<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): August 10, 1999
Commission File Number: 000-25269
VerticalNet, Inc.
(Exact name of registrant as specified in its charter.)
Pennsylvania 23-2815834
- ------------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Dresher Road
Horsham, PA 19044
------------------------------------------
(Address of principal executive offices,
including zip code)
Registrant's telephone number, including area code: (215) 328-6100
2 Walnut Grove Drive, Suite 150
Horsham, PA 19044
------------------------------------------
(Former name or former address,
if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 10, 1999, VerticalNet, Inc. ("VerticalNet" or the "Company"), a
Pennsylvania Corporation, purchased all of the capital stock of CertiSource,
Inc. ("CertiSource"), a Texas Corporation, that provides registration services
for technical and educational training courses, as well as related training
products, consulting services and software. Certisource also uses an Internet
Web-site to provide large corporations training management services including
reporting and the coordination of private training events.
The acquisition was consummated pursuant to a an Agreement and Plan of
Merger (the "Agreement") dated August 10, 1999 among the Company, Certisource
Acquisition Co., Inc., a Delaware Corporation, Certisource, Inc., a Texas
Corporation, and Walter Rogers, Richard Talaber and Stuart Thomajan, principal
shareholders. The terms of the Agreement were negotiated on an arms-length
basis.
Pursuant to the Agreement, the consideration for the acquisition of
Certisource was $475,724 in cash and 41,856 shares of VerticalNet common stock
having a fair market value of $2,650,531. The transaction costs incurred by the
Company were approximately $125,000. The cash portion of the purchase price was
financed by proceeds from the Initial Public Offering of the Company's common
stock that was consummated in February 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements of Certisource:
Report of Independent Public Accountants
Balance Sheets
Statements of Operations
Statements of Shareholders' Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Financial Statements (unaudited):
Basis of Presentation
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Consolidated Statements of Operations
Notes to Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
2.1 Agreement and Plan of Merger by and among VerticalNet,
Inc., CertiSource Acquisition Co., Inc., CertiSource,
Inc., and Walter Rogers, Richard Talaber and Stuart
Thomajan (collectively, the "Principal Shareholders")
23.1 Consent of KPMG LLP
<PAGE>
Independent Auditors' Report
The Board of Directors
CertiSource, Inc.:
We have audited the accompanying balance sheet of CertiSource, Inc. as of
December 31, 1998, and the related statements of operations, stockholders'
deficit and cash flows for the year then ended. 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 CertiSource, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
Philadelphia, Pennsylvania
July 29, 1999, except for footnote 7,
as to which the date is August 10, 1999
<PAGE>
CertiSource, Inc.
Balance Sheets
December 31, 1998 and June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 118,359 129,373
Accounts receivable, net of allowance for doubtful accounts
of $35,000 in 1998 and $61,000 in 1999 268,118 963,904
Other current assets 1,400 5,925
------------- -----------
Total current assets 387,877 1,099,202
Property and equipment, net of accumulated depreciation of
$21,520 and $32,983, respectively (note 2) 29,733 48,758
------------- -----------
Total assets $ 417,610 1,147,960
============= ===========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 135,338 489,149
Accrued expenses 13,640 18,530
Amounts due to training providers 403,721 757,324
Deferred revenue 33,396 38,240
------------- -----------
Total liabilities 586,095 1,303,243
------------- -----------
Stockholders' deficit:
Common stock, authorized 1,000,000 shares, no par value,
1,000,000 shares issued and outstanding at
December 31, 1998 and June 30, 1999 162,954 212,954
Accumulated deficit (331,439) (368,237)
------------- -----------
Total stockholders' deficit (168,485) (155,283)
------------- -----------
Total liabilities and stockholders' deficit $ 417,610 1,147,960
============= ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CertiSource, Inc.
Statements of Operations
For the year ended December 31, 1998 and
the six months ended June 30, 1998 and 1999
<TABLE>
<CAPTION>
Six months Six months
For the year ended ended ended
December 31, June 30, June 30,
1998 1998 1999
------------------ ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ 943,940 417,264 612,028
------------------ ------------ -----------
Costs and Expenses:
Operational 469,341 202,607 171,779
Product development 189,461 1,394 77,652
Sales and marketing 351,256 139,301 236,382
General and administrative 235,661 98,683 490,078
------------------ ------------ -----------
Total expenses 1,245,719 441,985 975,891
------------------ ------------ -----------
Operating loss (301,779) (24,721) (363,863)
Other income (note 6) -- -- 327,065
------------------ ------------ -----------
Net loss $ (301,779) (24,721) (36,798)
================== ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CertiSource, Inc.
Statements of Stockholders' Deficit
For the year ended December 31, 1998 and the six months ended June 30, 1999
<TABLE>
<CAPTION>
Total
Common Accumulated stockholders'
stock deficit deficit
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance, January 1, 1998 $ -- (29,660) (29,660)
Value assigned to common stock awarded to
employee (note 5) 162,954 -- 162,954
Net loss -- (301,779) (301,779)
----------- ------------- ------------
Balance, December 31, 1998 162,954 (331,439) (168,485)
Value assigned to common stock awarded to
consultant (note 5) 50,000 -- 50,000
Net loss (unaudited) -- (36,798) (36,798)
----------- ------------- ------------
Balance, June 30, 1999 (unaudited) $ 212,954 (368,237) (155,283)
=========== ============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CertiSource, Inc.
Statements of Cash Flows
For the year ended December 31, 1998 and
the six months ended June 30, 1998 and 1999
<TABLE>
<CAPTION>
Six months Six months
For the year ended ended ended
December 31, June 30, June 30,
1998 1998 1999
------------------- -------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (301,779) (24,721) (36,798)
Adjustments to reconcile net income loss
to net cash used in operating activities:
Depreciation 20,186 4,000 11,463
Estimated value of common stock awarded
in exchange for service rendered 162,954 - 50,000
Increase (decrease) in cash due to
changes in:
Accounts receivable (107,039) (117,740) (695,786)
Other current assets 100 (17,400) (4,525)
Accounts payable 28,077 112,568 353,811
Accrued expenses 6,947 757 4,890
Amounts due to training providers 346,997 89,352 353,603
Deferred revenue (42,930) 8,823 4,844
------------- --------------- ------------------
Net cash provided by operating activities 113,513 55,639 41,502
------------- --------------- ------------------
Cash flows from investing activities:
Capital expenditures (44,582) (3,625) (30,488)
------------- --------------- ------------------
Net cash used in investing activities (44,582) (3,625) (30,488)
------------- --------------- ------------------
Net increase in cash 68,931 52,014 11,014
Cash, beginning of period 49,428 49,428 118,359
------------- --------------- ------------------
Cash, end of period $ 118,359 101,442 129,373
============= =============== ==================
Supplemental schedule of non-cash
finanacing activities:
Value of common stock transferred
in exchange for services rendered $ 162,954 - 50,000
============= =============== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CertiSource, Inc.
Notes to Financial Statements
(Information with respect to June 30, 1998 and 1999 is unaudited)
(1) Summary of Significant Accounting Policies
(a) Description of Business
CertiSource, Inc. (the Company) was incorporated in Texas on December
26, 1996. The Company provides registration services for technical and
educational training courses, as well as related training products,
consulting services and software. The Company also uses an Internet
Web-site to provide large corporations training management services
including reporting and the coordination of private training events.
(b) Revenue and Operational Expenses
The Company coordinates the registration process for training classes
provided by third parties. In these instances, the Company bills and
collects the full charge for the training class, thereby assuming
credit risk and remits a significant portion of the amount collected
to the training provider. As the Company has no direct involvement in
conducting the training class, revenue is recognized net of the
amounts due to the training provider. Revenue is deferred until the
classes are provided.
The Company also coordinates private training events. This service,
involves locating a training site, obtaining a training instructor
billing and collecting registration fees, thereby assuming credit
risk, and managing the registration process. The Company is integrally
involved in organizing the training class. In these instances, the
full amount of the participant fee for the course is recognized as
revenue when the classes are provided and costs to organize the
classes are included in operational expenses when training is
provided.
Following is a summary of revenue components for the periods covered
by the accompanying financial statements:
<TABLE>
<CAPTION>
For the Six months Six months
year ended ended ended
December 31, June 30, June 30,
1998 1998 1999
------------ ---------- ----------
<S> <C> <C> <C>
Commission revenue recognized net
for third party courses $ 542,602 195,047 380,006
Private training event revenue
recogonized gross 401,338 222,217 232,022
---------- --------- ----------
Total $ 943,940 417,264 612,028
========== ========= ==========
</TABLE>
The Company's policies regarding class cancellations follow that of
the training provider. Certain providers allow for refunds if the
cancellation occurs two weeks prior to the course date. Other
providers charge a nominal fee for cancellation. A few providers allow
the participant to cancel and register for a similar class offered in
the future at no additional charge. Since revenue is not recognized
until classes are provided to participants, course cancellations do
not result in adjustments to revenue.
<PAGE>
CertiSource, Inc.
Notes to Financial Statements
(Information with respect to June 30, 1998 and 1999 is unaudited)
(c) Financial Instruments
The Company's financial instruments principally consist of cash,
accounts receivable and accounts payable, which are carried at cost
which approximates fair value because of the short maturity of these
instruments.
(d) Property and Equipment
Property and equipment are stated at cost, net of accumulated
depreciation.
Property and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets as follows:
Software and computer equipment 5 years
Office furniture 7 years
(e) 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) 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.
(g) Concentration of Risk
Classes sponsored by BMC Software, a training provider, represented
27%, 27% and 21% of revenues for the year ended December 31, 1998 and
the six months ended June 30, 1998 and 1999, respectively. In
addition, all of the other income recorded in 1999 resulted from the
BMC relationship (note 6).
EDS, a customer, accounted for 9% of revenues for the six months ended
June 30, 1999 and $620,147 of accounts receivable at June 30, 1999.
<PAGE>
CertiSource, Inc.
Notes to Financial Statements
(Information with respect to June 30, 1998 and 1999 is unaudited)
(h) Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was
approximately $16,700 for the year ended December 31, 1998 and $2,500
and $5,500 for the six months ended June 30, 1998 and 1999.
(i) Web Site Development Costs
Costs of developing the Company's web site, which is utilized to
facilitate course registration by third parties, are expensed as
incurred.
(j) Recent Accounting Pronouncements
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires the Company to report in its financial
statements, in addition to its net income (loss), comprehensive income
(loss), which includes all changes in equity during a period from non-
owner sources including, as applicable, foreign currency items,
minimum pension liability adjustments and unrealized gains and losses
on certain investments in debt and equity securities. There were no
differences between the Company's comprehensive income (loss) and its
net income (loss) as reported.
(2) Property and Equipment
A summary of property and equipment at December 31, 1998 and June 30,
1999 is as follows:
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
----------------- -------------
<S> <C> <C>
Software and computer equipment $ 42,621 $ 63,109
Office furniture 8,632 18,632
-------- --------
51,253 81,741
Less: accumulated depreciation (21,520) (32,983)
-------- --------
Property and equipment, net $ 29,733 $ 48,758
======== ========
</TABLE>
<PAGE>
CertiSource, Inc.
Notes to Financial Statements
(Information with respect to June 30, 1998 and 1999 is unaudited)
(3) Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The tax
effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1998
are presented below:
<TABLE>
<CAPTION>
December 31, 1998
------------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 77,580
Allowance for doubtful accounts 12,940
Depreciation and other 1,288
-----------------
Total deferred tax assets $ 91,808
Less: valuation allowance (91,808)
-----------------
Net deferred tax assets $ -
=================
</TABLE>
Due to the Company's history of losses, a valuation allowance for the full
amount of the Company's gross deferred tax asset has been recorded at
December 31, 1998 and June 30, 1999.
As of December 31, 1998, the Company has approximately $210,000 of net
operating loss carryforwards for federal tax purposes expiring beginning in
year 2012. 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 and a significant portion of such
net operating losses may not be available to offset future taxable income.
(4) Commitments
The Company leases its facilities and office equipment under operating
lease agreements expiring through 2002. Future minimum lease payments as of
December 31, 1998 under the leases are as follows:
1999 $61,598
2000 71,164
2001 74,827
2002 6,356
Rent expense was approximately $28,300, $8,500 and $23,700 for the year
ended December 31, 1998 and the six months ended June 30, 1998 and 1999,
respectively.
