<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999
or
[ ] Transition Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
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)
Registrant's telephone number, including area code:
(215) 328-6100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days:
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
-------------------------------- -----------------------------------
Common Stock, $0.01 par value 35,605,634
1
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VERTICALNET, INC.
FORM 10-Q
(For Three Months Ended and Nine Months Ended September 30, 1999)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Part I
<S> <C>
Item 1. Consolidated Financial Statements................................................................... 3
Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of
Operations.......................................................................................... 12
Item 3. Quantitative And Qualitative Disclosure About Market Risk........................................... 29
Part II
Item 1. Legal Proceedings................................................................................... 30
Item 2. Change in Securities And Use Of Proceeds............................................................ 30
Item 4. Submission of Matters to a Vote of Security Holders................................................. 31
Item 6. Exhibits And Reports On Form 8-K.................................................................... 31
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
VERTICAL NET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 91,710,094 $ 5,662,849
Short-term investments 21,798,570 -
Accounts receivable, net of allowance for doubtful accounts of
$261,000 in 1999 and $61,037 in 1998 7,869,431 1,794,728
Prepaid expenses and other assets 3,098,877 747,951
-------------- ---------------
Total current assets 124,476,972 8,205,528
-------------- ---------------
Cash - restricted 1,220,261 -
Property and equipment, net 4,582,704 1,072,063
Goodwill and other intangibles, net of accumulated amortization of
$2,985,670 in 1999 and $282,990 in 1998 44,893,082 2,451,991
Long-term investments 14,842,817 -
Other assets 4,075,308 613,393
-------------- ---------------
Total assets $ 194,091,144 $ 12,342,975
============== ===============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current portion of long-term debt $ 1,356,514 $ 288,016
Line of credit - 2,000,000
Accounts payable 3,839,901 1,220,562
Accrued expenses 4,502,832 1,582,038
Deferred revenues 7,427,282 2,176,585
-------------- ---------------
Total current liabilities 17,126,529 7,267,201
-------------- ---------------
Long-term debt, net of current portion 1,738,866 351,924
-------------- ---------------
Convertible notes 100,000,000 5,000,000
============== ===============
Commitments and contingencies (Note 3)
Shareholders' Equity (Deficit):
Preferred stock $.01 par value, 10,000,000 shares authorized,
no shares issued and outstanding in 1999 and 7,805,667
shares issued and outstanding in 1998 - 78,057
Common stock $.01 par value, 90,000,000 shares authorized,
35,605,634 issued in 1999 and 5,268,758 shares issued in 1998 356,056 52,687
Additional paid-in capital 133,366,183 19,540,025
Deferred compensation (724,866) (594,033)
Accumulated comprehensive loss (130,471) -
Accumulated deficit (57,489,166) (19,292,886)
-------------- ---------------
75,377,736 (216,150)
Treasury stock at cost, 396,726 shares in 1999 and 322,578 shares in 1998 (151,987) (60,000)
-------------- ---------------
Total shareholders' equity (deficit) 75,225,749 (276,150)
-------------- ---------------
Total liabilities and shareholders' equity (deficit) $ 194,091,144 $ 12,342,975
============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VERTICALNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS.
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 5,182,495 $ 897,006 $ 10,667,454 $ 1,861,799
Revenues -------------- -------------- -------------- --------------
Costs and Expenses:
Editorial and operational 2,553,646 975,908 5,438,402 2,100,885
Product development 2,225,431 219,557 4,920,135 797,815
Sales and marketing 7,923,721 1,791,004 17,100,528 4,405,407
General and administrative 3,083,844 1,261,817 6,433,915 2,803,710
Amortization of goodwill 2,092,210 103,565 2,702,679 103,565
In-process research and development charge (Note 5) 13,600,000 - 13,600,000 -
-------------- -------------- -------------- --------------
Operating loss (26,296,357) (3,454,845) (39,528,205) (8,349,583)
Interest, net 469,546 76,809 1,331,925 15,166
-------------- -------------- -------------- --------------
Net loss $ (25,826,811) $ (3,378,036) $ (38,196,280) $ (8,334,417)
============== ============== ============== ==============
Basic and diluted net loss per share $ (0.75) $ (0.65) $ (1.29) $ (1.63)
============== ============== ============== ==============
Weighted average shares used in
basic and diluted per-share calculation 34,621,414 5,168,692 29,596,145 5,101,238
============== ============== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
4
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VERTICALNET, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Deferred
Shares Amount Shares Amount Capital Compensation
------ ------ ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 7,805,667 $ 78,057 5,268,758 $ 52,687 $ 19,540,025 $(594,033)
Conversion to common stock (7,805,667) (78,057) 19,469,692 194,698 (116,641) -
Sale of common stock in
initial public offering - - 8,050,000 80,500 58,206,814 -
Notes converted to common stock - - 625,000 6,250 4,993,750 -
Exercise of options - - 765,955 7,659 593,043 -
Shares issued through employee
stock purchase plan - - 71,561 715 571,783 -
Shares issued as consideration for acquisitions - - 1,280,520 12,805 49,048,089 -
Exercise of warrants - - 74,148 742 91,245 -
Unearned compensation - - - - 438,075 (494,855)
Amortization of unearned compensation - - - - - 364,022
Unrealized loss - - - - - -
Net loss - - - - - -
----------- -------- ---------- -------- ------------ ---------
Balance, September 30, 1999 - $ - 35,605,634 $356,056 $133,366,183 $(724,866)
=========== ======== ========== ======== ============ =========
<CAPTION>
Other Total
Comprehensive Accumulated Treasury Shareholders'
Loss Deficit Stock Equity (Deficit)
---- ------- ----- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1999 $ - $(19,292,886) $ (60,000) $ (276,150)
Conversion to common stock - - - -
Sale of common stock in -
initial public offering - - - 58,287,314
Notes converted to common stock - - - 5,000,000
Exercise of options - - - 600,702
Shares issued through employee
stock purchase plan - - - 572,498
Shares issued as consideration for acquisitions - - - 49,060,894
Exercise of warrants - - (91,987) -
Unearned compensation - - - (56,780)
Amortization of unearned compensation - - - 364,022
Unrealized loss (130,471) - - (130,471)
Net loss - (38,196,280) - (38,196,280)
--------- ------------ --------- ------------
Balance, September 30, 1999 $(130,471) $(57,489,166) $(151,987) $ 75,225,749
========= ============ ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
VERTICALNET, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
-----------------
September 30,
------------
1999 1998
------------- -----------
<S> <C> <C>
Cashflows from operating activities:
Net loss $ (38,196,280) $(8,334,417)
------------- -----------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, amortization and other noncash charges 3,827,806 411,712
Loss on disposal of assets 30,912 -
In-process research and development charge 13,600,000 -
Change in assets, net of effect of acquisitions:
Accounts receivable (5,338,351) (332,010)
Prepaid expenses and other assets (1,160,095) (459,021)
Change in liabilities, net of effect of acquisitions:
Accounts payable 1,813,225 570,941
Accrued expenses 1,729,115 878,354
Deferred revenues 4,742,688 579,915
------------- -----------
Net cash used in operating activities (18,950,980) (6,684,526)
------------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired (7,219,043) (1,858,389)
Proceeds from sale and redemption of investments 68,554,951 -
Restricted cash (1,220,261) -
Purchase of investments (105,361,827) -
Loan to Informatrix prior to acquisition - (550,914)
Bridge financing to Isadra prior to acquisition (965,319) -
Loan receivable - (4,086)
Capital expenditures (1,556,696) (399,038)
------------- -----------
Net cash used investing activities (47,768,195) (2,812,427)
Cash flow from financing activities: ------------- -----------
Loans from ICG - 1,550,000
Repayment of line of credit (2,000,000) (2,500,000)
Repayment of loans from related parties - (100,000)
Net proceeds from convertible debt issuance 96,250,000 -
Principal payments on obligations under capital leases (512,825) (122,909)
Repayment of long-term debt (603,260) (32,852)
Net proceeds from issuance of preferred stock - 13,741,962
Net proceeds from issuance of common stock in initial public offering 58,459,305 -
Proceeds from exercise of stock options and employee stock purchase plan 1,173,200 -
------------- -----------
Net cash provided by financing activities 152,766,420 12,536,201
------------- -----------
Net increase in cash 86,047,245 3,039,248
Cash and cash equivalents--beginning of period 5,662,849 754,716
------------- -----------
Cash and cash equivalents--end of period $ 91,710,094 $ 3,793,964
============= ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 260,771 $ 57,079
Supplemental schedule of noncash investing and financing activities:
Equipment acquired under capital leases $ 2,517,332 $ 353,479
Issuance of common stock as consideration for private placement fees $ - $ 150,000
Liabilities assumed in conjunction with acquisitions $ 3,109,062 $ 274,903
Issuance of common stock as consideration for acquisitions $ 49,060,894 $ 153,000
Notes converted to common stock $ 5,000,000 $ -
Loans converted to preferred stock $ - $ 1,550,000
Warrant exercises $ 91,987 $ -
Financing agreement for directors and officers liability insurance $ 333,308 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
VERTICALNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The Company and Basis of Presentation
Description of Company
VerticalNet, Inc. ("VerticalNet" or the "Company") is an owner and operator of
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of September 30, 1999 operates 51 vertical
trade communities in ten major industry groups: environmental; advanced
technologies; service; communications; process; science; healthcare;
manufacturing and metals, food & packaging and food service/hospitality.
On February 17, 1999, the Company completed its initial public offering (the
"IPO") of 8,050,000 shares of its common stock at $8.00 per share (on a post-
split basis). Net proceeds to the Company aggregated approximately $58.3 million
(net of underwriters' commission and offering expenses of $6.1 million). As of
the closing date of the offering, all of the convertible preferred stock
outstanding was converted into 19,469,692 shares of common stock. In addition,
the Company's $5.0 million convertible notes were converted into 625,000 shares
of common stock.
On September 27, 1999, we completed the sale of $100.0 million of 5 1/4%
convertible subordinated debentures in a private placement transaction pursuant
to Section 4(2) of the Securities Act of 1933, resulting in net proceeds of
$96.3 million. Additionally, on October 12, 1999, the over-allotment option on
the convertible debt offering was exercised in full, resulting in additional
convertible debt of $15.0 million and net proceeds of $14.6 million to the
Company. The debentures have a maturity date of September 27, 2004 and semi-
annual interest payments due on March 27 and September 27 of each year beginning
March 27, 2000. The debentures are convertible into shares of the Company's
common stock at an initial conversion price of $40 per share, subject to
adjustment under certain circumstances. The debentures are subject to
provisional redemption by the Company at any time prior to September 27, 2002.
The Company has agreed to file with the SEC within 150 days after the initial
issuance of the debentures. As of November 1, 1999, the Company has not filed a
registration statement registering the debentures and the underling common
stock.
The Company currently generates substantially all of its revenue from Internet
advertising including the development of "storefronts" (Web pages that focus on
advertisers' products and provide a link to the advertisers' Web sites). The
advertising contracts generally do not extend beyond one year. Advertising
revenues are recognized ratably over the period of the advertising contract.
Revenues from educational courses are recognized in the period in which the
course is completed and revenues from the sale of books are recognized in the
period in which the books are shipped. Auction revenues related to transaction
fees are recognized at the time that the auction is successfully concluded. All
e-commerce revenues, whether a transaction fee, a percentage of sale fee or a
minimum guaranteed fee, are recognized when earned. Approximately $2.5 million
at September 30, 1999 and $1.0 million at December 31, 1998, included in the
accounts receivable balance, is unbilled due to customer payment terms.
The accompanying unaudited consolidated statements of the Company for the
three and nine months ended September 30, 1999 and September 30, 1998, included
herein, have been prepared by the Company, without audit, pursuant to the rules
and regulations of the SEC. In the opinion of management, the accompanying
unaudited interim financial statements reflect all adjustments, consisting only
of normal recurring adjustments, necessary to present fairly the results of the
Company's operations
7
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and its cash flows for the three and nine months ended September 30, 1999 and
September 30, 1998. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations relating to interim financial statements. These consolidated
financial statements should be read in conjunction with financial statements and
notes thereto included in the Company's 1998 Annual Report on Form 10-K.
On July 21, 1999, the Board of Directors of the Company approved a two-for-one
stock split of the Company's common stock. Shares resulting from the split were
distributed on or about August 20, 1999 to shareholders of record at the close
of business on August 9, 1999. All references in this Form 10-Q to shares,
share prices and per share amounts have been adjusted retroactively for the
split.
Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
consist of the incremental common shares issuable upon the exercise of stock
options and warrants (using the treasury stock method) and the incremental
common shares issuable upon the conversion of the convertible preferred stock
(using the if-converted method). Common equivalent shares are excluded from the
calculation if their effect is anti-dilutive. Common equivalent shares for the
convertible subordinated debentures were excluded from the calculation since
their effect was anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No.
98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of an IPO, are required
to be included in the calculation of basic and diluted net loss per share as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration.
Pro forma net loss per share is computed using the weighted average number of
shares of common stock outstanding, including common equivalent shares from the
convertible preferred stock (using the if-converted method), which automatically
converted into common stock upon the completion of the IPO as if converted at
the original date of issuance, for both basic and diluted net loss per share,
even though inclusion is antidilutive.
The following table sets forth the reconciliation between the weighted average
shares outstanding for basic and diluted and pro forma net loss per share
computations:
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average shares outstanding basic and diluted 34,621,414 5,168,692 29,596,145 5,101,238
Effect of convertible preferred stock -- 19,469,690 2,852,700 15,003,122
---------- ---------- ---------- ----------
Weighted-average shares outstanding pro forma 34,621,414 24,638,382 32,448,845 20,104,360
========== ========== ========== ==========
</TABLE>
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
Basic and diluted net loss per share 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator: Net loss.................................... $ (25,826,811) $ (3,378,036) $ (38,196,280) $ (8,334,417)
Denominator:
Weighted-average shares outstanding basic and diluted 34,621,414 5,168,692 29,596,145 5,101,238
Basic and diluted net loss per share................... $ (0.75) $ (0.65) $ (1.29) $ (1.63)
============= ============ ============= ============
Pro forma net loss per share
Numerator: Net loss.................................... $ (25,826,811) $ (3,378,036) $ (38,196,280) $ (8,334,417)
Denominator:
d Weighted-average shares outstanding basic and diluted 34,621,414 24,638,382 32,448,845 20,104,360
Basic and diluted net loss per share................... $ (0.75) $ (0.14) $ (1.18) $ (0.41)
============= ============ ============= ============
</TABLE>
(2) Investments
The Company principally invests its excess cash in debt instruments of the
United States Government and its agencies, and in high-quality corporate
issuers. All highly liquid instruments with an original maturity of three
months or less are considered cash equivalents, those with original maturities
greater than three months and current maturities less than twelve months from
the
8
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balance sheet date are considered short-term investments, and those with
maturities greater than twelve months from the balance sheet date are considered
long-term investments.
The Company accounts for investments in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The
Company's marketable investments are classified as available-for-sale as of the
balance sheet date and are reported at fair value, with unrealized gains and
losses, net of tax, recorded in shareholders' equity. Realized gains or losses
and permanent declines in value, if any, on available-for-sale securities will
be reported in other income or expense, as incurred.
The Company holds an equity instrument of a privately held information
technology company for business and strategic purposes. This investment is
included in other long-term assets and is accounted for under the cost method
since ownership is less than 20% and the Company does not have the ability to
exercise significant influence over the investee. For these non-quoted
investments, the Company's policy is to regularly review the assumptions
underlying the operating performance and cash flow forecasts in assessing the
carrying values. The Company identifies and records impairment losses on long-
lived assets when events and circumstances indicate that such assets might be
impaired. To date, no such impairment has been recorded.
(3) Commitments and Contingencies
On January 19, 1999, the Company entered into a one-year agreement with Compaq
Computer Corporation ("Compaq") and its Internet Web site known as AltaVista.
The agreement provides for the Company and AltaVista to sponsor and promote 31
co-branded Web pages. The agreement requires the Company to pay Compaq $1.0
million over the term of the agreement based on the number of advertising
impressions delivered. Such amount will be charged to expense as AltaVista
provides the advertising impressions. As of September 30, 1999, no payments
have been made by the Company. In addition, each company will provide the other
with $300,000 in barter advertising during the term of the agreement. Both
parties have satisfied their barter advertising obligation under this agreement.
In August 1999, the Company entered into a one-year agreement with Lycos. The
agreement provides for the Company and Lycos to sponsor and promote co-branded
sites. The agreement requires the Company to pay Lycos $1.0 million over the
term of the agreement based on agreed upon dates and impressions delivered. As
of September 30, 1999, the Company has made a payment of $250,000 to Lycos. In
addition, each company will provide the other with $1.0 million in barter
advertising during the term of the agreement. Both parties have satisfied
approximately one-half of their barter advertising obligation under this
agreement.
The Company has entered into non-cancelable obligations with several content
service providers and Internet search engines. Under these agreements, exclusive
of the AltaVista and Lycos agreements discussed above, the Company's commitments
are as follows:
<TABLE>
<S> <C>
1999.......................................................... $ 1,326,405
2000.......................................................... 560,500
2001.......................................................... 123,500
2002.......................................................... 50,000
</TABLE>
On April 21, 1999, the Company entered into a 10-year operating lease for its
headquarters, which commenced in July 1999. The total obligation under the
lease is approximately $9.0 million and is payable in monthly payments of
$75,000. According to the terms of the lease agreement, the Company is required
to maintain certificates of deposit for an agreed upon amount in an escrow
account. The certificates of deposit with an aggregate balance of $1.2 million
were issued in June 1999 and will mature in five equal installments of $244,052
on August 1, 2000 and the four subsequent years thereafter. The certificates of
deposit are classified as a long-term asset included in restricted cash on the
balance sheet.
On July 16, 1999, the Company entered into a 3 year lease financing
arrangement for office furniture. The total obligation under the capital lease
is $1.0 million and is payable in monthly payments of approximately $34,000,
which commenced in July 1999.
The Company is a party to legal proceedings and claims, which arise in the
ordinary course of business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.
9
<PAGE>
(4) Acquisitions
In September 1998, the Company acquired all of the outstanding capital stock
of Boulder Interactive Technology Services Company ("BITC") for $1.8 million in
cash. BITC operates a vertical trade community for professionals in the radio
frequency and wireless communications industry. The acquisition was accounted
for as a purchase and the excess of the purchase price over the fair value of
the net assets acquired of approximately $1.9 million was recorded as goodwill
and is being amortized over 36 months.
In September 1998, the Company acquired all of the outstanding capital stock
of Informatrix Worldwide, Inc. ("Informatrix") for 92,308 shares of the
Company's common stock valued at $153,000. Informatrix operates a vertical
community in the property and casualty insurance industry that caters to risk
managers, agents, brokers and other professionals in the insurance industry. The
acquisition was accounted for as a purchase and the excess of the purchase price
over the fair value of the net assets acquired of approximately $903,000 was
recorded as goodwill and is being amortized over 36 months. The purchase
agreement also provided for the Company to issue up to 23,076 additional shares
of the Company's common stock to the Informatrix shareholders in the event that
Informatrix achieved certain sales targets through December 1998. Through
December 31, 1998, the former shareholders of Informatrix earned, and the
Company recorded the issuance of, 7,476 shares of common stock which was valued
at $32,000. The additional consideration was accounted for as additional
goodwill.
In January 1999, the Company acquired certain assets, including the safety
online Web site, and assumed certain liabilities from Coastal Video
Communications ("Coastal"). The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
Coastal an advertising commitment on the Company's Web site valued at $160,000.
As of September 30, 1999, the Company has paid the note to Coastal and has
fulfilled approximately $80,000 of its advertising commitment to Coastal. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$550,000 was recorded as goodwill and is being amortized over 36 months. The
results of operations from Safetyonline are not material to the Company's
consolidated financial position or results of operations.
In June 1999, the Company acquired certain assets, including the Oillink Web
site, and assumed certain liabilities of a sole proprietor. The Company paid
$225,000 in cash and issued 5,842 shares of its common stock valued at $250,000.
The acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$504,000 was recorded as goodwill and is being amortized over 36 months. The
results of operations from Oillink are not material to the Company's
consolidated financial position or results of operations.
In June 1999, the Company acquired certain assets, including the ElectricNet
Web site, and assumed certain liabilities of a sole proprietor. The Company
paid $975,000 in cash and issued 21,126 shares of its common stock valued at
$825,000. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $1.9 million was recorded as goodwill and is being amortized over
36 months. The results of operations from ElectricNet are not material to the
Company's consolidated financial position or results of operations.
On June 14, 1999, the Company acquired all of the outstanding capital stock of
Techspex, Inc. ("Techspex") for $211,000 in cash and 89,994 shares of common
stock valued at $3.0 million. Techspex was the owner and operator of a vertical
trade community in the machine tools industry. The Web site acts as a
comprehensive source of information, interaction and electronic commerce for the
machine tool industry providing a searchable database of machine tools, dealers
and tooling and accessory suppliers. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.3 million was recorded as goodwill
and is being amortized over 36 months.
On July 29, 1999, the Company acquired all of the outstanding capital stock of
LabX Technologies Inc. ("LabX") for $1.6 million in cash and 69,794 shares of
common stock valued at $2.8 million. The common stock given as consideration
was reduced by an illiquidy discount of 10% based on restrictions detailed in
the lock up agreements signed by the individuals receiving the stock. LabX was
the owner and operator of an Internet trading community focused on the
electronic commerce of scientific equipment on the Internet. LabX's Web site
community allows participants to communicate their buying and selling
requirements for laboratory equipment. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $4.6 million, which has been allocated
to a convenant not-to-compete, existing technology and goodwill of approximately
$350,000, $500,000 and $3.7 million, respectively. The covenant not-to-compete
is being amortized on a straight-line basis over 24 months, the term of the
Agreement, while the existing technology and goodwill are being amortized on a
straight-line basis over 36 months.
10
<PAGE>
On August 10, 1999, the Company acquired all of the outstanding capital stock
of CertiSource Inc. ("CertiSource") for $476,000 in cash and 83,712 shares of
common stock valued at $2.7 million. CertiSource 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
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired of approximately $3.4 million, which
was allocated to a covenant not-to-compete, and goodwill of approximately
$500,000 and $2.9 million, respectively. Both the covenant not-to-compete and
goodwill are being amortized on a straight-line basis over 36 months.
In August 1999, the Company acquired certain assets, including the Surface
Finishing Web site, and assumed certain liabilities from Industry On Line, Inc.
("Industry On Line"). The Company paid $150,000 in cash and issued 6,976 shares
of its common stock valued at approximately $300,000. The Company has also
agreed to provide Industry On Line an advertising commitment on the Company's
Web site valued at $140,000. The acquisition was accounted for as a purchase
and the estimated excess of the purchase price over the fair value of the net
assets acquired of approximately $604,000 was recorded as goodwill and is being
amortized over 36 months. The results of operations from Industry On Line are
not material to the Company's consolidated financial position or results of
operations.
On August 25, 1999, the Company acquired all of the outstanding capital stock
of Isadra, Inc. ("Isadra") for $2.4 million cash, 1,000,000 shares of common
stock valued at $37.8 million and 40,763 options to purchase VerticalNet common
stock valued at $1.5 million using the Black-Sholes model. The common stock
given as consideration was reduced by an illiquidity discount ranging from 5% to
20% based on restrictions detailed in the lock up agreements signed by the
individuals receiving the stock. Isadra has devleoped e-commerce software for
vertical industries. In connection with this transaction, the Company agreed to
lend up to $1.0 million prior to the closing of this transaction. As of the
acquisition date, the Company had advanced Isadra $965,000. The acquisition was
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired of approximately $43.9 million was
allocated to in-process research and development, existing technology, assembled
work force and goodwill of approximately $13.6 million, $2.1 million, $500,000
and $27.7 million, respectively. The $13.6 million was charged to expense as a
non-recurring charge upon consummation of the acquisition since the in-process
research and development has not yet reached feasibility and has no alternative
future uses. The existing technology and assembled work force are being
amortized on a straight-line basis over 24 months, while goodwill is being
amortized on a straight-line basis over 36 months.
The following unaudited pro forma financial information presents the combined
results of operations of VerticalNet, BITC, Informatrix, Techspex, LabX,
CertiSource and Isadra as if the acquisitions occurred on January 1, 1998, after
giving effect to certain adjustments including amortization of goodwill. The
unaudited pro forma financial information does not necessarily reflect the
results of operations that would have occurred had VerticalNet, BITC,
Informatrix, Techspex, LabX, CertiSource and Isadra constituted a single entity
during such periods.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------ -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................................................... $ 5,396,960 $ 1,370,569 $ 11,738,776 $ 3,320,503
Net loss........................................................... (28,898,762) (7,836,077) (52,908,405) (21,989,809)
Net loss per share................................................. (0.82) (1.22) (1.73) (3.46)
</TABLE>
(5) In-Process Research And Development
The write-off of in-process research and development related to the
acquisition of Isadra (discussed in Note 4) totalled $13.6 million which was
expensed as a one time non recurring charge. The allocation of $13.6 million
represents the estimated fair value related to incomplete projects based on
risk-adjusted cash flows. At the date of the acquisition, the projects
associated with the IPRD efforts had not yet reached technological feasibility
and had no alternative future uses. Accordingly, these costs were expensed. At
the acquisition date, Isadra was conducting development, engineering and testing
activities associated with the completion of the following next generation
technologies i) CatSmart Business ii) Business Publisher and iii) C2 Hub/Server.
The projects under development, at the valuation date, were expected to address
emerging market demands for B2B e-commerce.
At the acquisition date, the technologies under development were between 70
and 80 percent complete, based on project man-months and costs. Isadra had spent
approximately $3.0 million on the IPRD and expected to spend approximately
$1.0 million to complete the IPRD projects. Isadra anticipated that research and
development related to these projects would be completed by
11
<PAGE>
early to mid 2000, after which time Isadra is expected to begin generating
economic benefits from the value of the completed IPRD.
In making its purchase price allocation, VerticalNet considered present
value calculations of income, an analysis of project accomplishments and
completion costs, an assessment of overall contributions, as well as project
risks. The values assigned to IPRD were determined by estimating the costs to
develop the purchased technology into commercially viable products, estimating
the resulting net cash flows from each project, excluding the cash flows related
to the portion of each project that was incomplete at the acquisition date, and
discounting the resulting net cash flows to their present value. Each of the
project forecasts was based upon future discounted cash flows, taking into
account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the product
ultimately developed and the associated risks.
Aggregate revenue attributable to the IPRD projects was estimated to peak,
as a percentage of total revenue, in 2000 and decline thereafter through the end
of the estimated life of the IPRD (2003) as new product technologies are
expected to be introduced by Isadra. For the projects under development risk-
adjusted discount rates of 50 percent were utilized to discount projected cash
flows.
(6) Comprehensive Income (Loss)
The following presents a reconciliation of net loss to comprehensive loss for
the three months ended September 30, 1999 and September 30, 1998 and the nine
months ended September 30, 1999 and September 30, 1998.
<TABLE>
<CAPTION>
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss................................... $(25,826,811) $(3,378,036) $(38,196,280) $(8,334,417)
Other comprehensive loss:
Unrealized gain (loss) on securities... 2,223 - (130,471) -
------------ ----------- ------------ -----------
Comprehensive loss......................... $(25,824,588) $(3,378,036) $(38,326,751) $(8,334,417)
============ =========== ============ ===========
</TABLE>
(7) Subsequent Events
On October 13, 1999, the Company acquired 352,112 shares of Neoforma's
("Neoforma") Series E Preferred Stock at a cost of $2.0 million. The investment
will be included in other long-term assets and will be accounted for under the
cost method since its ownership is less than 20% and the Company does not have
the ability to exercise significant influence over the investee.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by the use of predictive,
future-tense or forward-looking terminology, such as "believes," "anticipates,"
"expects," "estimates," "plans," "may," "intends," "will," and words of similar
import. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties. You should not place undue reliance on these forward-looking
statements. Actual results may differ materially from those projected in the
forward-looking statements for many reasons, including the various risks that
the Company faces as described below, elsewhere in this document and in other
documents that the Company files with the SEC.
The following discussion of the financial condition and results of operations
of the Company should also be read in conjunction with the financial statements
and notes related thereto included elsewhere in this report.
OVERVIEW
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<PAGE>
We currently own and operate 51 vertical trade communities on the Internet.
Advertising revenues and Web site development fees contributed most of the
revenues for the three and nine months ended September 30, 1999 and
September 30, 1998.
We sell storefront and banner advertising and event sponsorships on our
vertical trade communities. The duration of a storefront advertisement is
typically for a period of one year, while banner advertisements are typically
for a period of three months. All advertising revenues are recognized ratably
over the period in which the advertisement is displayed, provided that the
collection is reasonably assured. As of September 30, 1999, we had approximately
$7.4 million of deferred revenue. We also generate revenues from career
services, auctions, education and electronic commerce.
We offer for sale to our visitors: books, software and other goods offered by
third party Web sites. Additionally, we offer auction sites with goods posted by
inventory-liquidators. We receive a portion of the revenue from the products
sold on our e-commerce center storefronts and our auction sites
We plan to expand our e-commerce capability to include:
. selling goods and services promoted on our advertisers' storefronts;
. auctions;
. electronic marketplaces;
. exchanges; and
. selling goods and services from our proprietary virtual store.
We receive either a fee per transaction, a percentage of sales revenue or some
other minimum guaranteed payment. This type of revenue sharing or commission
sharing relationship is typical of e-commerce transactions and relationships on
the Internet.
We incurred net losses of approximately $25.8 million for the three months
ended September 30, 1999, $38.2 million for the nine months ended September 30,
1999, $13.6 million for the year ended December 31, 1998, $4.8 million for the
year ended December 31, 1997 and $709,000 for the year ended December 31, 1996.
At September 30, 1999 we had an accumulated deficit of $57.5 million. The net
losses and accumulated deficit resulted from our lack of substantial revenues,
the costs of the significant infrastructure and other costs incurred for the
development and initial rollout of our vertical trade communities. Because of
our aggressive expansion plans, we expect to incur significant operating losses
for the foreseeable future. Although we have experienced revenue growth in
recent periods, such growth may not be sustainable and, therefore, these recent
periods should not be considered indicative of future performance. We may never
achieve significant revenues or profitability, or if we achieve significant
revenues, it may not be sustained.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 and September 30, 1998
Revenues. Revenues increased from $897,000 for the three months ended
September 30, 1998 to $5.2 million for the three months ended September 30,
1999. The increase in revenues was due primarily to an increase in (i) the
number of storefronts from 409 as of September 30, 1998 to 2,676 as of
September 30, 1999 (ii) the number of vertical trade communities from 29 as of
September 30, 1998 to 51 as of September 30, 1999. Advertising revenues,
including the development of the storefronts, accounted for the majority of
revenues for the periods ended September 30, 1998 and September 30, 1999. Barter
transactions, in which the Company received advertising or other services in
exchange for advertising on its Web sites accounted for approximately 21% of
total revenues for the three months ended September 30, 1999 and 39% for the
three months ended September 30, 1998. At September 30, 1999, we had deferred
revenues of $7.4 million. We expect that advertising revenue will continue to
account for a substantial share of revenues for the foreseeable future.
Editorial and Operational Expenses. Editorial and operational expenses consist
primarily of Internet Connection charges, cost of acquired content,
depreciation, salaries and benefits of operating and editorial personnel and
other related operating costs. These expenses increased from $976,000 for the
three months ended September 30, 1998 to $2.6 million for the three months ended
September 30, 1999. For these periods, expenses increased by $1.1 million for
salaries and benefits of operating and editorial personnel and $524,000 for
depreciation, Internet connection charges, acquired
13
<PAGE>
content, product costs and other related operating costs. The increases were
primarily related to the increased number of personnel and amount of equipment
required to maintain and operate our increased number of vertical trade
communities.
