and equipment costs. From the year ended December 31, 1996 to
December 31, 1997, expenses for salaries and benefit costs increased by
$643,000 and consulting and equipment costs decreased by $146,000. This
increase in expenses was primarily due to increased staffing and associated
costs related to enhancing the features, content and services of our vertical
trade communities and increasing the overall number of trade communities.
Sales and Marketing Expenses. Sales and marketing expenses were $148,000 for
the Inception Period, $268,000 for the year ended December 31, 1996 and $2.3
million for the year ended December 31, 1997. From the Inception Period to the
year ended December 31, 1996, expenses for advertising decreased by $28,000.
Salary, commissions and benefits increased by $98,000 and travel and
entertainment expenses, including costs of attending trade shows, increased by
$50,000. From the year ended December 31, 1996 to December 31, 1997, expenses
increased by $555,000 for advertising, $1.1 million for salary, commissions and
benefits, and $329,000 for travel and entertainment expenses, including costs
of attending trade shows. These increases were primarily due to an increased
sales force and participation in additional trade shows. We expect these
expenses will continue to increase as we expand our direct sales force, hire
additional marketing personnel and increase expenditures for marketing and
promotional activities.
General and Administrative Expenses. General and administrative expenses
were $33,000 for the Inception Period, $292,000 for the year ended December 31,
1996 and$1.4 million for the year ended December 31, 1997. From the Inception
Period to December 31, 1996, expenses increased by $78,000 for salaries and
benefit costs, $28,000 for depreciation, $78,000 for professional fees, $45,000
for facility costs and $30,000 for other general and administrative costs. From
the year ended December 31,1996 to December 31, 1997, expenses increased by
$492,000 for salaries and benefit costs, $249,000 for professional fees,
$258,000 for facility costs and $209,000 for other general and administrative
costs. These increases were due primarily to increased staffing levels, higher
facility costs and professional fees to support the growth of our
infrastructure. We expect to hire additional support personnel and will incur
additional costs related to being a public company, including insurance for
directors and officers, investor relations programs and other related
professional fees.
Interest, Net. Interest income net of expense consists primarily of interest
expense on our line of credit and capital lease obligations. We incurred net
interest expense of $1,000 for the Inception Period, $6,000 for the years ended
December 31, 1996 and $115,000 for the year ended December 31, 1997. Currently,
we invest our cash balances in money market funds.
Income Taxes. As of September 30, 1998, we had approximately $12.4 million of
federal net operating loss carryforwards and $12.7 million of state net
operating loss carryforwards for tax reporting purposes to offset future
taxable income. Our federal net operating loss carryforwards expire beginning
2013 and our state net operating loss carryforwards expire beginning 2000. Due
to the change in our ownership interest in 1997 and 1998, our net operating
loss carryforwards should be subject to certain limitations or annual
restrictions. See Note 12 of Notes to the Financial Statements.
26
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
Quarterly Results of Operations
The following table sets forth certain statement of operations data for the
quarters ended March 31, 1997, June 30, 1997, September 30, 1997, December 31,
1997, March 31, 1998, June 30, 1998 and September 30, 1998. The information for
each quarter has been prepared on substantially the same basis as the audited
statements included in other parts of this prospectus and, in the opinion of
management, includes all adjustments, consisting of only normal recurring
adjustments necessary for a fair presentation of the results of operations for
such periods. Historical results are not necessarily indicative of the results
to be expected in the future, and the results of the interim periods are not
indicative of results of any future period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1997 1997 1997 1997 1998 1998 1998
--------- --------- ------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 163,263 $ 196,561 $ 190,824 $ 241,174 $ 377,371 $ 587,422 $ 897,006
Operating loss.......... (551,416) (907,733) (1,354,081) (1,850,453) (2,008,935) (2,885,803) (3,454,845)
Interest income
(expense).............. (2,778) (12,493) (13,913) (85,922) (75,934) 14,291 76,809
--------- --------- ----------- ----------- ----------- ----------- -----------
Net loss................ $(554,194) $(920,226) $(1,367,994) $(1,936,375) $(2,084,869) $(2,871,512) $(3,378,036)
========= ========= =========== =========== =========== =========== ===========
</TABLE>
Our operating results have varied on a quarterly basis during our short
operating history and may fluctuate significantly in the future. In addition,
the results of any quarter do not indicate results to be expected for a full
fiscal year. Finally, as a result of the foregoing factors, our annual or
quarterly results of operations may be below the expectations of public market
analysts or investors, in which case the market price of the common stock could
be materially adversely affected.
Liquidity and Capital Resources
Since our inception, we have primarily financed our operations through the
private placement of our preferred stock, borrowings under a line of credit
with a commercial bank and capital equipment leases. To date, we have raised
approximately $19.2 million from the sale of preferred stock. At September 30,
1998, we had approximately $3.8 million in cash and cash equivalents. We have
had significant negative cash flows from operating activities for each fiscal
and quarterly period to date. Net cash used in operating activities was $48,000
for the Inception Period, $663,000 for the year ended December 31, 1996, $3.8
million for the year ended December 31, 1997; and was $2.3 million for the nine
months ended September 30, 1997 and $6.7 million for the nine months ended
September 30, 1998. Cash used in operating activities from inception through
September 30, 1998 consisted mostly of net operating losses and increases in
accounts receivable and prepaid expenses, partially offset by increases in
deferred revenues, accrued expenses, and accounts payable.
Net cash used in investing activities was $57,000 for the Inception Period,
$64,000 for the year ended December 31, 1996, $396,000 for the year ended
December 31, 1997; and was $148,000 for the nine months ended September 30,
1997 and $2.8 million for the nine months ended September 30, 1998. Net cash
used in investing activities in these periods consisted mostly of capital
expenditures for purchased software, office equipment and leasehold
improvements. Net cash provided by financing was $136,000 for the Inception
Period, $1.0 million for the year ended December 31, 1996 and $4.6 million for
the year ended December 31, 1997; and was $2.3 million for the nine months
ended September 30, 1997 and $12.5 million for the nine months ended September
30, 1998. Cash provided by financing activities consisted primarily of sales of
our preferred stock and borrowings from Internet Capital Group and Progress
Bank,
27
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
which was partially offset by payment on our capital lease obligations. Net
cash used for acquisitions for the nine months ended September 30, 1998 was
approximately $1.9 million.
We have a line of credit with a commercial bank for $500,000. As of December
31, 1997, we were in technical default on the line of credit for failing to
meet specified financial ratios. The bank waived these covenants for the year
ended December 31, 1997. As of September 30, 1998, there were no borrowings
under the line of credit. The line bears interest at the bank's prime rate of
interest plus 1.5%. Any borrowings under the line of credit will be secured by
most of our assets.
We have several capital leases with various financial institutions for
equipment with lease terms ranging from three to five years. The interest rates
under the leases range from 8% to 20% and we are required to make monthly
payments of $27,722 under the terms of these leases.
We believe that the net proceeds from the offering, together with our
existing cash and cash equivalents, will be sufficient to meet our working
capital and capital expenditure requirements for at least the next 12 months.
Thereafter, we may be required to raise additional funds. We may also be
required to raise additional financing before such time. If additional funds
are raised through the issuance of equity securities, our existing shareholders
may experience significant dilution. Furthermore, additional financing may not
be available when needed or, if available, such financing may not be on terms
favorable to us or our shareholders. If such financing is not available when
required or is not available on acceptable terms, we may be unable to develop
or enhance our products or services. In addition, we may be unable to take
advantage of business opportunities or to respond to competitive pressures. Any
of these events could have a material adverse effect on our business, financial
condition or results of operations.
In November 1998, we issued convertible notes to Internet Capital Group and
certain holders of our Series D Preferred Stock in an aggregate principal
amount of $5.0 million. The convertible notes are required to be repaid in six
months, or upon the closing of the offering, if earlier. At each holder's
option, a holder can convert the principal balance of the convertible note into
our common stock at the initial public offering price. All holders have elected
to convert their notes into our common stock. In connection with the issuance
of the convertible notes, we granted the holders of the notes warrants to
purchase an aggregate of 82,051 shares of our common stock at the initial
public offering price.
In November 1998, we issued a note to Progress Bank in an aggregate principal
amount of $2.0 million. The note is required to be repaid in six months or upon
the closing of the offering, if earlier. In connection with the issuance of the
note, we granted Progress Capital, an affiliate of Progress Bank, warrants to
purchase 20,513 shares of our common stock at the initial public offering
price. We valued the warrants at the date of grant to Internet Capital Group
and certain holders of our Series D Preferred Stock and Progress Capital and
will amortize the cost over the period we expect the warrants to be
outstanding.
Year 2000 Compliance
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. All of the production
and operation systems for our Web
28
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
sites are undergoing a complete re-engineering. All new programs are being
tested and validated for Year 2000 compliance. We expect to resolve any Year
2000 compliance issues primarily through normal upgrades of our software or,
when necessary, through replacement of existing software with Year 2000
compliant applications. The cost of these upgrades or replacements is included
in our capital expenditure budget and is not expected to be material to our
financial position or results of operations. We estimate that our total cost
to become Year 2000 compliant will not exceed $250,000. However, such upgrades
and replacements may not be completed on schedule or within estimated costs or
may not successfully address our Year 2000 compliance issues.
In addition, we are in the process of seeking verification from our key
distributors, vendors and suppliers that they are Year 2000 compliant or, if
they are not presently compliant, to provide a description of their plans to
become so. As of January 15, 1999, we have received certification from 80% of
our distributors, vendors and suppliers that they are either Year 2000
compliant or are taking the necessary steps to become Year 2000 compliant. We
expect to receive the remaining certifications by April 30, 1999.
In the event that our production and operational facilities that support our
Web sites are not Year 2000 compliant, small portions of our Web sites may
become unavailable. Our review of our systems has shown that there is no
single application that would make our Web sites totally unavailable and we
believe that we can quickly address any difficulties that may arise.
In the event that our Web-hosting facilities are not Year 2000 compliant,
our Web sites would be unavailable and we would not be able to deliver
services to our users. If our present efforts to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, operating results and financial position could be
materially and adversely affected.
Acquisitions
In September 1998, we acquired all of the outstanding capital stock of RF
Globalnet for $1.8 million in cash. Also in September 1998, we acquired all of
the outstanding capital stock of Informatrix for 46,154 shares of our common
stock. Up to 11,538 additional shares of our common stock may be issued to
Informatrix if Informatrix achieves certain performance targets through
December 1998. See "Certain Transactions and Stock Issuances with Executive
Officers, Directors and Our Largest Shareholder." These performance targets
were met for the period ended September 30, 1998 and we will be required to
issue 2,200 additional shares of common stock pursuant to this arrangement.
The performance targets were based on selling advertisements in the period,
not the profitability of the site. The per share value was $3.32 for the
additional shares, based on the value assigned to option grants made to our
employees during the same period. The date of the issuance was October 1998.
Those Informatrix employees who remained after the acquisition are now our
employees.
We have reported pro forma results of operations as if we had consummated
the acquisition of RF Globalnet on January 1, 1997 and the acquisition of
Informatrix on October 15, 1997 (inception). The pro forma net loss for the
year ended December 31, 1997 was $5.8 million compared to the actual net loss
of $4.8 million. The increase in the net loss results from the net losses of
the acquired companies
29
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
and the pro forma amortization of the goodwill associated with the
acquisitions. The pro forma net loss for the nine months ended September 30,
1998 was $9.8 million compared to the actual net loss of $8.3 million. The
increase in the net loss is primarily related to the losses of the companies
acquired and the pro forma amortization of the goodwill associated with the
acquisitions.
On January 13, 1999, we purchased the online business, operated as safety
online, from Coastal Video Communication Corp. for $260,000 in cash and a
$50,000 note which is payable without interest no earlier than 90 days from
such date. We also provided Coastal with an advertising commitment on our Web
site, which will be subsequently valued. This Web site is used by
professionals in the safety industry.
Other Commitments
Our financial commitments for our marketing and distribution agreements with
Excite and AltaVisa are $2.3 million in 1999, $2.3 million in 2000 and $2.0
million in 2001. These agreements renew automatically unless terminated by
either party upon 30 days notice prior to the anniversary of the agreement.
Recent Accounting Pronouncements
In June 1997, Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 offers
alternatives for presentation of disclosures required by the standard. The
adoption of SFAS No. 130 will have no impact on our results of operations,
financial position or cash flows.
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 is not
expected to have an impact on our results of operations, financial position or
cash flows.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits," which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 is not expected to have an impact on our results of operations,
financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is
effective for financial statements for years beginning after December 15,
1998. Statement of Position 98-1 provides guidance over accounting for
computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of such costs. We
do not expect this standard to have a material effect on our capitalization
policy.
30
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities."
Statement of Position 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As we have
expensed these costs historically, the adoption of this standard is not
expected to have a significant impact on our results of operations, financial
position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As we do not currently engage or plan to engage
in derivative or hedging activities, there will be no impact to our results of
operations, financial position or cash flows upon the adoption of this
standard.
31
Management's Discussion and Analysis of Financial Condition and Results of
Operations
<PAGE>
OUR BUSINESS
We own and operate 33 industry-specific communities of commerce on the
Internet. These vertical trade communities are business-to-business Web sites
that act as comprehensive sources of information, interaction and electronic
commerce.
Our communities combine:
. product information;
. requests for proposals;
. discussion forums;
. electronic commerce opportunities;
. industry news;
. directories;
. classifieds;
. job listings; and
. online professional education courses.
Each vertical trade community is individually branded, focuses on one
business sector and caters to individuals with similar professional interests.
We design each of our vertical trade communities to attract professionals
responsible for selecting and purchasing highly specialized industry related
products and services.
Industry Overview
Growth of the Internet, Online Advertising and Electronic Commerce
The Internet has emerged as a mass communications and commerce medium
enabling millions of people worldwide to share information, create community
among individuals with similar interests and conduct business electronically.
International Data Corporation projects that the number of Internet users will
grow from 100 million in 1998 to 320 million in 2002. In addition to its
emergence as a mass communications medium, the Internet has features and
functions that are unavailable in traditional media, which enable online
merchants to communicate effectively with customers and advertisers to target
users with specific needs and interests.
As a result, the Internet has emerged as an attractive medium for advertising
and electronic commerce. Jupiter Communications estimates that Internet
advertising will grow from $1.9 billion in 1998 to $7.7 billion in 2002.
Forrester Research projects that business-to-business Internet advertising will
grow from $290 million in 1998 to $2.6 billion in 2002.
Along with the impressive overall growth of the Internet, business-to-
business usage is also growing rapidly, as businesses are increasingly
leveraging the Internet's ability to reach customers globally, deliver
personalized content and open new distribution channels. Forrester forecasts
that business-to-business electronic commerce will grow from $17.0 billion in
1998 to $327.0 billion in 2002. Of that amount, Forrester forecasts that the
value of goods and services purchased through online business auctions will
increase from $8.7 billion in 1998 to $52.6 billion in 2002.
Traditionally, companies have employed a variety of well-recognized media in
business-to-business advertising, information delivery and communications to
identify, qualify and facilitate commerce with customers. Veronis, Suhler &
Associates estimates that advertising and specialty media spending on the
business-to-business market was more than $70.0 billion in 1998. Business-to-
business buyers and sellers use several advertising and specialty media,
including trade magazines, trade shows, buyer's guides, direct mail, catalogs
and others. In many industries, particularly in highly specialized,
technically-oriented industries, these media have performed a role in the
distribution channel by enabling buyers and
32
Our Business
<PAGE>
sellers to meet, exchange information and ultimately conduct business with one
another.
Need for Online Vertical Trade Communities
While traditional media have historically served a valuable purpose in
facilitating commerce, information delivery, and communications between buyers
and sellers, they have inherent inefficiencies. We believe that:
. Trade magazines have limited circulation and are not published in real-time;
. Trade shows are held infrequently and are expensive for attendees and
exhibitors;
. Buyer's guides are cumbersome to search and provide limited depth of product
and vendor content;
. Direct mail responses often provide limited information about the
prospective customer; and
. Trade journal advertising can be cost prohibitive for smaller advertisers.
The Internet provides a new medium to meet the specific needs of businesses
and professionals through vertical trade communities. These communities offer
highly targeted content and services. Electronic commerce is a natural
extension of these communities which cannot be easily replicated through
traditional media.
Our Solution
Our solutions move traditional "off-line" trade services to the Internet.
Our portfolio of vertical trade communities target separate industrial sectors
to provide businesses and professionals with high quality content, community
and commerce that include the following attributes:
. Comprehensive content, services and features: The editors of our vertical
trade communities provide valuable information on products, technology,
industry regulations, news and management. We archive historical content,
enabling users to research through large databases of information. We also
operate requests for proposals and related posting and response areas.
. Active community participation: We provide features and services such as
"Ask the Expert," discussion forums, chat rooms, bulletin boards and career
centers, all of which foster active community participation among our users.
We believe active community participation creates loyalty and affinity among
our users.
. Targeted cost-effective medium for business-to-business advertising: The
narrow focus of our communities and the attractive demographics of our
audiences permit us to command premium advertising rates. Comparative
statistics show that advertisers pay more for targeted ads than for general
ones. We also attract small to mid-sized advertisers due to our cost-
effective advertising reach and highly targeted user base.
. High quality sales leads: Our communities generate high quality sales leads
that are timely and effective and contain detailed buyer information. Robust
sales leads left by buyers allow sellers to respond more effectively.
. Connects buyers and sellers globally: Vertical trade communities provide an
online market place that we believe will allow buyers and sellers worldwide
to exchange information, source products and execute online transactions.
We believe that targeted content, focused audiences and robust sales leads,
combined with our interactive platform, create a premier market place for
electronic commerce.
33
Our Business
<PAGE>
Our Strategies
Our objective is to be the leading owner and operator of industry specific
communities of commerce. Key strategies to achieve our objective include:
Expand User Base and Enhance User Experience with New Features, Services and
Content
We intend to continue increasing the number of users that visit each
community by:
. introducing additional services and features that appeal to the specific
needs of professionals using the Internet;
. continuing to direct users to our vertical trade communities through
marketing relationships with search engine providers;
. providing professionals the opportunity to buy products online that satisfy
their product-sourcing needs; and
. creating brand awareness through industry trade shows, conferences,
advertising campaigns with trade publications and alliances with important
industry trade associations.
As our user base grows, we anticipate advertisers and suppliers will find our
vertical trade communities an attractive cost-effective medium for advertising
and sales.
Establish and Expand Multiple Revenue Streams
. Advertising. To date, most of our revenues have been derived from selling
storefronts to the industry suppliers to our communities. We also have sold,
and intend to grow our sales of, banner advertisements and newsletter
sponsorships delivered by e-mail. For the nine months ended September 30,
1998, we generated approximately 96% of our revenues from the sales of
storefronts, banner advertisements and sponsorships.
. Electronic Commerce. We believe that electronic commerce is a natural
extension of our vertical trade communities. Revenues from electronic
commerce differ from advertising based revenues because they depend on a
purchase being completed over the Internet. We expect to generate electronic
commerce revenues by receiving a transaction fee for products sold in our
communities. Transaction fees are typically paid by the supplier.
In addition, we expect to pursue electronic commerce opportunities through
marketing relationships with retailers and service providers focused on
product distribution. For example, we currently sell books and software in our
communities where we receive credit for the sale less amounts owed to the
distributor. For the nine months ended September 30, 1998, we generated
approximately 2% of our revenues from electronic commerce. See "Risk Factors--
We May Not Develop Additional Revenue Sources."
. Career Services. We sell sponsorships in our career center and charge
employers to post help wanted advertisements. We believe recruiters and
employers specializing in each industry are natural advertisers and sponsors
in this area. For the nine months ended September 30, 1998, we generated less
than 1% of our revenues from the sale of career services.
. Education. We have partnered with content providers for various engineering
courses, and are paid a transaction fee for every student taking the course.
With the
acquisition of RF Globalnet, we acquired technology that allows professionals
to complete educational courses over the Internet. We are in the process of
using this technology on other vertical trade communities and expect to form
partnerships
34
Our Business
<PAGE>
with courseware providers for industry professionals. For the nine months
ended September 30, 1998, we generated approximately 1% of our revenues from
education.
Continue to Identify and Rapidly Develop New Vertical Trade Communities
We intend to expand our portfolio by building and launching new vertical
trade communities in industry segments that we believe possess significant
opportunities for advertising and electronic commerce.
We determine whether or not a potential vertical trade community fits our
strategy by looking for specific industry characteristics including:
. a substantial number of buyers and suppliers;
. a high degree of fragmentation on both the supply and demand sides;
. defined target audiences (e.g. chemical engineers) with similar product and
informational needs;
. meaningful growth in trade advertising spending;
. significant new product introductions;
. online access;
. growth in trade show attendance; and
. international components both on the buyer and supplier side.
Leverage the Benefits of a Portfolio Approach
We believe that operating a portfolio of vertical trade communities permits
us to:
. offer a comprehensive, consistent set of services and features;
. attract a large business-to-business audience, in aggregate, making our
individual sites appealing to a broad array of advertisers and electronic
commerce suppliers; and
. realize cost savings and operating efficiencies in our technology, marketing,
infrastructure and management resources.
Form Marketing and Distribution Alliances for Distribution, Technology, and
New Services
To extend our vertical trade community brands and increase visits to our Web
sites, we intend to form additional marketing and distribution alliances with
search engine providers and other distribution partners.
Pursue Strategic Acquisitions
We intend to pursue acquisitions of companies that operate vertical trade
communities which would fit into our portfolio. Companies considered for
acquisition are evaluated based on the criteria outlined above under "Continue
to Identify and Rapidly Develop New Vertical Trade Communities." However, we
may also acquire other companies with complementary communities or technologies
such as electronic commerce solutions or other Web-based technologies.
Presently, we are not contemplating any specific acquisitions.
Expand Globally
We believe that the anticipated growth of Internet usage internationally
presents significant opportunities to extend the global reach of our
communities. For the nine months ended September 30, 1998, more than 25% of the
visits to our vertical trade communities originated outside the United States.
As is shown by their usage levels, international users represent significant
opportunity to our domestic advertisers, providing both sources of leads and,
eventually, purchasers of their products and services. Our vertical trade
communities also provide foreign advertisers access to our targeted audience in
the United States. We intend to expand globally by pursuing strategic
partnerships.
35
Our Business
<PAGE>
Our Vertical Trade Communities
As of January 12, 1999, we had established 33 vertical trade communities that
target the industries identified beneath each community:
Process Group
chemical online ( chemicalonline.com)
Manufacturing and Processing Chemicals
semiconductor online (semiconductoronline.com)
Applications, Manufacturing and Processing of Semiconductor Components
hydrocarbon online (hydrocarbononline.com)
Processing Hydrocarbons and Petrochemicals
pharmaceutical online (pharmaceuticalonline.com)
Development, Design and Manufacturing of Pharmaceuticals
adhesives and sealants online (adhesivesandsealants.com)
Manufacturing and Production of Adhesive, Sealant, and Grout Materials
food online (foodonline.com)
Manufacturing and Processing of Food Products
oil and gas online (oilandgasonline.com)
Production and Exploration of Oil and Gas
paint and coatings online (paintandcoatings.com)
Manufacturing and Production of Paint Coatings, Inks and Thick Film Printable
Conductors
Communications Group
fiber optics online (fiberopticsonline.com)
Design and Production of Fiber Optic Networks and Network Components
photonics online (photonicsonline.com)
Design and Manufacturing of Lasers, Optics, Optoelectronics, Fiber Optics and
Imaging Devices
RF Globalnet (rfglobalnet.com)
Information, Bookstore and Educational Center for Radio Frequency, Wireless and
Microwave Engineers
premises networks.com (premisesnetworks.com)
Facilities and Network Infrastructure Design and Administration
wireless design online (wirelessdesignonline.com)
Design and Development of Wireless Communications Systems and Equipment
Electronics Group
computerOEM online (computeroemonline.com)
Design and Manufacturing of Computers and Computerized Electronics Devices
medical design online (medicaldesignonline.com)
Design, Manufacturing and Procurement of Medical Devices
plant automation.com (plantautomation.com)
Hardware and Software Used in Industrial Manufacturing Including Robotics and
Automated Control Systems
test and measurement (testandmeasurement.com)
Design, Manufacturing and Procurement of Test, Measurement, Data Acquisition,
Data Analysis and Instrumentation Equipment
36
Our Business
<PAGE>
Environmental Group
pollution online (pollutiononline.com)
Industrial Pollution Control
public works online (publicworks.com)
Services Public Works and Municipal Maintenance Professionals
water online (wateronline.com)
Municipal Water Supply and Municipal and Wastewater Treatment
power online (poweronline.com)
Power generation, Electric Utility Deregulation, Emissions Control, Alternative
Fuels, Power Industry Legislation
solid waste online (solidwaste.com)
Disposal of Solid Waste
pulp and paper online (pulpandpaperonline.com)
Manufacturing, Processing and Treatment of Pulp and Paper
Food & Packaging Group
bakery online (bakeryonline.com)
Production and Procurement of Baking Ingredients
beverage online (beverageonline.com)
Production and Procurement of Equipment used in the Production of Beverages
dairy network.com (dairynetwork.com)
Production, Procurement and Distribution of Dairy Products
food ingredients online (foodingredientsonline.com)
Manufacturing and Processing of Food Ingredients
meat and poultry online (meatandpoultryonline.com)
Production, Procurement and Distribution of Meat and Poultry Products
packaging network.com (packagingnetwork.com)
Production, Purchase, Design and Marketing of Packaging for all Consumer and
Industrial Products
Sciences Group
bioresearch online (bioresearchonline.com)
Provides information on Drug Discovery, Research and Development, University
Industry Collaborations and Regulatory Issues Relating to Worldwide Bioresearch
and Life Sciences
laboratory network.com (laboratorynetwork.com)
Production and Manufacturing of Laboratory Equipment, Chemicals and Supplies
Services Group
property and casualty.com (propertyandcasualty.com)
Property and Casualty Insurance
safety online (safetyonline.com)
Industrial and Environmental Safety
37
Our Business
<PAGE>
Listed below is a selection of features of a vertical trade community which
correspond to the home page illustrated on the opposite page. Most of the
services listed below are available in each community.
1 Marketplace: Shopping resource containing books, software and video products.
Professionals are able to purchase these products over the Internet.
2 Online Buyer's Guide and Search Engine: Comprehensive buyer's guide fully
searchable by product name and supplier. In response to a key word search,
companies serving the industry are listed with storefront advertisers
presented first. Links to company storefronts allow users to research
advertisers' products and services, and send direct inquiries to advertisers
about pricing, delivery and product specifications (i.e., ultimately submit
sales leads).
3 News & Analysis: Current news and commentary by the vertical trade
community's editorial team. Includes feature articles and product case
studies; daily update of press releases and news stories targeted to each
respective industry.
4 Product Center: Comprehensive resource for industry professionals with
information on the latest products in the industry. Site editors act as third
parties with objective analysis of products and their uses.
5 Community: Suite of interactive features: real-time discussion forums for
industry professionals; bulletin boards; trade show information and other
useful industry events.
6 Resources: "Freeware" and demo-software download library and industry
association guides.
7 Career Center: Resume postings for job seekers, help-wanted listings and
career support material.
8 Requests for Proposals/Quotations/Bids: Internationally posted projects open
to bid.
Recent Enhancements
We have created a series of products and services for users of our vertical
trade communities.
Education/Training: We offer a series of products in the continuing
professional education, licensing/certification maintenance, and skills upgrade
markets, specifically:
. online courses/courseware: books, software, focused content and research
available for use or purchase in conjunction with courses offered by third
party vendors; and
. company-specific: customized intranet or extranet-based educational/training
services for specific clients by vertical trade community.
Career Center: Career centers currently active on each of our vertical trade
communities include such services as: resume bundling, e.g., selling or
offering certain groups of candidate types to specific employers for a fee, and
career planning/assistance, e.g., market reports on companies a candidate is
investigating, resume software, salary surveys, etc.
"Push" Newsletters: We offer subscription-based e-mail services with specific
content focus. Subscribers are able to receive e-mail-based newsletters on
topics of interest to them.
38
Our Business
<PAGE>
Features of Our Vertical Trade Communities
[GRAPHIC SHOWING CHEMICAL ONLINE HOMEPAGE]
39
Our Business
<PAGE>
Planned and Expanded Services
We plan to offer and expand the following services:
Electronic Commerce: As part of our long term strategy, we plan to increase
our commerce-related services for our advertisers and users of our vertical
trade communities, specifically:
. online stores: through simple-to-use store creation software we plan to
offer any current or future advertiser an interactive platform to sell
certain products in easy to manage environments;
. catalog-platforms: we plan to work with current and future advertisers as
well as industry-specific distributors to create and populate Internet-based
catalogs;
. classifieds: we plan to launch classified sections in each vertical trade
community listing individual products and a path to the specific seller; and
. auctions: we plan to launch online industrial auctions for each vertical
trade community. We expect that new and used equipment will be listed for
bid.
E-mail Service: We plan to offer free e-mail accounts to users/registrants
in each vertical trade community. We expect that the actual address will be
indicative of the specific vertical trade community (e.g.,
[email protected]). We believe that this service will be provided by a
third-party partner, and will be supported by the sale of advertising on the e-
mail pages.
Features of Our Storefronts
The following are descriptions of the features of a typical advertiser's
storefront which correspond to the boxes on the storefront on the opposite
page.
1 Corporate Profile: Information on advertiser's background and overview of
its products.
2 Contact Us: Enables buyers and specifiers to request further information via
e-mail. Requests are often regarded as sales leads by advertisers. Requests
are typically for product pricing and other inquiries about advertisers'
products.
3 Career Center: Advertisers list open employment opportunities.
4 Purchase Online: Advertisers with electronic commerce capabilities sell
their products online.
5 Associated Articles: Feature articles, case studies and other informational
materials about the advertiser.
6 Product Releases/More Products: New product announcements.
7 Press Releases: Advertiser-issued press releases.
8 For more ...: Hyperlinked gateway into advertiser's Web site.
Our Virtual Office
Our Virtual Office feature offers storefront advertisers the ability to
monitor and evaluate storefront activity. Advertisers can track the number of
visitors and leads generated from a storefront or banner advertisement. Virtual
Office also serves as an inquiry management tool for advertisers.
40
Our Business
<PAGE>
[GRAPHIC SHOWING THE FEATURES OF OUR STOREFRONTS]
41
Our Business
<PAGE>
Case Studies of Three Vertical Trade Communities
Set forth below is certain information about three of our fastest growing
vertical trade communities based on unique visits:
Water Online (www.wateronline.com)
Target Audience: Engineers and environmental managers in the water and
wastewater industry in the United States and around
the world.
History: Our first vertical trade community, launched in
October 1995; currently, the largest Internet
community for the water and wastewater industry.
Editorial Director: Ian Lisk has two decades of experience as editor of
two of the industry's trade publications.
<TABLE>
<CAPTION>
For the Month of
December
1998
Usage and Advertising Statistics: ----------------
<S> <C>
. Unique Visits: 70,915
. Storefront Advertisers: 246
. Sales Leads: 2,744
</TABLE>
Chemical Online (www.chemicalonline.com)
Target Audience: Engineers and environmental managers in the chemical
processing industry in the United States and around
the world.
History: Our fourth vertical trade community, launched in May
1997; currently, the largest Internet community for
the chemical processing industry.
Editorial Director: Nick Basta has 17 years of experience as editor with
McGraw Hill's Chemical Engineering magazine.
<TABLE>
<CAPTION>
For the Month of
December
1998
Usage and Advertising Statistics: ----------------
<S> <C>
. Unique Visits: 60,016
. Storefront Advertisers: 161
. Sales Leads: 3,708
</TABLE>
42
Our Business
<PAGE>
Wireless Design Online (www.wirelessdesignonline.com)
Target Audience: Engineers and business managers involved in the
design of wireless electronic components in the
United States and around the world.
History: Our tenth vertical trade community, launched in
September 1997.
Managing Editor: Rob Keenan, formerly associate editor with Penton
Publishing's Wireless System Design.
<TABLE>
<CAPTION>
For the Month of
December
1998
Usage and Advertising Statistics: ----------------
<S> <C>
. Unique Visits: 37,766
. Storefront Advertisers: 34
. Sales Leads: 1,400
</TABLE>
----------------
Visitor traffic information is provided by our Web server log files. Unique
visits are defined as the number of times individuals accessed our Web sites
during the month. In December 1998, our Web sites attracted approximately
650,000 unique visits.
For the Inception Period and the years ended 1996 and 1997, water online was
the only vertical trade community that accounted for more than 15% of our
revenues. Water online represented 100% of our revenues for the Inception
Period and the year ended 1996, and 40% of our revenues for the year ended
1997. For the year ended December 31, 1998, water online was the only vertical
trade community to account for more than 15% of our revenues, accounting for
20% of the revenues for such period.
Marketing and Distribution Alliances
We have recently entered into the following alliances:
Excite Agreement
We have entered into a three-year renewable sponsorship agreement with
Excite, a leading Internet navigational service provider, to build and operate
an industrial "channel" on the Excite service for each of up to 30 of our
vertical trade communities. These channels are highlighted summaries of much of
the content and features of the home page of each of our vertical trade
communities, and provide a preview of the content and services offered on each
vertical trade community. For an annual fee, Excite will deliver guaranteed
minimum performance levels for exposures (or impressions) in each year. As part
of the Excite agreement, we and Excite have committed to provide advertising on
each others' Web sites.
Junglee Agreement
We have an agreement with Junglee Corp., a subsidiary of Amazon.com, which
allows our visitors to utilize Junglee's technology in order to easily compare
product price and features from various suppliers and complete transactions
online. As part of the agreement, we share in both advertising revenues and
transaction fees generated from the Junglee Marketplace.
AltaVista Agreement
We recently entered into a renewable one year agreement with AltaVista, a
leading search engine company, to develop at least thirty-one co-branded Web
sites. AltaVista has guaranteed us minimum levels of visits to our Web sites in
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Our Business
<PAGE>
exchange for an annual fee. In addition, advertising revenues generated from
the co-branded Web sites will be shared between us and AltaVista.
Other Relationships--Motorola
In October 1998, we entered into an agreement with Motorola pursuant to which
we provide intranet-based educational services to engineers at Motorola. The
content in our course portfolio is available via the Internet and/or Motorola's
corporate intranet to authorized students registered by Motorola. The contract
requires Motorola to purchase from us pre-defined minimum education services.
The contract expires on June 30, 1999.
Customers
As of December 31, 1998, approximately 700 companies, who have purchased
approximately 1,300 storefronts, advertised in one or more of our vertical
trade communities.
As of December 31, 1998, our customers included:
Asea Brown Boveri Ltd.
Bailey-Fisher & Porter
BetzDearborn Inc.
Calgon Corporation
Canon U.S.A., Semiconductor
Culligan Water Technologies, Inc.
Dresser Instruments Division
Rosemont Analytical
FMC Corporation
Hewlett-Packard Company
Ionics, Incorporated
ITT Standard
Koch Industries
Milltronics, Inc.
Motorola, Inc.
Nokia Group, Inc.
Osmonics, Inc.
Richardson Electronics, Ltd.
Schlumberger Industries
Siemens Microelectronics, Inc.
U.S. Filter
Waterlink
Wheelabrator Air Pollution Control, Inc.
Zurich-American Insurance Group
For the years ended December 31, 1996, December 31, 1997 and the nine months
ended September 30, 1998, no single customer accounted for more than 10% of our
revenues.
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Our Business
<PAGE>
Sales and Marketing
Sales and Distribution
We use a variety of programs to stimulate demand for our products, including
telesales, a direct sales force and reseller arrangements with advertising
agencies.
Direct Sales. Our direct sales force targets organizations that sell the
products and services that are utilized and purchased by the professionals that
visit our vertical trade communities. As of December 31, 1998, we had 44 direct
sales and support personnel. We often employ individuals with a background in
advertising sales with trade publishing companies.
Telesales. We currently maintain an in-house telesales group for use in
customer prospecting, lead generation and lead follow-up. As of December 31,
1998, we had 15 people in our telesales group and we are expanding the products
sold by the group, such as job listings and banner advertisements.
International. We intend to market our products and services to international
markets directly over the Internet, as well as through resellers and affiliate
relationships. Currently, we derive less than 3% of revenues from international
customers. For the nine months ended September 30, 1998, more than 25% of the
visits to our vertical trade communities originated outside the United States.
We believe that the large percentage of international users are attractive to
advertisers who want to reach customers globally. See""--Our Strategies--
Establish and Expand Multiple Revenue Streams."
Marketing
We use a variety of marketing programs to increase brand awareness. Our
marketing goals are to create and enhance the awareness of each branded
vertical trade community as a destination for professionals in each industry
sector and to promote the VerticalNet brand with suppliers, media buyers, and
interactive services companies. Our marketing strategy for each contains a mix
of print advertising, outbound e-mail, telemarketing, new media banner
campaigns, trade shows and direct mail. We also participate in industry
specific events, industry association activities and partnerships with
interactive services companies. We believe that forming strategic marketing and
distribution alliances with partners in the Internet, print publishing and
industry associations will be important for rapid market penetration.
Technology
We have developed and implemented a broad array of technologies including
site management, search, customer interaction and transaction processing
systems using a combination of our own proprietary technologies and
commercially available, licensed technologies. For example, we recently
developed an application available on our Web sites which allows our clients to
track the success of their advertising campaigns. We also developed an
application using the Microsoft Site Server Suite of development tools which
allows clients to sell products over the Internet. Our current strategy is to
license commercially available technology whenever possible rather than seek
internally developed systems.
Scalability. The scalable structure of our hardware and software is designed
to allow for rapid deployment of multiple vertical trade communities while
maintaining desired user performance standards. In the rapidly changing
Internet environment, the ability to update an application to stay current with
new technologies is important. The system's template technology and generic
database design allow for the addition, modification, or replacement of Web
site based applications in a cost-efficient and expeditious manner.
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Our Business
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Reliability and Security. We use CheckPoint's Firewall-1 software to protect
our Web servers. We also use Netscape software as our Web server. Our
production machines are located at Exodus Communications Inc. and at Icon CMT
Corp., which provide professional data center hosting facilities and redundant
high-speed Internet connectivity. Exodus and Icon provide monitoring and
support 24 hours a day, seven days a week supplementing our system
administrators.
We have developed our own content and Web site management tools to facilitate
the maintenance and updating of our vertical trade communities. Our Web site
management tools allow our editors to update our Web sites from remote
locations throughout the day.
Proprietary Rights
Proprietary rights are important to our success and our competitive position.
To protect our proprietary rights, we rely generally on copyright, trademark,
and trade secret laws, confidentiality agreements with employees and third
parties, and license agreements with consultants, vendors, and customers.
Despite such protections, a third party could, without authorization, copy or
otherwise appropriate information from our vertical trade community sites. Our
agreements with employees, consultants and others who participate in
development activities could be breached, we may not have adequate remedies for
any breach, and our trade secrets may otherwise become known or independently
developed by competitors.
We rely upon license agreements for the majority of our content and
technology. Such license agreements may not continue to be available to us on
acceptable terms, or at all. We do not, however, believe that we are dependent
upon any single licensor of technology or content.
We have applied for numerous trademarks, none of which have been issued to
date. We currently have two pending applications for trademarks. Generally, we
cannot protect our Web addresses for our vertical trade communities as
trademarks due to the fact that they are too generic. The laws of some foreign
countries do not protect our proprietary rights to the same extent as do the
laws of the United States, and effective copyright, trademark and trade secret
protection may not be available in such jurisdictions.
There have been substantial amounts of litigation in the computer industry
regarding intellectual property assets. Third parties may claim infringement by
us with respect to current and future products, trademarks or other proprietary
rights, or we may counterclaim against such parties in such actions. Any such
claims or counterclaims could be time-consuming, result in costly litigation,
diversion of management's attention, cause product release delays, require us
to redesign our products or require us to enter into royalty or licensing
agreements, any of which could have a material adverse effect upon our
business, financial condition and operating results. Such royalty and licensing
agreements, if required, may not be available in terms acceptable to us, or at
all.
Government Regulations and Legal Uncertainties
We are subject to various laws and regulations relating to our business. Few
laws or regulations are currently directly applicable to access to the
Internet. However, because of the Internet's popularity and increasing use, new
laws and regulations may be adopted. Such laws and regulations may cover issues
such as:
. user privacy;
. pricing;
46
Our Business
<PAGE>
. content;
. copyrights;
. distribution; and
. characteristics and quality of products and services.
In addition, the growth of the Internet and electronic commerce, coupled with
publicity regarding Internet fraud, may lead to the enactment of more stringent
consumer protection laws. These laws may impose additional burdens on our
business. The enactment of any additional laws or regulations may impede the
growth of the Internet, which could decrease our potential revenues from
electronic commerce or otherwise adversely affect our business, financial
condition and operating results.
Laws and regulations directly applicable to electronic commerce or Internet
communications are becoming more prevalent. The most recent session of Congress
enacted Internet laws regarding on-line copyright infringement. Although not
yet enacted, Congress is considering laws regarding Internet taxation. The
European Union recently enacted new privacy regulations. These are all recent
enactments, and there is uncertainty regarding their marketplace impact. In
addition, various jurisdictions already have enacted laws that are not
specifically directed to electronic commerce but that could affect our
business. The applicability of many of these laws to the Internet is uncertain
and could expose us to substantial liability. Any new legislation or regulation
regarding the Internet, or the application of existing laws and regulations to
the Internet, could materially adversely affect us. If we were alleged to
violate federal, state or foreign, civil or criminal law, even if we could
successfully defend such claims, it could materially adversely affect us.
We believe that our use of third party material on our vertical trade
communities is permitted under current provisions of copyright law. However,
because legal rights to certain aspects of Internet content and commerce are
not clearly settled, our ability to rely upon exemptions or defenses under
copyright law is uncertain.
Several telecommunications carriers are seeking to have telecommunications
over the Internet regulated by the Federal Communications Commission in the
same manner as other telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to regulate
Internet service providers and online service providers in a manner similar to
long distance telephone carriers and to impose access fees on such providers.
If either of these petitions are granted, the costs of communicating on the
Internet could increase substantially. This, in turn, could slow the growth of
use of the Internet. Any such legislation or regulation could materially
adversely affect our business, financial condition and operating results.
Competition
The market for vertical trade communities is new and rapidly evolving.
Competition for advertising, electronic commerce and business users is intense
and is expected to increase significantly in the future. Technological barriers
to entry are relatively insubstantial. We believe that the principal
competitive factors for companies seeking to create vertical trade communities
on the Internet are targeted advertising, services and features, real-time
information access, quality sales leads, detailed user information, global
reach and business user affinity and loyalty. Several companies are primarily
focused on operating business-to-business trade communities on the Internet,
but
47
Our Business
<PAGE>
most existing online competition is ancillary to the traditional business of
trade publishers, industry and trade associations and directory companies. We
will likely face intensified competition in the future from traditional trade
publishers, such as McGraw Hill and Reed Elsevier, directory registry
companies, such as Thomas Register, as well as from Internet search engine
companies, trade associations and electronic commerce technology suppliers.
Further, our potential competitors may develop vertical trade communities that
are equal or superior to ours. We also compete with traditional forms of
business-to-business advertising and commerce, such as trade magazines, trade
shows, and trade associations for advertisers and advertising revenue. We
believe that the principal competitive factors in attracting advertisers
include the demographics of our users, our ability to offer targeted audiences
and the overall cost-effectiveness of the advertising medium offered by us. We
believe that the number of business-to-business Internet companies relying on
Internet-based advertising revenue will increase greatly in the future, which
would increase pricing pressure on our advertising rates.
Employees
As of December 31, 1998, we had 187 full-time employees. We consider our
relationships with our employees to be good. None of our employees are covered
by collective bargaining agreements.
Properties
Our corporate headquarters are located at 2 Walnut Grove Drive in an office
facility in Horsham, Pennsylvania, where we lease approximately 13,343 square
feet under a lease that expires February 1, 2001. We also maintain a sales and
editorial office in Parsippany, New Jersey, under a lease that expires July 15,
1999. We also lease a small corporate facility in Washington, D.C. under a
lease that expires April 14, 2000 and a sales and editorial office in
Deerfield, Illinois under a lease that expires July 31, 2001. We also lease a
corporate office for RF Globalnet in Boulder, Colorado, under a lease that
expires February 28, 1999.
We maintain most of our computer systems in two Web-hosting facilities in New
Jersey. For our Web-hosting facilities, we entered into a one year services
agreement with Exodus on July 31, 1998 and an agreement with Icon CMT Corp on
July 1, 1997. The Exodus agreement automatically renews for additional one year
terms unless terminated by prior written notice. We expect that we will allow
the Icon agreement to expire this year by its terms.
Legal Proceedings
We are not a party to any material legal proceedings.
48
Our Business
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
Directors and Executive
Officers
-----------------------
<S> <C> <C>
Mark L. Walsh............. 44 President, Chief Executive Officer and
Director
Senior Vice President, Co-Founder and
Michael J. Hagan.......... 36 Director
Michael P. McNulty........ 35 Senior Vice President, Co-Founder
Barry E. Wynkoop.......... 47 Senior Vice President
Gene S. Godick............ 33 Vice President and Chief Financial Officer
Blair LaCorte............. 35 Senior Vice President
Mario V. Shaffer.......... 36 Vice President of New Business Development
Douglas A. Alexander...... 37 Chairman of the Board and Director
Jeffrey C. Ballowe........ 43 Director
Walter W. Buckley, III.... 38 Director
Matthew J. Warta.......... 29 Director
<CAPTION>
Key Employees
-------------
<S> <C> <C>
C.H. Low.................. 38 Vice President and Chief Technology Officer
George Jankovic........... 31 Vice President of Product Development
Nicholas Basta............ 44 Vice President of Editorial Services
Christopher G. Kuhn....... 47 General Counsel
</TABLE>
Mark L. Walsh has served as our President and Chief Executive Officer and as
one of our directors since August 1997. Prior to joining us, he was a Senior
Vice President and corporate officer at America Online, Inc. from 1995 to 1997.
He founded and managed AOL Enterprise, the business-to-business division of
AOL. Prior to his position with AOL, Mr. Walsh was the President of GEnie,
General Electric's online service from 1994 to 1995. He also was the President
of Information Kinetics, Inc., a venture capital backed interactive information
company focusing on the recruitment and classified advertising market from 1993
to 1994. He received his MBA from Harvard Business School and B.A. from Union
College of Schenectady, N.Y. He is the past chairman of the Interactive
Services Association. Mr. Walsh was a board member of the Information Industry
Association, a 500 member-company trade group for the business information
market.
Michael J. Hagan co-founded VerticalNet in 1995 and currently serves as our
Senior Vice President of Merger and Acquisitions and Product Development. He
also serves as one of our directors. Prior to our founding, Mr. Hagan was Vice
President and Senior Manager at Merrill Lynch Asset Management from 1990 to
1995. He served at Merrill Lynch in the areas of finance, technology and
accounting. Prior to that time, Mr. Hagan worked for Bristol Myers Squibb from
1988 to 1990. Mr. Hagan received a B.S. from St. Joseph's University and is a
Certified Public Accountant.
Michael P. McNulty co-founded VerticalNet in 1995 and currently serves as our
Senior Vice President of Audience Development. Prior to 1995, Mr. McNulty
worked from 1985 to 1995 in the trade publishing industry. He held both sales
and sales management positions for the Raben Publishing Company, Scranton
Gillete Communications, and the PennWell Publishing Company. Mr. McNulty
received a B.S. from St. Joseph's University.
49
Management
<PAGE>
Barry E. Wynkoop has served as our Senior Vice President of Sales and Market
Development since August 1998. Prior to joining us, Mr. Wynkoop worked for Bell
Atlantic Corporation. From 1993 to 1998 he was the Vice President of Marketing,
National Accounts and Customer Services, for Bell Atlantic Directory Services,
Inc. From 1991 to 1993, he was the Vice President and General Manager of Bell
Atlantic Mobile Services, Inc.'s New England division. Mr. Wynkoop served as
the General Manager for U.S. Sales for the GEC Business Systems Group of
General Electric Company plc, from 1986 to 1991. From 1983 to 1986, Mr. Wynkoop
served as the Vice President of U.S. Operations for Krone GmbH, a West German
telecommunications manufacturer, and from 1973 to 1983 he held several
positions, ultimately becoming Director of Marketing from 1979 to 1983, for
Phelps Dodge Corporation, an industrial copper mining and fabricating company.
Mr. Wynkoop received a B.A. from Iona College, and graduated from the Program
for Management Development at the Harvard Business School.
Gene S. Godick has served as our Vice President of Finance and Chief
Financial Officer since June 1998. Prior to joining us, he worked from 1997
until 1998 as a senior manager at KPMG LLP, where he worked in their
information, communications and entertainment practice, with a focus on high
technology companies. During 1997, prior to joining KPMG LLP, Mr. Godick
provided consulting services advising companies on financing and turnaround
strategies. Prior thereto, Mr. Godick served as CFO of Industrial Construction,
Inc., a privately owned environmental remediation firm, from 1994 until 1996,
and as President and CFO of Industrial from 1996 until 1997. Industrial filed
for Chapter 7 bankruptcy in May 1997 after failing to achieve profitability or
generate enough cash to continue operations. From 1987 until 1994, Mr. Godick
was an accountant and manager for Arthur Andersen LLP's Enterprise Group, which
provided services to emerging growth companies in high technology,
biotechnology and software. Mr. Godick also serves on the board of directors of
Novasoft Information Technology Corp. Mr. Godick received a B.S. from Villanova
University and is a Certified Public Accountant.
Blair LaCorte has served as our Senior Vice President of Strategy and
Electronic Commerce since January 1999, and has been a consultant for us since
October 1998. From 1997 to 1998, Mr. LaCorte was the President of the Internet
Technology Group and Senior Vice President of Partnerships at CADIS Inc., a
software company specializing in electronic commerce and procurement in
business-to-business markets. From 1993 to 1997 Mr. LaCorte held positions at
Autodesk where he founded three divisions, the last of which was Autodesk Data
Publishing, an electronic business-to-business publisher of engineering
graphics for design and procurement. Prior to his employment with Autodesk,
from 1992 to 1993 Mr. LaCorte was Manager of Worldwide Strategy and Market
Planning for Sun Microsystems, and a Senior Consultant at Gemini Consulting
specializing in process engineering. In 1996, Mr. LaCorte was named one of the
top ten business-to-business marketers of the year by Business Marketing and
Advertising Age. He received a B.A. from the University of Maine, holds a FMP
degree from General Electric and an MBA from the Amos Tuck School at Dartmouth
College.
Mario V. Shaffer has served as our Vice President of New Business Development
since May 1998. From 1995 to 1998 he served as Group Director of Marketing and
Business Development at AOL where he was responsible
50
Management
<PAGE>
for membership marketing and strategic relationships. Previously, Mr. Shaffer
was Vice President of ContentWare, Inc. From 1992 to 1994, he was Director of
Business Development of EON Corporation and from 1988 to 1992 he was regional
sales manager of RR Donnelley Financial. Mr. Shaffer received a B.A. from the
College of William and Mary.
Douglas A. Alexander has served as one of our directors since September 1996
and has served as the Chairman of the Board since 1997. Mr. Alexander is a
Managing Director of Internet Capital Group. He co-founded Reality Online, Inc.
in 1986 and later sold it to Reuters in 1994. Reality Online developed
financial planning tools and online services aimed at the individual investor
and then later became a provider of Internet solutions to the retail brokerage
industry. Prior to co-founding Reality Online, Mr. Alexander was a partner with
Strategic Management Group, a corporate training firm. Mr. Alexander sits on
the boards of several Internet companies including DejaNews, Linkshare, and
SageMaker. Mr. Alexander was also chairman of WiseWire, which was sold to
Lycos, Inc. in April 1998. Mr. Alexander received a B.A.S. from the University
of Pennsylvania and B.S. from the Wharton School of Business.
Jeffrey C. Ballowe has served as one of our directors since July 1998. Mr.
Ballowe retired at the end of 1997 from Ziff-Davis, Inc., where during his 11
years at the company he worked to transform Ziff-Davis into an international,
integrated media company. At Ziff-Davis he held several magazine publishing
roles, including Publisher of PC Magazine and a number of corporate posts in
which he was responsible for establishing Ziff-Davis's European operations,
managing Ziff-Davis's largest magazine group, launching Ziff-Davis's Internet
publications, creating ZDNet, and launching ZDTV. At his retirement he was
President, Interactive Media and Development Group, in charge of Ziff-Davis's
Internet publications, ZDNet, ZDTV, and all development at the company. His
development activities included spearheading Ziff-Davis's and Softbank's
investments in Yahoo!, USWeb, Gamespot, and Herring Communications. Prior to
joining Ziff-Davis, Mr. Ballowe worked as a marketing executive at various
technology and marketing services companies. Currently Mr. Ballowe is Chairman
of DejaNews, Inc. and serves as a director on the boards of USWeb,
Personalogic, Inc. and Xoom.com, Inc. He received an MBA from the University of
Chicago, a master's degree from the University of Wisconsin-Madison and a
bachelor's degree from Lawrence University.
Walter W. Buckley, III has served as one of our directors since 1996. Mr.
Buckley is a co-founder and the President and CEO of Internet Capital Group.