As of June 30, 1999, the Company's agreements with certain training
providers require the Company to maintain a minimum annual volume, ranging
from $5,000 per year to $400,000 per year, in order to be entitled to
negotiated volume discounts.
The Year 2000 is a universal concern resulting from many computer programs
being written using two digits rather than four to define the applicable
year. This date recognition issue would result in a temporary inability to
process transactions or engage in normal business activities. Failure to
identify and successfully remediate the Company's internal systems, as well
as infrastructure failures, such as loss of electric power, loss of
telecommunication services or computer errors by vendors and major bank
errors, could significantly reduce the Company's ability to serve
customers. The Company believes that its Year 2000 readiness program will
reduce the Company's risk with respect to this issue. Since the Company
anticipates completing its remediation efforts in 1999, a formal
contingency plan has not been prepared.
<PAGE>
CertiSource, Inc.
Notes to Financial Statements
(Information with respect to June 30, 1998 and 1999 is unaudited)
(5) Related-Party Transactions
For the year ended December 31, 1998 and the six months ended June 30, 1998
and 1999, the Company paid approximately $111,800, $63,600 and $70,000,
respectively, to Market Solutions Group for services provided by the
President and Chief Executive Officer. Market Solutions Group is owned by
the Company's President and Chief Executive Officer and his spouse.
In 1998, the sole stockholder transferred 500,000 shares of common stock to
an employee for services rendered. Accordingly, the Company recorded
$162,954 of compensation expense related to this transaction based on the
estimated fair value of the Company's stock on the date of transfer.
In 1999, the stockholders transferred a total of 50,000 shares of common
stock to a consultant for services rendered. Accordingly, the Company
recorded $50,000 of compensation expense related to this transaction based
on the estimated fair value of the Company's stock on the date of transfer.
(6) Other Income
In October 1998 the Company alleged that a training provider breached its
exclusive contract with the Company. This matter was settled in March of
1999, whereby $109,300 of accounts receivable from the training provider
and $446,175 of accounts payable to the training provider were forgiven.
Accordingly, the accompanying financial statements reflect approximately
$337,000 in settlement gains, which has been classified as a component of
other income.
(7) Subsequent Event
On August 10, 1999, the Company was acquired by VerticalNet, Inc. Prior to
the acquisition, the Company awarded 118,948 shares of the Company's common
stock to certain employees. The Company will record a charge of
approximately $475,000 (unaudited) related to this transaction. Under the
terms of that agreement, VerticalNet, Inc. acquired all of the outstanding
stock of the Company in exchange for a combination of cash and VerticalNet,
Inc. common stock.
<PAGE>
VERTICALNET, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(unaudited)
The accompanying unaudited pro forma condensed consolidated balance sheet as of
June 30, 1999, and the related unaudited pro forma consolidated statements of
operations for the year ended December 31, 1998 and for the six months ended
June 30, 1999, give effect to the acquisition of all the capital stock of
Certisource, as described in Note 2 of the Notes to Pro Forma Condensed
Consolidated Financial Statements, as if the transaction had occurred as of June
30, 1999, in the case of the unaudited pro forma condensed consolidated balance
sheet, and as of January 1, 1998, in the case of the unaudited pro forma
consolidated statements of operations.
The unaudited pro forma consolidated statements of operations for the year ended
December 31, 1998 and for the six months ended June 30, 1999, also give effect
to the acquisitions of LabX Technologies Inc. ("LabX") and Techspex, Inc.
("Techspex"), completed on July 29, 1999 and June 14, 1999, as described in
Notes 3 and 4 of the Notes to the Pro Forma Condensed Consolidated Financial
Statements, respectively, as if the transactions had occurred as of Janurary 1,
1998.
In addition, the unaudited pro forma consolidated statement of operations for
the year ended December 31, 1998 also gives effect to the acquisitions of
Boulder Interactive Technology Services Company ("BITC") and Informatrix
Worldwide, Inc. ("Informatrix"), completed in 1998, as described in Note 5 of
the Notes to the Pro Forma Condensed Consolidated Financial Statements, as if
the transactions had occurred as of January 1, 1998.
The pro forma condensed consolidated financial statements have been prepared by
the management of the Company and should be read in conjunction with the
Company's historical consolidated financial statements, which have been
previously filed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, and Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, the historical financial statements of CertiSource, which are included
elsewhere in this Form 8-K, the historical financial statements of Techspex and
LabX filed on Forms 8-K dated June 14, 1999 and July 29, 1999, respectively, the
historical financial statements of BITC and Informatrix filed in the Company's
Registration Statement filed on Form S-1 effective February 11, 1999. Since the
pro forma financial statements which follow are based upon the financial
condition and operating results of CertiSource, LabX, Techspex, BITC and
Informatrix during periods when they were not under the control or management of
VerticalNet, the information presented may not be indicative of the results
which would have actually been obtained had the acquisitions been completed on
January 1, 1998 nor are they indicative of future financial or operating
results.
<PAGE>
VERTICALNET, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
Historical (Note 1)
------------------------------
VerticalNet LabX
------------ ---------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 20,235,068 $ 49,714
Short-term investments 12,480,457 -
Accounts receivable, net of allowance for doubtful accounts 4,446,631 33,844
Prepaid expenses and other assets 2,945,708 2,923
------------ ---------
Total current assets 40,107,864 86,481
Property and equipment, net 1,816,460 17,872
Goodwill and other intangibles, net of accumulated amortization 8,159,583 -
Long-term investments 14,376,407 -
Deferred charges and other assets 1,809,617 -
------------ ---------
Total assets $ 66,269,931 $ 104,353
============ =========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 823,480 $ -
Accounts payable 1,896,362 943
Amounts due to training providers - -
Accrued expenses 2,372,080 8,510
Deferred revenues 5,820,222 61,819
Shareholder advances - 3,233
------------ ---------
Total current liabilities 10,912,144 74,505
Long-term debt, net of current portion 517,293 -
Shareholders' equity 54,840,494 29,848
------------ ---------
Total liabilities and shareholders' equity $ 66,269,931 $ 104,353
============ =========
<CAPTION>
Historical
Pro Forma (Note 1)
Adjustments Total CertiSource
------------- ----------- -----------
<S> <C> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ (1,800,000) (e) $18,484,782 $ 129,373
Short-term investments - 12,480,457 -
Accounts receivable, net of allowance for doubtful accounts - 4,480,475 963,904
Prepaid expenses and other assets - 2,948,631 5,925
------------- ----------- -----------
Total current assets (1,800,000) 38,394,345 1,099,202
Property and equipment, net - 1,834,332 48,758
Goodwill and other intangibles, net of accumulated amortization 4,582,729 (f &g) 12,742,312 -
Long-term investments - 14,376,407 -
Deferred charges and other assets - 1,809,617 -
------------- ----------- -----------
Total assets $ 2,782,729 $69,157,013 $ 1,147,960
============= =========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ - $ 823,480 $ -
Accounts payable - 1,897,305 489,149
Amounts due to training providers - - 757,324
Accrued expenses - 2,380,590 18,530
Deferred revenues (21,178) (g) 5,860,863 38,240
Shareholder advances - 3,233 -
------------- ----------- -----------
Total current liabilities (21,178) 10,965,471 1,303,243
Long-term debt, net of current portion - 517,293 -
2,833,755 (e)
Shareholders' equity (29,848) (h) 57,674,249 (155,283)
------------- ----------- -----------
Total liabilities and shareholders' equity $ 2,782,729 $69,157,013 $ 1,147,960
============= =========== ===========
<PAGE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
------------ -----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ (600,724) (a) $18,013,431
Short-term investments - 12,480,457
Accounts receivable, net of allowance for doubtful accounts - 5,444,379
Prepaid expenses and other assets - 2,954,556
------------ -----------
Total current assets (600,724) 38,892,823
Property and equipment, net - 1,883,090
Goodwill and other intangibles, net of accumulated amortization 3,393,438 (b) 16,135,750
Long-term investments - 14,376,407
Deferred charges and other assets - 1,809,617
------------ -----------
Total assets $ 2,792,714 $73,097,687
============ ===========
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ - $ 823,480
Accounts payable - 2,386,454
Amounts due to training providers - 757,324
Accrued expenses - 2,399,120
Deferred revenues (13,100) 5,886,003
Shareholder advances - 3,233
------------ -----------
Total current liabilities - 12,255,614
Long-term debt, net of current portion - 517,293
2,650,531 (a) -
Shareholders' equity 155,283 (c) 60,324,780
------------ -----------
Total liabilities and shareholders' equity $ 2,792,714 $73,097,687
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICALNET, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical (Note 1)
--------------------------------------------------------------
VerticalNet BITC Informatrix Techspex LabX
------------ -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,134,769 $437,628 $ 32,442 $ 307,554 $ 91,217
------------ -------- ----------- ---------- --------
Costs and Expenses:
Editorial and operational 3,237,971 121,726 253,503 72,937 20,359
Product development 1,404,557 - 75,766 22,142 8,497
Sales and marketing 7,894,662 123,542 426,058 218,264 18,088
General and administrative 3,823,593 327,879 93,131 183,518 20,829
Amortization of goodwill and other intangibles 282,990 - - - -
------------ -------- ----------- ---------- --------
Operating loss (13,509,004) (135,519) (816,016) (189,307) 23,444
------------ -------- ----------- ---------- --------
Interest and dividend income 212,130 143 - - -
Interest expense (297,401) - (37,978) (43,144) -
------------ -------- ----------- ---------- --------
Interest, net (85,271) 143 (37,978) (43,144) -
Income taxes - - - - 3,892
------------ -------- ----------- ---------- --------
Net loss $(13,594,275) $(135,376) $ (853,994) (232,451) $ 19,522
============ ========= ========== ========== ========
Basic and diluted net loss per share $ (5.29)
============
Weighted average shares outstanding
used in basic and diluted per-share calculation (Note 5) 2,570,550
============
<CAPTION>
Historical (Note 1)
-------------------
Pro Forma Pro Forma
Adjustments Total CertiSource Adjustments
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ - $ 4,003,610 $ 943,940 $ -
----------- ------------ ------------ -----------
Costs and Expenses:
Editorial and operational (180,000)(m) 3,526,496 469,341 -
Product development - 1,510,962 189,461 -
Sales and marketing - 8,680,614 351,256 -
General and administrative - 4,448,950 235,661 -
1,580,392 (i)
1,101,681 (k)
Amortization of goodwill and other intangibles 922,401 (o) 3,887,464 - 1,131,146(d)
----------- ------------ ------------ -----------
Operating loss (3,424,474) (18,050,876) (301,779) (1,131,146)
----------- ------------ ------------ -----------
Interest and dividend income - 212,273 - -
43,144 (l)
Interest expense 35,025 (n) (300,354) - -
----------- ------------ ------------ -----------
Interest, net 78,169 (88,081) - -
Income taxes (3,892)(j) - - -
----------- ------------ ------------ -----------
Net loss (3,342,413) $(18,138,957) $ (301,779) $(1,131,146)
=========== ============ ============ ===========
Basic and diluted net loss per share
Weighted average shares outstanding
used in basic and diluted per-share calculation (Note 5)
<CAPTION>
Pro Forma
------------
<S> <C>
Revenues $ 4,947,550
------------
Costs and Expenses:
Editorial and operational 3,995,837
Product development 1,700,423
Sales and marketing 9,031,870
General and administrative 4,684,611
Amortization of goodwill and other intangibles 5,018,610
-----------
Operating loss (19,483,801)
-----------
Interest and dividend income 212,273
Interest expense (300,354)
-----------
Interest, net (88,081)
Income taxes -
-----------
Net loss (19,571,882)
===========
Basic and diluted net loss per share (7.17)
===========
Weighted average shares outstanding
used in basic and diluted per-share calculation (Note 5) 2,728,520
===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICALNET, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Historical (Note 1)
------------------------------ Pro Forma
VerticalNet Techspex LabX Adjustments
--------------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
$ 5,484,959 $ 151,258 $ 93,571 $ -
--------------- ------------- ---------- ------------
Costs and Expenses:
Editorial and operational 2,884,756 32,801 19,328 -
Product development 2,694,704 10,344 15,174 -
Sales and marketing 9,176,807 95,659 21,855 -
General and administrative 3,350,071 54,552 11,983 -
790,196 (i)
Amortization of goodwill and other intangibles 610,469 - - 504,937 (k)
--------------- ------------- ---------- ------------
Operating loss (13,231,848) (42,098) 25,231 (1,295,133)
--------------- ------------- ---------- ------------
Other Income - - - -
Interest and dividend income 1,037,936 - - -
Interest expense (175,557) (12,501) - 12,501 (l)
--------------- ------------- ---------- ------------
Interest, net 862,379 (12,501) - 12,501
Income taxes - - 5,632 (5,632)(j)
--------------- ------------- ---------- ------------
Net loss $ (12,369,469) $ (54,599) $ 19,599 $ (1,277,000)
=============== ============= ========== ============
Basic and diluted net loss per share $ (0.91)
Weighted average shares outstanding ===============
used in basic and diluted per-share calculation (Note 5) 13,520,933
===============
<CAPTION>
Historical (Note 1)
-------------------
Pro Forma
Total CertiSource Adjustments Pro Forma
-------------- ------------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 5,729,788 $ 612,028 $ - $ 6,341,816
-------------- ------------------- ----------- ------------
Costs and Expenses:
Editorial and operational 2,936,885 171,779 - 3,108,664
Product development 2,720,222 77,652 - 2,797,874
Sales and marketing 9,294,321 236,382 - 9,530,703
General and administrative 3,416,606 490,078 - 3,906,684
Amortization of goodwill and other intangibles 1,905,602 565,573 (d) 2,471,175
-------------- ------------------- ----------- ------------
Operating loss (14,543,848) (363,863) (565,573) (15,473,284)
-------------- ------------------- ----------- ------------
Other Income - 327,065 - 327,065
Interest and dividend income 1,037,936 - - 1,037,936
Interest expense (175,557) - - (175,557)
-------------- ------------------- ----------- ------------
Interest, net 862,379 - - 862,379
Income taxes - - - -
-------------- ------------------- ----------- ------------
Net loss $ (13,681,469) $ (36,798) $ (565,573) $(14,283,840)
============== ==================== =========== ============
Basic and diluted net loss per share $ (1.05)
Weighted average shares outstanding ============
used in basic and diluted per-share calculation (Note 5) 13,639,468
============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICALNET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: HISTORICAL FINANCIAL STATEMENTS:
The historical balances of VerticalNet, Inc. ("VerticalNet" or the "Company")
represent the consolidated balance sheet as of June 30, 1999, and the
consolidated results of operations for the year ended December 31, 1998 and for
the six months ended June 30, 1999, as reported in the consolidated financial
statements which have been previously filed in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and Quarterly Report on Form 10-Q
for the three and six months ended June 30, 1999. The historical balances of
Boulder Interactive Technology Services ("BITC") and Informatrix Worldwide, Inc.