Product Development Expenses. Product development expenses consist primarily
of salaries and benefits, consulting expenses and related equipment. These costs
increased from $220,000 for the three months ended September 30, 1998 to $2.2
million for the three months ended September 30, 1999. For these periods,
expenses increased by $1.3 million for salaries and benefit costs and by
$680,000 for consulting and computer supplies. This increase in expenses was due
to increased staffing and the costs of enhancing the features, content and
services of our vertical trade communities, as well as increasing the overall
number of vertical trade communities. To date, we have charged to expense all
the product development costs when such costs have been incurred. We believe
that continued investment in product development is critical to attaining our
goals, and therefore expect product development expenses to increase
significantly.
Sales and Marketing Expenses. Sales and marketing expenses consist primarily
of salaries and commissions for sales and marketing personnel, advertising and
travel and entertainment, including costs of attending trade shows. These
expenses increased from $1.8 million for the three months ended September 30,
1998 to $7.9 million for the three months ended September 30, 1999. For these
periods, expenses increased by $1.6 million for advertising, $2.5 million for
salaries, commissions and benefits, and $2.0 million for travel and
entertainment expenses, including costs of attending trade shows. This was
primarily due to increasing the number of sales and marketing personnel,
increasing sales commissions and increased expenses related to promoting our
vertical trade communities. We expect these expenses will continue to grow
significantly, as we pursue an aggressive growth strategy and hire additional
sales/marketing personnel.
General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related costs for our executive,
administrative, finance, legal, human resources and business development
personnel, as well as support services and professional service fees. These
expenses increased from $1.4 million for the three months ended September 30,
1998 to $5.2 million for the three months ended September 30, 1999 (including
goodwill amortization of $104,000 and $2.1 million, respectively). For these
periods, expenses increased by $220,000 for general and administrative
personnel, $2.1 million for depreciation and goodwill amortization, $391,000 for
professional fees, $384,000 for facility costs and $705,000 for other general
and administrative costs The increase was primarily due to increases in the
number of personnel to support and grow our business. We expect these expenses
to grow as additional personnel are hired and additional expenses are incurred.
These expenses relate to growing our business and operating as a public company.
In-Process Research and Development Expense. A one time non recurring charge
of $13.6 million for in-process research and development was expensed in August
1999. The in-process research and development written-off relates to the
acquisition of Isadra.
Interest, Net. Interest income for the three months ended September 30, 1999,
net of expense of $109,000, includes income from cash and cash equivalents and
from investments and expenses related to our financing obligations. Interest
income net of interest expense increased from $77,000 for the three months ended
September 30, 1998 to $470,000 for the three months ended September 30, 1999.
The increase was primarily due to a higher investment balance as a result of the
initial public offering and the convertible debt offering. Currently, we invest
the majority of our cash balances in debt instruments of the United States
Government and its agencies, and in high-quality corporate issuers.
Nine Months Ended September 30, 1999 and September 30, 1998
Revenues. Revenues increased from $1.9 million for the nine months ended
September 30, 1998 to $10.7 million for the nine months ended September 30,
1999. The increase in revenues was due primarily to an increase in (i) the
number of storefronts from 409 as of September 30, 1998 to 2,676 as of
September 30, 1999 (ii) the number of vertical trade communities from 29 as of
September 30, 1998 to 51 as of September 30, 1999. Advertising revenues,
including the development of the storefronts, accounted for the majority of
revenues for the periods ended September 30, 1998 and September 30, 1999.
Barter transactions, in which the Company received advertising or other services
in exchange for advertising on its Web sites accounted for approximately 23% of
total revenues for the nine months ended September 30, 1999 and 19% for the nine
months ended September 30, 1998. At September 30, 1999, we had deferred
revenues of $7.4 million. We expect that advertising revenue will continue to
account for a substantial share of revenues for the foreseeable future.
Editorial and Operational Expenses. These expenses increased from $2.1
million for the nine months ended September 30, 1998 to $5.4 million for the
nine months ended September 30, 1999. For these periods, expenses increased by
$2.6 million for salaries and benefits of operating and editorial personnel and
$700,000 for depreciation, Internet connection charges, acquired content,
product costs and other related operating costs. The increases were primarily
related to the increased number of personnel and amount of equipment required to
maintain and operate our increased number of vertical trade communities.
14
<PAGE>
Product Development Expenses. These costs increased from $798,000 for the
nine months ended September 30, 1998 to $4.9 million for the nine months ended
September 30, 1999. For these periods, expenses increased by $2.7 million for
salaries and benefit costs and by $1.4 million for consulting and equipment
costs. This increase in expenses was due to increased staffing and the costs of
enhancing the features, content and services of our vertical trade communities,
as well as increasing the overall number of vertical trade communities. To date,
we have charged to expense all the product development costs when such costs
have been incurred. We believe that continued investment in product development
is critical to attaining our goals, and therefore expect product development
expenses to increase significantly.
Sales and Marketing Expenses. These expenses increased from $4.4 million for
the nine months ended September 30, 1998 to $17.1 million for the nine months
ended September 30, 1999. For these periods, expenses increased by $5.2 million
for advertising, $5.2 million for salaries, commissions and benefits, and $2.3
million for travel and entertainment expenses, including costs of attending
trade shows. This was primarily due to increasing the number of sales and
marketing personnel, increasing sales commissions and increased expenses related
to promoting our vertical trade communities. We expect these expenses will
continue to grow significantly, as we pursue an aggressive growth strategy and
hire additional sales/marketing personnel.
General and Administrative Expenses. These expenses increased from $2.9
million for the nine months ended September 30, 1998 to $9.1 million for the
nine months ended September 30, 1999 (including goodwill amortization of
$104,000 and $2.7 million, respectively). For these periods, expenses increased
by $531,000 for general and administrative personnel, $2.7 million for
depreciation and goodwill amortization, $769,000 for professional fees, $1.0
million for facility costs and $1.2 million for other general and administrative
costs. The increase was due primarily to increases in the number of personnel to
support and grow our business. We expect these expenses to grow as additional
personnel are hired and additional expenses are incurred. These expenses related
to growing our business and operating as a public company.
In-Process Research and Development Expense. A one time non recurring charge
of $13.6 million for in-process research and development was expensed in August
1999. The in-process research and development written-off relates to the
acquisition of Isadra.
Interest, Net. Interest income for the nine months ended
September 30, 1999, net of expense of $284,000, includes income from cash and
cash equivalents and from investments and expenses related to our financing
obligations. Interest income net of interest expense increased from $15,000 for
the nine months ended September 30, 1998 to $1.3 million for the nine months
ended September 30, 1999. The increase was primarily due to a higher investment
balance as a result of the initial public offering and convertible debt
offering. Currently, we invest the majority of our cash balances in debt
instruments of the United States Government and its agencies, and in high-
quality corporate issuers.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, our primary source of liquidity consisted of cash
and highly liquid, high quality debt instruments. Our intent is to make such
funds, of which the majority have maturities of less than one year, readily
available for operating purposes. At September 30, 1999, the Company had cash
and cash equivalents and investments in marketable debt securities totaling
$127.4 million compared to $5.7 million at December 31, 1998.
On February 17, 1999, we completed our initial public offering of 8,050,000
shares of common stock, resulting in the net proceeds of $58.3 million.
On September 27, 1999, we completed the sale of $100.0 million of 5 1/4%
convertible subordinated debentures in a private placement transaction pursuant
to Section 4(2) of the Securities Act of 1933, resulting in net proceeds of
$96.3 million. Additionally, on October 12, 1999, the over-allotment option on
the convertible debt offering was exercised in full, resulting in additional
convertible debt of $15.0 million and net proceeds of $14.6 million to the
Company. The debentures have a maturity date of September 27, 2004 and semi-
annual interest payments due on March 27 and September 27 of each year beginning
March 27, 2000. The debentures are convertible into shares of the Company's
common stock at an initial conversion price of $40 per share, subject to
adjustment under certain circumstances. The debentures are subject to
provisional redemption by the Company at any time prior to September 27, 2002.
The Company has agreed to file with the SEC within 150 days after the initial
issuance of the debentures.
15
<PAGE>
As of November 1, 1999, the Company has not filed a registration statement
registering the debentures and the underling common stock.
We have several capital leases with various financial institutions for
computer and communications equipment used in our operations with lease terms
ranging from three to five years. Additionally, we have an insurance premium
financing agreement for our directors and officers liability insurance. The
interest rates under the leases and insurance premium financing agreement range
from 8% to 20% and we are required to make total monthly payments of
approximately $144,000 under the terms of these agreements.
For the nine months ended September 30, 1999, cash used in operating
activities was $19.0 million. Cash used in operating activities consisted
mostly of net operating losses and increases in accounts receivable and prepaid
expenses, partially offset by increases in deferred revenues, accrued expenses
and accounts payable.
Net cash used in investing activities was $47.8 million for the nine months
ended September 30, 1999. Our investing activities included the purchase of
marketable securities for $36.8 million (net of sales maturities), capital
expenditures of $1.6 million, cash used in acquisitions of $7.2 million and
bridge financing to Isadra of $965,000.
For the nine months ended September 30, 1999, cash provided by financing
activities of $152.8 million was primarily due to our initial public offering
and debt offering which raised net proceeds of $58.5 million and $96.3 million,
respectively, and the exercise of stock options. These amounts were partially
offset by the repayment of the $2.0 million line of credit that was outstanding
as of December 31, 1998 and principal payments on capital lease obligations and
other term debt.
Acquisitions
We have pursued a strategy of growth by acquiring businesses and assets that
complement our existing operations. We use several criteria to evaluate
prospective acquisitions including whether the business to be acquired (1)
broadens the scope of services we offer, (2) enhances our presence in existing
or new markets, (3) offers technology that would allow us to better serve our
clients, and (4) offers the opportunity to enhance revenues, especially in our
e-commerce initiatives. Since our initial public offering we have consummated 10
acquisitions.
RF Globalnet. In September 1998, we acquired all of the outstanding capital
stock of RF Globalnet for $1.8 million in cash. RF Globalnet is a vertical trade
community serving the RF and microwave engineering industry.
Informatrix. Also in September 1998, we acquired all of the outstanding
capital stock of Informatrix Worldwide, Inc. for 92,308 shares of our common
stock valued at $153,000. Under the purchase agreement, former Informatrix
shareholders earned an additional 4,400 shares of common stock because
Informatrix achieved sales targets September 30, 1998. In addition, for the
three months ended December 31, 1998, the Informatrix shareholders earned an
additional 3,076 shares of common stock. The fair value of these additional
shares issued is $32,000. Informatrix operates a vertical trade community in the
property and casualty insurance industry that caters to risk managers, agents,
brokers and other professionals in the insurance industry.
Safety Online. In January 1999, we purchased the online business operated as
"safety online" from Coastal Video Communication Corp. for $260,000 in cash
and a $50,000 note, which was payable without interest on April 13, 1999. We
also provided Coastal with an advertising commitment on our Web site, which was
subsequently valued at $160,000. The results of operations from Safety Online
are not material to our consolidated financial position or results of
operations. Safety Online is a vertical trade community serving professionals in
the Occupational Health and Safety industry.
Oillink. In June 1999, we acquired certain assets, including the Oillink Web
site, and assumed certain liabilities of a sole proprietor. We paid $225,000 in
cash and issued 5,842 shares of our common stock valued at $250,000. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$504,000 was recorded as goodwill and is being amortized over 36 months. The
results of operations from Oillink are not material to our consolidated
financial position or results of operations. Oillink is a vertical trade
community for professionals in the global oil and gas community, offering
industry news and information and a number of online services.
16
<PAGE>
ElectricNet. In June 1999, we acquired certain assets, including the
ElectricNet Web site, and assumed certain liabilities of a sole proprietor. We
paid $975,000 in cash and issued 21,126 shares of its common stock valued at
$825,000. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $1.9 million was recorded as goodwill and is being amortized over
36 months. The results of operations from ElectricNet are not material to our
consolidated financial position or results of operations. ElectricNet is a
leading destination for electrical power industry professionals, offering
information for the power transmission and distribution industry.
Techspex. In June 1999, we acquired all of the outstanding capital stock of
Techspex, Inc. for approximately $311,000 in cash, including transaction costs,
and 89,994 shares of common stock valued at $3.0 million. The acquisition was
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired of approximately $3.3 million was
recorded as goodwill and is being amortized over 36 months. Techspex is the
owner and operator of a vertical trade community in the machine tools industry.
The Web site acts as a comprehensive source of information, interaction and
e-commerce for the machine tools industry providing a searchable database of
machine tools, dealers and tooling and accessory suppliers.
LabX. In July 1999, we acquired all of the outstanding capital stock of LabX
Technologies Inc. for $1.8 million in cash, including transaction costs, and
69,794 shares of common stock valued at $2.8 million. The acquisition was
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired of approximately $4.6 million was
allocated among existing technology, a covenant not-to-compete and goodwill and
is being amortized over their respective lives. LabX is the owner and operator
of a vertical trade community focused on e-commerce of scientific and laboratory
equipment. The Web site allows participants to communicate their buying and
selling requirements for laboratory equipment.
CertiSource. In August 1999, we acquired CertiSource, Inc. for approximately
$601,000 in cash, including transaction costs, and 83,712 shares of common stock
valued at $2.7 million. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair market value of the net
assets acquired of approximately $3.4 million was allocated to a covenant not-
to-compete and goodwill and is being amortized over 36 months. CertiSource is a
leading online reseller of professional training products, classes and services.
Industry Online. In August 1999, we acquired Industry On Line Inc. We paid
$150,000 in cash, issued 6,976 shares of common stock, and entered into an
advertising contract with William Fields, the majority shareholder of Industry
On Line, under which a business wholly-owned by Mr. Fields was granted $140,000
of advertising rights on our Web sites. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $604,000 was recorded as goodwill and
is being amortized over 36 months. The results of operations from metal
finishing are not material to our consolidated financial position or results of
operations. Industry On Line is the owner and operator of a vertical trade
community in the metal finishing industry.
Isadra. In August 1999, we acquired all of the outstanding capital stock of
Isadra for $3.0 million cash (including transaction costs of $.6 million) and
1,000,000 shares of common stock valued at $37.8 million. Prior to closing this
transaction, the Company agreed to lend $1 million to Isadra to finance its
operations through closing. The acquisition was accounted for as a purchase and
the estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $43.9 million was allocated among existing technology,
in-process research and development assembled work force and goodwill, then
being amortized over their respective lives. Isadra has developed e-commerce
software for vertical industries.
Year 2000 Compliance
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, information technology
including computers and software, and non-information technology including
telephone systems and other equipment used internally.
The internally developed production and operation systems for our Web sites
have recently undergone a complete re-engineering. All new programs have been
substantially tested and validated for Year 2000 compliance.
Our communications infrastructure was recently overhauled, including a full
conversion of our telephone and voicemail systems. We believe all non-
information technology equipment upon which we are materially dependent is Year
2000 compliant. Additionally, with respect to information technology, we have
resolved all Year 2000 compliance issues primarily through normal upgrades of
our software or replacements included in our capital expenditure budget and
these costs are not expected to
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be material to our financial position or results of operations. Our original
Year 2000 compliance cost estimate did not exceed $250,000 and remains valid.
However, such upgrades and replacements may not successfully address our Year
2000 compliance issues as represented by our distributors, vendors and
suppliers.
We have completed our Year 2000 compliance assessment plan. This plan includes
assessing both our information and non-information technology as well as our
internally developed production and operation systems. Based on this assessment,
we believe that all non-information technology, all internally developed
production and operations systems and all of our technology are Year 2000
compliant.
In addition, we have obtained verification from our key distributors, vendors
and suppliers that they are Year 2000 compliant or, if they are not fully
compliant, to provide a description of their plans to become so. We have
received certification from 100% of our distributors, vendors and suppliers that
they are complete or are in accordance with their scheduled Year 2000 compliance
plan. We will continue to monitor the status of all of our key vendors with the
intent of terminating and replacing those relationships which may jeopardize our
own Year 2000 compliance plan.
In the event that our production and operational facilities that support our
Web sites are disrupted, small portions of our Web sites may become unavailable.
Our review of our systems has shown that there is no single application that
would make our Web sites totally unavailable and we believe that we can quickly
address any difficulties that may arise.
Having completed a specific analysis of our Web-hosting facilities, all
fuctionalities are in compliance with our Year 2000 compliance assessment plan.
In the event that our Web-hosting facilities are not Year 2000 compliant, our
Web sites would be unavailable and we would not be able to deliver services to
our users.
We have developed a comprehensive list of contingency models to forecast the
worst-case scenario that might occur if technologies we are dependent upon are
not Year 2000 compliant and fail to operate effectively after the Year 2000. All
identified scenarios have been determined to be resolvable by an on-site staff
which will be maintained throughout the Year 2000 date changeover with the
exception of the Exodus hosting functionalities. Exodus has remitted Year 2000
certification and we are in the process of reviewing potential back-up sites
within our disaster recovery planning.
If our present efforts to address the Year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with which we
conduct business do not successfully address such issues, our business,
operating results and financial position could be materially and adversely
affected.
FACTORS AFFECTING OUR BUSINESS CONDITION
In addition to the other information included in this Report, the following
factors should be considered in evaluating our business and future prospects:
We have limited operating history upon which you may evaluate us
We launched our first vertical trade community in October 1995 and have a
limited operating history. In addition, our revenue model is evolving, making an
evaluation of our future prospects very difficult. Currently, our revenues are
primarily generated from the sale of advertising on our vertical trade
communities. In the future, we expect to generate revenue from multiple sources,
including e-commerce and business services. We may not be able to sustain our
current revenues or successfully generate e-commerce or business services
revenue. If we do not generate such revenue, our business, financial condition
and operating results will suffer.
We anticipate we will incur continued losses for the foreseeable future
To date, we have not been profitable. We may never be profitable or, if we
become profitable, we may be unable to sustain profitability. We have incurred
significant losses since inception. We reported a net loss of $38.2 million for
the nine months ended September 30, 1999. We expect to continue to incur
significant losses in the foreseeable future. As of September 30, 1999, our
accumulated deficit was $57.5 million. As a result of our acquisitions, we
expect amortization expense to increase in the foreseeable future. Our limited
operating history makes predicting our future operating results, including
operating expenses, difficult. Our revenues may not grow or may not even
continue at their current level.
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We expect our operating expenses to increase
Some of our expenses are fixed, including non-cancelable agreements, equipment
leases and real estate leases. If our revenues do not increase, we may not be
able to compensate by reducing expenses in a timely manner. In addition, we plan
to significantly increase our operating expenses to:
. launch additional vertical trade communities;
. increase our internal sales and marketing operations;
. enhance our technologies;
. develop and deploy our e-commerce initiatives;
. enter into additional sponsorship agreements;
. broaden our customer support capabilities; and
. pursue marketing and distribution alliances.
Expenses will also increase due to the potential impact of goodwill and other
charges resulting from completed and future acquisitions.
Leading Web sites, browser providers and other Internet distribution channels
may also begin to charge us for providing access to our products and services.
If any of these expenses are not accompanied by increased revenues, our
business, financial condition and operating results would be harmed.
Fluctuations in our quarterly results may cause our stock price to decline
We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:
. the seasonality of our revenues;
. the uncertain adoption of the Internet as an e-commerce and advertising
medium;
. dependence on development and adoption of the e-commerce market;
. the level of demand for our products and services;
. intense and increased competition;
. our ability to develop, introduce and market new products and
enhancements to our existing products on a timely basis;
. our dependence on content providers;
. license fees payable to content providers;
. uncertain acceptance of our Internet content;
. management of our growth; and
. risks associated with recent and future acquisitions.
Many of these factors are beyond our control.
Due to the limited history of businesses relying on the Internet as an
advertising and commercial medium, we believe that period-to-period comparisons
of our operating results are not meaningful, and that such comparisons may not
be accurate.
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indicators of future performance. Additionally, if our operating results in one
or more quarters do not meet the securities analysts' or our shareholders'
expectations, the price of our common stock may fall.
Marketing and distribution alliances may not generate the expected number of new
customers or may be terminated
We use marketing and distribution alliances with other Internet companies to
create traffic on our vertical trade communities and consequently, to generate
revenues. These marketing and distribution alliances allow us to link our
vertical trade communities to search engines such as those offered by Lycos. The
success of these relationships depends on the amount of increased traffic we
receive from the alliance partners' Web sites. These arrangements may not
generate the expected number of new customers. We also may be unable to renew
these marketing and distribution alliance agreements. If any of these agreements
are terminated, the traffic on our vertical trade communities could decrease or
our advertising revenues derived from the sales of advertising on co-branded
pages could decrease. In June 1999, as part of our overall reconsideration of
our portal alliances, we terminated a three year Sponsorship Agreement with
Excite, Inc. entered into on June 30, 1998.
We are interested in entering into additional partnerships with search engine
providers to increase traffic to our vertical trade communities, but we cannot
assure you that we will be able to enter into any new partnerships. If we are
unable to enter into new arrangements, the traffic on our vertical trade
communities may not increase.
There is intense competition for the Internet products and services, advertising
and sales of goods and services that we offer
The market for Internet products and services, advertising and e-commerce is
intensely competitive, evolving and subject to rapid technological change. We
expect competition to intensify as current competitors expand their product
offerings and new competitors enter the market. Barriers to entry are minimal,
and competitors can launch new Web sites at a relatively low cost. We compete
for a share of a customer's advertising budget with online services and
traditional off-line media, such as print publications and trade associations.
Although to date we believe there are no companies with a larger portfolio of
vertical trade communities than ours, several companies offer competitive
vertical trade communities. We expect that additional companies will offer
competing vertical trade communities on a stand alone or portfolio basis.
Many of our competitors have greater brand recognition and greater financial,
marketing and other resources than ours, and may have well-established
relationships with our existing and prospective customers. This may place us at
a disadvantage in responding to our competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. Our competitors may also develop Internet products or services that
are superior to, or have greater market acceptance than, our solutions. If we
are unable to compete successfully against our competitors, our business,
financial condition and operating results may be negatively impacted.
Acquisitions may disrupt or otherwise have a negative impact on our business
We have made, and plan to continue to make, significant investments in
complementary Internet and non-Internet traditional companies, technologies and
assets. Acquisitions are subject to the following risks:
. acquisitions may cause a disruption in our ongoing business, distract our
management and other resources and make it difficult to maintain our
standards, controls and procedures;
. we may acquire companies in markets in which we have little experience;
. we may not be able to successfully integrate the services, products and
personnel of any acquisition into our operations;
. we may be required to incur debt or issue equity securities, which may be
dilutive to existing shareholders, to pay for acquisitions;
. our acquisitions may not result in any return on our investment and we
may lose our entire investment and incur significant additional losses;
. our share price could decline following the market's reaction to our
acquisitions;
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. our amortization expense will increase as a result of acquisitions; and
. our interest deductions may be disallowed for federal income tax
purposes.
We currently rely heavily on advertising revenues and if our advertising
revenues decline, our business would suffer
We currently rely on revenues generated from the sale of advertising on our
vertical trade communities for a significant majority of our revenues. If we do
not continue to develop advertising and other sources of revenues, our business
may suffer. Our ability to increase our advertising revenues depends, among
other things, on many factors, including:
. advertisers' acceptance of the Internet as a legitimate advertising
medium;
. the development of a large base of users on our vertical trade communities
who possess demographic characteristics attractive to advertisers; and
. the expansion of our sales force.
Additionally, to some of our advertising customers, we provide extended
payment terms over the customer's advertising contract. To the extent that these
amounts are not collected, our advertising revenues, bad debt expense and cash
flows may be negatively impacted.
We also have barter arrangements where we provide banner advertisements and
storefronts to some of our customers in exchange for advertising on their Web
sites or in their publications. If our barter arrangements do not continue, our
advertising revenues may decline. For the nine months ended September 30, 1999,
approximately $2.4 million, or 22.9%, of our reported revenue was generated by
barter advertising arrangements.
Other factors could also affect our revenues. For example, widespread use of
"filter" software programs that limit access to storefront advertising from
the Internet user's browser could reduce advertising on the Internet, which
would impair our business, financial condition and operating results.
The seasonality of our advertising revenues and usage causes our overall
revenues to be seasonal
Some of our revenue is seasonal, which causes our revenues to be lower in the
second and third quarters of each calendar year. As a result, after the
announcement of our results for the second and third quarters of each calendar
year, our stock price may be lower than at other times of the year. We
experience seasonality in our advertising revenue because advertising and media
buying tends to be highest in the first and fourth quarters of each calendar
year. We also experience seasonality in our traffic. User traffic on our
vertical trade communities and the Web sites of our partners is lower during the
summer and year-end vacation and holiday periods, when business usage of the Web
and our services typically declines.
Changes in industry advertising rates could negatively impact our revenues
Changes in industry pricing practices for advertising rates could negatively
impact our revenues in the future. Currently, we base our storefront advertising
rates on a variety of factors including the maturity of the particular vertical
trade community, the number of storefronts, the amount of other advertising
purchased and the length of the advertising contract. In the future, advertising
rates may be based on different criteria matrices such as the number of sales
inquiries generated or visitors sent from our vertical trade communities to
advertisers' Web sites. These changes could negatively impact our revenues.
Our Internet content may not attract users with demographic characteristics
valuable to our advertisers
Our future success depends upon our ability to deliver compelling Internet
content about various industries that will attract users with demographic
characteristics valuable to our advertising customers. If we are unable to
develop Internet content that attracts a loyal user base possessing demographic
characteristics attractive to advertisers, it could impair our business,
financial condition and operating results. In addition, we may be unable to
anticipate or respond to rapidly changing buyer preferences to
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attract enough users to our vertical trade communities. Internet users can
freely navigate and instantly switch among a large number of Web sites. Many of
these Internet sites offer original content. It may therefore difficult for us
to distinguish our content and attract users.
We rely on third parties, such as trade publications and news wires, to
provide some of the content for our vertical trade communities. It is critical
to our business that we maintain and build our existing relationships with
content providers. We may not be able to maintain relationships with the third
parties we depend upon to provide the content for our vertical trade
communities, which could result in decreased traffic on our vertical trade
communities and decreased advertising revenue. Many of our agreements with
content providers are for initial terms of one to two years. The content
providers may choose not to renew the agreements or may terminate the agreements
early if we do not fulfill our contractual obligations, including our payment
obligations. If a significant number of content providers terminate our
agreements with them, it could result in decreased traffic on our vertical trade
communities and decreased advertising revenue. Because our agreements with
certain of our content providers are nonexclusive, a competitor could offer
content similar to or the same as ours.
The licensee fees we pay to content providers may increase
If licensing fees to content providers increase, our business, financial
condition and operating results may be negatively impacted. These license fees
may increase as competition for such content increases. Our content providers
may not enter into new agreements with us on similar terms as our current
agreements.
If we do not develop the "VerticalNet" brand and our vertical trade community
brands, our advertising revenues could decrease
To be successful, we must establish and strengthen the brand awareness of the
"VerticalNet" brand as well as the brands associated with each individual
vertical trade community (e.g. wateronline.com). If our brand awareness is
weakened, it could decrease the attractiveness of our audiences to advertisers,
which could result in decreasing advertising revenues. We believe that brand
recognition will become more important in the future with the growing number of
Internet sites. Our brand awareness could be diluted, which could impair our
business, financial condition and operating results if users do not perceive our
products and services to be of high quality.
We may not develop significant revenues from e-commerce, which could adversely
affect our future growth
For the nine months ended September 30, 1999, approximately 7% of our revenues
were generated from e-commerce. If we do not generate increased revenue from
e-commerce, our business, financial condition and operating results could be
impaired. To generate significant e-commerce revenues, we will have to continue
to build and acquire significant e-commerce capabilities.
Recent acquisitions to enhance our e-commerce capabilities include Isadra,
LabX and CertiSource. These acquisitions may not meet our expectations.
Our e-commerce capability depends on real-time accurate product information
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. This process
entails a number of risks, including dependence on our suppliers to provide us
in a timely manner with accurate, complete and current information about their
products, and to promptly update this information when it changes. We will not
derive revenue from these products until this data is loaded in our system.
Timely loading of these products in our database depends upon a number of
factors, including the file formats of the data provided to us by suppliers and
our ability to further automate and expand our operations to accurately load
this data in our product database, any of which could delay the actual loading
of these products.
In addition, we are generally obligated under our supplier agreements to load
updated product data onto our database within a specified period of time
following its delivery from the supplier. While we intend to further automate
the loading and updating of supplier data on our system, we may not be able to
do so in a timely manner, in part because achieving the highest level of this
automation is dependent upon our suppliers' automating their delivery of product
data to us. If our suppliers do not provide us in a timely manner with accurate,
complete and current information about the products we offer, our database may
be less useful to
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our customers and users and may expose us to liability. Although we screen our
suppliers' information before we make it available to our customers and users,
we cannot guarantee that the product information available in our database will
always be accurate, complete and current, or comply with governmental
regulations. This could expose us to liability or result in decreased adoption
and use of our vertical trade communities, which could reduce our revenues and
therefore have a negative effect on our results of operations and financial
condition.
If our suppliers do not provide timely and professional delivery of products to
our customers, our business will be harmed
We rely on our suppliers and manufactures to deliver products to our customers
in a professional, safe and timely manner. If our suppliers do not deliver the
products to our customers in a professional, safe and timely manner, then our
service will not meet customer expectations and our reputation and brand will be
damaged. In addition, deliveries that are nonconforming, late or are not
accompanied by information required by applicable law or regulations, could
expose us to liability or result in decreased adoption and use of our vertical
trade communities, which could have a negative effect on our business, results
of operations and financial condition. In some instances, we bear the
responsibility for product refunds and returns and the risk of non-
collectibility of accounts receivable from our customers.
We may not be able to effect our growth strategy if we are not able to
consummate future acquisitions
We have been growing, and plan to continue to grow, our business by
acquisitions. We may not be able to identify additional suitable acquisition
candidates available for sale at reasonable prices or on reasonable terms. Even
if we are able to identify an appropriate acquisition candidate, we may not be
able to negotiate the terms of the acquisition successfully, finance the
acquisition or integrate the acquired business, products or technologies into
our existing business operation. If we are unable to consummate future
acquisitions, our business, financial condition and operating results could be
negatively impacted.
We are growing rapidly and effectively managing our growth may be difficult
We have rapidly and significantly expanded our operations and expect to
continue to do so both by adding new products, hiring new employees and
acquiring new businesses. This growth has placed, and is expected to continue to
place, a significant strain on our resources and systems. To manage our growth,
we must implement systems and train and manage our employees. If we fail to
successfully integrate our recent and future acquisitions, our business,
financial condition and operating results could be negatively impacted.
Many of our senior management have only recently joined us. Of our seven
executive officers, two have worked for us less than one year. Our management
may not be able to effectively or successfully manage our growth.
Our planned international expansion may make it more difficult to manage our
business
In June 1999, we entered into a co-branding agreement with Metropolis
Transactive (Proprietary) Limited, a South African company creating online
marketplaces focused on the African market. We expect to further expand in
international markets. To do so, we plan to establish international operations,
hire additional personnel and establish relationships with additional suppliers
and strategic partners. This expansion will require significant management
attention and financial resources and could have a negative effect on our
business, revenues, financial condition and results of operations. We may not be
able to create or sustain international demand for our Internet-based, e-
commerce business model and services. Even if we are able to identify an
appropriate international joint venture partner, we may not be able to negotiate
the terms of the venture successfully, finance the venture or integrate the
venture partner's business, products or technology into our existing business
operation. In addition, our international business may be subject to a variety
of risks, including government regulation, difficulties in collecting
international accounts receivable, longer payment cycles, increased costs
associated with maintaining international marketing efforts, the introduction of
non-tariff barriers, possible currency risks and higher duty rates and
difficulties in enforcement of contractual obligations and intellectual property
rights. These factors may have a negative effect on any future international
sales and, consequently, on our business, results of operations and financial
condition.
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Risk of failure of our computer and communications hardware systems increases
without back-up facilities.
The performance of our computer and communications hardware systems is
critical to our business and reputation and our ability to process transactions,
provide high quality customer service and attract and retain customers,
suppliers, users and strategic partners. Any system interruptions that cause our
vertical trade communities to be unavailable to users may reduce the
attractiveness of our vertical trade communities to advertisers and could impair
our business, financial condition and operating results. We maintain most of our
computer systems in two Web-hosting facilities in New Jersey. Although we may in
the future, we do not currently have back-up or redundant facilities for our
computer systems. Interruptions could result from natural disasters as well as
power loss, telecommunications failure and similar events.