Prior to co-founding Internet Capital Group, Mr. Buckley worked for Safeguard
Scientifics, Inc. as Vice President of Acquisitions. Prior to joining
Safeguard, Mr. Buckley was President and co-founder of Centralized Management
Systems, Inc., a medical supply company, which was sold in 1987. Prior thereto,
he was a commercial loan officer at CoreStates Bank, N.A. Mr. Buckley sits on
the boards of Internet Capital Group, Sky/Alland Marketing, Who? Vision
Systems, Inc., Syncra Software, Inc. and e-Chemicals, Inc. Mr. Buckley received
his B.A. from the University of North Carolina, Chapel Hill.
Matthew J. Warta has served as one of our directors of since June 1998. In
his current position, Mr. Warta is a Director of Koch Ventures, Inc., a
subsidiary of Koch Industries, Inc. where he is responsible for investing in
and managing the firm's applied technology investments. From 1996 through 1997,
he was with Koch's Capital Services Group, where he provided advisory services
on mergers and
51
Management
<PAGE>
acquisitions, strategic consulting, and corporate partnering to various Koch
companies. Prior to joining Koch, Mr. Warta worked as a management consultant
at Deloitte & Touche Consulting Group from 1995 to 1996, where he provided
strategic and operational consulting services to clients. Prior thereto, Mr.
Warta served as an account executive for Valentine Radford Communications,
Inc., an advertising and marketing agency in Kansas City, Missouri. Mr. Warta
received an MBA and a B.S. from the University of Kansas.
C.H. Low has served as our Vice President and Chief Technology Officer of
Product Development and Engineering since February 1998. From 1988 to 1998 he
was Senior Vice President with Reality Online, a Reuters company, where he was
responsible for designing and developing over 30 projects and gained expertise
in defining host data systems, features and architectures. Previously, Mr. Low
was co-owner of Gnosis, Inc., where he developed a job-shop manufacturing
control system for small to medium sized companies. Mr. Low received a B.A.S.
from the University of Pennsylvania and a B.S. from the Wharton School of
Business.
George Jankovic has served as our Vice President of Product Development since
September 1998. Prior to joining us, he was President and founder of RF
Globalnet, which we acquired in September 1998. Prior to founding RF Globalnet,
Mr. Jankovic was Director of Business Development and Marketing Manager for
Boulder Microwave Technology Inc. (now part of Ansoft Corp.), a start-up
focused on software for radio frequency engineers. Mr. Jankovic holds a
M.S.E.E. degree from University of Colorado at Boulder.
Nicholas Basta has served as our Vice President of Editorial Services since
June 1997. Mr. Basta was a senior editor and conference manager at McGraw-Hill,
Inc. where he was employed since 1980. Prior to joining us, he launched the
Chemputers Conferences, a semi-annual meeting on trends in software and
information technology for the chemical process industries. During 1990, he was
an adjunct professor at the Columbia University School of Journalism and
remains an adjunct teacher at the New School for Social Research in New York.
Since 1980, Mr. Basta has been a contributing editor for several trade
publications and has published several career guides. Mr. Basta received a
B.S.E. from Princeton University.
Christopher G. Kuhn has served as our General Counsel since December 1998.
Prior to joining VerticalNet, he was a senior attorney with the law firm of
Silberman & DiFilippo from 1989 to 1998, where he practiced general business
law, including commercial transactions, acquisitions and insolvency law. Prior
to 1989, he was an associate and partner at the law firm of Pincus, Verlin,
Hahn, Reich & Weinberg. Mr. Kuhn received a B.A. from West Chester State
College and a J.D. from the Delaware Law School.
Classes of the Board
Our board of directors are divided into three classes that serve staggered
three-year terms as follows:
<TABLE>
<CAPTION>
Class Expiration Member
- ----- ---------- ------
<S> <C> <C>
Class I 2000 Buckley, Warta
Class II 2001 Ballowe, Hagan
Class III 2002 Alexander, Walsh
</TABLE>
Committees of the Board of Directors
The board of directors recently created a compensation committee and an audit
committee. The compensation committee of the board of directors evaluates our
compensation policies and administers our stock option plan.
52
Management
<PAGE>
The members of the compensation committee are Messrs. Alexander and Warta. The
audit committee will review the scope of our audit, the engagement of our
independent auditors and their audit reports. The audit committee will also
meet with the financial staff to review accounting procedures and reports. The
audit committee currently consists of Messrs. Ballowe and Buckley. We intend to
appoint another board member to the audit committee.
Director Compensation
We do not pay directors cash compensation, however they are reimbursed for
the expenses they incur in attending meetings of the board or board committees.
Non-employee directors are eligible to receive options to purchase common stock
awarded under our equity compensation plan. See "--Stock Option Plan."
Compensation Committee Interlocks and Insider Participation
Upon completion of this offering, the compensation committee will make all
compensation decisions. No interlocking relationship exists between the board
of directors or compensation committee and the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. A member of the compensation committee,
Douglas A. Alexander, is a Managing Director of Internet Capital Group, which
will beneficially own 38.5% of our common stock after the offering.
Executive Compensation
The following table sets forth information for the fiscal years ended
December 31, 1997 and 1998 concerning compensation we paid to the chief
executive officer and the other four most highly compensated executive officers
we employed during such fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------
Fiscal Other Annual
Name and Principal Position Year Salary Bonus Compensation
--------------------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
Mark L. Walsh,
President and Chief
Executive Officer(1).................... 1997 $ 70,833 $ 33,333 --
1998 233,333 100,000 --
Michael J. Hagan,
Senior Vice President................... 1997 $101,933 $ -- --
1998 112,916 25,000 --
Michael P. McNulty,
Senior Vice President................... 1997 $101,516 $ -- --
1998 112,916 25,000 --
Mario V. Shaffer,
Vice President(2)....................... 1998 $ 80,473 $ 25,000 --
Barry E. Wynkoop,
Senior Vice President(3)................ 1998 $ 72,916 $ 35,000 $1,600
</TABLE>
- --------
(1) Mr. Walsh commenced employment with us in August, 1997.
(2) Mr. Shaffer commenced employment with us in May, 1998.
(3) Mr. Wynkoop commenced employment with us in August, 1998.
53
Management
<PAGE>
Stock Option Information
The following table sets forth certain information regarding options granted
in 1998 to the executive officers named in the Summary Compensation Table
above.
Option Grants During Year Ended December 31, 1998(1)
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term (2)
Options in Fiscal Price Expiration ----------------------------
Name Granted Year Per Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Walsh........... 196,481 12.6% $0.80 1/30/08 $2,723,226 $4,428,682
231,530 14.9% 2.63 6/18/08 2,785,306 4,794,986
Michael J. Hagan........ 76,923 4.9% 0.80 1/30/08 1,066,153 1,733,844
Michael P. McNulty...... 76,923 4.9% 0.80 1/30/08 1,066,153 1,733,844
Mario V. Shaffer........ 35,897 2.3% 2.63 6/18/08 431,841 743,427
2,564 0.2% 2.63 7/20/08 30,845 53,100
12,821 0.8% 3.32 11/11/08 145,390 256,676
Barry E. Wynkoop........ 123,077 7.9% 2.63 6/18/08 1,480,616 2,548,925
</TABLE>
- --------
(1) Vests at 28% on the employee's one year employment anniversary, in equal
increments of 2% per month for 36 months and fully vests 48 months from the
employee's initial date of employment. Subsequent grants made to employee's
vest on the grant date.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based upon an assumed initial public offering price
of $9.00 per share. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.
The following table sets forth certain information concerning option
exercises by executive officers named in the Summary Compensation Table during
1998.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Options at Fiscal Year End Fiscal Year-End (1)
----------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark L. Walsh......... 181,501 554,202 $1,488,308 $4,120,756
Michael J. Hagan...... 0 76,923 0 630,769
Michael P. McNulty.... 0 76,923 0 630,767
Mario V. Shaffer...... 0 51,282 0 317,819
Barry E. Wynkoop...... 0 123,007 0 748,000
</TABLE>
- --------
(1) Based on an assumed initial public offering price of $9.00 per share, minus
the exercise price, multiplied by the number of shares underlying the
option.
54
Management
<PAGE>
Stock Option Plan
We have adopted the Amended and Restated 1996 Equity Compensation Plan,
effective as of December 18, 1996. The plan provides for grants of incentive
stock options, nonqualified stock options, and restricted stock to our
designated employees, advisors and consultants, and to non-employee directors.
By encouraging stock ownership, we seek to motivate such individuals to
contribute materially to our success.
General. The plan authorizes up to 3,600,000 shares of common stock for
issuance under the terms of the plan. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year. If options
granted under the plan expire or are terminated for any reason without being
exercised, or shares of restricted stock are forfeited, the shares of common
stock underlying such grant will again be available for purposes of the plan.
Administration of the Plan. The compensation committee of the board of
directors administers and interprets the plan. The compensation committee will
consist of two or more persons appointed by the board of directors from among
its members, each of whom must be a "non-employee director" as defined by Rule
16b-3 under the Securities Exchange Act of 1934, and an "outside director" as
defined by Section 162(m) of the Internal Revenue Code of 1986 and related
Treasury regulations. The compensation committee has the sole authority to:
. determine the individuals to whom grants shall be made under the plan;
. determine the type, size and terms of the grants to be made to each such
individual;
. determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
vesting and the acceleration of vesting;
. determine the total number of shares of common stock available for grants;
and
. deal with any other matters arising under the plan.
The compensation committee may require that a grantee execute a
shareholder's agreement, with such terms as the compensation committee deems
appropriate.
Grants. Grants under the plan may consist of:
. options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code;
. nonqualified stock options that are not intended to so qualify; and
. restricted stock.
Eligibility for Participation. Grants may be made to any employees of
VerticalNet or any of its subsidiaries and to any non-employee member of the
board of directors. Key consultants and advisors who perform services for us
or any of our subsidiaries are eligible if they render bona fide services, not
as part of the offer or sale of securities in a capital-raising transaction.
As of December 31, 1998, 2,083,861 options were outstanding under the plan.
Options. Incentive stock options may be granted only to employees. Non-
qualified stock options may be granted to employees, non-employee directors,
and key advisors. The exercise price of common stock underlying an option
shall be determined by the compensation committee, and may be equal to,
greater than, or less than the fair market value but in no event less than 80%
of fair market value; provided that
(a) the exercise price of an incentive stock option shall be equal to or
greater than
55
Management
<PAGE>
the fair market value of a share of common stock on the date such
incentive stock option is granted and
(b) the exercise price of an incentive stock option granted to an employee
who owns more than 10% of the common stock may not be less than 110% of
the fair market value of the underlying shares of common stock on the
date of grant.
The participant may pay the exercise price:
(1) in cash;
(2) with the approval of the compensation committee, by delivering shares of
common stock owned by the grantee and having a fair market value on the
date of exercise equal to the exercise price of the grant; or
(3) by such other method as the compensation committee shall approve,
including payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board.
Options vest according to the terms and conditions determined by the
compensation committee and specified in the grant instrument.
The compensation committee will determine the term of each option up to a
maximum of ten years from the date of grant except that the term of an
incentive stock option granted to an employee who owns more than 10% of the
common stock may not exceed five years from the date of grant. The compensation
committee may accelerate the exercisability of any or all outstanding options
at any time for any reason.
Restricted Stock. The compensation committee shall determine the number of
shares of restricted stock granted to a participant, but may not exceed the
maximum plan limit described above. Grants of restricted stock will be
conditioned on such performance requirements, vesting provisions, transfer
restrictions or other restrictions and conditions as the compensation committee
may determine in its sole discretion. The restrictions shall remain in force
during a restricted period set by the compensation committee. If the grantee is
no longer employed by us during the restriction period or if any other
conditions are not met, the restricted stock grant will terminate as to all
shares covered by the grant for which the restrictions are still applicable,
and those shares must be immediately returned to us.
Amendment and Termination of the Plan. The compensation committee may amend
or terminate the plan at any time; except, that, it may not make any amendment
that requires stockholder approval pursuant to Rule 16b-3 of the Securities
Exchange Act of 1934 or Section 162(m) of the Internal Revenue Code without
stockholder approval. The plan will terminate on the day immediately preceding
the tenth anniversary of its effective date, unless the compensation committee
terminated earlier or extends it with approval of the stockholders.
Adjustment Provisions. Upon certain transactions identified in the plan, the
compensation committee may appropriately adjust:
. the maximum number of shares available for grants;
. the maximum number of shares that any participant may be granted in any
year;
. the number of shares covered by outstanding grants;
. the kind of shares issued under the plan; and
. the price per share or the applicable market value of such grants.
Change of Control. Upon a change of control, the compensation committee may
determine that:
56
Management
<PAGE>
(1) all outstanding options shall immediately vest; and
(2) the restrictions and conditions on all outstanding restricted stock shall
immediately lapse.
Upon a change of control where we are not the surviving entity or where we
survive only as a subsidiary of another entity, unless the compensation
committee determines otherwise, all outstanding grants shall be assumed by or
replaced with comparable options or stock by the surviving corporation. In
addition, the compensation committee may
(a) require that grantees surrender their outstanding options in exchange
for payment by us, in cash or common stock, at an amount equal to the
amount by which the then fair market value of the shares of common
stock subject to the grantee's unexercised options exceeds the
exercise price of those options, and/or
(b) after giving grantees an opportunity to exercise their outstanding
options, terminate any or all unexercised options.
A "change of control" is defined to have occurred if:
(1) any "person" other than persons who are our shareholders as of the
effective date of the plan becomes a "beneficial owner," directly or
indirectly, of common stock representing more than 50% of the voting
power of the then-outstanding shares of common stock; the terms "person"
and "beneficial owner" are each defined in the Securities Exchange Act of
1934; or
(2) the shareholders or the directors, as appropriate, approve:
(a) any merger or consolidation of us with another corporation where the
shareholders, immediately prior to such transaction, will not
beneficially own, immediately after the transaction, shares entitling
such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the
election of directors, without consideration of the rights of any
class of stock to elect directors by a separate class vote;
(b) the sale or other disposition of all or substantially all our assets;
or
(c) our liquidation or dissolution.
Section 162(m). Under Section 162(m) of the Internal Revenue Code, we may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1.0 million paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration would include amounts received upon the exercise of stock options
granted under the plan and the value of shares received when the shares of
restricted stock became transferable or such other time when income is
recognized. An exception does exist, however, for "performance-based
compensation," including amounts received upon the exercise of stock options
pursuant to a plan approved by stockholders that meets certain requirements.
The plan has been approved by stockholders and is intended to make grants of
options thereunder meet the requirements of "performance-based compensation."
Awards of restricted stock generally will not qualify as "performance-based
compensation."
Employment Agreements
Under an employment letter dated August 1997, Mark L. Walsh agreed to be our
President and Chief Executive Officer.
57
Management
<PAGE>
Under this employment letter, Mr. Walsh receives a base salary of $200,000 per
year, and a bonus of up to $100,000 per year based on our attainment of certain
performance objectives established at the discretion of the compensation
committee. In connection with the employment letter, we granted Mr. Walsh stock
options to purchase 735,703 shares of common stock. Under the employment
letter, if Mr. Walsh is terminated for any reason other than for cause, he is
entitled to a severance payment equal to one year of his base salary. Internet
Capital Group has guaranteed up to $500,000 of any such severance payment.
Under an employment letter dated July 1998, agreed to be a Senior Vice
President. Under the employment letter, Mr. Wynkoop is entitled to receive an
annual salary of $175,000, and a bonus of up to $100,000, 30% of which is
attributable to us meeting certain overall revenue and margin objectives and
70% of which is attributable to our attainment of certain annual sales targets.
Under the employment letter we granted Mr. Wynkoop stock options to purchase
123,077 shares of common stock. The employment letter provides that if Mr.
Wynkoop is terminated for any reason other than for cause, he is entitled to a
severance payment equal to six months of his base salary.
We may enter into new employment agreements with our executive officers, but
no terms have been established. In addition, we are in the process of
developing a bonus program that would be based on company performance targets
and individual performance targets focusing on profitability and customer
satisfaction goals.
Employee Stock Purchase Plan
Concurrently with the offering, we intend to establish an employee stock
purchase plan under which a total of 300,000 shares of common stock will be
made available for sale to our employees. We intend the purchase plan to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Internal Revenue Code of 1986. The board of directors, or by a committee
appointed by the board will administer the purchase plan. Employees are
eligible to participate if they are employed by us or a designated subsidiary
for at least 20 hours per week and for more than five months in any calender
year. The purchase plan permits eligible employees to purchase common stock
through payroll deductions, which, subject to certain limitations, may not
exceed 15% of an employee's compensation.
The purchase plan will be implemented in a series of consecutive offering
periods, each approximately six months long. Offering periods will begin on the
first trading day after March 31, 1999 and September 30, 1999 of every year and
end on the last trading day in the period six months later. However, the first
offering period will be the period of approximately eight months beginning on
the date the registration statement relating to this prospectus is declared
effective by the Securities and Exchange Commission and ending on the last
trading day in the period ending September 30, 1999. Each participant will be
granted an option to purchase stock on the first day of the six-month purchase
period and such option will be automatically exercised on the last date of each
offering period. The purchase price of each share of common stock under the
purchase plan will be equal to 85% of the lesser of the fair market value per
share of common stock on the start date of that offering period or on the date
of purchase. Employees may modify or end their participation in the offering at
any time during the offering period. Participation ends automatically upon
termination of employment. The purchase plan will terminate in 2009 unless the
board of directors terminates it sooner.
58
Management
<PAGE>
CERTAIN TRANSACTIONS AND STOCK ISSUANCES WITH EXECUTIVE OFFICERS, DIRECTORS AND
OUR LARGEST SHAREHOLDER
Both Michael J. Hagan and Michael P. McNulty, executive officers of
VerticalNet, were involved in our founding and organization and may be
considered as our promoters. At our inception in July 1995, we issued 685,479
shares of common stock to Mr. Hagan and 685,479 shares of common stock to Mr.
McNulty. Mr. Hagan and Mr. McNulty each contributed a nominal amount of capital
for our initial capitalization. In January 1998, each of Mr. Hagan and Mr.
McNulty received an incentive stock option grant under the equity compensation
plan to purchase 76,923 shares of common stock.
In 1996, we borrowed an aggregate principal amount of $100,000 evidenced by
four unsecured term notes from four individuals. Along with the notes, we
issued 672,038 shares of common stock to these individuals. One of these
individuals was a member of our board of directors, Walter Buckley, who also
serves as an officer and director of Internet Capital Group, our largest
shareholder. The notes bore interest at a rate of 7%. The notes were to mature
on February 2001, however, all of the notes were repaid in full, including
interest of $15,771, in May 1998.
During 1996 and 1997, Internet Capital Group made loans to us, pursuant to a
total of 15 demand notes, in an aggregate principal amount of $3.2 million. We
have subsequently repaid $1.0 million of these loans and interest of $28,803
and exchanged $2.2 million of these loans for 2,222,223 shares of our Series D
Preferred Stock and approximately $1.8 million in cash.
In 1997, Internet Capital Group guaranteed repayment of up to $2.0 million of
a line of credit with our bank under the line of credit agreement. We repaid
all amounts outstanding under this facility in May 1998 and consequently, our
bank released the guarantee from Internet Capital Group.
In 1997, in conjunction with our entering into an employment letter agreement
with Mark L. Walsh, Internet Capital Group guaranteed the payment of
approximately $500,000 in potential severance payments in the event his
employment is terminated for any reason other than cause. See "Management--
Employment Agreements."
During 1997, we entered into a $250,000 Web site development contract with
Informatrix. In addition, under the contract we were to maintain the Web site
for a monthly fee of $20,000. In conjunction with this contract, we advanced
Informatrix $160,000 in 1997, as evidenced by a demand note. During the nine
months ended September 30, 1998, we advanced an additional $555,000 to
Informatrix as part of the demand note. Mr. McNulty's brother was a member of
the board of directors of Informatrix. Subsequently, in September 1998, we
acquired all of the outstanding capital stock of Informatrix.
In May 1998, we issued warrants to Internet Capital Group that will, in the
aggregate, entitle Internet Capital Group to purchase 85,470 shares of common
stock at $3.51 per share. We issued the warrants in conjunction with certain
guarantees of our bank debt by Internet Capital Group. Such warrants are
currently exercisable, and will expire on November 30, 2008. The exercise price
and number of shares of common stock issuable upon the exercise of each of the
warrants may be adjusted upon the occurrence of certain events, including stock
splits, stock dividends, reorganization, recapitalization, merger or sale
59
Certain Transactions and Stock Issuances with Executive Officers, Directors and
Our Largest Shareholder
<PAGE>
of all or substantially all of our assets. All shares of common stock issuable
upon exercise of all warrants have certain registration rights. See
"Description of Capital Stock--Registration Rights."
Since inception, we have issued, in private placement transactions, shares of
preferred stock that will automatically convert into an aggregate of 9,734,846
shares of common stock upon or immediately before the closing of the offering.
To date, we do not owe and have never paid dividends on our preferred stock.
The holders of such converted shares of common stock are entitled to certain
demand and piggy-back registration rights. See "Description of Capital Stock--
Registration Rights."
The following table sets forth information about our preferred stock that was
outstanding before the offering. All these shares of preferred stock convert
into common stock upon the closing of the offering.
<TABLE>
<CAPTION>
Series B Series C Series D
Series A Preferred Preferred Preferred Preferred
------------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Date of issuance........ September 1996 July 1997 October 1997 May/June 1998
Shares of preferred
stock issued........... 512,821 2,579,580 154,861 4,558,405
Aggregate purchase price
for preferred stock.... $1.0 million $2.0 million $200,000 $16.0 million
Shares of common stock
to be received upon
conversion............. 2,442,000 2,579,580 154,861 4,558,405
</TABLE>
Prior to the offering, Internet Capital Group owns all of the shares of
Series A Preferred Stock, all of the shares of Series B Preferred Stock and
1,139,602 shares of Series D Preferred Stock. The purchase price for the shares
of Series A, Series B and Series D Preferred Stock was paid by Internet Capital
Group in cash and/or by the exchange of the principal amount plus accrued
interest of notes. Douglas A. Alexander, our Chairman of the Board, is a
Managing Director of Internet Capital Group. Walter W. Buckley, III, one of our
directors, is the President and CEO of Internet Capital Group. He joined our
board of directors in September 1996 after the completion of the issuance of
the Series A Preferred Stock. After the offering, Internet Capital Group's
right to elect directors terminates when their preferred stock converts to
common stock.
In November 1998 we issued a $4.1 million convertible note to Internet
Capital Group. In conjunction with the issuance of the convertible note, we
issued warrants to purchase 68,370 shares of common stock at the initial public
offering price per share.
60
Certain Transactions and Stock Issuances with Executive Officers, Directors and
Our Largest Shareholder
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the common stock after the offering by each person who
beneficially owns more than 5% of the common stock; by each of our executive
officers and directors; and by all executive officers and directors as a group.
<TABLE>
<CAPTION>
Number of Shares of Percent of Ownership
Common Stock ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ------------------- --------------- --------------
<S> <C> <C> <C>
Internet Capital Group,
LLC(1)..................... 6,368,429 48.8% 38.5%
800 Safeguard Building,
435 Devon Park Drive,
Wayne, PA 19087
Koch Ventures, Inc.......... 854,701 6.6 5.2
4111 East 37th Street North
Wichita, KS 67220
Wheatley Partners, L.P.(2).. 892,218 6.9 5.4
80 Cuttermill Rd., Suite
311
Great Neck, NY 11021
Mark L. Walsh(3)............ 201,668 1.5 1.2
Michael J. Hagan(4)......... 612,628 4.7 3.7
Michael P. McNulty(4)....... 506,113 3.9 3.1
Mario V. Shaffer............ -- * *
Barry E. Wynkoop............ -- * *
Douglas A. Alexander(5)..... 151,769 1.2 *
Jeffrey C. Ballowe.......... -- * *
Walter W. Buckley, III(6)... 12,898 * *
Matthew J. Warta............ -- * *
All executive officers and
directors as a group
(11 persons)(3)(4)(7)...... 1,495,845 11.3% 9.0%
</TABLE>
- --------
* Less than 1%
(1) Includes common stock issued upon automatic conversion of all shares of
preferred stock and convertible notes owned by Internet Capital Group and
119,656 shares of common stock issuable upon the exercise of warrants
exercisable within 60 days of December 31, 1998.
(2) Includes shares held by Wheatley Foreign Partners, L.P. Includes 4,828
shares of common stock issuable upon the exercise of warrants exercisable
within 60 days of December 31, 1998.
(3) Includes 201,668 shares of common stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998. Excludes options
to purchase 534,035 shares of common stock which are not currently
exercisable.
(4) Includes 23,077 shares of common stock issuable upon the exercise of
options exercisable within 60 days of December 31, 1998. Excludes options
to purchase 53,846 shares of common stock which are not currently
exercisable.
(5) Douglas A. Alexander is a managing director of Internet Capital Group. Mr.
Alexander disclaims beneficial ownership of shares held by Internet Capital
Group and Internet Capital Group disclaims beneficial ownership of shares
owned by Mr. Alexander.
(6) Walter W. Buckley, III is the President and Chief Executive Officer of
Internet Capital Group. Mr. Buckley disclaims beneficial ownership of
shares held by Internet Capital Group and Internet Capital Group disclaims
beneficial ownership of shares owned by Mr. Buckley.
(7) Includes 10,769 shares of common stock issuable upon the exercise of stock
options exercisable within 60 days of December 31, 1998.
Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares beneficially owned
by them.
61
Principal Shareholders
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 90,000,000 shares of common stock,
par value $.01 per share, and 10,000,000 shares of preferred stock, par value
$.01 per share.
Common Stock
Holders of the common stock are entitled to receive, as, when and if declared
by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to any dividend preferences that may be
attributable to preferred stock that may be authorized. Holders of common stock
are entitled to one vote for each share held of record on all matters on which
shareholders may vote, except with respect to the election of directors in
which case shareholders are entitled to multiply the number of shares held of
record by the number of directors to be elected and distribute such number of
votes for one or among two or more nominees.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in the assets
available for distribution.
Preferred Stock
Our board of directors, without further action by the shareholders, is
authorized to issue an aggregate of 10,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and we have no plans to issue a new
series of preferred stock. Our board of directors may, without shareholder
approval, issue preferred stock with dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting rights and
any other preferences, which rights and preferences could adversely affect the
voting power of the holders of common stock. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock. See "Certain Transactions and
Stock Issuances with Executive Officers, Directors and Our Largest
Shareholder."
Common Stock Warrants
We have warrants outstanding for the purchase of 235,871 shares of our common
stock with a weighted average exercise price of $5.37 per share.
Warrants issued to Progress Capital on April 30, 1997 will entitle Progress
Capital to purchase 19,347 shares of common stock for $0.76 per share. Warrants
issued to Internet Capital Group on May 12, 1998 will, in the aggregate,
entitle Internet Capital Group to purchase 85,470 shares of common stock at
$3.51 per share. Warrants issued to Progress Capital on May 12, 1998 will
entitle Progress Capital to purchase 28,490 shares of common stock for $3.51
per share. Such warrants are currently exercisable, and expire on November 30,
2008.
Additional warrants to purchase an aggregate of 82,051 shares of common stock
at the initial public offering price per share were issued to Internet Capital
Group and certain holders of our Series D Preferred Stock in November, 1998.
Additional warrants to purchase 20,513 shares of common stock at the initial
public offering price per share were issued to Progress Capital in November,
1998.
62
Description of Capital Stock
<PAGE>
The exercise price and number of shares of common stock issuable upon the
exercise of each of the warrants may be adjusted upon the occurrence of
certain events, including stock splits, stock dividends, reorganization,
recapitalization, merger, or sale of all or substantially all of our assets.
All warrants and shares of stock issuable upon exercise of all warrants have
certain registration rights as described under "Registration Rights" below.
Classified Board of Directors
Our bylaws, as amended and restated, divide our board of directors into
three classes, with regular three-year staggered terms and initial terms of
three years for the class I directors, two years for the class II directors
and one year for the class III directors. Our bylaws also provide for
cumulative voting. This allows holders of common stock in electing directors
to multiply the number of shares they are entitled to vote by the number of
directors to be elected and allocate such votes for one or among two or more
nominees. Accordingly, a minority stockholder holding a sufficient number of
shares may be able to ensure the election of one or more directors of each
class. This, combined with the classified board, could prevent a party who
acquires control of the majority of the outstanding voting stock from
obtaining control of the board of directors.
Shareholder Action by Written Consent
Our bylaws provide that any action that may be taken at a meeting of the
shareholders may be taken without a meeting if:
(1) such action is authorized by the unanimous written consent of all
shareholders entitled to vote at a meeting for such purposes; or
(2) such action is authorized by written consent of such number of
shareholders required by law who are entitled to vote thereon at a
meeting of the shareholders or of a class of shareholders.
Special Meetings
Our bylaws provide that special meetings of our shareholders may be called
only by the board or by our president. This provision may make it more
difficult for shareholders to take action opposed by the board.
Amendments to Our Bylaws
Our bylaws provide that the vote of a majority of all directors or the vote
of the majority of the outstanding stock entitled to vote is required to
alter, amend or repeal our bylaws.
Indemnification of Directors and Officers
Section 1741 of the Pennsylvania corporate laws provides the power to
indemnify any officer or director acting in his capacity as our representative
who was, is or is threatened to be made a party to any action or proceeding
for expenses, judgments, penalties, fines and amounts paid in settlement in
connection with such action or proceeding. The indemnity provisions apply
whether the action was instituted by a third party or arose by or in our
right. Generally, the only limitation on our ability to indemnify our officers
and directors is if the act violates a criminal statute or if the act or
failure to act is finally determined by a court to have constituted willful
misconduct or recklessness.
Our bylaws provide a right to indemnification to the full extent permitted
by law for expenses, attorney's fees, damages, punitive damages, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by any director or officer whether or not the indemnified liability
arises or arose from any threatened, pending or
63
Description of Capital Stock
<PAGE>
completed proceeding by or in our right by reason of the fact that such
director or officer is or was serving as our director, officer or employee or,
at our request, as a director, officer, partner, fiduciary or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, unless the act or failure to act giving rise to the claim
for indemnification is finally determined by a court to have constituted
willful misconduct or recklessness. Our bylaws provide for the advancement of
expenses to an indemnified party upon receipt of an undertaking by the party to
repay those amounts if it is finally determined that the indemnified party is
not entitled to indemnification.
Our bylaws authorize us to take steps to ensure that all persons entitled to
the indemnification are properly indemnified, including, if the board of
directors so determines, purchasing and maintaining insurance.
Limitation of Liability
Our articles of incorporation provide that none of our directors shall be
personally liable to us or our shareholders for monetary damages for a breach
of fiduciary duty as a director, except for liability:
. for any breach of such person's duty of loyalty;
. for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
. for the payment of unlawful dividends and certain other actions prohibited
by Pennsylvania corporate law; and
. for any transaction resulting in receipt by such person of an improper
personal benefit.
We maintain directors and officers' liability insurance to provide directors
and officers with insurance coverage for losses arising from claims based on
breaches of duty, negligence, error and other wrongful acts. At present, there
is no pending litigation or proceeding, and we are not aware of any threatened
litigation or proceeding, involving any director, officer, employee or agent
where indemnification will be required or permitted under the articles of
incorporation or our bylaws.
Pennsylvania Control-Share Acquisitions Law
Generally, subchapters 25E, F, G, H, I and J of the Pennsylvania corporate
laws place certain procedural requirements and establish certain restrictions
upon the acquisition of voting shares of a corporation which would entitle the
acquiring person to cast or direct the casting of a certain percentage of votes
in an election of directors. Subchapter 25E of the Pennsylvania corporate laws
provides generally that, if a company were involved in a "control transaction,"
shareholders of the company would have the right to demand from a "controlling
person or group" payment of the fair value of their shares. For purposes of
subchapter 25E, a "controlling person or group" is a person or group of persons
acting in concert that, through voting shares, has voting power over at least
20% of the votes which shareholders of the company would be entitled to cast in
the election of directors. A control transaction arises, in general, when a
person or group acquires the status of a controlling person or group.
In general, Subchapter 25F of the Pennsylvania corporate laws delays for five
years and imposes conditions upon "business combinations" between an
"interested shareholder" and us. The term "business combination" is defined
broadly to include various merger, consolidation, division, exchange or sale
transactions, including
64
Description of Capital Stock
<PAGE>
transactions utilizing our assets for purchase price amortization or
refinancing purposes. An "interested shareholder," in general, would be a
beneficial owner of at least 20% of our voting shares.
In general, Subchapter 25G of the Pennsylvania corporate laws suspends the
voting rights of the "control shares" of a shareholder that acquires for the
first time 20% or more, 33 1/3% or more, or 50% or more of a company's shares
entitled to be voted in an election of directors. The voting rights of the
control shares generally remain suspended until such time as the
"disinterested" shareholders of the company vote to restore the voting power
of the acquiring shareholder.
Subchapter 25H of the Pennsylvania corporate laws provides in certain
circumstances for the recovery by a company of profits made upon the sale of
its common stock by a "controlling person or group" if the sale occurs within
18 months after the controlling person or group became such and the common
stock was acquired during such 18 month period or within 24 months before such
period. In general, for purposes of Subchapter 25H, a "controlling person or
group" is a person or group that:
(1) has acquired;
(2) offered to acquire; or
(3) publicly disclosed or caused to be disclosed an intention to acquire
voting power over shares that would entitle such person or group to cast
at least 20% of the votes that shareholders of the company would be
entitled to cast in the election of directors.
If the disinterested shareholders of a company vote to restore the voting
power of a shareholder who acquires control shares subject to Subchapter 25G,
such company would then be subject to subchapters 25I and J of the
Pennsylvania corporate laws. Subchapter 25I generally provides for a minimum
severance payment to certain employees terminated within two years of such
approval. Subchapter 25J, in general, prohibits the abrogation of certain
labor contracts prior to their stated date of expiration.
The above descriptions of certain subchapters of the Pennsylvania corporate
laws summarize the material anti-takeover provisions contained in the
Pennsylvania corporate laws but are not a complete discussion of those
provisions.
Certain Anti-Takeover Provisions
The ability of the board of directors to establish the rights of, and to
issue, substantial amounts of Preferred Stock without the need for shareholder
approval, may have the effect of discouraging, delaying or preventing a change
in control. Such Preferred Stock, among other things, may be used to create
voting impediments with respect to any changes in control or to dilute the
stock ownership of holders of common stock seeking to obtain control. See
"Risk Factors--Anti-Takeover Provision and our Right to Issue Preferred Stock
Could Make a Third-Party Aquisition of Us Difficult," "--Common Stock" and "--
Preferred Stock."
Registration Rights
After the consummation of the offering, the holders of warrants to purchase
235,871 shares of common stock or their transferees, holders of 9,734,846
shares of common stock issuable upon conversion of the preferred stock and
holders of 555,556 shares of common stock issuable upon conversion of the
convertible notes, assuming an initial public offering price of $9.00 per
share will be entitled to certain registration rights with respect to the
registrable securities. These rights are provided under the terms of the
registrable securities and
65
Description of Capital Stock
<PAGE>
agreements between us and the holders of such securities. Such agreements and
registrable securities provide, in certain instances, demand registration
rights. In addition, pursuant to these agreements, the holders are entitled,
subject to certain limitations, to require us to include their registrable
securities in future registration statements we file under the Securities Act
of 1933. In accordance with the terms of such piggyback registration rights, we
have elected to exclude all registrable securities from the offering. The
Holders also are entitled, subject to certain limitations, to require us to
register their registrable securities on a registration statement on Form S-3
once we are eligible to use a Form S-3 in connection with such registrations.
However, Holders of all of these shares will be restricted from exercising such
rights until 180 days after the date of this prospectus. Registration of shares
of common stock pursuant to the exercise of demand registration rights,
piggyback registration rights or S-3 registration rights under the Securities
Act of 1933 would result in such shares becoming freely tradable without
restriction under the Securities Act of 1933 immediately upon the effectiveness
of such registration. "Risk Factors--Shares Eligible for Future Sale By Our
Current Shareholders May Adversely Affect Our Stock Price," "Shares Eligible
for Future Sale" and "Certain Transactions and Stock Issuances with Executive
Officers, Directors and Our Largest Shareholder."
Transfer Agent
The transfer agent for our common stock is American Stock Transfer & Trust
Company.
66
Description of Capital Stock
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market following
the offering could adversely affect the market price of the common stock and
adversely affect our ability to raise capital at a time and on terms favorable
to us.
Of the 16,424,783 shares to be outstanding after the offering (assuming that
the underwriters do not exercise their over-allotment option), the 3,500,000
shares of common stock offered hereby and an additional 942,723 shares of
common stock will be freely tradeable without restriction in the public market
unless such shares are held by "affiliates," as that term is defined in Rule
144(a) under the Securities Act of 1933. For purposes of Rule 144, an
"affiliate" of an issuer is a person that, directly or indirectly through one
or more intermediaries, controls, or is controlled by or is under common
control with, such issuer. The remaining shares of common stock to be
outstanding after the offering are "restricted securities" under the Securities
Act of 1933 and may be sold in the public market upon the expiration of certain
holding periods under Rule 144, subject to the volume, manner of sale and other
limitations of Rule 144.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years, including an "affiliate," as
that term is defined in the Securities Act, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of:
. one percent of the then outstanding shares of our common stock
(approximately 164,204 shares immediately following the offering), or
. the average weekly trading volume during the four calendar weeks preceding
filing of notice of such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability
of current public information about us. A shareholder who is deemed not to
have been an "affiliate" of ours at any time during the 90 days preceding a
sale, and who has beneficially owned restricted shares for at least two
years, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions or public
information requirements.
In addition, as of December 31, 1998, there were outstanding warrants to
purchase 235,871 shares of common stock and options to purchase 2,083,861
shares of common stock, of which 366,162 options were fully vested and
exercisable. An additional 5,754 shares were reserved for issuance under our
equity compensation plan. We intend to register the shares of common stock
issued, issuable or reserved for issuance under the plan as soon as practicable
following the date of this prospectus.
Holders of warrants to purchase 235,871 shares of common stock, holders of
9,307,495 shares of common stock issuable upon conversion of the preferred
stock and holders of 555,556 shares of common stock issuable upon conversion of
the convertible notes, assuming an initial public offering price of $9.00 per
share, are entitled to registration rights with respect to such shares for
resale under the Securities Act. If such holders, by exercising their
registration rights, cause a large number of shares to be registered and sold
in the public market, such sales could have an adverse effect on the market
price for the common stock. Such rights may not be exercised prior to the
expiration of 180 days from the date of this
67
Shares Eligible for Future Sale
<PAGE>
prospectus. See "Description of Capital Stock--Registration Rights."
Lock-Up Arrangements
Along with our officers and directors, and all of the holders of the
preferred stock, the warrants and certain holders of options and shares of
common stock, we have agreed not to sell or otherwise dispose of any shares of
common stock for a period of 180 days after the date of this prospectus without
the prior written consent of Lehman Brothers.
68
Shares Eligible for Future Sale
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Hambrecht & Quist LLC and Volpe Brown
Whelan & Company, LLC are acting as representatives, and Wit Capital
Corporation is facilitating online distribution as e-Manager(TM), have each
agreed to purchase from us the respective number of shares of common stock
shown opposite its name below:
<TABLE>
<CAPTION>
Number of
Shares of
Underwriters Common Stock
------------ ------------
<S> <C>
Lehman Brothers Inc...........................................
Hambrecht & Quist LLC.........................................
Volpe Brown Whelan & Company, LLC.............................
Wit Capital Corporation.......................................
---------
Total....................................................... 3,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock are subject to certain conditions, and that if
any of the foregoing shares of common stock are purchased by the underwriters
pursuant to an Underwriting Agreement, then all of the shares of common stock
which the underwriters have agreed to purchase pursuant to the underwriting
agreement, must be so purchased.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to certain selected
dealers, who may include the underwriters, at such public offering price less a
selling concession not in excess of $ per share. The underwriters may allow,
and the selected dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the offering, the underwriters may
change the offering price and other selling terms.
We have granted to the underwriters an option to purchase up to an aggregate
of 525,000 additional shares of common stock, exercisable solely to cover over-
allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. Such
option may be exercised at any time until 30 days after the date of the
underwriting agreement. To the extent that such option is exercised, each
underwriter will be committed, subject to certain conditions, to purchase a
number of additional shares of common stock proportionate to such underwriter's
initial commitment as indicated in the preceding table and we will be
obligated, under such over-allotment option, to sell such shares of common
stock to the underwriters.
69
Underwriting
<PAGE>
We have agreed that, without the prior consent of Lehman Brothers, we will
not, except for certain limited exceptions, directly or indirectly, offer, sell
or otherwise dispose of any shares of common stock or any securities which may
be converted into or exchanged for any such shares of common stock for a period
of 180 days from the date of this prospectus. All of our executive officers and
directors and certain other shareholders have agreed pursuant to lock-up
agreements that, without the prior written consent of Lehman Brothers, they
will not, except for in certain limited exceptions, directly or indirectly,
offer, sell or otherwise dispose of any shares of common stock or any
securities which may be converted into or exchanged for any such shares for the
period ending 180 days after the date of this prospectus. See "Shares Eligible
for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earning prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
Application has been made to have the common stock approved for quotation on
the Nasdaq National Market under the symbol "VERT."
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute, under
certain circumstances, to payments that the underwriters may be required to
make in respect thereof.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and certain selling group members to bid for and purchase shares of common
stock. As an exception to these rules, the representatives are permitted to
engage in certain transactions that stabilize the price of the common stock.
Such transactions may consist of bids or purchases for the purposes of pegging,
fixing or maintaining the price of the common stock.
If the underwriters create a short position in the common stock in connection
with the offering (i.e., they sell more shares than are set forth on the cover
page of this prospectus), the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option described herein. The underwriters have informed us that they do not
intend to confirm sales to discretionary accounts that exceed 5% of the total
number of shares of common stock offered by them.
The representatives also may impose a penalty bid on certain underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the
70
Underwriting
<PAGE>
price of a security to the extent that it were to discourage resales of the
security by purchasers in an offering.
Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
Any offers in Canada will be made only pursuant to an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
such sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
The representatives have informed us that they do not intend to confirm the
sales of shares of common stock offered in this prospectus to any accounts over
which they exercise discretionary authority.
At our request, the underwriters have reserved up to shares of common
stock offered hereby for sale to certain of our officers, directors, employees,
business associates and related parties at the initial public offering price
set forth on the cover page of this prospectus. Such persons must commit to
purchase no later than the close of business on the day following the date of
this prospectus. The number of shares available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares.
The underwriters, at the request of VerticalNet, have reserved for sale at
the initial public offering price up to shares of common stock to visitors
and users of the VerticalNet services or to its Web site who express an
interest in purchasing such shares. The sale of such shares will be made by Wit
Capital acting as e-Manager in the offering. Purchases of the reserved shares
are to be made through an account at Wit Capital in accordance with Wit
Capital's procedures for opening an account and transacting in securities. Any
reserved shares not purchased by visitors and users of VerticalNet's services
or to its Web site will be offered by the underwriters on the same basis as
other shares offered in this prospectus.
A prospectus in electronic format is being made available on an Internet Web
site maintained by Wit Capital. In addition, pursuant to an e-Dealer Agreement,
all dealers purchasing shares from Wit Capital in the offering (the "e-
Dealers") similarly have agreed to make a prospectus in electronic format
available on Web sites maintained by each of the e-Dealers. The information on
such Web sites relating to the VerticalNet offering is filed as an exhibit to
the registration statement. Reference is made to the exhibit for a more
complete description of the information relating to the offering contained on
such Web sites.
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in the offering as one of the underwriters and as the e-
Manager. Mr. Robert Lessin, the Chairman, Chief Executive Officer and a
substantial shareholder of Wit Capital, owns 154,861 shares of VerticalNet's
Series C Preferred Stock, which will convert into 154,861 shares of common
stock prior to consummation of the offering. Lehman Brothers Venture Capital
Partners I, L.P., a wholly-owned subsidiary of Lehman Brothers Holdings Inc.,
71
Underwriting
<PAGE>
owns 569,980 shares of VerticalNet's Series D Preferred Stock, which will
convert into 569,980 shares of common stock prior to consummation of the
offering.
In connection with VerticalNet's private placement of Series D Preferred
Stock in May and June 1998, Lehman Brothers received cash and 56,980 shares of
common stock as a placement fee for acting as placement agent.
EXPERTS
The consolidated financial statements and schedule of VerticalNet, Inc. as of
December 31, 1996 and 1997 and September 30, 1998 and for the period from July
28, 1995 (inception) through December 31, 1995, the years ended December 31,
1996 and 1997, and the nine month period ended September 30, 1998, the
financial statements of Boulder Interactive Technology Services Co. as of
December 31, 1996 and 1997 and for the period from March 22, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997, and the
financial statements of Informatrix Worldwide, Inc. as of December 31, 1997 and
for the period from October 15, 1997 (inception) through December 31, 1997,
have been included herein and in the registration statement in reliance upon
the reports of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Chadbourne & Parke LLP, New York, New York.
72
Underwriting/Experts/Legal Matters
<PAGE>
ADDITIONAL INFORMATION
We file annual, quarterly, and special reports, proxy statements, and other
information with the Securities and Exchange Commission. Such reports, proxy
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at its regional offices located
at 7 World Trade Center, New York, New York 10048 and Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
Our common stock is quoted on The Nasdaq National Market. Reports, proxy
statements and other information concerning VerticalNet can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a Web site that contains all
information filed electronically by us. The address of the Commission's Web
site is (http://www.sec.gov.).
This prospectus constitutes a part of a registration statement on Form S-1
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") filed by us with the Commission under the Securities
Act, with respect to the securities offered in this prospectus. This prospectus
does not contain all the information which is in the Registration Statement.
Certain parts of the Registration Statement are omitted as allowed by the rules
and regulations of the Commission. We refer to the Registration Statement and
to the exhibits to such Registration Statement for further information with
respect to VerticalNet and the securities offered in this prospectus. Copies of
the Registration Statement and the exhibits to such Registration Statement are
on file at the offices of the Commission and may be obtained upon payment of
the prescribed fee or may be examined without charge at the public reference
facilities of the Commission described above. Statements contained in this
prospectus concerning the provisions of documents are necessarily summaries of
the material provisions of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission.
This prospectus includes statistical data regarding Internet usage and the
advertising industry which were obtained from industry publications, including
reports generated by Jupiter Communications and Forrester Research. These
industry publications generally indicate that they have obtained information
from sources believed to be reliable, but do not guarantee the accuracy and
completeness of such information. While we believe those industry publications
to be reliable, we have not independently verified such data. We also have not
sought the consent of any of these organizations to refer to their reports in
this prospectus.
REPORTS TO SECURITY HOLDERS
We intend to distribute to our shareholders annual reports containing audited
financial statements and will make available copies of quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information.
73
Additional Information/Reports to Security Holders
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Financial Statements:
VerticalNet, Inc.
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and September
30, 1998 .............................................................. F-3
Consolidated Statements of Operations for the period from July 28, 1995
(inception) through December 31, 1995, the years ended December 31,
1996 and 1997, and the nine months ended September 30, 1997 (unaudited)
and 1998 .............................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the period
from July 28, 1995 (inception) through December 31, 1995, the years
ended December 31, 1996 and 1997, and the nine months ended September
30, 1998 .............................................................. F-5
Consolidated Statements of Cash Flows for the period from July 28, 1995
(inception) through December 31, 1995, the years ended December 31,
1996 and 1997, and the nine months ended September 30, 1997 (unaudited)
and 1998 .............................................................. F-6
Notes to Consolidated Financial Statements.............................. F-7
Boulder Interactive Technology Services Company
Independent Auditors' Report............................................ F-24
Balance Sheets at December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-25
Statements of Operations for the period from March 22, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997, and the
six months ended June 30, 1997 and 1998 (unaudited).................... F-26
Statements of Shareholders' Equity for the period from March 22, 1996
(inception) through December 31, 1996, the year ended December 31, 1997
and the six months ended June 30, 1998 (unaudited)..................... F-27
Statements of Cash Flows for the period from March 22, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997 and the six
months ended June 30, 1997 and 1998 (unaudited)........................ F-28
Notes to Financial Statements........................................... F-29
Informatrix Worldwide, Inc.
Independent Auditors' Report............................................ F-34
Balance Sheets at December 31, 1997 and September 30, 1998 (unaudited).. F-35
Statements of Operations for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended
September 30, 1998 (unaudited)......................................... F-36
Statements of Shareholders' Deficit for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended
September 30, 1998 (unaudited)......................................... F-37
Statements of Cash Flows for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended
September 30, 1998 (unaudited)......................................... F-38
Notes to Financial Statements........................................... F-39
Unaudited Pro Forma Combined Financial Statements
VerticalNet, Inc. and subsidiaries
Unaudited Pro Forma Financial Information Basis of Presentation......... F-43
Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997...................................................... F-44
Unaudited Pro Forma Combined Statement of Operations for the nine months
ended
September 30, 1998..................................................... F-45
Notes to Pro Forma Condensed Combined Financial Statements.............. F-46
</TABLE>
F-1
<PAGE>
When the reverse stock spilt referred to in the last paragraph of Note 14 of
the Consolidated Financial Statements is effective, we will be in a position to
render the following report.
KPMG LLP
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
VerticalNet, Inc.:
We have audited the accompanying consolidated balance sheets of VerticalNet,
Inc. and subsidiaries as of December 31, 1996 and 1997, and September 30, 1998
and the related consolidated statements of operations, shareholders' equity
(deficit) and cash flows for the period from July 28, 1995 (inception) to
December 31, 1995, for the years ended December 31, 1996 and 1997, and the nine
months ended September 30, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
VerticalNet, Inc. and subsidiaries as of December 31, 1996 and 1997, and
September 30, 1998, and the results of their operations and their cash flows
for the period from July 28, 1995 (inception) through December 31, 1995, for
the years ended December 31, 1996 and 1997, and the nine months ended September
30, 1998 in conformity with generally accepted accounting principles.