("Informatrix") for the year ended December 31, 1998, represent the results of
operations for BITC and Informatrix prior to their acquisition by the Company
during the year ended December 31, 1998, and were derived from their historical
financial statements included in the Company's Registration Statement filed on
Form S-1 effective February 11, 1999. The historical balances of LabX
Technologies Inc. ("LabX") for the year ended December 31, 1998 and for the six
months ended June 30, 1999 represent the results of operations for the year
ended December 31, 1998 and for the six months ended June 30, 1999, which were
derived from the historical year ended September 30, 1998 and the six months
ended June 30, 1999 financial statements filed in the Form 8-K dated July 29,
1999. The historical balances of Techspex, Inc. ("Techspex") for the year ended
December 31, 1998 and six months ended June 30, 1999, represent the results of
operations for the year ended December 31, 1998 and for the six months ended
June 30, 1999, which were derived from the historical financial statements filed
in the Form 8-K dated June 14, 1999 and reflect the results of its operations
prior to its acquisition by the Company. The historical balances of CertiSource,
Inc. ("CertiSource") for the year ended December 31, 1998 and the six months
ended June 30, 1999, were derived from the historical financial statements
included in this Form 8-K.
Note 2: ACQUISITION OF CERTISOURCE, INC:
On August 10, 1999, VerticalNet entered into an Agreement and Plan of Merger
(the "Agreement") by and among the Company, Certisource Acquisition Co., Inc., a
Delaware Corporation, Certisource, Inc., a Texas Corporation, and Walter Rogers,
Richard Talaber and Stuart Thomajan, principal shareholders, to acquire all of
the capital stock of CertiSource for approximately $3.3 million, including
transaction costs. The acquisition will be accounted for under the purchase
method of accounting. Under this method, the purchase price is allocated to the
assets acquired and liabilities assumed based on the fair values at the
acquisition date. Such allocation has been based on estimates that are tentative
and may be revised at a later date. Therefore, actual amounts may differ from
those in the unaudited pro forma condensed consolidated financial statements.
The purchase price plus the net liabilities assumed was approximately $3.4
million, which has been allocated to a covenant not-to-compete and goodwill of
approximately $500,000 and $2.9 million, respectively. The covenant not-to-
compete and goodwill and will be amortized on a straight-line basis over 36
months.
The following pro forma adjustments for the CertiSource acquisition are
reflected in the unaudited pro forma condensed consolidated balance sheet as of
June 30, 1999, and the unaudited pro forma statements of operations for the year
ended December 31, 1998 and the six months ended June 30, 1999:
<PAGE>
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
(a) Reflects the consideration issued by the Company to consummate the
acquisition as follows:
<TABLE>
<S> <C>
Cash $ 475,724
Transaction costs 125,000
VerticalNet common stock 2,650,531
----------
$3,251,255
==========
</TABLE>
(b) Reflects the recording of the purchase transaction. The book value of the
assets acquired and liabilities assumed are estimated to approximate fair
value.
<TABLE>
<S> <C>
Total purchase price $3,251,255
Fair value of net liabilities assumed (also refer
to note (c)) 142,183
----------
$3,393,438
==========
The purchase price was allocated as follows:
Covenant to-not-compete
(estimated useful life of 36 months) $ 500,000
Goodwill (estimated useful life
of 36 months) 2,893,438
----------
$3,393,438
==========
</TABLE>
(c) Reflects the elimination of the historical equity accounts of CertiSource
and an adjustment to fair value deferred revenue assumed based on VerticalNet's
cost structure plus a reasonable profit margin.
Unaudited Pro Forma Adjustments to Consolidated Statements of Operations
- ------------------------------------------------------------------------
(d) Represents additional amortization expense for the year ended December 31,
1998 and the six months ended June 30, 1999, respectively, relating to the
covenant to-not-compete and goodwill based upon the estimated useful life
for both of 36 months.
Note 3: ACQUISITION OF LABX TECHNOLOGIES, INC:
On July 29, 1999, the Company acquired all of the capital stock of LabX for
approximately $4.6 million, including transaction costs. The consideration for
the acquisition was $1.8 million in cash (including transaction costs of
$200,000) and 34,897 shares of Company common stock with a fair market value of
approximately $2.8 million. The acquisition has been accounted for under the
purchase method of accounting. The purchase price less the net assets acquired
was approximately $4.6 million, which has been allocated to a covenant not-to-
compete, existing technology and goodwill of approximately $350,000, $500,000
and $3.75 million, respectively. The covenant not-to-compete will be amortized
on a straight-line basis over 24 months, while the existing technology and
goodwill will be amortized on a straight-line basis over 36 months. Refer to the
Company's Form 8-K, filed on August 12, 1999 for additional information.
The following pro forma adjustments for the LabX acquisition are reflected in
the unaudited pro forma condensed consolidated balance sheet as of June 30,
1999, and the unaudited pro forma statements of operations for the year ended
December 31, 1998 and the six months ended June 30, 1999:
<PAGE>
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
(e) Reflects the consideration issued by the Company to consummate the
acquisition as follows:
<TABLE>
<S> <C>
Cash $1,600,000
Transaction costs 200,000
VerticalNet common stock 2,833,755
----------
$4,633,755
==========
</TABLE>
(f) Reflects the recording of the purchase transaction. The book value of the
assets acquired and liabilities assumed are estimated to approximate fair
value.
<TABLE>
<S> <C>
Total purchase price $4,633,755
Fair value of net assets acquired (also refer to note(g)) (51,026)
----------
$4,582,729
==========
The purchase price was allocated as follows:
Covenant to-not-compete (estimated useful life of 24 months) $ 350,000
Existing technology (estimated useful life of 36 months) $ 500,000
Goodwill (estimated useful life of 36 months) 3,732,729
----------
$4,582,729
==========
</TABLE>
(g) Represents the adjustment to fair value deferred revenue assumed at time of
acquisition, based VerticalNet's cost structure plus a reasonable profit
margin.
(h) Reflects the elimination of the historical equity accounts of LabX.
Unaudited Pro Forma Adjustments to Consolidated Statements of Operations
- ------------------------------------------------------------------------
(i) Represents additional amortization expense for the year ended December 31,
1998 and the six months ended June 30, 1999, respectively, relating to
goodwill, existing technology acquired and the covenant to-not-compete
based upon the estimated useful life of 36 months for both the goodwill and
existing technology and 24 months for the covenant to-not-compete.
(j) Represents the elimination of tax expense incurred on the net income of
LabX.
Note 4: TECHSPEX INC. ACQUISTION INFORMATION:
On June 14, 1999, the Company acquired all of the capital stock of Techspex for
approximately $3.3 million, including transaction costs. The consideration for
the acquisition was $311,000 in cash (including transaction costs of $100,000)
and 44,997 shares of Company common stock with a fair market value of
approximately $3.0 million. The acquisition has been accounted for under the
purchase method of accounting. The purchase price plus the net liabilities
assumed was approximately $3.3 million, which has been recorded as goodwill and
will be amortized on a straight-line basis over 36 months. Refer to the
Company's Form 8-K, filed on June 29, 1999, for additional information.
<PAGE>
The Techspex acquisition is reflected in the June 30, 1999 VerticalNet
historical balance sheet, therefore pro forma adjustments to the Condensed
Consolidated Balance Sheet are not required.
The following pro forma adjustments for the Techspex acquisition are reflected
in the pro forma consolidated statements of operations for the year ended
December 31, 1998 and the six months ended June 30, 1999:
Unaudited Pro Forma Adjustments to Consolidated Statements of Operations
- ------------------------------------------------------------------------
(k) Represents additional amortization expense for the year ended December 31,
1998 and the six months ended June 30, 1999, respectively, relating to
goodwill based upon the estimated useful life of 36 months.
(l) Represents the elimination of interest expense incurred on the notes
payable of Techspex.
Note 5: BOULDER INTERACTIVE TECHNOLOGY SERVICES AND INFORMATRIX WORLDWIDE INC.
ACQUISTION INFORMATION:
On September 1, 1998, the Company acquired all of the outstanding stock capital
stock of BITC for $1.8 million in cash. On September 30, 1998, the Company
acquired all the outstanding capital stock of Informatrix for 46,154 shares of
the Company's common stock valued at $153,000. Contingent on achieving future
sales targets during 1998, Informatrix shareholders later received 3,738
additional shares of the Company's common stock valued at approximately $32,000.
Both acquisitions were accounted for using the purchase method of accounting.
The purchase price plus net liabilities assumed, which was recorded as goodwill
and is being amortized on a straight line basis over 36 months, was
approximately $1.9 million and $903,000 for BITC and Informatrix, respectively.
Refer to the Company's previously filed Annual Report on Form 10-K and
Registration Statement on Form S-1 effective February 11, 1999 for additional
information.
The following pro forma adjustments for the BITC and Informatrix acquisition are
reflected in the pro forma condensed consolidated statement of operations for
the year ended December 31, 1998:
Unaudited Pro Forma Adjustments to Condensed Statements of Operations
- ---------------------------------------------------------------------
(m) Reflects the elimination of editorial and operational costs charged by
VerticalNet to Informatrix to maintain Informatrix's vertical trade
community.
(n) Reflects the elimination of interest expense incurred by Informatrix on
indebtedness to VerticalNet.
(o) Represents additional amortization expense for the year ended December 31,
1998 relating to goodwill based upon the estimated useful life of 36
months.