Capacity limits on our technology, transaction processing system and network
hardware and software may be difficult to project and we may not be able to
expand and upgrade our systems to meet increased use
As traffic in our vertical trade communities continues to increase, we must
expand and upgrade our technology, transaction processing systems and network
hardware and software. We may not be able to accurately project the rate of
increase in our vertical trade communities. In addition, we may not be able to
expand and upgrade our systems and network hardware and software capabilities to
accommodate increased use of our vertical trade communities. If we do not
appropriately upgrade our systems and network hardware and software, our
business, financial condition and operating results will suffer.
Our recent acquisition of Isadra, including its agent-communication and agent-
brokering architecture, may not be successfully integrated into our existing
technology.
Our market is characterized by rapid technological change, which we may not be
able to keep up with in a cost-effective way
Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing vertical trade community technology obsolete. If we are unable to
successfully respond to these developments or do not respond in a cost-effective
way, our business, financial condition and operating results will suffer. To be
successful, we must adapt to our rapidly changing market by continually
improving the responsiveness, services and features of our vertical trade
communities, by developing new features to meet customer needs and by
successfully developing and introducing new versions of our Internet-based, e-
commerce business model on a timely basis. Our success will depend, in part, on
our ability to acquire or license leading technologies useful in our business,
enhance our existing services and develop new services and technology that
address the needs of our customers. We will also need to respond to
technological advances and emerging industry standards in a cost-effective and
timely basis.
We may not be able to acquire or maintain easily identifiable Web addresses or
prevent third parties from acquiring Web addresses similar to ours
We currently hold various Internet Web addresses relating to our brand. These
Web addresses include wateronline.com, wirelessdesignonline.com,
pollutiononline.com and other Web addresses. We may not be able to prevent third
parties from acquiring Web addresses that are similar to our addresses, which
could impair our business, financial condition and operating results. The
acquisition and maintenance of Web addresses generally is regulated by
governmental agencies and their designees. For example, in the United States,
the National Science Foundation has appointed Network Solutions, Inc. as the
exclusive registrar for the ".com," ".net" and ".org" generic top-level
addresses. The regulation of Web addresses in the United States and in foreign
countries is subject to change. We may not be able to acquire or maintain
relevant Web addresses in all countries where we conduct business. Furthermore,
the relationship between regulations governing such addresses and laws
protecting trademarks is unclear.
We may compete with Internet Capital Group, our largest shareholder
As a result of its stock ownership and board representation, Internet Capital
Group, Inc. is in a position to significantly affect our business strategy and
operations, including corporate actions such as mergers or takeover attempts in
a manner that could conflict with the interests of our public shareholders. At
September 30, 1999, Internet Capital Group owned 12,295,010 shares, or 34.5%, of
our common stock. Internet Capital Group also owns warrants to purchase an
additional 239,312 shares of common stock. Two representatives of Internet
Capital Group remain on our board of directors. We may compete with Internet
Capital Group for Internet-related opportunities. Internet Capital Group seeks
to expand, in part through acquisitions
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investments, its number of business-to-business assets. Internet Capital Group,
therefore, may seek to acquire companies that we would find attractive. While we
may partner with Internet Capital Group on future acquisitions, we have no
current contractual obligations to do so. We do not have any contracts or other
understandings that would govern resolution of this potential conflict. This
competition, and the potential conflict posed by the designated directors, may
deter companies from partnering with us and may limit our business
opportunities.
Our success is dependent on our key personnel who we may not be able to retain
and we may not be able to hire enough additional personnel to meet our hiring
needs
We believe that our success depends on continued employment of our senior
management team and key technical personnel. If one or more members of our
senior management team were unable or unwilling to continue in their present
positions, our business, financial condition and operating results could be
materially adversely affected. Only one member of our senior management has an
employment agreement. We carry key person life insurance on certain, but not on
all, of our senior management personnel.
Our success also depends on having a highly trained sales force and telesales
group. Our telesales group was formed recently. We will need to continue to hire
additional personnel as our business grows. A shortage in the number of trained
salespeople could limit our ability to increase sales in our existing vertical
trade communities and to sell as we launch new vertical trade communities.
We plan to expand our employee base to manage our anticipated growth.
Competition for personnel, particularly for employees with technical expertise,
is intense. Our business, financial condition and operating results will be
impaired if we cannot hire and retain suitable personnel.
Our systems may not be Year 2000 compliant, which could cause our vertical trade
communities to be unavailable for a period of time after January 1, 2000, which
could in turn have a negative impact on our business, operating results and
financial position
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software and
other equipment used internally. If our present efforts to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, operating results and financial position could be harmed.
In the event that our Web-hosting facilities are not Year 2000 compliant, our
production Web sites would be unavailable and we would not be able to deliver
services to our users. In the event that our production and operational
facilities that support our Web sites are not Year 2000 compliant, small
portions of our Web sites may become unavailable.
Our success depends on the development of the e-commerce market, which is
uncertain
Business-to-business e-commerce is a new and emerging business practice that
remains largely untested in the marketplace. If e-commerce does not grow or
grows slower than expected, our business will suffer. Our long-term success
depends on widespread market-acceptance of e-commerce.
A number of factors could prevent such acceptance, including the following:
. e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
. the necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
. security and confidentiality concerns of customers and suppliers;
. increased government regulation or taxation may adversely affect the
viability of e-commerce;
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. insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
. adverse publicity and consumer concern about the security of e-commerce
transactions could discourage its acceptance and growth.
Adoption of the Internet as an advertising medium is uncertain
The growth of Internet advertising requires validation of the Internet as an
effective advertising medium. This validation has yet to fully occur. Acceptance
of the Internet among advertisers will also depend on growth in the commercial
use of the Internet. If widespread commercial use of the Internet does not
develop, or if the Internet does not develop as an effective and measurable
medium for advertising, our business, financial condition and operating results
could suffer.
No standards have been widely accepted to measure the effectiveness of
Internet advertising. If such standards do not develop, existing advertisers may
not continue their current levels of Internet advertising and advertisers who
are not currently advertising on the Internet may be reluctant to do so. Our
business, financial condition and operating results would suffer if the market
for Internet advertising fails to develop or develops slower than expected.
Adoption of the Internet as an e-commerce medium is uncertain
Our market is new and rapidly evolving, and depends on the increased
acceptance and use of the Internet as a medium of commerce. Our business would
suffer if Internet usage does not continue to grow and if the Internet is not
adopted as an e-commerce medium. Internet usage may be inhibited by a number of
reasons, such as:
. inadequate development of the necessary infrastructure;
. security and confidentiality concerns of customers and suppliers;
. inconsistent quality of service;
. lack of human contact that current traditional suppliers provide; and
. lack of availability of cost-effective, high-speed service.
Security risks and concerns may deter the use of the Internet for conducting e-
commerce
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence. Concerns regarding
security of transactions and transmitting confidential information over the
Internet may negatively impact our e-commerce business.
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevents many
potential customers from engaging in online transactions. If we do not add
sufficient security features to future product releases, our products may not
gain market acceptance or we may incur additional legal exposure. We have
included basic security features in some of our products to protect the privacy
and integrity of customer data, such as password requirements for access to
portions of our vertical trade communities. We do not currently use
authentication technology, which requires passwords and other information to
prevent unauthorized persons from accessing a customer's information, or
encryption, which transforms information into a "code" designed to be
unreadable by third parties, to protect confidential information such as credit
card numbers. However, we intend to license encryption technology to protect
confidential transaction data.
Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins, viruses or similar problems. If
a person circumvents our security measures, he or she could misappropriate
proprietary information or cause interruptions in our operations. Security
breaches that result in access to confidential information could damage our
reputation and expose us to a risk of loss or liability. We may be required to
make significant investments and efforts to protect against or remedy security
breaches. Additionally, as e-commerce becomes more prevalent (and consequently
becomes the focus
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of our development of direct marketing products), our customers will become more
concerned about security. If we do not adequately address these concerns, this
could impair our business, financial condition and operating results.
Limited Internet infrastructure may affect service
The accelerated growth and increasing volume of Internet traffic may cause
performance problems, slowing the adoption of our Internet-based purchasing
solution. The growth of Internet traffic due to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This decreased
performance is caused by limitations inherent in the technology infrastructure
supporting the Internet and the internal networks of Internet users. If Internet
usage continues to grow rapidly, the infrastructure of the Internet and its
users may be unable to support the demands of growing e-commerce usage, and the
Internet's performance and reliability may decline. If our existing or potential
customers experience frequent outages or delays on the Internet, the adoption or
use of our Internet-based, e-commerce business model may grow more slowly than
we expect or even decline. Our ability to increase the speed and reliability of
our Internet-based business model is limited by and depends upon the reliability
of both the Internet and the internal networks of our existing and potential
customers. As a result, if improvements in the infrastructure supporting both
the Internet and the internal networks of our customers and suppliers are not
made in a timely fashion, we may have difficulty obtaining new customers, or
maintaining our existing customers, either of which could reduce our potential
revenues and have a negative impact on our business, results of operations and
financial condition.
We may not be able to protect our proprietary rights and we may infringe the
proprietary rights of others
Proprietary rights are important to our success and our competitive position.
We have filed applications with the U.S. Patent and Trademark Office to obtain
registrations for ten of our marks. To date, five registrations have been
issued. Although we seek to protect our proprietary rights, our actions may be
inadequate to protect any trademarks and other proprietary rights or to prevent
others from claiming violations of their trademarks and other proprietary
rights. Generally, our domain names for our vertical trade communities are not
protectable as trademarks because they are too generic. In addition, effective
copyright and trademark protection may be unenforceable or limited in certain
countries, and the global nature of the Internet makes it impossible to control
the ultimate destination of our work. We also license content from third parties
and it is possible that we could become subject to infringement actions based
upon the content licensed from those third parties. We generally obtain
representations as to the origin and ownership of such licensed content;
however, this may not adequately protect us. Any of these claims, with or
without merit, could subject us to costly litigation and the diversion of our
technical and management personnel.
We may be subject to legal liability for publishing or distributing content over
the Internet
We may be subject to legal claims relating to the content in our vertical
trade communities, or the downloading and distribution of such content. For
example, persons may bring claims against us if material that is inappropriate
for viewing by young children can be accessed from our vertical trade
communities. Claims could also involve matters such as defamation, invasion of
privacy and copyright infringement. Providers of Internet products and services
have been sued in the past, sometimes successfully, based on the content of
material. In addition, some of the content provided on our vertical trade
communities is drawn from data compiled by other parties, including governmental
and commercial sources, and we re-key the data. This data may have errors. If
our content is improperly used or if we supply incorrect information, it could
result in unexpected liability. Our insurance may not cover claims of this type,
or may not provide sufficient coverage. Our business, financial condition and
operating results could suffer a material adverse effect if costs resulting from
these claims are not covered by our insurance or exceed our coverage.
We may be exposed to product liability claims
We face potential liability for claims based on the nature of the products
that we sell and distribute utilizing the Internet, including claims for breach
of warranty, product liability, misrepresentation, violation of governmental
regulations and other commercial claims. We do not pass through the
manufacturers' warranties on the products we distribute. However, in some
instances we bear the risk of loss of revenue from the product sale if a
purchaser does not pay for a defective product. Although we maintain general
liability insurance, our insurance may not cover some claims or penalties, is
subject to policy limits and exclusions and may not adequately indemnify us or
our employees from any civil, governmental or criminal liability. Furthermore,
this insurance may not be available at commercially reasonable rates in the
future. Any liability not covered by our
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<PAGE>
insurance or in excess of our insurance coverage could have a negative effect on
our business, financial condition and operating results.
We are subject to government regulation that exposes us to potential liability
and negative publicity
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping
and licensing requirements applicable to our business during the entire
transaction. Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are required to have our
own licenses. For example, if we are held to be a seller or a distributor of
regulated products because we took legal title, we may have inadvertently
violated some governmental regulations by not having the appropriate license or
permit and may be subject to potentially severe civil or criminal penalties and
fines for each offense. We are unable to verify that our suppliers have in the
past complied, or will in the future comply, with the applicable governmental
regulatory requirements, or that their actions are adequate or sufficient to
satisfy all governmental or other legal requirements that may be applicable to
our sales. We could be fined or exposed to civil or criminal liability,
including monetary fines and injunctions, and we could receive potential
negative publicity, if the applicable governmental regulatory requirements have
not been, or are not being, fully met by our suppliers or by us directly.
Negative publicity, fines and liabilities could also occur if an unqualified
person, or even a qualified customer, lacks the appropriate license or permits
to sell, use or ship, or improperly receives a dangerous or unlicensed product
through us. We do not maintain any reserve for potential liabilities resulting
from government regulation.
It is also possible that a number of laws and regulations may be adopted or
interpreted in the United States and abroad with particular applicability to the
Internet. These laws and regulations may, for example, cover issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights, access charges
and information security.
We have substantial indebtedness
As of September 30, 1999, we had approximately $103 million in long term debt
with an additional $15 million after the over-allotment exercise in October
1999. This indebtedness impacts us in a number of ways:
. significant interest expense and related debt service costs;
. difficultly in obtaining additional financing; and
. constrains our ability to react quickly in an unfavorable economic
climate.
Currently, we are not generating sufficient cash flow to satisfy the annual
debt service payments required. This may result in us using a portion of our
cash balances to pay interest or result in us borrowing additional funds or
selling additional equity to meet our debt service obligations. If we are unable
to satisfy our debt service requirements, substantial liquidity problems could
result, which would negatively impact our future prospects.
Shares eligible for future sale by our current shareholders may cause our stock
price to decline
If our shareholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, then the market price of our common stock and of the debentures
could fall. Restrictions under the securities laws limit the number of shares of
common stock available for sale in the public market.
As of September 30, 1999, the holders of 18,671,054 shares of common stock and
warrants to purchase 395,208 shares of common stock have demand and piggy-back
registration rights. The exercise of such rights could adversely affect the
market price of our common stock. We have also filed a registration statement to
register shares of common stock under our stock option and employee stock
purchase plans. Shares issued upon exercise of stock options and employee stock
purchase plans will be eligible for resale in the public market without
restriction.
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<PAGE>
Anti-takeover provisions and our right to issue preferred stock could make a
third-party acquisition of us difficult
VerticalNet is a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a third party to acquire
control of us, even if such change in control would be beneficial to our
shareholders. Our articles of incorporation provide that our board of directors
may issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a staggered three
year term. The issuance of preferred stock and the existence of a classified
board could make it more difficult for a third-party to acquire us.
Our common stock price is likely to remain highly volatile
The market price of our common stock has been and will likely continue to be
highly volatile as the stock market in general, and the market for Internet-
related and technology companies in particular, has been highly volatile.
Investors may not be able to resell their shares of our common stock following
periods of volatility because of the market's adverse reaction to such
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks and
have reflected relative valuations substantially above historical levels. During
the same period, such companies' stocks have also been highly volatile and have
recorded lows well below such historical highs. Our stock may not trade at the
same levels as other Internet stocks, and Internet stocks in general may not
sustain their current market prices.
Factors that could cause such volatility may include, among other things:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new sales model or new products or services;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet industry;
. changes in the market valuations of other Internet companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
. capital commitments;
. additions or departures of key personnel;
. sales of common stock; and
. stock market price and volume fluctuations, which are particularly common
among highly volatile securities of Internet companies.
Many of these factors are beyond our control. These factors may cause the
market price of our common stock to fall, regardless of our operating
performance.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
Our exposure to market risk related changes in interest rates relates
primarily to our investment portfolio. We invest in instruments that meet high
credit quality standards, as specified in our investment policy. The policy
also limits the amount of credit exposure to any one issue, issuer and type of
investment.
As of September 30, 1999, our investments consisted of $91.7 million that
were cash equivalents, $21.8 million having a maturity of less than one year,
and $44.9 million that had a maturity of greater than one year. Due to the
average maturity
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conservative nature of our investment portfolio, a sudden change in interest
rates would not have a material effect on the value of the portfolio. Management
estimates that had the average yield of the Company's investments decreased by
100 basis points, the Company's interest income for the quarter ended September
30, 1999 would have decreased by less than $61,000. This estimate assumes that
the decrease occurred on the first day of 1999 and reduced the yield of each
investment instrument by 100 basis points. The impact on the Company's future
interest income and future changes in investment yields will depend largely on
the gross amount of the Company's investments.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to legal proceedings and claims, which arise, in the
ordinary course of business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
financial position, results of operations or cash flows of the Company.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Change in Securities
A. During the quarter, the Company issued the following shares of its common
stock:
. On July 29, 1999, 69,794 shares were issued pursuant to the acquisition
of LabX, in exchange for the outstanding capital shares of LabX held by
4 shareholders;
. On August 10, 1999, 83,712 shares were issued pursuant to the
acquisition of CertiSource, in exchange for the outstanding capital
shares of CertiSource held by 13 shareholders;
. On August 20, 1999, 6,976 shares were issued to the owner of Industry On
Line in exchange for the assets and liabilities assumed; and
. On August 25, 1999, 1,000,000 shares were issued pursuant to the
acquisition of Isadra, in exchange for the outstanding capital shares of
Isadra held by 78 shareholders.
The shares were issued pursuant to an exemption by reason of Section 4(2) of the
Securities Act of 1933. These sales were made without general solicitation or
advertising. Each purchaser represented that he, she, or it was acquiring the
shares without a view to distribute and that he, she, or it was afforded an
opportunity to review all publically filed documents and to ask questions, and
receive answers from, officers of the Company.
B. On September 27, 1999, the Company completed the sale of $100,000,000 of
its 5 1/4% Convertible Subordinated Debentures. On October 12, 1999, the initial
purchasers exercised an over-allotment option granted by the Company pursuant
to which the initial purchasers bought an additional $15,000,000 of the
Company's Convertible Subordinated Debentures. The initial purchasers were
Lehman Brothers Inc., Hambrecht & Quist LLC, SG Cowen Securities Corporation and
Volpe Brown Whelan & Company, LLC. The aggregate offering price was $115,000,000
and discounts and commissions, exclusive of other costs, were $3,450,000. The
debentures were issued pursuant to an exemption by reason of Section 4(2) of the
Securities Act of 1933. Each of the initial purchases represented that (i) it is
a qualified institutional buyer and an accredited investor (ii) it has not and
will not solicit offers for, or offer or sell the debentures by means of general
solicitation or general advertising and (iii) with respect to resales made in
reliance on Rule 144A, other than through the Private Offerings Resales and
Trading through Automated Linkages (PORTAL) market, of debentures purchased from
the Company by the initial purchasers, to deliver with confirmation of such
resale or otherwise prior to settlement of such resale a notice to the effect
that the resale of such debentures has been made in reliance on the exemptions
from the registration requirements of the Securities Act of 1933 by Rule 144A.
The debentures are convertible into the Company's common stock at a conversion
price of $40.00, subject to adjustment in certain events.
Use of Proceeds
On February 10, 1999, the Company's Registration Statement on Form S-1
covering the Offering of 8,050,000 shares of the Company's Common Stock,
Commission file number 333-68053 was declared effective.
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The net proceeds of the Offering to the Company (after deducting the foregoing
expenses) were $58,287,314. From the effective date of the Registration
Statement to September 30, 1999, the net proceeds have been used for the
following purposes:
Construction of plant, building and facilities $ -
Purchase and installation of machinery
and equipment -
Purchase of real estate -
Acquisition of other business (including
transaction costs) 7,253,771
Repayment of indebtedness -
Working capital 19,682,062
Temporary investments, including cash
and cash equivalents -
Other purposes (for which at least $100,000
has been used), including:
Investments, including debt instruments
of the United States Government and its
agencies and in high quality corporate
issuers 31,351,481
------------
$ 58,287,314
============
All of the foregoing payments were direct or indirect payments to persons
other than (i) directors, officers or their associates; (ii) persons owning ten
percent (10%) or more of the Company's common stock; or (iii) affiliates of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were none.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The following is a list of exhibits filed as part of this Report on Form 10-Q.
Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibit in the previous filing is indicated parenthetically except for in
those situations where the exhibit number was the same as set forth below.
Exhibit
Number Description
------ -----------
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
4.1 Indenture dated September 27, 1999 between VerticalNet, Inc. and
Bankers Trust Company*
4.2 Registration Rights Agreement dated September 27, 1999 between
VerticalNet, Inc. and the initial purchasers of its 5 1/4%
Convertible Subordinated Debentures*
10.1 Amended and Restated 1996 Equity Compensation Plan (*) (2)
10.2 Employment Agreement with Mark L. Walsh (1) (2)
10.3 Employment Agreement with Barry E. Wynkoop (1) (2)
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10.4 Share Purchase Agreement dated September 1, 1998, between Boulder
Interactive Technology Services Co. and VerticalNet, Inc. (1)
10.5 Agreement and Plan of Merger dated September 30, 1998, among
VerticalNet, Inc., Informatrix Acquisition Corp., Informatrix
Worldwide, Inc. and the Stockholders of Informatrix Worldwide, Inc.
(1)
10.6 Sponsorship Agreement dated June 30, 1998, between Excite!, Inc. and
VerticalNet, Inc. (1)(3)
10.7 Internet Services Agreement dated as of January 19, 1999 by and
between Compaq Computer Corporation and VerticalNet, Inc. (1)
10.8 Asset Purchase Agreement dated January 13, 1999 by and among
VerticalNet, Inc., Coastal Video Communications Corp., Paul V. Michels
and Philip P. Price (1)
10.9 Common Stock Purchase Warrant to purchase 40,026 shares of Common
Stock dated November 25, 1998 issued to Progress Capital, Inc. (1)
10.10 Form of Common Stock Purchase Warrant dated November 25, 1998 issued
in connection with the Convertible Note (1)
10.11 Form of Convertible Note dated November 25, 1998 (1)
10.12 Series A Preferred Stock Purchase Agreement dated as of September 12,
1996 between Internet Capital Group, L.L.C. and Water Online, Inc. (1)
10.13 Series D Investor Rights Agreement dated as of May 8, 1998 by and
among VerticalNet, Inc. and the Investors (1)
10.14 Registration Rights Agreement dated as of November 25, 1998 between
the Company and the Convertible Note Holders (1)
10.15 Agreement of Lease between Liberty Property Limited Partnership and
VerticalNet
10.16 Agreement and Plan of Merger dated June 14, 1999 among the Company,
TSX Acquisition Corp., Techspex and the stockholders of Techspex (4)
10.17 Stock Purchase Agreement dated July 29, 1999 among the Company,
4052995 Manitoba Ltd., LabX Technologies and the stockholders of LabX
(5)
10.18 Agreement and Plan of Merger dated August 10, 1999 among the Company,
CertiSource Acquisition Co., Inc., CertiSource, Inc. and stockholders
of CertiSource (6)
10.19 Agreement and Plan of Merger dated May 24, 1999 among the Company,
Isadra Acquisition Crop., Isadra, Hugo Daley, Mastafa Syed and Tira
Capital Management as Shareholders' Representative (7)
10.20 1999 Equity Compensation Plan Adopted 23, 1999*
21 Subsidiaries (1)
27* Financial Data Schedule
* Filed herewith.
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(Registration No. 333-68053) filed with the Commission on November 27, 1998
amended and incorporated herein by reference.
(2) Compensatory plans and arrangements for executives and others.
(3) Portions of this Exhibit have been omitted and filed separately with the
Secretary of the Commission pursuant to the Registrant's Application
Requesting Confidential Treatment under Rule 406 under the Act.
(4) Filed as an exhibit to the Registrant's report on Form 8-K dated June 29,
1999.
(5) Filed as an exhibit to the Registrant's report on Form 8-K dated July 29,
1999.
(6) Filed as an exhibit to the Registrant's report on Form 8-K dated August 10,
1999.
(7) Filed as an exhibit to the Registrant's report on Form 8-K dated August 25,
1999.
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<PAGE>
(b) Reports on Form 8-K
On June 29, 1999, the Company filed a report on Form 8-K, pursuant to Items 2
and 7 of such Form, regarding its acquisition of Techspex, Inc.
On August 12, 1999, the Company filed a report on Form 8-K, pursuant to Items 2
and 7 of such Form, regarding its acquisition of LabX Technologies, Inc.
On August 20, 1999, the Company filed a report on Form 8-K, pursuant to Items 2
and 7 of such Form, regarding its acquisition of CertiSource, Inc.
On September 9, 1999, the Company filed a report on Form 8-K, pursuant to Items
2 and 7 of such Form, regarding its acquisition of Isadra, Inc.
On September 10, 1999, the Company filed a report on Form 8-K, pursuant to Items
5 and 7 of such Form, regarding its announcement to raise funds through an
offering of private convertible subordinated debentures.
On September 22, 1999, the Company filed a report on Form 8-K, pursuant to Items
5 and 7 of such Form, regarding its entering into a purchase agreement providing
for the sale of $100 million of its 5 1/4 % convertible subordinated debentures
due 2004.
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SIGNATURES
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.
Date: November 4, 1999 VerticalNet, Inc.
(Registrant)
/s/ Mark L. Walsh
----------------------------------------
Mark L. Walsh
President and Chief Executive Officer
/s/ Gene S. Godick
----------------------------------------
Gene S. Godick
Chief Financial Officer
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Exhibit 4.1
VERTICALNET, INC.,
ISSUER
TO
BANKERS TRUST COMPANY,
TRUSTEE
__________
INDENTURE
Dated as of September 27, 1999
__________
U.S. $100,000,000
5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
<PAGE>
INDENTURE, dated as of September 27, 1999, between VERTICALNET, INC., a
corporation duly organized and existing under the laws of the State of
Pennsylvania, having its principal office at 700 Dreshner Road, Horsham,
Pennsylvania 19044 (herein called the "Company"), and BANKERS TRUST COMPANY, a
New York banking corporation, as Trustee (herein called the "Trustee"), having
its principal Corporate Trust offices at Four Albany Street, New York, New York
10006.
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 5 1/4%
Convertible Subordinated Debentures Due 2004 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
All things necessary to make the Securities, when the Securities are
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company, and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in
this Article and include the plural as well as the singular;
<PAGE>
(2) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with U.S. generally accepted accounting
principles prevailing at the time of any relevant computation hereunder; and
(3) the words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
"Accredited Investor" means an accredited investor within the meaning of
Rule 501(a)(1), (2), (3), (5), (6) or (7) of Regulation D under the Securities
Act.
"Act", when used with respect to any Holder of a Security, has the meaning
specified in Section 1.3.(a).
"Affiliate" of any specified Person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent Members" has the meaning specified in Section 2.5(d)(5).
"Authenticating Agent" means any Person named as Authenticating Agent
pursuant to Section 5.12.
"Board of Directors" means either the board of directors of the Company or
any committee of that board empowered to act for it with respect to this
Indenture.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company to be in full force and effect on the date of such certification,
shall have been delivered to the Trustee.
"Business Day," when used with respect to any Place of Payment or Place of
Conversion, means each Monday, Tuesday, Wednesday, Thursday and Friday which is
not a day on which banking institutions in that Place of Payment or Place of
Conversion or the Corporate Trust Office of the Trustee, as the case may be, are
authorized or obligated by law to close.
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<PAGE>
"Capitalized Lease Obligation" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with U.S. generally accepted accounting principles
prevailing at the time of any relevant determination hereunder, is required to
be accounted for as a capital lease on the balance sheet of that Person.
"Change of Control" means an event or series of events as a result of which
(i) any "person" (as such term is used in Section 13(d)(3) of the Exchange Act)
acquires beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such person to exercise 50% or more of
the combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), other than
any such acquisition by the Company, any Subsidiary of the Company or any
employee benefit plan of the Company; or (ii) the Company consolidates with or
merges into any other person, any merger of another person into the Company, or
any conveyance, transfer, sale, lease or other disposition of all or
substantially all of the properties and assets of the Company to another person,
other than (a) any such transaction (x) that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
capital stock of the Company and (y) pursuant to which holders of capital stock
of the Company immediately prior to such transaction have the entitlement to
exercise, directly or indirectly, 50% or more of the total voting power of all
shares of capital stock of the Company entitled to vote generally in the
election of directors of the continuing or surviving person immediately after
such transaction and (b) any merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares
of common stock of the surviving entity; provided, however, that a Change of
-------- -------
Control shall not be deemed to have occurred if the Closing Price per share of
the Common Stock for any five Trading Days within the period of ten consecutive
Trading Days ending immediately after the later of the Change of Control or the
public announcement of the Change of Control, in the case of clause (i) above,
or the period of ten consecutive Trading Days ending immediately before the
Change of Control, in the case of clause (ii) above shall equal or exceed 110%
of the Conversion Price of the Securities in effect on each such Trading Day.
Beneficial ownership will be determined in accordance with Rule 13d-3 of the
Exchange Act. The term "person" includes any syndicate or group which would be
deemed a person under Section 13(d)(3) of the Exchange Act.
"Closing Date" means September 27, 1999 or such later date on which the
Securities may be delivered pursuant to the Purchase Agreement.
3
<PAGE>
"Closing Price" with respect to any securities on any day shall mean the
closing sales price regular way on such day or, in case no such sale takes place
on such day, the average of the reported closing bid and asked prices, regular
way, in each case on the Nasdaq National Market, or, if such security is not
listed or admitted to trading on the Nasdaq National Market, on the principal
national security exchange or quotation system on which such security is quoted
or listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the average of
the closing bid and asked prices of such security on the over-the-counter market
on the day in question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service, or if not so
available, in such manner as furnished by any New York Stock Exchange member
firm selected from time to time by the Board of Directors for that purpose, or a
price determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution.
"Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company
and which is not subject to redemption by the Company. However, subject to the
provisions of Section 12.11, shares issuable on conversion of Securities shall
include only shares of the class designated as Common Stock, par value $0.01 per
share, of the Company at the date of this Indenture or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company, provided
--------
that if at any time there shall be more than one such resulting class, the
shares of each such class then so issuable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
"Company" means the corporation named as the "Company" in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Notice" has the meaning specified in Section 11.3.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by the Chairman of the Board, the Chief
Executive Officer, Chief Financial Officer, a Vice Chairman of the Board, the
President or a Vice President,
4
<PAGE>
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"Conversion Agent" means any Person authorized by the Company pursuant to
Section 9.2 to convert Securities in accordance with Article 12.
"Conversion Price" has the meaning specified in Section 12.1.
"Corporate Trust Office" means the office of the Trustee located in The
City of New York at which at any particular time its corporate trust business
shall be administered (which at the date of this Indenture is located at Four
Albany Street, New York, New York 10006).
"corporation" includes corporations, associations, limited liability
companies, companies and business trusts.
"Custodian" shall mean Bankers Trust Company, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Defaulted Interest" has the meaning specified in Section 2.7.
"Depositary" shall mean, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.5(e) as
the Depositary with respect to such Securities, until a successor shall have
been appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.
"Dollar," "U.S. Dollar" or "U.S. $" means a dollar or other equivalent unit
in such coin or currency of the United States as at the time shall be legal
tender for the payment of public and private debts.
"Event of Default" has the meaning specified in Section 4.1.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combination thereof, designed to provide
protection against fluctuations in currency exchange rates.
"Global Security" has the meaning specified in Section 2.2.
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"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of any part
or all of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder," when used with respect to any Security, means the Person in whose
name the Security is registered in the Security Register.
"Indebtedness," when used with respect to any Person, means
(a) all indebtedness, obligations and other liabilities (contingent or
otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts and any loans or advances from banks,
whether or not evidenced by notes or similar instruments) or evidenced by
bonds, debentures, notes or other instruments for the payment of money, or
incurred in connection with the acquisition of any property, services or
assets (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof), other than any account
payable or other accrued current liability or obligation to trade creditors
incurred in the ordinary course of business in connection with the
obtaining of materials or services,
(b) all reimbursement obligations and other liabilities (contingent or
otherwise) of such Person with respect to letters of credit, bank
guarantees, bankers' acceptances, surety bonds, performance bonds or other
guaranty of contractual performance,
(c) all obligations and liabilities (contingent or otherwise) in
respect of (y) Capitalized Lease Obligations and (z) any lease or related
documents (including a purchase agreement) in connection with the lease of
real property which provides that such Person is contractually obligated to
purchase or cause a third party to purchase the leased property and thereby
guarantee a minimum residual value of the leased property to the landlord
and the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase the leased property,
(d) all obligations of such Person (contingent or otherwise) with
respect to an Interest Rate Protection Agreement or an Exchange Rate
Contract,
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(e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or
otherwise) of such Person to purchase or otherwise acquire or otherwise
assure a creditor against loss in respect of, indebtedness, obligations or
liabilities of another Person of the kind described in clauses (a) through
(d),
(f) any indebtedness or other obligations described in clauses (a)
through (d) secured by any mortgage, pledge, lien or other encumbrance
existing on property which is owned or held by such Person, regardless of
whether the indebtedness or other obligation secured thereby shall have
been assumed by such Person, and
(g) any and all deferrals, renewals, extensions and refundings of, or
amendments, modifications or supplements to, any indebtedness, obligation
or liability of the kind described in clauses (a) through (f).