December 22, 1998,
except as to the last paragraph
of Note 14, which is as of January 19,1999
Philadelphia, Pennsylvania
F-2
<PAGE>
VERTICALNET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, September 30, September 30,
1996 1997 1998 1998
------------ ------------ ------------- -------------
(Pro Forma)
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 329,451 $ 754,716 $ 3,793,964 $10,793,964
Accounts receivable,
net of allowance for
doubtful accounts of
$18,575, $30,000,
$58,066 and $58,066,
respectively.......... 178,942 607,611 1,064,777 1,064,777
Loan receivable, net of
allowance of $80,000
and $0 in 1997 and
1998, respectively.... -- 84,086 3,500 3,500
Prepaid expenses....... 6,474 145,678 335,011 335,011
---------- ----------- ------------ -----------
Total current as-
sets................ 514,867 1,592,091 5,197,252 12,197,252
---------- ----------- ------------ -----------
Property and equipment,
net..................... 106,409 491,853 1,003,541 1,003,541
Goodwill and other intan-
gibles, net of accumu-
lated amortization of
$103,565 and $103,565 in
1998 and pro forma, re-
spectively.............. -- -- 2,663,640 2,663,640
Deferred charges and
other assets............ 15,927 20,143 293,811 293,811
---------- ----------- ------------ -----------
Total assets......... $ 637,203 $ 2,104,087 $ 9,158,244 $16,158,244
========== =========== ============ ===========
Liabilities and Share-
holders' Equity (Defi-
cit)
Current liabilities:
Current portion of
long-term debt........ $ 26,515 $ 150,856 $ 301,570 $ 301,570
Line of credit......... -- 2,500,000 -- 2,000,000
Accounts payable....... 98,045 607,479 1,209,966 1,209,966
Accrued expenses....... 23,879 158,936 1,056,901 1,056,901
Deferred revenues...... 216,433 710,393 1,506,878 1,506,878
---------- ----------- ------------ -----------
Total current liabil-
ities............... 364,872 4,127,664 4,075,315 6,075,315
---------- ----------- ------------ -----------
Long-term debt, net of
current portion......... 167,067 399,948 374,128 374,128
---------- ----------- ------------ -----------
Commitments and contin-
gencies (Note 8)
Shareholders' Equity
(Deficit):
Preferred stock Series
A, B, C, and D: $.01
par value, 40,000,000
shares authorized,
512,821, 3,247,262,
7,805,667 and 0 shares
issued and outstanding
in 1996, 1997, 1998,
and proforma,
respectively.......... 5,128 32,473 78,057 --
Common stock $.01 par
value, 40,000,000
shares authorized
2,526,865, 2,526,865,
2,629,999 and
12,920,401 shares
issued and outstanding
in 1996, 1997, 1998,
and pro forma,
respectively.......... 25,269 25,269 26,300 129,204
Additional paid-in
capital............... 1,054,689 3,277,344 18,836,878 24,012,031
Deferred compensation.. -- -- (139,406) (139,406)
Accumulated deficit.... (919,822) (5,698,611) (14,033,028) (14,233,028)
---------- ----------- ------------ -----------
165,264 (2,363,525) 4,768,801 9,768,801
Treasury stock at cost,
161,289 shares........ (60,000) (60,000) (60,000) (60,000)
---------- ----------- ------------ -----------
Total shareholders'
equity (deficit).... 105,264 (2,423,525) 4,708,801 9,708,801
---------- ----------- ------------ -----------
Total liabilities and
shareholders' equity
(deficit)........... $ 637,203 $ 2,104,087 $ 9,158,244 $16,158,244
========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VERTICALNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 28, 1995
(Inception) Year ended Nine months ended
to December 31, December 31, September 30,
--------------- ----------------------- ------------------------
1995 1996 1997 1997 1998
--------------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 15,642 $ 285,140 $ 791,822 $ 550,648 $ 1,861,799
---------- ---------- ----------- ----------- -----------
Costs and Expenses:
Editorial and
operational............ 23,949 213,544 1,055,725 673,784 2,100,885
Product development..... 21,550 213,926 711,292 451,008 797,815
Sales and marketing..... 147,609 268,417 2,300,365 1,348,318 4,405,407
General and
administrative......... 32,656 291,660 1,388,123 890,768 2,907,275
---------- ---------- ----------- ----------- -----------
Operating loss.......... (210,122) (702,407) (4,663,683) (2,813,230) (8,349,583)
---------- ---------- ----------- ----------- -----------
Interest and dividend
income ................ -- 7,491 10,999 7,714 164,535
Interest expense........ (853) (13,931) (126,105) (36,898) (149,369)
---------- ---------- ----------- ----------- -----------
Interest, net........... (853) (6,440) (115,106) (29,184) 15,166
---------- ---------- ----------- ----------- -----------
Net loss................ $ (210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
---------- ---------- ----------- ----------- -----------
Basic and diluted net
loss per share......... $ (0.19) $ (0.27) $ (1.89) $ (1.12) $ (3.27)
========== ========== =========== =========== ===========
Weighted average shares
outstanding used in
per-share calculation
(basic and diluted).... 1,096,679 2,583,648 2,526,865 2,526,865 2,550,619
========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VERTICALNET, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Preferred Preferred Preferred Common Stock
-------------- ----------------- -------------- ----------------- -----------------
Additional
Paid-In Deferred
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Compensation
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July
28, 1995 (in-
ception)....... -- $ -- -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ --
Issuance of com-
mon stock...... -- -- -- -- -- -- -- -- 1,962,403 19,624 50,462 --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Decem-
ber 31, 1995... -- -- -- -- -- -- -- -- 1,962,403 19,624 50,462 --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Issuance of com-
mon stock...... -- -- -- -- -- -- -- -- 564,462 5,645 9,355 --
Issuance of
Series A
preferred
stock, net of
issuance cost.. 512,821 5,128 -- -- -- -- -- -- -- -- 994,872 --
Repurchase of
common stock... -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Decem-
ber 31, 1996... 512,821 5,128 -- -- -- -- -- -- 2,526,865 25,269 1,054,689 --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Issuance of Se-
ries B pre-
ferred stock... -- -- 2,579,580 25,796 -- -- -- -- -- -- 1,974,204 --
Issuance of Se-
ries C pre-
ferred stock... -- -- -- -- 154,861 1,549 -- -- -- -- 198,451 --
Issuance of
warrants in
connection with
debt
financing...... -- -- -- -- -- -- -- -- -- -- 50,000 --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Decem-
ber 31, 1997... 512,821 5,128 2,579,580 25,796 154,861 1,549 -- -- 2,526,865 25,269 3,277,344 --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Issuance of
Series D
preferred
stock, net of
transaction
costs.......... -- -- -- -- -- -- 4,558,405 45,584 -- -- 15,089,770 --
Issuance of
common stock as
consideration
for private
placement
fees........... -- -- -- -- -- -- -- -- 56,980 570 149,430 --
Issuance of
fully vested
options to non
employees...... -- -- -- -- -- -- -- -- -- -- 19,095 --
Consideration
for purchase of
Informatrix.... -- -- -- -- -- -- -- -- 46,154 461 152,539 --
Unearned
compensation... -- -- -- -- -- -- -- -- -- -- 148,700 (148,700)
Amortization of
unearned
compensation... -- -- -- -- -- -- -- -- -- -- -- 9,294
Net loss........ -- -- -- -- -- -- -- -- -- -- -- --
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
Balance, Septem-
ber 30, 1998... 512,821 $5,128 2,579,580 $25,796 154,861 $1,549 4,558,405 $45,584 2,629,999 $26,300 $18,836,878 $(139,406)
------- ------ --------- ------- ------- ------ --------- ------- --------- ------- ----------- ---------
<CAPTION>
Accumulated Treasury Total shareholders'
deficit stock equity(deficit)
------------- --------- -------------------
<S> <C> <C> <C>
Balance, July
28, 1995 (in-
ception)....... $ -- $ -- $ --
Issuance of com-
mon stock...... -- -- 70,086
Net loss........ (210,975) -- (210,975)
------------- --------- -------------------
Balance, Decem-
ber 31, 1995... (210,975) -- (140,889)
------------- --------- -------------------
Issuance of com-
mon stock...... -- -- 15,000
Issuance of
Series A
preferred
stock, net of
issuance cost.. -- -- 1,000,000
Repurchase of
common stock... -- (60,000) (60,000)
Net loss........ (708,847) -- (708,847)
------------- --------- -------------------
Balance, Decem-
ber 31, 1996... (919,822) (60,000) 105,264
------------- --------- -------------------
Issuance of Se-
ries B pre-
ferred stock... -- -- 2,000,000
Issuance of Se-
ries C pre-
ferred stock... -- -- 200,000
Issuance of
warrants in
connection with
debt
financing...... -- -- 50,000
Net loss........ (4,778,789) -- (4,778,789)
------------- --------- -------------------
Balance, Decem-
ber 31, 1997... (5,698,611) (60,000) (2,423,525)
------------- --------- -------------------
Issuance of
Series D
preferred
stock, net of
transaction
costs.......... -- -- 15,135,354
Issuance of
common stock as
consideration
for private
placement
fees........... -- -- 150,000
Issuance of
fully vested
options to non
employees...... -- -- 19,095
Consideration
for purchase of
Informatrix.... -- -- 153,000
Unearned
compensation... -- -- --
Amortization of
unearned
compensation... 9,294
Net loss........ (8,334,417) -- (8,334,417)
------------- --------- -------------------
Balance, Septem-
ber 30, 1998... $(14,033,028) $(60,000) $ 4,708,801
------------- --------- -------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VERTICALNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 28, 1995
(Inception) Year ended Nine months ended
to December 31, December 31, September 30,
--------------- ----------------------- ------------------------
1995 1996 1997 1997 1998
--------------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net loss............... $(210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
--------- ---------- ----------- ----------- -----------
Adjustments to recon-
cile net loss to net
cash used in operating
activities:
Loss from disposal of
fixed assets.......... -- -- 3,278 -- --
Depreciation, amortiza-
tion and other noncash
charges............... 6,137 62,142 388,058 183,444 411,712
Change in assets:
Accounts receivable... (34,800) (144,142) (428,669) (703,741) (332,010)
Prepaid expenses and
other assets......... (3,092) (15,632) (143,420) (39,681) (459,021)
Change in liabilities:
Accounts payable...... 87,219 10,825 509,434 294,188 570,941
Accrued expenses...... 37,903 (14,024) 135,057 56,908 878,354
Deferred revenues..... 69,333 147,100 493,960 733,220 579,915
--------- ---------- ----------- ----------- -----------
Net cash used in operat-
ing activities......... (48,275) (662,578) (3,821,091) (2,318,076) (6,684,526)
--------- ---------- ----------- ----------- -----------
Cash flows from invest-
ing activities:
Acquisitions, net of
cash acquired......... -- -- -- -- (1,858,389)
Loan to Infomatrix
prior to acquisition.. -- -- -- -- (550,914)
Loan receivable........ -- -- (160,000) -- (4,086)
Capital expenditures... (56,720) (63,646) (235,671) (148,340) (399,038)
--------- ---------- ----------- ----------- -----------
Net cash used in invest-
ing activities......... (56,720) (63,646) (395,671) (148,340) (2,812,427)
--------- ---------- ----------- ----------- -----------
Cash flows from financ-
ing activities:
Borrowings under line
of credit............. -- -- 2,500,000 375,000 --
Repayment of line of
credit................ -- -- -- -- (2,500,000)
Loans from related par-
ties.................. 15,914 100,000 -- -- --
Loans from ICG......... -- -- 1,600,000 650,000 1,550,000
Repayment of loans from
related parties....... -- (20,000) -- -- (100,000)
Principal payments on
obligations under cap-
ital leases........... (139) (2,182) (48,834) (43,130) (122,909)
Borrowings under long-
term debt............. 50,000 -- -- -- --
Repayment of long-term
debt.................. -- (8,009) (9,139) (6,764) (32,852)
Repayment of loans from
ICG................... -- -- (950,000) -- --
Net proceeds from issu-
ance of preferred
stock................. -- 1,000,000 1,550,000 1,350,000 13,741,962
Proceeds from issuance
of common stock....... 70,086 15,000 -- -- --
Repurchase of treasury
stock................. -- (60,000) -- -- --
--------- ---------- ----------- ----------- -----------
Net cash provided by fi-
nancing activities..... 135,861 1,024,809 4,642,027 2,325,106 12,536,201
--------- ---------- ----------- ----------- -----------
Net increase (decrease)
in cash................ 30,866 298,585 425,265 (141,310) 3,039,248
Cash and cash equiva-
lents--beginning of pe-
riod................... -- 30,866 329,451 329,451 754,716
--------- ---------- ----------- ----------- -----------
Cash and cash equiva-
lents--end of period... $ 30,866 $ 329,451 $ 754,716 $ 188,141 $ 3,793,964
========= ========== =========== =========== ===========
Supplemental disclosure
of cash flow informa-
tion:
Cash paid during the
year for interest..... $ 853 $ 13,931 $ 52,925 $ 17,483 $ 57,079
========= ========== =========== =========== ===========
Supplemental schedule of
noncash investing and
financing activities:
Equipment acquired un-
der capital leases.... $ 4,407 $ 53,595 $ 415,195 $ 418,316 $ 353,479
Issuance of common
stock as consideration
for purchase of
Informatrix........... $ -- $ -- $ -- $ -- $ 153,000
Issuance of common
stock as consideration
of private placement
fees.................. $ -- $ -- $ -- $ -- $ 150,000
Issuance of warrants in
connection with debt
financing............. $ -- $ -- $ 50,000 $ -- $ --
Loans from ICG con-
verted to preferred
stock................. $ -- $ -- $ 650,000 $ 650,000 $ 1,550,000
========= ========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to September 30, 1997 is unaudited)
(1) Summary of Significant Accounting Policies
Description of Company
VerticalNet, Inc. (VerticalNet or the Company) is an owner and operator of
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of September 30, 1998 operates 29 vertical
trade communities in seven major industry groups: environmental; electronics;
services; communications; process industries; sciences; and food & packaging.
The Company currently generates substantially all of its revenue from
Internet advertising including the development of "storefronts" (Web pages that
focus on advertisers products and provide a link to the advertisers Web sites).
Internet Capital Group LLC (ICG) has a majority of the voting securities of
the Company through its ownership of preferred stock of the Company.
The Company has sustained significant net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations
in the ordinary course of business is dependent upon its ability to establish
profitable operations or raise additional financing through public or private
equity financing, bank financing, or other sources of capital. During 1998 the
Company sold an additional $15.2 million of its preferred stock. Management
believes that its current funds combined with other available sources of
funding will be sufficient to enable the Company to meet its planned
expenditures through at least December 31, 1998. If financial resources are not
sufficient, management has the intent and believes it has the ability to reduce
expenditures as to not require additional financial resources if such resources
are not available on terms acceptable to the Company.
Unaudited Interim Financial Information
The interim financial statements of the Company for the nine months ended
September 30, 1997, included herein, have been prepared by the Company, without
audit, pursuant to the rules and regulations of the SEC. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements.
F-7
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the results of the Company's
operations and its cash flows for the nine months ended September 30, 1997. The
accompanying unaudited interim financial statements are not necessarily
indicative of full year results.
Principles of Consolidation
The consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Leasehold improvements are amortized on a straight-line basis
over the lesser of the estimated useful life of the asset or the lease term.
Property and equipment are depreciated on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment and purchased software......................... 3 years
Office equipment and furniture.................................... 5 years
Trade show equipment.............................................. 7 years
Leasehold improvements............................................ 3 years
</TABLE>
Revenue and Editorial and Operational Expenses
The Company's revenues are derived principally from advertising contracts
which include the initial construction of storefronts. The advertising
contracts do not extend beyond one year. Advertising revenues are recognized
ratably over the period of the advertising contract.
Revenues from educational courses are recognized in the period in which the
course is completed and revenues from the sale of books are recognized in the
period in which the books are shipped.
Barter transactions are recorded at the lower of estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given. From July 28, 1995 (inception) through the year ended December 31, 1997,
barter transactions have been immaterial. For the nine months ended September
30, 1998, the Company recognized approximately $351,000 of advertising revenues
from barter transactions.
F-8
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
Editorial and operational expenses primarily consist of Internet connection
charges, depreciation, purchased content, salaries and benefits of operating
and editorial personnel, and other related operating costs.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral on accounts receivable. The
Company maintains allowances for credit losses and such losses have been within
management's expectations. No single customer accounted for greater than 10% of
total revenues during the period from July 28, 1995 (inception) through
December 31, 1995 and the years ended December 31, 1996 and 1997 and the nine
month periods ended September 30, 1997 and 1998.
Financial Instruments
The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable, loans payable and capital lease obligations that
are carried at cost which approximates fair value.
Product Development
Product development costs consists principally of salaries and related costs,
which are charged to expense as incurred.
Advertising Costs
The Company charges advertising costs to expense as incurred. Advertising
expense was approximately $38,000, $21,000 and $198,000 for the period from
July 28, 1995 (inception) through December 31, 1995 and the years ended
December 31, 1996 and 1997, respectively, and $126,000 and $1,323,000 for the
nine months ended September 30, 1997 and 1998, respectively.
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and the tax effect of net operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded against deferred
tax assets if it is more likely than not that such assets will not be realized.
F-9
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
Accounting for Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Goodwill and Intangibles
Goodwill is amortized using the straight-line method from the date of
acquisition over the expected period to be benefited, estimated at 36 months.
The Company periodically assesses the recoverability of goodwill, as well as
other long-lived assets, based upon expectations of future undiscounted cash
flows.
Deferred Offering Costs
As of September 30, 1998, specific incremental costs directly attributable
to the planned initial public offering (IPO) process have been deferred. These
costs will be charged against additional paid-in-capital in connection with
the consummation of this offering.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Stock Options
The Company accounts for the grant of employee options to purchase common
stock in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options or to continue to account for stock options and stock-
based awards using the intrinsic value method, as outlined under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and to make pro forma disclosures of net loss as if the fair value method
had been applied. The Company elected to apply APB 25 to account for stock
options and has disclosed the pro forma net loss as if the fair value method
had been applied.
Stock Splits
In February 1996 and February 1997, the Company's Board of Directors
authorized and implemented an 11,008 for one and a 4.7619-for-one, stock
split, respectively. All share amounts have been retroactively restated to
reflect these events in the accompanying financial statements.
F-10
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share
The Company adopted Computation of Earnings Per Share, (SFAS No. 128), during
the year ended December 31, 1997. In accordance with SFAS No. 128, basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. Dilutive earnings per share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the treasury stock method) and the incremental common shares
issuable upon the conversion of the convertible preferred stock (using the if-
converted method). Common equivalent shares are excluded from the calculation
if their effect is anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No.
98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of an IPO, are required
to be included in the calculation of basic and diluted net loss per share as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.
Pro forma net loss per share is computed using the weighted average number of
shares of common stock outstanding, including common equivalent shares from the
convertible preferred stock (using the if-converted method), which will
automatically convert into common stock upon an IPO as if converted at the
original date of issuance, for both basic and diluted net loss per share, even
though inclusion is antidilutive.
The following table sets forth the computation of loss per share:
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
December 31, September 30,
----------------------- ------------------------
July 28, 1995 (inception)
Basic and Diluted net loss per share To December 31, 1995 1996 1997 1997 1998
- ------------------------------------ ------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator: Net loss...... $ (210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
Denominator:
Weighted-average shares
outstanding basic and
diluted............... 1,096,679 2,583,648 2,526,865 2,526,865 2,550,619
Basic and diluted net
loss per share.......... $ (0.19) $ (0.27) $ (1.89) $ (1.12) $ (3.27)
========== ========== =========== =========== ===========
Pro forma net loss per
share
Numerator: Net loss...... $ (210,975) $ (708,847) $(4,778,789) $(2,842,414) $(8,334,417)
Denominator:
Weighted-average shares
outstanding basic and
diluted............... 1,096,679 3,326,284 6,184,326 5,677,540 10,052,180
Basic and diluted net
loss per share.......... $ (0.19) $ (0.21) $ (0.77) $ (0.50) $ (0.83)
========== ========== =========== =========== ===========
</TABLE>
F-11
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
Recent Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board (FASB) issued Reporting
Comprehensive Income (SFAS No. 130), which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 offers alternatives for
presentation of disclosures required by the standard. The adoption of SFAS No.
130 had no impact on the Company's results of operations, financial position or
cash flows, as the amount of comprehensive loss is the same as the net loss for
all periods presented.
In June 1997 the FASB issued Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 will not
have an impact on the Company's results of operations, financial position or
cash flows.
In February 1998 the FASB issued Employers' Disclosures about Pension and
Other Postretirement Benefits (SFAS No. 132), which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 will not have an impact on the Company's results of operations,
financial position or cash flows.
In March 1998 the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance on accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of this
standard to have a material effect on the Company's capitalization policy.
In April 1998 the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
In June 1998 the FASB issued Accounting for Derivatives and Hedging
Activities (SFAS 133), which establishes accounting and reporting standards for
derivative instruments, including certain
F-12
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. As the Company
does not currently engage or plan to engage in derivative or hedging
activities, there will be no impact to the Company's results of operations,
financial position or cash flows upon the adoption of this standard.
(2) Unaudited Pro Forma Balance Sheet
The Company is planning on filing a registration statement with the
Securities and Exchange Commission (SEC) that would permit the Company to sell
shares of the Company's common stock in connection with a proposed IPO. In
addition, in November of 1998, the Company obtained $5.0 million of convertible
notes from ICG and certain holders of the Series D preferred stock and a $2.0
million note from a bank.
The unaudited pro forma balance sheet as of September 30, 1998 reflects:
(a) The Company's capitalization, if the IPO is consummated under terms
presently anticipated. Upon closing of the proposed IPO, all of the
then outstanding shares of the Company's convertible preferred stock
will automatically convert into 9,734,846 shares of common stock on the
basis that the Series A preferred stock converts to shares of common
stock on a ratio of 4.7619:1 and the Series B, C and D preferred stock
converts on a ratio of 1:1. The conversion of the convertible preferred
stock has been reflected in the accompanying unaudited pro forma
consolidated balance sheet as if it had occurred on September 30, 1998.
(b) The $5.0 million of convertible notes from ICG and certain holders of
the Series D preferred stock that convert into shares of common stock
at the consumation of the IPO and the $2.0 million note from a bank as
more fully described in Note 14. In connection with these loans the
Company issued warrants to purchase an aggregate of 102,564 shares of
the Company's common stock with an estimated fair value of $200,000.
(3) Acquisitions
In September 1998 the Company acquired all of the outstanding capital stock
of Boulder Interactive Technology Services Company (BITC) for $1.8 million in
cash. BITC operates a vertical trade community for professionals in the radio
frequency and wireless communications industry. The acquisition was accounted
for using the purchase method of accounting. The excess of the purchase price
over the fair value of the net assets acquired of approximately $1,864,000 was
recorded as goodwill and is being amortized over 36 months.
In September 1998 the Company acquired all of the outstanding capital stock
of Informatrix Worldwide, Inc. (Informatrix) for 46,154 shares of the Company's
common stock valued at $153,000. Informatrix operates a vertical community in
the property and casualty insurance industry that caters to risk managers,
agents, brokers and other professionals in the insurance industry. The
acquisition was accounted for under the purchase method of accounting. The
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $903,000 was recorded
F-13
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
as goodwill and will be amortized over 36 months. The purchase agreement also
provides for the Company to issue up to 11,538 additional shares of the
Company's common stock to the Informatrix shareholders in the event that
Informatrix achieves certain sales targets through December 1998. As of October
31, 1998, the former shareholders of Informatrix earned 2,200 shares of common
stock which was valued at $7,293. The additional consideration was accounted
for as additional goodwill.
The following unaudited pro forma financial information presents the combined
results of operations of VerticalNet, BITC and Informatrix as if the
acquisitions occurred on January 1, 1997, after giving effect to certain
adjustments including amortization of goodwill. The unaudited pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had VerticalNet, BITC and Informatrix constituted a
single entity during such periods.
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
------------- ------------------------
1997 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................. $ 1,118,030 $ 779,458 $ 2,331,869
=========== =========== ===========
Net loss.............................. $(5,789,177) $(3,405,718) $(9,800,563)
=========== =========== ===========
Net loss per share.................... $ (2.28) $ (1.35) $ (3.77)
=========== =========== ===========
</TABLE>
(4) Property and Equipment
<TABLE>
<CAPTION>
December 31, September 30,
------------------- -------------
1996 1997 1998
-------- --------- -------------
<S> <C> <C> <C>
Computer equipment and purchased soft-
ware................................... $148,028 $ 654,157 $ 1,417,280
Office equipment and furniture.......... 6,645 102,279 148,189
Trade show equipment.................... 19,605 34,079 40,587
Leasehold improvements.................. -- 29,401 43,198
-------- --------- -----------
174,278 819,916 1,649,254
Less: accumulated depreciation and amor-
tization............................... (67,869) (328,063) (645,713)
-------- --------- -----------
Property and equipment, net............. $106,409 $ 491,853 $ 1,003,541
======== ========= ===========
</TABLE>
(5) Line of Credit
The Company had a line of credit with a bank in the amount of $2,500,000 at
December 31, 1997. Borrowings under the facility were collateralized by a
security interest in all assets of the Company and required the Company to meet
specified financial ratios. As of December 31, 1997, the Company was in
technical default, as it did not meet the specified financial ratios. The bank
waived these violations for the year ended December 31, 1997. The facility
bears interest at prime plus 1.5% (10% at December 31, 1997). The weighted
average interest rate for borrowings under this facility was 10% for the year
ended December 31, 1997. In connection with obtaining these facilities, the
Company issued warrants to purchase its common stock (Note 9). ICG has
guaranteed repayment of $2.0 million under the line of credit agreement. The
Company repaid all amounts outstanding under
F-14
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
this facility in May 1998 and consequently, the guarantee from ICG was
cancelled. Subsequently, the bank provided a $500,000 line of credit, which
expires on June 30, 1999 and is collateralized by a security interest in all of
the assets of the Company with an interest rate prime plus 1.5%.
(6) Accrued Expenses
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -------------
1996 1997 1998
------- -------- -------------
<S> <C> <C> <C>
Accrued compensation and related costs...... $ -- $ 90,833 $ 699,226
Accrued professional fees................... 14,500 25,698 282,499
Other....................................... 9,379 42,405 75,176
------- -------- ----------
$23,879 $158,936 $1,056,901
======= ======== ==========
</TABLE>
(7) Long-term Debt
<TABLE>
<CAPTION>
December 31, September 30,
------------------ -------------
1996 1997 1998
-------- -------- -------------
<S> <C> <C> <C>
Term notes with related parties............ $100,000 $100,000 $ --
Term bank note............................. 41,991 32,852 --
Capital leases............................. 51,591 417,952 675,698
-------- -------- --------
193,582 550,804 675,698
Less: current portion...................... (26,515) (150,856) (301,570)
-------- -------- --------
Long-term debt............................. $167,067 $399,948 $374,128
======== ======== ========
</TABLE>
The Company had a term loan with another bank with an interest rate at prime
plus 2.75% (11.25% at December 31, 1997) which was payable in 36 monthly
installments. This note was repaid in May 1998.
In May, June and July 1997, ICG lent an aggregate of $650,000 to the Company
at a rate of 9.5%. These amounts were converted to Series B preferred stock in
July 1997 (note 9).
In October, November and December 1997, ICG lent an aggregate of $950,000 to
the Company also at a rate of 9.5%. These amounts were repaid on December 30,
1997.
In February, March and April 1998, ICG lent an aggregate of $1,550,000 to the
Company, also at a rate of 9.5%. These amounts were converted to Series D
preferred stock in May 1998 (note 9).
The Company had three unsecured term notes due to shareholders with an
interest rate of 7%. The notes were to mature on February 2001. One of the
holders of these notes is a board member of ICG. These notes were repaid in May
1998.
F-15
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
The Company has several capital leases on its equipment with lease terms
ranging from three to five years. The interest rates implicit in the leases are
8% to 20%. At December 31, 1996, 1997 and September 30, 1998, the book value of
assets held under capital leases were approximately $49,000, $300,000 and
$514,000, respectively, and the aggregate remaining minimum lease payments at
September 30, 1998 were approximately $759,000 including interest of
approximately $85,000.
At September 30, 1998, long-term debt will mature as follows:
<TABLE>
<S> <C>
1999............................................................ $ 278,681
2000............................................................ 238,154
2001............................................................ 122,197
2002............................................................ 32,751
2003............................................................ 3,915
---------
Total......................................................... $ 675,698
=========
</TABLE>
(8) Commitments and Contingencies
The Company leases its facilities under operating lease agreements expiring
through 2001. Future minimum lease payments as of September 30, 1998 under the
leases are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 272,078
2000............................................................ 201,735
2001............................................................ 79,600
</TABLE>
Rent expense under the noncancelable operating leases was approximately
$5,100, $24,300, and $81,200 for the period from July 28, 1995 (inception) to
December 31, 1995 and the years ended December 31, 1996 and December 31, 1997,
respectively, and $71,000 and $228,000 for the nine months ended September 30,
1997 and 1998, respectively.
On June 30, 1998, the Company entered into a three year Sponsorship Agreement
with Excite, Inc. (Excite). The Sponsorship Agreement provides for the Company
and Excite to sponsor and promote thirty co-branded Web pages and for each
company to sell advertising on the Web pages. Excite has guaranteed a minimum
number of advertising impressions for each of the three years. The agreement is
cancelable by either party, as defined, and requires the Company to pay Excite
$0.9 million, $2.0 million and $3.0 million, respectively, in year one, two and
three under the agreement. Such payments will be charged to expense as the
advertising impressions are provided by Excite. In addition, each Company will
provide the other with $200,000 in barter advertising during the term of the
Sponsorship Agreement.
F-16
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
The Company has entered into non-cancelable obligations with several content
service providers and Internet search engines. Under these agreements,
exclusive of the Excite agreement discussed above, the Company's obligations
are as follows:
<TABLE>
<S> <C>
1998........................................................... $1,140,456
1999........................................................... 137,978
2000........................................................... 24,000
</TABLE>
The Company has entered into employment agreements with several employees.
The agreements are cancelable, but require severance upon termination. As of
December 31, 1997, the Company would be required to pay approximately $950,000
in severance (of which $500,000 has been guaranteed by ICG) in the event that
these employment agreements are cancelled. As part of the employment agreement
with the Company's president and chief executive officer, the Company had
committed to grant options to purchase 6% of the Company's common stock.
Pursuant to this agreement, the Company granted 307,692, 196,481 and 231,530
options in October 1997, January 1998 and June 1998, respectively, at an
exercise price of $0.80, $0.80 and $2.63, respectively, which was the then fair
value of the Company's common stock. At September 30, 1998, the Company has
satisfied its obligations under this agreement.
The Company is a party to legal proceedings and claims, which arise in the
ordinary course of business. In the opinion of management, the amount of the
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.
(9) Capital Stock
The Company's restated Articles of Incorporation provides the Company with
the authority to issue 40,000,000 shares of common stock and 40,000,000 shares
of preferred stock.
Preferred Stock
In September 1996 the Company sold 512,821 shares of Series A preferred stock
(Series A) for $1,000,000. In July 1997 the Company sold 2,579,580 shares of
Series B preferred stock (Series B) for $2,000,000. In October 1997 the Company
sold 154,861 shares of Series C preferred stock (Series C) for $200,000.
On May 11, 1998 and June 10, 1998, the Company sold 3,988,604 and 569,801
shares of Series D preferred stock (Series D), respectively, for an aggregate
amount of approximately $15.2 million. If the Company does not complete an IPO
as defined, by May 1, 2000, the Series D has a cumulative dividend rate equal
to 6% of the original purchase price ($3.51 per share) which is due and payable
on May 1, 2000. Thereafter, the Series D cumulative dividends will continue to
accrue and are payable quarterly until the closing of an IPO. The holders of
the Series D preferred have demand and piggy-back registration rights as
defined.
F-17
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
Holders of preferred stock have the option to convert such shares into shares
of common stock on a 1:1 ratio, except for the Series A preferred stock which
converts on a ratio of 4.7619:1. The conversion rate on a particular series of
preferred stock is subject to an adjustment in the event that any additional
common stock, or other shares convertible into common stock, are issued for a
per share price less than the particular series conversion price. Mandatory
conversion occurs upon the closing of an IPO of the Company's common stock, as
defined. The Series D is senior to the Company's Series A, Series B and Series
C in liquidation and the holders of Series A, Series B and Series C are
entitled to receive an amount equal to their respective redemption price prior
to the distribution to the common shareholders.
The preferred stock votes on an as if converted basis. The Series A, Series B
and Series C, together have the right to elect two directors of the Company and
the Series D holders have the right to elect two directors of the Company. The
holders of preferred stock have no right to elect or appoint directors after
the shares convert into common stock upon the closing of an IPO.
Preferred stock consists of the following at December 31, 1996, 1997 and
September 30, 1998:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
Per share 1996 1997 1998
liquidation ------- --------- -------------
Preferred Class value Authorized Issued and outstanding
--------------- ----------- ---------- -------------------------------
<S> <C> <C> <C> <C> <C>
Series A............. $1.95 512,821 512,821 512,821 512,821
Series B............. .78 2,615,385 -- 2,579,580 2,579,580
Series C............. 1.31 205,128 -- 154,861 154,861
Series D............. 3.51 4,615,385 -- -- 4,558,405
--------- ------- --------- ---------
7,948,719 512,821 3,247,262 7,805,667
========= ======= ========= =========
</TABLE>
Common Stock
At September 30, 1998, 9,734,846 shares of common stock are reserved for the
conversion of preferred stock.
Warrants
On April 30, 1997, the Company issued a warrant to its bank (Note 5) to
purchase 19,347 shares of common stock at a price $0.76 per share. The warrant
expires on April 1, 2007.
In connection with the Company obtaining additional financing from its bank,
in December 1997, the Company issued to its bank a warrant to purchase a
maximum of 77,430 shares of common stock at an exercise price of $1.29 per
share. The exercise price and number of shares to be purchased are subject to
adjustment, based upon the Company's next round of equity financing. The
warrant expires on November 30, 2008.
In December 1997 the Company issued a warrant to ICG, the Company's majority
shareholder, to purchase a maximum 154,861 shares of common stock at an
exercise price of $1.29 per share. In
F-18
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
March 1998 the Company issued an additional warrant to ICG to purchase a
maximum of 77,430 shares of common stock at an exercise price of $1.29 per
share. The warrants were issued in connection with certain guarantees of the
Company's bank debt by ICG. The exercise price and number of shares are subject
to adjustment, based upon the Company's next round of equity financing. The
warrant expires on November 30, 2008.
In May 1998 in connection with the Company's equity financing, the Company
cancelled the warrants issued to ICG and its bank in December 1997 and issued
new warrants to purchase an aggregate of 113,960 shares of common stock at an
exercise price of $3.51 per share.
The estimated fair value of the warrants issued to the Company's bank and ICG
is $50,000 and was recorded as interest expense in the accompanying statement
of operations for the year ended December 31, 1997.
(10) Stock Option Plan
In December 1996 the Company's Board of Directors adopted the 1996 stock
option plan (the Plan). A total of 615,385 shares of common stock were reserved
for issuance under this Plan and this amount was increased to 1,846,154 in
January 1998 and 2,025,641 in August 1998.
The exercise price for the options is determined by the Board of Directors,
but shall not be less than 100% of the fair market value of the common stock on
the date the option is granted. Generally, the options vest over a four-year
period after the date of grant and expire ten years after the date of grant.
Option holders that terminate their employment with the Company generally
forfeit all non-vested options. Employees, key advisors and non-employee
directors of the Company are eligible to receive awards under the Plan.
The following table summarizes the activity of the Company's stock option
plan:
<TABLE>
<CAPTION>
Weighted
average
Shares exercise price
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1997..................... -- $ --
Options granted.................................... 555,213 0.64
Options cancelled.................................. -- --
--------- ------
Outstanding at December 31, 1997................... 555,213 0.64
Options granted.................................... 1,404,412 1.99
Options cancelled.................................. (52,051) 1.42
--------- ------
Outstanding at September 30, 1998 ................. 1,907,574 $ 1.62
========= ======
</TABLE>
F-19
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
The following table summarizes information about stock options outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted-
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (years) Price Outstanding Price
- -------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.29..................... 178,417 8.48 $0.29 74,193 $0.29
0.80..................... 844,681 9.20 0.80 167,381 0.80
0.98..................... 61,667 9.46 0.98 7,326 0.98
2.63..................... 639,734 9.74 2.63 34,102 2.63
3.32..................... 183,075 9.91 3.32 19,231 3.32
--------- -------
1,907,574 302,233
========= =======
</TABLE>
The Company applies APB 25 and related interpretations in accounting for its
stock option plan. Had compensation cost been recognized pursuant to SFAS No.
123, the Company's net loss would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
Nine months
Year ended ended
December 31, September
1997 30, 1998
------------ ------------
<S> <C> <C>
Net loss:
As reported......................................... $(4,778,789) $(8,334,417)
Pro forma........................................... $(4,785,358) $(8,394,851)
Pro forma loss per share:
As reported......................................... $(1.89) $(3.27)
Pro forma........................................... $(1.89) $(3.29)
</TABLE>
The per share weighted-average fair value of options issued by the Company
during 1997 and 1998 was $0.20 and $1.59 respectively.
The following range of assumptions were used by the Company to determine the
fair value of stock options granted using the minimum value option-price model:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Dividend yield.................................................. 0% 0%
Expected volatility............................................. 0% 0%
Average expected option life.................................... 5 years 5 years
Risk-free interest rate......................................... 5.9% 4.62%
</TABLE>
(11) Defined Contribution Plan
In 1997 the Company established a defined contribution plan for qualified
employees as defined under the plan. Participants may contribute 1% to 15% of
pre-tax compensation, as defined. Under the plan, the Company can make
discretionary contributions. To date, the Company has not made any
contributions to the plan.
F-20
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
(12) Income Taxes
Prior to June 1996, the Company elected to be treated for federal income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code
(the Code). As a result, the Company's earnings for prior tax years and through
September 12, 1996, the date of termination of the Company's S Corporation
status (the termination date) had been taxed for federal income tax purposes
directly to the Company's shareholders, rather than to the Company.
The components of the net deferred tax assets as of December 31, 1996 and
1997 and September 30, 1998 consists of the following:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
Deferred tax assets: 1996 1997 1998
-------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Net operating losses................ $ 52,803 $ 1,655,741 $ 4,912,191
Reserves............................ -- 103,200 23,498
Depreciation........................ 14,921 42,856 50,460
Deferred revenue and other.......... 128,603 287,979 885,534
--------- ----------- -----------
196,327 2,089,776 5,871,683
Valuation allowance................. (196,327) (2,089,776) (5,871,683)
--------- ----------- -----------
$ -- $ -- $ --
========= =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty of the Company's ability to realize the benefit of the
deferred tax assets, the deferred tax assets are fully offset by a valuation
allowance at December 31, 1996 and 1997 and September 30, 1998.
As of September 30, 1998, the Company has approximately $12,367,000 of net
operating loss carryforwards for federal tax purposes. These carryforwards will
begin expiring in 2013 if not utilized. In addition, the Company has net
operating loss carryforwards in certain states with various expiration periods
beginning in 2000.
Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership. Due to the Company's prior and current equity transactions, the
Company's net operating loss carryforwards may be subject to an annual
limitation. Any unused annual limitation may be carried forward to future years
for the balance of the net operating loss carrryforward period.
(13) Informatrix Worldwide, Inc.
During 1997 the Company entered into a $250,000 non-refundable Web site
development contract with Informatrix. In addition, under the contract the
Company was to maintain the Web site
F-21
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
for $20,000 per month, until either the Company or Informatrix terminated the
agreement. The Company substantially completed all of its obligations under the
development portion of the contract as of December 31, 1997, but deferred
recognition of revenue until the amounts were deemed collectible from
Informatrix. No revenue was recorded by the Company under the above contracts
in 1997 and 1998. Such development costs were charged to expense, as incurred.
In addition, the Company advanced Informatrix $160,000 in 1997, as evidenced
by a demand note. The Company had provided a reserve of $80,000 against this
note. The note is unsecured and bears interest at prime plus 1.5% (10% at
December 31, 1997).
During the nine months ended September 30, 1998, the Company advanced an
additional $555,000 to Informatrix.
(14) Subsequent Events
Options Granted
On November 11, 1998, the Company granted 115,641 options, with an exercise
price of $3.32 per share. On December 15, 1998, the Company granted 143,084
options, at the IPO price.
Bank Note
On November 25, 1998 the Company executed a $2.0 million note with a bank.
The note has an interest rate of prime plus 1.5% and matures at the earlier of
March 31, 1999 or the completion of the Company's next financing. In connection
with the loan, the Company issued warrants to purchase 20,513 shares of the
Company's common stock. The exercise price of the warrants will be equal to the
price in the Company's next financing as defined.
Convertible Notes
On November 25, 1998, ICG and certain holders of the Series D preferred stock
(the note holders) lent the Company $5.0 million in convertible notes. The
notes mature on the earlier of (i) closing of an IPO or (ii) closing of the
next round of private equity financing or (iii) May 31, 1999. In addition, the
note holders have the right to convert the convertible notes into shares of the
Company's common stock at the price per share of common stock in the IPO or the
price per share in the next round of financing, whichever occurs first. The
note holders have consented to convert the $5.0 million in convertible notes in
the IPO. In connection with the notes, the Company issued warrants to purchase
82,051 shares of the Company's common stock. The exercise price of the warrants
will be equal to the price in the Company's next round of financing as defined.
Initial Public Offering
In November 1998 the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC) that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed IPO.
F-22
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1997 is unaudited)
Employee Stock Purchase Plan (unaudited)
In January 1999 the Board adopted an Employee Stock Purchase Plan and
reserved an additional 300,000 shares of common stock for issuance thereunder.
Stock Option Plan (unaudited)
In January 1999 the Board of Directors authorized an increase in the shares
reserved for issuance under the Company's Stock Option Plan from 2,025,641 to
3,600,000. In addition a total of 197,872 options were granted at the IPO
price.
Acquisition (unaudited)
In January 1999 the Company acquired certain assets and assumed certain
liabilities including the Safetyonline Web site from Coastal Video
Communications (Coastal). The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
Coastal an advertising commitment on the Company's Web sites which will be
subsequently valued. The results of operations from Safetyonline are not
material to the Company's financial position or results of operations.
AltaVista (unaudited)
On January 19, 1999 the Company entered into a one year agreement with Compaq
Computer Corporation (Compaq) and its Internet Web site known as AltaVista. The
agreement provides for the Company and AltaVista to sponsor and promote thirty-
one co-branded Web pages. The agreement requires the Company to pay Compaq $1.0
million over the term of the agreement based on the number of advertising
impressions delivered. Such amount will be charged to expense as the
advertising impressions are provided by AltaVista. In addition, each Company
will provide the other with $300,000 in barter advertising during the term of
the agreement.
Capital Stock (unaudited)
On January 19, 1999 the Board of Directors of the Company authorized the
Company to file for a Restated Articles of Incorporation. The Restated Articles
of Incorporation will become effective upon the closing of the IPO and
authorized an increase to 90,000,000 shares of common stock and 10,000,000
shares of blank check preferred stock.
Reverse Stock Split (unaudited)
On January 19, 1999 the Board of Directors of the Company approved a 1-for-
1.95 reverse stock split of the Company's common stock to be effective upon
receiving shareholder approval. All references in the consolidated financial
statements to shares, share prices and per share amounts have been adjusted
retroactively for the reverse stock split.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Boulder Interactive Technology Services Company:
We have audited the accompanying balance sheets of Boulder Interactive
Technology Services Company d/b/a Microwave Online Services Company and RF
Globalnet as of December 31, 1996 and 1997 and the related statements of
operations, shareholders' equity and cash flows for the period from March 22,
1996 (inception) through December 31, 1996 and for the year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Boulder Interactive Technology
Services Company d/b/a Microwave Online Services Company and RF Globalnet as of
December 31, 1996 and 1997, and the results of its operations and its cash flow
for the period from March 22, 1996 (inception) through December 31, 1996 and
for the year ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG LLP
August 21, 1998
Philadelphia, Pennsylvania
F-24
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY and RF GLOBALNET
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash................................... $ 60,657 $ 99,035 $ 85,727
Accounts receivable.................... -- 66,277 25,027
Prepaid expenses....................... -- -- 1,525
--------- --------- --------
Total current assets................. 60,657 165,312 112,279
--------- --------- --------
Property and equipment, net.............. 15,119 19,185 24,019
Other assets............................. 4,331 3,208 3,068
--------- --------- --------
Total assets......................... $ 80,107 $ 187,705 $139,366
========= ========= ========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable--shareholder.............. 13,852 -- --
Current portion of lease obligation.... -- -- 937
Accounts payable....................... 91 14,108 9,890
Accrued expenses....................... 19,255 7,806 9,303
Deferred revenues...................... -- 85,909 84,523
--------- --------- --------
Total current liabilities............ 33,198 107,823 104,653
--------- --------- --------
Long-term portion of lease obligation.... -- -- 5,137
Commitments and contingencies (note 3)
Shareholders' equity:
Common stock $.01 par value, 10,000,000
shares authorized, 324,148 and 518,000
shares issued and outstanding in 1996
and 1997, respectively................ 3,241 5,180 5,180
Additional paid-in capital............. 196,167 388,080 410,230
Accumulated deficit.................... (152,499) (313,378) (385,834)
--------- --------- --------
Total shareholders' equity........... 46,909 79,882 29,576
--------- --------- --------
Total liabilities and shareholders'
equity.............................. $ 80,107 $ 187,705 $139,366
========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY AND RF GLOBALNET
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
March 22, 1996
(inception) Six months Six months
through Year ended ended ended
December 31, December 31, June 30, 1997 June 30, 1998
1996 1997 (unaudited) (unaudited)
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues................ $ 14,661 $ 326,208 $119,335 $317,760
Costs and expenses:
Editorial and operation-
al..................... 16,738 157,645 54,946 84,450
Sales and marketing..... 34,274 78,218 34,749 95,199
General and administra-
tive................... 117,010 252,811 115,062 210,752
--------- --------- -------- --------
Operating loss.......... (153,361) (162,466) (85,422) (72,641)
Interest income, net of
interest expense....... 862 1,587 701 185
--------- --------- -------- --------
Net loss................ $(152,499) $(160,879) $(84,721) $(72,456)
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY and RF GLOBALNET
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock
--------------
Additional
paid-in Accumulated
Shares Amount capital deficit Total
------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Issuance of common stock, at
par value................... 126,000 $1,260 $ -- $ -- $ 1,260
Issuance of common stock..... 198,148 1,981 196,167 -- 198,148
Net loss..................... -- -- -- (152,499) (152,499)
------- ------ -------- --------- ---------
Balance at December 31,
1996........................ 324,148 3,241 196,167 (152,499) 46,909
Issuance of common stock..... 193,852 1,939 191,913 -- 193,852
Net loss..................... -- -- -- (160,879) (160,879)
------- ------ -------- --------- ---------
Balance at December 31,
1997........................ 518,000 5,180 388,080 (313,378) 79,882
Compensation related to stock
options (unaudited)......... -- -- 22,150 -- 22,150
Net loss (unaudited)......... -- -- -- (72,456) (72,456)
------- ------ -------- --------- ---------
Balance at June 30, 1998
(unaudited)................. 518,000 $5,180 $410,230 $(385,834) $ 29,576
======= ====== ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY AND RF GLOBALNET
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
March 22, 1996
(inception)
through Year ended Six months Six months
December 31, December 31, ended ended
1996 1997 June 30, 1997 June 30, 1998
-------------- ------------ ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(152,499) $(160,879) $(84,721) $(72,456)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 2,792 9,077 4,716 5,964
Compensation expense
related to stock
options.............. -- -- -- 22,150
Change in assets:
Accounts
receivable......... -- (66,277) (31,762) 41,250
Prepaid expenses and
other assets....... (4,757) 510 510 (1,657)
Change in liabilities:
Accounts payable.... 91 14,017 13,447 (4,218)
Accrued expenses.... 19,255 (11,449) (9,919) 1,497
Deferred revenues... -- 85,909 21,477 (1,386)
--------- --------- -------- --------
Net cash used in
operating activities... (135,118) (129,092) (86,252) (8,856)
--------- --------- -------- --------
Cash flows from
investing activities:
Capital expenditures... (17,485) (12,530) (4,196) (3,883)
--------- --------- -------- --------
Net cash used in
investing activities... (17,485) (12,530) (4,196) (3,883)
--------- --------- -------- --------
Cash flows from
financing activities:
Increase in note
payable--shareholder.. 13,852 -- -- --
Principal payments on
obligations under
capital lease......... -- -- -- (569)
Proceeds from issuance
of common stock....... 199,408 180,000 95,000 --
--------- --------- -------- --------
Net cash provided by
(used in) financing
activities............. 213,260 180,000 95,000 (569)
--------- --------- -------- --------
Net increase in cash.... 60,657 38,378 4,552 (13,308)
Cash--beginning of
period................. -- 60,657 60,657 99,035
--------- --------- -------- --------
Cash--end of period..... $ 60,657 $ 99,035 65,209 85,727
========= ========= ======== ========
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest... $ 2 $ 13 $ -- $ 230
========= ========= ======== ========
Supplemental schedule of
noncash investing and
financing activities:
Issuance of stock in
repayment of note
payable............... $ -- $ 13,852 -- --
Equipment acquired
under capital lease... -- -- -- $ 6,643
Issuance of stock
options............... -- -- -- $ 22,150
========= ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information with respect to June 30, 1997 and 1998 is unaudited)
(1) Summary of Significant Accounting Policies
Boulder Interactive Technology Services Company (d/b/a Microwave Online
Services Company and RF Globalnet) (the Company) was formed in March 1996. The
Company operates a Vertical trade community for professionals in the radio
frequency and wireless communications industry. This Web Site gives engineers
access to the latest product and technical information, leading edge education
resources, expert-hosted technical forums and career opportunities in the
field.
Property and Equipment
Property and equipment are stated at cost, net of depreciation. Property and
equipment are depreciated on a straight-line basis over the estimated useful
lives of the assets (three to five years).
Revenue and Cost Recognition
The Company's advertising revenues are derived principally from advertising
contracts which generally do not extend beyond one year. Advertising revenues
are recognized ratably over the term of the contract. Online courses, book
sales and other revenues are generally recognized upon delivery provided that
no significant Company obligations remain and collection of the receivable is
probable. In cases where there are significant remaining obligations, the
Company defers such revenues until those obligations are satisfied.
Barter transactions are recorded at the lower of estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given. Revenue recorded under barter transactions for the year ended December
31, 1997 was $30,000 and $0 and $51,600 for the six months ended June 30, 1997
and 1998, respectively.
Editorial and operational expenses primarily consist of Internet connection
charges, depreciation, purchased content, salaries and benefits of operating
and editorial personnel and other related operating costs.
Concentration of Credit Risk
The Company does not require collateral on accounts receivable. The Company
maintains allowances for credit losses and such losses have been within
management's expectations. No single customer accounted for greater than 10% of
total revenues for the period from March 22, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997.
Advertising Costs
The Company expenses advertising costs as incurred. For the period from March
22, 1996 (inception) through December 31, 1996 and for the year ended December
31, 1997 and for the six months ended June 30, 1997 and 1998, advertising
expense was approximately $1,600, $34,000, $2,500 and $59,000, respectively.
F-29
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
Income Taxes
Effective January 1, 1998, the Company records income taxes using the asset
and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and the tax effect of net operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Accounting for Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121, the
Company records impairment losses on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments
The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable and a loan payable that are carried at cost which
approximates fair value.
Recent Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board (FASB) issued Reporting
Comprehensive Income (SFAS No. 130), which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 offers alternatives for
presentation of disclosures required by the standard. The adoption of SFAS No.
130 had no impact on the Company's results of operations, financial position or
cash flows.
In June 1997 the FASB issued Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), which establishes standards for reporting
information about operating
F-30
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
segments in annual financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The adoption of SFAS No. 131 will not have an impact on the Company's
results of operations, financial position or cash flows.
In February l998 the FASB issued Employers' Disclosures about Pension and
Other Postretirement Benefits (SFAS No. 132), which revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 will not have an impact on the Company's results of operations,
financial position or cash flows.
In March l998 the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of this
standard to have a material effect on the Company's capitalization policy.
In April 1998 the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position or cash flows.
Stock Options
The Company accounts for the grant of employee options to purchase common
stock in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123). This statement gives
companies the option to adopt the fair value method for expense recognition of
employee stock options or to continue to account for stock options and stock-
based awards using the intrinsic value method, as outlined under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), and to make pro forma disclosures of net loss as if the fair value method
had been applied. The Company elected to apply APB 25 to account for stock
options and disclose the pro forma net loss as if the fair value method had
been applied (Note 5).
F-31
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
(2) Property and Equipment
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------- June 30,
1996 1997 1998
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Computer equipment and purchased software... $17,013 $ 29,543 $33,426
Office equipment and furniture.............. 472 472 7,115
------- -------- -------
17,485 30,015 40,541
Less: accumulated depreciation.............. (2,366) (10,830) (16,522)
------- -------- -------
Property and equipment, net................. $15,119 $ 19,185 $24,019
======= ======== =======
</TABLE>
(3) Commitments and Contingencies
The Company entered into a capital lease agreement in February 1998 for
office equipment. The lease has a term of five years and an implicit interest
rate of 11%. At June 30, 1998, the book value of assets held under capital
lease is approximately $6,000 and the aggregate remaining minimum lease
payments are approximately $8,000 including interest of approximately $1,000.
The Company leases its facility under an operating lease agreement expiring
in 1999. Future minimum lease payments as of December 31, 1997 under the lease
is as follows:
<TABLE>
<S> <C>
1998............................................................... $18,600
1999............................................................... 3,200
</TABLE>
Rent expense under this noncancelable operating lease was approximately
$7,600 and $17,000 for the period from March 22, 1996 (inception) through
December 31, 1996 and for the year ended December 31, 1997, respectively and
$8,800 and $9,200 for the six months ended June 30, 1997 and 1998,
respectively.
In addition, the Company has an advertising commitment from the period August
1998 through December 1998, totaling approximately $10,000.
(4) Stock Option Plan
In July 1998 the Company's board of directors adopted the 1998 stock option
plan (the 1998 Plan). A total of 80,000 shares of common stock were reserved
for issuance under this Plan.
The exercise price and the vesting period for the options is determined by
the board of directors. All options expire ten years after the date of grant.
On January 8, 1998, options for 9,750 shares of common stock were granted,
outside of the 1998 Plan, at an exercise price of $0.60 that vested
immediately. Compensation expense of $22,150 was recorded for these options as
they were granted
F-32
<PAGE>
BOULDER INTERACTIVE TECHNOLOGY SERVICES COMPANY
d/b/a MICROWAVE ONLINE SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to June 30, 1997 and 1998 is unaudited)
to a non-employee of the Company. On July 2, 1998, options for 15,832 shares of
common stock were granted at an exercise price of $0.60, under the 1998 Plan,
that vest over a four-year period. Compensation expense of $47,700 was recorded
by the Company in July 1998 in connection with the options granted on July 2,
1998 as the vesting on these options was accelerated due to the Company being
acquired in September 1998 (Note 6).
(5) Income Taxes
The Company elected "C" corporation status in March 1998, effective on
January 1, 1998. Prior to that election, the Company was an "S" corporation.
(6) Subsequent Event
On September 1, 1998, the Company was acquired by VerticalNet, Inc.
(VerticalNet). Under the terms of that transaction, VerticalNet acquired all of
the outstanding stock of the Company in exchange for approximately $1.8 million
in cash.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Informatrix Worldwide, Inc.:
We have audited the accompanying balance sheet of Informatrix Worldwide, Inc.
as of December 31, 1997 and the related statements of operations, shareholders'
deficit and cash flows for the period from October 15, 1997 (inception) to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Informatrix Worldwide, Inc. as
of December 31, 1997 and the results of its operations and its cash flows for
the period from October 15, 1997 (inception) to December 31, 1997 in conformity
with generally accepted accounting principles.
KPMG LLP
August 21, 1998
Philadelphia, Pennsylvania
F-34
<PAGE>
INFORMATRIX WORLDWIDE, INC.