Note 6: PRO FORMA BASIC AND DILUTED NET LOSS PER SHARE:
The weighted average shares outstanding used in the pro forma basic and diluted
net loss per share calculation for the year ended December 31, 1998, includes
41,856, 34,897 and 44,997 shares of Company common stock issued in the
acquisition of Certisource, LabX and Techspex, respectively, and 36,220
incremental shares that would have been outstanding from the
<PAGE>
acquisition of Informatrix, as if all of the acquisitions had occurred on
Janurary 1, 1998. For the six months ended June 30, 1999, the weighted average
shares outstanding used in the pro forma basic and diluted net loss per share
calculation includes 41,856 and 34,897 shares of Company common stock issued in
the acquisition of CertiSource and LabX, respectively, and 41,782 incremental
shares that would have been outstanding from the acquisition of Techspex and the
additional consideration given to Informatrix shareholders, as if these
acquisitions had occurred on Janurary 1, 1999.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 20, 1999 VERTICALNET, INC.
By: /s/ Gene S. Godick
------------------
Name: Gene S. Godick
Title: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.1 Agreement and Plan of Merger by and among VerticalNet, Inc.,
CertiSource Acquisition Co., Inc., CertiSource, Inc., and Walter
Rogers, Richard Talaber and Stuart Thomajan (collectively, the
"Principal Shareholders")
23.1 Consent of KPMG LLP
<PAGE>
________________________________________________________________________________
Execution Copy
AGREEMENT AND PLAN OF MERGER
among
VERTICALNET, INC.
(a Pennsylvania corporation),
CERTISOURCE ACQUISITION CO., INC.
(a Delaware corporation),
CERTISOURCE, INC.
(a Texas corporation)
and
________________________________________________________________________________
THE PRINCIPAL STOCKHOLDERS OF CERTISOURCE, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Definitions.................................................... 1
2. The Merger..................................................... 8
3. Closing........................................................ 9
4. Representations and Warranties of Company Parties.............. 10
5. Representations and Warranties of Buyer........................ 24
6. Covenants of Company Parties................................... 26
7. Covenants of Buyer............................................. 29
8. Mutual Covenants............................................... 30
9. Conditions Precedent to Obligations of the Company Parties..... 31
10. Conditions Precedent to Obligations of Buyer................... 32
11. Indemnification................................................ 34
12. Termination.................................................... 38
13. Right of First Refusal on Resale of the Business............... 39
14. General Matters................................................ 39
15. Remedies....................................................... 41
16. Notices........................................................ 42
17. Governing Law.................................................. 43
</TABLE>
i
<PAGE>
Exhibits
- --------
A Form of Texas Articles of Merger
B Form of Delaware Certificate of Merger
C Form of Employment Agreement for Walter Rogers
D Form of Employment Agreement for Richard Talaber
E Form of Employment Agreement for Stuart Thomajan
F Form of Opinion of Counsel to the Company and the Principal Stockholders
G Form of Opinion of Counsel to Buyer
Schedules
- ---------
2.5 Directors and Officers of Surviving Corporation
3.2 Allocation of Merger Consideration
4.3 Company Required Consents
4.4 Stock Ownership
4.5 Financial Statements
4.6 Encumbrances
4.7 Real Property
4.8 Tangible Personal Property
4.9 Non-Real Estate Leases
4.12 Liabilities
4.13 Taxes
4.15 Litigation
4.16 Contracts
4.17 Insurance
4.18(a) Intellectual Property
4.18(b) Intellectual Property Contracts
4.18(c) Know-How
4.19(a) Employees
4.19(b) Current Directors and Officers of Company
4.20 ERISA
4.22 Absence of Certain Changes
4.23 Customers
4.35 Additional Information
6.4(a) Competitors of Buyer
7.2 Years of Service
7.2(d) Options Breakdown
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of August 10, 1999 by and
among VERTICALNET, INC., a Pennsylvania corporation ("Buyer"), CERTISOURCE
ACQUISITION CO., INC. a Delaware corporation and a wholly-owned subsidiary of
Buyer ("CACI"), CERTISOURCE, INC., a Texas corporation ("Company") and Walter
Rogers, Richard Talaber and Stuart Thomajan (collectively, the "Principal
Stockholders"). Certain other terms used herein are defined below, in Section 1,
or elsewhere in this Agreement.
BACKGROUND
The Principal Stockholders and the Ancillary Stockholders own all of the
issued and outstanding capital stock of the Company.
The respective Boards of Directors of Buyer, CACI and the Company deem it
advisable and in the best interests of Buyer, CACI and the Company and their
respective shareholders that the Company merge with and into CACI (the "Merger")
pursuant to the terms and conditions of this Agreement.
The Boards of Directors of Buyer, CACI and the Company have approved and
adopted this Agreement as a plan of reorganization within the provisions of
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
In consideration of the premises and of the representations, warranties,
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, 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).
"Accredited Investor" is defined in Section 4.30.
"Acquisition Proposal" is defined in Section 6.1.
"Action" is defined in Section 11.5.
1
<PAGE>
"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.
"Ancillary Stockholders" means those stockholders of the Company, other
than the Principal Stockholders, set forth on Schedule 3.2.
"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 4.5.
"Balance Sheet Date" is defined in Section 4.5.
"Benefit Plan" means: any benefit arrangement, obligation or practice to
provide benefits, other than salary, as compensation for services rendered, to
one or more present or former employees, directors, agents or independent
contractors, that is maintained or sponsored by the Company or to which the
Company contributes or for which the Company has or may have liability
including: (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 11.1.
"Buyer's Common Stock" means the common stock, par value $.01 per share, of
Buyer.
"Cash Merger Consideration" is defined in Section 2.6(c).
2
<PAGE>
"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 11.4.
"Claim Response" is defined in Section 11.4.
"Closing" is defined in Section 3.1.
"Closing Certificates" means the certificates to be delivered by the
Company and/or the Stockholders, as the case may be, under Section 10 and any
other provisions hereof.
"Closing Date" is defined in Section 3.1.
"Code" is defined in the Background Section.
"Company's Common Stock" means the common stock, no par value of the
Company.
"Company Contracts" is defined in Section 4.16(b).
"Company Parties" means the Company and the Principal Stockholders,
collectively.
"Company Representatives" means any investment advisors, accountants,
counsel, agents or other Persons who may act on behalf of the Company or any
Principal Stockholder.
"Company Required Consents" is defined in Section 4.3.
"Company's knowledge" or "knowledge of the Company" means the actual
knowledge of any of the Principal Stockholders, directors or officers of the
Company.
"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.
"Constituent Corporations" means CACI and the Company, collectively.
"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.
3
<PAGE>
"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 11.1.
"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.
"DGCL" is defined in Section 2.1.
"Disclosure Schedule" means any of the Schedules containing information
relating to the Company pursuant to Section 4 and other provisions hereof that
has been provided to Buyer on the date hereof.
"Effective Time" is defined in Section 2.2.
"Employment Agreement" means the employment agreement, to be entered into
at Closing, between each Principal Stockholder and the Company, as the case may
be, in the forms attached hereto, respectively, as Exhibits C, D and E.
"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 4.15(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.
"Environmental Liabilities" means Liabilities, know or unknown, relating to
or arising under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
4
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Statements" is defined in Section 4.5.
"GAAP" means generally accepted accounting principles.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"Gross Revenues" means total value of invoices issued for the applicable
period.
"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 4.9.
"Indemnified Party" is defined in Section 11.4.
"Indemnitor" is defined in Section 11.4.
"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.
"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.
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"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Liquidated Claim Notice" is defined in Section 11.4.
"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 Company or
the Business, including the Assets, financial condition, results of operations,
liquidity, products, competitive position, customers and customer relations
thereof.
"Merger" is defined above in the Background section.
"Merger Consideration" is defined in Section 2.6(c).
"Non-Real Estate Leases" is defined in Section 4.9.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Outstanding Indebtedness" means money owed to the Company by any Principal
Stockholder or Ancillary Stockholder and/or employees of the Company, including
those loans listed on Schedule 4.16.
"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.
"Pro Rata Portion" means, with respect to any Stockholder, the percentage
of the total number of Company shares that is represented by the Company shares
owned, one day prior to Closing, by such Principal Stockholder.
"Real Estate Leases" is defined in Section 4.7.
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"Real Property" is defined in Section 4.7.
"Response Period" is defined in Section 11.4.
"Rule 144" is defined in Section 4.34.
"Securities" is defined in Section 4.29.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Merger Consideration" is defined in Section 2.6(c).
"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.
"TBCA" is defined in Section 2.1.
"Termination Date" is defined in Section 3.1.
"Texas Articles of Merger" is defined in Section 2.2.
"Trademarks" means all trademarks, whether registered or not, any trademark
applications, and any logos or designs that are trademarkable.
"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 generally
available to the public.
"Transaction Consideration" means the Merger Consideration.
"Transaction Documents" means this Agreement and the documents contemplated
hereby.
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"Transactions" means the Merger and the other transactions contemplated by
the Transaction Documents.
"Unliquidated Claim" is defined in Section 11.4.
"Welfare Plan" is defined in Section 4.20(g).
2. The Merger.
2.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the relevant provisions of the Texas Business Corporation Act
(the "TBCA") and the Delaware General Corporation Law ("DGCL"), the Company
shall be merged with and into CACI at the Effective Time. Following the Merger,
CACI shall continue as the surviving corporation (the "Surviving Corporation")
and shall continue its existence under the laws of the State of Delaware, and
the separate corporate existence of the Company shall cease.
2.2 Effective Time. Upon the conclusion of the Closing, the Company and
CCI shall (a) file with the Secretary of State of the State of Texas articles
of merger substantially in the form attached hereto as Exhibit A (the "Texas
Articles of Merger") and in such form as required by the TBCA and (b) file with
the Secretary of State of the State of Delaware a certificate of merger
substantially in the form attached hereto as Exhibit B (the "Delaware
Certificate of Merger") and in such form as required by the DGCL. The Merger
shall become effective at such time as the later of the Texas Articles of Merger
and the Delaware Certificate of Merger are so filed (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
the TBCA and the DGCL.
2.4 Articles of Incorporation and Bylaws. The Articles of Incorporation
of CACI immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
until thereafter amended in accordance with the provisions therein and as
provided in the DGCL. The Bylaws of CACI as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation from and after
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the DGCL.
2.5 Directors and Officers. Schedule 2.5 sets forth the persons who
shall be the directors and officers of the Surviving Corporation at the
Effective Time. Such persons shall hold such positions as directors and officers
until their successors are elected or appointed in accordance with the Articles
of Incorporation and the Bylaws of the Surviving Corporation.
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2.6 Manner of Conversion and Merger Consideration. At the Effective
Time, by virtue of the Merger and without any action on the part of Buyer, CACI,
the Company or the Stockholders, the shares of capital stock of each of the
Constituent Corporations shall be converted as follows:
(a) Capital Stock of CACI. Each issued and outstanding share of
capital stock of CACI shall continue to be issued and outstanding and shall
represent shares of stock of the Surviving Corporation. Each stock certificate
of CACI evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(b) Conversion of the Company's Common Stock. Subject to Section
2.6(c), all of the issued and outstanding shares of the Company's Common Stock
that are issued and outstanding immediately prior to the Effective Time shall
automatically be canceled and extinguished and converted, without any action on
the part of the holders thereof, into the right to receive the Merger
Consideration set forth on Schedule 3.2. All such shares of the Company's Common
Stock, when so converted, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the consideration therefor upon the
surrender of such certificate in accordance with Section 2.6(c) of this
Agreement.
(c) Merger Consideration. The "Merger Consideration" shall consist
of 83,712 Shares of Buyer's Common Stock (the "Stock Merger Consideration") and
$475,724 in cash (the "Cash Merger Consideration"), to be delivered in
immediately available funds at Closing.
2.7 Stockholder Consent. Each Principal Stockholder hereby votes all of
his shares of the Company's Common Stock in favor of the Merger, this Agreement
and the Transactions. None of the Principal Stockholders shall rescind, revoke
or modify such vote prior to the Effective Time.
3. Closing.
3.1 Location, Date. The closing for the Transactions (the "Closing")
shall be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia, PA,
at 10:00 a.m. (local time) as promptly as practicable (and in any event within
three business days) after satisfaction or waiver of the conditions to the
consummation of the Transactions set forth in Sections 9 and 10 hereof, but in
any event not later than August 13, 1999 (the "Termination Date"), unless the
parties hereto agree in writing to another date or place. The date on which the
Closing occurs is referred to herein as the "Closing Date."