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, interest rate cap or collar agreement or other
financial agreement or arrangement designed to protect such person against
fluctuations in interest rates, as in effect from time to time.
"Internal Revenue Code" means the U.S. Internal Revenue Code of 1986, as
amended.
"Liquidated Damages" means all liquidated damages, if any, payable pursuant
to Section 3 of the Registration Rights Agreement.
"Maturity" means the date on which the principal of such Security becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
by acceleration, conversion, call for redemption, exercise of a Repurchase Right
or otherwise.
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"Nasdaq National Market" means the Nasdaq National Market or any successor
national securities exchange or automated over-the-counter trading market in the
United States.
"Non-Electing Share" has the meaning specified in Section 12.11.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Chief Executive Officer, the President or a Vice President and by the
Chief Financial Officer, the Treasurer or the Secretary of the Company, and
delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company (and may include directors or employees of the Company) and
which opinion is acceptable to the Trustee which acceptance shall not be
unreasonably withheld.
"Outstanding," when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
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(i) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for the payment or redemption of which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities, provided that if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture; and
(iii) Securities which have been paid pursuant to Section 2.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
- -------- -------
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall
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be protected in relying upon any such determination as to the presence of a
quorum or upon any such request, demand, authorization, direction, notice,
consent or waiver, only such Securities of which the Trustee has received
written notice and are so owned shall be so disregarded. Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Securities and that the pledgee is not the Company or
any other obligor upon the Securities or any Affiliate of the Company or such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, and premium, if any, or interest (including Liquidated Damages, if
any) on any Securities on behalf of the Company.
"Person" means any individual, corporation, limited liability company
partnership, joint venture, association, joint-stock company, trust, estate,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Conversion" has the meaning specified in Section 2.1.
"Place of Payment" has the meaning specified in Section 2.1.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 2.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means the Purchase Agreement, dated September 21,
1999, between the Company and Lehman Brothers Inc., Hambrecht & Quist LLC, SG
Cowen Securities Corporation and Volpe Brown Whelan & Company, LLC.
"QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A.
"Record Date" means either a Regular Record Date or a Special Record Date,
as the case may be.
"Redemption Date," when used with respect to any Security to be redeemed or
repurchased, means the date fixed for such redemption or repurchase by or
pursuant to this Indenture.
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"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which such Security is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of September 27, 1999, between the Company and the Lehman Brothers
Inc., Hambrecht & Quist LLC, SG Cowen Securities Corporation and Volpe Brown
Whelan & Company, LLC.
"Regular Record Date" for the interest payable means the March 13 (whether
or not a Business Day) next preceding a March 27 Interest Payment Date and the
September 13 (whether or not a Business Day) next preceding a September 27
Interest Payment Date.
"Repurchase Right" has the meaning specified in Section 11.1.
"Reset Transaction" means a merger, consolidation or statutory share
exchange to which the entity that is the issuer of the common shares into which
the Securities are then convertible is a party, a sale of all or substantially
all the assets of that entity, a recapitalization of those common shares or a
distribution pursuant to Section 12.4(d), after the effective date of which such
transaction or distribution the Securities would be convertible into (a) shares
of an entity the common shares of which had a Dividend Yield for the four fiscal
quarters of such entity immediately preceding the public announcement of such
transaction or distribution that was more than 2.5% higher than the Dividend
Yield on the Common Stock (or other common shares then issuable upon conversion
of the Securities) for the four fiscal quarters preceding the public
announcement of such transaction or distribution, or (b) shares of an entity
that announces a dividend policy prior to the effective date of such transaction
or distribution which policy, if implemented, would result in a Dividend Yield
on such entity's common stock for the next four fiscal quarters that would
result in such a 2.5% basis point increase.
"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee, including any
principal, vice president, assistant vice president, assistant secretary, any
assistant treasurer, the managing director or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
"Restricted Securities" means the Securities defined as such in Section
2.5(e).
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"Rule 144" means Rule 144 under the Securities Act (including any successor
rule thereof), as the same may be amended from time to time.
"Rule 144A" shall mean Rule 144A as promulgated under the Securities Act
(including any successor rule thereof), as the same may be amended from time to
time.
"Rule 144A Information" has the meaning specified in Section 9.9.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company."
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Securities Register" and "Security Register" have the respective meanings
specified in Section 2.5(a).
"Senior Debt" means the principal of, premium, if any, interest (including
all interest accruing subsequent to the commencement of any bankruptcy or
similar proceeding, whether or not a claim for post-petition interest is
allowable as a claim in any such proceeding) and rent payable on or termination
payment with respect to or in connection with, and all fees, costs, expenses and
other amounts accrued or due on or in connection with, Indebtedness of the
Company, whether outstanding on the date hereof or hereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Securities or expressly provides that such
Indebtedness is pari passu or junior to the Securities. Notwithstanding the
foregoing, the term Senior Debt shall not include Indebtedness of the Company to
any Subsidiary of the Company, a majority of the voting stock of which is owned,
directly or indirectly, by the Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" within the meaning of Rule 405 under the Securities Act.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 2.7.
"Stated Maturity" means the date specified in any Security as the fixed
date for the payment of principal on such Security or on which an installment of
interest on such Security is due and payable.
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"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition only, "voting stock" means stock which
ordinarily has voting power for the election of directors, whether at all times
or only so long as no senior class of stock has such voting power by reason of
any contingency.
"Trading Day" shall mean (x) if the applicable security is listed or
admitted for trading on the New York Stock Exchange or another national security
exchange, a day on which the New York Stock Exchange or another national
security exchange is open for business or (y) if the applicable security is
quoted on the Nasdaq National Market, a day on which trades may be made thereon
or (z) if the applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transfer Agent" means any Person, which may be the Company, authorized by
the Company to exchange or register the transfer of Securities.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Trustee.
"Vice President," when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added before
or after the title "vice president."
SECTION 1.2 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
Opinion of Counsel with respect to the matters upon which such certificate or
opinion is based is erroneous. Any such Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a
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certificate or representations by, an officer or officers of the Company stating
that the information with respect to such factual matters is in the possession
of the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion on behalf of the Company has read such covenant or condition and
the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
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SECTION 1.3 Acts of Holders of Securities.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders of Securities may be embodied in and evidenced by (1) one or more
instruments of substantially similar tenor signed by such Holders in person or
by agent or proxy duly appointed in writing, (2) the record of Holders of
Securities voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders of Securities duly called and
held in accordance with the provisions of Article 8 or (3) a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and record (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders of Securities signing such instrument or instruments and so
voting at such meeting. Proof of execution of any such instrument or of a
writing appointing any such agent or proxy, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and (subject to
Section 5.1) conclusive in favor of the Trustee and the Company if made in the
manner provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 8.6.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be provided in any manner which the Trustee reasonably
deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of such Person holding the same, shall be proved by the
Security Register.
(d) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of the Holders of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is made
upon such Security.
SECTION 1.4 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, election,
waiver or Act of Holders of Securities or other document provided or permitted
by this Indenture to be made upon, given or furnished to, or filed with,
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(1) the Trustee by any Holder of Securities or by the Company shall be
sufficient for every purpose hereunder if in writing, mailed, first-class
postage prepaid or telecopied at Bankers Trust Company, Corporate Trust and
Agency Services and confirmed by mail, first-class postage prepaid,
addressed to it at Four Albany Street, 4th Floor, New York, New York
10006, to the attention of Corporate Marketing Services, or in the case of
notice by telecopy confirmed at 212-250-9392, or at any other address or
telecopy number otherwise furnished in writing to the Company by the
Trustee; or
(2) the Company by the Trustee or by any Holder of Securities shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing, mailed, first-class postage prepaid or telecopied
at 215-784-1960 and confirmed by mail, first-class postage prepaid,
addressed to it at 700 Dreshner Road, Horsham, Pennsylvania 19044, to the
attention of its President, with a copy to its Chief Financial Officer, or
at any other address or telecopy number otherwise furnished in writing to
the Trustee by the Company.
Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language.
SECTION 1.5 Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Securities of any event, such notice shall be
sufficiently given to Holders of Securities if mailed, first-class postage
prepaid, to each Holder of a Security affected by such event, at the address of
such Holder as it appears in the Security Register, not earlier than the
earliest date and not later than the latest date prescribed for the giving of
such notice.
Neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Security shall affect the sufficiency of
such notice with respect to other Holders of Securities. In case by reason of
the suspension of regular mail service or by reason of any other cause it shall
be impracticable to give such notice by mail, then such notification to Holders
of Securities as shall be made with the approval of the Trustee shall constitute
a sufficient notification to such Holders for every purpose hereunder.
Such notices shall be deemed to have been given on the date of such
mailing.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the
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event, and such waiver shall be the equivalent of such notice. Waivers of notice
by Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
SECTION 1.6 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 1.7 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 1.8 Separability Clause.
In case any provision in this Indenture or the Securities shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.9 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors
hereunder, the holders of Senior Debt and the Holders of Securities, any benefit
or legal or equitable right, remedy or claim under this Indenture.
SECTION 1.10 GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO SUCH
STATE'S CONFLICT OF LAWS PRINCIPLES THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK TO BE APPLIED.
SECTION 1.11 Counterparts.
This instrument may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original but all such
counterparts shall together constitute but one and the same instrument.
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SECTION 1.12 Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security or the last day on which a Holder of a Security has a
right to convert such Security shall not be a Business Day at any Place of
Payment or Place of Conversion, then (notwithstanding any other provision of
this Indenture or of the Securities) payment of interest (including Liquidated
Damages, if any) or principal or premium, if any, or conversion of the
Securities, need not be made at such Place of Payment or Place of Conversion on
such day, but may be made on the next succeeding Business Day at such Place of
Payment or Place of Conversion with the same force and effect as if made on the
Interest Payment Date or Redemption Date or at the Stated Maturity or on such
last day for conversion, provided, that in the case that payment is made on such
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succeeding Business Day, no interest shall accrue on the amount so payable for
the period from and after such Interest Payment Date, Redemption Date or Stated
Maturity, as the case may be.
SECTION 1.13 Recourse Against Others.
No recourse for the payment of the principal of or premium, if any, or
interest (including Liquidated Damages, if any) on any Security, or for any
claim based thereon or otherwise in respect thereof, shall be had against any
incorporator, shareholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance thereof and as
part of the consideration for the issue thereof, expressly waived and released.
ARTICLE 2
THE SECURITIES
SECTION 2.1 Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to U.S. $100,000,000 (or $115,000,000
if the over-allotment option set forth in Section 2(b) of the Purchase Agreement
------------------
is exercised in full), except for securities authenticated and delivered upon
registration of, transfer of, or in exchange for, or in lieu of other Securities
pursuant to Section 2.5, 2.6, 7.5, 10.8, 11.3 or 12.2.
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The Securities shall be known and designated as the "5 1/4% Convertible
Subordinated Debentures Due 2004" of the Company. Their Stated Maturity shall
be September 27, 2004 and they shall bear interest from September 27, 1999,
payable semiannually in arrears on March 27 and September 27 in each year,
commencing March 27, 2000, at the rate of 5 1/4% per annum until the principal
thereof is paid or made available for payment.
The principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Securities shall be payable as provided in the form of
Security set forth in Exhibit A hereto (any city in which any Paying Agent is
located being herein called a "Place of Payment").
The Securities shall be redeemable at the option of the Company, and shall
have a Repurchase Right exercisable at the option of Holders, as provided in the
form of Security set forth in Exhibit A hereto and in Articles 10 and 11.
The Securities shall be convertible as provided in Article 12 (any city in
which any Conversion Agent is located being herein called a "Place of
Conversion").
The Securities shall be subordinated in right of payment to Senior Debt of
the Company as provided in Article 13.
SECTION 2.2 Form of Securities.
The Securities and the Trustee's certificate of authentication to be borne
by such Securities shall be substantially in the form set forth in Exhibit A,
which is incorporated in and made a part of this Indenture.
Any of the Securities may have such letters, numbers or other marks of
identification and such notations, legends and endorsements as the officers
executing the same may approve (execution thereof to be conclusive evidence of
such approval) and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any
securities exchange or automated quotation system on which the Securities may be
listed or designated for issuance, or to conform to usage.
Securities offered and sold in their initial distribution in reliance on
Rule 144A shall be issued in the form of one or more Global Securities
(collectively, the "Global Security") in fully registered form without interest
coupons, substantially in the form of Security set forth in Exhibit A, with such
applicable legends as are provided for in Section 2.5 and Exhibit A. Such
Global Security shall be registered in the name of the
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Depositary or Cede & Co., as nominee of the Depositary, and deposited with the
Custodian, duly executed by the Company and authenticated by the Trustee as
hereinafter provided.
The terms and provisions contained in the form of Security attached as
Exhibit A hereto shall constitute, and is hereby expressly made, a part of this
Indenture and to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
SECTION 2.3 Denominations.
The definitive Securities shall be issuable in fully registered form,
without coupons, in denominations of U.S. $1,000 or integral multiples of U.S.
$1,000 in excess thereof, except that Securities offered other than to QIBs will
be issued only in definitive certificated form in integral multiples of $1,000.
Such Securities (i.e. Securities sold to Accredited Investors) will be subject
- -
to restrictions in accordance with a form of Letter for Accredited Investors
(the "AI Letter"), that such investors will be required to sign, the form of
which is attached hereto as Exhibit B.
SECTION 2.4 Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Chief Executive Officer, its President or one of its Vice
Presidents, under a facsimile of its corporate seal reproduced thereon attested
by its Secretary or one of its Assistant Secretaries. Any such signature may be
manual or facsimile.
Securities bearing the manual or facsimile signature of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Securities as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
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No Security shall be entitled to any benefit under this Indenture, or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by or on behalf of the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 2.5 Registration, Registration of Transfer and Exchange;
Restrictions on Transfer.
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfers of Securities. The Trustee is
hereby appointed "Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at any office
or agency of the Company designated pursuant to Section 9.2 for such purpose,
the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Securities
of any authorized denominations and of a like aggregate principal amount and
bearing such restrictive legends as may be required by this Indenture.
Subject to the other provisions of this Section 2.5(a), Securities may be
exchanged for other Securities of any authorized denominations and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
any such office or agency. Whenever any Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive, bearing registration numbers not contemporaneously outstanding.
All Securities issued upon any registration of transfer or exchange of
Securities shall be valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
None of the Company, the Trustee nor the Security Registrar shall be
required to exchange or register a transfer of (i) any Securities for a period
of fifteen (15) days next preceding any selection of Securities to be redeemed
or (ii) any Securities called for redemption or, if a portion of any Security is
selected or called for redemption, such
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portion thereof selected or called for redemption or (iii) any Securities
surrendered for conversion or, if a portion of any Security is surrendered for
conversion, such portion thereof surrendered for conversion.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed
by, or be accompanied by a written instrument of transfer in form satisfactory
to the Company and the Security Registrar and duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing, together with any
documentation required to be delivered pursuant to Section 2.5(b).
No service charge shall be made to any Holder for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith.
(b) Notwithstanding any other provisions of this Indenture or the
Securities (but subject to Section 2.2), transfers of a Global Security, in
whole or in part, transfers and exchanges of interests therein of the kinds
described in clauses (2), (3) and (4) below shall be made only in accordance
with this Section 2.5(b). Transfers and exchanges subject to this Section 2.5
shall also be subject to the other provisions of this Indenture that are not
inconsistent with this Section 2.5.
(1) Limitation on Transfers of a Global Security. A Global Security
--------------------------------------------
may not be transferred, in whole or in part, to any Person other than the
Depositary or a nominee thereof, and no such transfer to any such other
Person may be registered; provided that this clause (1) shall not prohibit
any transfer of a Security that is issued in exchange for a Global Security
but is not itself a Global Security. No transfer of a Security to any
Person shall be effective under this Indenture or the Securities unless and
until such Security has been registered in the name of such Person.
Nothing in this Section 2.5(b)(1) shall prohibit or render ineffective any
transfer of a beneficial interest in a Global Security effected in
accordance with the other provisions of this Section 2.5(b).
(2) Global Security to Global Security. If the holder of a beneficial
----------------------------------
interest in the Global Security wishes at any time to transfer such
interest to a Person who wishes to take delivery thereof in such form, such
transfer may be effected only in accordance with the applicable procedures
of the Depositary.
(3) Exchanges. In the event that a Global Security or any portion
---------
thereof is exchanged for Securities other than Global Securities, such
Securities may in turn be exchanged (on transfer or otherwise) for
Securities that are not
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Global Securities or for beneficial interests in a Global Security (if any
is then outstanding) only in accordance with such procedures, which shall
be substantially consistent with the provisions of clauses (1) and (2)
above (including the certification requirements intended to insure that the
transfers and exchanges of beneficial interests in a Global Security comply
with Rule 144A or Rule 144, as the case may be) and any applicable
procedures, as may be from time to time adopted by the Company and the
Trustee.
(4) Securities Originally Issued to Accredited Investors. Securities
----------------------------------------------------
may be issued other than in reliance on Rule 144A, and such Securities will
be issued only in definitive certificated form and, initially, only in
integral multiples of $1,000. Such Securities (i.e., Securities sold to
- -
Accredited Investors) will be subject to restrictions on transfer in
accordance with the AI Letter. Furthermore, in case a Security held by an
Accredited Investor is to be transferred (whether during or after the
period of restriction) in a transaction exempt pursuant to Rule 144A, then
the transferor shall deliver a certificate substantially in the form of
Exhibit C hereto, with such changes in the second paragraph thereof as are
appropriate to reflect the facts and circumstances, including that the
Holder will be transferring a Security in the form of a definitive
registered certificate. (However, a transfer or exchange that does not
involve any change in beneficial ownership shall not be considered to be a
transfer that triggers these certification requirements.) The Company may
vary these procedures or impose other reasonable procedures to ensure
compliance with the agreement of such Holder contained in its AI Letter.
(c) Each Restricted Security and Global Security issued hereunder shall,
upon issuance, bear the legends required by Section 2.5(e) to be applied and
such required legends shall not be removed except as provided in the next
sentence or paragraph (d) of this Section 2.5. The legend required for a
Restricted Security may be removed if there is delivered to the Company such
satisfactory evidence, which may include an opinion of independent counsel
licensed to practice law in the United States, as may be reasonably required by
the Company that neither such legend nor the restrictions on transfer set forth
therein are required to ensure that transfers of such Security will not violate
the registration requirements of the Securities Act. Upon provision of such
satisfactory evidence, the Trustee, at the written direction of the Company,
shall authenticate and deliver in exchange for such Securities another Security
or Securities having an equal aggregate principal amount that does not bear such
legend. If such a legend required for a Restricted Security has been removed
from a Security as provided above, no other Security issued in exchange for all
or any part of such Security shall bear such legend, unless the Company has
reasonable cause to believe that such other Security is a
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"restricted security" within the meaning of Rule 144 and instructs the Trustee
in writing to cause a legend to appear thereon.
(d) The provisions of clauses (1), (2), (3) and (4) below shall apply only
to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary or a nominee thereof, and
delivered to such Depositary or a nominee thereof or custodian therefor,
and each such Global Security shall constitute a single Security for all
purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture or the
Securities, no Global Security may be exchanged in whole or in part for
Securities registered, and no transfer of a Global Security in whole or in
part may be registered, in the name of any Person other than the Depositary
or a nominee thereof unless (A) the Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or (ii) has ceased to be a clearing agency registered under the
Exchange Act, (B) there shall have occurred and be continuing an Event of
Default with respect to such Global Security or (C) a request for
certificates has been made upon the Trustee in accordance with the
Depositary's customary procedures and a copy of such notice has been
received by the Company from the Trustee. Any Global Security exchanged
pursuant to clause (A) above shall be so exchanged in whole or in part and
any Global Security exchanged pursuant to clause (B) or (C) above may be
exchanged in whole or from time to time in part as directed by the
Depositary. Any Security issued in exchange for a Global Security or any
portion thereof shall be a Global Security, provided that any Security so
issued that is registered in the name of a Person other than the Depositary
or a nominee thereof shall not be a Global Security.
(3) Securities issued in exchange for a Global Security or any
portion thereof pursuant to clause (2) above shall be issued in definitive,
fully registered form, without interest coupons, shall have an aggregate
principal amount equal to that of such Global Security or portion thereof
to be so exchanged, shall be registered in such names and be in such
authorized denominations as the Depositary shall designate and shall bear
any legends required hereunder. Any Global Security to be exchanged in
whole shall be surrendered by the Depositary to the Trustee, as Security
Registrar. With regard to any Global Security to be exchanged in part,
either such Global Security shall be so surrendered for exchange or, if the
Trustee is acting as custodian for the Depositary or its nominee with
respect to such Global Security, the principal amount thereof shall be
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reduced, by an amount equal to the portion thereof to be so exchanged, by
means of an appropriate adjustment made on the records of the Trustee. Upon
any such surrender or adjustment, the Trustee shall authenticate and make
available for delivery the Security issuable on such exchange to or upon
the written order of the Depositary or an authorized representative
thereof.
(4) In the event of the occurrence of any of the events specified in
clause (2) above, the Company will promptly make available to the Trustee a
reasonable supply of certificated Securities in definitive, fully
registered form, without interest coupons.
(5) Neither any members of, or participants in, the Depositary
("Agent Members") nor any other Persons on whose behalf Agent Members may
act shall have any rights under this Indenture with respect to any Global
Security, or under any Global Security, and the Depositary or such nominee,
as the case may be, may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner and holder of
such Global Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee or any
agent of the Company or Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
such nominee, as the case may be, or impair, as between the Depositary, its
Agent Members and any other person on whose behalf an Agent Member may act,
the operation of customary practices of such Persons governing the exercise
of the rights of a holder of any Security.
(e) Every Security that bears or is required under this Section 2.5(e) to
bear the legend set forth in this Section 2.5(e) (together with any Common Stock
issued upon conversion of the Securities and required to bear the legend set
forth in Section 2.5(f), collectively, the "Restricted Securities") shall be
subject to the restrictions on transfer set forth in this Section 2.5(e)
(including the legend set forth below), unless such restrictions on transfer
shall be waived by written consent of the Company, and the Holder of each such
Restricted Security, by such Holder's acceptance thereof, agreed to be bound by
all such restrictions on transfer. As used in Sections 2.5(e) and 2.5(f), the
term "transfer" encompasses any sale, pledge, transfer or other disposition
whatsoever of any Restricted Security.
Until two (2) years after the original issuance date of any Security, any
certificate evidencing such Security (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof which shall bear the legend set forth in Section 2.5(f), if
applicable) shall bear a legend in
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substantially the following form (unless such Securities have been transferred
pursuant to a registration statement that has been declared effective under the
Securities Act (and which continues to be effective at the time of such
transfer) or unless otherwise agreed by the Company in writing, with written
notice thereof to the Trustee):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN
THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED
IN RULE 501(a)(1), (2), (3), (5), (6) OR (7) UNDER THE SECURITIES ACT
("ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER
THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY RESELL OR OTHERWISE
TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON
CONVERSION OF SUCH SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED
STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO
BANKERS TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM SUCH TRUSTEE; (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED
BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN TWO
YEARS AFTER THE
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ORIGINAL ISSUANCE OF SUCH SECURITY (OTHER THAN A TRANSFER PURSUANT TO
CLAUSE 2(E) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON
THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO BANKERS TRUST COMPANY, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE,
AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR 2(D)
ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO BANKERS TRUST
COMPANY, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE
2(E) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE
SECURITY EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Any Security (or security issued in exchange or substitution thereof) as to
which such restrictions on transfer shall have expired in accordance with their
terms or as to which the conditions for removal of the foregoing legend as set
forth therein have been satisfied may, upon surrender of such Security for
exchange to the Security Registrar in accordance with the provisions of this
Section 2.5, be exchanged for a new Security or Securities, of like tenor and
aggregate principal amount, which shall not bear the restrictive legend required
by this Section 2.5(e).
The Depositary shall be a clearing agency registered under the Exchange
Act. The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Global Securities. Initially, the Global
Securities shall be issued to the Depositary, registered in the name of Cede &
Co., as the nominee of the Depositary, and deposited with the Trustee as
Custodian for Cede & Co.
If at any time the Depositary for a Global Security notifies the Company
that it is unwilling or unable to continue as Depositary for a Global Security,
the Company may appoint a successor Depositary with respect to such Global
Security. If a successor Depositary for a Global Security is not appointed by
the Company within ninety
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(90) days after the Company receives such notice, the Company will execute, and
the Trustee, upon receipt of an Officers' Certificate for the authentication and
delivery of Securities, will authenticate and deliver, Securities in
certificated form, in an aggregate principal amount equal to the principal
amount of the Global Security in exchange for such Global Security and upon
delivery of such Global Security to the Trustee such Global Security shall be
canceled.
Securities in certificated form issued in exchange for all or a part of a
Global Security pursuant to this Section 2.5 shall be registered in such names
and in such authorized denominations as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. Upon execution and authentication, the Trustee shall deliver such
Securities in certificated form to the persons in whose names such Securities in
certificated form are so registered.
At such time as all interests in a Global Security have been redeemed,
converted, canceled, repurchased or transferred, such Security in global form
shall be, upon receipt thereof, canceled by the Trustee in accordance with
standing procedures and instructions existing between the Depositary and the
Custodian. At any time prior to such cancellation, if any interest in a Global
Security is exchanged for Securities in certificated form, redeemed, converted,
canceled, repurchased or transferred to a transferee who receives Securities in
certificated form therefor or any Security in certificated form is exchanged or
transferred for part of a Global Security, the principal amount of such Global
Security shall, in accordance with the standing procedures and instructions
existing between the Depositary and the Custodian, be appropriately reduced or
increased, as the case may be, and a notation shall be made on the records of
Trustee, by the Trustee or the Custodian, at the direction of the Trustee, to
reflect such reduction or increase.
(f) Until two (2) years after the original issuance date of any Security,
any stock certificate representing Common Stock issued upon conversion of such
Security shall bear a legend in substantially the following form (unless such
Common Stock has been sold pursuant to a registration statement that has been
declared effective under the Securities Act (and which continues to be effective
at the time of such transfer) or such Common Stock has been issued upon
conversion of Securities that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act or unless
otherwise agreed by the Company with written notice thereof to the Trustee and
any transfer agent for the Common Stock):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE
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"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF
AGREES THAT UNTIL THE EXPIRATION OF TWO YEARS AFTER THE ORIGINAL ISSUANCE
OF THE SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED
HEREBY WAS ISSUED, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON
STOCK EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF,
(B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (C) INSIDE THE UNITED
STATES TO AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3),
(5), (6) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO SUCH TRANSFER,
FURNISHES TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, AS TRANSFER AGENT,
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING
TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER AGENT) (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH
CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY
SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(E) ABOVE), IT
WILL FURNISH TO AMERICAN STOCK TRANSFER AND TRUST COMPANY, AS TRANSFER
AGENT, (OR ANY SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON
TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A
TRANSFER PURSUANT TO A CLAUSE 1(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE
OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE
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SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS
ISSUED. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on transfer shall have
expired in accordance with their terms or as to which the conditions for removal
of the foregoing legend as set forth therein have been satisfied may, upon
surrender of the certificates representing such shares of Common Stock for
exchange in accordance with the procedures of the transfer agent for the Common
Stock, be exchanged for a new certificate or certificates for a like aggregate
number of shares of Common Stock, which shall not bear the restrictive legend
required by this Section 2.5(f).
(g) Any certificate evidencing a Security that has been transferred to an
Affiliate of the Company within two years after the original issuance date of
the Security, as evidenced by a notation on the Assignment Form for such
transfer or in the representation letter delivered in respect thereof, for so
long as such Security is held by such Affiliate, shall, until two years after
the last date on which the Company or any Affiliate of the Company was an owner
of such Security, in each case, bear a legend in substantially the following
form, unless otherwise agreed by the Company (with written notice thereof to the
Trustee):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
THE ACCOUNT TO BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES (1) THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR
THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO
THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) IN A TRANSACTION REGISTERED
UNDER THE SECURITIES ACT OR (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (2) THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS
LEGEND SHALL BE REMOVED UPON THE TRANSFER OF THE SECURITY EVIDENCED HEREBY
OR THE COMMON STOCK ISSUABLE UPON
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CONVERSION OF SUCH SECURITY PURSUANT TO THE IMMEDIATELY PRECEDING SENTENCE.
IF THE PROPOSED TRANSFER IS PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO BANKERS TRUST COMPANY, AS TRUSTEE (OR ANY
SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any stock certificate representing Common Stock issued upon conversion of such
Security shall also bear a legend in substantially the form indicated above,
unless otherwise agreed by the Company (with written notice thereof to the
Trustee).
(h) Notwithstanding any provision of Section 2.5 to the contrary, in the
event Rule 144(k) as promulgated under the Securities Act (or any successor
rule) is amended to shorten the two-year period under Rule 144(k) (or the
corresponding period under any successor rule), from and after receipt by the
Trustee of the Officers' Certificate and Opinion of Counsel provided for by this
Section 2.5(h), (i) the references in the first sentence of the second paragraph
of Section 2.5(e) to "two (2) years" and in the restrictive legend set forth in
such paragraph to "TWO YEARS" shall be deemed for all purposes hereof to be
references to such shorter period, (ii) the references in the first paragraph of
Section 2.5(f) to "two (2) years" and in the restrictive legend set forth in
such paragraph to "TWO YEARS" shall be deemed for all purposes hereof to be
references to such shorter period and (iii) all corresponding references in the
Securities and the restrictive legends on the Restricted Securities shall be
deemed for all purposes hereof to be references to such shorter period, provided
that such changes shall not become effective if they are otherwise prohibited
by, or would otherwise cause a violation of, the then-applicable federal
securities laws. As soon as practicable after the Company has knowledge of the
effectiveness of any such amendment to shorten the two-year period under Rule
144(k) (or the corresponding period under any successor rule), unless such
changes would otherwise be prohibited by, or would otherwise cause a violation
of, the then-applicable securities law, the Company shall provide to the Trustee
an Officers' Certificate and Opinion of Counsel informing the Trustee of the
effectiveness of such amendment and the effectiveness of the foregoing changes
to Sections 2.5(e) and 2.5(f) and the restrictive legends on the Restricted
Securities. The
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provisions of this Section 2.5(h) will not be effective until such time as the
Opinion of Counsel and Officer's Certificate have been received by the Trustee
hereunder. This Section 2.5(h) shall apply to successive amendments to Rule
144(k) (or any successor rule) shortening the holding period thereunder.
SECTION 2.6 Mutilated, Destroyed, Lost or Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
If there be delivered to the Company and the Trustee
(1) evidence to their satisfaction of the destruction, loss or theft
of any Security, and
(2) such security or indemnity as may be required by them to save each
of them and any agent of either of them harmless,
then, in the absence of notice to the Company or the Trustee that such Security
has been acquired by a bona fide purchaser, the Company shall execute and upon
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Security, pay
such Security, upon satisfaction of the condition set forth in the preceding
paragraph.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and such new
Security shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
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The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.7 Payment of Interest, Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder on the relevant
Regular Record Date by virtue of having been such Holder, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date of
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid
(by airmail in the case of any notice sent to an address outside the United
States), to each Holder of Securities at the address of such Holder as it
appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having
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been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after written notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed reasonable and practicable
by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
The person in whose name any Security (or its Predecessor Security) is
registered at the close of business on any Record Date (including any Security
that is converted after the Record Date and on or before the relevant Interest
Payment Date) shall be entitled to receive the interest payable on such Interest
Payment Date notwithstanding the cancellation of such Security upon any
transfer, exchange or conversion subsequent to the Record Date and on or prior
to such Interest Payment Date; provided that in the case of any Security, or
portion thereof, called for redemption pursuant to Article 10 on a Redemption
Date or repurchased by the Company pursuant to Article 11 on a repurchase date
during the period from the close of business on the Record Date to the close of
business on the Business Day next preceding the following Interest Payment Date,
interest shall not be paid to the person in whose name the Security, or portion
thereof, is registered on the close of business of such Record Date, and the
Company shall have no obligation to pay interest on such Security or portion
thereof except to the extent required to be paid upon such redemption or
repurchase in accordance with Article 10 or Article 11.