BALANCE SHEETS
(Information as of September 30, 1998 is unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash.............................................. $ 6,196 $ --
Accounts receivable............................... -- 53,200
Officer loan receivable........................... 3,500 3,500
--------- -----------
Total current assets............................ 9,696 56,700
--------- -----------
Computer equipment, net........................... 27,020 19,856
Other assets...................................... 1,003 1,003
--------- -----------
Total assets.................................... $ 37,719 $ 77,559
========= ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable and accrued expenses............. $ 17,750 $ 38,964
Accounts payable to related party................. 250,000 430,000
Current portion of lease obligation............... 8,298 9,336
Loans payable to related party.................... 160,000 751,994
Deferred revenues................................. -- 106,725
--------- -----------
Total current liabilities....................... 436,048 1,337,019
--------- -----------
Lease obligation, net of current portion.......... 19,052 11,915
--------- -----------
Commitments and contingencies
Shareholders' deficit:
Common stock no par value, 200 shares authorized,
issued and
outstanding...................................... -- --
Accumulated deficit............................... (417,381) (1,271,375)
--------- -----------
Total shareholders' deficit..................... (417,381) (1,271,375)
--------- -----------
Total liabilities and shareholders' deficit..... $ 37,719 $ 77,559
========= ===========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
INFORMATRIX WORLDWIDE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
October 15, 1997 Nine months
(inception) to ended
December 31, September 30,
1997 1998
---------------- -------------
(unaudited)
<S> <C> <C>
Revenues......................................... $ -- $ 32,442
--------- ---------
Cost and expenses:
Editorial and operational........................ 20,948 253,503
Product development.............................. 279,144 75,766
Sales and marketing.............................. 85,408 426,058
General and administrative....................... 29,162 93,131
--------- ---------
Operating loss................................... (414,662) (816,016)
Interest expense................................. (2,719) (37,978)
--------- ---------
Net loss......................................... $(417,381) $(853,994)
========= =========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
INFORMATRIX WORLDWIDE, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common stock
------------- Accumulated
Shares Amount deficit Total
------ ------ ----------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock, October
15, 1997 (inception)............... 200 $-- $ -- $ --
Net loss............................ -- -- (417,381) (417,381)
--- ---- ----------- -----------
Balance at December 31, 1997........ 200 -- (417,381) (417,381)
--- ---- ----------- -----------
Net loss (unaudited)................ -- -- (853,994) (853,994)
--- ---- ----------- -----------
Balance at September 30, 1998 (unau-
dited)............................. 200 $-- $(1,271,375) $(1,271,375)
=== ==== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
INFORMATRIX WORLDWIDE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
October 15, 1997 Nine months
(inception) to ended
December 31, September 30,
1997 1998
---------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(417,381) $(853,994)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 1,592 7,164
Change in assets:
Accounts receivable......................... -- (53,200)
Officer loan receivable..................... (3,500) --
Other assets................................ (1,003) --
Change in liabilities:
Accounts payable and accrued expenses....... 17,750 21,214
Accounts payable to related party........... 250,000 180,000
Deferred revenues........................... -- 106,725
--------- ---------
Net cash used in operating activities........... (152,542) (592,091)
--------- ---------
Cash flows from financing activities:
Issuance of common stock....................... -- --
Loans from related party....................... 160,000 591,994
Payment of capital lease....................... (1,262) (6,099)
--------- ---------
Net cash provided by financing activities....... 158,738 585,895
--------- ---------
Net decrease in cash............................ 6,196 (6,196)
Cash at beginning of period..................... -- 6,196
--------- ---------
Cash at end of period........................... $ 6,196 $ --
========= =========
Supplemental disclosure of cash flow informa-
tion:
Cash paid during the year for interest......... $ 746 $ 2,957
========= =========
Supplemental schedule of noncash investing and
financing activities:
Equipment acquired under capital leases........ $ 28,612 $ --
========= =========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
INFORMATRIX WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to September 30, 1998 is unaudited)
(1) Organization
Informatrix Worldwide, Inc. (the Company) was formed in October 15, 1997. The
Company operates a vertical trade community in the property and casualty
insurance industry that caters to risk managers, agents, brokers and other
professionals in the insurance industry. A vertical trade community is a Web
site that acts as a source of information and dialogue for a particular
vertical market.
(2) Summary of Significant Accounting Policies
Computer Equipment
Computer equipment are stated at cost, net of accumulated amortization and
depreciation. Property and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets (three years). Expenditures for
maintenance and repairs are charged to expense as incurred.
Revenue and Cost Recognition
The Company's advertising revenues are derived principally from advertising
contracts which generally do not extend beyond one year. Advertising revenues
are recognized ratably over the term of the contract.
Editorial and operational costs include editorial costs which are principally
payroll and related costs.
Product Development
Product development costs consists principally of salaries and related costs,
which are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was
$0 for the period from October 15, 1997 (inception) to December 31, 1997 and
approximately $57,126 for the nine months ended September 30, 1998.
Income Taxes
Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial
F-39
<PAGE>
INFORMATRIX WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1998 is unaudited)
statements or tax returns. The measurement of current and deferred tax
liabilities and assets are based on provisions of the enacted tax laws; the
effects of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the amount of
any tax benefits that, based on available evidence, are not expected to be
realized.
No federal or state income taxes are due as of December 31, 1997. The net
deferred tax asset, primarily related to net operating losses, is fully offset
by a valuation allowance at December 31, 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Instruments
The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable, loans payable and capital asset obligations that
are carried at cost which approximates fair value.
Recent Accounting Pronouncements
In June 1997 the Financial Accounting Standards Board (FASB) issued Reporting
Comprehensive Income (SFAS No. 130), which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. SFAS No. 130 offers alternatives for
presentation of disclosures required by the standard. The adoption of SFAS No.
130 had no impact on the Company's results of operations, financial position or
cash flows.
In the June 1997 FASB issued Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131), which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS No. 131 will not
have an impact on the Company's results of operations, financial position or
cash flows.
In February l998 FASB issued SFAS No. 132, Employers' Disclosures about
Pension and Other Postretirement Benefits (SFAS No. 132), which revises
employers' disclosures about pension and other postretirement benefit plans.
SFAS No. 132 does not change the measurement or recognition of those plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
The
F-40
<PAGE>
INFORMATRIX WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1998 is unaudited)
adoption of SFAS No. 132 will not have an impact on the Company's results of
operations, financial position or cash flows.
In March l998 the American Institute of Certified Public Accounts (AICPA)
issued Statement of Position 98-1, Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use (SOP 98-1). SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company does not expect the adoption of this
standard to have a material effect on the Company's capitalization policy.
In April 1998 the AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start up activities and organization costs to be expensed as incurred. As
the Company has expensed these costs historically, the adoption of this
standard is not expected to have a significant impact on the Company's results
of operations, financial position, or cash flows.
(3) Property and Equipment
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
<S> <C> <C>
Computer equipment under capital leases........... $28,612 $28,612
Less: accumulated depreciation.................... (1,592) (8,756)
------- -------
Property and equipment, net....................... $27,020 $19,856
======= =======
</TABLE>
Amortization expense of equipment under capital lease is included in
depreciation expense.
(4) Capital Lease Obligation
The Company leases its computer equipment under a capital lease agreement
expiring in 2000. Future minimum lease payments as of December 31, 1997 under
the lease are as follows:
<TABLE>
<S> <C>
1998............................................................... $12,039
1999............................................................... 12,039
2000............................................................... 10,032
-------
Minimum lease payments............................................. 34,110
Less: amounts representing interest................................ 6,760
-------
Present value of minimum lease payments............................ 27,350
Less: current portion.............................................. 8,298
-------
Long-term portion.................................................. $19,052
=======
</TABLE>
F-41
<PAGE>
INFORMATRIX WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information with respect to September 30, 1998 is unaudited)
(5) Debt-Related Party
The Company was acquired by VerticalNet, Inc. (VerticalNet) on September 30,
1998 (Note 7). At December 31, 1997, the Company had borrowed $160,000 from
VerticalNet and a total of $715,000 as of September 30, 1998. The interest rate
on the debt was prime plus 1.5% percent and the debt was payable on demand. No
interest was paid to VerticalNet as the Company was subsequently acquired by
VerticalNet.
The Company also had an accounts payable balance due to VerticalNet of
$250,000 at December 31, 1997 and $430,000 at September 30, 1998 for certain
Web site development and maintenance services.
(6) Related Party Transactions
The Company paid approximately $29,800 and $88,700 for the period from
October 15, 1997 (inception) through December 31, 1997 and the nine months
ended September 30, 1998, respectively, for consulting services to an entity
whose shareholders are also shareholders of the Company.
The Company paid $39,700 and $124,000 for the period from October 15, 1997
(inception) through December 31, 1997 and the nine months ended September 30,
1998, respectively, for advertising services to an entity whose shareholders
are also shareholders of the Company.
The Company recorded $250,000 in product development expense for Web site
development services provided by VerticalNet during the period from October 15,
1997 (inception) through December 31, 1997. In addition, the Company recorded
$180,000 in cost of revenues for Web site maintenance services provided by
VerticalNet for the nine months ended September 30, 1998.
(7) Subsequent Event
On September 30, 1998, the Company was acquired by VerticalNet. Under the
terms of that transaction, VerticalNet acquired all of the outstanding stock of
the Company in exchange for 46,154 (post split) shares of common stock of
VerticalNet.
F-42
<PAGE>
VERTICALNET, INC., BITC AND INFORMATRIX
UNAUDITED PRO FORMA FINANCIAL INFORMATION BASIS OF PRESENTATION
The following unaudited pro forma data is filed herewith: Unaudited condensed
combined pro forma statements of operations for the year ended December 31,
1997 and nine months ended September 30, 1998.
The unaudited condensed combined pro forma statements of operations reflect
the acquisitions of Boulder Interactive Technology Services Company (BITC) as
if it occurred on January 1, 1997 and Informatrix as if it had occurred on its
inception of October 15, 1997. Since the pro forma financial statements which
follow are based upon the financial condition and operating results of the BITC
and Informatrix during periods when they were not under the control or
management of VerticalNet, Inc. (VerticalNet), the information presented may
not be indicative of the results which would have actually been obtained had
the acquisitions been completed as of January 1, 1997 nor are they indicative
of future financial or operating results. The unaudited pro forma financial
information does not give effect to any synergies that may occur due to the
integration of VerticalNet, BITC and Informatrix. The condensed combined pro
forma financial statements should be read in conjunction with the historical
audited financial statements of VerticalNet and the notes thereto, as well as
the audited historical financial statements of BITC and Informatrix and the
notes thereto included elsewhere in this prospectus. The acquisitions have been
accounted for by the purchase method of accounting. A pro forma balance sheet
as of September 30, 1998 has not been presented herein since both acquisitions
were completed in September of 1998 and have been reflected in VerticalNet's
consolidated balance sheet as of September 30, 1998 appearing elsewhere herein.
F-43
<PAGE>
VERTICALNET, INC., BITC AND INFORMATRIX
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
VerticalNet BITC Informatrix Adjustments Combined
----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 791,822 $ 326,208 $ -- $ -- $ 1,118,030
----------- --------- --------- --------- -----------
Cost and Expenses:
Editorial and opera-
tional ................ 1,055,725 157,645 20,948 -- 1,234,318
Product development..... 711,292 -- 279,144 (250,000)(a) 740,436
Sales and marketing..... 2,300,365 78,218 85,408 -- 2,463,991
General and administra-
tive................... 1,388,123 252,811 29,162 684,102 (b) 2,354,198
----------- --------- --------- --------- -----------
Operating loss.......... (4,663,683) (162,466) (414,662) (434,102) (5,674,913)
----------- --------- --------- --------- -----------
Interest income, net of
interest expense....... (115,106) 1,587 (2,719) 1,974 (c) (114,264)
----------- --------- --------- --------- -----------
Net loss................ $(4,778,789) $(160,879) $(417,381) $(432,128) $(5,789,177)
=========== ========= ========= ========= ===========
Pro forma net loss per
share:
Basic and diluted..... $ (1.89) $ (2.28)
=========== ===========
Weighted average
shares outstanding
(basic and diluted).. 2,526,865 2,536,480
=========== ===========
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements
F-44
<PAGE>
VERTICALNET, INC., BITC AND INFORMATRIX
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
VerticalNet BITC Informatrix Adjustments Combined
------------ ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 1,861,799 $ 437,628 $ 32,442 $ -- $ 2,331,869
------------ ---------- ---------- ---------- ------------
Costs and expenses:
Editorial and operation-
al..................... 2,100,885 121,726 253,503 (180,000)(d) 2,296,114
Product development..... 797,815 -- 75,766 -- 873,581
Sales and marketing..... 4,405,407 123,542 426,058 -- 4,955,007
General and administra-
tive................... 2,907,275 327,879 93,131 691,801 (e) 4,020,086
------------ ---------- ---------- ---------- ------------
Operating loss.......... (8,349,583) (135,519) (816,016) (511,801) (9,812,919)
------------ ---------- ---------- ---------- ------------
Interest income, net of
interest expense....... 15,166 143 (37,978) 35,025 (f) 12,356
------------ ---------- ---------- ---------- ------------
Net loss................ $ (8,334,417) $ (135,376) $ (853,994) $ (476,776) $ (9,800,563)
============ ========== ========== ========== ============
Pro forma net loss per
share:
Basic and diluted..... $ (3.27) $ (3.77)
============ ============
Weighted average
shares outstanding
(basic and diluted).. 2,550,619 2,596,604
============ ============
</TABLE>
See accompanying notes to Pro Forma Condensed Combined Financial Statements
F-45
<PAGE>
VERTICALNET, INC., BITC AND INFORMATRIX
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma condensed combined statements of operations for the
nine months ended September 30, 1998 and the year ended December 31, 1997 give
effect to the acquisition of BITC as if it had occurred on January 1, 1997 and
Informatrix as if has occurred on its inception of October 15, 1997. The
statement of operations for BITC for the nine months ended September 30, 1998
includes their operations for January 1, 1998 through September 1, 1998, the
date of acquisition by the Company.
The effects of the acquisitions have been presented using the purchase method
of accounting and accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based upon management's best preliminary
estimate of their fair value. The preliminary allocation of the purchase price
will be subject to further adjustments, which are not anticipated to be
material, as VerticalNet finalizes its allocation of its purchase price in
accordance with generally accepted accounting principles. The pro forma
adjustments related to the purchase price allocation of the acquisition
represent management's best estimate of the effects of the acquisition.
2. Pro forma statement of operations adjustments consist of:
The pro forma statement of operations adjustments for the year ended December
31, 1997 consist of:
(a) Product development expense has been adjusted to reflect the elimination
of the costs charged by VerticalNet to Informatrix to develop Informatrix's
vertical trade community.
(b) General and administrative expense has been adjusted to reflect the
amortization of goodwill associated with the acquisitions which has an
estimated useful life of 36 months.
(c) Interest expense has been adjusted to reflect the elimination of the
interest expense incurred by Informatrix on indebtedness to VerticalNet.
The pro forma statement of operations adjustments for the nine months ended
September 30, 1998 consist of:
(d) Cost of editorial and operational has been adjusted to reflect the
elimination of the costs charged by VerticalNet to Informatrix to maintain
Informatrix's vertical trade community.
(e) General and administrative expense has been adjusted to reflect the
amortization of goodwill associated with the the acquisitions which has an
estimated useful life of 36 months.
(f) Interest expense has been adjusted to reflect the elimination of the
interest expense incurred by Informatrix on indebtedness to VerticalNet.
(g) No income tax provision is required due to the Company's current tax loss
and the inability of the Company to currently use the benefits of the net
operating loss carryforward.
F-46
<PAGE>
[LOGO OF VERTICALNET APPEARS HERE]
www.verticalnet.com
Business-to-Business
Communities of Commerce
<PAGE>
[LOGO OF VERTICALNET INC. APPEARS HERE]
3,500,000 Shares
Common Stock
-----------------
PROSPECTUS
, 1999
-----------------
Lehman Brothers
Hambrecht & Quist
Volpe Brown Whelan & Company
Wit Capital Corporation
as e-ManagerTM
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the issuance and
distribution of the shares of common stock being registered, all of which will
be paid by the Company:
<TABLE>
<S> <C>
Registration fee............................................... $ 11,190
NASD filing fee................................................ 4,525
Transfer agent and registrar fees.............................. 10,000
Printing and engraving......................................... 200,000
Legal fees..................................................... 400,000
Blue sky fees and expenses..................................... 2,500
Nasdaq National Market listing fee............................. 5,000
Accounting fees................................................ 250,000
Miscellaneous.................................................. 116,785
----------
Total........................................................ $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
The Company's Amended and Restated Articles of Incorporation provide that
pursuant to and to the extent permitted by Pennsylvania law, the Company's
directors shall not be personally liable for monetary damages for breach of any
duty owed to the Company and its shareholders. This provision does not
eliminate the duty of care, and, in appropriate circumstances, equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under Pennsylvania law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
knowing violations of law, or for actions resulting in improper personal
benefit to the director, the provision also does not affect a director's
responsibilities under any other law, such as federal securities laws or state
or federal environmental laws. The Company's Amended and Restated Bylaws
provide that the Company shall indemnify its officers and directors to the
fullest extent permitted by Pennsylvania law, including some instances in which
indemnification is otherwise discretionary under Pennsylvania law. Pennsylvania
law permits the Registrant to provide similar indemnification to employees and
agents who are not directors or officers. The determination of whether an
individual meets the applicable standard of conduct may be made by the
disinterested directors, independent legal counsel or the shareholders.
Pennsylvania law also permits indemnification in connection with a proceeding
brought by or in the right of the Registrant to procure a judgment in its
favor. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in that Act and is therefore unenforceable.
In general, any officer or director of the Company shall be indemnified by
the Company against expenses including attorneys' fees, judgments, fines and
settlements actually and reasonably incurred by that person in connection with
a legal proceeding as a result of such relationship, whether or not
II-1
<PAGE>
the indemnified liability arises from an action by or in the right of the
Company, if the officer or director acted in good faith, and in the manner
believed to be in or not opposed to the Company's best interest, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct was unlawful. Such indemnity is limited to the extent that
(i) such person is not otherwise indemnified and (ii) such indemnifications not
prohibited by Pennsylvania law or any other applicable law.
Any indemnification under the previous paragraph (unless ordered by a court)
shall be made by the Company only as authorized in the specific case upon the
determination that indemnification of the director or officer is proper in the
circumstances because that person has met the applicable standard of conduct
set forth above. Such determination shall be made (i) by the board of directors
by a majority vote of a quorum of disinterested directors who are not parties
to such action or (ii) if such quorum is not obtainable or, even if obtainable
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion. To the extent that a director or officer of the Company
shall be successful in prosecuting an indemnity claim, the reasonable expenses
of any such person and the fees and expenses of any special legal counsel
engaged to determine the possibility of indemnification shall be borne by the
Company.
Expenses incurred by a director or officer of the Company in defending a
civil or criminal action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that person is not entitled to
be indemnified by the Company as authorized by our Bylaws.
The indemnification and advancement of expenses provided by, or granted
pursuant to Article of our Bylaws is not deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled, both as to action in that person's official capacity and as to action
in another capacity while holding such office.
The Board of Directors has the power to authorize the Company to purchase and
maintain insurance on behalf of the Company and others to the extent that power
to do so has not been prohibited by the Pennsylvania law, create any fund to
secure any of its indemnification obligations and give other indemnification to
the extent permitted by law. The obligations of the Company to indemnify a
director or officer under our Bylaws is a contract between the Company and such
director or officer and no modification or repeal of our Bylaws shall
detrimentally affect such officer or director with regard to that person's acts
or omissions prior to such amendment or repeal.
The Company has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Company.
Item 15. Recent Sales of Unregistered Securities
Since its inception in July 1995, the Company has issued and sold
unregistered securities in the transactions described below. Share amounts have
been restated to give effect to all of the Company's stock splits.
II-2
<PAGE>
Shares of Common Stock
1. In September 1995, the Company issued 685,479 shares of Common Stock to
Mr. McNulty in an organizational subscription for an aggregate purchase price
of $255.
2. In September 1995, the Company issued 685,479 shares of Common Stock to
Mr. Hagan in an organizational subscription for an aggregate purchase price of
$255.
3. In October and November of 1995, the Company issued an aggregate of
591,341 shares of Common Stock to four investors for an aggregate purchase
price of $70,000.
4. In January 1996, the Company issued 53,763 shares of Common Stock to one
investor for an aggregate purchase price of $15,000.
5. In January and February 1996, the Company issued an aggregate of 672,038
shares of Common Stock to four investors, including Mr. Buckley, a director of
the Company, in connection with the issuance of $100,000 aggregate principal
amount of unsecured term notes.
6. In June 1998, the Company issued 56,980 shares of Common Stock to Lehman
Brothers Inc. in consideration for services rendered as private placement agent
in the Series D private placement.
Shares of Series A Preferred Stock
7. In September 1996, the Company issued, 512,821 shares of Series A
Preferred Stock to Internet Capital Group for an aggregate purchase price of
$1,000,000, which shares will be automatically converted into 512,821 shares of
Common Stock upon or immediately prior to the consummation of the Offering.
Shares of Series B Preferred Stock
8. In July 1997, the Company issued 2,579,580 shares of Series B Preferred
Stock to Internet Capital Group for an aggregate purchase price of $2,000,000,
which shares will be automatically converted into 2,579,580 shares of Common
Stock upon or immediately prior to the consummation of the Offering.
Shares of Series C Preferred Stock
9. In October 1997, the Company issued 154,861 shares of Series C Preferred
Stock to one accredited investor for an aggregate purchase price of $200,000,
which shares will be automatically converted into 154,861 shares of Common
Stock upon or immediately prior to the consummation of the Offering.
Shares of Series D Preferred Stock
10. From May 1998 to June 1998, the Company issued 4,558,405 shares of Series
D Preferred Stock to various accredited investors, including 854,701 shares to
Koch Ventures, Inc., 787,775
II-3
<PAGE>
shares to Wheatley Partners, L.P., and 1,139,602 shares to Internet Capital
Group, for an aggregate purchase price of $16,000,000, which shares will be
automatically converted into 4,558,405 shares of Common Stock upon or
immediately prior to the consummation of the Offering.
Convertible Notes
11. In November 1998, the Company issued Convertible Notes in the aggregate
principal amount of $5.0 million which will convert into 555,556 shares of
Common Stock (assuming an initial public offering price of $9.00) upon or
immediately prior to the consummation of the Offering.
Warrants to Purchase Common Stock
12. In November 1998, the Company granted Warrants to purchase an aggregate
of 82,051 shares of Common Stock for a purchase price equal to the initial
public offering price to Internet Capital Group and certain holders of the
Company's Series D Preferred Stock in connection with the issuance of the
Convertible Notes.
13. In November 1998, the Company granted Warrants to purchase an aggregate
of 20,513 shares of Common Stock for a purchase price equal to the initial
public offering price to Progress Capital in connection with the $2.0 million
loan from Progress Bank.
14. In May 1998, the Company granted Warrants to purchase an aggregate of
85,470 shares of Common Stock for a purchase price of $3.51 per share to
Internet Capital Group in connection with certain guarantees of the Company's
bank debt by Internet Capital Group.
15. In April 1997, the Company granted Warrants to purchase an aggregate of
19,347 shares of Common Stock for a purchase price of $0.76 per share to
Progress in connection with Progress' provision of a line of credit.
16. In December 1997, the Company granted Warrants to purchase an aggregate
of 28,490 shares of Common Stock for a purchase price of $3.51 per share to
Progress in connection with Progress' extension of additional credit.
Options to Purchase Common Stock
17. The Company from time to time has granted stock options to employees,
directors and consultants. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
No. of Range of
Shares Exercise Prices
--------- ---------------
<S> <C> <C>
1995............................................. None --
1996............................................. None --
1997............................................. 555,213 $.27 to $ .80
1998............................................. 1,404,412 $.80 to $2.63
</TABLE>
The Company believes that the issuance of shares and grants of options
described above did not involve a public offering and were exempt from
registration under Section 4(2) of the Securities Act because such issuances
and grants were made to a limited group of persons, each of whom was believed
to have been a sophisticated investor or had a pre-existing business or
personal relationship with the Company or its management and because each such
person was purchasing for investment without a view to further distribution.
Restrictive legends were placed on stock certificates and are contained in
stock option agreements evidencing the securities described above.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this registration statement:
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1 * Underwriting Agreement
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
5 Opinion of Morgan, Lewis & Bockius LLP regarding the legality of the
shares of Common Stock being registered
10.1 * Amended and Restated 1996 Equity Compensation Plan
10.2 Employment Letter with Mark L. Walsh
10.3 Employment Letter with Barry E. Wynkoop
10.4 * Share Purchase Agreement dated September 1, 1998, between Boulder
Interactive Technology Services Co. and VerticalNet, Inc.
10.5 Agreement and Plan of Merger dated September 30, 1998, among
VerticalNet, Inc., Informatrix Acquisition Corp., Informatrix
Worldwide, Inc., and the Stockholders of Informatrix Worldwide, Inc.
10.6 * Sponsorship Agreement dated June 30, 1998, between Excite!, Inc. and
VerticalNet, Inc.+
10.7 * Comparison Shopping Service Subscription Agreement dated September
1998, between Junglee Corp. and VerticalNet, Inc.+
10.8 * Asset Purchase Agreement dated January 13, 1999 by and among
VerticalNet, Inc., Coastal Video Communications Corp., Paul V.
Michels and Philip P. Price
10.9 * Common Stock Purchase Warrant to purchase 40,000 or 60,000 shares of
Common Stock dated November 25, 1998 issued to Progress Capital,
Inc.
10.10 * Form of Common Stock Purchase Warrant dated November 25, 1998 issued
in connection with the Convertible Note
10.11 * Form of Convertible Note dated November 25, 1998
10.12 Series A Preferred Stock Purchase Agreement dated as of September
12, 1996 between Internet Capital Group, L.L.C. and Water Online,
Inc.
10.13 Series D Investor Rights Agreement dated as of May 8, 1998 by and
among VerticalNet, Inc. and the Investors
10.14 Registration Rights Agreement dated as of November 25, 1998 between
the Company and the Convertible Note Holders
21 Subsidiaries
23.1* Consent of KPMG LLP
23.1A* Consent of KPMG LLP
23.1B* Consent of KPMG LLP
23.2 Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5 hereto)
24.1 Power of Attorney (included on signature page to this Registration
Statement)
27* Financial Data Schedule
99 Description of Wit Capital Corporation Web site.
</TABLE>
- --------
*Filed herewith
+ Portions of this Exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 under the Act.
(b) Except as follows, financial statement schedules have been omitted
because they are inapplicable, are not required under applicable provisions of
Regulation S-X, or the information that would otherwise be included in such
schedules is contained in the registrant's financial statements or accompanying
notes.
II-5
<PAGE>
Item 16. Exhibits and Financial Statements Schedules.
(b) (continued)
VERTICALNET, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Period from July 28, 1995 (inception) to December 31, 1995
the Years Ended December 31, 1996 and 1997 and the
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Balance at the Charged to Balance at the
Beginning of the Costs and End of the
Description Period Expenses Write-Offs Year
- ----------- ---------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Period from July 28,
1995 (inception) to
December 31, 1995...... $ -- $ -- $ -- $ --
Year ended December 31,
1996................... $ -- $18,575 $ -- $18,575
Year ended December 31,
1997................... $18,575 $11,425 $ -- $30,000
Nine months ended
September 30, 1998..... $30,000 $42,621 $14,555 $58,066
Note receivable:
Year ended December 31,
1997................... $ -- $80,000 $ -- $80,000
Nine months ended
September 30, 1998..... $80,000 $ -- $(80,000)(a) $ --
</TABLE>
- --------
(a) Reserve of $80,000 was eliminated upon acquiring Informatrix.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such amount as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1)For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-6
<PAGE>
(2)For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement, as amended, to be
signed on its behalf by the undersigned, thereunto duly authorized, in Horsham,
Pennsylvania on January 22, 1999.
VerticalNet, Inc.
/s / Gene S. Godick
By: _________________________________
Gene S. Godick
Vice President of Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement, as amended, has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
* President and Chief January 22, 1999
______________________________________ Executive Officer
Mark L. Walsh (principal executive
officer)
* Senior Vice President and January 22, 1999
______________________________________ Director
Michael J. Hagan
* Vice President and Chief January 22, 1999
______________________________________ Financial Officer
Gene S. Godick (principal financial and
accounting officer)
* Director January 22, 1999
______________________________________
Douglas A. Alexander
* Director January 22, 1999
______________________________________
Jeffrey C. Ballowe *
* Director January 22, 1999
______________________________________
Walter W. Buckley, III
* Director January 22, 1999
______________________________________
Matthew J. Warta
</TABLE>
/s/ Gene S. Godick
*By: _______________________
Gene S. Godick
Attorney-in-Fact
II-8
<PAGE>
Exhibit 1
______________ SHARES
VERTICALNET, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
_____________, 1998
Lehman Brothers Inc.
Hambrecht & Quist LLC
Volpe Brown Whelan & Co.,
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
VerticalNet, a Pennsylvania corporation (the "Company"), proposes to
sell _________ shares (the "Firm Stock") of the Company's common stock, par
value $___ per share (the "Common Stock"). In addition, the Company proposes to
grant to the Underwriters named in Schedule 1 hereto (the "Underwriters") an
option to purchase up to an additional _______ shares of the Common Stock on the
terms and for the purposes set forth in Section 3 (the "Option Stock"). The Firm
Stock and the Option Stock, if purchased, are hereinafter collectively called
the "Stock." This is to confirm the agreement concerning the purchase of the
Stock from the Company by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-1 and amendments thereto
with respect to the Stock have (i) been prepared by the Company in
conformity with the requirements of the United States Securities Act of
1933, as amended (the "Securities Act") and the rules and regulations (the
"Rules and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been filed with the
Commission under the Securities Act and (iii) become effective under the
Securities Act. Copies of such
<PAGE>
registration statement and the amendments thereto have been delivered by
the Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the date
and the time as of which such registration statement, or the most recent
post-effective amendment thereto, if any, was declared effective by the
Commission; "Effective Date" means the date of the Effective Time;
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective
under the Securities Act and any prospectus filed with the Commission by
the Company with the consent of the Representatives pursuant to Rule 424(a)
of the Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time, including all
information contained in the final prospectus filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations in accordance with
Section 5(a) hereof and deemed to be a part of the registration statement
as of the Effective Time pursuant to paragraph (b) of Rule 430A of the
Rules and Regulations; and "Prospectus" means such final prospectus, as
first filed with the Commission pursuant to paragraph (1) or (4) of Rule
424(b) of the Rules and Regulations. The Commission has not issued any
order preventing or suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the requirements
of the Securities Act and the Rules and Regulations and do not and will
not, as of the applicable effective date (as to the Registration Statement
and any amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided that no representation or warranty is made as to
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of any Underwriter specifically for
inclusion therein.
(c) The Company and each of its subsidiaries (as defined in Section
15) have been duly incorporated and are validly existing as corporations in
good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good standing
as foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such qualification, and have all power and authority
necessary to own or hold their respective properties and to conduct the
businesses in which they are engaged; and none of the subsidiaries of the
Company, [(other than _____ )] is a "significant subsidiary," as such term
is defined in Rule 405 of the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description
2
<PAGE>
thereof contained in the Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims.
(e) The shares of the Stock to be issued and sold by the Company to
the Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and non-assessable; and the Stock will
conform to the description thereof contained in the Prospectus.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby [and
by the formation of one or more subsidiaries of the Company and the
transfer of assets thereto described in the Prospectus under the caption
"_____" (such actions are herein collectively called the "Reorganization")
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, nor will
such actions result in any violation of the provisions of the charter or
by-laws of the Company or any of its subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets, and except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and applicable state
securities laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or order of,
or filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby and the Reorganization except where the failure to
obtain such consent, approval authorization or order, or to effect such
filing or registration, or such conflict, breach, violation, default or
other action will not have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations, business
or prospects of the Company and its subsidiaries (herein a "Material
Adverse Effect"). The Reorganization has been duly authorized and approved
by the Company and the Company's stockholders to the extent required by
law.
(h) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company owned or to be owned by such person or the right to require
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the Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(i) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding
the date of the Prospectus, including any sales pursuant to Rule 144A
under, or under Regulations D or S of, the Securities Act other than shares
issued pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans or pursuant to outstanding options,
rights or warrants outstanding prior to the commencement of such six-month
period.
(j) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
such date, there has not been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus.
(k) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby, at the
dates and for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The selected and summary financial and
statistical data and information included in the Registration Statement
present fairly the information shown therein and have been compiled on a
basis substantially consistent with the financial statements presented
therein. The pro forma financial statements and other pro forma financial
information included in the Registration Statement and the Prospectus (i)
present fairly, in all material respects, the information shown therein,
(ii) have been prepared in accordance with the Rules and Regulations with
respect to pro forma financial statements and (iii) have been properly
compiled on the bases described therein, and the assumptions used in the
preparation of the pro forma financial statements and other pro forma
financial information and included in the Registration Statement and the
Prospectus are reasonable and the adjustments used therein are appropriate
to give effect to the transactions or circumstances referred to therein.
(l) KPMG Peat Marwick, who have certified certain financial
statements of the Company, whose report appears in the Prospectus and who
have delivered the initial letter referred to in Section 7(f) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations and were independent accountants as required by the
Securities Act and the Rules and Regulations during the periods covered by
the financial statements on which they reported contained in the
Prospectus.
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(m) Neither the Company nor any of its subsidiaries owns any real
property. The Company and each of its subsidiaries have good and marketable
title to all personal property owned by them, in each case free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made
of such property by the Company and its subsidiaries; and all real property
and buildings held under lease by the Company and its subsidiaries are held
by them under valid, subsisting and enforceable leases, with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries.
(n) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in similar
businesses in similar industries.
(o) Except as described in the Prospectus, the Company and each of
its subsidiaries own or possess adequate rights to use all trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any
notice of any claim of conflict with, any such rights of others.
(p) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, might have a material adverse
effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries (herein, a "Material Adverse Effect"); and to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(q) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which have
not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(r) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which is required
to be described in the Prospectus which is not so described.
(s) No labor disturbance by the employees of the Company exists or,
to the knowledge of the Company, is imminent which might be expected to
have a Material Adverse Effect.
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(t) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security
Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA
with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Section 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.
(u) The Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and has
paid all taxes due thereon, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries which has had (nor does
the Company have any knowledge of any tax deficiency which, if determined
adversely to the Company or any of its subsidiaries, might have) a Material
Adverse Effect.
(v) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock.
(w) The Company (i) makes and keeps accurate books and records and
(ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain
accountability for its assets, (C) access to its assets is permitted only
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at
reasonable intervals.
(x) Neither the Company nor any of its subsidiaries is (i) in
violation of its charter or by-laws, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of time or
both, would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which it
is a party or by which it is bound or to which any of its properties or
assets is subject or (iii) in violation in any material respect of any
law, ordinance, governmental rule, regulation or court decree to which it
or its property or assets may be subject or has failed to obtain any
material license, permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its property or to
the conduct of its business.
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(y) Neither the Company, nor any of its subsidiaries, nor any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, has used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision
of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
(z) Neither the Company nor any subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940
and the rules and regulations of the Commission thereunder.
2. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell _______ shares of the
Firm Stock to the several Underwriters and each of the Underwriters, severally
and not jointly, agrees to purchase the number of shares of the Firm Stock set
opposite that Underwriter's name in Schedule 1 hereto. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option to
purchase up to _______ shares of Option Stock. Such option is granted for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the names of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts. The
price of both the Firm Stock and any Option Stock shall be $_____ per share.
The Company shall not be obligated to deliver any of the Stock to be
delivered on any Delivery Date (as hereinafter defined), as the case may be,
except upon payment for all the Stock to be purchased on such Delivery Date as
provided herein.
3. Offering of Stock by the Underwriters. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
It is understood that _____ shares of the Firm Stock will initially
be reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the National Association of Securities Dealers, Inc. to employees
and persons having business relationships with the Company and its subsidiaries
who have heretofore delivered to the Representatives offers to purchase shares
of Firm Stock in form satisfactory to the Representatives, and that any
allocation of such Firm Stock among such persons will be made in accordance with
timely directions received by the Representatives from the
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<PAGE>
Company; provided, that under no circumstances will the Representatives or any
Underwriter be liable to the Company or to any such person for any action taken
or omitted in good faith in connection with such offering to employees and
persons having business relationships with the Company and its subsidiaries. It
is further understood that any shares of such Firm Stock which are not purchased
by such persons will be offered by the Underwriters to the public upon the terms
and conditions set forth in the Prospectus.
4. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Chadbourne & Parke LLP, 30
Rockefeller Plaza, New York, New York 10112, at 10:00 A.M., New York City time,
on the fourth full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Company. This date and time are sometimes referred to
as the "First Delivery Date." On the First Delivery Date, the Company shall
deliver or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds to a bank account designated by the Company. Time shall be of
the essence, and delivery at the time and place specified pursuant to this
Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names and
in such denominations as the Representatives shall request in writing not less
than two full business days prior to the First Delivery Date. For the purpose
of expediting the checking and packaging of the certificates for the Firm Stock,
the Company shall make the certificates representing the Firm Stock available
for inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the First Delivery Date.
The option granted in Section 3 will expire 30 days after the date of
this Agreement and may be exercised in whole or in part from time to time by
written notice being given to the Company by the Representatives. Such notice
shall set forth the aggregate number of shares of Option Stock as to which the
option is being exercised, the names in which the shares of Option Stock are to
be registered, the denominations in which the shares of Option Stock are to be
issued and the date and time, as determined by the Representatives, when the
shares of Option Stock are to be delivered; provided, however, that this date
and time shall not be earlier than the First Delivery Date nor earlier than the
second business day after the date on which the option shall have been exercised
nor later than the fifth business day after the date on which the option shall
have been exercised. The date and time the shares of Option Stock are delivered
are sometimes referred to as a "Second Delivery Date" and the First Delivery
Date and any Second Delivery Date are sometimes each referred to as a "Delivery
Date".
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on such
Second Delivery Date. On such Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer in immediately
available funds. Time shall be of the essence, and
8
<PAGE>
delivery at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Option Stock shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company shall make the certificates representing the Option Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., New York City time, on the business day prior to such Second
Delivery Date.
5. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act; to make no further amendment or any supplement to
the Registration Statement or to the Prospectus except as permitted herein;
to advise the Representatives, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish the Representatives with copies
thereof; to advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Stock for
offering or sale in any jurisdiction, of the initiation or threatening of
any proceeding for any such purpose, or of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the issuance
of any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed with
the Commission, including all consents and exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits
other than this Agreement) and (ii) each Preliminary Prospectus, the
Prospectus and any amended or supplemented Prospectus; and, if the delivery
of a prospectus is required at any time after the Effective Time in
connection with the offering or sale of the Stock or any other securities
relating thereto and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not
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misleading, or, if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the Securities Act, to
notify the Representatives and, upon their request, to file such document
and to prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from time to
time reasonably request of an amended or supplemented Prospectus which will
correct such statement or omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Representatives,
be required by the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and obtain
the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date (but in no event
later than 15 months after the Effective Date), to make generally available
to the Company's security holders and to deliver to the Representatives an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Securities Act and the Rules
and Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal national
securities exchange upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for offering
and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit
the continuance of sales and dealings therein in such jurisdictions for as
long as may be necessary to complete the distribution of the Stock;
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock (other than the Stock and shares
issued pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans existing on the date hereof or pursuant
to currently outstanding options, warrants or rights), or sell or grant
options, rights or warrants with respect to any shares of
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Common Stock or securities convertible into or exchangeable for Common
Stock (other than the grant of options pursuant to option plans existing on
the date hereof), or (2) enter into any swap or other derivatives
transaction that transfers to another, in whole or in part, any of the
economic benefits or risks of ownership of such shares of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case without the prior written consent of Lehman
Brothers Inc.; and to cause each officer and director of the Company to
furnish to the Representatives, prior to the First Delivery Date, a letter
or letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise
dispose of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person at any
time in the future of) any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or (2) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any
of the economic benefits or risks of ownership of such shares of Common
Stock, whether any such transaction described in clause (1) or (2) above is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise, in each case for a period of 180 days from the date of the
Prospectus, without the prior written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the inclusion of the
Stock on the Nasdaq National Market and to use its best efforts to effect
such quotation, subject only to official notice of issuance, prior to the
First Delivery Date;
(k) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus; and
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder.
6. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Stock and any taxes payable in
that connection; (b) the costs incident to the preparation, printing and filing
under the Securities Act of the Registration Statement and any amendments and
exhibits thereto; (c) the costs of distributing the Registration Statement as
originally filed and each amendment thereto and any post-effective amendments
thereof (including, in each case, exhibits), any Preliminary Prospectus, the
Prospectus and any amendment or supplement to the Prospectus, all as provided in
this Agreement; (d) the costs of producing and distributing this Agreement and
any other related documents in connection with the offering, purchase, sale and
delivery of the stock; (e) the filing fees incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Stock; (f) any applicable listing or other fees; including, without
limitation, the fees for quotation of the Common Stock on the Nasdaq National
Market; (g) the fees and expenses (not in excess, in the aggregate, of $2,500)
of qualifying the Stock under the securities laws of the several jurisdictions
as
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provided in Section 5(h) and of preparing, printing and distributing a Blue Sky
Memorandum (including related fees and expenses of counsel to the Underwriters);
(h) all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
shares of the Stock by the Underwriters to employees and persons having business
relationships with the Company and its subsidiaries, as described in Section 3;
and (i) all other costs and expenses incident to the performance of the
obligations of the Company under this Agreement; provided that, except as
provided in this Section 6 and in Section 11 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters.
7. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of its respective
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 5(a); no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or threatened
by the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus or
otherwise shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Chadbourne & Parke LLP,
counsel for the Underwriters, is material or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(c) All corporate proceedings, including, without limitation, the
authorization and approval of the Reorganization by the Company and the
Company's stockholders, and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Company shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(d) Morgan, Lewis & Bockius LLP shall have furnished to the
Representatives its written opinion, as counsel to the Company, addressed
to the Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives, to the effect that:
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(i) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, are
duly qualified to do business and are in good standing as foreign
corporations in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification and have all power and authority necessary
to own or hold their respective properties and conduct the businesses
in which they are engaged;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the shares of Stock being delivered on such
Delivery Date) have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid, non-assessable and (except
for directors' qualifying shares) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims;
(iii) Except as described in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any shares of the Stock
pursuant to the Company's charter or by-laws or to the best of such
counsel's knowledge, any agreement or other instrument to which the
Company is a party or by which it may be bound;
(iv) Neither the Company nor any of its subsidiaries owns any
real property and all real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases, with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries;
(v) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property or assets of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, might have a material adverse
effect on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion,
the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules
13
<PAGE>
and Regulations specified in such opinion on the date specified
therein and no stop order suspending the effectiveness of the
Registration Statement has been issued and, to the knowledge of such
counsel, no proceeding for that purpose is pending or threatened by
the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of
the Securities Act and the Rules and Regulations;
(viii) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement or
incorporated therein by reference as permitted by the Rules and
Regulations;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company;
(x) The Reorganization has been duly authorized and approved
by the Company and the Company's stockholders to the extent required
by law;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions contemplated hereby and by the
Reorganization will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
such actions result in any violation of the provisions of the charter
or by-laws of the Company or any of its subsidiaries or any statute or
any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties or assets, and,
except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase and
distribution of the Stock by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby and the
Reorganization except where the failure to
14
<PAGE>
obtain such consent, approval authorization or order, or to effect
such filing or registration, or such conflict, breach, violation,
default or other action will not have a Material Adverse Effect; and
(xii) Except as described in the Prospectus, to the best of
such counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such person
the right (other than rights which have been waived or satisfied) to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or
to be owned by such person or the right (other than rights which have
been waived or satisfied) to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
In rendering such opinion, such counsel may state that its opinion is
limited to matters governed by the Federal laws of the United States of
America, the laws of the Commonwealth of Pennsylvania and the General
Corporation Law of the State of Delaware. Such counsel shall also have
furnished to the Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such counsel
has acted as regular outside counsel to the Company (although the Company
is also represented by other outside counsel with respect to intellectual
property and other matters), has acted as counsel to the Company in
connection with previous financing transactions and has acted as counsel to
the Company in connection with the preparation of the Registration
Statement, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the Registration
Statement, as of the Effective Date, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
foregoing opinion and statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus or express any view as to the
financial statements and schedules and other financial data contained
therein.
(e) The Representatives shall have received from Chadbourne & Parke
LLP, counsel for the Underwriters, such opinion or opinions, dated such
Delivery Date, with respect to the Registration Statement and the
Prospectus and other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel such
documents as they reasonably request for the purpose of enabling them to
pass upon such matters.
15
<PAGE>
(f) At the time of execution of this Agreement, the Representatives
shall have received from KPMG Peat Marwick a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and
dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in compliance
with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date hereof (or, with respect to matters involving
changes or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date not more
than five days prior to the date hereof), the conclusions and findings of
such firm with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(g) With respect to the letter of KPMG Peat Marwick referred to in
the preceding paragraph and delivered to the Representatives concurrently
with the execution of this Agreement (the "initial letter"), the Company
shall have furnished to the Representatives a letter (the "bring-down
letter") of such accountants, addressed to the Underwriters and dated such
Delivery Date (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as of the date
of the bring-down letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five
days prior to the date of the bring-down letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(h) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein; and
the conditions set forth in Sections 8(a) and 8j(m) have been
fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective Date,
the Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
(i) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or
16
<PAGE>
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus, the effect of which, in any such case described in
clause (i) or (ii), is, in the judgment of the Representatives, so material
and adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Stock being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(j) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or
in the over-the-counter market, or trading in any securities of the Company
on any exchange or in the over-the-counter market, shall have been
suspended or minimum prices shall have been established on any such
exchange or such market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction, (ii) a
banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the Stock
being delivered on such Delivery Date on the terms and in the manner
contemplated in the Prospectus.
(k) The Nasdaq National Market shall have approved the Stock for
inclusion, subject only to official notice of issuance and evidence of
satisfactory distribution.
(l) You shall have been furnished with such additional documents and
certificates as you or counsel for the Underwriters may reasonably request
related to this Agreement and the transactions contemplated hereby.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
8. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter,
its officers and employees and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action
17
<PAGE>
in respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Stock), to which that
Underwriter, officer, employee or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Stock or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company shall not
be liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct), and shall reimburse each Underwriter and each
such officer, employee or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, in reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion therein which
information consists solely of the information specified in Section 7(e). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Underwriter or to any officer, employee or controlling
person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its directors,
and each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for
18
<PAGE>
inclusion therein, and shall reimburse the Company and any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses are incurred. The
foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company or any such director, officer,
employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company under this Section 8 if, in the reasonable judgment of the
Representatives, it is advisable for the Representatives and those Underwriters,
officers, employees and controlling persons to be jointly represented by
separate counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company. No indemnifying party shall (i) without
the prior written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 8(a) or 8(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein,
19
<PAGE>
then each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party as a
result of such loss, claim, damage or liability, or action in respect thereof,
(i) in such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Stock or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and the Underwriters on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Stock purchased under this Agreement (before deducting expenses)
received by the Company, on the one hand, and the total underwriting discounts
and commissions received by the Underwriters with respect to the shares of the
Stock purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the
Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be deemed to
include, for purposes of this Section 8(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Stock underwritten by
it and distributed to the public was offered to the public exceeds the amount of
any damages which such Underwriter has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 10(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 8(d) are
several in proportion to their respective underwriting obligations and not
joint.
(e) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Stock by the
Underwriters set forth on the cover page of, the legend concerning over-
allotments on the inside front cover page of and the concession and reallowance
figures appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the Underwriters
specifically for inclusion in the Registration Statement and the Prospectus.
20
<PAGE>
9. Defaulting Underwriters.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining non-
defaulting Underwriters shall be obligated to purchase the Stock which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of shares of the Firm Stock set
opposite the name of each remaining non-defaulting Underwriter in Schedule 1
hereto bears to the total number of shares of the Firm Stock set opposite the
names of all the remaining non-defaulting Underwriters in Schedule 1 hereto;
provided, however, that the remaining non-defaulting Underwriters shall not be
obligated to purchase any of the Stock on such Delivery Date if the total number
of shares of the Stock which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total number of shares
of the Stock to be purchased on such Delivery Date, and any remaining non-
defaulting Underwriter shall not be obligated to purchase more than 110% of the
number of shares of the Stock which it agreed to purchase on such Delivery Date
pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the
remaining non-defaulting Underwriters, or those other underwriters satisfactory
to the Representatives who so agree, shall have the right, but shall not be
obligated, to purchase, in such proportion as may be agreed upon among them, all
the Stock to be purchased on such Delivery Date. If the remaining Underwriters
or other underwriters satisfactory to the Representatives do not elect to
purchase the shares which the defaulting Underwriter or Underwriters agreed but
failed to purchase on such Delivery Date, this Agreement (or, with respect to
the Second Delivery Date, the obligation of the Underwriters to purchase, and of
the Company to sell, the Option Stock) shall terminate without liability on the
part of any non-defaulting Underwriter or the Company, except that the Company
will continue to be liable for the payment of expenses to the extent set forth
in Sections 6 and 11. As used in this Agreement, the term "Underwriter"
includes, for all purposes of this Agreement unless the context requires
otherwise, any party not listed in Schedule 1 hereto who, pursuant to this
Section 9, purchases Firm Stock which a defaulting Underwriter agreed but failed
to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Stock of a defaulting
or withdrawing Underwriter, either the Representatives or the Company may
postpone the Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company or counsel for the
Underwriters may be necessary in the Registration Statement, the Prospectus or
in any other document or arrangement.
10. Termination. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Section 7(i) or 7(j), shall have occurred
or if the Underwriters shall decline to purchase the Stock for any reason
permitted under this Agreement.
11. Reimbursement of Underwriters' Expenses. If (a) the Company
shall fail to tender the Stock for delivery to the Underwriters by reason of any
failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other
21
<PAGE>
condition of the Underwriters' obligations hereunder required to be fulfilled by
the Company is not fulfilled, the Company will reimburse the Underwriters for
all reasonable out-of-pocket expenses (including fees and disbursements of
counsel) incurred by the Underwriters in connection with this Agreement and the
proposed purchase of the Stock, and upon demand the Company shall pay the full
amount thereof to the Representative(s). If this Agreement is terminated
pursuant to Section 9 by reason of the default of one or more Underwriters, the
Company shall be obligated to reimburse any defaulting Underwriter on account of
those expenses.
12. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department (Fax:
212-526-6588), with a copy, in the case of any notice pursuant to Section
8(c), to the Director of Litigation, Office of the General Counsel, Lehman
Brothers Inc., 3 World Financial Center, 10th Floor, New York, New York
10285;
(b) if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Mr. Mark Walsh (Fax: (215) 443-3336).
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, and
their respective personal representatives and successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of
the Company contained in this Agreement shall also be deemed to be for the
benefit of the person or persons, if any, who control any Underwriter within the
meaning of Section 15 of the Securities Act and (B) the indemnity agreement of
the Underwriters contained in Section 8(b) of this Agreement shall be deemed to
be for the benefit of directors of the Company, officers of the Company who have
signed the Registration Statement and any person controlling the Company within
the meaning of Section 15 of the Securities Act. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 13, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
14. Survival. The respective indemnities, representations,
warranties and agreements of the Company and the Underwriters contained in this
Agreement or made by or on
22
<PAGE>
behalf on them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Stock and shall remain in full force and effect,
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
15. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means each Monday, Tuesday,
Wednesday, Thursday or Friday which is not a day on which banking institutions
in New York are generally authorized or obligated by law or executive order to
close and (b) "subsidiary" has the meaning set forth in Rule 405 of the Rules
and Regulations.
16. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW
PROVISIONS.
17. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
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<PAGE>
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
VERTICALNET, INC.
By:______________________________________
Name:
Title:
Accepted:
Lehman Brothers Inc.
Hambrecht & Quist LLC
Volpe Brown Whelan & Co.
Wit Capital Corporation,
as e-Manager
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By: Lehman Brothers Inc.
By: _____________________________________
Authorized Representative
24
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Number of Number of
Underwriters Firm Shares Option Shares
- ------------- ------------ -------------
<S> <C> <C>
Lehman Brothers Inc.........................
Hambrecht & Quist LLC.......................
Volpe Brown Whelan & Co.....................
Wit Capital Corporation, as e-Manager.......
Total
=============== =================
</TABLE>
25
<PAGE>
EXHIBIT 10.1
VERTICALNET, INC.
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
--------------------------------------------------
The purpose of the VerticalNet, Inc. Amended and Restated 1996 Equity
Compensation Plan (the "Plan") is to provide (i) designated employees of
VerticalNet, Inc. (the "Company") and its subsidiaries, (ii) certain consultants
and advisors who perform services for the Company or its subsidiaries and (iii)
non-employee members of the Board of Directors of the Company (the "Board") with
the opportunity to receive grants of incentive stock options, nonqualified stock
options and restricted stock. The Company believes that the Plan will encourage
the participants to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.
1. Administration
--------------
(a) Authority. The Plan shall be administered and interpreted by the
---------
Board. If the Company has an initial public offering ("Public Offering") of its
stock as described in Section 19(b), the Plan shall thereafter be administrated
by a committee, which shall consist of two or more persons appointed by the
Board, all of whom shall be "outside directors" as defined under section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code") and related
Treasury regulations, and "non-employee directors" as defined under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Board may ratify or approve any grants made to participants. References in the
Plan to the "Board", as they relate to Plan administration, shall be deemed to
refer to the committee if a committee is appointed to administer the Plan.