3.2 Deliveries. At the Closing, subject to the terms and conditions
contained herein:
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(a) CACI and the Company shall deliver to counsel for Buyer for filing
with the Secretary of State of the State of Texas the duly executed Texas
Articles of Merger and, to counsel for Buyer for filing with the Secretary of
the State of the State of Delaware, the Delaware Certificate of Merger, and the
parties shall take all such other and further actions as may be required by the
TBCA and the DGCL and any other applicable Law to make the Merger effective upon
the terms and subject to the conditions hereof;
(b) Buyer shall deliver the Merger Consideration, consisting of the
Stock Merger Consideration and the Cash Merger Consideration. The Stock Merger
Consideration shall be registered in the names of the respective Principal
Stockholders, and in due and proper form, as set forth on Schedule 3.2. The
Cash Merger Consideration shall be delivered to the Ancillary Stockholders in
immediately available funds in accordance with Schedule 3.2;
(c) the parties shall also deliver to each other the respective
agreements, legal opinions and other documents and instruments specified with
respect to them in Sections 9 and 10.
4. Representations and Warranties of Company Parties.
The Company Parties, jointly and severally, hereby represent and warrant to
Buyer as follows:
4.1 Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Texas and
is qualified to do business as a foreign corporation in every 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.
4.2 Authorization. The Company has the requisite power and authority to
own the Assets and to carry on the Business. The Company 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 the Company have been duly authorized by
all necessary corporate action, including approval by the Principal Stockholders
and the Ancillary Stockholders. Each Transaction Document executed and delivered
by the Company has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms.
4.3 Consents and Approvals. Except for filings that may be required to
effect the Merger under the TBCA and DGCL, and any consents specified in
Schedule 4.3 (collectively the "Company Required Consents"), neither the
execution and delivery by any Company Party of the Transaction Documents to
which it is a party, nor the performance of the Transactions performed or to be
performed by any Company Party, require any filing, consent or approval,
constitute a
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Default or cause any payment obligation to arise under (a) the Charter Documents
or Bylaws of the Company, (b) any Law or Court Order to which any Company Party
is subject, or (c) any Contract, Governmental Permit or other document to which
any Company Party is a party or to which the properties or other assets of any
Company Party may be subject.
4.4 Stock Ownership. The Principal Stockholders and the Ancillary
Stockholders are the sole record and beneficial owners of all of the issued and
outstanding shares of capital stock of the Company, and the respective shares
owned by the Principal Stockholders and the Ancillary Stockholders are specified
on Schedule 4.4. 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 shares of capital stock of
the Company. The Company has no shares of treasury stock of any nature
whatsoever. Each Principal Stockholder represents and warrants that (i) he owns
all of the issued and outstanding stock set forth opposite his name on Schedule
4.4 free and clear of any Encumbrances, including, without limitation, any
agreement, understanding or restriction affecting the voting rights or other
incidents of record or beneficial ownership pertaining to such shares of capital
stock and (ii) each Ancillary Stockholder owns all of the issued and outstanding
stock set forth opposite their respective names on Schedule 4.4 free and clear
of any Encumbrances, including, without limitation, any agreement, understanding
or restriction affecting the voting rights or other incidents of record or
beneficial ownership pertaining to such shares of capital stock.
4.5 Financial Statements. Attached hereto as Schedule 4.5 are the
following financial statements of the Company (collectively the "Financial
Statements"): (a) unaudited financial statements (including without limitation,
the balance sheet, statement of operations, statement of cash flows and
statement of stockholders' equity) of the Company for the year ended December
31, 1998, and (b) unaudited financial statements (including without limitation,
the balance sheet, statement of operations, statement of cash flows and
statement of stockholders' equity) of the Company for the five-month period
ended May 31, 1999. The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby and present fairly the financial condition of the
Company as of such dates and the results of operations of the Company for such
periods. The balance sheet of the Company as of May 31, 1999 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."
4.6 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 mechanic's and similar liens
arising in the ordinary course of business, liens for current taxes not yet due
and payable, and those specified in Schedule 4.6. The use of the Assets are not
subject to any Encumbrances (other than those specified in the preceding
sentence), and such use does not encroach on the property or rights of anyone
else. All tangible personal property (other than Inventory) included in the
Assets is suitable for the purposes for which it is used, in good working
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condition, reasonable wear and tear excepted, and is free from any known
defects.
4.7 Real Property. Schedule 4.7 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 leases under which any such Real Property is possessed (the "Real
Estate Leases"). Schedule 4.7 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 as currently conducted
(but may not be adequate in the future in light of the projected growth and
expansion of the Company's business) and (b) conforms with any applicable Laws
relating to its construction, use and operation and with applicable zoning Laws.
The Company or, to the knowledge of the Company, 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.
4.8 Certain Personal Property. Schedule 4.8 describes all items of
tangible personal property that were included in the Balance Sheet and which,
singly, have a depreciated value in excess of $10,000. Except as specified in
Schedule 4.8, since the Balance Sheet Date, the Company has not acquired any
items of tangible personal property that have a depreciated value in excess of
$10,000. All of such personal property included in Schedule 4.8 is usable in the
ordinary course of business, and all such personal property included in Schedule
4.8 conforms with any applicable Laws relating to its construction, use and
operation. Except for those items subject to the Non-Real Estate Leases, no
Person other than the Company owns any vehicles, equipment or other tangible
assets located on the Real Property that have been used in the Business or that
are necessary for the operation of the Business.
4.9 Non-Real Estate Leases. Schedule 4.9 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 4.9 also
lists the leases under which such assets and property listed in Schedule 4.8 are
possessed. All of such leases (excluding Immaterial Leases) are referred to
herein as the "Non-Real Estate Leases."
4.10 Accounts Receivable. All accounts receivable of the Company (a)
are valid and genuine, (b) arise out of bona fide sales, or scheduled sales, and
deliveries of goods, performance of services or other business transactions, (c)
less $50,000, will be collected in full within 120 days after the Closing Date,
(d) are not subject to valid defenses, set-offs or counterclaims other than
normal returns and allowances and (e) were generated only in the ordinary course
of business.
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4.11 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 (but may not be adequate in the future in light of the projected growth
and expansion of the Company's business) and is valued on the Balance Sheet in
conformity with GAAP applied on a consistent basis. No significant amount of
such inventory or equipment is obsolete.
4.12 Liabilities. The Company does not have any Liabilities, other than
(a) Liabilities specified in Schedule 4.12, (b) Liabilities specified in the
Balance Sheet, (c) Liabilities incurred in the ordinary course since the Balance
Sheet Date (none of which (i) results from, arises out of, relates to, is in the
nature of, or was caused by any breach of Contract, breach of warranty, tort
infringement or violation of Law or (ii) represents a loss or potential loss to
the Company of an amount greater than $5,000), and (d) Liabilities under any
Contracts that are specifically disclosed in Schedule 4.12 that were not
required under GAAP to have been specifically disclosed or reserved for on the
Balance Sheet.
4.13 Taxes. Except as set forth on Schedule 4.13,
(a) The Company has timely filed all Tax Returns required to be filed
on or before the Closing Date and, except as disclosed on Schedule 4.13(a), all
such Tax Returns are true, correct and complete in all material respects. The
Company has paid in full on a timely basis all Taxes owed by it, whether or not
shown on any Tax Return. 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,
and the amount of the Company's liability for unpaid Taxes for all periods or
portions thereof ending on or before the Closing Date will not exceed the amount
of the current liability accruals for Taxes (excluding reserves for deferred
Taxes) as such accruals are reflected on the books and records of the Company on
the Closing Date.
(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 currently has, and in each year since its
incorporation has had a taxable year ended on December 31. The Company
currently utilizes the accrual method of accounting for income Tax purposes and
such method of accounting has not changed since the
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Company's incorporation. The Company has not agreed to, and is not and will not
be required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(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) all of the Tax
Returns of the Company since the Company's incorporation 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 Company's 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 a Material Adverse Effect.
(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,
could 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 Code Section
897(c) during the period specified in Code Section 897(c)(1)(A)(ii).
(i) The Company is not or 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.
(j) To the knowledge of the Company, the Company has not taken any
action or refrained from taking any action that would cause the Merger not to
qualify as a reorganization as defined under Code Section 368(a)(1)(A) and Code
Section 368(a)(2)(D).
4.14 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.
4.15 Legal Proceedings and Compliance with Law.
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(a) Except as set forth in Schedule 4.15, there is no Litigation that
is pending or, to the best of the Company's knowledge, threatened against the
Company. 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 4.15(a), except as
described in Schedule 4.15, 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 any Seller Party
that relate to any Environmental Condition and to the Business or any Assets and
has identified on Schedule 4.15 all other reports, studies and assessments of
which any Seller Party has knowledge.
(d) The Company has obtained and is in full compliance with all
Governmental Permits, all of which are listed in Schedule 4.15 along with their
respective expiration dates (i) that are required for the complete operation of
the Business as currently operated or that relate 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 the Company's knowledge,
no revocation, cancellation or withdrawal thereof has been threatened.
4.16 Contracts.
(a) Schedule 4.16 lists all Contracts of the following types to which
the Company is a party or by which it is bound:
(i) Contracts with any present or former stockholder, director,
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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, in
excess of $1,000 in any individual case, or any Contracts for the sale
of products that involve an amount in excess of $5,000 with respect to
any one supplier or other 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, stockholders 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
(vii) Any other Contracts (other than those Contracts described
in any of (i) through (vi) above) not made in the ordinary course of
business.
(b) The Contracts listed in Schedule 4.16 are referred to herein as
the "Company Contracts." To the knowledge of the Company, it is not in Default
under any the Company Contracts (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 the Company Contract. To the
knowledge of the Company, (i) none of the other parties in any such the Company
Contract is in Default thereunder, and (ii) each such the Company Contract is
enforceable against any other parties thereto in accordance with terms thereof.
4.17 Insurance. Schedule 4.17 lists all policies or binders of insurance
held by or on behalf of the Company, specifying with respect to each policy the
title of the policy, the insurer, the
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amount of the coverage, the expiration date, the policy number and any pending
claims thereunder. To the Company's 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.
4.18 Intellectual Property
(a) Intellectual Property. Except as disclosed on Schedule 4.18(a),
there is no Intellectual Property necessary for the conduct of the Business and
operations of the Company (as now conducted and as proposed to be conducted). A
list of all Intellectual Property owned by the Company, or with respect to which
the Company has filed an application is set forth on Schedule 4.18(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 4.18(a). The business of the Company as formerly and presently
conducted did not and does not utilize any Intellectual Property right, and did
not and does not conflict with or infringe upon any Intellectual Property right,
owned or claimed by another.
(b) Contracts. Schedule 4.18(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 $1,000 under which the
Company is the licensee. There are no outstanding and, to the Company's
knowledge, no threatened disputes or disagreements with respect to any such
agreement.
(c) Encumbrances on Intellectual Property. Except as described on
Schedule 4.18(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 has the right to use without payment to a third party all of the
Intellectual Property.
4.19 Employees.
(a) Except as disclosed on Schedule 4.19(a), the Company is not a
party to any Contract or other employment agreement with any of its employees.
All employees of the Company, other than those listed on Schedule 4.19(a), are
at-will employees terminable, without any further obligations, immediately upon
notice thereof, subject to any discrimination or civil rights violations.
(b) The Company is not (i) a party to, involved in or, to the
Company's
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knowledge, threatened by, any labor dispute or unfair labor practice charge, or
(ii) currently negotiating any collective bargaining agreement. The Company has
not experienced during the last three years any work stoppage. The Company has
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 4.19(b) lists the current directors and officers of the
Company.
4.20 ERISA.
(a) Schedule 4.20 contains a complete and accurate list of all Benefit
Plans. The Company has 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, insurance contracts, memoranda, minutes, and resolutions describing the
administration of any Benefit Plan, (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, (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, (v) all notices that were issued within
the preceding three years by the IRS, Department of Labor or any other
governmental entity with respect to a Benefit Plan. 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
4.20.
(b) 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.
There have not been any "prohibited transactions," (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) or breach of fiduciary duty
described in section 404 of ERISA involving any of the Benefit Plans, that could
subject the Company or any stockholder, officer, director or employee of the
Company to any penalty or tax imposed under the Code or ERISA.
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(c) Except as is set forth in Schedule 4.20, 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 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. The Company has never been required to contribute to, 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 the best of the knowledge of the
Company, 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 or other persons, alleging any breach of fiduciary duty with respect to
any Benefit Plan on the part of the Company or any of its officers, directors or
employees under any laws or any applicable regulations, or claiming benefit
payments (other than those made in the ordinary operation of such plans), nor is
there, to the knowledge of the Company, any basis for any such claim. The
Benefit Plans are not the subject of any pending (or to the knowledge of the
Company, any threatened) investigation or audit by the Internal Revenue Service
or the Department of Labor or any other governmental entity and no matters are
pending with respect to any of the Benefit Plans under any IRS or Department of
Labor correction programs.