In the case of any Security which is converted after any Regular Record
Date and on or prior to the next succeeding Interest Payment Date (other than
any Security whose Maturity is prior to such Interest Payment Date), the Holder
of such Security shall be required to make a payment to the Company in an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of the Security so converted. Interest on the principal amount of such
Security shall be payable on such Interest Payment Date notwithstanding such
conversion, and such interest (whether or not punctually paid or
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duly provided for) shall be paid to the Person in whose name that Security (or
one or more Predecessor Securities) is registered at the close of business on
such Regular Record Date.
SECTION 2.8 Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the registered Holder of the Global Security as the absolute owner of such
Security for the purpose of receiving payment thereof or on account thereof and
for all other purposes whatsoever, whether or not such Security be overdue, and
notwithstanding any notice of ownership or writing thereon, or any notice of
previous loss or theft or other interest therein. The Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name any
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and premium, if any, and (subject to Section
2.7) interest (including Liquidated Damages, if any) on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and
notwithstanding any notice of ownership or writing thereon, or any notice of
previous loss or theft or other interest therein.
SECTION 2.9 Cancellation.
All securities surrendered for payment, redemption, repurchase, conversion,
registration of transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee. All Securities so delivered
shall be canceled promptly by the Trustee, and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions of this
Indenture. Upon written instructions of the Company, the Trustee shall destroy
canceled Securities and, after such destruction, shall deliver a certificate of
such destruction to the Company. If the Company shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the indebtedness represented by such Securities unless and until the same are
delivered to the Trustee for cancellation.
SECTION 2.10 Computation of Interest.
Interest shall be calculated on the basis of a 360-day year. Whenever it
is necessary to compute an amount of interest in respect of any Security for a
period of less than a full year, such interest shall be calculated on the basis
of a 360-day year consisting of 12 months of 30 days each and, in the case of an
incomplete month, the number of days elapsed out of 30 days.
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SECTION 2.11 Temporary Securities.
Pending the preparation of Securities in certificated form, the Company may
execute and the Trustee or an Authenticating Agent shall, upon written request
of the Company, authenticate and deliver temporary Securities (printed or
lithographed). Temporary Securities shall be issuable in any authorized
denomination, and substantially in the form of the Securities in certified form
but with such omissions, insertions and variations as may be appropriate for
temporary Securities, all as may be determined by the Company. Every such
temporary Security shall be executed by the Company and authenticated by the
Trustee or the Authenticating Agent upon the same conditions and in
substantially the same manner, and with the same effect, as the Securities in
certificated form. Without unreasonable delay the Company will execute and
deliver to the Trustee or the Authenticating Agent Securities in certified form
(other than in the case of Securities in global form) and thereupon any or all
temporary Securities (other than any such Securities in global form) may be
surrendered in exchange therefor, at each office or agency maintained by the
Company pursuant to Section 9.2 and the Trustee or the Authenticating Agent
shall authenticate and deliver in exchange for such temporary Securities an
equal aggregate principal amount of Securities in certified form. Such exchange
shall be made by the Company at its own expense and without any charge therefor.
Until so exchanged, the temporary Securities shall in all respects be entitled
to the same benefits and subject to the same limitations under this Indenture as
Securities in certificated form authenticated and delivered hereunder.
ARTICLE 3
SATISFACTION AND DISCHARGE
SECTION 3.1 Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of conversion, registration of transfer or exchange or
replacement of Securities herein expressly provided for), and the Trustee, on
demand of and at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.6 and (ii)
Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 10.3), have been delivered to the Trustee for cancellation; or
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segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section
10.3), have been delivered to the Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation (other than Securities referred to in clauses (i) and
(ii) of clause (1)(A) above)
(i) have become due and payable, or
(ii) will have become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company;
and the Company, in the case of clause (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds
(immediately available to the Holders in the case of clause (i)) in trust
for the purpose an amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to the Trustee
for cancellation, for principal and premium, if any, and interest
(including Liquidated Damages, if any) to the date of such deposit (in the
case of Securities which have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 5.7 shall survive and,
if money shall have been deposited with the Trustee pursuant to clause (1)(B) of
this Section, the obligations of the Trustee under Section 3.2 and the last
paragraph of Section 9.3 shall survive. Funds held in trust pursuant to this
Section are not subject to the provisions of Article 13.
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SECTION 3.2 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 9.3, all money
deposited with the Trustee pursuant to Section 3.1 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and premium, if
any, and interest (including Liquidated Damages, if any) for whose payment such
money has been deposited with the Trustee.
All moneys deposited with the Trustee pursuant to Section 3.1 (and held by
it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
ARTICLE 4
REMEDIES
SECTION 4.1 Events of Default.
"Event of Default," where used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article 13 or be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) there shall be a failure by the Company to pay when due the
principal of or premium, if any, on any of the Securities at the Stated
Maturity, upon redemption or exercise of a Repurchase Right or otherwise,
whether or not such payment is prohibited by Article 13 of this Indenture;
or
(2) there shall be a failure by the Company to pay an installment of
interest (including Liquidated Damages, if any) on any of the Securities
for 30 days after the date when due, whether or not such payment is
prohibited by Article 13 of this Indenture; or
(3) the Company shall fail to perform or observe any other term,
covenant or agreement contained in the Securities or this Indenture for a
period of 60 days after written notice of such failure, requiring the
Company to remedy the same, shall have been given to the Company by the
Trustee or to the Company
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and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Outstanding Securities; or
(4) (a) failure of the Company to make any payment by the end of the
applicable grace period, if any, after the maturity of any Indebtedness for
borrowed money in an amount in excess of $1,000,000, or (b) the
acceleration of Indebtedness for borrowed money in an amount in excess of
$1,000,000 because of a default with respect to such Indebtedness without
such Indebtedness having been discharged or such acceleration having been
cured, waived, rescinded or annulled, in the case of (a) or (b) above, for
a period of 30 days after written notice to the Company by the Trustee or
to the Company and the Trustee by holders of not less than 25% in aggregate
principal amount of the then Outstanding Securities; or
(5) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable United States federal or state
bankruptcy, insolvency, reorganization or other similar law or (B) a decree
or order adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment
or composition of or in respect of the Company under any applicable United
States federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of
the Company or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order unstayed and
in effect for a period of 60 consecutive days; or
(6) the commencement by the Company of a voluntary case or proceeding
under any applicable United States federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by the Company to
the entry of a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable United States federal
or state bankruptcy, insolvency, reorganization or other similar law or to
the commencement of any bankruptcy or insolvency case or proceeding against
the Company, or the filing by the Company of a petition or answer or
consent seeking reorganization or relief under any applicable United States
federal or state law, or the consent by the Company to the filing of such
petition or to the appointment of or the taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of its property, or
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the making by the Company of an assignment for the benefit of creditors, or
the admission by the Company in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the
Company expressly in furtherance of any such action.
SECTION 4.2 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default specified in Section 4.1(5) or 4.1(6) occurs and is
continuing, then automatically the principal of all the Securities and the
interest thereon shall become immediately due and payable. If any other Event
of Default occurs and is continuing, then and in every such case the Trustee or
the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities may declare the Securities to be due and payable
immediately at their principal amount together with accrued interest, by a
notice in writing to the Company (and to the Trustee if given by the Holders),
and upon any such declaration such principal amount and accrued interest shall
become immediately due and payable.
At any time after an acceleration and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities (or such lesser amount as shall have acted at a meeting
pursuant to the provisions of this Indenture), by written notice to the Company
and the Trustee, may rescind and annul such acceleration and its consequences
if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest (including Liquidated Damages, if any)
on all Securities,
(B) the principal of and premium, if any, on any Securities which
has become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest (including Liquidated Damages, if any)
at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and
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(2) all Events of Default, other than the non-payment of the principal
of Securities which have become due solely by such acceleration, have been
cured or waived as provided in Section 4.13;
provided, however, that in the event such declaration of acceleration has been
made based on the existence of an Event of Default under Section 4.1(4) and such
Event of Default has been remedied, cured or waived, then without any further
action by the Holders such declaration of acceleration shall be rescinded
automatically and the consequences of such declaration shall be annulled.
No such rescission or annulment shall affect any subsequent default or
impair any right consequent thereon.
SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by the
Trustee.
The Company covenants that if
(1) default is made in the payment of any interest (including
Liquidated Damages, if any) on any Security when such interest (including
Liquidated Damages, if any) becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of or premium, if
any, on any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable (as expressed
therein or as a result of any acceleration effected pursuant to Section 4.2) on
such Securities for principal and premium, if any, and interest (including
Liquidated Damages, if any) and, to the extent that payment of such interest
shall be legally enforceable, interest on any overdue principal and premium, if
any, and on any overdue interest (including Liquidated Damages, if any), at the
rate borne by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company
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and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the specific enforcement of any covenant or agreement in this Indenture or in
aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
SECTION 4.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or the property of the Company or
its creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
on the Company for the payment of overdue principal or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal and
premium, if any, and interest (including Liquidated Damages, if any) owing
and unpaid in respect of the Securities and to file such other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of
the Holders of Securities allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claim and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceedings is hereby authorized by
each Holder of Securities to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders of Securities, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and any other amounts due the Trustee under Section 5.7.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept, or adopt on behalf of any Holder of a
Security, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder of a Security in any such
proceeding.
SECTION 4.5 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which judgment has been recovered.
SECTION 4.6 Application of Money Collected.
Subject to Article 13, any money collected by the Trustee pursuant to this
Article shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal or premium, if any, or interest (including Liquidated Damages, if
any), upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
5.7 hereof, including payment of all the fees, expenses and indemnities of
the Trustee and the fees and expenses of its counsel;
SECOND: To the payment of the amounts then due and unpaid for
principal of and premium, if any, and interest (including Liquidated
Damages, if any) on the Securities and coupons in respect of which or for
the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Securities for principal and premium, if any, and interest
(including Liquidated Damages, if any), respectively; and
THIRD: Any remaining amounts shall be repaid to the Company.
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SECTION 4.7 Limitation on Suit.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in aggregate principal amount of
the Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the Outstanding Securities (or such amount as
shall have acted at a meeting pursuant to the provisions of this
Indenture);
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest and To Convert.
Notwithstanding any other provision in this Indenture, the Holder of any
Security (other than the Temporary Global Security) shall have the right, which
is absolute and unconditional, to receive payment of the principal of and
premium, if any, and (subject to Section 2.7) interest (including Liquidated
Damages, if any) on such Security on the Stated Maturity expressed in such
Security (or, in the case of redemption or exercise of a
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Repurchase Right, on the Redemption Date) and to convert such Security in
accordance with Article 12, and to institute suit for the enforcement of any
such payment and right to convert, and such rights shall not be impaired without
the consent of such Holder.
SECTION 4.9 Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders of
Securities shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
SECTION 4.10 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
2.6, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders of Securities is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 4.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders of Securities may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders of
Securities, as the case may be.
SECTION 4.12 Control by Holders of Securities.
The Holders of a majority in aggregate principal amount of the Outstanding
Securities (or such lesser amount as shall have acted as a meeting pursuant to
the provisions of this Indenture) shall have the right to direct the time,
method and place of
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conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, provided that
-------- ----
(1) such direction shall not be conflict with any rule of law or with
this Indenture or expose the Trustee to personal liability, or be unduly
prejudicial to the Holders not joining therein, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 4.13 Waiver of Past Default.
The Holders, either (a) through the written consent of not less than a
majority in principal amount of the Outstanding Securities, or (b) by the
adoption of a resolution, at a meeting of Holders of the Outstanding Securities
at which a quorum is present, by the Holders of at least a majority in principal
amount of the Outstanding Securities represented at such meeting, may on behalf
of the Holders of all the Securities waive any past default hereunder and its
consequences, except a default (1) in the payment of the principal of or
premium, if any, or interest (including Liquidated Damages, if any) on any
Security or (2) in respect of a covenant or provision hereof which under Article
7 cannot be modified or amended without the consent of the Holders of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 4.14 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
such Holder's acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture, or in any suit against the Trustee for any action
taken, suffered or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party litigant in such suit, having due regard to the merits
and good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in aggregate
principal amount of the Outstanding
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Securities, or to any suit instituted by any Holder or any Security for the
enforcement of the payment of the principal of or premium, if any, or interest
(including Liquidated Damages, if any) on any Security on or after the Stated
Maturity expressed in such Security (or, in the case of redemption or exercise
of a Repurchase Right, on or after the Redemption Date) or for the enforcement
of the right to convert any Security in accordance with Article 12.
SECTION 4.15 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim to
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE 5
THE TRUSTEE
SECTION 5.1 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; but in
the case of any such certificates or opinions which by any provision hereof
are specifically required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or not they
conform to the requirements to this Indenture.
(b) In case an Event of Default actually known to a Responsible Officer of
the Trustee has occurred and is continuing, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their
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exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that
------
(1) this paragraph (c) shall not be construed to limit the effect of
paragraph (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders of a majority in principal amount of the Outstanding
Securities (or such lesser amount as shall have acted at a meeting pursuant
to the provisions of this Indenture) relating to the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(4) no provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or indemnity satisfactory to it against such
risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 5.2 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder of which the
Trustee has received written notice, the Trustee shall give notice to Holders
pursuant to Section 1.5 hereof, unless such default shall have been cured or
waived; provided, however, that, except in the case of a default in the payment
-------- -------
of the principal of or premium, if any, or interest (including Liquidated
Damages, if any), or in the payment of any redemption or repurchase obligation
on any Security, the Trustee shall be protected in
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withholding such notice if and so long as Responsible Officers of the Trustee in
good faith determine that the withholding of such notice is in the interest of
the Holders; and provided further, that in the case of any default of the
-------- -------
character specified in Section 4.1(3), no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default.
SECTION 5.3 Certain Rights of Trustee.
Subject to the provisions of Section 5.1:
(1) the Trustee may rely and shall be fully protected in acting or
refraining from acting upon any resolution, Officers' Certificate, Company
Request, Company Order, other certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note,
coupon, other evidence of indebtedness or other paper or document believed
by it to be genuine and to have been signed or presented by the proper
party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance hereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders of Securities pursuant to this Indenture, unless such
Holders shall have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction;
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(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be deemed to have notice or actual knowledge
of any Event of Default (other than an Event of Default described in
Section 4.1(1) or (2)) unless written notice thereof is received by a
Responsible Officer of the Trustee at its Corporate Trust Office,
including, from Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities;
(9) the Trustee shall not be liable for any action taken or omitted to
be taken by it in good faith and reasonably believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Indenture; and
(10) the rights, protections and immunities afforded to the Trustee
hereunder shall apply with equal force and effect to any Paying Agent,
Authenticating Agent, Conversion Agent or Security Registrar acting
hereunder.
SECTION 5.4 Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities (except the Trustee's
and Authenticating Agent's certificates of authentication) shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 5.5 May Hold Securities, Act as Trustee Under Other Indentures.
The Trustee, any Paying Agent, any Transfer Agent, any Conversion Agent,
the Security Registrar or any other agent of the Company or the Trustee, in its
individual or
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any other capacity, may become the owner or pledgee of Securities
and may otherwise deal with the Company with the same rights it would have if it
were not Trustee, Paying Agent, Transfer Agent, Conversion Agent, Security
Registrar or such other agent.
The Trustee may become and act as trustee under other indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding in the same manner as if it were not
Trustee.
SECTION 5.6 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
expressly agreed with the Company.
SECTION 5.7 Compensation and Indemnification of Trustee and Its Prior
Claims.
The Company covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) and the Company covenants and agrees to pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of it in accordance with any of the provisions
of this Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ), except to the extent that any such expense, disbursement or
advance is due to its negligence or bad faith. When the Trustee incurs expenses
or renders services in connection with an Event of Default specified in Section
4.1, the expenses (including the reasonable charges and expenses of its counsel)
and the compensation for the services are intended to constitute expenses of
administration under any bankruptcy law. The Company also covenants to
indemnify the Trustee and its officers, directors, employees and agents for, and
to hold such Persons harmless against, any loss, liability or expense incurred
by them, arising out of or in connection with the acceptance or administration
of this Indenture or the trusts hereunder or the performance of their duties
hereunder, including the costs and expenses of defending themselves against or
investigating any claim of liability in the premises, except to the extent that
any such loss, liability or expense was due to the negligence or bad faith of
such Persons. The obligations of the Company under this Section 5.7 to
compensate and indemnify the Trustee and its officers, directors, employees and
agents and to pay or reimburse such Persons for expenses, disbursements and
advances shall
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constitute additional indebtedness hereunder and shall survive
the satisfaction and discharge of this Indenture or the earlier resignation or
removal of the Trustee. Such additional indebtedness shall be a senior claim to
that of the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the Holders of
particular Securities, and the Securities are hereby subordinated to such senior
claim. "Trustee" for purposes of this Section 5.7 shall include any predecessor
Trustee, but the negligence or bad faith of any Trustee shall not affect the
indemnification of any other Trustee.
SECTION 5.8 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (together with any Person
directly or indirectly controlling the Trustee) a combined capital and surplus
of at least U.S. $50,000,000, subject to supervision or examination by federal
or state authority. If such corporation publishes reports of conditions at
least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 5.9 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 5.10.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee required by
Section 5.10 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities (or such lesser
amount as shall have acted at a meeting pursuant to the provisions of this
Indenture), delivered to the Trustee and the Company.
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(d) If at any time:
(1) the Trustee shall cease to be eligible under Section 5.8 and shall
fail to resign after written request therefor by the Company or by any
Holder of a Security who has been a bona fide Holder of a Security for at
least six months, or
(2) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 4.14, any Holder of a Security who has been
a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Trustee and shall
comply with the applicable requirements of Section 5.10. If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders of a
majority in principal amount of the Outstanding Securities (or such lesser
amount as shall have acted at a meeting pursuant to the provisions of this
Indenture) delivered to the Company and the retiring Trustee, the successor
Trustee so appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 5.10, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders of Securities and accepted appointment in the manner required by Section
5.10, any Holder of a Security who has been a bona fide Holder of a Security for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided in Section 1.5. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
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SECTION 5.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder. Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be eligible under this Article.
The fees, charges and expenses of the retiring Trustee shall be paid upon
the appointment of a successor Trustee hereunder. The retiring Trustee shall
not be liable for any acts or omissions of a successor hereunder.
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise eligible under this Article,
- --------
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 5.12 Authenticating Agent.
The Company may appoint an authenticating agent or agents reasonably
acceptable to the Trustee with respect to the Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon exchange, registration of
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transfer, partial redemption thereof or substitution pursuant to this Indenture.
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder and every reference herein to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication
shall be deemed to include authentication and delivery on behalf of the Trustee
by an authenticating agent and a certificate of authentication executed on
behalf of the Trustee by an authenticating agent. Each authenticating agent
shall at all times be a bank or trust company authorized by law to act as an
authenticating agent, having a combined capital and surplus of not less than
U.S. $50,000,000 and subject to supervision or examination by a duly constituted
banking authority. If such authenticating agent publishes reports of condition
at least annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section 5.12, the combined
capital and surplus of such authenticating agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time an authenticating agent shall cease to be eligible
in accordance with the provisions of this Section 5.12, such authenticating
agent shall resign immediately in the manner and with the effect specified in
this Section 5.12.
The Company hereby appoints Bankers Trust Company as Authenticating Agent.
Any corporation into which an authenticating agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such authenticating agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an authenticating agent, shall continue to be an
authenticating agent, provided such corporation shall be otherwise eligible
under this Section 5.12, without the execution or filing of any paper or any
further act on the part of the Trustee or the authenticating agent.
An authenticating agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Company may at any time
terminate the agency of an authenticating agent by giving written notice thereof
to such authenticating agent and to the Trustee. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
authenticating agent shall cease to be eligible in accordance with the
provisions of this Section 5.12, the Company may appoint a successor
authenticating agent which shall be acceptable to the Trustee. Any successor
authenticating agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an authenticating agent. No successor
authenticating agent shall be appointed unless eligible under the provisions of
this Section 5.12.
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The Company agrees to pay to each authenticating agent from time to time
reasonable compensation for its services under this Section 5.12.
If an authenticating agent is appointed with respect to the Securities
pursuant to this Section 5.12, the Securities may have been endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternate certificate of authentication in the following form:
This is one of the Securities referred to in the within-mentioned
Indenture:
BANKERS TRUST COMPANY
as Trustee
By Bankers Trust Company, as
Authenticating Agent
By_____________________________
Authorized Signatory
ARTICLE 6
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 6.1 Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an entirety
to any Person, and the Company shall not permit any Person to consolidate with
or merge into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless:
(1) in the event that the Company shall consolidate with or merge into
another Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety shall be a corporation
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and, if the entity
surviving such transaction or transferee entity is not the Company, then
such surviving or transferee entity shall expressly assume, by an indenture
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supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal
of and premium, if any and interest (including Liquidated Damages, if any),
on all the Securities and the performance of every covenant of this
Indenture on the party of the Company to be performed or observed and shall
have provided for conversion rights in accordance with Section 12.11;
(2) at the time of consummation of such transaction, no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have happened and be continuing; and
(3) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
SECTION 6.2 Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
corporation or any conveyance, transfer or lease of the properties and assets of
the Company substantially as an entirety to any Person, in accordance with
Section 6.1, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor corporation had been named as the Company herein, and thereafter,
except in the case of a lease to another Person, the predecessor corporation
shall be relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE 7
SUPPLEMENTAL INDENTURES
SECTION 7.1 Supplemental Indentures Without Consent of Holders of
Securities.
Without the consent of any Holders of Securities, the Company, when
authorized by a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, for any of the
following purposes:
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(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants of the Company
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of Securities, or to surrender any right or power herein conferred
upon the Company; or
(3) to modify the restrictive legend set forth on the face of the form
of Security set forth in Exhibit A hereto or modify the form of
certificates set forth in Exhibit A hereto; provided, however, that any
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such modification shall not adversely affect the interest of the Holders of
the Securities in any material respect; or
(4) to make provision with respect to the conversion rights of Holders
of Securities pursuant to Section 12.11; or
(5) to make provision for the establishment of a book-entry system, in
which Holders would have the option to participate, for the clearance and
settlement of transactions in Securities originally issued in certificated
form; or
(6) to reduce the Conversion Price; provided, that such reduction in
--------
the Conversion Price shall not adversely affect the interest of the Holders
of Securities (after taking into account tax and other consequences of such
reduction) in any material respect; or
(7) to qualify this Indenture under the Trust Indenture Act of 1939,
as amended; or
(8) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein or which
is otherwise defective, or to make any other provisions with respect to
matters or questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture, provided, such action
--------
pursuant to this clause (8) shall not adversely affect the interest of the
Holders of Securities in any material respect.
SECTION 7.2 Supplemental Indentures With Consent of Holders of Securities.
With either (a) the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by the Act of said Holders
delivered to the
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Company and the Trustee, or (b) by the adoption of a resolution, at a meeting of
Holders of the Outstanding Securities at which a quorum is present, by the
Holders of a majority in principal amount of the Outstanding Securities
represented at such meeting, the Company, when authorized by a Board Resolution,
and the Trustee may enter into an indenture or indentures supplemental hereto
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of modifying in any
manner the rights of the Holders of the Securities under this Indenture;
provided, however, that no such supplemental indenture shall, without
- -------- -------
the consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment
of interest (including Liquidated Damages, if any) on, any Security, or
reduce the principal amount thereof, or the rate of interest thereon or any
premium, if any (including any payment of Liquidated Damages), or change
the coin or currency in which any Security or premium, if any, or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof or,
except as permitted by Section 12.11, adversely affect the Repurchase Right
or the right to convert any Security as provided in Article 12, or change
the subordination provisions of the Securities in a manner adverse to the
Holders of Securities, or
(2) reduce the requirements of Section 8.4 for quorum or voting, or
reduce the percentage in principal amount of the Outstanding Securities the
consent of whose Holders is required for any such supplemental indenture or
the consent of whose Holders is required for any waiver provided for in
this Indenture, or
(3) change the obligation of the Company to maintain an office or
agency in The City of New York pursuant to Section 9.2, or
(4) modify any of the provisions of this Section or Section 4.13,
except to increase any percentage contained herein or therein or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby.
It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposal supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
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SECTION 7.3 Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any supplemental
indenture permitted by this Article or the modifications thereby of the trusts
created by this Indenture, the Trustee shall be entitled to receive, and
(subject to Section 5.1) shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture and an Officer's Certificate stating that all
conditions precedent to the execution of such supplemental indenture have been
fulfilled. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 7.4 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 7.5 Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Company and the
Trustee, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 7.6 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 7.1 or 7.2, the
Company shall give notice, setting forth in general terms the substance of such
supplemental indenture, in the manner provided in Section 1.5. Any failure of
the Company to give such notice, or any defect therein, shall not in any way
impair or affect the validity of any such supplemental indenture.
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ARTICLE 8
MEETING OF HOLDERS OF SECURITIES
SECTION 8.1 Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities may be called at any time and from time
to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities.
SECTION 8.2 Call Notice and Place of Meetings.
(a) The Trustee may at any time call a meeting of Holders of Securities for
any purpose specified in Section 8.1, to be held at such time and at such place
in The City of New York. Notice of every meeting of Holders of Securities,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 1.5, not less than 21 nor more than 180 days prior to the
date fixed for the meeting.
(b) In case at any time the Company, pursuant to a Board Resolution, or the
Holders of at least 10% in principal amount of the Outstanding Securities shall
have requested the Trustee to call a meeting of the Holders of Securities for
any purpose specified in Section 8.1, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have made the first publication of the notice of such meeting
within 21 days after receipt of such request or shall not thereafter proceed to
cause the meeting to be held as provided herein, then the Company or the Holders
of Securities in the amount specified, as the case may be, may determine the
time and the place in The City of New York for such meeting and may call such
meeting for such purposes by giving notice thereof as provided in paragraph (a)
of this Section.
SECTION 8.3 Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities, a Person
shall be (a) a Holder of one or more Outstanding Securities, or (b) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities by such Holder or Holders. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders shall be
the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
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SECTION 8.4 Quorum; Action.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities shall constitute a quorum. In the absence of a quorum
within 30 minutes of the time appointed for any such meeting, the meeting shall,
if convened at the request of Holders of Securities, be dissolved. In any other
case the meeting may be adjourned for a period of not less than 10 days as
determined by the chairman of the meeting prior to the adjournment of such
meeting. In the absence of a quorum at any such adjourned meeting, such
adjourned meeting may be further adjourned for a period of not less than 10 days
as determined by the chairman of the meeting prior to the adjournment of such
adjourned meeting. Notice of the reconvening of any adjourned meeting shall be
given as provided in Section 8.2(a), except that such notice need be given only
once and not less than five days prior to the date on which the meeting is
scheduled to be reconvened. Notice of the reconvening of an adjourned meeting
shall state expressly the percentage of the principal amount of the Outstanding
Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned for a
lack of a quorum, the Persons entitled to vote 25% in principal amount of the
Outstanding Securities at the time shall constitute a quorum for the taking of
any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a quorum
is present as aforesaid, any resolution and all matters (except as limited by
the proviso to Section 7.2) shall be effectively passed and decided if passed or
decided by the Persons entitled to vote by not less than a majority in principal
amount of Outstanding Securities represented and voting at such meeting.
Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities, whether or not present or represented at the meeting.
SECTION 8.5 Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(a) Notwithstanding any other provisions of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall
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be proved in the manner specified in Section 1.3 and the appointment of any
proxy shall be proved in the manner specified in Section 1.3. Such regulations
may provide that written instruments appointing proxies, regular on their face,
may be presumed valid and genuine without the proof specified in Section 1.3 or
other proof.
(b) The Trustee shall, by an instrument in writing, appoint a temporary
chairman (which may be the Trustee) of the meeting, unless the meeting shall
have been called by the Company or by Holders of Securities as provided in
Section 8.2(b), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall
be elected by vote of the Persons entitled to vote a majority in principal
amount of the Outstanding Securities represented at the meeting.
(c) At any meeting each Holder of a Security or proxy shall be entitled to
one vote for each U.S. $1,000 principal amount of Securities held or represented
by him; provided, however, that no vote shall be cast or counted at any meeting
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in respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. The chairman of the meeting
shall have no right to vote, except as a Holder of a Security or proxy.
(d) Any meeting of Holders of Securities duly called pursuant to Section
8.2 at which a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in principal amount of the Outstanding Securities
represented at the meeting, and the meeting may be held as so adjourned without
further notice.
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SECTION 8.6 Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities shall be by written ballots on which shall be subscribed the
signatures of the Holders of Securities or of their representatives by proxy and
the principal amounts and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record, at least in duplicate, of the proceedings of each meeting of Holders of
Securities shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 8.2 and, if
applicable, Section 8.4. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE 9
COVENANTS
SECTION 9.1 Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of and premium, if
any, and interest (including Liquidated Damages, if any) in respect of the
Securities in accordance with the terms of the Securities and this Indenture.
The Company will deposit or cause to be deposited with the Trustee as directed
by the Trustee, one Business Day prior to the Stated Maturity of any Security or
installment of interest, all payments so due.
SECTION 9.2 Maintenance of Offices or Agencies.
The Company hereby appoints the Corporate Trust Office of the Trustee as
its agent in The City of New York, where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange, where Securities may be surrendered for conversion, and
where notices and demands to or upon the Company in respect of the Securities
and this Indenture may be served.
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The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents for any or all of
such purposes; provided, however, that until all of the Securities have been
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delivered to the Trustee for cancellation, or moneys sufficient to pay the
principal of and premium, if any, and interest (including Liquidated Damages, if
any) on the Securities have been made available for payment and either paid or
returned to the Company pursuant to the provisions of Section 9.3, the Company
will maintain in The City of New York, an office or agency where Securities may
be presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where Securities may be surrendered for
conversion and where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee, and notice to the Holders in accordance with
Section 1.5, of the appointment or termination of any such agents and of the
location and any change in the location of any such office or agency.
If at any time the Company shall fail to maintain any such required office
or agency in The City of New York, or shall fail to furnish the Trustee with the
address thereof, presentations and surrenders may be made and notices and
demands may be served on and Securities may be surrendered for conversion to the
Corporate Trust Office of the Trustee.
SECTION 9.3 Money for Security Payments To Be Held in Trust.
If the Company shall act as a Paying Agent, it will, on or before each due
date of the principal of and premium, if any, or interest (including Liquidated
Damages, if any) on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
and premium, if any, or interest (including Liquidated Damages, if any) so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and the Company will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, one
Business Day prior to each due date of the principal of and premium, if any, or
interest (including Liquidated Damages, if any) on any Securities (or, if
applicable, cash in lieu of conversion of any Security), deposit with a Paying
Agent a sum sufficient to pay the principal and premium, if any, or interest
(including Liquidated Damages, if any) so becoming due, such sum to be held in
trust for the benefit of the Persons entitled to such principal, premium, if
any, or interest (including Liquidated Damages, if any), and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of any
failure so to act.