(b) Board Authority. The Board shall have the sole authority to (i)
---------------
determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability and (iv) deal
with any other matters arising under the Plan. The Board may require that a
grantee execute a shareholder's agreement, with such terms as the Board deems
appropriate, with respect to any Company stock distributed pursuant to this
Plan.
(c) Board Determinations. The Board shall have full power and authority to
-------------------
administer and interpret the Plan, to make factual determinations and to adopt
or amend such rules, regulations, agreements and instruments for implementing
the Plan and for the conduct of its business as it deems necessary or advisable,
in its sole discretion. The Board's interpretations of the Plan and all
determinations made by the Board pursuant to the powers vested in it hereunder
shall be conclusive and binding on all persons having any interest in the Plan
or in any
<PAGE>
awards granted hereunder. All powers of the Board shall be executed in its sole
discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to similarly
situated individuals.
2. Grants
------
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options") or restricted stock as described in Section 6 (Restricted Stock")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Board deems appropriate and as are
specified in writing by the Board to the individual in a grant instrument (the
"Grant Instrument") or an amendment to the Grant Instrument. The Board shall
approve the form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
--------------------------
(a) Shares Authorized. Subject to the adjustment specified below, the
-----------------
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 3,600,000 shares, and, after a
Public Offering, the maximum aggregate number of shares of Company Stock that
shall be subject to Grants made under the Plan to any individual during any
calendar year shall be 500,000 shares. The shares may be authorized but
unissued shares of Company Stock or reacquired shares of Company Stock,
including shares purchased by the Company on the open market for purposes of the
Plan. If and to the extent Options granted under the Plan terminate, expire, or
are canceled, forfeited, exchanged or surrendered without having been exercised
or if any shares of Restricted Stock are forfeited, the shares subject to such
Grants shall again be available for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of shares of
-----------
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Board to reflect any increase or decrease in
the number of, or change in the kind or value of, issued shares of
<PAGE>
Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Board shall be final, binding and conclusive.
4. Eligibility for Participation
-----------------------------
(a) Eligible Persons. All employees of the Company and its subsidiaries
----------------
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) Selection of Grantees. The Board shall select the Employees, Non-
---------------------
Employee Directors and Key Advisors to receive Grants and shall determine the
number of shares of Company Stock subject to a particular Grant in such manner
as the Board determines. Employees, Key Advisors and Non-Employee Directors who
receive Grants under this Plan shall hereinafter be referred to as "Grantees".
5. Granting of Options
-------------------
(a) Number of Shares. The Board shall determine the number of shares of
----------------
Company Stock that will be subject to each Grant of Options to Employees, Non-
Employee Directors and Key Advisors.
(b) Type of Option and Price.
------------------------
(i) The Board may grant Incentive Stock Options that are intended to
qualify as "incentive stock options" within the meaning of section 422 of the
Code or Nonqualified Stock Options that are not intended so to qualify or any
combination of Incentive Stock Options and Nonqualified Stock Options, all in
accordance with the terms and conditions set forth herein. Incentive Stock
Options may be granted only to Employees. Nonqualified Stock Options may be
granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Board and may be equal to,
greater than, or less than the Fair Market Value (as defined below) of a share
of Company Stock on the date the Option is granted; provided, however, that (x)
the Exercise Price of an Incentive Stock Option shall be equal to, or greater
than, the Fair Market Value of a share of Company Stock on the date the
Incentive Stock Option is granted and (y) an Incentive Stock Option may not be
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting
<PAGE>
power of all classes of stock of the Company or any parent or subsidiary of the
Company, unless the Exercise Price per share is not less than 110% of the Fair
Market Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal trading
market for the Company Stock is a national securities exchange or the Nasdaq
National Market, the last reported sale price thereof on the relevant date or
(if there were no trades on that date) the latest preceding date upon which a
sale was reported, or (y) if the Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and "asked" prices
of Company Stock on the relevant date, as reported on Nasdaq or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Board determines. If the Company Stock is not publicly traded or, if publicly
traded, is not subject to reported transactions or "bid" or "asked" quotations
as set forth above, the Fair Market Value per share shall be as determined by
the Board.
(c) Option Term. The Board shall determine the term of each Option. The
-----------
term of any Option shall not exceed ten years from the date of grant. However,
an Incentive Stock Option that is granted to an Employee who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company, or any parent or subsidiary of the
Company, may not have a term that exceeds five years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
-------------------------
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Board and specified in the Grant Instrument or an amendment to
the Grant Instrument. The Board may accelerate the exercisability of any or all
outstanding Options at any time for any reason.
(e) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by the Company as an Employee, Key Advisor or member of
the Board. In the event that a Grantee ceases to be employed by the Company for
any reason other than a "disability", death, or "termination for cause", any
Option which is otherwise exercisable by the Grantee shall terminate unless
exercised within 90 days after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Board), but in any event no later than the date of expiration of the
Option term. Any of the Grantee's Options that are not otherwise exercisable as
of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the Company on
account of a "termination for cause" by the Company, any Option held by the
Grantee shall terminate as of the date the Grantee ceases to be employed by the
Company.
<PAGE>
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled", any Option which is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date on
which the Grantee ceases to be employed by the Company (or within such other
period of time as may be specified by the Board), but in any event no later than
the date of expiration of the Option term. Any of the Grantee's Options which
are not otherwise exercisable as of the date on which the Grantee ceases to be
employed by the Company shall terminate as of such date.
(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed on account of a
termination of employment specified in Section 5(e)(i) above (or within such
other period of time as may be specified by the Board), any Option that is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by the Company
(or within such other period of time as may be specified by the Board), but in
any event no later than the date of expiration of the Option term. Any of the
Grantee's Options that are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such date.
(v) For purposes of this Section 5(e) and Section 6:
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations.
(B) "Employed by the Company" shall mean employment or service as
an Employee, Key Advisor or member of the Board (so that, for purposes of
exercising Options and satisfying conditions with respect to Restricted
Stock, a Grantee shall not be considered to have terminated employment or
service until the Grantee ceases to be an Employee, Key Advisor and member
of the Board), unless the Board determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within
the meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean, except to the extent
specified otherwise by the Board, a finding by the Board that the Grantee
has breached his or her employment or service contract with the Company, or
has been engaged in disloyalty to the Company, including, without
limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of his or her employment or service, or has
disclosed trade secrets or confidential information of the Company to
persons not entitled to receive such information. In the event a Grantee's
employment is terminated for cause, in addition to the immediate
termination of all Grants, the Grantee shall automatically forfeit all
shares underlying any exercised portion of an Option for which the Company
<PAGE>
has not yet delivered the share certificates, upon refund by the Company of
the Exercise Price paid by the Grantee for such shares.
(f) Exercise of Options. A Grantee may exercise an Option that has become
-------------------
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Board (x) in cash, (y) with the approval
of the Board, by delivering shares of Company Stock owned by the Grantee
(including Company Stock acquired in connection with the exercise of an Option,
subject to such restrictions as the Board deems appropriate) and having a Fair
Market Value on the date of exercise equal to the Exercise Price or (z) by such
other method as the Board may approve, including, after a Public Offering,
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Shares of Company Stock used to exercise an
Option shall have been held by the Grantee for the requisite period of time to
avoid adverse accounting consequences to the Company with respect to the Option.
The Grantee shall pay the Exercise Price and the amount of any withholding tax
due (pursuant to Section 7) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall
---------------------------------
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code).
6. Restricted Stock Grants
-----------------------
The Board may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Grant of Restricted Stock, upon
such terms as the Board deems appropriate. The following provisions are
applicable to Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or transferred
--------------------
pursuant to Restricted Stock Grants may be issued or transferred for
consideration or for no consideration, as determined by the Board. The Board
may establish conditions under which restrictions on shares of Restricted Stock
shall lapse over a period of time or according to such other criteria as the
Board deems appropriate. The period of time during which the Restricted Stock
will remain subject to restrictions will be designated in the Grant Instrument
as the "Restriction Period."
(b) Number of Shares. The Board shall determine the number of shares of
----------------
Company Stock to be issued or transferred pursuant to a Restricted Stock Grant
and the restrictions applicable to such shares.
<PAGE>
(c) Requirement of Employment. If the Grantee ceases to be employed by the
-------------------------
Company (as defined in Section 5(e)) during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which the restrictions have not lapsed, and those shares of Company
Stock must be immediately returned to the Company. The Board may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
--------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 8(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Board may determine that the Company will not
issue certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Board determines
--------------------------------------
otherwise, during the Restriction Period, the Grantee shall have the right to
vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Board.
(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
---------------------
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Board. The Board may determine,
as to any or all Restricted Stock Grants, that the restrictions shall lapse
without regard to any Restriction Period.
7. Withholding of Taxes
--------------------
(a) Required Withholding. All Grants under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require the Grantee or other person receiving
shares under the Plan to pay to the Company the amount of any such taxes that
the Company is required to withhold with respect to the Grant, or the Company
may deduct from other wages paid by the Company the amount of any withholding
taxes due with respect to the Grant.
(b) Election to Withhold Shares. If the Board so permits, a Grantee may
---------------------------
elect to satisfy the Company's income tax withholding obligation with respect to
an Option or Restricted Stock by having shares withheld up to an amount that
does not exceed the applicable withholding tax rate for federal (including
FICA), state and local tax liabilities. The election must be in a form and
manner prescribed by the Board and shall be subject to the prior approval of the
Board.
8. Transferability of Grants
-------------------------
<PAGE>
(a) Nontransferability of Grants. Except as provided below, only the
----------------------------
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Board, pursuant to a domestic relations
order. When a Grantee dies, the personal representative or other person
entitled to succeed to the rights of the Grantee ("Successor Grantee") may
exercise such rights. A Successor Grantee must furnish proof satisfactory to the
Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing,
--------------------------------------
the Board may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members or other persons or entities
according to such terms as the Board may determine; provided that the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
9. Shareholders Agreement/Right of First Refusal
---------------------------------------------
As a condition to all Grants made to Grantees pursuant to this Plan, the
shares of Company Stock distributed to him or her under this Plan shall be
subject to the shareholders agreement contained in this Section 9 and Section 10
below and any such other shareholders agreement the Board deems appropriate (as
permitted by Section 9(e) below).
(a) Offer. Prior to a Public Offering, if at any time an individual
-----
desires to sell, encumber, or otherwise dispose of shares of Company Stock that
were distributed to him or her under this Plan and that are transferable, the
individual shall first offer the shares to the Company by giving the Company
written notice disclosing: (a) the name of the proposed transferee of the
Company Stock; (b) the certificate number and number of shares of Company Stock
proposed to be transferred or encumbered; (c) the proposed price; (d) all other
terms of the proposed transfer; and (e) a written copy of the proposed offer.
Within 60 days after receipt of such notice, the Company shall have the option
to purchase all or part of such Company Stock at the then current Fair Market
Value (as defined in Section 5(b)).
(b) Sale. In the event the Company (or a shareholder, as described below)
----
does not exercise the option to purchase Company Stock, as provided above, the
individual shall have the right to sell, encumber, or otherwise dispose of his
shares of Company Stock on the terms of the transfer set forth in the written
notice to the Company, provided such transfer is effected within 15 days after
the expiration of the option period. If the transfer is not effected within
such period, the Company must again be given an option to purchase, as provided
above.
(c) Assignment of Rights. The Board, in its sole discretion, may waive the
--------------------
Company's right of first refusal pursuant to this Section 9 and the Company's
repurchase right pursuant to Section 10 below. If the Company's right of first
refusal or repurchase right is so
<PAGE>
waived, the Board may, in its sole discretion, assign such right to the
remaining shareholders of the Company in the same proportion that each
shareholder's stock ownership bears to the stock ownership of all the
shareholders of the Company, as determined by the Board. To the extent that a
shareholder has been given such right and does not purchase his or her
allotment, the other shareholders shall have the right to purchase such
allotment on the same basis.
(d) Public Offering. On and after a Public Offering, the Company shall
---------------
have no further right to purchase shares of Company Stock under this Section 9
and Section 10 below, and their limitations shall be null and void.
(e) Shareholder's Agreement. Notwithstanding the foregoing, the Board may
-----------------------
require that a Grantee execute a shareholder's agreement, with such terms as the
Board deems appropriate, with respect to any Company Stock distributed pursuant
to this Plan, in which case the provisions of this Section 9 and Section 10
below shall not apply to such Company Stock.
10. Shareholders Agreement/Purchase by the Company
----------------------------------------------
Prior to a Public Offering, if a Grantee ceases to be employed by, or
provide service to, the Company, the Company shall have the right to purchase
all or part of any Company Stock distributed to him or her under this Plan at
its then current Fair Market Value (as defined in Section 5(b)) (or at such
other price as may be established in the Grant Instrument); provided, however,
that such repurchase shall be made in accordance with applicable accounting
rules to avoid adverse accounting treatment.
11. Consequences of a Change of Control
-----------------------------------
(a) Notice and Acceleration. Upon a Change of Control, unless the Board
-----------------------
determines otherwise, (i) the Company shall provide each Grantee with
outstanding Grants written notice of such Change of Control, (ii) all
outstanding Options shall automatically accelerate and become fully exercisable,
and (iii) the restrictions and conditions on all outstanding Restricted Stock
shall immediately lapse.
(b) Assumption of Grants. Upon a Change of Control where the Company is
--------------------
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Board determines otherwise, all outstanding Grants
shall be assumed by, or replaced with comparable options or stock by, the
surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, subject to
------------------
subsection (d) below, in the event of a Change of Control, the Board may take
one or both of the following actions: the Board may (i) require that Grantees
surrender their outstanding Options in exchange for a payment by the Company, in
cash or Company Stock as determined by the Board, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's unexercised Options exceeds the Exercise Price of the
Options, or
<PAGE>
(ii) after giving Grantees an opportunity to exercise their outstanding Options,
terminate any or all unexercised Options at such time as the Board deems
appropriate. Such surrender or termination shall take place as of the date of
the Change of Control or such other date as the Board may specify.
(d) Limitations. Notwithstanding anything in the Plan to the contrary, in
-----------
the event of a Change of Control, the Board shall not have the right to take any
actions described in the Plan (including without limitation actions described in
Subsection (c) above) that would make the Change of Control ineligible for
pooling of interests accounting treatment or that would make the Change of
Control ineligible for desired tax treatment if, in the absence of such right,
the Change of Control would qualify for such treatment and the Company intends
to use such treatment with respect to the Change of Control.
12. Requirements for Issuance or Transfer of Shares
-----------------------------------------------
(a) Limitations on Issuance or Transfer of Shares. No Company Stock shall
---------------------------------------------
be issued or transferred in connection with any Grant hereunder unless and until
all legal requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Board. The Board shall
have the right to condition any Grant made to any Grantee hereunder on such
Grantee's undertaking in writing to comply with such restrictions on his or her
subsequent disposition of such shares of Company Stock as the Board shall deem
necessary or advisable as a result of any applicable law, regulation or official
interpretation thereof, and certificates representing such shares may be
legended to reflect any such restrictions. Certificates representing shares of
Company Stock issued or transferred under the Plan will be subject to such stop-
transfer orders and other restrictions as may be required by applicable laws,
regulations and interpretations, including any requirement that a legend be
placed thereon.
13. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required by Section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the Board
acts under Section 20(b). The termination of the Plan shall not impair the
power and authority of the Board with respect to an outstanding Grant. Whether
or not the Plan has terminated, an outstanding Grant may be
<PAGE>
terminated or amended under Section 20(b) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
14. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
15. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.
16. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Board shall determine whether cash, other awards
or other property shall be issued or paid in lieu of such fractional shares or
whether such fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
17. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
18. Effective Dates.
---------------
(a) Effective Date of the Plan. Subject to the approval of the Company's
--------------------------
shareholders, the Plan shall be effective on December 18, 1996.
(b) Public Offering. The provisions of the Plan that refer to a Public
---------------
Offering, or that refer to, or are applicable to persons subject to, section 16
of the Exchange Act or section 162(m) of the Code, shall be effective, if at
all, upon the initial registration of the Company Stock under section 12(g) of
the Exchange Act, and shall remain effective thereafter for so long as such
stock is so registered.
<PAGE>
19. Miscellaneous
-------------
(a) Grants in Connection with Corporate Transactions and Otherwise.
--------------------------------------------------------------
Nothing contained in this Plan shall be construed to (i) limit the right of the
Board to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Board may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from
the terms and conditions required by the Plan and from those of the substituted
stock incentives. The Board shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Options and the
-------------------
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Board
may revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Board may
also adopt rules regarding the withholding of taxes on payments to Grantees.
The Board may, in its sole discretion, agree to limit its authority under this
Section.
(c) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.
<PAGE>
EXHIBIT 10.4
SHARE PURCHASE AGREEMENT
RELATING TO THE ACQUISITION OF ALL OF THE
OUTSTANDING CAPITAL STOCK OF
BOULDER INTERACTIVE
TECHNOLOGY SERVICES CO.,
(A COLORADO CORPORATION)
BY
VERTICALNET, INC.
(A PENNSYLVANIA CORPORATION)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Definitions.................................................. 1
2. Purchase and Sale............................................ 7
3. Representations and Warranties of Shareholders............... 7
4. Representations and Warranties of Buyer......................18
5. Covenants of Shareholders....................................19
6. Covenants of Buyer...........................................22
7. Mutual Covenants.............................................22
8. Conditions Precedent to Obligations of Shareholders..........23
9. Conditions Precedent to Obligations of Buyer.................24
10. Indemnification..............................................25
11. Termination..................................................28
12. General Matters..............................................29
13. Remedies.....................................................31
14. Notices......................................................31
15. Governing Law................................................32
</TABLE>
i
<PAGE>
Schedules
- ---------
3.3 Shareholder Required Consents
3.4 Stock Ownership
3.5 Financial Statements
3.6 Encumbrances
3.7 Real Property
3.8 Tangible Personal Property
3.9 Non-Real Estate Leases
3.11 Inventory and Equipment
3.12 Liabilities
3.13 Taxes
3.15 Litigation
3.16 Contracts
3.17 Insurance
3.18(a) Intellectual Property
3.18(b) Intellectual Property Contracts
3.18(c) Know-How
3.19 Directors and Officers of the Company
3.20 ERISA
3.22(c) Compensation
3.22(h) Payments to Affiliates of the Company
3.23 Customers
3.28 Additional Information
ii
<PAGE>
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT is made as of September 1, 1998 by and among
VERTICALNET, INC., a Pennsylvania corporation ("Buyer"), Boulder Interactive
Technology Services Co. (dba Microwave Online Services Co., RF Globalnet and
EEBookstore.com), a Colorado corporation (the "Company") and George Jankovic,
Stephen Chang, Cecilia Chang, David Chang, Richard Hall, Paul Schroeder, Doris
Wu, Bradley Feld and William Payne (collectively, the "Shareholders"). Certain
other terms are used herein as defined below in Section 1 or elsewhere in this
Agreement.
Background
----------
Shareholders are the owners of all the issued and outstanding shares (the
"Shares") of capital stock of the Company. Buyer desires to purchase from
Shareholders, and Shareholders desire to sell to Buyer, all the Shares in
accordance with the provisions of this Agreement.
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions
-----------
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"Acquisition Proposal" is defined in Section 5.3.
"Action" is defined in Section 10.6.
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
any officers, directors and majority-owned entities of that party and of its
other Affiliates. For the purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest shall be
deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Disclosure Schedules
hereto, as each may be amended, restated, supplemented or modified from time to
time.
1
<PAGE>
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the most recent Financial Statements,
that are owned or possessed by the Company.
"Balance Sheet" is defined in Section 3.5.
"Balance Sheet Date" is defined in Section 3.5.
"Benefit Plan" means: (i) as to employees employed in the United States,
any (y) "employee benefit plan" as defined in Section 3(3) of ERISA, and (z)
supplemental retirement, bonus, deferred compensation, severance, incentive
plan, program or arrangement or other employee fringe benefit plan, program or
arrangement; and (ii) as to employees employed outside the United States of
America, all employee benefit, health, welfare, supplemental unemployment
benefit, bonus, pension, profit sharing, deferred compensation, stock
compensation, stock purchase, retirement, hospitalization insurance, medical,
dental, legal, disability and similar plans or arrangements or practices.
"Business" means the Company's entire business, operations and facilities.
"Buyer Indemnified Party" is defined in Section 10.1.
"Buyer Required Consents" is defined in Section 4.3.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Claim Notice" is defined in Section 10.4.
"Claim Response" is defined in Section 10.4(a).
"Closing" is defined in Section 2.1.
"Closing Certificates" means the certificates to be delivered by
Shareholders under Section 9.3 and any other provisions hereof.
"Closing Date" is defined in Section 2.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Contracts" is defined in Section 3.16(b).
2
<PAGE>
"Confidential Information" means any confidential information or trade
secrets of the Company, including personnel information, know-how and other
technical information, customer lists, customer information and supplier
information.
"Contract" means any written or oral contract, agreement, lease,
instrument, or other commitment that is binding on any person or its property
under applicable law.
"Copyrights" means all copyrights in both published works and unpublished
works.
"Court Order" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any person or its property under applicable law.
"Damages" is defined in Section 10.1.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or a right to receive damages or a payment of
penalties.
"Disclosure Schedule" means the any of the Schedules containing information
relating to the Company or any Shareholder pursuant to Section 3 and other
provisions hereof that has been provided to Buyer on the date hereof.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 3.15(b).
"Environmental Law" means all Laws and Court Orders relating to pollution
or protection of public safety, safety or the environment as well as any
principles of common law under which a Party may be held liable for the release
or discharge of any materials into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" is defined in Section 10.5.
"Financial Statements" is defined in Section 3.5.
3
<PAGE>
"GAAP" means generally accepted accounting principles.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"Hazardous Substances" means any toxic or hazardous gaseous, liquid or
solid material or waste that may or could pose a hazard to the environment or
human health or safety including (i) any "hazardous substances" as defined by
the federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S)(S) 9601 et seq., (ii) any "extremely hazardous substance,"
-- ----
"hazardous chemical," or "toxic chemical" as those terms are defined by the
federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)(S)
11001 et seq., (iii) any "hazardous waste," as defined under the federal Solid
-- ----
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., (iv) any "pollutant," as defined under the federal
-- ----
Water Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq., as any of such laws
-- ----
in clauses (i) through (iv) as amended, and (v) any regulated substance or waste
under any Laws or Court Orders that have been enacted, promulgated or issued by
any federal, state or local governmental authorities concerning protection of
the environment.
"Immaterial Lease" is defined in Section 3.9.
"Indemnified Party" is defined in Section 10.4.
"Indemnitor" is defined in Section 10.4.
"Intellectual Property" means any Copyrights, Patents, Trademarks, service
marks, trade names, information, proprietary rights, processes, technology
rights and licenses, trade secrets, franchises, know-how, inventions and other
intellectual property.
"Knowledge" means actual knowledge.
"Inventory" means all inventory, including raw materials, supplies, work in
process and finished goods.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body, including those covering environmental, energy,
safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Liability" means any direct or indirect liability, indebtedness,
obligation, claim, loss, damage, deficiency, guaranty or endorsement of or by
the Company, absolute or contingent, accrued or unaccrued, due or to become due,
liquidated or unliquidated.
4
<PAGE>
"Liquidated Claim Notice" is defined in Section 10.4(a).
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
including the Assets, financial condition, results of operations, liquidity,
products, competitive position, customers and customer relations thereof.
"Minor Contract" means any Contract that is terminable by a party on not
more than 30 days' notice without any Liability and any Contract under which the
obligation of a party (fulfilled and to be fulfilled) involves an amount of less
than $5,000.
"Non-Real Estate Leases" is defined in Section 3.9.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Patents" means all patents, patent applications, and inventions and
discoveries that may be patentable.
"Person" means any natural person, corporation, partnership, limited
liability company, proprietorship, association, trust or other legal entity.
"Prime Rate" means the prime lending rate as announced from time to time in
The Wall Street Journal.
- -----------------------
"Purchase Price" is defined in Section 2.1.
"Real Estate Leases" is defined in Section 3.7.
"Real Property" is defined in Section 3.7.
"Response Period" is defined in Section 10.4(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholder Representatives" means any investment advisors, accountants,
counsel, agents or other Persons who may act on behalf of Shareholders.
"Shareholder Required Consents" is defined in Section 3.3.
5
<PAGE>
"Taxes" means all taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority including, without limitation, income, gross
receipts, value-added, excise, withholding, personal property, real estate,
sale, use, ad valorem, license, lease, service, severance, stamp, transfer,
payroll, employment, customs, duties, alternative, add-on minimum, estimated and
franchise taxes (including any interest, penalties or additions attributable to
or imposed on or with respect to any such assessment).
"Tax Return" means any return (including any information return), report,
statement, schedule, notice, form, estimate or declaration of estimated tax
relating to or required to be filed with any governmental authority in
connection with the determination, assessment, collection or payment of any Tax.
"Termination Date" is defined in Section 2.2.
"Trade Secrets" means all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints, owned, used or licensed (as
licensor or licensee) by the Company, except for any such item that is (i)
generally available to the public, (ii) becomes available to a Person on a non-
confidential basis from a source other than the Company or its representatives,
which has represented to the Person (and which the Person has no reason to
disbelieve after due inquiry) that it is entitled to disclose it or (iii) was in
the possession of or was known to the Person on a non-confidential basis prior
to the disclosure thereof to the Person by the Company or its representatives.
"Transaction Documents" means this Agreement and the documents contemplated
hereby.
"Transactions" means the sale of the Shares and the other transactions
contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 10.4(a).
"Welfare Plan" is defined in Section 3.20(g).
2. Purchase and Sale
-----------------
2.1 Purchase and Sale. Subject to the terms and conditions contained in
-----------------
this Agreement, on the Closing Date, Shareholders shall sell, assign, transfer
and deliver to Buyer, and Buyer shall purchase from Shareholders, all of the
Shares in exchange for a purchase price of $1,800,000 (the "Purchase Price"),
which shall be paid in cash by wire transfer of immediately available funds to
each Shareholder in an amount based on such Shareholder's pro rata ownership of
the Shares on the Closing Date, and to such accounts at such banks as
Shareholders shall direct.
6
<PAGE>
2.2 Closing. The closing (the "Closing") of the sale and purchase of the
-------
Shares shall take place at the offices of Morgan, Lewis & Bockius LLP, 2000 One
Logan Square, Philadelphia, Pennsylvania, commencing at 10:00 A.M., local time,
on the first business day after the conditions set forth in Sections 8 and 9
have been satisfied, or at such other date, time or place as may be agreed upon
in writing by the parties hereto, but not later than September 1, 1998 (the
"Termination Date"). The date of the Closing is sometimes herein referred to as
the "Closing Date."
2.3 Items to be Delivered Immediately Prior to or at Closing. At the
--------------------------------------------------------
Closing:
(i) In exchange for the payment by Buyer to Shareholders of the
Purchase Price, Shareholders shall deliver to Buyer a certificate or
certificates representing all of the Shares, duly endorsed in blank or
accompanied by stock powers duly executed in blank,
(ii) Shareholders shall also deliver to Buyer, and Buyer shall
deliver to Shareholders, the certificates referred to in Sections 8 and 9,
and
(iii) Buyer shall deliver to each of the Shareholders the Purchase
Price.
3. Representations and Warranties of Shareholders.
----------------------------------------------
Each Shareholder hereby represents and warrants to Buyer the
representations and warranties set forth in Sections 3.2 and 3.3 and George
Jankovic and Stephen Chang, jointly and severally, hereby represent and warrant
to Buyer the representations and warranties in this Section 3.
3.1 Corporate Status. The Company is a corporation duly organized,
----------------
validly existing and in good standing under the Laws of the State of Colorado
and is qualified to do business as a foreign corporation in any jurisdiction
where it is required to be so qualified. The Charter Documents and bylaws of
the Company that have been delivered to Buyer as of the date hereof are
effective under applicable Laws and are current, correct and complete.
3.2 Authorization. Each Shareholder has the requisite power and authority
-------------
to execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions performed or to be performed by it. Each Transaction
Document executed and delivered by Shareholders has been duly executed and
delivered by each Shareholder and constitutes a valid and binding obligation of
Shareholders, enforceable against such Shareholder in accordance with its terms.
3.3 Consents and Approvals. Except for any consents specified in SCHEDULE
----------------------
3.3 (collectively the "Shareholder Required Consents"), neither the execution
and delivery by any Shareholder of the Transaction Documents to which it is a
party, nor the performance of the
7
<PAGE>
Transactions performed or to be performed by any Shareholder, require any
filing, consent or approval, constitute a Default or cause any payment
obligation to arise under (a) any Law or Court Order to which any Shareholder is
subject, (b) the Charter Documents or bylaws of the Company or (c) any Contract,
Governmental Permit or other document to which the Company is a party or by
which the properties or other assets of the Company may be subject.
3.4 Stock Ownership. The Shareholders are the sole record and beneficial
---------------
owners of all of the issued and outstanding shares of common stock (and options
to purchase common stock) of the Company, and the respective shares owned by the
Shareholders are specified on SCHEDULE 3.4. Except as set forth on SCHEDULE
3.4, there are no existing options, warrants, calls, commitments or other rights
of any character (including conversion or preemptive rights) relating to the
acquisition of any issued or unissued common stock or other securities of the
Company.
3.5 Financial Statements. Attached hereto as SCHEDULE 3.5 are the
--------------------
following financial statements of the Company (collectively, the "Financial
Statements"): (i) the balance sheet as of December 31, 1997 and the related
statements of operations, shareholders' equity and cash flows for the fiscal
year ended December 31, 1997, and (ii) the balance sheet as of June 30, 1998
and the related statements of operations, shareholders' equity and cash flows
for the fiscal quarter ended June 30, 1998. The Financial Statements have been
prepared in accordance with GAAP and (with the exception of Note 6 (Income
Taxes)) present fairly, in all material respects, the financial position of the
Company, and the results of its operations and its cash flows for the period
then ended. The balance sheet of the Company as of June 30, 1998 that is
included in the Financial Statements is referred to herein as the "Balance
Sheet," and the date thereof is referred to as the "Balance Sheet Date."
3.6 Title to Assets and Related Matters. The Company has good and
-----------------------------------
marketable title to, valid leasehold interests in or valid licenses to use, all
of its Assets, free from any Encumbrances except those specified in SCHEDULE
3.6. The use of the Assets are not subject to any Encumbrances (other than those
specified in the preceding sentence), and such use does not, to the Knowledge of
the Shareholders, encroach on the property or rights of anyone else. Except as
set forth on SCHEDULE 3.11, all tangible personal property (other than
Inventory) included in the Assets are suitable for the purposes for which they
are used, in good working condition, reasonable wear and tear excepted, and are
free from any known defects.
3.7 Real Property. SCHEDULE 3.7 describes all real estate used in the
-------------
operation of the Business as well as any other real estate that is owned, in the
possession of or leased by the Company and the improvements (including and other
structures) located on such real estate (collectively, the "Real Property"), and
lists any lease buildings under which any such Real Property is possessed (the
"Real Estate Leases"). SCHEDULE 3.7 also describes any other real estate
previously owned, leased, occupied or otherwise operated by the Company and the
time periods of any such ownership, lease, occupation or operation. All of the
Real Property (a) is usable in the ordinary course of business and (b) to
Shareholders' Knowledge, conforms with any applicable Laws relating to its
construction, use and operation and with applicable zoning
8
<PAGE>
Laws. The Company or the landlord of any Real Property leased by the Company has
obtained all licenses and rights-of-way from governmental entities or private
parties that are necessary to ensure vehicular and pedestrian ingress and egress
to and from the Real Property.
3.8 Certain Personal Property. SCHEDULE 3.8 describes all items of
-------------------------
tangible personal property that were included in the Balance Sheet at a net book
value of at least $10,000. Except as specified in SCHEDULE 3.8, since the
Balance Sheet Date, the Company has not acquired any items of tangible personal
property that have a carrying value in excess of $10,000. All of such personal
property included in SCHEDULE 3.8 is, and any such personal property acquired
after the date hereof in accordance with Section 5.1 will be, usable in the
ordinary course of business, and all such personal property included in SCHEDULE
3.8 conforms, and all of such personal property acquired after the date hereof
will conform, with any applicable Laws relating to its construction, use and
operation. Except for those items subject to the Non-Real Estate Leases and
certain computer hardware and software owned by the Company's employees or
consultants with an aggregate value of less than $5,000, no Person other than
the Company owns any vehicles, material equipment or other material tangible
assets located on the Real Property that have been used in the Business or that
are necessary for the operation of the Business.
3.9 Non-Real Estate Leases. SCHEDULE 3.9 lists all assets and property
----------------------
(other than Real Property) that are possessed by the Company under an existing
lease, including all trucks, automobiles, forklifts, machinery, equipment,
furniture and computers, except for any lease under which the aggregate annual
payments are less than $10,000 (each, an "Immaterial Lease"). SCHEDULE 3.9 also
lists the leases under which such assets and property listed in SCHEDULE 3.8 are
possessed. All of such leases (excluding Immaterial Leases) are referred to
herein as the "Non-Real Estate Leases."
3.10 Accounts Receivable. All accounts receivable of the Company (a) are
-------------------
valid and genuine, (b) arise out of bona fide sales and deliveries of goods,
performance of services or other business transactions, (c) are not subject to
valid defenses, set-offs or counterclaims other than normal returns and
allowances and (d) were generated only in the ordinary course of business.
3.11 Inventory and Equipment. All inventory and equipment of the Company
-----------------------
reflected on the Balance Sheet, and all inventory and equipment owned by the
Company was acquired and has been maintained in accordance with the regular
business practices of the Company, consists of items of a quality and quantity
useable in the ordinary course of the Company's business consistent with past
practice, and is valued in conformity with generally accepted accounting
principles applied on a consistent basis; except as set forth on SCHEDULE 3.11,
no significant amount of such inventory or equipment is obsolete.
3.12 Liabilities. The Company does not have any material Liabilities,
-----------
other than (a) Liabilities specified in SCHEDULE 3.12, (b) Liabilities specified
in the Balance Sheet (except as heretofore paid or discharged), (c) Liabilities
incurred in the ordinary course since the Balance Sheet Date that, individually
or in the aggregate, are not material to the Business, or (d)
9
<PAGE>
Liabilities under any Contracts that were not required under GAAP to have been
specifically disclosed or reserved for on the Balance Sheet.
3.13 Taxes. Except as set forth on SCHEDULE 3.13,
-----
(a) The Company has timely filed all Tax Returns required to be
filed on or before the Closing Date and all such Tax Returns are true, correct
and complete in all respects. The Company has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return, except where the
failure to file such return or pay such taxes would not have a Material Adverse
Effect. No claim has ever been made by any authority in any jurisdiction where
the Company does not file Tax Returns that the Company may be subject to
taxation in that jurisdiction.
(b) The amount of the Company's liability for unpaid Taxes as of the
Balance Sheet Date did not exceed the amount of the current liability accruals
for Taxes (excluding reserves for deferred Taxes) shown on the Balance Sheet.
(c) There are no ongoing examinations or claims against the Company
for Taxes, and no notice of any audit, examination or claim for Taxes, whether
pending or threatened, has been received. The Company has not waived or extended
the statute of limitations with respect to the collection or assessment of any
Tax.
(d) The Company has a taxable year ended on December 31, in each
year commencing from the incorporation of the Company. The Company currently
utilizes the cash method of accounting for income Tax purposes and such method
of accounting has not changed in the past 10 years.
(e) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor or third
party.
(f) Copies of (A) any Tax examinations, (B) extensions of statutory
limitations for the collection or assessment of Taxes and (C) the Tax Returns of
the Company and each Subsidiary for the last two fiscal years have been made
available to Buyer
(g) There are (and as of immediately following the Closing there
will be) no Liens on the assets of the Company relating to or attributable to
Taxes, except for liens for Taxes not yet due. To the Shareholders' Knowledge,
there is no basis for the assertion of any claim relating to or attributable to
Taxes which, if adversely determined, would result in any Lien on the assets of
the Company or otherwise have an adverse effect on the Company or its business.
10
<PAGE>
(h) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company that, individually or collectively,
would reasonably be expected to give rise to any payment (or portion thereof)
that would not be deductible pursuant to Sections 280G, 404 or 162 of the Code.
The Company has not filed a consent under Section 341(f) of the Code. The
Company is not and has not been a United States real property holding company
within the meaning of Section 897(c) during the period specified in Section
897(c)(1)(A)(ii).
(i) The Company has not been at any time, a party to a tax sharing,
tax indemnity or tax allocation agreement, and the Company has not assumed the
tax liability of any other person under contract.
3.14 Subsidiaries. The Company does not own, directly or indirectly, any
------------
interest or investment (whether equity or debt) in any corporation, partnership,
limited liability company, trust, joint venture or other legal entity.
3.15 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as set forth in SCHEDULE 3.15, there is no Litigation that
is pending or, to Shareholders' Knowledge, threatened against the Company. To
the Shareholders Knowledge, there has been no Default under any Laws applicable
to the Company, including Laws relating to pollution or protection of the
environment, and the Company has not received any notices from any governmental
entity regarding any alleged Defaults under any Laws. There has been no Default
with respect to any Court Order applicable to the Company.
(b) Without limiting the generality of Section 3.15(a), to the
Shareholders' Knowledge, and except as described in SCHEDULE 3.15, there is not
and never has been any Environmental Condition (i) at the premises at which the
Business has been conducted by the Company or any predecessor of the Company,
(ii) (A) at any property owned, leased, occupied or operated at any time by the
Company or (B) at any property owned, leased, occupied or operated at any time
by any Person controlled by the Company or any predecessor of any of them in
connection with the Business, or (iii) at any property at which wastes have been
deposited or disposed by, from or at the behest or direction of any of the
foregoing, nor has the Company received written notice of any such Environmental
Condition. "Environmental Condition" means any condition or circumstance,
including the presence of Hazardous Substances, whether created by the Company
or any third party, at or relating to any such property or premises specified in
any of clauses (i) through (iii) above that did, does or may reasonably be
expected to (A) require abatement or correction under an Environmental Law, (B)
give rise to any civil or criminal liability on the part of the Company under an
Environmental Law, or (C) create a public or private nuisance.
(c) The Company has delivered to Buyer complete copies of any written
reports, studies or assessments in the possession or control of the Company or
any Shareholder
11
<PAGE>
that relate to any Environmental Condition and to the Business or any Assets and
has identified on SCHEDULE 3.15 all other reports, studies and assessments of
which the Company or any Shareholder has Knowledge.
(d) Except as set forth in Schedule 3.15, the Company has obtained
and is in full compliance with all material Governmental Permits, along with
their respective expiration dates, that are required for the complete operation
of the Business as currently operated or that relates to the Real Property, (ii)
all of such Governmental Permits are currently valid and in full force and (iii)
the Company has filed such timely and complete renewal applications as may be
required with respect to its Governmental Permits. To Shareholders' Knowledge,
no revocation, cancellation or withdrawal thereof has been threatened.
3.16 Contracts.
---------
(a) SCHEDULE 3.16 lists all Contracts of the following types to which
the Company is a party or by which it is bound, except for Minor Contracts:
(i) Contracts with any present or former shareholder, director,
officer, employee, partner or consultant of the Company or any
Affiliate thereof.
(ii) Contracts for the future purchase of, or payment for,
supplies or products, or for the lease of any real or personal
property from or the performance of services by a third party;
(iii) Contracts to sell or supply products or to perform services
that involve an amount in excess of $5,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party any
real or personal property that involve an amount in excess of $5,000
in any individual case;
(v) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other Contracts for the
borrowing or lending of money (including loans to or from officers,
directors, partners, shareholders or Affiliates of the Company or any
members of their immediate families), agreements or arrangements for
a line of credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
12
<PAGE>
(vii) Any other Contracts (other than Minor Contracts and those
described in any of (i) through (vi) above) not made in the ordinary
course of business.
(b) The Contracts listed in SCHEDULE 3.16 and the Minor Contracts
excluded from SCHEDULE 3.16 based on the term or amount thereof are referred to
herein as the "Company Contracts." The Company is not in material Default under
any Company Contract (including any Real Estate Leases and Non-Real Estate
Leases). The Company has not received any communication from, or given any
communication to, any other party indicating that the Company or such other
party, as the case may be, is in Default under any Company Contract. To the
Knowledge of the Shareholders, (i) none of the other parties in any such Company
Contract is in Default thereunder, and (ii) each such Company Contract is
enforceable against any other parties thereto in accordance with terms thereof.
3.17 Insurance. SCHEDULE 3.17 lists all policies or binders of insurance
---------
held by or on behalf of the Company, specifying with respect to each policy the
insurer, the amount of the coverage, the type of insurance, the risks insured,
the expiration date, the policy number and any pending claims thereunder. To
the Shareholders' Knowledge, there is no Default with respect to any such policy
or binder, nor has there been any failure to give any notice or present any
claim under any such policy or binder in a timely fashion or in the manner or
detail required by the policy or binder. There is no notice of nonrenewal or
cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by the Company.
3.18 Intellectual Property
---------------------
(a) Intellectual Property. The Company has good and valid title to
---------------------
and ownership of all Intellectual Property necessary for its Business and
operations (as now conducted and as proposed to be conducted). A list of all
Intellectual Property owned by the Company is set forth on SCHEDULE 3.18(A).
There are no outstanding options, licenses or agreements of any kind to which
the Company is a party or by which it is bound relating to any Intellectual
Property, whether owned by the Company or another person, except as disclosed on
SCHEDULE 3.18(A). To the Knowledge of the Shareholders, the business of the
Company as formerly and presently conducted did not and does not conflict with
or infringe upon any Intellectual Property right, owned or claimed by another.
(b) Contracts. SCHEDULE 3.18(B) contains a complete and accurate
---------
list and summary description, including any royalties paid or received by the
Company, of all Contracts relating to the Intellectual Property to which the
Company is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses for commonly
available software programs with a value of less than $5,000 under which the
Company is the licensee. There are no outstanding and, to Shareholders'
Knowledge, no threatened disputes or disagreements with respect to any such
agreement.
13
<PAGE>
(c) Know-How Necessary for the Business. The Intellectual Property
-----------------------------------
included in the Assets constitutes all of the Intellectual Property that is, to
the Shareholders Knowledge, necessary for the operation of the Business as it is
currently conducted. Except as described on SCHEDULE 3.18(C), the Company is the
owner of all right, title and interest in and to each item of Intellectual
Property, free and clear of any Encumbrances, and to the Knowledge of the
Shareholders has the right to use without payment to a third party all of the
Intellectual Property.
3.19 Employees. The Company is not (a) a party to, involved in or, to
---------
Shareholders' Knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective bargaining
agreement. The Company has not experienced during the last three years any work
stoppage. Shareholders have delivered to Buyer a complete and correct list of
the names and salaries, bonus and other cash compensation of all employees
(including officers) of the Company. SCHEDULE 3.19 lists the directors and
officers of the Company.
3.20 ERISA.
-----
(a) SCHEDULE 3.20 contains a complete list of all Benefit Plans
sponsored or maintained by the Company or under which the Company is obligated.
Shareholders have delivered to Buyer (i) accurate and complete copies of all
such Benefit Plan documents and all other material documents relating thereto,
including (if applicable) all summary plan descriptions, summary annual reports
and insurance contracts, (ii) accurate and complete detailed summaries of all
unwritten Benefit Plans, (iii) accurate and complete copies of the most recent
financial statements and actuarial reports with respect to all such Benefit
Plans for which financial statements or actuarial reports are required or have
been prepared and (iv) accurate and complete copies of all annual reports for
all such Benefit Plans (for which annual reports are required) prepared within
the last three years. Each such Benefit Plan providing benefits that are funded
through a policy of insurance is indicated by the word "insured" placed by the
listing of the Benefit Plan in the SCHEDULE 3.20.
(b) To the Knowledge of any of the Shareholders, all such Benefit
Plans conform (and at all times have conformed) in all material respects to, and
are being administered and operated (and have at all time been administered and
operated) in material compliance with, the requirements of ERISA, the Code and
all other applicable Laws. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all such Benefit
Plans have been timely filed or delivered. To the Knowledge of any of the
Shareholders, there have not been any "prohibited transactions," as such term is
defined in Section 4975 of the Code or Section 406 of ERISA involving any of the
Benefit Plans, that could subject any Shareholder or the Company to any material
penalty or tax imposed under the Code or ERISA.
(c) Except as is set forth in SCHEDULE 3.20, any such Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified or an
14
<PAGE>
application for such determination is pending. Any such determination that has
been obtained remains in effect and has not been revoked, and with respect to
any application that is pending, the Company does not have any reason to suspect
that such application for determination will be denied. Nothing has occurred
since the date of any such determination that is reasonably likely to affect
adversely such qualification or exemption, or result in the imposition of excise
taxes or income taxes on unrelated business income under the Code or ERISA with
respect to any such Benefit Plan.
(d) The Company does not sponsor a defined benefit plan subject to
Title IV of ERISA, nor does it have a current or contingent obligation to
contribute to any multiemployer plan (as defined in Section 3(37) of ERISA). The
Company does not have any liability with respect to any employee benefit plan
(as defined in Section 3(3) of ERISA) other than with respect to such Benefit
Plans.
(e) There are no pending or, to Shareholders' Knowledge, any
threatened claims by or on behalf of any such Benefit Plans, or by or on behalf
of any individual participants or beneficiaries of any such Benefit Plans,
alleging any breach of fiduciary duty on the part of the Company or any of its
officers, directors or employees under ERISA or any other applicable
regulations, or claiming benefit payments (other than those made in the ordinary
operation of such plans), nor is there, to Shareholders's Knowledge, any basis
for such claim. The Benefit Plans are not the subject of any pending (or to
Shareholders's Knowledge, any threatened) investigation or audit by the Internal
Revenue Service or the Department of Labor.
(f) The Company has timely made all required contributions under
such Benefit Plans.
(g) With respect to any such Benefit Plan that is an employee
welfare benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare
Plan") and except as specified in SCHEDULE 3.20, (i) each Welfare Plan for which
contributions are claimed by the Company as deductions under any provision of
the Code complies with all applicable requirements pertaining to such deduction,
(ii) with respect to any welfare benefit fund (within the meaning of Section 419
of the Code) related to a Welfare Plan, there is no disqualified benefit (within
the meaning of Section 4976(b) of the Code) that would result in the imposition
of a tax under Section 4976(a) of the Code, (iii) any Benefit Plan that is a
group health plan (within the meaning of Section 4980B(g)(2) of the Code)
complies, and in each and every case has complied, with all of the applicable
requirements of Section 4980B of the Code, ERISA, Title XXII of the Public
Health Service Act and the Social Security Act, and (iv) all Welfare Plans may
be amended or terminated at any time on or after the Closing Date. Except as
specified in SCHEDULE 3.20, no Benefit Plan provides any health, life or other
welfare coverage to employees of the Company beyond termination of their
employment with the Company by reason of retirement or otherwise, other than
coverage as may be required under Section 4980B of the Code or Part 6 of ERISA,
or under the continuation of coverage provisions of the laws of any state or
locality.
15
<PAGE>
3.21 Corporate Records. The minute books of the Company contain complete,
-----------------
correct and current copies of its Charter Documents and bylaws and of all
minutes of meetings, resolutions and other proceedings of its Board of Directors
and shareholders. The stock record books of the Company are complete, correct
and current.
3.22 Absence of Certain Changes. Except as contemplated by this Agreement,
--------------------------
the Company has conducted the Business in the ordinary course since June 30,
1998, and there has not been with respect to the Business any of the items
specified below since the Balance Sheet Date:
(a) any change that has had or is reasonably likely to have a
Material Adverse Effect;
(b) any distribution or payment declared or made in respect of its
common stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) Except as set forth on SCHEDULE 3.22(C), any increase in the
compensation payable or to become payable to any director, officer,
employee or agent, except for increases for non-officer employees made in
the ordinary course of business, nor any other change in any employment or
consulting arrangement except in the ordinary course of business;
(d) any sale, assignment or transfer of Assets, or any additions to
or transactions involving any Assets, other than those made in the ordinary
course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(f) materially decrease its working capital;
(g) other than in the ordinary course of business, any incurrence of
indebtedness for borrowed money or issuance of any debt securities; or
(h) any payments to any Affiliate of the Company, except as
specified in SCHEDULE 3.22(H).
3.23 Customers. The Company has used reasonable business efforts to
---------
maintain, and currently maintains, good working relationships with all of its
customers. SCHEDULE 3.23 contains a list of the names of each of the 10
customers that, in the aggregate, for the period from January 1, 1998 through
June 30, 1998 were the largest dollar volume customers of products or services,
or both, sold by the Company. Except as specified in SCHEDULE 3.23, none of such
16
<PAGE>
customers has given the Company written notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with the
Company.
3.24 Previous Sales; Warranties. The Company has not breached any express
--------------------------
or implied warranties in connection with the sale or distribution of goods or
the performance of services, except for breaches that, individually and in the
aggregate, are not material and are consistent with the past practices of the
Business.
3.25 Finder's Fees. No Person retained by the Company or any Shareholder
-------------
is or will be entitled to any commission or finder's or similar fee in
connection with the Transactions.
3.26 Accuracy of Information. To the Shareholders' Knowledge, no
-----------------------
representation or warranty by the Company or any Shareholder in any Transaction
Document, and no information contained therein contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which such statements were made.
3.27 Intentionally Omitted.
---------------------
3.28 Additional Information. SCHEDULE 3.28 accurately lists the
----------------------
following:
(a) the names and addresses of every bank or other financial
institution in which the Company maintains an account (whether checking,
saving or otherwise), lock box or safe deposit box, and the account numbers
and names of Persons having signing authority or other access thereto; and
(b) all names under which the Company has conducted the Business or
which it has otherwise used at any time during the past five years.
40 Representations and Warranties of Buyer.
---------------------------------------
Buyer hereby represents and warrants to Shareholders as follows:
4.1 Organizational Status. Buyer is a corporation duly organized, validly
---------------------
existing and in good standing under the Laws of the Commonwealth of Pennsylvania
and is qualified to do business in any jurisdiction where it is required to be
so qualified. The Charter Documents of Buyer that have been delivered to
Shareholders as of the date hereof are effective under applicable Laws and are
current, correct and complete.
4.2 Authorization. Buyer has the requisite power and authority to own its
-------------
assets and to carry on its business. Buyer has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions performed or to be performed by it. Such
execution, delivery and performance by Buyer have been duly authorized
17
<PAGE>
by all necessary corporate action. Each Transaction Document executed and
delivered by Buyer has been duly executed and delivered by Buyer and constitutes
a valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms.
4.3 Consents and Approvals. Neither the execution and delivery by Buyer
----------------------
of the Transaction Documents to which it is a party, nor the performance of the
Transactions performed or to be performed by Buyer, require any filing, consent
or approval, constitute a Default or cause any payment obligation to arise under
(a) any Law or Court Order to which Buyer is subject, (b) the Charter Documents
or bylaws of Buyer or (c) any Contract, Governmental Permit or other document to
which Buyer is a party or by which the properties or other assets of Buyer may
be subject.
4.4 Finder's Fees. No Person retained by Buyer is or will be entitled to
-------------
any commission or finder's or similar fee in connection with the Transactions.
4.5 Accuracy of Information. To Buyer's actual knowledge, no
-----------------------
representation or warranty by Buyer in any Transaction Document, and no
information contained therein or otherwise delivered by or on behalf of Buyer to
any other Party in connection with the Transactions contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading in light
of the circumstances under which such statements were made.
5. Covenants of Shareholders.
-------------------------
5.1 Conduct of the Business. Except as contemplated or otherwise
-----------------------
consented to by Buyer in writing, after the date of this Agreement the Company
shall carry on the Business in the ordinary course. In furtherance of and in
addition to such restriction, (a) the Company shall not: amend its Charter
Documents or bylaws; merge or consolidate with, or purchase substantially all of
the assets of, or otherwise acquire any business of, any corporation,
partnership or other business organization or business division thereof; split,
combine or reclassify its outstanding capital stock; enter into any Contract or
otherwise incur any Liability outside the ordinary course of business; discharge
or satisfy any Encumbrance or pay or satisfy any material Liability except
pursuant to the terms thereof; compromise, settle or otherwise adjust any
material claim or litigation; make any capital expenditure involving in any
individual case more than $5,000; incur any indebtedness for borrowed money or
issue any debt securities; declare or pay any dividend or other distribution on
its capital stock; materially decrease its working capital; increase the
salaries or other compensation payable to any employee, or take any action, or
fail to take any reasonable action within its control, as a result of which any
of the changes or events listed in Section 3.22 would be likely to occur, and
(b) the Company shall maintain and service the Assets consistent with past
practice and preserve intact the current business organization of the Company.
18
<PAGE>
5.2 Access to Information. From the date of this Agreement to the Closing
---------------------
Date, the Shareholders shall cause the Company to give to Buyer and its
officers, employees, counsel, accountants and other representatives access to
and the right to inspect, during normal business hours, all of the assets,
records, contracts and other documents relating to the Company as the other
party may reasonably request. Buyer shall not use such information for purposes
other than in connection with the transactions contemplated by this Agreement
and shall otherwise hold such information in confidence until such time as such
information otherwise becomes publicly available and will sign such standard and
customary non-disclosure agreements as are reasonably requested by the Company.