(f) The Company has timely made all required contributions under such
Benefit Plans. All benefits accrued under any funded or unfunded Benefit Plan
will have been paid, accrued or otherwise adequately reserved in accordance with
GAAP as of the Balance Sheet Date.
(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 4.20, (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
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Security Act, the Health Insurance Portability and Accountability Act of 1996,
and other applicable laws, and (iv) all Welfare Plans may be amended or
terminated at any time on or after the Closing Date. Except as specified in
Schedule 4.20, 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.
(h) All persons classified by the Company as independent contractors
satisfy and have at all times satisfied the requirements of applicable law to be
so classified; the Company has fully and accurately reported their compensation
on IRS Forms 1099 when required to do so; and the Company has no obligations to
provide benefits with respect to such persons under Benefit Plans or otherwise.
The Company does not employ and has not employed any "leased employees" as
defined in Section 414(n) of the Code.
(i) No Benefit Plan contains any provision or is subject to any law
that would prohibit the transactions contemplated by this Agreement or that
would give rise to any vesting of benefits, severance, termination or other
payments or liabilities as a result of the transactions contemplated by this
Agreement, and no payments or benefits under any Benefit Plan or other agreement
of the Company will be considered "excess parachute payments" under Section 280G
of the Code. The Company has not declared or paid any bonus compensation in
contemplation of the transactions contemplated by this Agreement.
4.21 Corporate Records. The minute book of the Company contains 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 stockholders. The stock record books of the Company are complete, correct
and current.
4.22 Absence of Certain Changes. Except as contemplated by this
Agreement, or except as disclosed on Schedule 4.22, the Company has conducted
the Business in the ordinary course since the Balance Sheet Date, and there has
not been with respect to the Company, the Assets or the Business any of the
items specified below since the Balance Sheet Date:
(a) any change in the operations or condition (financial or otherwise)
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
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
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(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;
(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) other than in the ordinary course of business, any incurrence of a
material liability including, without limitation, indebtedness for borrowed
money;
(g) any payments to any Affiliate of the Company;
(h) any material change in the net worth or working capital of the
Company, as reflected on the Balance Sheet; or
(i) any actual or threatened trouble or disruption in the relations
between the Company and its agents, customers or suppliers.
4.23 Customers. The Company has used reasonable business efforts to
maintain and, except as disclosed on Schedule 4.23, currently maintains, good
working relationships with all of its customers. Schedule 4.23 contains a list
of the names of each of the 10 customers that, in the aggregate, for the period
from June 30, 1998 through June 30, 1999 were the largest dollar volume
customers of the Company. Except as specified in Schedule 4.23, none of such
customers has given the Company written notice terminating, canceling or
threatening to terminate or cancel any Contract or relationship with the
Company.
4.24 Previous Sales; Warranties. To the Company's knowledge, it 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, would not have a Material Adverse Effect.
4.25 Finder's Fees. No Person, other than a party hereto, retained by any
Company Party is or will be entitled to any commission or finder's or similar
fee in connection with the Transactions. Any such commission or finder's or
similar fee will not increase in any way the aggregate consideration payable by
Buyer under this Agreement.
4.26 Accuracy of Information. To the Company's knowledge, no representation
or warranty by any Company Party in any Transaction Document, and no information
contained therein
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or otherwise delivered by or on behalf of any Company Party to Buyer in
connection with the Transactions, including the Financial Statements, 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.
4.27 Investigation and Evaluation. The Company and the Principal
Stockholders have not relied on Buyer or any of its directors, officers,
attorneys, accountants and advisors with respect to any matter in connection
with the Company's and the Principal Stockholders' evaluation of Buyer and its
business, assets and liabilities and the Transactions, other than the
representations and warranties of Buyer specifically set forth in Section 5 and
other documents filed publicly by Buyer with the Securities and Exchange
Commission. Each Principal Stockholder understands that his investment in the
Securities involves a significant degree of risk.
4.28 Undisclosed Liabilities. To the Company's knowledge, it has no
liabilities or obligations of any nature (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), except for liabilities or obligations reflected or reserved against in the
Balance Sheet and current liabilities incurred in the ordinary course of
business since the Balance Sheet Date (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of Contract,
breach of warranty, tort, infringement or violation of Law).
4.29 Investment Purpose. As of the date hereof, each Principal Stockholder
is acquiring the Buyer's Common Stock (such shares of Buyer's Common Stock being
referred to herein as the "Securities") for his own account and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the Securities Act.
4.30 Accredited Investor. Each Principal Stockholder, individually,
represents and warrants that he is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D (an "Accredited Investor").
4.31 Reliance on Exemptions. Each Principal Stockholder understands that
the Securities are being offered and sold to him in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that Buyer is relying upon the truth and accuracy of, and
the Company's and Principal Stockholders' compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Company and
Principal Stockholders set forth herein in order to determine the availability
of such exemptions and the eligibility of the Principal Stockholders to acquire
the Securities.
4.32 Governmental Review. The Principal Stockholders each understand that
no United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
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4.33 Information. The Principal Stockholders and their advisors have been
furnished with all materials relating to the business, finances and operations
of Buyer and materials relating to the offer and sale of the Securities which
have been requested by the Company, Principal Stockholders and their advisors.
The Company, Principal Stockholders and their advisors have been afforded the
opportunity to ask questions of Buyer. Neither such inquiries nor any other due
diligence investigation conducted by the Company, Principal Stockholders or any
of their advisors or representatives shall modify, amend or affect the Company
or the Principal Stockholders' right to rely on Buyer's representations and
warranties contained in Section 5 below. The Principal Stockholders each
understand that their investment in the Securities involves a significant degree
of risk.
4.34 Transfer or Re-sale. Each Principal Stockholder understands that (a)
the sale or re-sale of the Securities has not been and is not being registered
under the Securities Act or any applicable state securities laws, and the
Securities may not be transferred unless (i) such sale or re-sale is
subsequently included in an effective registration statement thereunder, (ii)
sold or transferred to an "affiliate" (as defined in Rule 144 promulgated under
the Securities Act (or a successor rule) ("Rule 144")) of the Principal
Stockholders who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 4.34 and who is an Accredited Investor or (iii) the
Securities are sold pursuant to Rule 144 or any other applicable exemption; (b)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
Company (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; (c) none of
the Principal Stockholders nor any other person is under any obligation to
register such Securities under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder; and (d)
any sale of such Securities may only be made in accordance with Buyer's policies
(as such policies may be amended, modified and supplemented from time to time)
against insider trading and the misuse of material non-public information.
4.35 Legends. Each Principal Stockholder understands that, until such
time as the Securities have been registered under the Securities Act or
otherwise may be sold pursuant to Rule 144 or any other applicable exemption
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Securities may bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion
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of counsel, in form, substance and scope customary for opinions of counsel
in comparable transactions, that registration is not required under said
Act or unless sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and Buyer shall issue a certificate
without such legend to the holder of any Securities upon which it is stamped,
if, unless otherwise required by applicable state securities laws, (a) such
Securities are registered for sale under an effective registration statement
filed under the Securities Act, or (b) such holder provides Buyer with
reasonable assurances that such Securities can be sold pursuant to Rule 144
without any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold. The Principal Stockholders
each agree to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
4.36 Additional Information. Schedule 4.36 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.
50 Representations and Warranties of Buyer.
Buyer hereby represents and warrants to the Company Parties as follows:
5.1 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 every jurisdiction where it is required to be
so qualified, except where the failure to be so qualified would not have a
material adverse effect on Buyer. CACI is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware and is
qualified to do business in every jurisdiction where it is required to be so
qualified, except where the failure to be so qualified would not have a material
adverse effect on CACI.
5.2 Authorization. Buyer and CACI have the requisite power and authority
to own their assets and to carry on their respective businesses. Buyer and CACI
have the requisite power and authority to execute and deliver the Transaction
Documents to which they are a party and to perform the Transactions performed,
or to be performed, by them. Such execution, delivery and performance by Buyer
and CACI have been duly authorized by all necessary corporate action. Each
Transaction
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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. Each Transaction Document executed
and delivered by CACI has been duly executed and delivered by CACI and
constitutes a valid and binding obligation of CACI, enforceable against CACI in
accordance with its terms.
5.3 Consents and Approvals. Except for filings that may be required to
effect the Merger under the TBCA and the DGCL, neither the execution and
delivery by Buyer or CACI of the Transaction Documents to which they are a
party, nor the performance of the Transactions performed, or to be performed by,
them 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 or
CACI is subject, (b) the Charter Documents or Bylaws of Buyer or CACI or (c) any
Contract, Governmental Permit or other document to which Buyer or CACI is a
party or by which the properties or other assets of Buyer or CACI may be
subject, except, in the case of clauses (a) and (c), where the failure to obtain
such consents or approvals, or to make such filings, would not have a material
adverse effect on the business and operations of Buyer, CACI, the Principal
Stockholders or the Transactions.
5.4 Capitalization and Share Ownership. Upon consummation of the
Transactions and as of the Closing Date, the authorized capital stock of Buyer
consists of 90,000,000 shares of Buyer's Common Stock. As of June 30, 1999,
16,946,943 of such shares of Buyer's Common Stock were issued and outstanding
and 198,363 shares were held by Buyer as treasury stock. Additionally, as of
June 30, 1999 there were outstanding options to purchase 2,860,717 shares of
Buyer's Common Stock pursuant to the terms of Buyer's Amended and Restated 1996
Equity Compensation Plan, as amended. Buyer owns all of the issued and
outstanding shares of capital stock of CACI, and all of such capital stock has
been validly issued and is fully paid and nonassessable.
5.5 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.
5.6 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.
5.7 Tax Effect of Merger. To the knowledge of Buyer, Buyer has not taken
any action or refrained from taking any action that would cause the Merger not
to qualify as a reorganization as defined under Code Section 368(a)(1)(A) and
Code Section 368(a)(2)(D).
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60 Covenants of Company Parties.
6.1 No Solicitation. From and after the date hereof, without the prior
written consent of Buyer, each Company Party will not, and will not authorize or
permit any Company 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. Any Company Party 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 proposal to acquire in any manner a substantial equity interest
in, or all or substantially all of the Company, Business or Assets.
6.2 Existing Employment Agreements and Other Liabilities. Each Principal
Stockholder, effective as of the Closing Date, hereby consents to the
cancellation of any Contract that the Principal Stockholder has with the
Company, including any employment agreement, and also releases and discharges
the Company 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 or benefits due to the Principal Stockholder in the ordinary
course.
6.3 Expenses. The Company shall cause to be paid all of the legal,
accounting and other expenses incurred by the Company Parties in connection with
the Transactions (provided, however, that any such expenses exceeding $40,000
shall be borne by the Principal Stockholders).
6.4 Non-Competition and Confidentiality.
(a) During the period beginning on the Closing Date and ending on the
third anniversary thereof, no Principal Stockholder shall directly or
indirectly, own, manage, operate, finance, join, control or otherwise
participate in the ownership management, operation, financing or control of, or
in any way be connected as an officer, employee, partner, principal, agent,
representative, or consultant, or otherwise with, any business or enterprise
engaged anywhere in the world (i) in any business in which the Company was
engaged on the date hereof, including but not limited to the business of owning
or operating industrial trade communities or portal sites on the Internet
specializing in training or education or education reselling (the "Business"),
(ii) in the ownership or operation of industrial trade communities or portal
sites on the Internet which are
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competitive with any industrial trade communities operated or planned by Buyer
(provided, however that the Principal Stockholder must have knowledge of such
Buyer's planned communities), or (iii) in any business that competes with Buyer,
including but not limited to those business entities listed on Schedule 6.4(a),
nor shall any Principal Stockholder assist any Person that shall be engaged in
any such business activities, including by making available to any such Person
any information related to the Business. The foregoing restriction, however,
shall not restrict a Principal Stockholder's ability to own, as a passive
investment, up to 2% of any entity whose equity securities are traded on NASDAQ
or on a national securities exchange nor shall such restriction be deemed to
require the Employee, and Employee shall not be required by any term of this
Agreement, to divest himself of any investment (provided that investment is
passive) held by the Employee on the date hereof or acquired by the Employee
after the date hereof, if, at the time of such acquisition, such business or
enterprise in which the interest is acquired does not compete with the Company.