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The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will:
(1) hold all sums held by it for the payment of the principal of and
premium, if any, or interest (including Liquidated Damages, if any) on
Securities in trust for the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided;
(2) give the Trustee notice of any default by the Company in the
making of any payment of principal and premium, if any, or interest
(including Liquidated Damages, if any); and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of and premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest (including Liquidated Damages, if
any) and redemption or repurchase payments have become due and payable shall be
paid to the Company on Company Request, subject to applicable abandoned property
and escheat laws, or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
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that (i) the Trustee or such Paying Agent, before being required to make any
such repayment, may at the expense of the Company cause to be published or
mailed notice as provided in Section 1.5, except that such notice need be given
only once, (ii) such money remains unclaimed and (iii) after a date specified in
such notice, which
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shall not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 9.4 Corporate Existence.
Subject to Article 6, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence,
rights (charter and statutory) and franchises; provided, however, that the
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Company shall not be required to preserve any such right or franchise if the
Company determines that the preservation thereof is no longer desirable in the
conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 9.5 Maintenance of Properties.
The Company will, and will cause each Significant Subsidiary to, maintain
and keep its properties and every part thereof in such repair, working order and
condition, and make or cause to be made all such needful and proper repairs,
renewals and replacements thereto, as in the judgment of the Company are
necessary in the interests of the Company; provided, however, that nothing in
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this Section shall prevent the Company or any Significant Subsidiary from
selling, abandoning or otherwise disposing of any of their respective properties
or discontinuing a part of their respective businesses from time to time if, in
the judgment of the Company, such sale, abandonment, disposition or
discontinuance is advisable and does not materially adversely affect the
interests or business of the Company or any of its Subsidiaries.
SECTION 9.6 Payment of Taxes and Other Claims.
The Company will, and will cause each Significant Subsidiary to, promptly
pay and discharge or cause to be paid and discharged all taxes, assessments and
governmental charges or levies lawfully imposed upon it or upon its income or
profits or upon any of its property, real or personal, or upon any part thereof,
as well as all claims for labor, materials and supplies which, if unpaid, might
by law become a lien or charge upon its property; provided, however, that
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neither the Company nor any Significant Subsidiary shall be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge,
levy, or claim if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if the Company or such
Significant Subsidiary, as the case may be, shall have set aside on its books
reserves deemed by it adequate with respect thereto.
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SECTION 9.7 Statement by Officers as to Default.
The Company will deliver to the Trustee, on or before January 2 in each
year ending after the date hereof, an Officers' Certificate, stating whether or
not to the best knowledge of the signers thereof the Company is in default in
the performance and observance of any of the terms, provisions and conditions of
this Indenture, without regard to any period of grace or requirement of notice
provided hereunder and if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge. In
the event an officer of the Company comes to actually know of such a default,
regardless of the date the Company will deliver an Officers' Certificate to the
Trustee specifying such default and the nature and status thereof.
SECTION 9.8 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 9.3 to 9.5, inclusive, if before
the time for such compliance the Holders of at least a majority in aggregate
principal amount of the Outstanding Securities (or such lesser amount as shall
have acted at a meeting pursuant to the provisions of this Indenture) shall, by
Act of such Holders, either waive such compliance in such instance or generally
waive compliance with such term, provision or condition, but no waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
SECTION 9.9 Delivery of Certain Information.
At any time when the Company is not subject to Section 13 or 15(d) of the
Exchange Act, upon the request of a Holder of a Security, the Company will
promptly furnish or cause to be furnished Rule 144A Information to such Holder
or to a prospective purchaser of such Security designated by such Holder, as the
case may be, in order to permit compliance by such Holder with Rule 144A under
the Securities Act in connection with the resale of such Security by such
Holder; provided, however, that the Company shall not be required to furnish
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such information in connection with any request made on or after the date which
is two years from the date such Security (or any predecessor Security) was
acquired from the Company. "Rule 144A Information" shall be such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto).
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SECTION 9.10 Resale of Certain Securities.
During the period of two years after the Closing Date, the Company shall
not, and shall not permit any of its "affiliates" (as defined under Rule 144
under the Securities Act) to, resell any Securities, or shares of Common Stock
issuable upon conversion of the Securities, which constitute "restricted
securities" under Rule 144, that are acquired by any of them within the United
States to U.S. persons (as defined in Regulation S) except pursuant to an
effective registration statement under the Securities Act or an applicable
exemption therefrom. The Trustee shall have no responsibility or liability in
respect of the Company's performance of its agreement in the preceding sentence
nor shall it have any duty to monitor the Company's compliance with the terms of
the preceding sentence.
ARTICLE 10
REDEMPTION OF SECURITIES
SECTION 10.1 Redemption of Notes.
(a) Provisional Redemption by the Company. The Securities may be redeemed
-------------------------------------
by the Company (a "Provisional Redemption"), in whole or in part, at any time
prior to September 27, 2002 upon notice as set forth in Section 10.5, at a
redemption price equal to 101.3125% of the principal amount of the Securities
plus accrued and unpaid interest, if any (including Liquidated Damages, if any),
to but excluding the date of redemption (the "Provisional Redemption Date") if
(i) the Current Market Value (as defined below) of the Common Stock shall equal
or exceed the following triggering percentages of the Conversion Price then in
effect for at least 20 Trading Days in any consecutive 30-Trading Day period
ending on the Trading Day prior to the date of mailing of the notice of
redemption pursuant to Section 10.5 (the "Notice Date"), if redeemed in the 12-
month period ending on September 26 of the following years: (A) 2000-170%, (B)
2001-160%; and (C) 2002-150%; and (ii) the shelf registration statement covering
resales of the Securities and the Common Stock issuable upon conversion of the
Securities is effective and available for use and is expected to remain
effective and available for use for the 30 days immediately following the
Provisional Redemption Date.
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Interest Make-Whole Payment") to Holders with respect to
the Securities called for redemption, including those Securities converted into
Common Stock between the Notice Date and the Provisional Redemption Date, in an
amount equal to the sum of (i) the present value of the aggregate amount of
interest that would
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otherwise have accrued from the Provisional Redemption Date through September
26, 2002 (the "Interest Make-Whole Period") and (ii) Liquidated Damages, if any,
to the Provisional Redemption Date. Such present value shall be calculated by
the Company using the bond equivalent yield on U.S. Treasury notes or bills
having a term nearest in length to that of the Interest Make-Whole Period as of
the Notice Date and the Trustee may conclusively rely upon the Company's written
notice advising the Trustee of the calculations in order for the Trustee to
process the payments to be made.
The "Current Market Value" for the purposes of this Section 10.1(a) means
the average of the high and low sale prices of the Common Stock as reported on
the Nasdaq National Market or any national securities exchange upon which the
Common Stock is then listed for the Trading Day in question.
(b) Optional Redemption by the Company. The Company may, at its option,
----------------------------------
redeem all, or from time to time, any part of the Securities at any time on or
after September 27, 2002, upon notice as set forth in Section 10.5, at the
Redemption Prices specified in the form of Security set forth in Exhibit A
hereto, together with interest to, but excluding, the Redemption Date.
SECTION 10.2 Applicability of Article.
Redemption of Securities at the election of the Company or otherwise as
permitted or required by any provision of the Securities or this Indenture,
shall be made in accordance with such provision and this Article.
SECTION 10.3 Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. The Company shall, at least 45 days prior to the Redemption
Date fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and of the principal amount
of Securities to be redeemed.
SECTION 10.4 Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 45 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by lot, or on a pro rata basis. Such method of selection
may provide for the selection for redemption of portions (equal to U.S. $1,000
or any integral multiple thereof) of the principal amount of Securities of a
denomination larger than U.S. $1,000.
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If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed to be the
portion selected for redemption (provided, however, that the Holder of such
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Security so converted and deemed redeemed shall not be entitled to any
additional interest payment as a result of such deemed redemption than such
Holder would have otherwise been entitled to receive upon conversion of such
Security). Securities which have been converted during a selection of
Securities to be redeemed may be treated by the Trustee as Outstanding for the
purpose of such selection.
The Trustee shall promptly notify the Company and the Security Registrar in
writing of the Securities selected for redemption and, in the case of any
Securities in registered form selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 10.5 Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section 1.5
to the Holders of Securities to be redeemed. Such notice shall be given not
less than 20 nor more than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price, the accrued interest, if any, and, with
respect to Securities called for Provisional Redemption, the Interest Make-
Whole Payment,
(3) if less than all the Outstanding Securities are to be redeemed,
the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of Securities which will be outstanding after
such partial redemption,
(4) that on the Redemption Date the Redemption Price, the accrued
interest, if any, and, with respect to Securities called for Provisional
Redemption,
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the Interest Make-Whole Payment, will become due and payable
upon each such Security to be redeemed, and that interest thereon shall
cease to accrue on and after said date,
(5) the Conversion Price, the date on which the right to convert the
principal of the Securities to be redeemed will terminate and the places
where such Securities may be surrendered for conversion,
(6) the place or places that the certificate required by Section 10.7
and Section 2.2 shall be delivered, and the form of such certificate,
(7) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, accrued interest, if any, and, with
respect to Securities called for Provisional Redemption, the Interest Make-
Whole Payment, and
(8) the CUSIP number of the Securities.
In case of a partial redemption, the first notice given shall specify the
last date on which exchanges or transfers of Securities may be made pursuant to
Section 2.5, and the second notice shall specify the serial numbers of
Securities and the portions thereof called for redemption.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name of and at the expense of the Company.
SECTION 10.6 Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 9.3) an amount of
money sufficient to pay the Redemption Price of, (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, and, with respect to
Securities called for Provisional Redemption, the Interest Make-Whole Payment
on, all the Securities which are to be redeemed on that date other than any
Securities called for redemption on that date which have been converted prior to
the date of such deposit.
If any Security called for redemption is converted pursuant hereto prior to
such redemption, any money deposited with the Trustee or with a Paying Agent or
so segregated and held in trust for the redemption of such Security shall
(subject to any right
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of the Holder of such Security or any Predecessor Security to receive interest
as provided in the last paragraph of Section 2.7) be paid to the Company on
Company Request or, if then held by the Company, shall be discharged from such
trust; provided that, with respect to a Provisional Redemption, any money so
deposited for payment of the Interest Make-Whole Payment shall remain segregated
and held in trust for payment of the Interest Make-Whole Payment which shall be
made on all Securities called for Provisional Redemption, including Securities
converted into shares of Common Stock after the Notice Date and prior to the
Provisional Redemption Date.
SECTION 10.7 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price together with accrued interest
and, with respect to Securities called for Provisional Redemption, to the
Redemption Date; provided, however, the installments of interest on Securities
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whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders of such Securities, or one or more Predecessor Securities,
registered as such on the relevant Record Date according to their terms and the
provisions of Section 2.7; provided, that, with respect to a Provisional
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Redemption, the Interest Make-Whole Payment, the holder of any Securities
converted into Common Stock pursuant to the terms hereof after the Notice Date
and prior to the Provisional Redemption Date shall have the right to the
Interest Make-Whole Payment, if any, with respect to such Securities regardless
of the conversion of such Securities.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and premium, if any, shall, until paid,
bear interest from the Redemption Date at the rate prescribed therefor in the
Security.
Upon presentation and surrender of any Security which is to be purchased in
part only, upon its purchase, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of the Company, a
new Security or Securities in authorized denominations in aggregate principal
amount equal to the portion of the Security not purchased.
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SECTION 10.8 Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 9.2 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or the Holder's attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of any authorized denomination as requested by such
Holder in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Security so surrendered.
ARTICLE 11
REPURCHASE UPON A CHANGE OF CONTROL
SECTION 11.1 Repurchase Right.
(a) If there shall occur a Change of Control, then each Holder shall have
the right (the "Repurchase Right"), at such Holder's option, but subject to the
provisions of Section 11.2, to require the Company to repurchase all of such
Holder's Securities, or any portion thereof (in principal amounts of $1,000 or
integral multiples thereof), on the repurchase date fixed by the Company that is
not less than 30 days nor more than 45 days after the date of the Company Notice
(as defined in Section 11.3 below) of such Change of Control (or, if such 45th
day is not a Business Day, the next succeeding Business Day). The repurchase
price shall be equal to 100% of the principal amount of Securities, together
with accrued interest, if any, to, but excluding, the repurchase date (the
"Repurchase Price"); provided, that if such repurchase date is March 27 or
--------
September 27, then the interest payable on such date shall be paid to the holder
of record of the Securities on the next preceding March 13 or September 13,
respectively. At the option of the Company, the Repurchase Price may be paid in
cash or, subject to the fulfillment by the Company of the conditions set forth
in Section 11.2, by delivery of shares of Common Stock having a fair market
value equal to the Repurchase Price as described in Section 11.2(a). Whenever
in this Indenture there is a reference in any context, to the principal of any
Security as of any time, such reference shall be deemed to include reference to
the Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Indenture shall not be
construed as excluding the Repurchase Price in those provisions of this
Indenture when such express mention is not made; provided, however, that for the
-------- -------
purposes of Article 13, such
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reference shall be deemed to include reference to the Repurchase Price only if
the Repurchase Price is payable in cash.
SECTION 11.2 Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of shares of
Common Stock pursuant to Section 11.1 if and only if the following conditions
have been satisfied:
(a) The shares of Common Stock deliverable in payment of the
Repurchase Price shall have a fair market value as of the repurchase date
of not less than the Repurchase Price. For purposes of this Section 11.2,
the fair market value of shares of Common Stock shall be determined by the
Company and shall be equal to 95% of the average of the Closing Prices of
the Common Stock for the five consecutive Trading Days ending on and
including the third Trading Day immediately preceding the repurchase dates;
(b) In the event any shares of Common Stock to be issued upon
repurchase of Securities hereunder require registration under any Federal
securities law before such shares may be freely transferrable without being
subject to any transfer restrictions under the Securities Act upon
repurchase, such registration shall have been completed and shall have
become effective prior to the repurchase date;
(c) In the event any shares of Common Stock to be issued upon
repurchase of Securities hereunder require registration with or approval of
any governmental authority under any State law or any other Federal law
before such shares may be validly issued or delivered upon repurchase, such
registration shall have been completed, have become effective and such
approval shall have been obtained, in each case, prior to the repurchase
date;
(d) The shares of Common Stock deliverable in payment of the
Repurchase Price shall be listed for trading on a U.S. national securities
exchange or approved for trading on an established automated over-the-
counter trading market in the United States, in either case, immediately
prior to the repurchase date; and
(e) All shares of Common Stock deliverable in payment of the
Repurchase Price shall be issued out of the Company's authorized but
unissued
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Common Stock and will, upon issue, be duly and validly issued and fully
paid and non-assessable and free of any preemptive rights.
If all of the conditions set forth in this Section 11.2 are not satisfied
in accordance with the terms thereof, the Repurchase Price shall be paid by the
Company only in cash.
SECTION 11.3 Notices; Method of Exercising Repurchase Right, Etc.
(a) Unless the Company shall have theretofore called for redemption all of
the outstanding Securities, on or before the thirtieth (30th) calendar day after
the Company becomes aware of the occurrence of a Change of Control, the Company
or, at the request and expense of the Company, the Trustee, shall mail to all
Holders a notice (the "Company Notice") of the occurrence of the Change of
Control and of the Repurchase Right set forth herein arising as a result
thereof. The Company shall also deliver a copy of such notice of a Repurchase
Right to the Trustee and cause such notice of a Repurchase Right, or a summary
of the information contained therein, to be published at the expense of the
Company in a newspaper of general circulation in The City of New York. The
Company Notice shall contain the following information:
(1) the repurchase date,
(2) the date by which the Repurchase Right must be exercised,
(3) the last date by which the election to require repurchase, if
submitted, may be revoked,
(4) the Repurchase Price, and whether the Repurchase Price shall be
paid by the Company in cash or by delivery of shares of Common Stock,
(5) a description of the procedure which a Holder must follow to
exercise a Repurchase Right, and
(6) the Conversion Price then in effect, the date on which the right
to convert the principal amount of the Securities to be repurchased will
terminate and the place or places where Securities may be surrendered for
conversion.
No failure of the Company to give the foregoing notices or defect therein
shall limit any Holder's right to exercise a Repurchase Right or affect the
validity of the proceedings for the repurchase of Securities.
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If any of the foregoing provisions are inconsistent with applicable law,
such law shall govern.
(b) To exercise a Repurchase Right, a Holder shall deliver to the Trustee
on or before the close of business on the repurchase date (i) written notice to
the Company (or agent designated by the Company for such purpose) of the
Holder's exercise of such right, which notice shall set forth the name of the
Holder, the principal amount of the Securities to be repurchased, a statement
that an election to exercise the Repurchase Right is being made thereby, and, in
the event that the Repurchase Price shall be paid in shares of Common Stock, the
name or names (with addresses) in which the certificate or certificates for
shares of Common Stock shall be issued, and (ii) the Securities with respect to
which the Repurchase Right is being exercised, duly endorsed for transfer to the
Company. Election of repurchase by a Holder shall be revocable at any time
prior to, but excluding, the repurchase date, by delivering written notice to
that effect to the Trustee prior to the close of business on the Business Day
prior to the repurchase date.
(c) In the event the Repurchase Right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the Trustee the
Repurchase Price in cash or shares of Common Stock, as provided above, for
payment to the Holder on the repurchase date or, if shares of Common Stock are
to be issued, as promptly after the repurchase date as practicable.
(d) If the Company fails to repurchase on the repurchase date any
Securities (or portions thereof) as to which the Repurchase Right has been
properly exercised, then the principal of such Securities shall, until paid,
bear interest to the extent permitted by applicable law from the repurchase date
at the rate borne by the Securities and each such Security shall be convertible
into Common Stock in accordance with this Indenture (without giving effect to
Section 11.2(b)) until the principal of such Security shall have been paid or
duly provided for.
(e) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or its attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge a new Security or Securities, containing identical terms and conditions,
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.
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(f) On the repurchase date, the Company shall deposit with the Trustee or
with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 9.3) an amount of money
sufficient to pay the Repurchase Price of the Securities that are to be repaid
on the repurchase date.
(g) Any issuance of shares of Common Stock in respect of the Repurchase
Price shall be deemed to have been effected immediately prior to the close of
business on the repurchase date and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such repurchase shall be deemed to have become on the repurchase date the
holder or holders of record of the shares represented thereby; provided,
--------
however, that any surrender for repurchase on a date when the stock transfer
- -------
books of the Company shall be closed shall constitute the person or persons in
whose name or names the certificate or certificates for such shares are to be
issued as the record holder or holders thereof for all purposes at the opening
of business on the next succeeding day on which such stock transfer books are
open. No payment or adjustment shall be made for dividends or distributions on
any Common Stock issued upon repurchase of any Security declared prior to the
repurchase date.
(h) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon repurchase of Securities. If more than one Security
shall be repurchased from the same holder and the Repurchase Price shall be
payable in shares of Common Stock, the number of full shares which shall be
issued upon repurchase shall be computed on the basis of the aggregate principal
amount of the Securities (or specified portions thereof to the extent permitted
hereby) so repurchased. If any fractional share of stock otherwise would be
issuable upon repurchase of any Security or Securities, the Company shall make
an adjustment therefor in cash at the current market value thereof to the Holder
of Securities. For these purposes, the current market value of a share of
Common Stock shall be the Closing Price on the first Trading Day immediately
preceding the repurchase date.
(i) The issue of stock certificates on repurchase of Securities shall be
made without charge to the Holder of Securities being repurchased for any tax in
respect of the issue thereof. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of stock in any name other than that of the Holder of any
Security repurchased, and the Company shall not be required to issue or deliver
any such stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
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ARTICLE 12
CONVERSION OF SECURITIES
SECTION 12.1 Conversion Privilege and Conversion Price.
Subject to and upon compliance with the provisions of this Article, at the
option of the Holder thereof, any definitive Security or any portion of the
principal amount thereof which is U.S. $1,000 or an integral multiple of U.S.
$1,000 may be converted at the principal amount thereof, or of such portion
thereof, into duly authorized, fully paid and nonassessable shares of Common
Stock, at the Conversion Price, determined as hereinafter provided, in effect at
the time of conversion. Such conversion right shall, with respect to all
Securities, commence on the original issuance thereof and expire at the close of
business September 27, 2004. In case a Security or portion thereof is called for
redemption, such conversion right in respect of the Security or the portion so
called, shall expire at the close of business on the second Business Day
preceding the Redemption Date, unless the Company defaults in making the payment
due upon redemption. In the case of a Change of Control for which the Holder
exercises its Repurchase Right with respect to a Security or portion thereof,
such conversion right in respect of the Security or portion thereof shall expire
upon receipt of the written notice of exercise of such Repurchase Right provided
--------
that the expiration of a Holder's conversion right hereunder is subject to such
Holder's right to revoke the exercise of its Repurchase Right.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "Conversion Price") shall be initially U.S. $40.00
per share of Common Stock. The Conversion Price shall be adjusted in certain
instances as provided in paragraphs (a), (b), (c), (d), (e), (f) and (h) of
Section 12.4.
SECTION 12.2 Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of any definitive
Security to be converted shall surrender such Security duly endorsed or assigned
to the Company or in blank, at the office of any Conversion Agent (as specified
and subject to the terms and limitations set forth in Section 9.2), accompanied
by a duly signed conversion notice substantially in the form attached to the
Security to the Company at such Conversion Agent stating that the Holder elects
to convert such Security or, if less than the entire principal amount thereof is
to be converted, the portion thereof to be converted. Securities surrendered
for conversion during the period from the close of business on any Regular
Record Date to the opening of business on the next succeeding Interest Payment
Date (except in the case of any Security whose Maturity is prior to such
Interest Payment
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Date) shall be accompanied by payment in New York Clearing House funds or other
funds acceptable to the Conversion Agent of an amount equal to the interest to
be received on such Interest Payment Date on the principal amount of Securities
being surrendered for conversion.
Securities shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Securities for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall cause to be issued and delivered to such Conversion Agent a certificate or
certificates for the number of full shares of Common Stock issuable upon
conversion, together with payment in lieu of any fraction of a share as provided
in Section 12.3.
In the event that the Company shall have failed to register the Common
Stock into which the Restricted Securities may be converted pursuant to an
effective registration statement under the Securities Act, all shares of Common
Stock delivered upon such conversion shall bear a restrictive legend
substantially in the form of the legend required to be set forth on the
Restricted Securities pursuant to Sections 2.5 and as set forth in the form of
Security in Exhibit A hereto and shall be subject to the restrictions on
transfer provided in such legend. Neither the Trustee nor the Conversion Agent
shall have any responsibility for the inclusion or content of any such
restrictive legend on such Common Stock; provided, however, that the Trustee or
-------- -------
such Conversion Agent, as the case may be, shall have provided, to the Company
or to the Company's transfer agent for such Common Stock, prior to or
concurrently with a request to the Company to deliver to the Conversion Agent
certificates of such Common Stock, written notice that the Securities delivered
for conversion are Restricted Securities.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Securities.
If shares of Common Stock to be issued upon conversion of a Restricted
Security, or Securities to be issued upon conversion of a Restricted Security in
part only, are to be registered in a name other than that of the Holder of such
Restricted Security, then such Holder must deliver to the Conversion Agent a
certificate in substantially the form set
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forth in the form of Security set forth in Exhibit A hereto, dated the date of
surrender of such Restricted Security and signed by such Holder, as to
compliance with the restrictions on transfer applicable to such Restricted
Security. Neither the Trustee nor any Conversion Agent, Registrar or Transfer
Agent shall be required to register in a name other than that of the Holder
shares of Common Stock or Securities issued upon conversion of any such
Restricted Security not so accompanied by a properly completed certificate.
SECTION 12.3 Fractions of Shares.
No fractional shares of Common Stock shall be issued upon any conversion of
any Security or Securities. If more than one Security shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall pay a cash adjustment in respect
of such fraction (calculated to the nearest one-100th of a share) in an amount
equal to the same fraction of the Closing Price of the Common Stock as of the
Trading Day before the date of conversion.
SECTION 12.4 Adjustment of Conversion Price.
The Conversion Price shall be subject to adjustments, calculated by the
Company, from time to time as follows:
(a) In case the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding Common Stock in shares of Common
Stock, the Conversion Price in effect at the opening of business on the date
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the Record Date
(as defined in Section 12.4(g)) fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
Record Date. If any dividend or distribution of the type described in this
Section 12.4(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared.
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(b) In case the Company shall issue rights or warrants to all holders of
its outstanding shares of Common Stock entitling them (for a period expiring
within forty-five (45) days after the date fixed for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined in Section 12.4(g)) on the Record Date fixed for the
determination of stockholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Record Date by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the Record Date plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at such
Current Market Price, and of which the denominator shall be the number of shares
of Common Stock outstanding on the close of business on the Record Date plus the
total number of additional shares of Common Stock so offered for subscription or
purchase. Such adjustment shall become effective immediately after the opening
of business on the day following the Record Date fixed for determination of
stockholders entitled to receive such rights or warrants. To the extent that
shares of Common Stock are not delivered pursuant to such rights or warrants,
upon the expiration or termination of such rights or warrants the Conversion
Price shall be readjusted to the Conversion Price which would then be in effect
had the adjustments made upon the issuance of such rights or warrants been made
on the basis of the delivery of only the number of shares of Common Stock
actually delivered. In the event that such rights or warrants are not so
issued, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination of
stockholders entitled to receive such rights or warrants had not been fixed. In
determining whether any rights or warrants entitle the holders to subscribe for
or purchase shares of Common Stock at less than such Current Market Price, and
in determining the aggregate offering price of such shares of Common Stock,
there shall be taken into account any consideration received for such rights or
warrants, the value of such consideration if other than cash, to be determined
by the Board of Directors.
(c) In case the outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the Conversion Price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and conversely, in case
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the
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opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(d) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the Company
(other than any dividends or distributions to which Section 12.4(a) applies) or
evidences of its indebtedness, cash or other assets (including securities, but
excluding (1) any rights or warrants referred to in Section 12.4(b), (2)
dividends and distributions paid exclusively in cash and (3) any capital stock,
evidences of indebtedness, cash or assets distributed upon a merger or
consolidation to which Section 12.11 applies) (the foregoing hereinafter in this
Section 12.4(d) called the "securities")) (unless the Company elects to reserve
such securities for distribution to the Holders upon conversion of the
Securities so that any such Holder converting Securities will receive upon such
conversion, in addition to the shares of Common Stock to which such Holder is
entitled, the amount and kind of such securities which such Holder would have
received if such Holder had converted its Securities into Common Stock
immediately prior to the Record Date (as defined in Section 12.4(g)) for such
distribution of the securities)), then, in each such case, the Conversion Price
shall be reduced so that the same shall be equal to the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on the Record Date (as defined in Section 12.4(g)) with respect to such
distribution by a fraction of which the numerator shall be the Current Market
Price (determined as provided in Section 12.4(g)) on such date less the fair
market value (as determined by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution) on such date of the portion
of the securities so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following the
Record Date; provided, however, that in the event the then fair market value (as
-------- -------
so determined) of the portion of the securities so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price on
the Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that each Holder shall have the right to receive upon conversion of a
Security (or any portion thereof) the amount of securities such Holder would
have received had such Holder converted such Security (or portion thereof)
immediately prior to such Record Date. In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors determines the
fair market value of any distribution for purposes of this Section 12.4(d) by
reference to the actual or when issued trading market for any securities
comprising all or part of such distribution, it must in doing so consider the
prices in such market over the same period (the "Reference Period") used in
computing the Current Market Price
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pursuant to Section 12.4(g) to the extent possible, unless the Board of
Directors in a Board Resolution determines in good faith that determining the
fair market value during the Reference Period would not be in the best interest
of the Holder.
Rights or warrants distributed by the Company to all holders of Common
Stock entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances), which
rights or warrants, until the occurrence of a specified event or events
("Trigger Event"); (i) are deemed to be transferred with such shares of Common
Stock; (ii) are not exercisable; and (iii) are also issued in respect of future
issuances of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 12.4(d) (and no adjustment to the Conversion Price
under this Section 12.4(d) will be required) until the occurrence of the
earliest Trigger Event. If such right or warrant is subject to subsequent
events, upon the occurrence of which such right or warrant shall become
exercisable to purchase different securities, evidences of indebtedness or other
assets or entitle the holder to purchase a different number or amount of the
foregoing or to purchase any of the foregoing at a different purchase price,
then the occurrence of each such event shall be deemed to be the date of
issuance and record date with respect to a new right or warrant (and a
termination or expiration of the existing right or warrant without exercise by
the holder thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event (of the
type described in the preceding sentence) with respect thereto, that resulted in
an adjustment to the Conversion Price under this Section 12.4(d), (1) in the
case of any such rights or warrants which shall all have been redeemed or
repurchased without exercise by any holders thereof, the Conversion Price shall
be readjusted upon such final redemption or repurchase to give effect to such
distribution or Trigger Event, as the case may be, as though it were a cash
distribution, equal to the per share redemption or repurchase price received by
a holder of Common Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders of Common
Stock as of the date of such redemption or repurchase, and (2) in the case of
such rights or warrants all of which shall have expired or been terminated
without exercise, the Conversion Price shall be readjusted as if such rights and
warrants had never been issued.
For purposes of this Section 12.4(d) and Sections 12.4(a) and (b), any
dividend or distribution to which this Section 12.4(d) is applicable that also
includes shares of Common Stock, or rights or warrants to subscribe for or
purchase shares of Common Stock to which Section 12.4(b) applies (or both),
shall be deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, assets, shares of capital stock, rights or warrants other than
such shares of Common Stock or rights or warrants to which Section 12.4(b)
applies (and any Conversion Price reduction required by this
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Section 12.4(d) with respect to such dividend or distribution shall then be
made) immediately followed by (2) a dividend or distribution of such shares of
Common Stock or such rights or warrants (and any further Conversion Price
reduction required by Sections 12.4(a) and (b) with respect to such dividend or
distribution shall then be made), except (A) the Record Date of such dividend or
distribution shall be substituted as "the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution," "Record
Date fixed for such determinations" and "Record Date" within the meaning of
Section 12.4(a) and as "the date fixed for the determination of stockholders
entitled to receive such rights or warrants," "the Record Date fixed for the
determination of the stockholders entitled to receive such rights or warrants"
and such "Record Date" within the meaning of Section 12.4(b) and (B) any shares
of Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such determination"
within the meaning of Section 12.4(a).
(e) In case the Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 12.11 applies or as part of a
distribution referred to in Section 12.4(d)), in an aggregate amount that,
combined together with (1) the aggregate amount of any other such distributions
to all holders of Common Stock made exclusively in cash within the twelve (12)
months preceding the date of payment of such distribution, and in respect of
which no adjustment pursuant to this Section 12.4(e) has been made, and (2) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) of consideration payable in respect of any tender offer by the
Company or any of its Subsidiaries for all or any portion of the Common Stock
concluded within the twelve (12) months preceding the date of such distribution,
and in respect of which no adjustment pursuant to Section 12.4(f) has been made,
exceeds 10.0% of the product of the Current Market Price (determined as provided
in Section 12.4(g)) on the Record Date with respect to such distribution times
the number of shares of Common Stock outstanding on such date, then and in each
such case, immediately after the close of business on such date, the Conversion
Price shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close of
business on such Record Date by a fraction (i) the numerator of which shall be
equal to the Current Market Price on the Record Date less an amount equal to the
quotient of (x) the excess of such combined amount over such 10.0% and (y) the
number of shares of Common Stock outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on such date,
provided, however, that in the event the portion of the cash so distributed
- -------- -------
applicable to one share of Common Stock is equal to or greater than the Current
Market Price of the Common Stock on the Record Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each
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Holder shall have the right to receive upon conversion of a Security (or any
portion thereof) the amount of cash such Holder would have received had such
Holder converted such Security (or portion thereof) immediately prior to such
Record Date. In the event that such dividend or distribution is not so paid or
made, the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. Any cash distribution to all holders of Common Stock as to which the
Company makes the election permitted by Section 12.4(l) and as to which the
Company has complied with the requirements of such Section shall be treated as
not having been made for all purposes of this Section 12.4(e).