5.3 No Solicitation. From and after the date hereof until the earlier of
---------------
the Termination Date or the date of termination of this Agreement pursuant to
Section 11, without the prior written consent of Buyer, each Shareholder and the
Company will not, and will not authorize or permit any Shareholder
Representative to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) or take any other action to
facilitate knowingly any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to an Acquisition Proposal
from any Person, or engage in any discussion or negotiations relating thereto or
accept any Acquisition Proposal. The Company or any Shareholder that receives
any such inquiries, offers or proposals shall (a) notify Buyer orally and in
writing of any such inquiries, offers or proposals (including the terms and
conditions of any such proposal and the identity of the person making it),
within 48 hours of the receipt thereof, (b) keep Buyer informed of the status
and details of any such inquiry, offer or proposal, and (c) give Buyer five
days' advance notice of any agreement to be entered into with, or any
information to be supplied to, any Person making such inquiry, offer or
proposal. As used herein, "Acquisition Proposal" means a proposal or offer
(other than pursuant to this Agreement) for a tender or exchange offer, merger,
consolidation or other business combination involving any or any proposal to
acquire in any manner a substantial equity interest in, or all or substantially
all of the Assets. Notwithstanding the foregoing, the Shareholders will remain
free to participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner, any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require.
5.4 Existing Employment Agreements and Other Liabilities. Each
----------------------------------------------------
Shareholder, effective as of the Closing, hereby consents to the cancellation of
any Contract that the Shareholders have with the Company, including any
employment agreement, and also releases and discharges Shareholder and any of
its Affiliates from any and all Liabilities other than those arising out of this
Agreement or any other Transaction Documents and those related to wages due to
the Shareholders in the ordinary course.
5.5 Expenses. The Shareholders shall pay all of the legal and accounting
--------
expenses in excess of $30,000 incurred by Shareholders and the Company in
connection with the Transactions.
19
<PAGE>
5.6 Confidentiality.
---------------
(a) Each Shareholder recognizes and acknowledges that by reason of
its or his involvement with or employment in the Business, it or he has or may
have had access to Trade Secrets relating to the Business. Each Shareholder
acknowledges that such Trade Secrets are a valuable and unique asset and
covenants that it or he will not disclose any such Trade Secrets to any Person
for any reason whatsoever, unless such information (a) is in the public domain
through no wrongful act of such Shareholder, (b) has been rightfully received
from a third party without restriction and without breach of this Agreement or
(c) except as may be required by law.
(b) The terms of this Section 5.6 shall apply to each Shareholder
and to any other Person controlled by any Shareholder and any of their
respective Affiliates that it or he controls to the same extent as if they were
parties hereto, and each such party shall take whatever actions may be necessary
to cause any such party or Affiliate to adhere to the terms of this Section 5.6.
(c) In the event of any breach or threatened breach by any party of
any provision of Section 5.6, Buyer shall be entitled to injunctive or other
equitable relief, restraining such party from using or disclosing any Trade
Secrets in whole or in part, or from engaging in conduct that would constitute a
breach of the obligations of a party under Section 5.6. Such relief shall be in
addition to and not in lieu of any other remedies that may be available,
including an action for the recovery of Damages, all of which may be sought only
in accordance with the arbitration provisions of this Agreement.
5.7 Transfer of Assets and Business. Shareholders shall, and shall cause
-------------------------------
the Company to, take such reasonable steps as may be necessary or appropriate,
in the judgment of Buyer, so that Buyer shall be placed in actual possession and
control of all of the Assets and the Business.
5.8 Accounts Receivable.
-------------------
(a) After the Closing, Buyer shall cause the Company to use
reasonable and diligent efforts to collect the accounts receivables of the
Company outstanding as of the Balance Sheet Date (the "Closing Accounts
Receivables"), without any obligation to compromise the gross amount of any such
account receivable, commence legal proceedings or retain collection agencies.
(b) In the event that, notwithstanding the efforts by the Company,
the Closing Accounts Receivables have not been collected in full within 120 days
after the Closing, (i) Buyer shall be responsible for the first $25,000 of the
amount of any uncollected Closing Accounts Receivables (without application of
any reserves for uncollectible accounts receivable on any financial statement of
the Company), and (ii) Shareholders, jointly and severally, shall upon written
notice from Buyer, promptly pay the Company an amount equal to 50% of the unpaid
20
<PAGE>
portion of such uncollected Closing Accounts Receivables in excess of $25,000
(without application of any reserves for uncollectible accounts receivable on
any financial statement of the Company).
6. Covenants of Buyer.
------------------
6.1 Fulfillment of Closing Conditions. At and prior to the Closing, Buyer
---------------------------------
shall use commercially reasonable efforts to fulfill the conditions specified in
Sections 8 and 9 to the extent that the fulfillment of such conditions is within
its control. In connection with the foregoing, each such party will (a) refrain
from any actions that would cause any of its representations and warranties to
be inaccurate in any material respect as of the Closing, (b) execute and deliver
the applicable agreements and other documents referred to in Sections 8 and 9,
(c) comply in all material respects with all applicable Laws in connection with
its execution, delivery and performance of this Agreement and the Transactions,
(d) use commercially reasonable efforts to obtain in a timely manner all
necessary waivers, consents and approvals required under any Laws, Contracts or
otherwise, including any Buyer Required Consents, and (e) use commercially
reasonable efforts to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things reasonably necessary, proper or advisable
to consummate and make effective as promptly as practicable the Transactions.
6.2 Expenses. Buyer shall pay all of the legal, accounting and other
--------
expenses incurred by Buyer in connection with the Transactions.
7. Mutual Covenants.
----------------
7.1 Fulfillment of Closing Conditions. At and prior to the Closing, each
---------------------------------
party shall use commercially reasonable efforts to fulfill, and to cause each
other to fulfill, as soon as practicable after the conditions specified in
Sections 8 and 9 to the extent that the fulfillment of such conditions is within
its or his control. In connection with the foregoing, each party will (a)
refrain from any actions that would cause any of its representations and
warranties to be inaccurate as of the Closing, and take any reasonable actions
within its control that would be necessary to prevent its representations and
warranties from being inaccurate as of the Closing, (b) execute and deliver the
applicable agreements and other documents referred to in Sections 8 and 9, (c)
comply in all material respects with all applicable Laws in connection with its
execution, delivery and performance of this Agreement and the Transactions, (d)
use commercially reasonable efforts to obtain in a timely manner all necessary
waivers, consents and approvals required under any Laws, Contracts or otherwise,
including any Shareholder Required Consents in the case of Shareholders and any
Buyer Required Consents in the case of Buyer, (e) use commercially reasonable
efforts to take, or cause to be taken, all other actions and to do, or cause to
be done, all other things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions.
21
<PAGE>
7.2 Disclosure of Certain Matters. Each Shareholder on the one hand, and
-----------------------------
Buyer, on the other hand, shall give Buyer and Shareholders, respectively,
prompt notice of any event or development that occurs that (a) had it existed or
been known on the date hereof would have been required to be disclosed by such
party under this Agreement, (b) would cause any of the representations and
warranties of such party contained herein to be inaccurate or otherwise
misleading, except as contemplated by the terms hereof, or (c) gives any such
party any reason to believe that any of the conditions set forth in Sections 8
and 9 will not be satisfied prior to the Termination Date (defined below).
7.3 Intentionally omitted.
7.4 Public Announcements. Shareholders and Buyer shall consult with each
--------------------
other before issuing any press release or making any public statement with
respect to this Agreement and the Transactions and, except as may be required by
applicable law, none of such Parties nor any other Parties shall issue any such
press release or make any such public statement without the consent of the other
parties hereto.
7.5 Confidentiality. If the Transactions are not consummated, each party
---------------
shall treat all information obtained in its investigation of another party or
any Affiliate thereof, and not otherwise known to them or already in the public
domain, as confidential and shall not use or otherwise disclose such information
to any third party and shall return to such other party or Affiliate all copies
made by it or its representatives of Confidential Information provided by such
other party or Affiliate.
8. Conditions Precedent to Obligations of Shareholders.
---------------------------------------------------
All obligations of Shareholders to consummate the Transactions are subject
to the satisfaction prior thereto of each of the following conditions:
8.1 Representations and Warranties. The representations and warranties of
------------------------------
Buyer contained in this Agreement shall be true and correct on the date hereof
and (except to the extent such representations and warranties speak as of an
earlier date) shall also be true and correct on and as of the Closing Date with
the same force and effect as if made on and as of the Closing Date.
8.2 Agreements, Conditions and Covenants. Buyer shall have performed or
------------------------------------
complied with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by it on or before the Closing Date.
8.3 Certificates. Shareholders shall have received a certificate of an
------------
executive officer of Buyer to the effect set forth in Sections 8.1 and 8.2 with
respect to Buyer.
22
<PAGE>
8.4 Legality. No Law or Court Order shall have been enacted, entered,
--------
promulgated or enforced by any court or governmental authority that is in effect
and has the effect of making the purchase and sale of the Assets illegal or
otherwise prohibiting the consummation of such purchase and sale.
8.5 Buyer Required Consents. Buyer shall have obtained Buyer Required
-----------------------
Consents without any modification that Shareholders reasonably deem
unacceptable.
8.6 Employment Agreement. Contemporaneously with the Closing, Buyer shall
--------------------
execute and deliver an employment agreement with George Jankovic, which
agreement shall become effective on the Closing Date.
8.7 Legal Fees. The legal fees and expenses of Brobeck, Phleger &
----------
Harrison LLP set forth in Schedule 3.12 shall have been paid.
9. Conditions Precedent to Obligations of Buyer.
--------------------------------------------
All obligations of Buyer to consummate the Transactions are subject to the
satisfaction (or waiver) prior thereto of each of the following conditions:
9.1 Representations and Warranties. The representations and warranties of
------------------------------
Shareholders contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and warranties speak as of
an earlier date) shall also be true and correct on and as of the Closing Date,
except for changes contemplated by this Agreement, with the same force and
effect as if made on and as of the Closing Date.
9.2 Agreements, Conditions and Covenants. Shareholders shall have
------------------------------------
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by
them on or before the Closing Date.
9.3 Certificates. Buyer shall have received a certificate of an executive
------------
officer of the Company and each Shareholder to the effect set forth in Sections
9.1 and 9.2.
9.4 Legality. No Law or Court Order shall have been enacted, entered,
--------
promulgated or enforced by any court or governmental authority that is in effect
and (a) has the effect of making the purchase and sale of the Assets illegal or
otherwise prohibiting the consummation of such purchase and sale or (b) has a
reasonable likelihood of causing a Material Adverse Effect.
10. Indemnification.
---------------
10.1 By Shareholders. From and after the Closing Date, the Shareholders,
---------------
jointly and severally, shall indemnify and hold harmless Buyer and its
successors and assigns, and their respective officers, directors, employees,
shareholders, agents, Affiliates and any Person who
23
<PAGE>
controls any of such Persons within the meaning of the Securities Act or the
Exchange Act (each, a "Buyer Indemnified Party") from and against any
liabilities, claims, demands, judgments, losses, costs, damages or expenses
whatsoever (including reasonable attorneys', consultants' and other professional
fees and disbursements of every kind, nature and description incurred by such
Buyer Indemnified Party in connection therewith including consequential damages)
(collectively, "Damages") that such Buyer Indemnified Party may sustain, suffer
or incur and that result from, arise out of or relate to (a) any breach of any
of the respective representations, warranties, covenants or agreements of any
Shareholder contained in this Agreement or in the Closing Certificates, (b) any
Environmental Condition existing on or before the Closing, and (c) any Liability
of any Shareholder involving Taxes due and payable by, or imposed on the Company
with respect to any Shareholder for any and all taxable periods ending on or
prior to the Closing Date (whether or not such Taxes have been due and payable).
Shareholder Indemnified Parties' obligations under this Section 10 are joint and
several; provided that a Shareholder shall not be liable under this Agreement
for an aggregate amount in excess of the portion of the Purchase Price received
by such Shareholder minus any Taxes paid by such Shareholder on account of the
Purchase Price; provided, further, that the Shareholders shall not have any
obligation to indemnify Buyer from and against any Damages caused by the breach
of any representation or warranty of the Shareholders contained in Section 3
until Buyer has suffered by reason of all such breaches Damages in excess of
$50,000 in the aggregate (the "Deductible Amount"); at such time as to the total
amount of such Damages exceeds the Deductible Amount in the aggregate, Buyer
shall be entitled to indemnification against all Damages in excess of the
Deductible Amount.
10.2 By Buyer. From and after the Closing Date, Buyer shall indemnify and
--------
hold harmless Shareholders and their respective successors and assigns, and (if
any) their respective officers, directors, employees, shareholders, agents,
Affiliates and any Person who controls any of such Persons within the meaning of
the Securities Act or the Exchange Act (each, a "Shareholder Indemnified Party")
from and against any Damages that such Shareholder Indemnified Party may
sustain, suffer or incur and that result from, arise out of or relate to any
breach of any of the respective representations, warranties, covenants or
agreements of Buyer contained in this Agreement. Buyer shall not be liable
under this Agreement for an aggregate amount in excess of the Purchase Price;
provided, however, that Buyer shall not have any obligation to indemnify
Shareholders from and against any Damages caused by the breach of any
representation or warranty of Buyer contained in Section 4 until Buyer has
suffered by reason of all such breaches Damages in excess of $50,000 in the
aggregate (the "Deductible Amount"); at such time as to the total amount of such
Damages exceeds the Deductible Amount in the aggregate, Shareholders shall be
entitled to indemnification against all Damages in excess of the Deductible
Amount.
10.3 Holders' Representative.
-----------------------
(a) Doris Wu shall act as the Shareholders' representative (the
"Holders' Representative") for the purpose of settling on behalf of the
Shareholders any indemnification
24
<PAGE>
claims made by Buyer Indemnified Party hereunder, and taking any other action
that is specifically delegated to the Holders' Representative hereunder. Buyer
shall give notice under Section 10.4 of any claim for indemnification against
the Shareholders to Shareholders and the Holders' Representative, and only the
Holders' Representative shall be empowered following such notice to respond to
or take any other action on behalf of the Shareholders with respect to the
claim. Shareholders shall be bound by any and all actions taken by the Holders'
Representative on their behalf in accordance with this Agreement.
(b) Buyer shall be entitled to rely exclusively upon any
communications or writings given or executed by the Holders' Representative and
shall not be liable in any manner whatsoever for any action taken or not taken
in reliance upon the actions taken or not taken or communications or writings
given or executed by the Holders' Representative. Buyer shall be entitled to
disregard any notices or communications given or made by the Shareholders unless
given or made through the Holders' Representative.
(c) In the event of the death of the Holders' Representative or his
inability to perform his functions hereunder, the Shareholders who immediately
prior to the Closing owned a majority of Shares shall choose another Holders'
Representative.
(d) The Holders' Representative shall not be liable to any Shareholder
or any other party for any action taken or omitted to be taken by him as
Holders' Representative except, in the case of willful misconduct or gross
negligence. Shareholders jointly indemnify the Holders' Representative and hold
him harmless from and against any loss, liability or expense of any nature
incurred by the Holders' Representative arising out of or in connection with the
administration of his duties as Holders' Representative, including reasonable
legal fees and other costs and expenses of defending or preparing to defend
against any claim or liability in the premises, unless such loss, liability or
expense shall be caused by the Holders' Representative's willful misconduct or
gross negligence.
10.4 Procedure for Claims.
--------------------
(a) Any Person that desires to seek indemnification under any part of
this Section 10 (each, an "Indemnified Party") shall give notice (a "Claim
Notice") to each party responsible or alleged to be responsible for
indemnification hereunder (an "Indemnitor") prior to any applicable Expiration
Date specified below. Such notice shall explain with specificity the nature of
the claim, the specific section of this Agreement to which the claim relates and
the parties known to be invoked, and shall specify the amount thereof. If the
matter to which a claim relates shall not have been resolved as of the date of
the Claim Notice, the Indemnified Party shall estimate the amount of the claim
in the Claim Notice, but also specify therein that the claim has not yet been
liquidated (an "Unliquidated Claim"). If an Indemnified Party gives a Claim
Notice for an Unliquidated Claim, the Indemnified Party shall also give a second
Claim Notice (the "Liquidated Claim Notice") within 60 days after the matter
giving rise to the claim becomes finally resolved, and the Second Claim Notice
shall specify the amount of the claim. Each
25
<PAGE>
Indemnitor to which a Claim Notice is given shall respond to any Indemnified
Party that has given a Claim Notice (a "Claim Response") within 60 days (the
"Response Period") after the later of (i) the date that the Claim Notice is
given or (ii) if a Claim Notice is first given with respect to an Unliquidated
Claim, the date on which the Liquidated Claim Notice is given. Any Claim Notice
or Claim Response shall be given in accordance with the notice requirements
hereunder, and any Claim Response shall specify whether or not the Indemnitor
giving the Claim Response disputes the claim described in the Claim Notice. If
any Indemnitor fails to give a Claim Response within the Response Period, such
Indemnitor shall be deemed not to dispute the claim described in the related
Claim Notice. If any Indemnitor elects not to dispute a claim described in a
Claim Notice, whether by failing to give a timely Claim Response or otherwise,
then the amount of such claim shall be conclusively deemed to be an obligation
of such Indemnitor. For the purposes of the immediately preceding sentence, an
Indemnitor's failure to give a timely Claim Response shall not be deemed an
election not to dispute a Claim Notice unless the Indemnified Party shall have
given a second Claim Notice after expiration of the Response Period and another
20 days after the date on which the Indemnified Party shall have given such
second Claim Notice shall have expired without the Indemnitor's having given a
Response Notice within such period.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the Claim Response Period the amount to which such
Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 10, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor in accordance with the arbitration provisions of
this Agreement. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor Party shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to the Prime Rate, and the Prime Rate in effect on the first business day
of each calendar quarter shall apply to the amount of the unpaid obligation
during such calendar quarter.
10.5 Claims Period. Any claim for indemnification under this Section 10
-------------
shall be made by giving a Claim Notice under Section 10.4 on or before the first
anniversary of the Closing Date (the "Expiration Date"). So long as an
Indemnified Party gives a Claim Notice for an Unliquidated Claim on or before
the Expiration Date, such Indemnified Party shall be entitled to pursue its
rights to indemnification regardless of the date on which such Indemnified Party
gives the related Liquidated Claim Notice.
10.6 Third Party Claims.
------------------
(a) If any third party shall notify any Indemnified Party with
respect to any actions, suits or other administrative or judicial proceedings
(each, an "Action") which may give rise to a claim for indemnification against
any Indemnifying Party under this Section 10, then the
26
<PAGE>
Indemnified Party shall promptly (and in any event within five Business Days'
after receiving notice of the Action) notify each Indemnifying Party thereof in
writing.
(b) Any Indemnifying Party will have the right to assume and
thereafter conduct the defense of the Action with counsel of his or its choice
reasonably satisfactory to the Indemnified Party; provided, however, that the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Action without the prior written consent of
the Indemnified Party (which consent shall not be unreasonably withheld) unless
the judgment or proposed settlement involves only the payment of money damages
and does no impose an injunction or other equitable relief upon the Indemnified
Party.
(c) Unless and until an Indemnifying Party assumes the defense of the
Action, the Indemnified Party may defend against the Action in any manner he or
it reasonably may deem appropriate.
(d) In no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to any Action without the
prior written consent of each of the Indemnifying Parties (which consent shall
not be unreasonably withheld).
11. Termination.
-----------
11.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
before the Closing Date:
(a) By mutual written consent of Shareholders and Buyer;
(b) By Shareholders or Buyer if the Closing shall not have been
consummated on or before the Termination Date; provided, however, that the right
to terminate this Agreement under this Section 10.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing to occur on or before
the Termination Date;
(c) By Shareholders or Buyer if a court of competent jurisdiction or
govern mental, regulatory or administrative agency or commission shall have
issued a Court Order (which Court Order the parties shall use commercially
reasonable efforts to lift) that permanently restrains, enjoins or otherwise
prohibits the Transactions, and such Court Order shall have become final and
nonappealable;
(d) By Buyer, if any Shareholder shall have breached, or failed to
comply with, any of its or his obligations under this Agreement or any
representation or warranty made by any Shareholder shall have been incorrect
when made, and such breach, failure or misrepresentation is not cured within 20
days after notice thereof; and
27
<PAGE>
(e) By any Shareholder, if Buyer shall have breached, or failed to
comply with any of its obligations under this Agreement or any representation or
warranty made by it shall have been incorrect when made, and such breach,
failure or misrepresentation is not cured within 20 days after notice thereof,
and in either case, any such breaches, failures or misrepresentations,
individually or in the aggregate, results or would reasonably be expected to
affect materially and adversely the benefits to be received by the Shareholders
hereunder.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 11.1, the agreements contained in Section 7.5 shall survive the
termination hereof and any party may pursue any legal or equitable remedies that
may be available if such termination is based on a breach of another party.
12. General Matters.
---------------
12.1 Arbitration.
-----------
(a) All disputes concerning this Agreement shall be decided by
arbitration in accordance with the commercial rules and regulations of the
American Arbitration Association (except to the extent such rules and
regulations are inconsistent with the provisions of this Section).
(b) If the parties agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. If the parties do not so agree, the parties shall
each select one independent, qualified arbitrator. For this purpose, all
parties whose interest in the matter being arbitrated are substantially
identical shall be treated as a single party entitled to select on arbitrator.
If an even number of arbitrators is selected, such arbitrators shall select an
additional arbitrator.
(c) Each party reserves the right to object to any individual
arbitrator who is employed by or affiliated with an organization that competes
with such party.
(d) The parties shall have the right to conduct discovery as
specified for up to three months. Such discovery shall include the right to take
depositions and subpoena witnesses.
(e) At the request of any party, arbitration proceedings shall be
conducted in the utmost secrecy. In such case, all documents, testimony, and
records shall be received, heard and maintained by the arbitrators in secrecy
under seal, available for the inspection only of the parties and their
respective attorneys and experts who have agreed in advance in writing to
receive and maintain all such information in confidence until such information
becomes generally known.
(f) The arbitrators shall act by majority vote. The arbitrators shall
issue a written opinion of their findings of fact and their conclusions of law
at the request and at the expense of either party.
28
<PAGE>
(g) The arbitrators shall be able to decree any and all relief of an
equitable nature, including without limitation such relief as a temporary
restraining order and a preliminary or permanent injunction, and shall also be
able to award damages, with or without an accounting, and costs, except that the
prevailing party shall be entitled to its reasonable attorneys fees. The decree
or judgment of an award rendered by the arbitrators shall be binding upon the
parties and may be entered in any court having jurisdiction thereof.
(h) Reasonable notice of the time and place of arbitration shall be
given to all persons as required by law. Such persons and their authorized
representatives shall have the right to attend or participate in all the
arbitration hearings in such manner as the law requires.
12.2 Contents of Agreement. This Agreement, together with the other
---------------------
Transaction Documents, sets forth the entire understanding of the parties with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
12.3 Amendment, Parties in Interest, Assignment, Etc. This Agreement may
-----------------------------------------------
be amended, modified or supplemented only by a written instrument duly executed
by each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties.
Nothing in this Agreement shall confer any rights upon any Person other than
Shareholders and Buyer and their respective heirs, legal representatives,
successors and permitted assigns. No party hereto shall assign this Agreement
or any right, benefit or obligation hereunder. Any term or provision of this
Agreement may be waived at any time by the party entitled to the benefit thereof
by a written instrument duly executed by such party.
12.4 Further Assurances. At and after the Closing, Shareholders and Buyer
------------------
shall execute and deliver any and all documents and take any and all other
actions that may be deemed reasonably necessary by their respective counsel to
complete the Transactions.
12.5 Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, the part the whole, (b) references to any gender include all genders,
(c) "or" has the inclusive meaning frequently identified with the phrase
"and/or," (d) "including" has the inclusive meaning frequently identified with
the phrase "but not limited to" and (e) references to "hereunder" or "herein"
relate to this Agreement. The section and other headings contained in this
Agreement are for reference purposes only and shall not control or affect the
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified. Each accounting term used herein that is not
specifically defined herein shall have the meaning given to it under GAAP. Any
reference to a
29
<PAGE>
party's being satisfied with any particular item or to a party's determination
of a particular item presumes that such standard will not be achieved unless
such party shall be satisfied or shall have made such determination in its sole
or complete discretion.
12.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original.
12.7 Schedules. Any items listed or described on SCHEDULES shall be listed
---------
or described under a caption that identifies the Sections of this Agreement to
which the item relates.
13. Remedies.
--------
The indemnification rights under Section 10 are independent of and in
addition to such rights and remedies as the parties may have at law or in equity
or otherwise (subject to Section 12 hereof) for any misrepresentation, breach of
warranty or failure to fulfill any agreement or covenant hereunder on the part
of any party hereto, including the right to seek specific performance,
rescission or restitution, none of which rights or remedies shall be affected or
diminished by Section 10. Buyer acknowledges that Section 10 shall be the
exclusive remedy of the Buyer for any breach of the representations and
warranties in Section 3 above with respect to such individuals, except for any
willful misrepresentation, willful breach of warranty or willful failure to
fulfill any agreement or covenant.
14. Notices.
-------
All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by mail, facsimile
message or Federal Express or other delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other Party
hereto:
If to Shareholders:
Boulder Interactive Technology Services Co.
2955 Baseline Road
Boulder, CO 80303
Attention: George Jankovic
Fax: 303-415-9238
30
<PAGE>
with a required copy to:
Brobeck, Phleger & Harrison LLP
1125 Seventeenth Street, Suite 2525
Denver, Colorado 80202
Attention: John E. Hayes, III, Esquire
Fax: 303-299-8819
If to Buyer:
VerticalNet, Inc.
2 Walnut Grove Drive, Suite 150
Horsham, PA 19044
Attn: Gene S. Godick
FAX: 215-443-3336
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attn: Stephen M. Goodman
FAX: 215-963-5299
15. Governing Law.
-------------
This Agreement shall be construed and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania without regard to its provisions
concerning conflict of laws.
31
<PAGE>
IN WITNESS WHEREOF, this Share Purchase Agreement has been executed by the
parties hereto as of the day and year first written above.
/s/ George Jankovic VERTICALNET, INC.
- -------------------------------
GEORGE JANKOVIC
By: /s/ Gene S. Godick
-----------------------------
Title: Chief Financial Officer
/s/ Stephen Chang
- -------------------------------
STEPHEN CHANG
/s/ Cecilia Chang
- -------------------------------
CECILIA CHANG
/s/ David Chang
- -------------------------------
DAVID CHANG
/s/ Richard Hall
- -------------------------------
RICHARD HALL
/s/ Paul Schroeder
- -------------------------------
PAUL SCHROEDER
/s/ Doris Wu
- -------------------------------
DORIS WU
/s/ Bradley Feld
- -------------------------------
BRADLEY FELD
/s/ William Payne
- -------------------------------
WILLIAM PAYNE
32
<PAGE>
EXHIBIT 10.6
[***] = Confidential Treatment Requested for Redacted Portions of Document
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 30th day of June, 1998
("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and
VerticalNet, Inc., a Pennsylvania corporation, located at 2 Walnut Grove Drive,
Suite 150, Horsham, Pennsylvania 19044 ("Client").
RECITALS
A. Excite maintains a site on the Internet at http://www.excite.com (the
"Excite Site") and owns, manages or is authorized to place advertising on
affiliated sites on the Internet worldwide (collectively, the "Excite
Network") which, among other things, allow its users to search for and
access content and other sites on the Internet. For purposes of this
Agreement, the parties hereby acknowledge that the Excite Network does not
include the site on the Internet located at http://home.netscape.com and/or
other URLs or locations designated by Netscape Communications Corporation.
B. Within the Excite Site, Excite currently organizes certain content into
topical channels (the "Channels"). Excite also maintains and/or manages
certain Web pages which may be delivered to users worldwide via email or
Internet "push" technologies (collectively, "Broadcast Pages") which may
incorporate content supplied to Excite by third parties for the purpose of
providing value to Excite users and providing access to the content,
products and/or services of such third parties.
C. Excite also makes available to its users a number of community and
communications services, including chat, email, bulletin boards and instant
messaging.
D. Client is engaged in the business of creating and operating "vertical trade
communities" with a site on the Internet located at
http://www.verticalnet.com (the "Client Site"). Client also owns or has the
right to distribute certain content of interest to industrial community
users through a variety of sites on the Internet linked from the Client
Site.
E. Client wishes to promote its business to Excite users through promotions
and advertising in various portions of the Excite Network, and establish
and maintain related co-branded pages on the Excite Site.
Therefore, the parties agree as follows:
1. SPONSORSHIP AND ADVERTISING
<PAGE>
a) Excite and Client will cooperate in good faith to identify and then
implement, commencing on the Launch Date (as defined below),
appropriate sponsorship and promotional opportunities across the
Excite Site. Such opportunities may include sponsorship text and/or
graphic links, sponsorship boxes and promotional boxes. The parties
agree that they may be located within communities, directories and/or
industry listings on various Channels and other locations within the
Excite Site.
b) The parties recognize that Excite is currently in the process of
developing its community and communications services and that
sponsorship, promotional and advertising opportunities will vary over
time and from service to service. Excite will display Client's banner
advertising in the Excite Chat client in rotation in the areas related
to Client's businesses for the term of the Agreement. Excite will
display Client's banner advertising in rotation on the pages of the
Excite Site on which the Excite bulletin board discussions are
displayed that include areas related to Client's businesses.
c) Excite will display Client's banner advertising on Excite Search
results pages in response to mutually determined keywords, subject to
availability. An initial list of such keywords is attached as Exhibit
-------
A to this Agreement. Client will provide Excite an updated list of
-
keywords during the term of the Agreement. If keyphrase advertising
becomes available on the Excite Site, Excite will display Client's
banner advertising on Excite Search results pages in response to
mutually determined keyphrases, subject to availability.
d) Excite and Client agree to negotiate in good faith the terms and
conditions of Client's participation in sponsorship and advertising
opportunities on a vertical markets/business-to-business channel on
the Excite Site, if launched. If such a channel is launched, its home
page will include mutually agreed upon categories related to Client's
businesses and Client's Co-Branded Pages will be no more than one
level down from the home page of such vertical markets/business-to-
business channel.
2. CONTENT AND CO-BRANDED PAGES; "TRY THESE FIRST" LINKS
a) Client will provide to Excite certain categories of content (the
"Content"). The Content may be incorporated into certain pages in the
Excite Network and reasonable excerpts or portions of the Content may
be incorporated into Broadcast Pages, at Excite's discretion. Client
and Excite will determine mutually agreeable methods for the
transmission and incorporation of updates to the Content. Excite will
have sole control over the "look
2
<PAGE>
and feel" of the Excite Network. Client and Excite will mutually agree
in advance as to the substance and the intended display of the
Content. Excite will have sole control over the content, composition,
"look and feel" and distribution of the Broadcast Pages. Client will
have sole responsibility for providing, at its expense, the Content to
Excite.
b) The promotional placements described in Section 1 will link to co-
branded pages in the Excite Site (the "Co-Branded Pages") which will
incorporate the content that is to be provided by Client to Excite
(the "Co-Branded Content"). Exhibit B attached to this Agreement is a
---------
mock-up that is illustrative of the appearance of such Co-Branded
Pages. Excite agrees to design and create up to thirty (30) such Co-
Branded Pages which will reside completely on the Excite Site for the
term of this Agreement, seventeen (17) of which have already been
identified by the parties as specified in Exhibit C of this Agreement.
----------
Each Co-Branded Page will display the name and/or brands of Client and
Excite. Client will be the dominant and preferred sponsor on each of
the Co-Branded Pages. Furthermore, Excite agrees that Client's Co-
Branded Content will be displayed above the fold on the Co-Branded
Pages. For purposes of this Agreement, "above the fold" means the
location within the portion of a page that is designed to be visible
on a standard computer screen with a resolution of 640 pixels by 480
pixels without requiring the user to scroll horizontally or vertically
through the page. Excite will have sole responsibility for maintaining
the Co-Branded Pages during the term of this Agreement, except that
Client will have sole responsibility for providing to Excite all Co-
Branded Content and any updates thereto. Each Co-Branded Page will
include one or more links to the Excite Network.
c) Excite may sell banner advertising on the Co-Branded Pages. Excite
will not sell or barter banner advertising on the Co-Branded Pages to
Client's competitors including, but not limited to, the companies
identified in Exhibit D or any other company promoting itself as a
---------
provider of industrial trade communities. Not more than once per
quarter, Client may update this list of competitors. Within twenty-
four (24) hours of receiving Client's written update, Excite will
remove any banners advertising any of Client's listed competitors
displayed on the Co-Branded Pages. Excite will retain [***] percent
([***]%) of the revenue generated from banner advertising on the Co-
Branded Pages. Excite agrees that it will not display on the Co-
Branded Pages any banners advertising or promoting any industrial
auction services, other than Client's.
d) Client may sell off-banner sponsorship and off-banner promotional
placements, including but not limited to links, on the Co-Branded
Pages Client will not sell or barter sponsorship opportunities on the
Co-Branded Pages to Excite's competitors including, but not limited
to, AltaVista, HotBot, lnfoseek, Lycos, Search.com, Snap and Yahoo!,
or any other Web site promoting itself as a provider of Internet
search and navigation services. Not more than once per quarter, Excite
may update this list of competitors. Client will retain [***] percent
([***]%)
3
[***] = Confidential Treatment Requested for Redacted Portion
<PAGE>
of the revenue generated from off-banner sponsorship and off-banner
promotional placements on the Co-Branded Pages.
e) A text link to a Co-Branded Page will be displayed in the "Try These
First" section on Excite Search results pages in response to each of
the keywords set forth in Exhibit A, which may be amended from time to
time by Client in accordance with Section 1(c). The text link will be
no more than twenty-five (25) characters in length, will consist of a
"call to action" as opposed to a generic solicitation and will not
include Client's name and/or brands. All text links will be prepared
by Client and be subject to Excite's reasonable approval. The text
link will link to a Co-Branded Page which displays content and/or
transaction opportunities responsive to the call to action in the text
link. Text links can be rotated from time to time among different Co-
Branded Pages as mutually agreed upon by the parties. Excite will have
sole control over the "look and feel" of the text links including, but
not limited to, the display, appearance and placement of the text
links on the Excite Search results page.
f) At the present time, reports on the number of displayed links to the
Co-Branded Pages are not available. When such reports are made
available to advertisers and sponsors, Excite will provide them to
Client on a timely basis.
3. BARTER ADVERTISING
The parties each agree to display barter advertising for the other party on
its site worth two hundred thousand dollars ($200,000) during the term of
the Agreement.
4. LAUNCH DATE AND REPORTING
a) Client and Excite will use reasonable efforts to implement the display
of the promotional placements and advertising described in the
Agreement by July 31, 1998 (the "Scheduled Launch Date"). The parties
recognize that the Scheduled Launch Date can be met only if Client
provides final versions of Co-Branded Content, and all graphics, text,
keywords, banner advertising, promotional placements, other
promotional media and valid URL links necessary to implement the
promotional placements and advertising described in the Agreement
(collectively, "Impression Material") to Excite fourteen (14) days
prior to Scheduled Launch Date.
b) In the event that Client fails to provide the Impression Material to
Excite fourteen (14) days in advance of the Scheduled Launch Date,
Excite may, at its sole discretion (i) reschedule the Scheduled Launch
Date at the earliest practicable date according to the availability of
Excite's engineering resources after delivery of the complete
Impression Material or (ii) commence delivery of Impressions based on
4
<PAGE>
Impression Material in Excite's possession at the time and/or
reasonable placeholders created by Excite.
c) The parties hereby agree that the date upon which Excite actually
first displays the promotional placements and advertising described in
this Agreement shall be the "Launch Date" for purposes of this
Agreement.
d) Excite will provide Client with monthly reports substantiating the
number of impressions of Client's advertising banners and promotional
placements displayed on the Excite Network.
5. SPONSORSHIP AND ADVERTISING FEES
a) Client will pay Excite sponsorship and advertising fees of nine
hundred thousand dollars ($900,000) for the first twelve-month period
following the Launch Date. These fees will be paid in equal monthly
installments of seventy-five thousand dollars ($75,000). The first
monthly payment will be due upon the Launch Date. Subsequent
installments will be due on a monthly basis thereafter.
b) Unless terminated as specifically permitted under the terms of Section
7 of this Agreement, Client will pay Excite sponsorship and
advertising fees of two million dollars ($2,000,000) for the twelve-
month period following the first anniversary of the Launch Date. These
fees will be paid in equal monthly installments of one hundred sixty-
six thousand six hundred sixty-six dollars and sixty-six cents
($166,666.66). The first monthly payment will be due upon the first
anniversary of the Launch Date. Subsequent installments will be due on
a monthly basis thereafter.
c) Unless terminated as specifically permitted under the terms of Section
7 of this Agreement, Client will pay Excite sponsorship and
advertising fees of three million dollars ($3,000,000) for the twelve-
month period following the second anniversary of the Launch Date.
These fees will be paid in equal monthly installments of two hundred
fifty thousand dollars ($250,000). The first monthly payment will be
due upon the second anniversary of the Launch Date. Subsequent
installments will be due on a monthly basis thereafter.
d) The sponsorship and advertising fees are net of any agency commissions
to be paid by Client.
e) Excite shall be obligated to deliver the impressions referred to in
this Agreement at the times indicated herein. If Excite fails to
deliver all of the impressions required during the specified time
period, Client may suspend (but not eliminate) its payments of the
sponsorship and advertising fees specified in this Section and Excite
shall have sixty (60) days to deliver the shortfall of such
Impressions (the
5
<PAGE>
"Make-Good Impressions"). The Make-Good Impressions shall be in
addition to the Impressions due for the subsequent period and the
impressions delivered in the subsequent period shall first be counted
as Make-Good Impressions. Client shall immediately resume its payments
of the sponsorship and advertising fees upon full delivery of the
Make-Good Impressions.
f) As soon as third party auditing is available to Excite, Excite will
provide Client with monthly reports, including certified reports by a
third party auditing firm substantiating the number of impressions of
Client's sponsorship placements and advertising banners displayed on
the Excite Network. When available, all costs and expenses of such
third party auditing activities will be paid by Excite.
6. PUBLICITY
Unless required by law, neither party will make any public statement, press
release or other announcement relating to the terms of or existence of this
Agreement without the prior written approval of the other. Notwithstanding
the foregoing, either party may issue an initial press release regarding
the relationship between Excite and Client, the timing and wording of which
will be mutually agreed upon. Excite hereby agrees that Client may
immediately issue an internal informational release regarding this
Agreement to its sales force after execution of this Agreement.
7. TERM AND TERMINATION
a) The first year of the term of this Agreement will begin on the Launch
Date and it will end on the first anniversary of the Launch Date.
During that twelve (12) month period, Excite will display a minimum of
[***] impressions of the advertising banners and promotional
placements (not including the "Try These First" links) described in
Section 1 of this Agreement.
b) Unless terminated as specifically permitted under the terms of this
Section 7, the second year of the term of this Agreement will begin on
the first anniversary of the Launch Date and it will end on the second
anniversary of the Launch Date. During that twelve (12) month period,
Excite will display a minimum of [***] impressions of the advertising
banners and promotional placements (not including the "Try These
First" links) described in Section 1 of this Agreement.
c) Unless terminated as specifically permitted under the terms of this
Section 7, the third year of the term of this Agreement will begin on
the second anniversary of the Launch Date and it will end on the third
anniversary of the Launch Date. During that twelve (12) month period,
Excite will display a minimum of [***] impressions of the advertising
banners and promotional placements
6
[***] = Confidential Treatment Requested for Redacted Portion
<PAGE>
(not including the "Try These First" links) described in Section 1 of
this Agreement.
d) No less than fifteen (15) days before the end of each year of the term
of the Agreement (as defined in this Section 7), either party may
terminate this Agreement as of the last day of that year upon written
notice to the other party.
e) Within sixty (60) days prior to the end of the third year of the term
of the Agreement (as defined in this Section 7), Client and Excite
will commence good faith negotiations to extend Client's sponsorship
of the Excite Site on mutually agreed terms and conditions.
f) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach remains
uncured for thirty (30) days following the notice to the breaching
party of the breach. Either party may terminate this Agreement upon a
Bankruptcy Event involving the other party. For purposes of this
Agreement, a "Bankruptcy Event" means that the party in question
becomes insolvent, or voluntary or involuntary proceedings by or
against such party are instituted in bankruptcy or under any
insolvency law, or a receiver or custodian is appointed for such
person, or proceedings are instituted by or against such party for
corporate reorganization or the dissolution of such party, which
proceedings, if involuntary, shall not have been dismissed within
sixty (60) days after the date of filing, or such party makes an
assignment for the benefit of its creditors, or substantially all of
the assets of such party are seized or attached and not released
within sixty (60) days thereafter.
g) All undisputed payments that have accrued prior to the termination or
expiration of this Agreement will be payable in full within thirty
(30) days thereof.
h) The following provisions will survive any termination or expiration of
this Agreement: Sections 8(a) and 8(b), Sections 9(a) and 9(b), the
first sentence of Section 9(c), Section 10 (Confidentiality), Section
11 (Warranty and Indemnity), Section 12 (Limitation of Liability) and
Section 13 (Dispute Resolution) will survive any termination or
expiration of this Agreement.
8. TRADEMARK OWNERSHIP AND LICENSE
a) Client will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
7
<PAGE>
b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Client hereunder.
c) Each party hereby grants to the other a non-exclusive, limited license
to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each party's reasonable policies regarding advertising
and trademark usage as established from time to time.
d) Upon the expiration or termination of this Agreement, each party will
cease using the trademarks, service marks and/or trade names of the
other except:
i) As the parties may agree in writing; or
ii) To the extent permitted by applicable law.
9. OWNERSHIP AND LICENSE
a) Client will retain all right, title and interest in and to the Client
Site worldwide including, but not limited to, ownership of all
copyrights and other intellectual property rights therein.
b) Excite will retain all right, title, and interest in and to the Excite
Network and the Broadcast Pages worldwide including, but not limited
to, ownership of all copyrights, look and feel and other intellectual
property rights therein.
c) Client will retain all right, title and interest in and to the Content
and the Co-Branded Content worldwide including, but not limited to,
ownership of all copyrights and other intellectual property rights
therein. Subject to the terms and conditions of this Agreement, Client
hereby grants Excite a royalty-free, non-exclusive, worldwide license
to use, reproduce, distribute, transmit and publicly display the
Content and the Co-Branded Content in accordance with this Agreement
and to sub-license the Content and Co-Branded Content to Excite's
wholly-owned subsidiaries or to joint ventures in which Excite
participates for the sole purpose of using, reproducing, distributing,
transmitting and publicly displaying the Content and Co-Branded
Content in accordance with this Agreement.
10. CONFIDENTIALITY
8
<PAGE>
a) For the purposes of this Agreement, "Confidential Information" means
information about the disclosing party's (or its suppliers') business
or activities that is proprietary and confidential, which shall
include all business, financial, technical and other information of a
party marked or designated by such party as "confidential" or
"proprietary" or information which, by the nature of the circumstances
surrounding the disclosure, ought in good faith to be treated as
confidential.
b) Confidential Information will not include information that (i) is in
or enters the public domain without breach of this Agreement, (ii) the
receiving party lawfully receives from a third party without
restriction on disclosure and without breach of a nondisclosure
obligation, (iii) the receiving party knew prior to receiving such
information from the disclosing party or (iv) the receiving party
develops independent of any information originating from the
disclosing party.
c) Each party agrees (i) that it will not disclose to any third party or
use any Confidential Information disclosed to it by the other except
as expressly permitted in this Agreement and (ii) that it will take
all reasonable measures to maintain the confidentiality of all
Confidential Information of the other party in its possession or
control, which will in no event be less than the measures it uses to
maintain the confidentiality of its own information of similar
importance.
d) The terms and conditions of this Agreement will be deemed to be
Confidential Information and will not be disclosed without the written
consent of the other party.
e) Notwithstanding the foregoing, each party may disclose Confidential
Information (i) to the extent required by a court of competent
jurisdiction or other governmental authority or otherwise as required
by law or (ii) on a "need-to-know" basis under an obligation of
confidentiality to its legal counsel, accountants, banks and other
financing sources and their advisors.
11. WARRANTY AND INDEMNITY
a) Client warrants that it owns, or has obtained the right to distribute
and make available as specified in this Agreement, any and all content
provided to Excite or made available to third parties in connection
with this Agreement.
b) Client warrants that the Content and Co-Branded Content will comply
with the description and technical specifications contained in Exhibit
-------
A.
-
c) Client will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims,
9
<PAGE>
liability, damages and/or costs (including, but not limited to,
reasonable attorneys fees) arising from:
i) Its breach of any warranty, representation or covenant in this
Agreement; or
ii) Any claim that Client's Impression Materials infringe or violate
any third party's copyright, patent, trade secret, trademark,
right of publicity or right of privacy or contain any defamatory
content; or
iii) Any claim arising from content displayed on the Client Site; or
iv) Any claim arising from Content or Co-Branded Content displayed on
the Excite Network.
Excite will promptly notify Client of any and all such claims and will
reasonably cooperate with Client with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Excite in any way and such obligation,
liability, prejudice or impact can reasonably be expected to be
material, then such settlement shall require Excite's written consent
(not to be unreasonably withheld or delayed) and Excite may have its
own counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
d) Excite warrants that it has complete authority to undertake the
obligations described in this Agreement without the further consent of
any other person or entity. Excite further warrants that it is not a
party to any existing agreement that would prevent Excite from
entering into and performing this Agreement. Excite will not enter
into any other agreement that is in conflict with Excite's obligations
under this Agreement. Subject to the foregoing, both parties
acknowledge that Excite may from time to time enter into agreements
similar to this Agreement with other persons or entities, in all cases
without the necessity of obtaining approval from Client.
e) Excite will indemnify, defend and hold harmless Client, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims, liability, damages and/or costs
(including, but not limited to, reasonable attorneys fees) arising
from:
i) Its breach of any warranty, representation or covenant in this
Agreement; or
10
<PAGE>
ii) Any claim that content created by Excite infringes or violates
any third party's copyright, patent, trade secret, trademark,
right of publicity or right of privacy or contain any defamatory
content; or
iii Any claim arising from the Excite Network, including the Excite
Site, the Channels and the Broadcast Pages, other than Impression
Materials, content or services provided by Client.
Client will promptly notify Excite of any and all such claims and will
reasonably cooperate with Excite with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Client in any way and such obligation,
liability, prejudice or impact can reasonably be expected to be
material, then such settlement shall require Client's written consent
(not to be unreasonably withheld or delayed) and Client may have its
own counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
f) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT AND
HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
REGARDING SUCH SUBJECT MATTER.
12. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 11(c) AND 11(e), IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGE. EXCEPT UNDER SECTIONS 11(c) AND 11(e), THE LIABILITY OF EITHER
PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT
OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE AMOUNTS
TO BE PAID BY CLIENT TO EXCITE HEREUNDER.
13. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names, and
confidentiality would result in irreparable injury for which there is
no adequate remedy at law. Therefore, in the
11
<PAGE>
event of any breach or threatened breach of a party's obligations
regarding trademarks, service marks or trade names or confidentiality,
the aggrieved party will be entitled to seek equitable relief in
addition to its other available legal remedies in a court of competent
jurisdiction.
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names, and confidentiality, the parties will first attempt to
resolve the dispute(s) through good faith negotiation. In the event
that the dispute(s) cannot be resolved through good faith negotiation,
the parties will refer the dispute(s) to a mutually acceptable
mediator.
c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement, other
than disputes arising from or concerning trademarks, service marks or
trade names, and confidentiality, cannot be resolved through good
faith negotiation and mediation, the parties will refer the dispute(s)
to the American Arbitration Association for resolution through binding
arbitration by a single arbitrator pursuant to the American
Arbitration Association's rules applicable to commercial disputes.
14. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole or in
----------
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be required
in connection with (i) a merger, reorganization or sale of all, or
substantially all, of such party's assets or (ii) either party's
assignment and/or delegation of its rights and responsibilities
hereunder to a wholly-owned subsidiary or joint venture in which the
assigning party holds an interest. Any attempt to assign this
Agreement other than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of California, notwithstanding
the actual state or country of residence or incorporation of Excite or
Client.
c) Notice. Any notice under this Agreement will be in writing and
------
delivered by personal delivery, express courier, confirmed facsimile,
confirmed email or certified or registered mail, return receipt
requested, and will be deemed given upon personal delivery, one (1)
day after deposit with express courier, upon confirmation of receipt
of facsimile or email or five (5) days after deposit in the mail.
Notices will be sent to a party at its address set forth in this
Agreement or such other address as that party may specify in writing
pursuant to this Section.
12
<PAGE>
d) Independent Contractor; No Agency. The parties are independent
---------------------------------
contractors and will have no power or authority to assume or create
any obligation or responsibility on behalf of each other. The
employees of a party to this Agreement shall not represent themselves
to be employees of the other party. This Agreement will not be
construed to create or imply any partnership, agency or joint venture.
e) Force Majeure. Any delay in or failure of performance by either party
-------------
under this Agreement will not be considered a breach of this Agreement
and will be excused to the extent caused by any occurrence beyond the
reasonable control of such party including, but not limited to, acts
of God, power outages and governmental restrictions.
f) Severability. In the event that any of the provisions of this
------------
Agreement are held to be unenforceable by a court or arbitrator, the
remaining portions of the Agreement will remain in full force and
effect.
g) Entire Agreement. This Agreement is the complete and exclusive
----------------
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a written document
executed by both parties.
h) Counterparts. This Agreement may be executed in counterparts, each of
------------
which will serve to evidence the parties' binding agreement.
VERTICALNET, INC. EXCITE, INC.
By: /s/ Mark L. Walsh By: /s/ Tod C. Harmon
--------------------------- -------------------------------
Name: Mark L. Walsh Name: Tod C. Harmon
--------------------------- ------------------------------
Title: President and CEO Title: Director Fin. Planning
--------------------------- ------------------------------
Date: 7/20/98 Date: 7/15/98
--------------------------- ------------------------------
2 Walnut Grove Drive, Suite 150 555 Broadway
Horsham, PA 19044 Redwood City, CA 94063
215-328-6100 (voice) 650-568-6000 (voice)
650-568-6030 (fax)
13
<PAGE>
EXHIBIT 10.7
VERTICALNET, INC.
COMPARISON SHOPPING SERVICE
SUBSCRIPTION AGREEMENT
This Comparison Shopping Service Agreement (the "Agreement") is entered
---------
into as of __________, 1998 (the "Effective Date") by and between Junglee Corp.,
--------------
a Delaware corporation, having its principal place of business at 1250 Oakmead
Pkwy., Suite 310, Sunnyvale, CA 94086 ("Junglee") and VerticalNet, Inc..
-------
("VerticalNet"), a corporation having its principal place of business at 2
-----------
Walnut Grove Drive, Suite #150, Horsham, PA 19044.
R E C I T A L S
A. WHEREAS, Junglee has developed a comparison shopping guide and
service through its proprietary technology which searches, retrieves, organizes
and presents data from disparate sources;
B. WHEREAS, VerticalNet wishes to subscribe to, and use and promote
Junglee's Comparison Shopping Services (defined below) as part of VerticalNet's
Site (defined below) on the World Wide Web on the terms and conditions set forth
herein.
NOW THEREFORE, in exchange for the mutual promises herein, and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. DEFINITIONS
1.1 "Junglee Comparison Shopping Service" means the Junglee-hosted on-line
-----------------------------------
service that provides comparison shopping and related information
retrieval across selected product and service categories and merchants,
functioning substantially as is described on Exhibit A hereto, as such
---------
service may be modified or replaced from time to time, for users and
customers of the VerticalNet's Site (defined below).
1.2 "Wrapped Site" means a single data source for which Junglee has
------------
extracted, or can extract dynamically, information used in creating
results sets and information provided in the Junglee Comparison
Shopping Service. A single data source is a collection of data at one
location or web site, relating to a single market that has a common
organization and structure.
1.3 "VerticalNet Site" means VerticalNet's current and future sites on the
----------------
World Wide Web.
1.4 "Proprietary Technology" means Junglee's proprietary computer programs
----------------------
and software, including the Virtual Data Base ("VDB") Engine, and all
services, processes, data, information, tables, and Wrappers created by
Junglee, and all improvements, updates, fixes, releases and updates
related thereto, which searches, retrieves, organizes and presents data
from disparate sources and Wrapped Sites as described hereunder for use
with the Junglee Comparison Shopping Service.
1.5 "Intellectual Property" means any intellectual property or proprietary
---------------------
rights, including but not limited to copyright rights (including rights
in audiovisual works), moral rights, trademark (including logos,
slogans, trade names, service marks), patent rights (including patent
applications and disclosures), know-how, inventions, rights of
priority, and trade secret rights, recognized in any country or
jurisdiction in the world.
1.6 "Delivery Date" means the first date on which the Junglee Comparison
-------------
Shopping Service is operating and accessible from the VerticalNet Site.
2. SUBSCRIPTION SERVICES
2.1 Subscription. Subject to the terms and conditions of this Agreement,
------------
VerticalNet hereby subscribes to the Junglee Comparison Shopping
Service for the Term (the "Subscription"). The Subscription shall give
------------
VerticalNet the nonexclusive and nontransferable (except as provided in
Section 11.3) right to promote, use and offer the Junglee
<PAGE>
Comparison Shopping Service to customers and users accessing the
VerticalNet Site for the Term solely as part of the VerticalNet Site.