In addition, no Principal Stockholder shall solicit any employee of the Company
or the Buyer for the purposes of having any such employee terminate his or her
employment with the Company or the Buyer. If a court determines that the
foregoing restrictions are too broad or otherwise unreasonable under applicable
law, including with respect to time or space, the court is hereby requested and
authorized by the parties hereto to revise the foregoing restriction to include
the maximum restrictions allowable under applicable law. Each Stockholder
acknowledges, however, that this Section 6.4(a) has been negotiated by the
parties.
(b) Each Principal Stockholder acknowledges and understands that (i)
Buyer is and will be relying upon the covenants made by such Principal
Stockholder in Section 6.4(a) in entering into this Agreement and consummating
the transactions contemplated hereby; (ii) the restrictions contained in Section
6.4(a) are reasonable and necessary to protect the legitimate interests of
Buyer, and that any violation will result in irreparable injury to Buyer; (iii)
that the covenants contained in Section 6.4(a) are reasonable as to geographic
and temporal scope and that such restrictions are intended solely to protect the
legitimate interests of Buyer, rather than to prevent such Principal Stockholder
from earning a livelihood; (iv) that Buyer competes for the industrial trade
community market on the Internet and the Trade Secrets and Confidential
Information known by the Principal Stockholders makes it necessary for Buyer to
restrict the Principal Stockholders' activities in all markets where Buyer
competes and where the Principal Stockholders' access to Trade Secrets and
Confidential Information and other proprietary information could be used to the
detriment of Buyer; and (v) that each Principal Stockholder has the skills and
training to be able to continue to earn a livelihood without violating the terms
of the covenants contained in Section 6.4(a).
(c) Each Principal Stockholder recognizes and acknowledges that by
reason of his involvement with or employment in the Business, he has had access
to Confidential Information and Trade Secrets relating to the Company and the
Business. Each Principal Stockholder acknowledges that such Confidential
Information and Trade Secrets are a valuable and unique asset and covenants that
he will not disclose any such Confidential Information and Trade Secrets to any
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Person for any reason whatsoever, unless such information (i) is in the public
domain through no wrongful act of such Principal Stockholder, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The terms of this Section 6.4 shall apply to each Principal
Stockholder and to any other Person controlled by any such Principal Stockholder
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 to adhere to the
terms of this Section 6.4.
(e) Each Principal Stockholder agrees that Buyer shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as to an equitable accounting of all earnings, profits
and other benefits arising from any violation, or threatened violation, of
Section 6.4, which rights shall be cumulative and in addition to any other
rights or remedies to which Buyer may be entitled. Any relief granted pursuant
to this Section 6.4(e) 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.
6.5 Transfer of Assets and Business. The Company shall 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.
6.6 Business Relations. The Company shall use commercially reasonable
efforts to maintain its relations and goodwill with its suppliers, customers,
distributors and any others having business relations with it. To the extent
requested by Buyer, after the Closing the Company shall introduce Buyer to its
customers and suppliers and recommend that they continue doing business with
Buyer after the Closing.
6.7 Related Parties. The Principal Stockholders shall cause the Company
to perform its obligations hereunder and under any other Transaction Document.
6.8 Conduct of the Business. Except as contemplated or otherwise
consented to by Buyer in writing, the Company shall carry on the Business in the
ordinary course in a manner consistent with its past practices. In furtherance
of and in addition to such restriction, (a) the Company shall not: (i) amend its
Charter Documents or bylaws; (ii) 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; (iii) split, combine or reclassify its outstanding capital stock; (iv)
enter into any Contract or otherwise incur any Liability outside the ordinary
course of business; (v) discharge or satisfy any Encumbrance or pay or satisfy
any material Liability except pursuant to the terms thereof; (vi) compromise,
settle or otherwise adjust any material claim or litigation; (vii) make any
capital expenditure involving in any individual
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case more than $5,000; (viii) incur any indebtedness for borrowed money or issue
any debt securities; (ix) declare or pay any dividend or other distribution on
its capital stock; (x) 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
4.22 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.
6.9 Access to Information. From the date of this Agreement to the Closing
Date, the Company shall give to Buyer and its officers, employees, counsel,
accountants and other representatives access to and the right to inspect, during
normal business hours, and upon reasonable notice, 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.
6.10 Monetization of the Securities. Without limiting any other
restrictions contained in any Law pertaining to the Securities, from and after
the date hereof, until the first anniversary of the Closing Date, with the prior
written consent of Buyer (which consent shall not be unreasonably withheld), the
Principal Stockholders, collectively, may sell or otherwise dispose of up to no
more than 50% of the Securities. In the event such sale takes place, (a) the
reasonable fees and costs associated with the establishment of a sale mechanism
shall be borne by Buyer and (b) all other costs, including without limitation
attorney's fees, brokerage fees and commissions or those costs or fees
associated with borrowing against the position or inherent costs of exercise of
the position shall be borne solely by the selling Principal Stockholders.
70 Covenants of Buyer.
7.1 Expenses. Buyer shall pay all of the legal, accounting and other
expenses incurred by Buyer in connection with the Transactions.
7.2 Employees.
(a) Benefit Eligibility. On and after the Closing Date, Buyer shall
-------------------
allow employees of the Company to participate in any employee benefit plans (as
defined in Section 3(3) of ERISA) established or maintained by Buyer and its
ERISA Affiliates (a "Buyer") on the same terms that apply to other similarly-
situated employees of Buyer and its ERISA Affiliates. For purposes of this
Section 7.2, the term "ERISA Affiliate" shall mean any entity that with Buyer is
(i) a member of a controlled group of corporations within the meaning of Section
414(b) of the Code; (ii) a member of a group of trades or businesses under
common control within the meaning of Section 414(c) of the Code; (iii) a member
of an affiliated service group within the meaning of
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Section 414(m) of the Code; or (iv) a member of a group of organizations
required to be aggregated under Section 414(o) of the Code.
(b) Benefit Service Credit. Buyer shall cause each Buyer Plan
----------------------
established or maintained by Buyer and its ERISA Affiliates to recognize the
years of service of each Company employee with the Company, as such service is
reported on Schedule 7.2, for eligibility, vesting, benefit computation, or any
other purpose for which service is relevant under each such Buyer Plan, to the
same extent as if such service had been rendered to Buyer; provided, however,
that any defined benefit plan of Buyer or its ERISA Affiliates shall not be
required to recognize such service for benefit accrual purposes.
(c) Welfare Benefits. Any restrictions on coverage for pre-existing
----------------
conditions or requirements for evidence of insurability under the Welfare Plans
of Buyer and its ERISA Affiliates shall be waived for Company employees, and
such employees shall receive credit under each such Welfare Plan for co-payments
and payments under a deductible limit made by them and for out-of-pocket
maximums and similar limits applicable to them during the plan year of the
Company Welfare Plan in which the Closing occurs in accordance with the
corresponding Company Welfare Plan. As soon as practicable after the Closing
Date, Company shall deliver to Buyer a list of the Company employees who had
credited service under a Company Welfare Plan, together with each such
employee's service, co-payment amounts, and deductible and out-of-pocket
payments.
(d) Options. Options to purchase 50,000 shares of the Buyer's Common
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Stock, pursuant to the Buyer's Amended and Restated 1996 Equity Compensation
Plan, as amended, will be granted to certain Ancillary Stockholders after the
Closing in accordance with Schedule 7.2(d). Such options shall be subject to
Buyer's four-year vesting policy and to such other conditions as Buyer and the
Principal Stockholders may agree upon.
80 Mutual Covenants.
8.1 Fulfillment of Closing Conditions. At and prior to the Closing, the
parties shall use commercially reasonable efforts to fulfill, and to cause each
other to fulfill, the conditions specified in Sections 9 and 10, 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 9 and 10, (c) comply 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 of the Company Required Consents (e) use
commercially reasonable efforts to take, or cause to be taken, all other actions
and
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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.
8.2 Disclosure of Certain Matters. Each Company Party on the one hand,
and Buyer, on the other hand, shall give Buyer and the Company Parties,
respectively, prompt notice of any event or development that occurs of which
Company Party or Buyer, as the case may be, become aware, 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 Section 9 or 10 will not be satisfied prior to the Closing Date.
8.3 Public Announcements. Upon execution and delivery hereof, Buyer
shall, after consultation with the Principal Stockholders, be entitled to issue
a press release announcing the same and the terms of the Transactions
contemplated hereby. Thereafter, the Company Parties 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.
8.4 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 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.
8.5 Access to Information. From the date hereof, the parties hereto shall
cooperate with each other, as reasonably necessary, in the provision of
information reasonably required by the parties to prepare their respective tax
returns and other similar filings.
90 Conditions Precedent to Obligations of the Company Parties.
All obligations of the Company Parties 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
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.
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9.2 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.
9.3 Officer's Certificate. The Company Parties shall have received a
certificate of an executive officer of Buyer to the effect set forth in Sections
9.1 and 9.2 with respect to Buyer.
9.4 Secretary's Certificate of Buyer. Buyer shall have delivered to the
Company a certificate signed by the Secretary of Buyer attaching a true and
correct copy of each of the following: (a) the Articles of Incorporation of
Buyer certified by the Secretary of State of the Commonwealth of Pennsylvania,
(b) the Bylaws of Buyer certified by the Secretary of Buyer as in full force and
effect as of the Closing Date, and (c) resolutions of the Board of Directors of
Buyer authorizing the execution, deliver and performance by Buyer of this
Agreement, the other Transaction Documents to which it is a party and the
Transactions and the Secretary of Buyer shall certify that such resolutions have
not been amended, superseded, or rescinded since their adoption, are in full
force and effect as of the Closing Date, and are the only resolutions adopted by
the Board of Directors of Buyer with respect to the subject matter thereof.
9.5 Secretary's Certificate of CACI. CACI shall have delivered to the
Company a certificate signed by the Secretary of CACI attaching a true and
correct copy of each of the following: (a) the Certificate of Incorporation of
CACI certified by the Secretary of State of the State of Delaware, (b) the
Bylaws of CACI certified by the Secretary of CACI as in full force and effect as
of the Closing Date, and (c) resolutions of the Board of Directors of CACI
authorizing the execution, delivery and performance by CACI of this Agreement,
the other Transaction Documents to which it is a party and the Transactions and
the Secretary of CACI shall certify that such resolutions have not been amended,
superseded, or rescind since their adoption, are in full force and effect as of
the Closing Date, and are the only resolutions adopted by the Board of Directors
of CACI with respect to the subject matter thereof.
9.6 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 Transactions illegal or otherwise prohibiting
the consummation of the Transactions.
9.7 Opinion of Counsel. The Principal Stockholders shall have received an
opinion from counsel to Buyer, dated the Closing Date, in substantially the form
of Exhibit G hereto.
10. 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:
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10.1 Representations and Warranties. The representations and warranties of
the Company Parties 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.
10.2 Agreements, Conditions and Covenants. The Company Parties shall have
performed or complied with all agreements, conditions and covenants required by
this Agreement to be performed or complied with by them on or before the Closing
Date.
10.3 Officer's Certificate. Buyer shall have received a certificate of an
executive officer of the Company and of each Principal Stockholder to the effect
set forth in Sections 10.1 and 10.2.
10.4 Secretary's Certificate. The Company shall have delivered to Buyer a
certificate signed by the Secretary of the Company attaching a true, correct and
complete copy of each of the following: (a) the Company's Charter Documents
certified by an appropriate authority in the State of Texas, (b) the Bylaws of
the Company certified by the Secretary of the Company as in full force and
effect as of the Closing Date, and (c) resolutions of the Board of Directors of
the Company authorizing the execution, delivery and performance by the Company
of this Agreement, and other Transaction Documents to which is its a party and
the Transactions and the Secretary of the Company shall certify that such
resolutions have not been amended, superseded, or rescinded since their
adoption, are in full force and effect as of the Closing Date, and are the only
resolutions adopted by the Board of Directors of the Company with respect to the
subject matter thereof.
10.5 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 Transactions illegal or otherwise
prohibiting the consummation of the Transactions or (b) has a reasonable
likelihood of causing a Material Adverse Effect.
10.6 Opinion of Counsel. Buyer shall have received an opinion from counsel
to the Company and the Principal Stockholders, dated the Closing Date, in
substantially the form of Exhibit F hereto.