(f) In case a tender offer made by the Company or any of its Subsidiaries
for all or any portion of the Common Stock shall expire and such tender offer
(as amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the terms
of the tender offer) of Purchased Shares (as defined below)) of an aggregate
consideration having a fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution) that combined together with (1) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a Board Resolution), as of the expiration
of such tender offer, of consideration payable in respect of any other tender
offers, by the Company or any of its Subsidiaries for all or any portion of the
Common Stock expiring within the twelve (12) months preceding the expiration of
such tender offer and in respect of which no adjustment pursuant to this Section
12.4(f) has been made and (2) the aggregate amount of any distributions to all
holders of the Company's Common Stock made exclusively in cash within twelve
(12) months preceding the expiration of such tender offer and in respect of
which no adjustment pursuant to Section 12.4(e) has been made, exceeds 10.0% of
the product of the Current Market Price (determined as provided in Section
12.4(g)) as of the last time (the "Expiration Time") tenders could have been
made pursuant to such tender offer (as it may be amended) times the number of
shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time, then, and in each such case, immediately prior to the opening
of business on the day after the date of the Expiration Time, the Conversion
Price shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to close of
business on the date of the Expiration Time by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding (including any
tendered shares) on the Expiration Time multiplied by the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration Time and
the denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender offer) of all
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shares validly tendered and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (y) the product of the number of shares of Common Stock outstanding
(less any Purchased Shares) on the Expiration Time and the Current Market Price
of the Common Stock on the Trading Day next succeeding the Expiration Time, such
reduction (if any) to become effective immediately prior to the opening of
business on the day following the Expiration Time. In the event that the
Company is obligated to purchase shares pursuant to any such tender offer, but
the Company is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price shall again
be adjusted to be the Conversion Price which would then be in effect if such
tender offer had not been made. If the application of this Section 12.4(f) to
any tender offer would result in an increase in the Conversion Price, no
adjustment shall be made for such tender offer under this Section 12.4(f). Any
cash distribution to all holders of Common Stock as to which the Company has
made the election permitted by Section 12.4(m) and as to which the Company has
complied with the requirements of such Section shall be treated as not having
been made for all purposes of this Section 12.4(f).
(g) For purposes of this Section 12.4, the following terms shall have the
meaning indicated:
(1) "Current Market Price" shall mean the average of the daily Closing
Prices per share of Common Stock for the ten (10) consecutive Trading Days
immediately prior to the date in question; provided, however, that (1) if
-------- -------
the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c),
(d), (e) or (f) occurs during such ten (10) consecutive Trading Days, the
Closing Price for each Trading Day prior to the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event, (2) if the "ex" date for any event (other than
the issuance or distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c),
(d), (e) or (f) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day in question,
the Closing Price for each Trading Day on and after the "ex" date for such
other event shall be adjusted by multiplying such Closing Price by the
reciprocal of the fraction by which the Conversion Price is so required to
be adjusted as a result of such other event, and (3) if the "ex" date for
the issuance or distribution requiring such computation is prior to the day
in question, after taking into account any adjustment required
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pursuant to clause (1) or (2) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by adding thereto
the amount of any cash and the fair market value (as determined by the
Board of Directors in a manner consistent with any determination of such
value for purposes of Section 12.4(d) or (f), whose determination shall be
conclusive and described in a Board Resolution) of the evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one share of Common Stock as of the close of business on the
day before such "ex" date. For purposes of any computation under Section
12.4(f), the Current Market Price of the Common Stock on any date shall be
deemed to be the average of the daily Closing Prices per share of Common
Stock for such day and the next two succeeding Trading Days; provided,
--------
however, that if the"ex" date for any event (other than the tender offer
-------
requiring such computation) that requires an adjustment to the Conversion
Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or
after the Expiration Time for the tender or exchange offer requiring such
computation and prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the reciprocal of the
fraction by which the Conversion Price is so required to be adjusted as a
result of such other event. For purposes of this paragraph, the term "ex"
date, (1) when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the Closing Price was
obtained without the right to receive such issuance or distribution, (2)
when used with respect to any subdivision or combination of shares of
Common Stock, means the first date on which the Common Stock trades regular
way on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (3) when used with
respect to any tender or exchange offer means the first date on which the
Common Stock trades regular way on such exchange or in such market after
the Expiration Time of such offer. Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for pursuant to
this Section 12.4, such adjustments shall be made to the Current Market
Price as may be necessary or appropriate to effectuate the intent of this
Section 12.4 and to avoid unjust or inequitable results as determined in
good faith by the Board of Directors.
(2) "fair market value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's length transaction.
(3) "Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
Stock
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have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of stockholders entitled to receive such
cash, securities or other property (whether such date is fixed by the Board
of Directors or by statute, contract or otherwise).
(h) The Company may make such reductions in the Conversion Price, in
addition to those required by Sections 12.4(a), (b), (c), (d), (e) or (f), as
the Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase Common Stock resulting from
any dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
To the extent permitted by applicable law, the Company from time to time
may reduce the Conversion Price by any amount for any period of time if the
period is at least twenty (20) days and the reduction is irrevocable during the
period. Whenever the Conversion Price is reduced pursuant to the preceding
sentence, the Company shall mail to each Holder at the address of such Holder as
it appears in the Security appearing on the Register a notice of the reduction
at least fifteen (15) days prior to the date the reduced Conversion Price takes
effect, and such notice shall state the reduced Conversion Price and the period
during which it will be in effect.
(i) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 12.4 (i)
- -------- -------
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Article 12 shall be made
by the Company and shall be made to the nearest cent or to the nearest one
hundredth of a share, as the case may be. No adjustment need be made for a
change in the par value or no par value of the Common Stock.
(j) In any case in which this Section 12.4 provides that an adjustment
shall become effective immediately after a Record Date for an event, the Company
may defer until the occurrence of such event (i) issuing to the Holder of any
Security converted after such Record Date and before the occurrence of such
event the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the Common Stock
issuable upon such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash in lieu of any fraction pursuant to
Section 12.3.
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(k) For purposes of this Section 12.4, the number of shares of Common Stock
at any time outstanding shall not include shares held in the treasury of the
Company but shall include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock. The Company will not pay
any dividend or make any distribution on shares of Common Stock held in the
treasury of the Company.
(l) In lieu of making any adjustment to the Conversion Price pursuant to
Section 12.4(d) or (e), the Company may elect to reserve an amount of cash for
distribution to the Holders of the Securities upon the conversion of the
Securities so that any such Holder converting Securities will receive upon such
conversion, in addition to the shares of Common Stock and other items to which
such Holder is entitled, the full amount of cash which such holder would have
received if such Holder had, immediately prior to the Record Date for such
distribution of cash, converted its Securities into Common Stock, together with
any interest accrued with respect to such amount, in accordance with this
Section 12.4(l). The Company may make such election by providing an Officers'
Certificate to the Trustee to such effect on or prior to the payment date for
any such distribution and depositing with the Trustee on or prior to such date
an amount of cash equal to the aggregate amount the Holders of the Securities
would have received if such Holders had, immediately prior to the Record Date
for such distribution, converted all of the Securities into Common Stock. Any
such funds so deposited by the Company with the Trustee shall be invested by the
Trustee in marketable obligations issued or fully guaranteed by the United
States government with a maturity not more than three (3) months from the date
of issuance. Upon conversion of Securities by a Holder, the Holder will be
entitled to receive, in addition to the Common Stock issuable upon conversion,
an amount of cash equal to the amount such Holder would have received if such
Holder had, immediately prior to the Record Date for such distribution,
converted its Security into Common Stock, along with such Holder's pro rata
share of any accrued interest earned as a consequence of the investment of such
funds. Promptly after making an election pursuant to this Section 12.4(l), the
Company shall give or shall cause to be given notice to all Holders of such
election, which notice shall state the amount of cash per $1,000 principal
amount of Securities such Holders shall be entitled to receive (excluding
interest) upon conversion of the Securities as a consequence of the Company
having made such election.
SECTION 12.5 Notice of Adjustments of Conversion Price.
Whenever the Conversion Price is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Price in
accordance with Section 12.4 and shall prepare an Officers' Certificate
signed by
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the Chief Financial Officer of the Company setting forth the
adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based, and such Officers' Certificate shall
forthwith promptly be filed with the Trustee and with each Conversion
Agent; and
(2) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price and the date on which each
adjustment becomes effective shall forthwith be required, and such notice
shall be provided by the Company to all Holders in accordance with Section
1.5.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to the validity, accuracy or sufficiency of any such
Officers' Certificate, except to exhibit the same to any Holder of Securities
desiring inspection thereof at its office during normal business hours.
SECTION 12.6 Notice of Certain Corporate Action.
In case at any time after the date hereof:
(1) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable otherwise than in cash out of its capital
surplus or the consolidated retained earnings of the Company and its
Subsidiaries; or
(2) the Company shall authorize the granting to the holders of its
Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
(3) there shall occur any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its outstanding shares
of Common Stock), or any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is
required, or the conveyance, transfer or lease of all or substantially all
of the assets of the Company; or
(4) there shall occur the voluntary or involuntary dissolution,
liquidation or winding up of the Company.
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of securities pursuant to Section 9.2, and shall cause
to be provided to all Holders in accordance with Section 1.5, at least 20 days
(or 10 days in any case specified in clause (1) or (2) above) prior to the
applicable record or effective date
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hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights or warrants are to
be determined, or (B) the date on which such reclassification, consolidation,
merger, conveyance, transfer, lease, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, lease,
dissolution, liquidation or winding up.
SECTION 12.7 Company to Reserve Common Stock.
The Company shall at all times use its best efforts to reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of Securities, the
full number of shares of fully paid and nonassessable Common Stock then issuable
upon the conversion of all Outstanding Securities.
SECTION 12.8 Taxes on Conversions.
Except as provided in the next sentence, the Company will pay any and all
taxes (other than taxes on income) and duties that may be payable in respect of
the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. A Holder delivering a Security for conversion shall be liable
for and will be required to pay any tax or duty which may be payable in respect
of any transfer involved in the issue and delivery of shares of Common Stock in
a name other than that of the Holder of the Security or Securities to be
converted, and no such issue or delivery shall be made unless and until the
Person requesting such issue has paid to the Company the amount of any such tax
or duty, or has established to the satisfaction of the Company that such tax or
duty has been paid.
SECTION 12.9 Covenant as to Common Stock.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Securities will upon issue be fully paid and nonassessable
and, except as provided in Section 12.8, the Company will pay all taxes, liens
and charges with respect to the issue thereof.
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SECTION 12.10 Cancellation of Converted Securities.
All Securities delivered for conversion shall be delivered to the Trustee
to be canceled by or at the direction of the Company, which shall dispose of the
same as provided in Section 2.9.
SECTION 12.11 Effect of Reclassification, Consolidation, Merger or Sale.
If any of following events occur, namely (i) any reclassification or change
of the outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation, merger or
combination of the Company with another corporation as a result of which holders
of Common Stock shall be entitled to receive stock, securities or other property
or assets (including cash) with respect to or in exchange for such Common Stock
or (iii) any sale or conveyance of the properties and assets of the Company as,
or substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture if such supplemental indenture is then required
to so comply) providing that such Security shall be convertible into the kind
and amount of shares of stock and other securities or property or assets
(including cash) which such Holder would have been entitled to receive upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
had such Securities been converted into Common Stock immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
assuming such holder of Common Stock did not exercise its rights of election, if
any, as to the kind or amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, sale or conveyance
(provided that, if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, statutory exchange, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised ("Non-Electing Share"),
then for the purposes of this Section 12.11 the kind and amount of securities,
cash or other property receivable upon such consolidation, merger, statutory
exchange, sale or conveyance for each Non-Electing Share shall be deemed to be
the kind and amount so receivable per share by a plurality of the Non-Electing
Shares). Such supplemental indenture shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article. If, in the case of any such reclassification, change,
consolidation, merger, combination, sale or conveyance, the
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stock or other securities and assets receivable thereupon by a holder of shares
of Common Stock includes shares of stock or other securities and assets of a
corporation other than the successor or purchasing corporation, as the case may
be, in such reclassification, change, consolidation, merger, combination, sale
or conveyance, then such supplemental indenture shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the Holders of the Securities as the Board of Directors shall
reasonably consider necessary by reason of the foregoing, including to the
extent practicable the provisions providing for the Repurchase Rights set forth
in Article 11 herein.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each Holder, at the address of such Holder as it
appears on the Security Register, within twenty (20) days after execution
thereof. Failure to deliver such notice shall not affect the legality or
validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to successive
reclassifications, changes, consolidations, mergers, combinations, sales and
conveyances.
If this Section 12.11 applies to any event or occurrence, Section 12.4
shall not apply.
SECTION 12.12 Responsibility of Trustee for Conversion Provisions.
The Trustee, subject to the provisions of Section 5.1, and any Conversion
Agent shall not at any time be under any duty or responsibility to any Holder of
Securities to determine whether any facts exist which may require any adjustment
of the Conversion Price, or with respect to the nature or intent of any such
adjustments when made, or with respect to the method or calculations employed,
or herein or in any supplemental indenture provided to be employed, in making
the same. Neither the Trustee, subject to the provisions of Section 5.1, nor
any Conversion Agent shall be accountable with respect to the validity or value
(of the kind or amount) of any Common Stock, or of any other securities or
property, which may at any time be issued or delivered upon the conversion of
any Security; and it or they do not make any representation with respect
thereto. Neither the Trustee, subject to the provisions of Section 5.1, nor any
Conversion Agent shall be responsible for any failure of the Company to make any
cash payment or to issue, transfer or deliver any shares of stock or share
certificates or other securities or property upon the surrender of any Security
for the purpose of conversion; and the Trustee, subject to the provisions of
Section 5.1, and any Conversion Agent shall not be responsible or liable for any
failure of the Company to comply with any of the covenants of the Company
contained in this Article.
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ARTICLE 13
SUBORDINATION
SECTION 13.1 Securities Subordinated to Senior Debt.
The Company covenants and agrees, and each Holder of Securities, by such
Holder's acceptance thereof, likewise covenants and agrees, that the
indebtedness represented by the Securities and the payment of the principal of
and premium, if any, and interest (including Liquidated Damages, if any) on each
and all of the Securities is hereby expressly subordinate and junior, to the
extent and in the manner hereinafter set forth and as set forth in Section 3.1,
in right of payment to the prior payment in full of all Senior Debt.
(a) In the event of any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization of the Company, whether
in bankruptcy, insolvency, reorganization or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company or otherwise, then the holders of all Senior Debt
shall first be entitled to receive payment of the full amount due thereon in
respect of principal and premium, if any, and interest (including interest
accruing after the commencement of any bankruptcy proceeding, regarding of
whether such interests is an allowed claim in such proceeding) and all other
amounts due or provision shall be made for such amount in cash before the
Holders of any of the Securities are entitled to receive any payment or
distribution of any character, whether in cash, securities or other property, on
account of the principal of or premium, if any, or interest on the indebtedness
evidenced by the Securities.
(b) In the event of any default in payment of the principal of or premium,
if any, or interest on any Senior Debt, then, unless and until all such payments
due in respect of such Senior Debt have been paid in full or such default shall
have been cured or waived or shall have ceased to exist, no payment shall be
made by the Company with respect to the principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Securities or to acquire
any of the Securities (including any redemption, cash conversion or repurchase
pursuant to the exercise of the Repurchase Right).
(c) During the continuance of any event of default with respect to any
Senior Debt, as such event of default is defined under any such Senior Debt or
in any agreement pursuant to which any Senior Debt has been issued (other than a
default in payment of the principal of or premium, if any, or interest on any
Senior Debt), permitting the holder or
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holders of such Senior Debt to accelerate the maturity thereof, no payment shall
be made by the Company, directly or indirectly, with respect to principal of,
premium, if any, or interest (including Liquidated Damages, if any) on the
Securities (including any redemption, cash conversion or repurchase pursuant to
the exercise of the Repurchase Right) for 180 days following notice in writing
to the Company, from any holder or holders of such Senior Debt or their
representative or representatives or the trustee or trustees under any indenture
or under which any instrument evidencing any such Senior Debt may have been
issued, that such an event of default has occurred and is continuing, unless
such event of default has been cured or waived or such Senior Debt has been paid
in full; provided, however, if the maturity of such Senior Debt is accelerated,
-------- -------
no payment may be made on the Securities until such Senior Debt has been
paid or such acceleration has been cured or waived. For purposes of this Section
13.1(c), such notice shall be deemed to include notice of all other events of
default under such indenture or instrument, which are continuing at the time of
the event of default specified in such notice. The provisions of this Section
13.1(c) shall apply only to one such notice given in any period of nine
consecutive months with respect to any issue of Senior Debt and no more than one
such notice under this Section 13.1(c) shall be given with respect to any such
continuing event of default under any issue of Senior Debt for such nine-month
period.
(d) In the event that, notwithstanding the foregoing provisions of Sections
13.1(a), (b) and (c), any payment on account of principal, premium, if any, or
interest (including Liquidated Damages, if any) on the Securities shall be made
by or on behalf of the Company and received by the Trustee, by any Holder or by
any Paying Agent (or, if the Company is acting as its own Paying Agent, money
for any such payment shall be segregated and held in trust), (i) after the
occurrence of an event specified in Section 13.1(a), then, unless and until all
Senior Debt is paid in full in cash, or provision shall he made therefor, (ii)
after the happening of an event of default under any Senior Debt of the type
specified in Section 13.1(b) above, then, unless and until the amount of such
Senior Debt then due shall have been paid in full, or provision made therefor or
such event of default shall have been cured or waived, or (iii) after the
happening of an event of default of the type specified in Section 13.1(c) above,
unless and until such event of default shall have been cured or waived or the
180-day period specified in Section 13.1(c) shall have expired, such payment
(subject, in each case, to the provisions of Section 13.7) shall be held in
trust for the benefit of, and shall be immediately paid over to, the holders of
Senior Debt or their representative or representatives or the trustee or
trustees under any indenture under which any instruments evidencing any of the
Senior Debt may have been issued, as their interests my appear. The Company
shall give prompt written notice to the Trustee of any default under any
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Senior Debt or under any agreement pursuant to which Senior Debt may have been
issued.
SECTION 13.2 Subrogation.
Subject to the payment in full of all Senior Debt to which the indebtedness
evidenced by the Securities is in the circumstances subordinated as provided in
Section 13.1, the Holders of the Securities shall be subrogated to the rights of
the holders of such Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to such Senior Debt until all
amounts owing on the Securities shall be paid in full, and, as between the
Company, its creditors other than holders of such Senior Debt, and the Holders
of the Securities, no such payment or distribution made to the holders of Senior
Debt by virtue of this Article which otherwise would have been made to the
holders of the Securities shall be deemed to be a payment by the Company on
account of such Senior Debt, it being understood that the provisions of this
Article are and are intended solely for the purpose of defining the relative
rights of the Holders of the Securities, on the one hand, and the holders of
Senior Debt, on the other hand.
SECTION 13.3 Obligation of Company Unconditional.
Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the Holders of the Securities, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Securities the principal of and premium, if any, and interest
(including Liquidated Damages, if any) on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders of the Securities and
creditors of the Company other than the holders of Senior Debt, nor shall
anything herein or therein prevent the Trustee or the Holder of any Security
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article of the
holders of Senior Debt in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
SECTION 13.4 Maturity of or Default on Senior Debt.
Upon the maturity of any Senior Debt by lapse of time, acceleration or
otherwise, then all principal of and interest on all such matured Senior Debt
shall first be paid in full, or such payment shall have been duly provided for,
before any payment on account of principal, or premium, if any, or interest
(including Liquidated Damages, if any) is made upon the Securities.
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SECTION 13.5 Payments on Securities Permitted.
Except as expressly provided in this Article, nothing contained in this
Article shall affect the obligation of the Company to make, or prevent the
Company from making, payments of the principal of, or premium, if any, or
interest (including Liquidated Damages, if any) on the Securities in accordance
with the provisions hereof and thereof, or shall prevent the Trustee or any
Paying Agent from applying any moneys deposited with it hereunder to the payment
of the principal of, or premium, if any, or interest (including Liquidated
Damages, if any) on the Securities.
SECTION 13.6 Effectuation of Subordination by Trustee.
Each Holder of Securities, by such Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article and appoints the Trustee such Holder's attorney-in-fact for any and all
such purposes.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee and the Holders of the Securities shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which any such dissolution, winding up, liquidation or reorganization proceeding
affecting the affairs of the Company is pending or upon a certificate of the
trustee in bankruptcy, receiver, assignee for the benefit of creditors,
liquidating trustee or agent or other Person making any payment or distribution,
delivered to the Trustee or to the Holders of the Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, and as to other facts pertinent to the right of such Persons under
this Article, and if such evidence is not furnished, the Trustee may defer any
payment to such Persons pending judicial determination as to the right of such
Persons to receive such payment.
SECTION 13.7 Knowledge of Trustee.
Notwithstanding the provision of this Article or any other provisions of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any Senior Debt, of any default in payment of principal of, premium, if any,
or interest on any Senior Debt, or of any facts which would prohibit the making
of any payment of moneys to or by the Trustee, or the taking of any other action
by the Trustee, unless and until a Responsible Officer of the Trustee having
responsibility for the administration of the trust established by this Indenture
shall have received written notice thereof from the Company, any Holder of
Securities, any Paying or Conversion Agent of the Company or the holder or
representative of any class of Senior Debt, and, prior to the receipt of any
such written notice, the Trustee shall be entitled in all respects to assume
that no such
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default or facts exist; provided, however, that unless on the third
-------- -------
Business Day prior to the date upon which by the terms hereof any such moneys
may become payable for any purpose the Trustee shall have received the notice
provided for in this Section 13.7, then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such moneys and apply the same to the purpose for which they were
received, and shall not be affected by any notice to the contrary which may be
received by it on or after such date.
SECTION 13.8 Trustee's Relation to Senior Debt.
The Trustee shall be entitled to all the rights set forth in this Article
with respect to any Senior Debt at the time held by it, to the same extent as
any other holder of Senior Debt and nothing in this Indenture shall deprive the
Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of or payments to the Trustee
under or pursuant to Section 5.7.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article, and no implied covenants or obligations
with respect to the holders of Senior Debt shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of Senior Debt and the Trustee shall not be liable to any holder
of Senior Debt if it shall pay over or deliver to Holders, the Company or any
other Person moneys or assets to which any holder of Senior Debt shall be
entitled by virtue of this Article or otherwise.
SECTION 13.9 Rights of Holders of Senior Debt Not Impaired.
No right of any present or future holder of any Senior Debt to enforce the
subordination herein shall at any time or in any way be prejudiced or impaired
by any act or failure to act on the part of the Company or by any noncompliance
by the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
SECTION 13.10 Modification of Terms of Senior Debt.
Any renewal or extension of the time of payment of any Senior Debt or the
exercise by the holders of Senior Debt of any of their rights under any
instrument creating or evidencing Senior Debt, including without limitation the
waiver of default thereunder,
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may be made or done all without notice to or assent from the Holders of the
Securities or the Trustee.
No compromise, alteration, amendment, modification, extension, renewal or
other change of, or waiver, consent or other action in respect of, any liability
or obligation under or in respect of, or of any of the terms, covenants or
conditions of any indenture or other instrument under which any Senior Debt is
outstanding or of such Senior Debt, whether or not such release is in accordance
with the provisions or any applicable document, shall in any way alter or affect
any of the provisions of this Article or of the Securities relating to the
subordination thereof.
ARTICLE 14
INTEREST RATE ADJUSTMENTS
SECTION 14.1 Occurrence of Reset Transaction and Adjustment to the
Interest Rate.
If a Reset Transaction occurs, the interest rate will be adjusted to equal
the Adjusted Interest Rate from the effective date of such Reset Transaction to,
but not including, the effective date of any succeeding Reset Transaction.
The "Adjusted Interest Rate" with respect to any Reset Transaction will be
the rate per annum that is the arithmetic average of the rates quoted by two
Reference Dealers selected by the Company or its successor as the rate at which
the interest rate should accrue so that the fair market value, expressed in
dollars, of a Security immediately after the later of: (1) the public
announcement of such Reset Transaction or (2) the public announcement of a
change in dividend policy in connection with such Reset Transaction will equal
the average Closing Price of a Security for the 20 Trading Days preceding the
date of a public announcement of such Reset Transaction; provided that the
Adjusted Interest Rate will not be less than 5 1/4% per annum.
"Dividend Yield" on any security for any period means the dividends paid or
proposed to be paid pursuant to an announced dividend policy on such security
for such period divided by, if with respect to dividends paid on such security,
the average Closing Price of such security during such period and, if with
respect to dividends proposed to be paid on such security, the Closing Price of
such security on the effective date of the related Reset Transaction.
"Reference Dealer" means a dealer engaged in the trading of convertible
securities.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
VERTICALNET, INC.
By: _______________________________
Name:
Title:
Attest:
By: ____________________________
Name:
Title:
BANKERS TRUST COMPANY
as Trustee
By: _______________________________
Name:
Title:
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<PAGE>
EXHIBIT A - FORM OF SECURITY
[FORM OF FACE OF SECURITY]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3), (5), (6) OR (7) UNDER THE SECURITIES ACT) ("ACCREDITED INVESTOR"); (2)
AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE
SECURITY EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED
HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A)
TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES TO THE BANKERS TRUST COMPANY, AS TRUSTEE, A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE), (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER
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THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES
TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO 2(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED
HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY (OTHER THAN
A TRANSFER PURSUANT TO CLAUSE 2(E) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE
BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND
SUBMIT THIS CERTIFICATE TO BANKERS TRUST COMPANY, AS TRUSTEE (OR ANY SUCCESSOR
TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) OR
2(D) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO BANKERS TRUST
COMPANY, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER
OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 2(E) ABOVE
OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY
EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON"
HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
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VERTICALNET, INC.
5 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2004
No. $
VERTICALNET, INC., a corporation duly organized and existing under the laws
of the State of Pennsylvania (herein called the "Company," which term includes
any successor corporation under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to ________________, or
registered assigns, the principal sum of U.S. Dollars on _______________ and to
pay interest (including Liquidated Damages, if any) thereon, from September 27,
1999 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semiannually in arrears on March 27 and September 27
each year (each an "Interest Payment Date"), commencing March 27, 2000, at the
rate of 5 1/4% per annum, until the principal hereof is paid or made available
for payment. The interest (including Liquidated Damages, if any) so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be March 13 (whether or
not a Business Day) next preceding a March 27 Interest Payment Date and
September 13 (whether or not a Business Day) next preceding a September 27
Interest Payment Date. Except as otherwise provided in the Indenture, any such
interest (including Liquidated Damages, if any) not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture. Payments
of principal and premium, if any, shall be made upon the surrender of this
Security at the option of the Holder at the Corporate Trust Office of the
Trustee, or at such other office or agency of the Company as may be designated
by it for such purpose in The City of New York, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts. Payment of interest (including Liquidated
Damages, if any) on this Security may be made by U.S. Dollar check drawn on a
bank in The City of New York mailed to the address of the Person entitled
thereto as such address
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shall appear in the Security Register, or upon application by the Holder to the
Security Registrar not later than the relevant Record Date, by wire transfer to
a U.S. Dollar account (to Holders of an aggregate principal amount in excess of
U.S. $5,000,000).
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee by the manual signature of an authorized signatory, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
Dated: September 27, 1999
VERTICALNET, INC.
[Corporate Seal] By:_________________________________
Attest:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
---------------------------------------
This is one of the Securities described in the within-named Indenture.
BANKERS TRUST COMPANY,
as Trustee
By:_________________________________
Authorized Signatory
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<PAGE>
[FORM OF REVERSE OF SECURITY]
VERTICALNET, INC.
5 1/4% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2004
This Security is one of a duly authorized issue of Securities of the
Company designated as its "5 1/4% Convertible Subordinated Debentures Due 2004"
(herein called the "Securities"), limited in aggregate principal amount to U.S.
$100,000,000 (subject to increase as provided in the Indenture (as hereinafter
defined) of up to an additional $15,000,000 aggregate principal amount), issued
and to be issued under an Indenture, dated as of September 27, 1999 (herein
called the "Indenture"), between the Company and Bankers Trust Company, as
Trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee, the
holders of Senior Debt, and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. The
Securities are issuable in registered form, without coupons, in denominations of
U.S. $1,000 and integral multiples thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable
for a like aggregate principal amount of Securities of any authorized
denominations as requested by the Holder surrendering the same upon surrender of
the Security or Securities to be exchanged, except as provided below, at the
office or agency of the Company in The City of New York, or at such other
offices or agencies as the Company may designate.
If a Reset Transaction occurs, the interest rate will be adjusted to equal
the Adjusted Interest Rate from the effective date of such Reset Transaction to,
but not including, the effective date of any succeeding Reset Transaction.
"Reset Transaction" means a merger, consolidation or statutory share exchange to
which the entity that is the issuer of the common shares into which the
Securities are then convertible into is a party, a sale of all or substantially
all the assets of that entity, a recapitalization of those common shares or a
distribution described in Section 12.4(d) of the Indenture, after the effective
date of which transaction or distribution the Securities would be convertible
into (a) shares of an entity the common shares of which had a Dividend Yield for
the four fiscal quarters of such entity immediately preceding the public
announcement of such transaction or distribution that was more than 2.5% higher
than the Dividend Yield on the Common Stock (or other common shares then
issuable upon conversion of the Securities) for the four fiscal quarters
preceding the public announcement of such transaction or distribution, or (b)
shares of an entity that announces a dividend policy prior to the
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<PAGE>
effective date of such transaction or distribution which policy, if implemented,
would result in a Dividend Yield on such entity's common stock for the next four
fiscal quarters that would result in such 2.5% basis point increase. The
"Adjusted Interest Rate," with respect to any Reset Transaction, will be the
rate per annum that is the arithmetic average of the rate quoted by two
Reference Dealers selected by the Company or its successor as the rate at which
the interest rate should accrue so that the fair market value, expressed in
dollars, of a Security immediately after the later of (1) the public
announcement of such Reset Transaction or (2) the public announcement of a
change in dividend policy in connection with such Reset Transaction, will equal
the average Closing Price of a Security for 20 Trading Days preceding the date
of public announcement of such Reset Transaction; provided that the Adjusted
Interest Rate will not be less than 5 1/4% per annum. The "Dividend Yield" on
any security for any period means the dividends paid or proposed to be paid
pursuant to an announced dividend policy on such security for such period
divided by, if with respect to dividends paid on such security, the average
Closing Price of such security during such period and, if with respect to
dividends proposed to be paid on such security, the Closing Price of such
security on the effective date of the related Reset Transaction. "Reference
Dealer" means a dealer engaged in the trading of convertible securities.
The Securities may be redeemed by the Company (a "Provisional Redemption"),
in whole or in part, at any time prior to September 27, 2002, upon notice as set
forth in Section 10.5 of the Indenture at a redemption price equal to 101.3125%
of the principal amount of Securities, plus accrued and unpaid interest, if any
(including Liquidated Damages), to but excluding the date of Provisional
Redemption (the "Provisional Redemption Date") if (i) the Current Market Value
(as hereinafter defined) of the Common Stock shall equal or exceed the following
triggering percentages of the Conversion Price then in effect for at least 20
Trading Days in any consecutive 30-day Trading Day period ending on the Trading
Day prior to the date of mailing of the notice of the Provisional Redemption
(the "Notice Date"), if redeemed in the 12-month period ending on September 26
of the following years: (A) 2000 - 170%, (B) 2001 - 160%, and (C) 2002 - 150%;
and (ii) the shelf registration covering resales of the Securities and the
Common Stock issuable upon conversion of the Securities is effective and
available for use and is expected to remain effective and available for use for
the 30 days following the Provisional Redemption Date.
Upon any Provisional Redemption, the Company shall make an additional
payment (the "Interest Make-Whole Payment") in cash with respect to the
Securities called for redemption, including those Securities converted into
Common Stock between the Notice Date and the Provisional Redemption Date, in an
amount equal to the sum of (i) the present value of the aggregate amount of the
interest that would otherwise have
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accrued from the Provisional Redemption Date through September 26, 2002 (the
"Interest Make-Whole Period") and (ii) Liquidated Damages, if any, to the
Provisional Redemption Date. The Company shall make the Interest Make-Whole
Payment on all Securities called for Provisional Redemption including any
Securities converted after the Notice Date and prior to the Provisional
Redemption Date. Such present value shall be calculated using the bond
equivalent yield on U.S. Treasury notes or bills having a term nearest in length
to that of the Interest Make-Whole Period as of the Notice Date.