VerticalNet shall also have the right to offer and sell advertising,
promotion, merchandising or marketing services (including, but not
limited to banners, links, marketing services, promotions, product
tie-ins, product or service merchandising and sponsorships) to third
parties on the shopping guide page of the VerticalNet Site and any
related category level pages, results pages, search pages or other
------
pages or placements used or made available in connection with the
Junglee Comparison Shopping Service. The Subscription shall not be
cancelable by VerticalNet except as provided in this Agreement.
VerticalNet understands and agrees that the content, maintenance and
operation of the Junglee Comparison Shopping Service and the
Proprietary Technology related thereto will be exclusively controlled
and owned by Junglee, and will reside [be hosted] on Junglee's hardware
and equipment.
2.2 No Grant of License. Junglee does not grant to VerticalNet any other
-------------------
right, or any license, express or implied, in the Proprietary
Technology or any other Junglee software or Junglee Intellectual
Property.
3. VERTICALNET'S OBLIGATIONS
3.1 Marketing. As a part of the Subscription, VerticalNet will provide
---------
Junglee with the Branding and Marketing Assistance described in Exhibit
-------
B hereto.
-
3.2 Restrictions. VerticalNet shall not (a) reverse engineer, disassemble,
------------
decompile or otherwise attempt to derive source code from the
Proprietary Technology, (b) make the Proprietary Technology available
to any third parties other than as expressly permitted in this
Agreement, (c) modify, adapt, translate or create derivative works
based on the Proprietary Technology, (d) reproduce any portion of the
Proprietary Technology except as expressly permitted herein, or (e)
permit or authorize any party to do any of the foregoing.
4. COMPENSATION
4.1 Fees. VerticalNet shall pay Junglee the Advertising Fee, and Junglee
----
shall pay VerticalNet the Merchant Fee, set forth in Exhibit C pursuant
---------
to the payment schedule set forth therein (collectively, the "Fees").
----
VerticalNet or Junglee, as the case may be, shall pay a late fee on all
amounts not paid within thirty (30) days of the date due set forth on
Exhibit C equal to one and one-half percent (1 1/2%) per month of such
outstanding amounts or the highest rate allowed by law, whichever is
less. All fees quoted and payments made hereunder shall be in U.S.
Dollars and may be made by wire transfer or check to the financial
institution of designated by a party or by check.
4.2 Taxes. Amounts payable to Junglee or VerticalNet under this Agreement
-----
are payable in full to Junglee or VerticalNet without off-set or
deduction for taxes (including any withholding tax) or customs duties.
In addition, VerticalNet and Junglee shall be responsible for and shall
indemnify and defend each other for any sales, use, value-added and
similar transaction taxes and customs duties paid or payable, however
designated, levied, or based on amounts payable to Junglee or
VerticalNet hereunder. VerticalNet and Junglee will not be responsible
for paying any United States federal, state and local taxes based on
Junglee's or VerticalNet's income.
4.3 Books and Records. Each party agrees that accompanying each payment of
-----------------
Fee hereunder, the paying party will deliver to the receiving party
with the Fee a report containing such information which is reasonably
necessary for the computation of the payment of the Fee. Each party
will maintain complete records concerning the computation and payment
of Fees throughout the Term and for a period of one (1) year after the
end of the Term.
4.4 Audit. During the Term and for a period of one (1) year after the end
-----
of the Term, each party (the "Auditor") shall have the right, upon
-------
reasonable advance notice, during normal business hours to inspect and
review the records of the other party (the "Audited Party") on which
-------------
the records described in Section 4.3 are based (the "Audit"); provided,
----- --------
that the Auditor gives the Audited Party reasonable prior written
notice of the Audit. The Auditor shall conduct
<PAGE>
the Audit through an independent accounting firm at the Auditor's sole
cost and expense; except that if the Audit reveals a shortfall in the
Fee payable which exceeds five percent (5%) of the Fee due the Auditor
for the period covered by the Audit, then the Audited Party shall pay
the reasonable costs and expenses of the Audit. All information
reviewed and obtained during the Audit shall be treated as Confidential
Information pursuant to Section 7.
5. MAINTENANCE AND SUPPORT Junglee shall provide maintenance and technical
support for the Junglee Comparison Shopping Service to VerticalNet from
9:00 a.m. to 6:00 p.m., Pacific Time on business days. All support
shall be provided in English from Junglee's offices, via telephone or
electronic mail unless otherwise agreed in advance in writing. Junglee
shall make a reasonable effort to respond to all requests for support
within a commercially reasonable amount of time, not to exceed five (5)
hours, or if the request for support is received outside of Junglee's
business hours, by noon of Junglee's next business day. Junglee's
obligation to provide support under Section 5 shall extend solely to
requests for support received from VerticalNet. Junglee will have no
obligation to furnish any assistance, information or documentation with
respect to the Proprietary Technology to any user other than as
provided for in this Agreement for VerticalNet.
6. PROPRIETARY RIGHTS
6.1 Ownership. VerticalNet understands and agrees that Junglee is the
---------
exclusive owner of and holds and shall retain, all right, title and
interest in and to the Proprietary Technology, including without
limitation all Intellectual Property therein. Both parties agree that
there shall be joint ownership of all right, title and interest in and
to any and all information, data, and compilations resulting from or
related to use of the Junglee Comparison Shopping Service and operation
of the Proprietary Technology, including without limitation, queries,
searches, search results, customers, advertisers, user identities and
information, Merchant identities and information, product or service
information and price information. Each party can use any such jointly
owned material without royalty obligation or any other accounting
obligation to the other party therefor.
6.2 Intellectual Property. If a party desires to use any of the other
---------------------
party's Intellectual Property the requesting party will obtain the
appropriate approvals and guidelines for use of the other party's
Intellectual Property from the other party. Nothing herein shall grant
a party any right, title or interest in the other party's Intellectual
Property. At no time during or after the term of this Agreement shall a
party challenge or assist others to challenge the other party's
Intellectual Property or the registration thereof or attempt to
register any trademarks, marks or trade names confusingly similar to
those of the other party.
7. CONFIDENTIALITY.
7.1 Confidentiality Information. Each party (the "Receiving Party")
--------------------------- ---------------
acknowledges that by reason of its relationship to the other party (the
"Disclosing Party") hereunder, the Receiving Party will have access to
----------------
certain information and materials, including the terms of this
Agreement, concerning the Disclosing Party's business, plans,
technology, products and services that are confidential and of
substantial value to the Disclosing Party, which value would be
impaired if such information were disclosed to third parties
("Confidential Information"). The Receiving Party agrees that it shall
------------------------
not use in any way for its own account or the account of any third
party, nor disclose to any third party, any such Confidential
Information revealed to it by the Disclosing Party. The Receiving Party
shall take every reasonable precaution to protect the confidentiality
of Confidential Information. Upon request by the Receiving Party, the
Disclosing Party shall advise whether or not it considers any
particular information to be Confidential Information. The Receiving
Party shall not publish any technical description of the Disclosing
Party's Confidential Information beyond any descriptions published by
the Disclosing Party. In the event of expiration or termination of this
Agreement, there shall be no use or disclosure by the Receiving Party
of any Confidential Information of the Disclosing Party, and the
Receiving Party shall not develop any software, devices, components or
<PAGE>
assemblies utilizing the Disclosing Party's Intellectual Property.
7.2 Exclusions. Confidential Information does not include any information
----------
that the Receiving Party can demonstrate by written records: (a) was
known to the Receiving Party prior to its disclosure hereunder by the
disclosing party; (b) is independently developed by the Receiving
Party; (c) is or becomes publicly known through no wrongful act of the
Receiving Party; (d) has been rightfully received from a third party
whom VerticalNet has reasonable grounds to believe is authorized to
make such disclosure without restriction; (e) has been approved for
public release by the Disclosing Party's prior written authorization;
or (f) must be produced or disclosed pursuant to applicable law,
regulation or court order, provided that the receiving party provides
prompt advance notice thereof to enable the disclosing party to seek a
protective order or otherwise prevent such disclosure. In addition,
Junglee and VerticalNet may disclose the existence and terms of this
-----------
Agreement in connection with a potential acquisition of substantially
the entire business of Junglee or VerticalNet or a private or public
offering of Junglee's or VerticalNet's securities, and each party may
also discuss the terms of this agreement to its counsel, accountants,
directors and agents in accordance with the terms of this Section 7.
8. REPRESENTATIONS AND WARRANTIES AND INDEMNITY
8.1 Proprietary Technology Warranty. Junglee represents and warrants that:
-------------------------------
(i) Junglee owns all right, title and interest in and to the
Proprietary Technology; (ii) the use of the Proprietary Technology as
contemplated hereunder does not violate or infringe upon any United
States copyright or other intellectual property rights of any third
party; and (iii) Junglee has the right, power and authority to grant
the rights specified in this Agreement.
8.2 Performance. Junglee warrants that for the term of this Agreement, the
-----------
Junglee Comparison Shopping Service shall substantially perform the
functionality described in Exhibit A. Junglee's sole obligation and
liability, and VerticalNet's sole remedy, with respect to any breach of
this paragraph, shall be Junglee's provision of the maintenance and
support obligations listed in Section 5.
8.3 Junglee warrants that (a) the Proprietary Technology are designed to be
used prior to, during, and after January 1, 2000 A.D. and with data
related to dates ("Date Data") from all such time periods, and (b) the
Proprietary Technology, when used in accordance with the documentation
therefor, does and will (i) operate during each such time period
without interruption or human intervention with four digit year
processing on all Date Data, including errors, omissions or
interruptions from functions that involve Date Data from more than one
century or leap years, regardless of the date of processing or date of
Date Data, (ii) provide results from any operation accurately
reflecting any Date Data used in the operation performed, with output
having four digit years, (iii) accept two digit year Date Data in a
manner that resolves any ambiguities as to century in a defined manner,
and (iv) provide date interchange in the ISO 8601:1988 standard of
CCYYMMDD. As used herein, "Date Data" means any data, input or output
which includes a date, an indication of date or is date dependent.
8.4 Indemnity by Junglee. Junglee shall indemnify, defend and hold harmless
--------------------
VerticalNet, its affiliates and subsidiaries and their respective
directors, officers, employees, successors and assigns (each, an
AVerticalNet Indemnified Party") from and against any and all suits,
actions, proceedings at law or in equity, claims, and losses asserted
against, including without limitation expenses of litigation and
reasonable attorneys' fees, in connection with any claims made or suits
brought by third parties against by any VerticalNet Indemnified Party
either i) arising out of or resulting from the services provided by
Junglee hereunder or ii) by reason of Junglee's breach of any
representation hereunder.
9. LIMITATION OF LIABILITY AND DISCLAIMER
<PAGE>
9.1 Limitation of Liability. EXCEPT FOR CLAIMS CONSTITUTING A BREACH OF
-----------------------
JUNGLEE'S REPRESENTATIONS UNDER SECTION 8.1, JUNGLEE'S TOTAL LIABILITY
ARISING OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE MOST RECENT
YEAR'S FEE PAID BY VERTICALNET TO JUNGLEE UNDER THIS AGREEMENT. IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO EACH OTHER OR ANY OTHER ENTITY
FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES, HOWEVER
CAUSED, ON ANY THEORY OF LIABILITY, AND NOTWITHSTANDING ANY FAILURE OF
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. NEITHER PARTY SHALL BE LIABLE
TO THE OTHER OR ANY OTHER PARTY FOR ANY DAMAGES ARISING FROM THIRD
PARTY UNAUTHORIZED ACCESS TO THE PROPRIETARY TECHNOLOGY.
9.2 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE JUNGLEE COMPARISON
----------
SHOPPING SERVICE IS PROVIDED FOR VERTICALNET'S USE DURING THE TERM OF
THIS AGREEMENT "AS IS." JUNGLEE MAKES NO OTHER WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, REGARDING THE
JUNGLEE COMPARISON SHOPPING SERVICE OR JUNGLEE'S SERVICES HEREUNDER,
AND JUNGLEE SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF
NONINFRINGEMENT, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE.
JUNGLEE DOES NOT WARRANT THAT THE OPERATION OF THE JUNGLEE COMPARISON
SHOPPING SERVICE OR HOSTING ENVIRONMENT WILL BE UNINTERRUPTED OR
ERROR-FREE. FURTHERMORE, JUNGLEE DOES NOT MAKE ANY REPRESENTATIONS
REGARDING THE USE OR THE RESULTS OF THE USE OF THE JUNGLEE COMPARISON
SHOPPING SERVICE IN TERMS OF THEIR CORRECTNESS, ACCURACY, RELIABILITY
OR OTHERWISE.
10. TERM AND TERMINATION
10.1 Term. The term of this Agreement shall commence on the Effective Date
----
and continue for a period of twelve (12) months after the Delivery
Date, unless earlier terminated as set forth herein (the "Term"). The
----
Agreement shall automatically renew for successive one year periods
unless VerticalNet provides written notice of termination ten days
prior to the end of any one year period (each such one year period also
being referred to herein as the "Term"). Junglee may, at its option,
prior to any new Term, by giving VerticalNet at least 30 days prior
written notice thereof, increase the Minimum Guaranteed Advertising Fee
payable by the VerticalNet under this Agreement. Junglee shall not make
more than one adjustment in any 12-month period. Any increase shall not
exceed the lesser of (i) seven percent (7%) per annum, or (ii) the
percentage by which the CPI as of the time of the adjustment is higher
than the Index as of (A) the date of this Agreement, for the first
adjustment, and (B) thereafter, the preceding date that the Minimum
Guaranteed Advertising Fee was adjusted pursuant to this Section 10.1.
Any fees increased pursuant to this Section 10.1 will remain in effect
until Junglee adjusts them again pursuant to this Section 10.1. For
purposes hereof, CPI shall mean the All Urban Consumer Index for U.S.
Cities Averaged for All Items as determined by the Department of
Labor's Bureau of Labor Statistics.
10.2 Termination for Breach or Insolvency. A party shall have the right to
------------------------------------
terminate this Agreement on written notice if (a) the other party
ceases to do business in the ordinary course or is insolvent (i.e.,
unable to pay its debts in the ordinary course as the come due), or is
declared bankrupt, or is the subject of any liquidation or insolvency
proceeding which is not dismissed within ninety (90) days, or makes any
assignment for the benefit of creditors, or (b) the other party
breaches any material term of this Agreement and fails to cure such
breach within thirty (30) days after written notice thereof.
10.3 Effect of Termination. Upon the expiration or termination of this
---------------------
Agreement:
<PAGE>
10.3.1 This Agreement shall terminate;
10.3.2 Each party shall immediately pay to the other all amounts due
hereunder;
10.3.2 Each party shall, within thirty (30) days of such expiration or
termination (i) return to other party or destroy all Confidential
Information and all other material received from such other party; (ii)
remove or terminate all links on the VerticalNet Site to the Junglee
Comparison Shopping Service; and (iii) provide the other party with a
signed written statement certifying that it has complied with the
foregoing obligations.
10.3.3 All rights granted by Junglee hereunder to VerticalNet shall terminate.
10.3.4 Sections 3.2, 4.3, 4.4, 6, 7, 8, 9, 10 and 11 shall survive the
expiration or termination of this Agreement for any reason.
11. MISCELLANEOUS
11.1 Indemnification. Junglee and VerticalNet shall indemnify and hold
---------------
harmless each other, and their respective directors, officers,
employees, and agents, from and against all claims, losses, damages and
expenses (including reasonable attorney's fees) resulting from the
breach of any agreement, representation or warranty set forth herein.
11.2 Injunctive Relief. The parties acknowledge that the breach or
-----------------
threatened breach of Sections 3.2 or 7 would cause irreparable harm to
the non-breaching party, the extent of which would be difficult to
ascertain. Accordingly, each party agrees that, in addition to any
other remedies to which a party may be legally entitled, a party may
seek immediate injunctive relief in the event of a breach or threatened
breach of such sections by the other party or any of the other party's
employees or subcontractors.
11.3 Assignment. This Agreement will be binding upon and inure to the
----------
benefit of the parties hereto and their permitted successors and
assigns. Neither party may assign or otherwise transfer this Agreement
without the other party's prior written consent. Notwithstanding the
prior sentence, VerticalNet may transfer or assign its rights and
delegate its obligations under this Agreement, without Junglee's
consent and without payment of additional fees or charge, to (i) a
purchaser of all or substantially all of the assigning party's stock or
assets (ii) an entity with which the assigning party consolidates or
merges, or (iii) any direct or indirect wholly-owned subsidiary of
VerticalNet, provided that such purchaser, entity or subsidiary agrees
in writing to be bound by this Agreement.
11.4 Waiver and Amendment. No modification, amendment or waiver of any
--------------------
provision of this Agreement shall be effective unless in writing and
signed by the party to be charged. No failure or delay by either party
in exercising any right, power, or remedy under this Agreement shall
operate as a waiver of any such right, power or remedy.
11.5 Choice of Law; Jurisdiction, Venue. This Agreement shall be governed by
----------------------------------
the laws of the State of California.
11.6 Notices, etc. Any notice required or permitted by this Agreement shall
------------
be deemed given if delivered by registered mail, postage prepaid,
addressed to the other party at the address shown at the beginning of
this Agreement or at such other address for which such party gives
notice hereunder. Delivery shall be deemed effective three (3) days
after deposit with postal authorities.
11.7 Independent Contractors. The parties are independent contractors with
-----------------------
respect to each other. Each party is not and shall not be deemed to be
an employee, agent, partner, joint venturer or legal representative of
the other for any purpose and shall not have any right, power or
authority to create any obligation or responsibility on behalf of the
other.
11.8 Severability. If any provision of this Agreement shall be held by a
------------
court of competent jurisdiction to be contrary to law, such provision
shall be changed and interpreted so as to best accomplish the
objectives of the original provision to the fullest extent allowed by
law
<PAGE>
and the remaining provisions of this Agreement shall remain in full
force and effect.
11.9 Complete Understanding. This Agreement, including all Exhibits attached
----------------------
hereto and hereby incorporated by reference, constitutes the final,
complete and exclusive agreement between the parties with respect to
the subject matter hereof, and supersedes any prior or contemporaneous
agreement, either written or oral.
11.10 Force Majeure. Except with respect to obligations to make payments
-------------
hereunder, neither party shall be deemed in default hereunder, nor
shall it hold the other party responsible for, any cessation,
interruption or delay in the performance of its obligations hereunder
due to causes beyond its reasonable control including, but not limited
to: earthquake, flood, fire, storm or other natural disaster, act of
God, labor controversy or threat thereof, civil disturbance or
commotion, disruption of the public markets, war or armed conflict or
the inability to obtain sufficient material, supplies, labor,
transportation, power or other essential commodity or service required
in the conduct of its business, including internet access, or any
change in or the adoption of any law, ordinance, rule, regulation,
order, judgment or decree.
The party claiming Force Majeure shall promptly notify the other party
of the termination of such event. During the period that the
performance by Junglee of its obligations under this Agreement has been
suspended by reason of an event of Force Majeure, VerticalNet may
likewise suspend its payment obligations hereunder. In the event that
the duration of any Force Majeure suspending the performance of
Junglee's obligations exceeds _____ days, VerticalNet shall have the
option to terminate this Agreement, by providing written notice of such
termination, which shall be effective upon delivery of such notice and
VerticalNet,'s payment obligation hereunder shall be limited to that
portion of the Advertising Fee that relate to the percentage of the
Term that has been completed. In the event of such termination, Junglee
shall be obligated to pay to VerticalNet any Merchant Fee that accrued
prior to the effective time of such termination.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
Effective Date.
Accepted by:
JUNGLEE CORP.
By: ________________________
Name:
Title:
Address:
- -------
1309 South Mary Avenue
Sunnyvale, CA 94087
Ph: (408) 617-1900
Fax: (408) 522-9470
VerticalNet, Inc.
By: ___________________________
Name: _________________________
Title: ________________________
Address:
- -------
2 Walnut Grove Drive
Suite #150
Horsham, PA 19044
<PAGE>
EXHIBIT 10.8
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") dated January 13, 1999,
---------
by and among VerticalNet, Inc., a Pennsylvania corporation (the "Purchaser"),
---------
Coastal Video Communications Corp., a Virginia corporation doing business as
Coastal Training Technologies (the "Seller"), Paul V. Michels ("Michels") and
------ -------
Philip P. Price ("Price" and, together with Michels, the "Key Employees").
----- -------------
BACKGROUND
Seller operates a corporate training business which, among other things,
publishes print materials, videos and interactive computer software covering a
variety of topics.
In connection with its safety training line of business, Seller has
developed an online business referred to as "Safetyonline" which includes three
internet websites named safetyonline.com, safetyonline.net and www.mro.net
(collectively, the "Safetyonline Websites") which have become landing pages for
---------------------
safety industry personnel and which offer gateway-type services such as a career
page, safety forum, product showcase and a safety-related search engine.
Seller desires to sell, and Purchaser desires to buy, certain assets of the
Seller associated with the Safetyonline Websites (the "Business") upon the terms
--------
described below.
The parties hereto agree that Seller and the Key Employees shall not
compete with Purchaser except that Seller and the Key Employees shall be
permitted to continue the operations that are not purchased by Purchaser in
accordance with the terms set forth below.
In consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereto agree as follows:
1. Sale and Purchase.
-----------------
a) Sale and Purchase of Assets. Subject to the terms and conditions set
---------------------------
forth in this Agreement, Seller hereby sells, assigns, transfers and delivers to
Purchaser, and Purchaser hereby purchases, acquires and takes assignment and
delivery of, the following assets and all of Seller's right, title and interest
therein and thereto (all of the assets sold, assigned, transferred and delivered
to Purchaser hereunder are referred to collectively herein as the "Assets"),
------
free and clear of all mortgages, liens, pledges, security interests, charges,
claims, restrictions and encumbrances of any nature whatsoever:
i) any rights (including any rights to Intellectual Property (as
defined below)) of Seller and any direct or indirect subsidiary of Seller to the
URL, site and content (including, without limitation, text and graphics) of
safetyonline.com, safetyonline.net and www.mro.net;
ii) any rights of Seller and any direct or indirect subsidiary of
Seller to software programs, modules, routines, data, text or graphic files,
source or object codes and other components of
<PAGE>
the Safetyonline Websites used in operation of the Safetyonline Websites, or in
the process of being developed, by, or on behalf of, the Seller for use in the
Business;
iii) any rights of Seller and any direct or indirect subsidiary of
Seller in and under the agreements and contracts listed in Schedule 1.1(c)
---------------
attached hereto (the "Purchased Contracts");
-------------------
iv) any rights of Seller and any direct or indirect subsidiary of
Seller to all information and records maintained by the Seller (in electronic or
paper format) pertaining to customers and/or visitors of the Business including,
without limitation, principal contacts, email and street addresses, telephone
numbers, personal information, and purchasing history of such customers or
visitors; provided, that the Seller shall be permitted to retain copies of such
--------
information for any use in its continuing businesses not inconsistent with
Section 6.1; and
v) any rights of Seller and any direct or indirect subsidiary of
Seller to the trade names, trade dress, trademarks and service marks used on the
Safetyonline Websites and as set forth on Schedule 1.1(e) attached hereto and
---------------
the goodwill associated therewith.
Purchaser acknowledges that this sale specifically excludes, inter alia, those
----------
items identified or referred to in Schedule 1.1(f) attached hereto.
---------------
b) Assumed Obligations. At the Closing, except as provided in Section
------------------- -------
1.3, Purchaser shall assume, and agree to pay, perform, fulfill and discharge,
- ---
all obligations of Seller (the "Assumed Obligations") required to be performed
-------------------
after the Closing (excluding payment obligations for goods or services the
performance or delivery of which is initiated prior to the Closing Date) under
any of the contracts and agreements set forth in Schedule 1.2 hereto (the
------------
"Assumed Contracts"), except where (i) such obligations have arisen in
- ------------------
contravention of this Agreement or (ii) such obligations arise or have arisen
out of any claim, lawsuit, investigation, proceeding, arbitration or other
dispute relating to an act or omission taken or occurring prior to Closing.
c) No Other Liabilities Assumed. Purchaser shall not and does not hereby
----------------------------
assume any liability or obligation or Seller, known or unknown, contingent or
otherwise, asserted or unasserted, other than as specifically set forth in
Section 1.2. Nothing contained herein shall cause the Purchaser to assume (a)
- -----------
any liabilities or obligations arising out of the conduct of the Business prior
to the Closing, whether known or unknown on the Closing Date; (b) any
liabilities or obligations arising out of any provision of any agreement,
contract, commitment or lease of the Seller, other than any liability or
obligation under the Assumed Contracts arising and to be performed after the
Closing; (c) any federal, state or local income or other tax: (i) payable with
respect to the business, assets, properties or operations of the Seller or any
member of any affiliated group of which Seller is a member, or (ii) incident to
or arising as a consequence of the negotiation or consummation by the Seller or
any member of any affiliated group of which Seller is a member of this Agreement
and the transactions contemplated hereby; (d) any liability or obligation under
or in connection with any assets not included in the Assets; (e) any employment-
related liability or obligation arising prior to or as a result of the Closing
to any employees, agents or independent contractors of the Seller, whether or
not employed by the Purchaser after the Closing, or under any benefit
arrangement with respect thereto; or (f) any liability or obligation of the
Seller arising or incurred in connection with the negotiation, preparation and
execution of this Agreement and the transactions contemplated hereby and fees
and expenses of counsel, accountants and other experts.
2
<PAGE>
d) Consideration.
-------------
i) Monetary Consideration. The aggregate monetary consideration
to be paid by Purchaser to Seller for the Assets and by Purchaser to Seller and
Key Employees for the covenant not to compete (the "Non-Compete Covenant") set
--------------------
forth in Section 6.3 shall be $310,000 (the "Purchase Price") and shall be
payable as follows: (i) on the Closing Date, the Purchaser shall deliver
$259,800 by certified or bank cashier's check or wire transfer of immediately
available funds to such account as Seller shall designate, (ii) on the Closing
Date, the Purchaser shall deliver $100.00 by certified or bank cashier's check
or wire transfer of immediately available funds to such account as Michels shall
designate, (iii) on the Closing Date, the Purchaser shall deliver $100.00 by
certified or bank cashier's check or wire transfer of immediately available
funds to such account as Price shall designate (the payments referenced in
clauses (i) through (iii) above are collectively referred to herein as the
"Closing Payments"), and (iv) on the Closing Date, the Purchaser shall deliver a
----------------
promissory note in the amount of $50,000 payable to Seller without interest on
90th day after the Closing Date in form and substance as set forth in Exhibit A
---------
attached hereto ("Note").
----
ii) Nonmonetary Consideration. As additional consideration to
-------------------------
Seller for the Assets and the Non-Compete Covenant, Purchaser shall (i) assume
the Assumed Obligations and (ii) deliver to Seller at Closing an advertising
contract, in substantially the form set forth in Exhibit B attached hereto (the
---------
"Advertising Contract").
--------------------
(c) Allocation. Each of the parties hereto agrees and
----------
acknowledges that the transactions contemplated herein do not constitute an
"applicable asset acquisition" within the meaning of such term as set forth in
Section 1060 of the Internal Revenue Code of 1986, as amended.
(d) Freeware. Seller and Purchaser hereby agree that the
--------
consideration paid by Purchaser hereunder shall not be applied to, and is not in
consideration for, any freeware acquired by Purchaser under the terms of this
Agreement.
2.Closing. The closing of the purchase and sale of the Assets (the "Closing")
------- -------
shall take place on such date (the "Closing Date") and at such time as the
------------
parties may mutually agree and may simultaneously with the execution of this
Agreement. The Closing shall be consummated by facsimile transmission. The
parties shall (x) transmit facsimile copies of all executed documents required
to be executed pursuant to this Agreement and (y) mail via overnight courier
four (4) executed originals of each document to the offices of counsel for each
of the respective parties. The Closing shall be effective as of 11:59 p.m.,
Eastern Time, on the Closing Date. At the Closing, subject to the terms and
conditions herein contained, the following shall occur:
a) Deliveries by the Seller at the Closing. The Seller shall deliver
---------------------------------------
to the Purchaser any instruments and documents of conveyance and transfer, in a
form reasonably satisfactory to Purchaser and its counsel, as shall be necessary
and effective to transfer and assign to, and vest in, Purchaser all of the
Seller's right, title and interest in and to the Assets (including UCC partial
releases in connection with the release of all liens against the Assets, if
any), and simultaneously with such delivery, all steps will be taken as may be
required to put the Purchaser in actual possession and operating control of the
Assets.
3
<PAGE>
b) Deliveries by the Purchaser at the Closing. On the Closing Date, the
------------------------------------------
Purchaser shall deliver the Note and the Advertising Contract to Seller and
shall deliver the Closing Payments to Seller and Key Employees.
3. Representations and Warranties of the Seller. Seller represents and
--------------------------------------------
warrants to and agrees with the Purchaser as follows:
a) Organization, Good Standing and Share Ownership. Seller is a
-----------------------------------------------
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on the
Business as now being conducted. Seller has delivered to Purchaser true and
complete copies of the Certificate or Articles of Incorporation and Bylaws of
Seller. No person owns beneficially more than 10% of the outstanding capital
stock of Seller other than Michels.
b) Chief Executive Office. The principal place of business and chief
----------------------
executive office of the Seller is located in Virginia Beach, Virginia.
c) Authority and Compliance. The Seller has full power and lawful
------------------------
authority to execute and deliver this Agreement and to consummate and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Seller and constitutes the legal, valid and
binding obligation of the Seller, enforceable in accordance with its terms,
except as enforceability may be limited by laws of general application relating
to bankruptcy, reorganization, moratorium, insolvency and debtors' relief and
similar laws affecting the enforcement of creditors' rights, and by general
principles of equity ("Debtors' Rights"). Neither the execution and delivery of
---------------
this Agreement by the Seller nor the consummation and performance of the
transactions contemplated hereby (a) will conflict with or violate any agreement
to which the Seller is a party or by which it is bound or any federal, state,
local or other governmental law or ordinance or (b) will require the
authorization, approval or consent by, or any notice to or filing with, any
third party, except for such authorizations, approvals and consents which, if
not granted or obtained, would not in the aggregate have a material adverse
effect on the condition of the Assets or the Business including, without
limitation, the consent of any third parties under any of the agreements listed
on Schedule 3.6.
------------
d) Financial Statements. The Seller has delivered to Purchaser (i)
--------------------
audited financial statements (including without limitation, the balance sheet,
income statement and statement of cash flows) of the Seller for the year ended
December 31, 1997, and (ii) unaudited statement of revenues for the Business for
the year ended December 31, 1997 and for the nine-month period ended September
30, 1998 (collectively, the "Financial Statements"). The Financial Statements
--------------------
present fairly the revenues of Seller and the Business, as applicable, for the
periods indicated.
e) No Material Changes. Since September 30, 1998 there has not been
-------------------
(a) any material adverse change in the Assets or the operations or condition
(financial or otherwise) of the Business or of the Seller; or (b) any actual or
threatened trouble or disruption of the Seller's relations with the Business'
agents, customers or suppliers. Since September 30, 1998, the Seller has
conducted the Business only in the ordinary course consistent with past
practice, has not incurred any material liabilities, and has not entered into
any transaction, contract or arrangement, or made any payment or distribution
except in ordinary course of business, consistent with past practice.
4
<PAGE>
f) Advertising Contracts. Attached hereto as Schedule 3.6 is a true,
--------------------- ------------
correct and complete list of all the advertising contracts related to the
Business under which there are unbilled, partially billed or unfulfilled
obligations owing from a third party to Seller and included in such schedule
shall be the name of the parties to such contract, a brief description of such
contract, the amount billed to any third party by Seller as of the Closing Date,
term of such contract, and the amount unbilled and the obligations unfulfilled
as of the Closing Date.
g) Assets. The Seller has good, valid and marketable title to, valid
------
leasehold interests in, or valid licenses to use, all of the Assets, free and
clear of all liens, pledges, mortgages, security interests, claims or
encumbrances of any nature whatsoever except for Permitted Encumbrances (as
defined below). All of the Assets are (a) in good operating condition and
repair (subject only to ordinary wear and tear), (b) are usable in the ordinary
course of the Business consistent with past practice and (c) are in the
possession or under the control of the Seller. As used in this Agreement,
"Permitted Encumbrances" shall mean liens on the Assets to secure taxes,
----------------------
assessments and other governmental charges or claims for labor, material or
supplies in respect of obligations not overdue. This Section 3.6 shall not
apply to Intellectual Property, all of which is subject to Section 3.9.
h) Contracts. True and complete copies of all Assumed Contracts and all
---------
Purchased Contracts have been delivered to Purchaser and each Assumed Contract
and each Purchased Contract is a valid and binding obligation in full force and
effect in accordance with its respective terms with respect to the Seller (as
applicable) and is valid and binding obligation in full force and effect in
accordance with its respective terms with respect to any other party thereto,
except as the enforceability may be limited by Debtors' Rights. The Seller is
not in material default under any of the Assumed Contracts or any of the
Purchased Contracts and to Seller's knowledge no third party is in material
default under any of the Assumed Contracts or any of the Purchased Contracts.
i) Legal Proceedings; Compliance with Law and Organizational Documents.
-------------------------------------------------------------------
There are no disputes, claims, actions, suits or proceedings, arbitrations or
investigations pending or, to the Seller's knowledge, threatened against or
affecting the Business or the Assets. The Seller does not have any knowledge of
any state of facts that might reasonably form the basis of any claim, liability
or litigation against the Seller affecting the Business or the Assets. The
conduct of the Business by the Seller, and its use of the Assets, are in
material compliance with all applicable federal, state, local or other
governmental laws, ordinances, codes, rules and regulations. The Seller owns or
possesses in the operation of the Business all franchises, licenses, permits,
consents, approvals, rights, waivers and other authorizations, governmental or
otherwise, which are necessary for it to conduct its business as now conducted;
the Seller is not in default, nor has it received any notice of any claim or
default, thereunder or any notice of any other claim or proceeding or threatened
proceeding relating thereto; and neither the execution or delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
require any notice or consent thereunder or have any material adverse effect
thereon.
j) Intellectual Property. Except as set forth on Schedule 3.10 hereto,
--------------------- -------------
(i) the Seller owns (or has adequate rights to use pursuant to license,
sublicense, agreement or permission) all patents, trademarks, trade names,
service marks, copyrights, software, trade secrets or know-how (collectively,
"Intellectual Property") used by the Seller in the Business free and clear of
---------------------
any lien, mortgage, security interest, pledge, restriction, defect of title or
other claim, charge or encumbrance; (ii) in connection with the operation of the
Business, the Seller does not infringe upon or unlawfully or wrongfully use any
material Intellectual Property owned or claimed by any other person or entity;
(iii) the Seller owns or has the lawful right to use all Intellectual Property
that is used in the operation of the Business in the ordinary
5
<PAGE>
course or otherwise; (iv) the Seller is not in default under, and has not
received any notice of any claim of infringement or any other claim or
proceeding relating to any of the Intellectual Property; or (v) no present or
former employee of the Seller and no other person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, in any of
the Intellectual Property, or in any application therefor, which the Seller
owns, possesses or uses in its operations as now or heretofore conducted.
Notwithstanding anything in this Agreement to the contrary, Seller (a) does not
own any registered marks other than the "Safetyonline" trade/service mark and
(b) owns the domain names "safetyonline.com", "safetyonline.net" and "mro.net".
k) Operational Elements. Except as set forth on Schedule 3.11 hereto,
-------------------- -------------
the Assets include any and all rights for software programs, modules, routines,
data, text or graphic files, source or object codes and other components of the
Safetyonline Websites which are used in the operation of any of the Safetyonline
Websites and such operational elements shall include all written or electronic
documentation which is in the possession of Seller.
l) Benefit Plans. Lesley McCormick is not a participant or member of any
-------------
employee benefit plan sponsored or maintained by the Seller or any direct or
indirect subsidiary of Seller.
m) Consents and Approvals of Governmental Authorities. No consent,
--------------------------------------------------
approval or authorization of, or declaration, filing or registration with, any
court or other governmental or regulatory authority, agency, commission, or
other entity, domestic or foreign is required to be made or obtained by the
Seller in connection with the execution, delivery and performance of this
Agreement by the Seller or the consummation of the sale of the Assets to the
Purchaser.
n) Undisclosed Liabilities. None of the Assets are subject to any
-----------------------
liability, indebtedness, obligation or claim of any type, whether accrued,
absolute, contingent, matured or unmatured ("Liabilities"), except those
-----------
Liabilities arising in the ordinary course of business consistent with past
practice under any contract specifically disclosed in Schedule 1.1(c) to this
---------------
Agreement.
o) Tax Returns. All material federal, state, local, foreign or other
-----------
governmental income, profit and franchise, gross receipts, sales, use,
intangibles, inventory, capital stock, ad valorem, transfer, employment,
payroll, withholding, occupation, property, license, stamp and excise taxes,
custom duties or other taxes, fees, assessments or charges whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
with respect thereto due with respect to the Seller which could result in any
lien or encumbrance on the Assets, have been fully paid by the Seller.
p) Customers. The Seller currently maintains, good working relationships
---------
with all of the customers and suppliers of the Business. No current customer or
supplier of the Business has given the Seller notice terminating, canceling or
threatening to terminate or cancel any contract (including, without limitation,
any of the Assumed Contracts or the Purchased Contracts) or relationship with
the Seller.
q) Transactions with Affiliates. Neither the Seller nor any affiliate of
----------------------------
the Seller nor any member of his or her immediate family, owns or has a
controlling ownership interest in any corporation or other entity that is a
party to any Assumed Contract or any Purchased Contract. All disclosed
transactions, if any, between the Seller, or an affiliate thereof have been on
substantially the same terms and conditions as similar transactions between non-
affiliated parties and are properly recorded on the books and records of the
Seller.
6
<PAGE>
r) Disclosure. No representation or warranty hereunder or information
----------
contained in any Schedule or any certificate, statement or other document
delivered by the Seller in connection herewith contains any untrue statement of
material fact or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading. There is no fact known
to the Seller which might materially and adversely affect the Business or the
Assets which has not been disclosed to the Purchaser in this Agreement or a
certificate, statement or other document delivered by the Seller.
4. Representations and Warranties of the Purchaser. The Purchaser represents
-----------------------------------------------
and warrants to and agrees with the Seller as follows:
a) Organization and Good Standing. The Purchaser is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Purchaser has full corporate power and
authority to conduct its business as now conducted and to own and operate the
assets and properties now owned and operated by it.
b) Authority and Compliance. The Purchaser has full power and lawful
------------------------
authority to execute and deliver this Agreement and to consummate and perform
the transactions contemplated hereby. This Agreement has been duly authorized,
executed and delivered by the Purchaser and constitutes the legal, valid and
binding obligation of the Purchaser, enforceable in accordance with its terms.
Neither the execution and delivery of this Agreement by the Purchaser nor the
consummation and performance of the transactions contemplated hereby (a) will
conflict with or violate the Articles of Incorporation or Bylaws of the
Purchaser or any agreement to which the Purchaser is a party or by which it is
bound or any federal, state, local or other governmental law or ordinance or (b)
will require the authorization, approval or consent by, or any notice to or
filing with, any third party.
5. License. Purchaser hereby grants Seller a non-exclusive, non-transferable,
-------
irrevocable, royalty-free license in perpetuity to use the source codes
described in Section 1.1(b) in Seller's continuing businesses in a manner
consistent with Section 6.1.
6. Other Agreements.
----------------
a) Covenant Not to Compete.
-----------------------
i) For a period of three years from and after the Closing Date,
the Seller and each Key Employee hereby agrees that he or it will not directly
or indirectly own, manage, operate, finance, join, control or participate in the
ownership, management, operation, financing or control of, or be connected as an
officer, employee, partner, principal, agent, representative, consultant or
otherwise with any business that engages in any of the following activities (the
"Restricted Activities"):
---------------------
(i) is engaged in the selling of advertising on or
sponsorships rights to websites;
(ii) is engaged in owning, servicing or maintaining a
safety industry landing page which is, or may be, used by safety industry
professionals as a gateway to the Internet; or
(iii) is engaged in offering gateway type services to
businesses and/or individuals associated with the safety industry, including,
without limitation, such services as a career page, safety forum, product
showcase, safety search or similar type service;
7
<PAGE>
provided, however, that the definition of Restricted Activities shall not
- -------- -------
include (A) any online activities or services not specifically enumerated above
which Seller may use to support any of its current or future businesses and
assets which are not being purchased by Purchaser, such as the posting of news
and links to publications, organizations or associations, maintaining chat rooms
and bookstores, hosting chats with industry experts, providing training and
education services (including distribution of training materials via the
Internet), and supporting the sale of Seller's products and products distributed
by seller, including, for example the activities currently conducted through
Seller's coastal.com website and its "Safety Currents" and "Health Trends"
online newsletters and (B) any other activity not specifically enumerated above.
ii) The Seller and each Key Employee acknowledges and understands
that (i) the Purchaser is and will be relying upon the agreements made by the
Seller in this Section 6.1 in entering into this Agreement and consummating the
transactions contemplated hereby and (ii) the restrictions contained in this
Section 6.1 are reasonable and necessary to protect the legitimate interests of
the Purchaser, and that any violation will result in irreparable injury to the
Purchaser.
iii) The Seller and each Key Employee agrees that the Purchaser shall
be entitled to preliminary and permanent injunctive relief, without the
necessity of proving actual damages, as well as an equitable accounting of all
earnings, profits and other benefits arising from any violation of this Section
6, which rights shall be cumulative and in addition to any other rights or
remedies to which the Purchaser may be entitled. The liabilities of the Seller
and each Key Employee to the Purchaser under this Section 6.1 shall be several
and not joint. In the event that any of the provisions of this Section 6.1
should ever be adjudicated to exceed the time, geographic, product or service,
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
b) Best Efforts. Subject to the respective rights and obligations of the
------------
Seller and the Purchaser under this Agreement, each party shall use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated in accordance Section 2 hereof.
c) Assignment of Contracts. If any required consent to the assignment of
-----------------------
any of the Assumed Contracts or the Purchased Contracts is not obtained or if an
attempted assignment thereof would be ineffective, the Seller and the Purchaser
shall cooperate to provide the Purchaser with the benefits and obligations
thereunder in accordance with such agreement until such consent or effective
assignment can be obtained.
d) Re-Naming of the Company. The Seller shall take all steps necessary to
------------------------
change any trade names pursuant to which it conducts its business, to a name
dissimilar to the name by which the Business is known and will file as promptly
as practicable in all jurisdictions in which it is qualified to do business, any
documents necessary to reflect such change.
e) Transition of the Business. The Purchaser and the Seller shall use
--------------------------
commercially reasonable efforts to cooperate in an orderly transition of the
Business and transfer of the Assets to the Purchaser. Without limiting the
generality of the foregoing, Seller will cooperate with Purchaser in migrating
the contents and functionality of the Business's website from computer systems
owned or maintained by Seller to such computer systems as Purchaser shall
direct.
8
<PAGE>
f) Software Licensing Agreements. Until the transition of the Business has
-----------------------------
been accomplished to the satisfaction of Purchaser or 90 days after the Closing
Date, whichever occurs first, Seller hereby agrees (i) not to terminate any and
all software licensing agreements used by Seller in the Business under which
Seller is the licensee, and (ii) to maintain the existing content and
functionality of the Safetyonline Websites.
7. Indemnification.
---------------
a) Survival. All of the representations, warranties, covenants and
--------
obligations contained in this Agreement or in any instrument or document
delivered pursuant to this Agreement shall survive the execution of this
Agreement and the Closing, notwithstanding any investigation heretofore or
hereafter made by or on behalf of any party hereto; provided, however, that all
-------- -------
representations and warranties contained in this Agreement, and the obligations
of Seller and Purchaser to indemnify each other for breaches thereof as set
forth in this Section 7, shall survive and continue for, and all indemnification
claims with respect thereto shall be made within, one year following the Closing
Date, except for (i) the indemnification obligations related to Section 7.2(a)
which shall survive until expiration of the applicable statute of limitations,
and (ii) the representations, warranties and related indemnification obligations
for which notice of an indemnification claim shall have been received as of the
end of the applicable period referred to in this Section, which shall survive
with respect to such indemnification claim until the final disposition thereof.
b) Indemnification by the Seller. The Seller shall reimburse and indemnify
-----------------------------
and hold the Purchaser and each of its directors, officers, shareholders,
employees, representatives and agents (collectively, the "Purchaser Parties")
-----------------
harmless against and in respect of any and all damage, loss, liability,
deficiency, settlement payments, costs, levies, expenses or obligations,
whether or not the result of a third party claim (collectively, "Damages"), in
-------
connection, resulting from or relating to:
i) any and all liabilities or obligations of any nature whatsoever
of or relating to claims for federal, state, local, foreign or other taxes
assessed against Purchaser, the Business or the Assets, which arise out of or
are related to Seller's operation or conduct of the Business prior to the
Closing, and not specifically assumed by Purchaser hereunder.
ii) any and all liabilities or obligations of any nature whatsoever
of or relating to the Seller, or relating to or arising out of the Assets (prior
to the Closing Date), the Seller's operations or the Business or the actions of
the Seller's officers, employees, representatives or agents, except for those
liabilities and obligations arising under the Assumed Obligations following the
Closing;
iii) any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of the Seller under this Agreement;
iv) the parties' failure to comply with any bulk sales law or similar
laws in any applicable jurisdiction in respect of the transactions contemplated
by this Agreement or any action brought or levy made as a result thereof;
v) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to any of the foregoing; and
9
<PAGE>
vi) any claim that any content provided by Seller for use on any of
the Purchaser's websites constitutes a defamation or invasion of the right of
privacy or publicity, or infringement of the copyright, trademark or other
intellectual property right, of any third party.
c) Indemnification by the Purchaser. The Purchaser shall reimburse and
--------------------------------
indemnify and hold the Seller and each of its directors, officers, shareholders,
employees, representatives and agents (collectively, the "Seller Parties")
--------------
harmless against and in respect of any Damages in connection, resulting from or
relating to:
i) any misrepresentation, breach of warranty or nonfulfillment of any
covenant or agreement on the part of the Purchaser under this Agreement; and
ii) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to the foregoing.
d) Limitation on Indemnification. Except for the specific exceptions
-----------------------------
contained in this Section 7.4, the indemnification obligations of the Seller and
the Purchaser shall be limited as follows:
(a) Neither the Seller Parties nor the Purchaser Parties shall be
entitled to seek indemnification under this Section 7 until the aggregate of all
Damages incurred by such parties exceeds $31,000 (the "Basket Amount"). Once
-------------
the Basket Amount has been exceeded, the indemnifying party shall be liable to
the indemnified parties for the full amount of such Damages; and
(b) Neither the Seller nor the Purchaser shall be liable for payments
of indemnification under this Section 7 in an aggregate amount greater than
$450,000;
provided, however, that, notwithstanding anything contained herein to the
- -------- -------
contrary, the limitations on the indemnification obligations of the parties
hereto contained in this Section 7.4 shall not apply with respect to Damages
arising under (i) fraud or fraud in the inducement or (ii) the intentional
breach of any covenant or agreement contained herein.
e) Procedure for Indemnification. If any claim is made against a party (an
-----------------------------
"indemnified party") that, if sustained, would give rise to a liability of
-----------------
another party (the "indemnifying party") under this Agreement, the indemnified
------------------
party shall promptly cause notice of the claim to be delivered to the
indemnifying party along with all of the facts, information or materials
relating to such claim of which the indemnified party is aware and shall afford
the indemnifying party and its counsel, at the indemnifying party's sole
expense, the opportunity to defend or settle the claim.
i) The indemnifying party shall have 15 business days after delivery
thereof to elect, in writing to the indemnified party, to defend or settle the
claim, exercising reasonable business judgment, at its own expense. Until
written notice electing to defend or settle any claim that, if sustained, would
give rise to a liability under this Agreement, the indemnified party may take,
at the expense of the indemnifying party, any action it reasonably believes
necessary to preserve its rights with respect to such claim, after promptly
notifying the indemnifying party of its intention to take such action and the
indemnifying party does not elect to take such other action.
10
<PAGE>
ii) If the indemnifying party shall so elect to defend or settle the
claim, the indemnifying party may not settle such claim without the prior
written consent of the indemnified party; provided that, if the indemnified
--------
party does not consent to such a settlement, the indemnifying party's liability
to indemnify the indemnified party for such claim shall be limited to the
expenses and costs reasonably necessary to preserve its rights to such claim
(other than any costs of counsel retained by the indemnified party solely to
monitor the indemnifying party's obligations hereunder) that the indemnified
party has incurred up to the time of the proposed settlement plus the amount of
the proposed settlement. The indemnified party agrees to use commercially
reasonable efforts to cooperate with the indemnifying party in defending any
claim, at the indemnifying party's expense.
iii) If the indemnifying party shall fail to so elect to defend or
settle such claim (exercising reasonable business judgment) at its own expense,
within 30 days of delivery of notice of the claim, or otherwise so fail to
defend or settle the claim, the indemnified party shall have the right, but not
the obligation, to undertake the defense of and to settle (exercising reasonable
business judgment) the claim on behalf, for the account and at the risk, of the
so failing party. The indemnified party shall use commercially reasonable
efforts to settle any such claim at commercially reasonable amounts determined
in good faith by the indemnifying party.
iv) In the event the indemnified party should have a claim against
the indemnifying party that does not involve a claim or demand by a third party,
the indemnified party shall promptly cause notice of such claim to be delivered
to the indemnifying party. The indemnifying party shall have 15 business days
after delivery thereof to elect, in writing to the indemnified party, to defend
or settle the claim, exercising reasonable business judgment, at its own
expense. If the indemnifying party does not notify the indemnified party within
20 days after the indemnified party's notice that it disputes such claim, the
amount of such claim shall be conclusively deemed as a liability of the
indemnifying party. If the indemnifying party disputes such claim, the
indemnifying party and the indemnified party shall attempt in good faith for a
period of 30 days to settle any such dispute.
f) Other Remedies. The indemnity of this Section 7 shall be the exclusive
--------------
remedy of any party for a breach, misrepresentation, nonfulfillment, or default
in the performance of the representations, warranties, covenants, or agreements
of this Agreement or any certificate, exhibit, or schedule contemplated hereby,
except in the event of actual fraud or fraud in the inducement; provided,
--------
however, Section 6.1(c) shall govern the remedies of Purchaser against Seller
- -------
and the Key Employees for a breach by them of the covenants contained in Section
6.1 only.
8. Miscellaneous.
-------------
a) Broker's Fees. Each of the parties hereto (a) represents and warrants
-------------
that it has not taken and will not take any action that would cause the other
party hereto to have any obligation or liability to any person for a finder's or
broker's fee except as may be agreed to in writing and (b) agrees to indemnify
the other party hereto for breach of the foregoing representation and warranty.
b) Expenses. Each party hereto shall pay its own expenses, including
--------
without limitation the reasonable fees and expenses of its counsel, incurred in
connection with this Agreement and the transactions contemplated hereby.
c) Contents of Agreement; Amendment; Parties in Interest; Assignment; Etc.
-----------------------------------------------------------------------
This Agreement, which includes all schedules and exhibits hereto, sets forth the
entire understanding of the parties hereto
11
<PAGE>
with respect to the subject matter hereof. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than those
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties, including, without
limitation, that certain letter of intent bearing a December 21, 1998 date
entered into by Seller and Purchaser which is hereby rendered null and void ab
--
initio. This Agreement may be amended, modified or supplemented only by written
- ------
instrument duly executed by each of the parties hereto. All representations,
warranties, covenants, terms and conditions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
legal representatives, successors and permitted assigns of the parties hereto.
The Purchaser may upon prior written notice to Seller assign its rights and
benefits hereunder, including without limitation the benefit of any
representation, warranty or covenant, to any wholly-owned affiliated entity, but
no party hereto shall assign this Agreement or any right, benefit or obligation
hereunder to any other party. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
d) Notices. All notices which are required or permitted hereunder shall be
-------
sufficient and shall be then deemed given if and when given in writing and
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid, by facsimile (with confirmation received) or by
nationally recognized courier service (or to such other addressee or address as
shall be set forth in a notice given in the same manner) as follows:
If to the Purchaser:
VerticalNet, Inc.
2 Walnut Grove Drive, Suite 150
Horsham, Pa 19044
Attn: Mr. Gene Godick
Facsimile: 215- 443-3336
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
Attn: Stephen M. Goodman, Esquire
Facsimile: 215-963-5299
If to the Seller:
Coastal Video Communications Corp.
3083 Brickhouse Corp.
Virginia Beach, VA 23452
Attn: Mr. Philip P. Price
Facsimile: 757-631-4304
with a required copy to:
Hofheimer Nusbaum, P.C.
999 Waterside Drive
12
<PAGE>
Dominion Tower, Suite 1700
Norfolk, VA 23510
Attn: William A. Old, Jr.
Facsimile: 757-629-0660
If to a Key Employee:
[Name of Key Employee]
c/o Coastal Video Communications Corp.