10.7 The Company Required Consents. The Company shall have obtained the
Company Required Consents.
10.8 Outstanding Debt and Payables. Buyer shall have received evidence to
it satisfaction that (a) the Outstanding Indebtedness has been repaid in full in
accordance with its terms without compromise, set-off or reduction; and (b) all
payables of the Company to its investors and employees shall have been paid in
full in accordance with their terms, without compromise, set-off or reduction.
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10.9 Employment and Pledge Agreements. Each Principal Stockholder shall
have executed and delivered his respective Employment Agreement.
11. Indemnification.
11.1 By the Principal Stockholders. From and after the Closing Date, the
Principal Stockholders, jointly and severally (provided, however, that no
indemnification shall be required to be made by Stuart Thomajan under this
Section 11.1 in excess of his Pro Rata Portion of any Buyer Indemnified Party's
Damages), shall indemnify and hold harmless Buyer, CACI and their successors and
assigns, and their respective officers, directors, employees, stockholders,
agents, Affiliates and any Person who 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
but excluding consequential or incidental 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 Company Parties
contained in this Agreement or any other Transaction Document, (b) any
Environmental Condition existing on or before the Closing Date, and (c) any
Liability of any Company Party involving Taxes due and payable by, or imposed
with respect to any Company Party for any and all taxable periods ending on or
prior to the Closing Date (whether or not such Taxes have been due and payable).
11.2 By Buyer. From and after the Closing Date, Buyer shall indemnify and
hold harmless the Principal Stockholders and their respective successors and
assigns (each, a "Stockholder Indemnified Party") from and against any Damages
that such Stockholder 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.
11.3 Holders' Representative.
(a) Walter Rogers shall act as the Principal Stockholders'
representative (the "Holders' Representative") for the purpose of settling on
behalf of the Principal Stockholders any indemnification claims made by a Buyer
Indemnified Party hereunder, and taking any other action that is specifically
delegated to the Holders' Representative hereunder. Buyer shall give notice
under Section 11.4 of any claim for indemnification against the Principal
Stockholders to the Principal Stockholders 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 Principal Stockholders with
respect to the claim. The Principal Stockholders shall be bound by any and all
actions taken by the Holders' Representative on their behalf in accordance with
this Agreement.
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(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 Principal
Stockholders 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 Principal Stockholder or
Principal Stockholders who immediately prior to the Closing owned a majority of
shares of the Company's Common Stock shall choose another Holders'
Representative.
(d) The Holders' Representative shall not be liable to any Principal
Stockholder 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. The Principal Stockholders shall 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, unless such loss, liability
or expense shall be caused by the Holders' Representative's willful misconduct
or gross negligence.
11.4 Procedure for Claims.
(a) Any Person that desires to seek indemnification under any part
of this Section 11 (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 briefly explain the nature of the claim
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 Liquidated Claim
Notice shall specify the amount of the claim. Each Indemnitor to which a Claim
Notice is given shall respond to any Indemnified Party that has given a Claim
Notice (a "Claim Response") within 20 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
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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 11, 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 within 60 days of the date 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, after such 60-day period,
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.
(c) Whenever there is an event, condition or a circumstance (a
"Possible Breach"), the subject matter of which is covered by more than one of
the representations and warranties contained in Section 4 or Section 5 (the
"Applicable Representations") and one or more of such representations (the
"Specifically Applicable Representations") more specifically relate to the
subject matter of the Possible Breach, then if such Possible Breach would cause
a breach of any Specifically Applicable Representations, the fact that a breach
may not have occurred with respect to any of the more general Applicable
Representations shall not affect an Indemnified Party's ability to claim a
breach of the Specifically Applicable Representations. By way of illustration
but not by way of limitation, if, for example, an inaccuracy in the Financial
Statements exists with respect to Inventory that is unknown to the Company and,
therefore, would not constitute a breach of Section 4.26 by virtue of the
knowledge limitation in Section 4.26, a Buyer Indemnified Party would still be
able to claim a breach of the representations and warranties in Section 4.5 with
respect to Financial Statements and in Section 4.11 with respect to Inventory
since Section 4.5 and Section 4.11 more specifically relate to the Financial
Statements and Inventory.
11.5 Third Party Claims. An Indemnified Party that desires to seek
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial
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proceedings (each, an "Action") that may be instituted by a third party shall
give each Indemnitor prompt notice of a third party's institution of such
Action. After such notice, any Indemnitor may, or if so requested by such
Indemnified Party, any Indemnitor shall, participate in such Action with counsel
satisfactory to such Indemnified Party; provided, however, that such Indemnified
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Party shall have the right to participate at its own expense in the defense of
such Action; and provided, further, that the Indemnitor shall not consent to the
-----------------
entry of any judgement or enter into any settlement,except with the written
consent of such Indemnified Party (which consent shall not be unreasonably
withheld). Any failure to give prompt notice under this Section 11.5 shall not
bar an Indemnified Party's right to claim indemnification under this Section 11,
except to the extent that an Indemnitor shall have been harmed by such failure.
11.6 Indemnification Limits. The right to indemnification under this
Section shall be subject to the following limitations:
(a) No indemnification shall be payable with respect to claims
arising under Sections 11.1 or 11.2 unless and until the aggregate amount of all
Damages sustained by an Indemnified Party exceeds $50,000 (the "Indemnification
Threshold"), whereupon indemnification by the Indemnitor shall be payable for
all Damages back to the first dollar. Notwithstanding anything to the contrary
in this Section 11.6(a), any claims arising in connection with (i) Section 11.1
with respect to breaches of the representations and warranties contained in
Section 4.4 or (ii) that certain UCC-1 Financing Statement #99-040752, filed on
March 1, 1999 with the State of Texas Secretary of State, including the failure
to obtain release thereof in a timely manner, shall not be subject to the
Indemnification Threshold.
(b) The aggregate liability of either party for all claims for
indemnification under this Section 11 with respect to breaches of or
inaccuracies in the representations and warranties contained in this Agreement
shall not exceed $4,000,000.
(c) Notwithstanding the foregoing, nothing herein shall limit a
party's liability for an intentional misrepresentation contained herein.
11.7 Survival of Representations, Warranties, Covenants and Obligations.
The representations and warranties given or made by each party to this
Agreement, or in any certificate or other writing furnished in connection
herewith, shall survive the Closing for a period of two years after the Closing
Date and shall thereafter terminate and be of no further force or effect, except
that (a) all representations and warranties relating to Taxes and Tax Returns
shall survive the Closing for the period of the applicable statutes of
limitation plus any extensions or waivers thereof, (b) all representations and
warranties with respect to environmental matters shall survive the Closing for a
period of six years after the Closing Date, and (c) any representation or
warranty as to which a claim (including without limitation a contingent claim)
shall have been asserted prior to the expiration of such representation or
warranty shall continue in effect with respect to such claim until
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such claim shall have been finally resolved or settled. Each party shall be
entitled to rely upon the representations and warranties of the other party or
parties set forth herein, notwithstanding any investigation or audit conducted
before or after the Closing Date or the decision of any party to complete the
Closing.
12. Termination.
12.1 Grounds for Termination. This Agreement may be terminated at any time
before the Effective Time:
(a) By written consent of the Company, the Principal Stockholders
and Buyer;
(b) By the Company, the Principal Stockholders 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
- -------- -------
12.1(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 the Company, the Principal Stockholders or Buyer if a court
of competent jurisdiction or governmental, 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;
(c) By Buyer, if any Company Party 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 Company Party 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 Buyer hereunder;
(d) By any Company Party, 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 Principal
Stockholders hereunder.
12.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 12.1, the agreements contained in Section 8.4 shall survive the
termination hereof and any party may pursue
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any legal or equitable remedies that may be available if such termination is
based on a breach of another party.
13. Right of First Refusal on Resale of the Business . After the date hereof,
if Buyer elects to sell or otherwise transfer for consideration (excluding any
change of control of Buyer or assignment by Buyer to an Affiliate) the Business,
substantially as it exists on the date hereof, then Buyer shall provide Walter
Rogers with reasonable prior notice of such intentions. Walter Rogers shall have
seven business days from the actual receipt of such notice to respond. If Walter
Rogers fails to respond within seven business days of such notice, expressing
interest in repurchasing the Business, then Walter Rogers shall be deemed to
have waived any repurchase option hereunder with respect to the Business. If
Walter Rogers responds within the allotted time period and expresses interest in
repurchasing the Business, then Buyer and Walter Rogers shall negotiate in good
faith (for a period not longer than two weeks) an agreement providing for the
repurchase of the Business by Walter Rogers. In the event, however, that the
parties are unable to reach an agreement within such two week time frame, Buyer
shall be free to solicit offers with respect to sale of the Business from third-
parties. In the event that Buyer is prepared to accept a bona fide offer for the
purchase of the Business from any such third party, Buyer shall so notify Walter
Rogers, including in such notification the material terms and conditions of the
proposed sale. Walter Rogers shall have ten business days from the actual
receipt of such notice to respond with an offer to match such bona fide third-
party offer. If Walter Rogers fails to respond with ten days business of such
notice expressing intent to match such bona fide third-party offer, then Walter
Rogers shall be deemed to have waived any repurchase option hereunder with
respect to the Business.
Walter Rogers shall have 60 business days from the date he expresses any
intent to repurchase the Business within which to consummate the repurchase
thereof. In the event that the repurchase is not consummated within such time
frame, Walter Rogers shall be deemed to have waived any repurchase option
hereunder with respect to the Business.
14. General Matters.
14.1 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 one arbitrator. If an even
number of arbitrators is selected, such arbitrators shall select an additional
arbitrator.
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(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.
(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.
14.2 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, including but not
limited to that certain Letter Agreement dated June 23, 1999 by and among the
Company, Buyer and the Principal Stockholders.
14.3 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, other than a
provision which provides for the payment of any portion of the Transaction
Consideration, 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,
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successors and permitted assigns of the parties. Nothing in this Agreement shall
confer any rights upon any Person other than the Company Parties 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.
14.4 Further Assurances. At and after the Closing, the Company Parties 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.
14.5 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 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.
14.6 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, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
14.7 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.
15. Remedies.
The indemnification rights under Section 11 are the sole and exclusive
rights and remedies of the parties for damages for any misrepresentation or
breach of warranty but shall in no way affect, prejudice or impair the rights of
any party hereto to seek specific performance, rescission or restitution for
failures to fulfill any agreement or covenant hereunder.
16. Notices.
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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 national overnight delivery service. Unless
expressly stated otherwise herein, 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 parties hereto:
If to the Principal Stockholders:
c/o 1111 North Loop West, Suite 200
Houston, TX 77008
Attn: Stuart Thomajan
Facsimile: 713-520-7994
with a required copy to:
Winstead Sechrest & Minick P.C.
2400 Bank One Center
910 Travis Street
Houston, TX 77002-5895
Attn: Arthur S. Berner, Esq.
Facsimile: 713-650-2400
If to the Company, CACI or Buyer:
c/o VerticalNet, Inc.
2 Walnut Grove Drive, Suite 150
Horsham, PA 19044
Attn: Mr. Gene S. Godick
Facsimile: 215-443-3336
with a required copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Attn: James W. McKenzie, Jr., Esq.
Facsimile: 215-963-5299
17. Governing Law.
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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.
(signatures follow on next page)
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IN WITNESS WHEREOF, this Agreement and Plan of Merger has been executed by
the parties hereto as of the day and year first written above.
CERTISOURCE, INC. CERTISOURCE ACQUISITION CO., INC.
By:__________________________ By:______________________________
Name: Walter Rogers Name: Gene S. Godick
Title: President Title: President
_____________________________ VERTICALNET, INC.
Walter Rogers
By:_______________________________
Name: Gene S. Godick
Title: Chief Financial Officer
______________________________
Richard Talaber
______________________________
Stuart Thomajan
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Consent of Independent Auditors
The Board of Directors
VerticalNet, Inc.
We consent to the use of our report dated July 29, 1999, except for footnote 7,
as to which the date is August 10, 1999, with respect to the balance sheet of
CertiSource, Inc. as of December 31, 1998, and the related statements of
operations, stockholders' deficit and cash flows for the year ended December 31,
1998, which report appears in the Form 8-K of VerticalNet, Inc. dated August 20,
1999.
KPMG LLP
Philadelphia, Pennsylvania
August 19, 1999