3083 Brickhouse Corp.
Virginia Beach, VA 23452
Facsimile: 757-631-4304
e) Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
f) Public Announcements. The Seller shall not make any public statements,
--------------------
including without limitation, any press releases, with respect to this Agreement
and the transactions contemplated hereby without the prior consent of the
Purchaser, except as may be required by law.
g) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to produce or account
for any of the other counterparts.
h) Consent to Jurisdiction. Any legal action or proceeding with respect to
-----------------------
this Agreement shall be brought in the courts of the Commonwealths of either
Virginia or Pennsylvania or of the United States located within such
jurisdictions, and, the parties hereto each accept the exclusive jurisdiction of
such courts. Each of the parties hereto hereby waives any claim that any such
court lacks jurisdiction over it, and agrees not to plead or claim, in any legal
action or proceeding with respect to this Agreement brought in any of the
aforesaid courts, that any such court lacks jurisdiction over it. Each of the
parties hereto hereby further waives any objection which it may now or hereafter
have to the laying of venue of any action or proceeding arising out of or in
connection with this Agreement brought in the aforesaid courts and further
waives and agrees not to plead or claim in any such court that any such action
or proceeding brought in any such court has been brought in an inconvenient
forum.
i) Further Assurances. Each party hereto agrees to execute any and all
------------------
documents, and to perform such other acts, to the extent permitted by law, that
may be reasonably necessary or expedient to further the purposes of this
Agreement or to further assure the benefits intended to be conferred hereby.
11.10 Incorporation of Exhibits and Schedules. The exhibits and
---------------------------------------
schedules identified in this Agreement are incorporated herein by reference and
made a part hereof. The term "Agreement" shall include all such exhibits,
schedules, certificates, and writings.
11.11 Rights of Third Parties. Nothing in this Agreement shall be
-----------------------
construed as giving any person, firm, corporation, or other entity, other than
the parties who are signatory hereto and their respective successors and
permitted assigns, any right, remedy, or claim under or in respect of this
Agreement or any provision hereof.
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
PURCHASER:
VERTICALNET, INC.
By: /s/ Gene S. Godick
------------------------------------
Name: Gene S. Godick
Title: Chief Financial Officer
SELLER:
COASTAL VIDEO COMMUNICATIONS CORP.
By: /s/ Paul V. Michels
------------------------------------
Name: Paul V. Michels
Title: President
KEY EMPLOYEES:
/s/ Paul V. Michels
----------------------------------------
Paul V. Michels
/s/ Philip P. Price
----------------------------------------
Philip P. Price
14
<PAGE>
EXHIBIT 10.9
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN
A TRANSACTION WHICH QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
DATE: NOVEMBER 25, 1998 WARRANT TO PURCHASE
40,000 OR 60,000 SHARES OF COMMON
STOCK
VERTICALNET, INC.
COMMON STOCK PURCHASE WARRANT
VerticalNet, Inc., a Pennsylvania corporation (the "Company"), hereby
certifies that, for value received, Progress Capital, Inc., a Delaware
corporation (the "holder"), or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company, at any time and from time to time
during the period beginning on the earlier of (a) the effective date of the
registration statement for an underwritten public offering of the Company's
common stock, par value $.01 per share, (b) the closing date of the next round
of equity financing in the Company raising not less than $5,000,000 from third
party investors other than holder (the "Next Round Financing") and (c) March 31,
1999 (the earliest of clauses (a), (b) and (c) being hereafter referred to as
the "First Exercise Date"), and ending on November 25, 2008, an aggregate of (x)
if the $2,000,000 Promissory Note given to the holder by the Company (the
"Promissory Note") is repaid in full on or prior to the First Exercise Date,
FORTY THOUSAND (40,000) or (y) if the Promissory Note is repaid in full after
the First Exercise Date, SIXTY THOUSAND (60,000), fully paid and non-assessable
shares of the common stock, par value $.01 per share, of the Company at the
"Purchase Price" (as hereinafter defined), subject to the provisions of
Paragraph 3 hereof. "Purchase Price" shall mean (x) if either of the
transactions specified in clauses (a) and (b) above occur before May 31, 1999,
the price per share paid for shares of common stock, par value $.01 per share,
of the Company in such transaction (before underwriting discounts and
commissions) or (y) if neither of the events specified in clauses (a) and (b)
above occur before May 31, 1999, $1.80 per share. "Common Stock" shall mean,
unless the context otherwise requires, the stock or other securities or property
at the time deliverable upon the exercise of this Warrant. Notwithstanding the
foregoing, the Purchase Price and the number and character of shares issuable
under this Warrant are subject to adjustment as set forth in Paragraph 3. This
Warrant is herein called the "Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this
Warrant shall be exercised by the holder hereof surrendering this Warrant, with
the form of subscription at the end hereof duly executed by such holder, to the
Company at its office at Two Walnut Grove Drive, Suite 150, Horsham,
Pennsylvania 19044, or such other address as the Company may specify
<PAGE>
by written notice to the registered holder hereof, accompanied by payment, in
cash, by certified or official bank check or by wire transfer of an amount equal
to the Purchase Price multiplied by the number of shares being purchased
pursuant to such exercise of the Warrant.
1.1 Partial Exercise. This Warrant may be exercised for less than
----------------
the full number of shares of Common Stock, in which case the number of shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon any such partial exercise, the Company at its expense will forthwith issue
to the holder hereof a new Warrant or Warrants of like tenor calling for the
number of shares of Common Stock as to which rights have not been exercised,
such Warrant or Warrants to be issued in the name of the holder hereof or his
nominee (upon payment by such holder of any applicable transfer taxes).
1.2. Net Issue Exercise.
------------------
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Common Stock computed using the
following formula:
X = Y(A-B)
------
A
Where
X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant
A = the fair market value of one share of the Company's Common Stock.
B = the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of one
share of the Company's Common Stock shall be based on the average of the closing
bid and asked prices of the Summary or the closing price quoted in the Over-The-
Counter Market Summary or the closing price quoted on any exchange on which the
Common Stock is listed, whichever is applicable, as published in the Eastern
Edition of The Wall Street Journal for the ten trading days prior to the date of
determination of fair market value. If the Common Stock is not traded Over-The-
Counter or on an exchange, the fair market value of the Company's Common Stock
shall be the price per share which the Company could obtain from a willing buyer
for shares sold by the Company from authorized but unissued shares, as such
price shall be agreed by the Company and the holder.
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2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable after the exercise of this Warrant and payment of the Purchase
Price, and in any event within ten (10) days thereafter, the Company, at its
expense, will cause to be issued in the name of and delivered to the holder
hereof a certificate or certificates for the number of fully paid and non-
assessable shares or other securities or property to which such holder shall be
entitled upon such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash in an amount determined in accordance
with Paragraph 3.9 hereof. The Company agrees that the shares so purchased
shall be deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to
prevent dilution of the right granted hereunder, the Purchase Price shall be
subject to adjustment from time to time in accordance with this Paragraph 3.
Upon each adjustment of the Purchase Price pursuant to this Paragraph 3, the
registered Holder of this Warrant shall thereafter be entitled to acquire upon
exercise, at the Purchase Price resulting from such adjustment, the number of
shares of the Company's Common Stock obtainable by multiplying the Purchase
Price in effect immediately prior to such adjustment by the number of shares of
the Company's Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Purchase Price resulting from such
adjustment.
3.1. Adjustment for Issue or Sale of Common Stock at Less than
---------------------------------------------------------
Purchase Price. Except as provided in Paragraph 3.2 or 3.5 below, if and
- --------------
whenever on or after the date of issuance hereof the Company shall issue or
sell, or shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be
deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than the Purchase Price in effect immediately prior
to the time of such issue or sale, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Purchase Price then in effect,
plus (y) the consideration, if any, received by the Company upon
consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering Transaction
plus (y) the number of shares of Common Stock issued (or deemed to be
issued in accordance with subparagraphs 3.1(1) to (9)) in connection with
the Triggering Transaction.
For purposes of this Paragraph 3, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number of
shares of the Company's
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Common Stock outstanding at such time, and (ii) the number of shares of the
Company's Common Stock deemed to be outstanding under subparagraphs 3.1(1) to
(9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, Common
Stock or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable and the price per share for which the Common Stock is issuable
upon exercise, conversion or exchange (determined by dividing (x) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise of all
such Options, plus, in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall be less than
the Purchase Price in effect immediately prior to the time of the granting
of such Option, then the total maximum amount of Common Stock issuable upon
the exercise of such Options, or, in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible Securities,
shall (as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the Company for such price
per share. No adjustment of the Purchase Price shall be made upon the
actual issue of such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the
Purchase Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued and sold by the Company for such price
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<PAGE>
per share. No adjustment of the Purchase Price shall be made upon the
actual issue of such Common Stock upon exercise of the rights to exchange
or convert under such Convertible Securities, except as otherwise provided
in subparagraph (3) below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such
change shall forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any Option
referred to in subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of
any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such
Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment
the Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right
to convert or exchange any Convertible Securities, the Purchase Price then
in effect hereunder shall forthwith be increased to the Purchase Price
which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination, never been
issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair value of such consideration
as determined in good faith by the
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<PAGE>
Board of Directors of the Company. In case any shares of Common Stock,
Options or Convertible Securities shall be issued in connection with any
merger in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion
of the net assets and business of the non-surviving corporation as shall be
attributed by the Board of Directors of the Company in good faith to such
Common Stock, Options or Convertible Securities, as the case may be.
(7) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Common Stock,
Options, or Convertible Securities, then in such case any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment
of such dividend or distribution shall be deemed to have been issued or
sold without consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them (x) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right or subscription or purchase, as the
case may be.
3.2. Dividends Not Paid Out of Earnings or Earned Surplus. In the
----------------------------------------------------
event the Company shall declare a dividend upon the Common Stock (other than a
dividend payable in Common Stock covered by subparagraph 3.1(8)) payable
otherwise than out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries (herein referred to
as "Liquidating Dividends"), then, as soon as possible after the exercise of
this Warrant, the Company shall pay to the person exercising such Warrant an
amount equal to the aggregate value at the time of such exercise of all
Liquidating Dividends (including but not limited to the Common Stock which would
have been issued at the time of such earlier exercise and all other securities
which would have been issued with respect to such Common Stock by reason of
stock splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this Paragraph 3.2, a dividend other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Company.
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<PAGE>
3.3. Subdivisions and Combinations. In case the Company shall at any
-----------------------------
time subdivide (other than by means of a dividend payable in Common Stock
covered by subparagraph 3.1(8)), its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall be proportionately increased.
3.4. Reorganization, Reclassification, Consolidation, Merger or Sale
---------------------------------------------------------------
of Assets. If any capital reorganization or reclassification of the capital
- ---------
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Company's Common Stock as would
have been received upon exercise of this Warrant at the Purchase Price then in
effect. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument mailed or delivered to
the holder of this Warrant at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase. If a purchase, tender or exchange
offer is made to and accepted by the holders of more than 50% of the outstanding
shares of Common Stock of the Company, the Company shall not effect any
consolidation, merger or sale with the person having made such offer or with any
Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holder of this Warrant shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to the
Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
3.5. No Adjustment for Exercise of Certain Options, Warrants, Etc.
------------------------------------------------------------
The provisions of this Section 3 shall not apply to any Common Stock issued,
issuable or deemed outstanding under subparagraphs 3.1(1) to (9) inclusive: (i)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries or (ii) pursuant to options, warrants and conversion
rights in existence on the date of issuance hereof.
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<PAGE>
3.6. Notices of Record Date, Etc. In the event that:
---------------------------
(1) the Company shall declare any cash dividend upon its Common
Stock, or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any subdivision
or combination of its outstanding shares of Common Stock, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in connection with such event,
the Company shall give to the holder of this Warrant:
(i) at least ten (10) days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
ten (10) days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (i) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Each such written notice shall be given by first
class mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company.
3.7. Grant, Issue or Sale of Options, Convertible Securities, or
-----------------------------------------------------------
Rights. If at any time or from time to time on or after the date of issuance
- ------
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock of the Company and such grants,
issuances or sales do not result in an adjustment of the Purchase Price under
Paragraph 3.1 hereof, then the holder of this Warrant shall be entitled to
acquire (within thirty (30) days after the later to occur of the
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<PAGE>
initial exercise date of such Purchase Rights or receipt by such holder of the
notice concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable upon
exercise of this Warrant immediately before the grant, issuance or sale of such
Purchase Rights; provided that if any Purchase Rights were distributed to
holders of Common Stock without the payment of additional consideration by such
holders, corresponding Purchase Rights shall be distributed to the exercising
holder of this Warrant as soon as possible after such exercise and it shall not
be necessary for the exercising holder of this Warrant specifically to request
delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the number of
shares of Common Stock or the amount of property which such holder could have
acquired upon such exercise at the time or times at which the Company granted,
issued or sold such expired Purchase Rights.
3.8. Adjustment by Board of Directors. If any event occurs as to
--------------------------------
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holder of this Warrant in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Purchase Price as otherwise determined pursuant to any of the
provisions of this Section 3 except in the case of a combination of shares of a
type contemplated in Paragraph 3.3 and then in no event to an amount larger than
the Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9. Fractional Shares. The Company shall not issue fractions of
-----------------
shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof.
If any fraction of a share of Common Stock would, except for the provisions of
this Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall
in lieu thereof pay to the person entitled thereto an amount in cash equal to
the current value of such fraction, calculated to the nearest one-hundredth
(1/100) of a share, to be computed (i) if the Common Stock is listed on any
national securities exchange on the basis of the last sales price of the Common
Stock on such exchange (or the quoted closing bid price if there shall have been
no sales) on the date of conversion, or (ii) if the Common Stock shall not be
listed, on the basis of the mean between the closing bid and asked prices for
the Common Stock on the date of conversion as reported by Nasdaq, or its
successor, and if there are not such closing bid and asked prices, on the basis
of the fair market value per share as determined by the Board of Directors of
the Company.
3.10. Officers' Statement as to Adjustments. Whenever the Purchase
-------------------------------------
Price shall be adjusted as provided in Section 3 hereof, the Company shall
forthwith file at each office designated
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for the exercise of this Warrant, a statement, signed by the Chairman of the
Board, the President, any Vice President or Treasurer of the Company, showing in
reasonable detail the facts requiring such adjustment and the Purchase Price
that will be effective after such adjustment. The Company shall also cause a
notice setting forth any such adjustments to be sent by mail, first class,
postage prepaid, to the record holder of this Warrant at its address appearing
on the stock register. If such notice relates to an adjustment resulting from an
event referred to in Paragraph 3.6, such notice shall be included as part of the
notice required to be mailed and published under the provisions of Paragraph 3.6
hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of
its charter or through reorganization, consolidation, merger, dissolution, sale
of assets or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Common
Stock as from time to time shall be issuable upon the exercise of this Warrant
and all other similar Warrants at the time outstanding. All of the shares of
Common Stock issuable upon exercise of this Warrant, when issued and delivered
in accordance with the terms hereof, will be duly authorized, validly issued,
fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. REGISTRATION RIGHTS. All of the provisions of Article V -
"Registration Rights" in the Preferred Stock Purchase Agreement dated as of
September 12, 1996 between the Company and the Purchaser (the "Series A Purchase
Agreement") shall apply equally to the shares
10
<PAGE>
issuable upon exercise of this Warrant and any similar Warrants and each
reference in the Series A Purchase Agreement to "Registrable Shares" shall mean
the Registrable Shares as defined in that agreement and the shares issuable upon
exercise of this Warrant and any similar Warrants, collectively as a single
class.
9. NEGOTIABILITY. This Warrant is issued upon the following terms,
to all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof, title to
this Warrant may be transferred by endorsement (by the holder hereof executing
the form of assignment at the end hereof including guaranty of signature) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery. Absent an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
disposition of this Warrant or the shares of Common Stock issued or issuable
upon exercise hereof, the holder will not sell or transfer any or all of such
Warrant or shares, as the case may be, without first providing the Company with
an opinion of counsel (which may be counsel for the Company) to the effect that
such sale or transfer will be exempt from the registration and prospectus
delivery requirements of the Act. Each certificate representing shares of Common
Stock issued pursuant to this Warrant, unless at the same time of exercise such
Warrant Shares are registered under the Act, shall bear a legend in
substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY BE TRANSFERRED OR
RESOLD ONLY IN COMPLIANCE WITH SUCH SECURITIES LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a certificate issued upon completion of
a distribution under a registration statement covering the securities
represented shall also bear such legend unless, in the opinion of counsel to the
Company, the securities represented thereby may be transferred as contemplated
by such holder without violation of the registration requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner
hereof for all purposes without being affected by any notice to the contrary.
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(d) Prior to the exercise of this Warrant, the holder hereof shall not
be entitled to any rights of a shareholder of the Company with respect to shares
for which this Warrant shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Common Stock in a name other than that of the
registered holder of this Warrant or to issue or deliver any certificates for
Common Stock upon the exercise of this Warrant until any and all such taxes and
charges shall have been paid by the holder of this Warrant or until it has been
established to the Company's satisfaction that no such tax or charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is
issued and delivered by the Company on the basis of the following:
(a) Authorization and Delivery. This Warrant has been duly
--------------------------
authorized and executed by the Company and when delivered will be the valid and
binding obligation of the Company enforceable in accordance with its terms;
(b) Warrant Shares. The shares of Common Stock to be issued
--------------
pursuant to this Warrant have been duly authorized and reserved for issuance by
the Company and, when issued and paid for in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) Rights and Privileges. The rights, preferences, privileges
---------------------
and restrictions granted to or imposed upon such shares of Common Stock and the
holders thereof are as set forth herein and in the Company's Articles of
Incorporation, and in the Common Stock and Warrant Purchase Agreement, true and
complete copies of which have been delivered to the original warrant holder; and
(d) No Inconsistency. The execution and delivery of this Warrant
----------------
are not, and the issuance of the shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof will not be, inconsistent with the
Company's Articles of Incorporation or by-laws, do not and will not contravene
any law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with the taking of any
action in respect of or by, any Federal, state or local government authority or
agency or other person.
12
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11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The holder hereby represents and warrants to the Company that it
has substantial knowledge, skill and experience in making investment decisions
of the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that it is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for its own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by it for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The holder represents and warrants that it is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock of the Company that may be subscribed for and purchased hereunder.
13. MAILING OF NOTICES. All notices and other communications from
the Company to the holder of this Warrant shall be mailed by first-class
certified mail, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing.
14. HEADINGS. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13
<PAGE>
16. GOVERNING LAW. This warrant shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
VERTICALNET, INC.
By:_______________________________
Name:
Title:
Dated: November 25, 1998
Attest:
_______________________
ACCEPTED AS OF THE DATE HEREOF:
PROGRESS CAPITAL, INC.
By:_______________________________
Name:
Title:
14
<PAGE>
[To be signed only upon exercise of Warrant]
To ___________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______ shares of Common Stock of ________________________
and herewith makes payment of $_______________ therefor, and requests that the
certificates for such shares be issued in the name of, and be delivered to
_________________________________________, whose address is
_______________________________________________.
Dated: _____________
------------------------------------
- ------------------------------------------
By_______________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
_________________________________________
_________________________________________
15
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto_______________________________________ the right represented by the within
Warrant to purchase the___________________________ shares of the Common Stock of
______________________________________________ to which the within Warrant
relates, and appoints _________________________________________________ attorney
to transfer said right on the books of______________________ with full power of
substitution in the premises.
By________________________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
_________________________________________
_________________________________________
In the presence of
___________________________
Signature Guarantee
16
<PAGE>
EXHIBIT 10.10
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN
A TRANSACTION WHICH QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE ACT AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
DATE: NOVEMBER 25, 1998 WARRANT TO PURCHASE
_______ SHARES OF
COMMON STOCK
VERTICALNET, INC.
COMMON STOCK PURCHASE WARRANT
VerticalNet, Inc., a Pennsylvania corporation (the "Company"), hereby
certifies that, for value received, _________________ (the "holder"), or
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company, at any time and from time to time during the period beginning on the
earlier of (a) the effective date of the registration statement for an
underwritten public offering of the Company's common stock, par value $.01 per
share, (b) the closing date of the next round of equity financing in the Company
raising not less than $5,000,000 from third party investors other than holder
(the "Next Round Financing") and (c) May 31, 1999, and ending on November 24,
2008, an aggregate of _____________ (____) fully paid and non-assessable shares
of the common stock, par value $.01 per share, of the Company at the "Purchase
Price" (as hereinafter defined), subject to the provisions of Paragraph 3
hereof. "Purchase Price" shall mean (x) if either of the transactions specified
in clauses (a) and (b) above occur before May 31, 1999, the price per share paid
for shares of common stock, par value $.01 per share, of the Company in such
transaction (before underwriting discounts and commissions) or (y) if neither of
the events specified in clauses (a) and (b) above occur before May 31, 1999,
$1.80 per share. "Common Stock" shall mean, unless the context otherwise
requires, the stock or other securities or property at the time deliverable upon
the exercise of this Warrant. Notwithstanding the foregoing, the Purchase Price
and the number and character of shares issuable under this Warrant are subject
to adjustment as set forth in Paragraph 3. This Warrant is herein called the
"Warrant."
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant
shall be exercised by the holder hereof surrendering this Warrant, with the form
of subscription at the end hereof duly executed by such holder, to the Company
at its office at Two Walnut Grove Drive, Suite 150, Horsham, Pennsylvania 19044,
or such other address as the Company may specify by written notice to the
registered holder hereof, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the Purchase Price
multiplied by the number of shares being purchased pursuant to such exercise of
the Warrant.
<PAGE>
1.1 Partial Exercise. This Warrant may be exercised for less than
----------------
the full number of shares of Common Stock, in which case the number of shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon any such partial exercise, the Company at its expense will forthwith issue
to the holder hereof a new Warrant or Warrants of like tenor calling for the
number of shares of Common Stock as to which rights have not been exercised,
such Warrant or Warrants to be issued in the name of the holder hereof or his
nominee (upon payment by such holder of any applicable transfer taxes).
1.2. Net Issue Exercise.
------------------
(1) In lieu of exercising this Warrant, holder may elect to
receive shares equal to the value of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with notice of such election in which event the Company shall issue to
holder that number of shares of the Company's Common Stock computed using the
following formula:
X = Y(A-B)
------
A
Where
X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant
A = the fair market value of one share of the Company's Common Stock.
B = the Purchase Price (as adjusted to the date of such
calculations).
(2) For purposes of this Section, the fair market value of one
share of the Company's Common Stock shall be based on the average of the closing
bid and asked prices of the Summary or the closing price quoted in the Over-The-
Counter Market Summary or the closing price quoted on any exchange on which the
Common Stock is listed, whichever is applicable, as published in the Eastern
Edition of The Wall Street Journal for the ten trading days prior to the date of
determination of fair market value. If the Common Stock is not traded Over-The-
Counter or on an exchange, the fair market value of the Company's Common Stock
shall be the price per share which the Company could obtain from a willing buyer
for shares sold by the Company from authorized but unissued shares, as such
price shall be agreed by the Company and the holder.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in any
event within ten (10) days thereafter, the Company, at its expense, will cause
to be issued in the name
2
<PAGE>
of and delivered to the holder hereof a certificate or certificates for the
number of fully paid and non-assessable shares or other securities or property
to which such holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount determined in accordance with Paragraph 3.9 hereof. The Company agrees
that the shares so purchased shall be deemed to be issued to the holder hereof
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such shares
as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to prevent
dilution of the right granted hereunder, the Purchase Price shall be subject to
adjustment from time to time in accordance with this Paragraph 3. Upon each
adjustment of the Purchase Price pursuant to this Paragraph 3, the registered
Holder of this Warrant shall thereafter be entitled to acquire upon exercise, at
the Purchase Price resulting from such adjustment, the number of shares of the
Company's Common Stock obtainable by multiplying the Purchase Price in effect
immediately prior to such adjustment by the number of shares of the Company's
Common Stock acquirable immediately prior to such adjustment and dividing the
product thereof by the Purchase Price resulting from such adjustment.
3.1. Adjustment for Issue or Sale of Common Stock at Less than
---------------------------------------------------------
Purchase Price. Except as provided in Paragraph 3.2 or 3.5 below, if and
- --------------
whenever on or after the date of issuance hereof the Company shall issue or
sell, or shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be
deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than the Purchase Price in effect immediately prior
to the time of such issue or sale, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately prior to
such Triggering Transaction by the Purchase Price then in effect, plus (y) the
consideration, if any, received by the Company upon consummation of such
Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering Transaction
plus (y) the number of shares of Common Stock issued (or deemed to be
issued in accordance with subparagraphs 3.1(1) to (9)) in connection with
the Triggering Transaction.
For purposes of this Paragraph 3, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number
of shares of the Company's Common Stock outstanding at such time, and (ii)
the number of shares of the Company's Common Stock deemed to be outstanding
under subparagraphs 3.1(1) to (9), inclusive, at such time.
3
<PAGE>
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable and
the price per share for which the Common Stock is issuable upon exercise,
conversion or exchange (determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall be less than
the Purchase Price in effect immediately prior to the time of the granting
of such Option, then the total maximum amount of Common Stock issuable upon
the exercise of such Options, or, in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible Securities,
shall (as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the Company for such price
per share. No adjustment of the Purchase Price shall be made upon the
actual issue of such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue (whether
directly or by assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by dividing (x) the
total amount received or receivable by the Company as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Purchase Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to have
been issued and sold by the Company for such price per share. No adjustment
of the Purchase Price shall be made upon the actual issue of such Common
Stock upon exercise
4
<PAGE>
of the rights to exchange or convert under such Convertible Securities,
except as otherwise provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such
change shall forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any Option
referred to in subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of
any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such
Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment
the Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Purchase Price then in
effect hereunder shall forthwith be increased to the Purchase Price which
would have been in effect at the time of such expiration or termination had
such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair value of such consideration
as determined in good faith by the Board of Directors of the Company. In
case any shares of Common Stock, Options or Convertible Securities shall be
issued in connection with any merger in
5
<PAGE>
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as shall be attributed
by the Board of Directors of the Company in good faith to such Common
Stock, Options or Convertible Securities, as the case may be.
(7) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Common Stock,
Options, or Convertible Securities, then in such case any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment
of such dividend or distribution shall be deemed to have been issued or
sold without consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them (x) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or
the date of the granting of such right or subscription or purchase, as the
case may be.
3.2. Dividends Not Paid Out of Earnings or Earned Surplus. In the
----------------------------------------------------
event the Company shall declare a dividend upon the Common Stock (other than a
dividend payable in Common Stock covered by subparagraph 3.1(8)) payable
otherwise than out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries (herein referred to
as "Liquidating Dividends"), then, as soon as possible after the exercise of
this Warrant, the Company shall pay to the person exercising such Warrant an
amount equal to the aggregate value at the time of such exercise of all
Liquidating Dividends (including but not limited to the Common Stock which would
have been issued at the time of such earlier exercise and all other securities
which would have been issued with respect to such Common Stock by reason of
stock splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this Paragraph 3.2, a dividend other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Company.
3.3. Subdivisions and Combinations. In case the Company shall at any
-----------------------------
time subdivide (other than by means of a dividend payable in Common Stock
covered by
6
<PAGE>
subparagraph 3.1(8)), its outstanding shares of Common Stock into a greater
number of shares, the Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall be proportionately increased.
3.4. Reorganization, Reclassification, Consolidation, Merger or Sale
---------------------------------------------------------------
of Assets. If any capital reorganization or reclassification of the capital
- ---------
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Company's Common Stock as would
have been received upon exercise of this Warrant at the Purchase Price then in
effect. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument mailed or delivered to
the holder of this Warrant at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase. If a purchase, tender or exchange
offer is made to and accepted by the holders of more than 50% of the outstanding
shares of Common Stock of the Company, the Company shall not effect any
consolidation, merger or sale with the person having made such offer or with any
Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holder of this Warrant shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to the
Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
3.5. No Adjustment for Exercise of Certain Options, Warrants, Etc.
------------------------------------------------------------
The provisions of this Section 3 shall not apply to any Common Stock issued,
issuable or deemed outstanding under subparagraphs 3.1(1) to (9) inclusive: (i)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries or (ii) pursuant to options, warrants and conversion
rights in existence on the date of issuance hereof.
3.6. Notices of Record Date, Etc. In the event that:
---------------------------
7
<PAGE>
(1) the Company shall declare any cash dividend upon its Common
Stock, or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights, or
(4) there shall be any capital reorganization or reclassification
of the capital stock of the Company, including any subdivision or
combination of its outstanding shares of Common Stock, or consolidation or
merger of the Company with, or sale of all or substantially all of its
assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least ten (10) days' prior written notice of the date on which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least ten (10) days' prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (i) shall
also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause
(ii) shall also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such
holder as shown on the books of the Company.
3.7. Grant, Issue or Sale of Options, Convertible Securities, or
-----------------------------------------------------------
Rights. If at any time or from time to time on or after the date of issuance
- ------
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock of the Company and such grants,
issuances or sales do not result in an adjustment of the Purchase Price under
Paragraph 3.1 hereof, then the holder of this Warrant shall be entitled to
acquire (within thirty (30) days
8
<PAGE>
after the later to occur of the initial exercise date of such Purchase Rights or
receipt by such holder of the notice concerning Purchase Rights to which such
holder shall be entitled under Paragraph 3.6) and upon the terms applicable to
such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately before the grant, issuance or
sale of such Purchase Rights; provided that if any Purchase Rights were
distributed to holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights shall be
distributed to the exercising holder of this Warrant as soon as possible
after such exercise and it shall not be necessary for the exercising holder
of this Warrant specifically to request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said thirty (30) day period,
the number of shares of Common Stock or the amount of property which such
holder could have acquired upon such exercise at the time or times at which
the Company granted, issued or sold such expired Purchase Rights.
3.8. Adjustment by Board of Directors. If any event occurs as to
--------------------------------
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holder of this Warrant in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Purchase Price as otherwise determined pursuant to any of the
provisions of this Section 3 except in the case of a combination of shares of a
type contemplated in Paragraph 3.3 and then in no event to an amount larger than
the Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9. Fractional Shares. The Company shall not issue fractions of
-----------------
shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof.
If any fraction of a share of Common Stock would, except for the provisions of
this Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall
in lieu thereof pay to the person entitled thereto an amount in cash equal to
the current value of such fraction, calculated to the nearest one-hundredth
(1/100) of a share, to be computed (i) if the Common Stock is listed on any
national securities exchange on the basis of the last sales price of the Common
Stock on such exchange (or the quoted closing bid price if there shall have been
no sales) on the date of conversion, or (ii) if the Common Stock shall not be
listed, on the basis of the mean between the closing bid and asked prices for
the Common Stock on the date of conversion as reported by Nasdaq, or its
successor, and if there are not such closing bid and asked prices, on the basis
of the fair market value per share as determined by the Board of Directors of
the Company.
9
<PAGE>
3.10. Officers' Statement as to Adjustments. Whenever the
-------------------------------------
Purchase Price shall be adjusted as provided in Section 3 hereof, the Company
shall forthwith file at each office designated for the exercise of this Warrant,
a statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Purchase Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the record
holder of this Warrant at its address appearing on the stock register. If such
notice relates to an adjustment resulting from an event referred to in Paragraph
3.6, such notice shall be included as part of the notice required to be mailed
and published under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company
shall at all times reserve and keep available out of its authorized but unissued
stock, solely for the issuance and delivery upon the exercise of this Warrant
and other similar Warrants, such number of its duly authorized shares of Common
Stock as from time to time shall be issuable upon the exercise of this Warrant
and all other similar Warrants at the time outstanding. All of the shares of
Common Stock issuable upon exercise of this Warrant, when issued and delivered
in accordance with the terms hereof, will be duly authorized, validly issued,
fully-paid and non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
10
<PAGE>
8. REGISTRATION RIGHTS. The shares of Common Stock issuable upon
exercise of this Warrant is subject to the registration rights set forth in that
certain Registration Rights Agreement dated as of November 25, 1998.
9. NEGOTIABILITY. This Warrant is issued upon the following terms, to
all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof, title to
this Warrant may be transferred by endorsement (by the holder hereof executing
the form of assignment at the end hereof including guaranty of signature) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery. Absent an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
disposition of this Warrant or the shares of Common Stock issued or issuable
upon exercise hereof, the holder will not sell or transfer any or all of such
Warrant or shares, as the case may be, without first providing the Company with
an opinion of counsel (which may be counsel for the Company) to the effect that
such sale or transfer will be exempt from the registration and prospectus
delivery requirements of the Act. Each certificate representing shares of
Common Stock issued pursuant to this Warrant, unless at the same time of
exercise such Warrant Shares are registered under the Act, shall bear a legend
in substantially the following form on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY BE
TRANSFERRED OR RESOLD ONLY IN COMPLIANCE WITH SUCH SECURITIES
LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a certificate issued upon completion of
a distribution under a registration statement covering the securities
represented shall also bear such legend unless, in the opinion of counsel to the
Company, the securities represented thereby may be transferred as contemplated
by such holder without violation of the registration requirements of the Act.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner
hereof for all purposes without being affected by any notice to the contrary.
11
<PAGE>
(d) Prior to the exercise of this Warrant, the holder hereof shall not
be entitled to any rights of a shareholder of the Company with respect to shares
for which this Warrant shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any transfer involved
in the transfer or delivery of this Warrant or the issuance or conversion or
delivery of certificates for Common Stock in a name other than that of the
registered holder of this Warrant or to issue or deliver any certificates for
Common Stock upon the exercise of this Warrant until any and all such taxes and
charges shall have been paid by the holder of this Warrant or until it has been
established to the Company's satisfaction that no such tax or charge is due.
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is issued
and delivered by the Company on the basis of the following:
(a) Authorization and Delivery. This Warrant has been duly authorized
--------------------------
and executed by the Company and when delivered will be the valid and binding
obligation of the Company enforceable in accordance with its terms;
(b) Warrant Shares. The shares of Common Stock to be issued pursuant
--------------
to this Warrant have been duly authorized and reserved for issuance by the
Company and, when issued and paid for in accordance with the terms hereof, will
be validly issued, fully paid and nonassessable;
(c) Rights and Privileges. The rights, preferences, privileges and
---------------------
restrictions granted to or imposed upon such shares of Common Stock and the
holders thereof are as set forth herein and in the Company's Articles of
Incorporation, and in the Common Stock and Warrant Purchase Agreement, true and
complete copies of which have been delivered to the original warrant holder; and
(d) No Inconsistency. The execution and delivery of this Warrant are
----------------
not, and the issuance of the shares of Common Stock upon exercise of this
Warrant in accordance with the terms hereof will not be, inconsistent with the
Company's Articles of Incorporation or by-laws, do not and will not contravene
any law, governmental rule or regulation, judgment or order applicable to the
Company, and do not and will not contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with the taking of any
action in respect of or by, any Federal, state or local government authority or
agency or other person.
11. REPRESENTATIONS AND WARRANTIES OF HOLDER.
12
<PAGE>
(a) The holder hereby represents and warrants to the Company that it
has substantial knowledge, skill and experience in making investment decisions
of the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that it is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for its own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by it for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The holder represents and warrants that it is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The holder understands that (i) this Warrant and the shares
issuable upon exercise of this Warrant have not been registered under the Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Act, (ii) this Warrant and the shares issuable upon exercise
of this Warrant must be held indefinitely unless a subsequent disposition
thereof is registered under the Act and applicable state securities laws or is
exempt from such registration (and, upon request, evidence satisfactory to the
Company is provided by such holder of the availability of such exemptions,
including, upon request, the delivery to the Company of opinions of counsel to
such holder, which opinions and counsel are satisfactory to the Company), and
(iii) this Warrant and the shares issuable upon exercise of this Warrant may
bear a legend to such effect.
12. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock of the Company that may be subscribed for and purchased hereunder.
13. MAILING OF NOTICES. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first-class certified
mail, postage prepaid, to the address furnished to the Company in writing by the
last holder of this Warrant who shall have furnished an address to the Company
in writing.
14. HEADINGS. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
15. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13
<PAGE>
16. GOVERNING LAW. This warrant shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
VERTICALNET, INC.
By:_______________________________
Name:
Title:
Dated: November 25, 1998
Attest:
__________________________
ACCEPTED AS OF THE DATE HEREOF:
_________________________
By:_______________________________
Name:
Title:
14
<PAGE>
[To be signed only upon exercise of Warrant]
To ___________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______ shares of Common Stock of _____________ and herewith
makes payment of $_______ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to ___________, whose address
is _____________________.
Dated: _____________
________________________________
By______________________________
(Signature must conform in all
respects to name of Holder as
specified on the face of the
Warrant)
Address:
_______________________________
_______________________________
15
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________ the right represented by the within Warrant
to purchase the ________ shares of the Common Stock of ____________________ to
which the within Warrant relates, and appoints___________ attorney to transfer
said right on the books of _____________________ with full power of substitution
in the premises.
Dated: _____________
_______________________________________
By_______________________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)
Address:
_________________________________________
_________________________________________
In the presence of
_________________________________
Signature Guarantee
16
<PAGE>
EXHIBIT 10.11
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION
OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE BORROWER, TO
THE EFFECT THAT THE PROPOSED SALE, ASSIGNMENT, TRANSFER, OR
DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE
ACT.
CONVERTIBLE NOTE
(VERTICALNET, INC.)
$____________ November 25, 1998
In consideration of the loan (hereinafter referred to as a "Loan")
______________, a ______________ (the "Lender"), has made to VerticalNet, Inc.,
a Pennsylvania corporation (the "Borrower"), and for value received, the
Borrower hereby promises to pay to the order of the Lender, at the Lender's
office located at ________________, or at such other place in the continental
United States as the Lender may designate in writing, in lawful money of the
United States, and in immediately available funds, the principal sum of
_________Dollars ($________).
1. Maturity Date. The unpaid principal balance of this Convertible Note
-------------
(this "Note") shall be paid on the earlier of (i) May 31, 1999 (the "Due Date"),
(ii) the closing of the next round of equity financing in the Borrower raising
not less than $5,000,000 from third party investors other than the Lender (the
"Next Round Financing") and (iii) the effective date of the registration
statement for an underwritten public offering of Borrower's Common Stock (as
defined below)(the "IPO").
2. Interest. The Borrower hereby further promises to pay to the order of
--------
the Lender interest on the outstanding principal amount from the date hereof, at
an annual rate equal to the announced prime rate of pnc Bank, N.A. (the "Prime
Rate"). Such interest rate shall be changed when and as the Prime Rate changes.
In addition, the Borrower shall pay on demand interest on any overdue payment of
principal and interest (to the extent legally enforceable) at the fluctuating
Prime Rate plus three percent (3%).
Interest shall be payable when the unpaid principal balance of the Note is
paid.
All payments made on this Note shall be applied, at the option of the
Lender, first to late charges and collection costs, if any, then to accrued
interest and then to principal. Interest
<PAGE>
payable hereunder shall be calculated for actual days elapsed on the basis of a
360-day year. Accrued and unpaid interest shall be due and payable upon maturity
of this Note. After maturity or in the event of default, interest shall continue
to accrue on the Note at the rate set forth above and shall be payable on demand
of the Lender.
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by the Borrower at any time shall be applied to the unpaid balance
of any outstanding principal of this Note.
3. Conversion. Subject to and in compliance with the provisions of this
----------
Section 3, prior to the payment of the outstanding principal amount of this
Note, the Lender may, convert the outstanding principal amount of this Note, in
whole or in part, into fully paid nonassessable shares of the Borrower's Common
Stock, par value $.01 per share (the "Common Stock"), at the Conversion Price in
effect on the date of conversion.
The Lender shall only be entitled to convert this Note into Common Stock
one time, upon the earliest of the following events to occur. The Lender shall
only have the right to convert this Note pursuant to clause (iii) below, if
neither the IPO or the Next Round Financing has occurred.
(i) If, prior to the Due Date, the Borrower files a registration statement
for an IPO, the Borrower shall, within five business days of the initial filing
of such registration statement, send written notice to the Lender of such filing
(the "Filing Notice"). The Lender shall, within 30 days from the date of receipt
of the Filing Notice (but in any event no later than the printing of the red
herring prospectus for the IPO), determine whether or not it will convert the
outstanding principal amount of this Note, in whole or in part, into Common
Stock in accordance with this Section 3 and send written notice to the Borrower
of such election. If, upon the expiration of such 30-day period, the Lender has
not elected to convert this Note into Common Stock or has not notified the
Borrower of its election, the Lender shall forfeit its right to convert this
Note into Common Stock. If the Lender has elected to convert this Note into
Common Stock pursuant to this paragraph (i), the conversion shall become
effective immediately prior to the effectiveness of the registration statement
for the IPO.
(ii) If, prior to the Due Date, the Borrower has scheduled the closing of
the Next Round of Financing, at least 20 days prior to the closing of the Next
Round of Financing, the Borrower shall send written notice to the Lender of such
closing (the "Closing Notice"). The Lender shall, within 20 days from the date
of receipt of the Closing Notice, determine whether or not it will convert the
outstanding principal amount of this Note, in whole or in part, into Common
Stock in accordance with this Section 3 and send written notice to the Borrower
of such election. If, upon the expiration of such 20-day period, the Lender has
not elected to convert this Note into Common Stock or has not notified the
Borrower of its election, the Lender shall forfeit its right to convert this
Note into Common Stock. If the Lender has elected to convert this Note
2
<PAGE>
into Common Stock pursuant to this paragraph (ii), the conversion shall become
effective immediately prior to the closing of the Next Round of Financing.
(iii) If the IPO or the Next Round Financing has not occurred prior to the
Due Date, the Lender shall have the right convert the outstanding principal
amount of this Note, in whole or in part, into Common Stock in accordance with
this Section 3 by giving written notice to the Borrower at least two days prior
to the Due Date of its intention to convert this Note into Common Stock.
The "Conversion Price" at which Common Stock shall be issuable upon
conversion of this Note shall equal either (i) the price per share of the Common
Stock in the IPO, (ii) the price per share of Common Stock in the Next Round of
Financing or (iii) if either the IPO or Next Round Financing does not occur
prior to the Due Date, $1.80, whichever is applicable; provided, however, that
-------- -------
the Conversion Price shall be subject to adjustment as follows:
(a) In the event the Borrower should at any time or from time to
time after the date hereof fix a record date for the effectuation of a
split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be increased in
proportion to such increase of outstanding shares determined in accordance
with paragraph 4(c).
(b) If the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding
shares of Common Stock, then following the record date of such combination,
the Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of this Note shall be
decreased in proportion to such decrease in outstanding shares.
(c) In the event of any change in the number of shares of Common
Stock deliverable or any increase in the consideration payable to the
Borrower upon exercise of such options or rights or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but
not limited to, a change resulting from the anti-dilution provisions
thereof, the Conversion Price obtained with respect to the adjustment which
was made upon the issuance of such options, rights or securities, and any
3
<PAGE>
subsequent adjustments based thereon, shall be recomputed to reflect such
change, but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the exercise of any
such options or rights or the conversion or exchange of such securities.
To exercise the conversion privilege, the Lender shall surrender this Note,
together with a written conversion notice to the Borrower at its principal
office. This Note or portion thereof shall be deemed to have been converted
immediately prior to the close of business on the date of receipt of such Note
and notice by the Borrower, even if the Borrower's stock transfer books are on
that date closed, and the Lender, or the nominee or nominees of such Lender,
shall be treated for all purposes as the record holder of the shares of Common
Stock deliverable upon such conversion as of the close of business on such date.
Promptly after receipt by the Borrower of this Note and notice, the Borrower
shall issue and deliver, at its expense, to the Lender, or to the nominee or
nominees of such Lender, a certificate or certificates for the number of shares
of its Common Stock due on such conversion. Interest shall accrue on the unpaid
principal amount of this Note converted to the date of conversion, and the
Borrower shall pay such interest at the time of conversion in cash; provided,
--------
however, that in the case of a conversion of only a portion of the outstanding
- -------
principal amount of this Note, the Borrower shall execute and deliver to the
Holder (or its nominee or nominees), at the expense of the Borrower, a
replacement note in a principal amount equal to the unconverted portion of such
Note and dated and bearing interest from the date to which interest has been
paid on such Note or dated the date of such Note if no interest has been paid
thereon.
No fractional shares of Common Stock shall be issued upon conversion of
this Note. Instead of any fractional share of Common Stock which would otherwise
be issuable upon conversion of this Note, the Borrower shall pay a cash
adjustment in respect of such fractional interest. The Lender, by its
acceptance thereof, expressly waives any right to receive any fractional share
upon conversion of the Note.
5. Events of Default. An event of default hereunder shall consist of:
-----------------
(i) a default in the payment by the Borrower to the Lender of
principal or interest under this Note as and when the same shall become due
and payable;
(ii) an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money ("Indebtedness"), beyond
any applicable notice and/or grace period (a "Cross-Default") and the
aggregate principal amount of such Indebtedness to which such Cross-Default
relates, together with any such other Indebtedness in which there is a
Cross-Default, exceeds $250,000;
(iii) institution of any proceeding by or against the Borrower under
any present or future bankruptcy or insolvency statute or similar law and,
if involuntary, if the same are not stayed or dismissed within sixty(60)
days, or the Borrower's assignment for the benefit
4
<PAGE>
of creditors or the appointment of a receiver, trustee, conservator or
other judicial representative for the Borrower or the Borrower's property
or the Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall accrue on
the outstanding balance of this Note at the Prime Rate plus three percent (3%),
the entire unpaid principal amount of this Note and all unpaid interest accrued
thereon shall, at the sole option of the Lender, without notice, become
immediately due and payable, and the Lender shall thereupon have all the rights
and remedies provided hereunder or now or hereafter available at law or in
equity.
6. Summary Proceedings. Any action, suit or proceeding where the amount
-------------------
in controversy as to at least one party, exclusive of interest and costs,
exceeds $1,000,000 ("Summary Proceeding"), arising out of or relating to this
Note, or the breach, termination or validity thereof, shall be litigated
exclusively in the Superior Court of the State of Delaware (the "Delaware
Superior Court") as a summary proceeding pursuant to Rules 124-131 of the
Delaware Superior Court, or any successor rules (the "Summary Proceeding
Rules"). Each of the parties hereto hereby irrevocably and unconditionally (i)
submits to the jurisdiction of the Delaware Superior Court for any Summary
Proceeding, (ii) agrees not to commence any Summary Proceeding except in the
Delaware Superior Court, (iii) waives, and agrees not to plead or to make, any
objection to the venue of any Summary Proceeding in the Delaware Superior Court,
(iv) waives, and agrees not to plead or to make, any claim that any Summary
Proceeding brought in the Delaware Superior Court has been brought in an
improper or otherwise inconvenient forum, (v) waives, and agrees not to plead or
to make, any claim that the Delaware Superior Court lacks personal jurisdiction
over it, (vi) waives its right to remove any Summary Proceeding to the federal
courts except where such courts are vested with sole and exclusive jurisdiction
by statute and (vii) understands and agrees that it shall not seek a jury trial
or punitive damages in any Summary Proceeding based upon or arising out of or
otherwise related to this Note and waives any and all rights to any such jury
trial or to seek punitive damages.
In the event any action, suit or proceeding where the amount in controversy
as to at least one party, exclusive of interest and costs, does not exceed
$1,000,000 (a "Proceeding"), arising out of or relating to this Note or the
breach, termination or validity thereof is brought, the parties to such
Proceeding agree to make application to the Delaware Superior Court to proceed
under the Summary Proceeding Rules. Until such time as such application is
rejected, such Proceeding shall be treated as a Summary Proceeding and all of
the foregoing provisions of this Section relating to Summary Proceedings shall
apply to such Proceeding.
If a Summary Proceeding is not available to resolve any dispute hereunder,
the controversy or claim shall be settled by arbitration conducted on a
confidential basis, under the U.S. Arbitration Act, if applicable, and the then
current Commercial Arbitration Rules of the American Arbitration Association
(the "Association") strictly in accordance with the terms of this Note and the
substantive law of the State of Delaware. The arbitration shall be conducted at
the
5
<PAGE>
Association's regional office located closest to the Lender's principal place of
business by three arbitrators, at least one of whom shall be knowledgeable in
general business matters and one of whom shall be an attorney. Judgment upon the
arbitrators' award may be entered and enforced in any court of competent
jurisdiction. Neither party shall institute a proceeding hereunder unless at
least 60 days prior thereto such party shall have given written notice to the
other party of its intent to do so.
Neither party shall be precluded hereby from securing equitable remedies in
courts of any jurisdiction, including, but not limited to, temporary restraining
orders and preliminary injunctions to protect its rights and interests but such
remedies shall not be sought as a means to avoid or stay arbitration or a
Summary Proceeding.
7. Waivers. The Borrower hereby waives presentment, demand, protest and
-------
notice of dishonor and protest, and also waives all other exemptions; and agrees
that extension or extensions of the time of payment of this Note or any
installment or part thereof may be made before, at or after maturity by
agreement by the Lender. Upon default hereunder the Lender shall have the right
to offset the amount owed by the Borrower against any amounts owed by the Lender
in any capacity to the Borrower, whether or not due, and the Lender shall be
deemed to have exercised such right of offset and to have made a charge against
any such account or amounts immediately upon the occurrence of an event of
default hereunder even though such charge is made or entered on the books of the
Lender subsequent thereto. The Borrower shall pay to the Lender, upon demand,
all costs and expenses, including, without limitation, attorneys' fees and legal
expenses, that may be incurred by the Lender in connection with the enforcement
of this Note.
8. Registration Rights. The shares of Common Stock issuable upon
-------------------
conversion of this Note are subject to the registration rights set forth in that
certain Registration Rights Agreement dated as of November 25, 1998.
9. Notices. Notices required to be given hereunder shall be deemed
-------
validly given (i) three business days after sent, postage prepaid, by certified
mail, return receipt requested, (ii) one business day after sent, charges paid
by the sender, by Federal Express Next Day Delivery or other guaranteed delivery
service, (iii) when sent by confirmed facsimile transmission, or (iv) when
delivered by hand:
If to the Lender: ___________________________
___________________________
___________________________
Attn: ____________________
If to the Borrower: VerticalNet, Inc.
Two Walnut Grove Drive
6
<PAGE>
Suite 150
Horsham, Pennsylvania 19044
Attn: Gene S. Godick, Vice President-Finance
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
10. Failure or Indulgence Not Waiver. Any failure by the Lender to
--------------------------------
exercise any right hereunder shall not be construed as a waiver of the right to
exercise the same or any other right at any time. No amendment to or
modification of this Note shall be binding upon the Lender unless in writing and
signed by it. Any provision hereof found to be illegal, invalid or unenforceable
for any reason whatsoever shall not affect the validity, legality or
enforceability of the remainder hereof. This Note shall apply to and bind the
successors of the Borrower and shall inure to the benefit of the Lender, its
successors and assigns.
11. Governing Law. The Note shall be governed by and interpreted in
-------------
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Borrower, by its duly authorized officer intending
to be legally bound hereby, has duly executed this Convertible Note as of the
date first written above.
VERTICALNET, INC.
By: Gene S. Godick
--------------------------------
Vice President-Finance and
Chief Financial Officer
7
<PAGE>
EXHIBIT 23.1
When the reverse stock split referred to in the last paragraph of Note 14 of
the Consolidated Financial Statements is effective, we will be in a position to
render the following report and consent.
KPMG LLP
The Board of Directors VerticalNet, Inc.:
The audits referred to in our report dated December 22, 1998, except as to
the last paragraph of Note 14 which is as of January 19, 1999, included the
related financial statement schedule for the period from July 28, 1995
(inception) to December 31, 1995, the years ended December 31, 1996 and 1997
and the nine months ended September 30, 1998, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" and "Selected Financial Data" in the
prospectus.
Philadelphia, Pennsylvania
January 21, 1999
<PAGE>
EXHIBIT 23.1A
Consent of Independent Auditors
The Board of Directors
VerticalNet Inc.:
We consent to the use of our report dated August 21, 1998, with respect to
the balance sheets of Boulder Interactive Technology Services Company as of
December 31, 1996 and 1997, and the related statements of operations,
shareholders' equity, and cash flows for the period from March 22, 1996
(inception) through December 31, 1996 and for the year ended December 31,
1997, which report is included herein and to the reference to our firm under
the heading "Experts" and "Selected Financial Data" in the prospectus.
KPMG LLP
Philadelphia, Pennsylvania
January 21, 1999
<PAGE>
EXHIBIT 23.1 B
Consent of Independent Auditors
The Board of Directors
VerticalNet Inc.:
We consent to the use of our report dated August 21, 1998, with respect to
the balance sheet of Informatrix Worldwide, Inc. as of December 31, 1997, and
the related statements of operations, shareholders' deficit, and cash flows for
the period from October 15, 1997 (inception) through December 31, 1997, which
report is included herein and to the reference to our firm under the heading
"Experts" and "Selected Financial Data" in the prospectus.
KPMG LLP
Philadelphia, Pennsylvania
January 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE COMBINED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,793,964
<SECURITIES> 0
<RECEIVABLES> 1,064,777
<ALLOWANCES> 80,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,197,252
<PP&E> 1,110,671
<DEPRECIATION> 103,565
<TOTAL-ASSETS> 9,158,244
<CURRENT-LIABILITIES> 4,075,315
<BONDS> 675,698
0
78,057
<COMMON> 26,300
<OTHER-SE> (4,708,801)
<TOTAL-LIABILITY-AND-EQUITY> 9,158,244
<SALES> 0
<TOTAL-REVENUES> 1,861,799
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,211,382
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,334,417)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,334,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,334,417)
<EPS-PRIMARY> (3.27)
<EPS-DILUTED> (3.27)
</TABLE>