The "Current Market Value" means the average of the high and low sales
prices of the Common Stock, as reported on the Nasdaq National Market or any
national securities exchange on which the Common Stock is then listed, on such
Trading Day.
The Securities may also be redeemed by the Company at any time on or after
September 27, 2002, in whole or in part, at the election of the Company, at
Redemption Prices (expressed as percentages of the principal amount) set forth
below if redeemed during the twelve-month period beginning on September 27 of
the years indicated and ending on September 26 of the following year:
<TABLE>
<S> <C>
2002................................................. 101.3125%
2003................................................. 100.0%
2004 and thereafter.................................. 100.0%
</TABLE>
Notice of redemption will be given as provided in the Indenture.
Upon the occurrence of a "Change of Control," the Holder has the right (the
"Repurchase Right"), at such Holder's option, to require the Company to
repurchase all or any portion of such Holder's Securities on the repurchase date
established by the Company at a price equal to 100% of the principal amount of
the Securities, together in each case with accrued interest to, but excluding,
the date fixed for redemption; provided that if such repurchase date is March 27
or September 27, then the interest payable on such date shall be paid to the
Holder on the next preceding March 13r or September 13 respectively. The
Company shall mail to all Holders a notice of the occurrence of a Change of
Control, of the repurchase date (which shall be not less than 30 nor more than
60 days after the notice) and of the Repurchase Right arising as a result
thereof on or before 30 calendar days after the Company becomes aware of the
occurrence of such Change of Control. At the option of the Company, the
Repurchase Price may be paid in cash or, subject to the conditions provided in
the Indenture, by delivery of shares of Common Stock having a fair market value
equal to the Repurchase Price. For purposes of this paragraph, the fair market
value of shares of Common Stock shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices of the
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Common Stock for the five consecutive Trading Days ending on and including the
third Trading Day immediately preceding the repurchase date. Whenever in this
Security there is a reference, in any context, to the principal of any Security
as of any time, such reference shall be deemed to include reference to the
Repurchase Price payable in respect of such Security to the extent that such
Repurchase Price is, was or would be so payable at such time, and express
mention of the Repurchase Price in any provision of this Security shall not be
construed as excluding the Repurchase Price so payable in those provisions of
this Security when such express mention is not made; provided, however, that for
-------- -------
the purposes of the eighth succeeding paragraph, such reference shall be deemed
to include reference to the Repurchase Price only if the Repurchase Price is
payable in cash.
Subject to and upon compliance with the provisions of the Indenture, the
Holder of this Security is entitled, at such Holder's option, at any time
following the original issuance of the Securities and on or before the close of
business on September 27, 2004 or in case this Security or a portion hereof is
called for redemption, then in respect of this Security or such portion hereof
until and including, but (unless the Company defaults in making the payment due
upon redemption) not after, the close of business on the second Business Day
preceding the Redemption Date, or in the case of a Change of Control for which
the Holder exercises its Repurchase Right with respect to this Security or a
portion hereof, then in respect of this Security or such portion hereof, until,
but not after, receipt of the written notice of exercise of such Repurchase
Right, to convert this Security (or any portion of the principal amount hereof
which is U.S. $1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into newly issued, fully paid and nonassessable
shares of Common Stock of the Company at a Conversion Price initially equal to
U.S. $40.00 aggregate principal amount of Securities for each share of Common
Stock (or at the current adjusted Conversion Price if an adjustment has been
made as provided in the Indenture), by surrender of this Security, duly endorsed
or assigned to the Company or in blank and, in case such surrender shall be made
during the period from the close of business on any Regular Record Date to the
opening of business on the next succeeding Interest Payment Date (unless this
Security or the portion thereof being converted has been called for redemption
on a Redemption Date within such period), also accompanied by payment in New
York Clearing House or other funds acceptable to the Company of an amount equal
to the interest (including Liquidated Damages, if any) payable on such Interest
Payment Date on the principal amount of this Security then being converted, and
also the conversion notice hereon duly executed to the Company at the Corporate
Trust Office of the Trustee, or at such other office or agency of the Company as
may be designated by it for such purpose in The City of New York. No payment or
adjustment will be made on conversion of this Security for interest (including
Liquidated Damages, if any) accrued hereon to the date of conversion or for
dividends on
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the Common Stock issued on conversion. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest (calculated to the nearest 1/100th of a share) the
Company shall pay a cash adjustment as provided in the Indenture. The Conversion
Price is subject to adjustment as provided in the Indenture. In addition, the
Indenture provides that in case of certain consolidations, mergers or
conveyances to which the Company is a party or certain transfers of all or
substantially all of the assets of the Company, the Indenture shall be amended,
without the consent of any Holders of Securities, so that this Security, if then
outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance or transfer by a holder of the number of shares of Common Stock of
the Company into which this Security might have been converted immediately prior
to such consolidation, merger, conveyance or transfer (assuming such holder of
Common Stock failed to exercise any rights of election, if any, as to the kind
or amount of securities, cash or other property receivable upon consolidation,
merger, conveyance or transfer and received per share the kind and amount
received per share by a plurality of nonelecting shares), assuming further, if
such consolidation, merger, conveyance or transfer is consummated before the
60th day following the latest date of original issuance of the Securities, that
this Security was convertible at the time of such consolidation, merger,
conveyance or transfer at the initial Conversion Price specified above as
adjusted from September 27, 1999 to the time of such consolidation, merger,
conveyance or transfer pursuant to the Indenture and the Company must ensure
that appropriate securities, cash or other property are placed in escrow or
otherwise reserved through the 60th day following the latest date of original
issuance of the Securities, for the benefit of Holders of Securities upon
conversion of such Securities. Adjustments in the Conversion Price of less than
one percent of such price will not be required, but any adjustment that would
otherwise be required to be made will be carried forward and taken into account
in the computation of any subsequent adjustment.
None of the Company, the Trustee nor the Security Registrar shall be
required to exchange or register a transfer of (i) any Securities for a period
of fifteen (15) days next preceding any selection of Securities to be redeemed
or (ii) any Securities called for redemption or, if a portion of any Security is
selected or called for redemption, such portion thereof selected or called for
redemption or (iii) any Securities surrendered for conversion or, if a portion
of any Security is surrendered for conversion, such portion thereof surrendered
for conversion.
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In the event of redemption of the Securities or conversion or repurchase of
this Security in part only, a new Security or Securities for the unredeemed or
unconverted portion thereof will be issued in the name of the Holder hereof.
Subject to certain limitations in the Indenture, at any time when the
Company is not subject to Section 13 or 15(d) of the U.S. Securities Exchange
Act of 1934, upon the request of a Holder of a Security, the Company will
promptly furnish or cause to be furnished Rule 144A Information (as defined
below) to such Holder or to a purchaser of such Security designated by such
Holder, as the case may be, in order to permit compliance by such Holder with
Rule 144A under the U.S. Securities Act of 1933, as amended (the "Securities
Act"). "Rule 144A Information" shall be such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto).
The indebtedness evidenced by this Security is, to the extent and in the
manner provided in the Indenture, subordinate and subject in right of payment to
the prior payment in full of all amounts then due on all Senior Debt of the
Company, and this Security is issued subject to such provisions of the Indenture
with respect thereto. Each Holder of this Security, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee on such Holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and (c) appoints the
Trustee such Holder's attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in principal amount of the Securities at the time Outstanding (or such
lesser amount as shall have acted at a meeting pursuant to the provisions of the
Indenture). The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued upon
registration of transfer
111
<PAGE>
hereof or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security or such other Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest (including Liquidated Damages, if any) on this Security at the times,
places and rate, and in the coin or currency, herein prescribed or to convert
this Security (or pay cash in lieu of conversion) as provided in the Indenture.
Pursuant to the Registration Rights Agreement, upon the effectiveness of
the Shelf Registration Statement, each Holder must notify the Company not later
than three Business Days prior to any proposed sale by such Holder of Securities
pursuant to the Shelf Registration Statement (a "Sale Notice"), which notice
shall be effective for five Business Days. The Company may, upon written notice
to such Holder, suspend such Holder's use of the prospectus (which is part of
the Shelf Registration Statement) for a reasonable period not to exceed 60 days
if the Company in it reasonable judgment believes it may possess material non-
public information the disclosure of which would have a material adverse effect
on the Company and its subsidiaries taken as a whole. Each Holder of this
Security, by accepting the same, agrees to hold any communication by the Company
in response to a Sale Notice in confidence.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of Securities is registrable on the Security Register upon
surrender of a Security for registration of transfer at the office or agency of
the Company in The City of New York or, subject to any laws or regulations
applicable thereto and to the right of the Company to terminate the appointment
of any such Transfer Agent, at the Corporate Trust Office of the Trustee in The
City of New York or at the offices of the Transfer Agents described herein or at
such other offices or agencies as the Company may designate, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder thereof or the
Holder's attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to recover any
tax or other governmental charge payable in connection therewith.
112
<PAGE>
The Company, the Trustee and any agent of the Company or the Trustee may
treat the person in whose name this Security is registered as the owner hereof
for all purposes, whether or not this Security may be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York, without reference to such
State's conflict of laws principles.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
113
<PAGE>
ASSIGNMENT
----------
For value received ________________ hereby sell(s), assign(s) and
transfer(s) unto ________________ (Please insert social security or Taxpayer
Identification Number of assignee) the within Security, and hereby irrevocably
constitutes and appoints ________________________________ attorney to transfer
the said Security on the books of the Company, with full power of substitution
in the premises.
In connection with any transfer of the within Security occurring within two
years of the original issuance of such Security (unless such Security is being
transferred pursuant to a registration statement that has been declared
effective under the Securities Act), the undersigned confirms that such Security
is being transferred:
/ / To the Company or a subsidiary thereof; or
/ / Pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
/ / Pursuant to and in compliance with Rule 144 under the Securities Act
of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such Security
is not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
/ / The transferee is an Affiliate of the Company.
114
<PAGE>
Dated:_____________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible
Guarantor Institution (banks, stock brokers,
savings and loan associations and credit unions)
with membership in an approved signature guarantee
medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of
Common Stock are to be issued, or Securities to be
delivered, other than to and in the name of the
required holder.
___________________________________________
Signature Guarantee
NOTICE: The signature must correspond with the name as written upon the face of
the Security in every particular without alternation or enlargement or any
change whatever.
115
<PAGE>
EXHIBIT B
AI Letter
FORM OF PURCHASE LETTER FOR
ACCREDITED INVESTORS
VerticalNet, Inc.
700 Dresher Road
Horsham, PA 19044
Lehman Brothers, Inc.
Hembrecht & Quist LLC
SG Cowen Securities Corporation
Volpe Brown Whelan & Company, LLC
c/o Lehman Brothers Inc.
3 World Financial Center
New York, NY 10285
Dear Ladies and Gentlemen:
The undersigned is delivering this letter in connection with an
offering of 5-1/4% Convertible Subordinated Debentures due 2004 (the
"Debentures"), which are convertible into shares of Common Stock, par value
$0.01 per share (the "Common Stock"), of VerticalNet, Inc. (the "Company") all
as described in the Offering Memorandum (the "Offering Memorandum") relating to
the offering.
The undersigned hereby confirms, represents and warrants that:
(i) The undersigned is an "accredited investor" within the
meaning of Rule 501(a)(1), (2), (3), (5) or (6) under the
Securities Act of 1933 (the "Securities Act") or an entity
in which all of the equity owners are accredited investors
within the meaning of Rule 501(a)(1), (2), (3), (5) or (6)
under the Securities Act (an "Accredited Investor");
(ii) (A) any purchase of the Debentures by the undersigned will
be for the undersigned's own account or for the account of
one or
more
116
<PAGE>
other Accredited Investors or as fiduciary for the account
of one or more trusts, each of which is an "accredited
investor" within the meaning of Rule 501(a)(7) under the
Securities Act and for each of which the undersigned
exercises sole investment discretion or (B) the undersigned
is a "bank," within the meaning of Section 3(a)(2) of the
Securities Act, or a "savings and loan association" or other
institution described in Section 3(a)(5)(A) of the
Securities Act that is acquiring the Debentures as fiduciary
for the account of one or more institutions for which the
undersigned exercises sole investment discretion;
(iii) In the event that the undersigned purchases any Debentures,
the undersigned will acquire the Debentures having a minimum
principal amount of not less than $100,000 for its own
account or for any separate account for which the
undersigned is acting;
(iv) The undersigned has such knowledge and experience in
financial and business matters that the undersigned is
capable of evaluating the merits and risks of purchasing the
Debentures;
(v) The undersigned is not acquiring the Debentures with a view
to distribution thereof or with any present intention of
offering or selling the Debentures or the Common Stock
issuable upon conversion thereof, except as permitted below;
provided that the disposition of the undersigned's property
and property of any accounts for which the undersigned is
acting as fiduciary shall remain at all times within the
undersigned's control; and
(vi) The undersigned has received a copy of the Offering
Memorandum and acknowledges that the undersigned has access
to such financial and other information, and has been
afforded the opportunity to ask such questions of
representatives of the Company and receive answers thereto,
as the undersigned deems necessary in connection with its
decision to purchase the Debentures.
The undersigned understands that the Debentures are being offered in a
transaction not involving any public offering within the United States within
the meaning of the Securities Act and that the Debentures and the shares of
Common Stock issuable upon conversion thereof (collectively, the "Securities")
have not been registered under the Securities Act or any applicable state
securities laws, and the undersigned agrees, on its
117
<PAGE>
own behalf and on behalf of each account for which the undersigned acquires any
Securities, that if in the future the undersigned decides to resell or otherwise
transfer such Securities, such Securities may be resold or otherwise transferred
only (a) to the Company or any subsidiary thereof, (b) inside the United States
to a person who is a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in a transaction meeting the requirements of Rule
144A, (c) inside the United States to an Accredited Investor that, prior to such
transfer, furnishes to the trustee (or transfer agent, as the case may be) for
such Securities a signed letter containing certain representations and
agreements relating to the restrictions on transfer of such Securities (the form
of which letter can be obtained from such trustee, or transfer agent, as the
case may be), (d) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if applicable) or (e) pursuant to a registration
statement which has been declared effective under the Securities Act. The
undersigned agrees that any such transfer of Securities referred to in this
paragraph shall be in accordance with applicable securities laws of any state of
the United States or any other applicable jurisdiction and in accordance with
the legends set forth on the Securities. The undersigned further agrees to
provide any person purchasing any of the Securities from the undersigned a
notice advising such purchaser that resales of such securities are restricted as
stated herein (unless the sale of securities has been registered under the
Securities Act). The undersigned understands that the registrar and transfer
agent for the Securities will not be required to accept for registration of
transfer any Securities, except upon presentation of evidence satisfactory to
the Company that the foregoing restrictions on transfer have been complied with.
The undersigned further understands that any Securities will be in the form of
definitive physical certificates and that such certificates will bear a legend
(unless the sale of the Securities has been registered under the Securities Act)
reflecting the substance of this paragraph.
The undersigned acknowledges that the Company, others and you will
rely upon the undersigned's confirmations, acknowledgments and agreements set
forth herein, and the undersigned agrees to notify you promptly in writing if
any of its representations or warranties herein ceases to be accurate and
complete.
THE LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
_________________________________________
(Name of Purchaser)
By:______________________________________
118
<PAGE>
Name:____________________________________
Title:___________________________________
Address:_________________________________
119
<PAGE>
[FORM OF CONVERSION NOTICE]
CONVERSION NOTICE
TO: VERTICALNET, INC.
The undersigned registered owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion hereof (which is
$1,000 principal amount or an integral multiple thereof) below designated, into
shares of Common Stock in accordance with the terms of the Indenture referred to
in this Security, and directs that the shares issuable and deliverable upon such
conversion, together with any check in payment for fractional shares and any
Securities representing any unconverted principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If shares or any portion of this Security not converted are to
be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto. Any amount required
to be paid to the undersigned on account of interest (including Liquidated
Damages, if any) accompanies this Security.
Dated:_________________________ ____________________________________
____________________________________
Signature(s)
Signature(s) must be guaranteed by an eligible
Guarantor Institution (banks, stock brokers,
savings and loan associations and credit unions)
with membership in an approved signature guarantee
medallion program pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of
Common Stock are to be issued, or Securities to be
delivered, other than to and in the name of the
required holder.
____________________________________
Signature Guarantee
NOTICE: The signature must correspond with the name as written upon the face of
the Security in every particular without alternation or enlargement or any
change whatever.
120
<PAGE>
Fill in for registration of shares if to be
issued, and Securities if to be delivered, other
than to and in the name of the registered holder:
____________________________________
(Name)
____________________________________
(Street Address)
____________________________________
(City, State and Zip Code)
Please print name and address
Principal amount to be converted (if less than all):
$_______,000
________________________________________________________
Social Security or Other Taxpayer Identification Number
121
<PAGE>
[FORM OF OPTION TO ELECT REPAYMENT UPON A CHANGE OF CONTROL]
TO: VERTICALNET, INC.
The undersigned registered owner of this Security hereby acknowledges
receipt of a notice from VerticalNet, Inc. (the "Company") as to the occurrence
of a Change of Control with respect to the Company and requests and instructs
the Company to repay the entire principal amount of this Security, or the
portion thereof (which is $1,000 principal amount or an integral multiple
thereof) below designated, in accordance with the terms of the Indenture
referred to in this Security, together with accrued interest (including
Liquidated Damages, if any) to, but excluding, such date, to the registered
holder hereof, in cash or, at the Company's election upon a Change of Control
and subject to certain conditions contained in the Indenture, in Common Stock.
Dated:______________________
____________________________________
Signature(s)
____________________________________
Signature(s)
____________________________________
Social Security or Other Taxpayer
Identification Number
____________________________________
Principal amount to be repaid
(if less than all): $______,000
NOTICE: The above signatures of the
holder(s) hereof must correspond with
the name as written upon the face of the
Security in every particular without
alternation or enlargement or any change
whatever.
122
<PAGE>
EXHIBIT C
---------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM GLOBAL SECURITY
TO SECURITY IN CERTIFICATED FORM OR
FROM CERTIFICATED FORM TO CERTIFICATED FORM
(Pursuant to Section 2.5 of the Indenture)
Bankers Trust Company
4 Albany Street
New York, NY 10006
Attention: Corporate Trust Department,
(VerticalNet, Inc. 5 1/4% Convertible Subordinated Securities due
2004)
Dear Ladies and Gentlemen:
Reference is hereby made to the Indenture, dated as of September __, 1999
(the "Indenture"), between VerticalNet, Inc., as issuer (the "Company") and
Bankers Trust Company, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
This letter relates to U.S. $__________ principal amount of securities
which are evidenced by one or more Global Securities and held with the
Depositary through the Depository Trust Company (the "Securities") in the name
of ____________________ (the "Transferor"). The Transferor has requested a
transfer of such beneficial interest in the Securities to a Person who will take
delivery thereof in the form of an equal principal amount of Securities
evidenced by one or more Securities in certificated form, to be held with the
Depositary.
In connection with such request and in respect of such Securities, the
Transferor hereby certifies that:
[CHECK ONE]
[ ] such transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the
"Securities Act"),
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<PAGE>
and, accordingly, the Transferor hereby further certifies that the
Securities are being transferred to a Person that the Transferor reasonably
believes is purchasing the Securities for its own account, or for one or
more accounts with respect to which such person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A;
or
[ ] such transfer is being effected pursuant to and in accordance with Rule 144
under the Securities Act;
or
[ ] such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
[ ] such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Securities
are being transferred in compliance with the transfer restrictions
applicable to the Securities and in accordance with the requirements of the
exemption claimed, which certification is supported by such legal opinions
or other information provided by the Transferor or the transferee (a copy
of which the Transferor has attached to this certification) in form
reasonably acceptable to the Company, to the effect that such transfer is
in compliance with the Securities Act;
and such Securities are being transferred in compliance with any applicable blue
sky securities laws of any state of the United States.
Upon giving effect to this request (i) to exchange a beneficial interest in
Global Securities for a beneficial interest in Securities in certificated form
or (ii) to exchange a beneficial interest in Securities in certificated form for
a beneficial interest in Securities in certificated form, the resulting
beneficial interest shall be subject to the restrictions on transfer applicable
to Global Securities pursuant to the Indenture and the Securities Act.
124
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Initial Purchaser, and you and
each of them is entitled to rely on the contents of this certificate. Terms
used in this certificate and not otherwise defined in the Indenture have the
meanings set forth in Regulation S under the Securities Act.
____________________________________
[Insert Name of Transferor]
By:_________________________________
Name:
Title:
Dated: __________, ____
125
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is made and entered into as of September
27, 1999, by and between VerticalNet, Inc., a Pennsylvania corporation (the
"Company"), and Lehman Brothers Inc., Hambrecht & Quist LLC, SG Cowen Securities
Corporation and Volpe Brown Whelan & Company LLC (the "Initial Purchasers") who
has purchased or has the right to purchase up to $100,000,000 (up to
$115,000,000 if the over-allotment option is exercised) in aggregate principal
amount of 5 1/4% Convertible Subordinated Debentures due 2004 (the "Debentures")
of the Company pursuant to the Purchase Agreement (as such term is defined
below).
This Agreement is made pursuant to the Purchase Agreement, dated September
21, 1999, between the Company and the Initial Purchasers (the "Purchase
Agreement"). In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
provided for in this Agreement to the Initial Purchasers and its respective
direct and indirect transferees (i) for the benefit of the Initial Purchasers,
(ii) for the benefit of the holders from time to time of the Debentures
(including the Initial Purchasers) and the holders from time to time of the
Common Stock issuable or issued upon conversion of the Debentures and (iii) for
the benefit of the securities constituting the Transfer Restricted Securities
(as defined below). The execution of this Agreement is a condition to the
closing of the transactions contemplated by the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
-----------
the following meanings:
Advice: As defined in Section 2(d) hereof.
------
Affiliate: An affiliate of any specified person shall mean any other person
---------
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement: This Registration Rights Agreement, as the same may be amended,
---------
supplemented or modified from time to time in accordance with the terms hereof.
<PAGE>
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is
------------
not a day on which banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
Closing Date: September 27, 1999.
------------
Common Stock: common stock, $0.01 par value per share, of the Company and
------------
any other shares of common stock as may constitute "Common Stock" for purposes
of the Indenture, in each case, as issuable or issued upon conversion of the
Debentures.
Company: VerticalNet, Inc., a Pennsylvania corporation, and any successor
-------
corporation thereto.
controlling person: As defined in Section 6(a) hereof.
------------------
Debentures: The $100,000,000 aggregate principal amount of 5 1/4%
----------
Convertible Subordinated Debentures due 2004 of the Company being issued
pursuant to the Indenture (up to $115,000,000 aggregate principal amount of such
Debentures if, and to the extent, the Initial Purchasers' over-allotment option
is exercised).
Effectiveness Period: As defined in Section 2(a) hereof.
--------------------
Effectiveness Target Date: The 225th day following the Closing Date.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations promulgated by the SEC pursuant thereto.
Filing Date: The 150th day after the Closing Date.
-----------
Holder: Each owner of any Transfer Restricted Securities.
------
Indemnified Person: As defined in Section 6(a) hereof.
------------------
Indenture: The Indenture, dated as of the date hereof, between the Company
---------
and the Trustee thereunder, pursuant to which the Debentures are being issued,
as amended, modified or supplemented from time to time in accordance with the
terms thereof.
Initial Purchasers: As defined in the first paragraph hereof.
------------------
Liquidated Damages: As defined in Section 3 hereof.
------------------
2
<PAGE>
Proceeding: An action, claim, suit or proceeding (including, without
----------
limitation, an investigation or partial proceeding, such as disposition),
whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the resale of any of the Transfer Restricted Securities covered by such
Registration Statement, and all other amendments and supplements to any such
prospectus, including post-effective amendments, and all materials incorporated
by reference or deemed to be incorporated by reference, if any, in such
prospectus.
Purchase Agreement: As defined in the second paragraph hereof.
------------------
Registration Statement: Any registration statement of the Company filed
----------------------
with the SEC pursuant to the Securities Act that covers the resale of any of the
Transfer Restricted Securities pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference, if any, in such registration statement.
Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the Securities Act,
---------
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 174: Rule 174 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any successor rule or
regulation.
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities Act,
--------
as such Rule may be amended from time to time, or any successor rule or
regulation.
3
<PAGE>
Sale Notice: As defined in Section 2(d) hereof.
-----------
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules and
--------------
regulations promulgated by the SEC thereunder.
Shelf Registration Statement: As defined in Section 2(a) hereof.
----------------------------
Special Counsel: Any special counsel to the holders of Transfer Restricted
---------------
Securities.
TIA: The Trust Indenture Act of 1939, as amended.
---
Transfer Restricted Securities: The Debentures and the shares of Common
------------------------------
Stock into which the Debentures are converted or convertible (including any
shares of Common Stock issued or issuable thereon upon any stock split, stock
combination, stock dividend or the like), upon original issuance thereof, and at
all times subsequent thereto, and associated related rights, if any, until, in
the case of any such Debenture or share (and associated rights) (i) the date on
which the resale thereof has been registered effectively pursuant to the
Securities Act and have been disposed of in accordance with the Registration
Statement relating thereto, (ii) the date on which either such Debenture or the
shares of Common Stock issued upon conversion of such Debenture are distributed
to the public pursuant to Rule 144 (or any similar provisions then in effect) or
are saleable pursuant to Rule 144(k) promulgated by the SEC pursuant to the
Securities Act or (iii) the date on which it ceases to be outstanding, whichever
date is earliest.
Trustee: The Trustee under the Indenture.
-------
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities of the Company are sold to an underwriter for
reoffering to the public pursuant to an effective Registration Statement.
References herein to the term "Holders of a majority in aggregate principal
amount of Transfer Restricted Securities" or words to a similar effect shall
mean, with respect to any request, notice, demand, objection or other action by
the holders of Transfer Restricted Securities hereunder or pursuant hereto
(each, an "Act"), registered holders of a number of shares of then outstanding
Common Stock constituting Transfer Restricted Securities and an aggregate
principal amount of then outstanding Debentures constituting Transfer Restricted
Securities, such that the sum of such shares of Common Stock and the shares of
Common Stock issuable upon conversion of such Debentures constitute in
4
<PAGE>
excess of 50% of the sum of all of the then outstanding shares of Common Stock
constituting Transfer Restricted Securities and the number of shares of Common
Stock issuable upon conversion of then outstanding Debentures constituting
Transfer Restricted Securities. For purposes of the immediately preceding
sentence, (i) any Holder may elect to take any Act with respect to all or any
portion of Transfer Restricted Securities held by it and only the portion as to
which such Act is taken shall be included in the numerator of the fraction
described in the preceding sentence and (ii) Transfer Restricted Securities
owned, directly or indirectly, by the Company or its Affiliates shall be deemed
not to be outstanding.
2. Shelf Registration Statement. (a) The Company agrees to file with the
----------------------------
SEC as soon as practicable after the Closing Date, but in no event later than
the Filing Date, a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Transfer Restricted
Securities (the "Shelf Registration Statement"). The Shelf Registration
Statement shall be on Form S-3 under the Securities Act or another appropriate
form selected by the Company permitting registration of such Transfer Restricted
Securities for resale by the Holders in the manner or manners reasonably
designated by them (including, without limitation, one or more underwritten
offerings). The Company shall not permit any securities other than the Transfer
Restricted Securities to be included in the Shelf Registration Statement. The
Company shall use all reasonable efforts to cause the Shelf Registration
Statement to be declared effective pursuant to the Securities Act as promptly as
practicable following the filing thereof, but in no event later than the
Effectiveness Target Date, and to keep the Shelf Registration Statement
continuously effective under the Securities Act until the date that is 24 months
after the date on which all of the Debentures are sold (including those sold
pursuant to the over-allotment option granted to the Initial Purchasers in the
Purchase Agreement) to the Initial Purchasers (the "Effectiveness Period"), or
such shorter period ending when there cease to be outstanding any Transfer
Restricted Securities.
(b) Supplements and Amendments. Subject to Section 2(d) hereof, the Company
--------------------------
shall use its reasonable efforts to keep the Shelf Registration Statement
continuously effective by supplementing and amending the Shelf Registration
Statement if required by the rules, regulations or instructions applicable to
the registration form used for such Shelf Registration Statement, if required by
the Securities Act, or if reasonably requested by the Holders of a majority in
aggregate principal amount, in the case of the Debentures, or the number, in the
case of the Common Stock, of the Transfer Restricted Securities being sold in
connection with this offering or by any underwriter of such Transfer Restricted
Securities.
5
<PAGE>
(c) Selling Securityholder Information. The Company may require each Holder
----------------------------------
of Transfer Restricted Securities to be sold pursuant to the Shelf Registration
Statement to furnish to the Company such information regarding the Holder and
the distribution of the Transfer Restricted Securities as the Company may from
time to time reasonably require for inclusion in the Shelf Registration
Statement, and the Company may exclude from such registration the Transfer
Restricted Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request. Each Holder of Transfer
Restricted Securities to be sold pursuant to a Shelf Registration Statement
agrees to furnish to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such Holder
not misleading.
(d) Certain Notices; Suspension of Sales. Each Holder of Transfer
------------------------------------
Restricted Securities agrees by its acquisition of such Transfer Restricted
Securities to notify the Company (a "Sale Notice") not later than three (3)
Business Days prior to any proposed sale by such Holder of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, which notice shall be
effective for five (5) Business Days. The Company may, upon written notice to
such Holder, suspend such Holder's use of the Prospectus (which is a part of the
Shelf Registration Statement) for a reasonable period not to exceed (i) forty-
five (45) days or (ii) sixty (60) days in the event of or relating to public
filings with the SEC, a pending financing, acquisition, corporate reorganization
or any other material corporate development of the Company (or would require
premature disclosure thereof), if the Company in its reasonable judgment
believes it may possess material non-public information the disclosure of which
in its reasonable judgment would have a material adverse effect on the Company
and its subsidiaries taken as a whole. Each Holder of Transfer Restricted
Securities agrees by its acquisition of such Transfer Restricted Securities to
hold any communication by the Company in response to a Sale Notice in
confidence. Each Holder of Transfer Restricted Securities further agrees by its
acquisition of such Transfer Restricted Securities that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 4(c)(ii), 4(c)(iii), 4(c)(v) or 4(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Transfer Restricted Securities covered
by such Registration Statement or Prospectus (other than in lawful transactions
exempt from the registration requirements under the Securities Act) until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(j) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
6
<PAGE>
(e) Compliance. The Company shall cause the Shelf Registration Statement
----------
and the Prospectus and any amendment or supplement thereto, as of the effective
date of the Shelf Registration Statement, amendment or supplement, (i) to comply
as to form in all material respects with the applicable requirements of the
Securities Act and the rules and regulations of the SEC and (ii) not to contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
3. Liquidated Damages. If (a) the Shelf Registration Statement is not
------------------
filed with the SEC on or prior to the Filing Date or (b) the Shelf Registration
Statement has not been declared effective by the SEC on or prior to the
Effectiveness Target Date (each such event referred to in clauses (a) and (b), a
"Registration Default"), then the Company will pay to each Holder who has
delivered the information called for in Section 2(c), for the first 90-day
period immediately following the occurrence of such Registration Default,
liquidated damages ("Liquidated Damages") in an amount equal to one-quarter of
one percent (0.25%) per annum times the principal amount of the Transfer
Restricted Securities held by such Holder for so long as the Registration
Default continues. The amount of Liquidated Damages payable to each Holder
shall increase by an additional one-quarter of one percent (0.25%) per annum
times the principal amount of Transfer Restricted Securities held by such Holder
from and after the 91st day following such Registration Default; provided,
--------
however, that (1) upon filing of the Shelf Registration Statement, in the case
- -------
of (a) above, or (2) upon the effectiveness of the Shelf Registration Statement,
in the case of (b) above, the Liquidated Damages payable with respect to such
Transfer Restricted Securities as a result of such clause (a) or (b), as
applicable, shall cease; and, provided, further, that the amount of Liquidated
-------- -------
Damages shall never exceed one-half of one percent (0.5%) per annum.
Liquidated Damages shall be paid semi-annually in arrears, with the first
semi-annual payment due on the first interest payment date, as applicable,
following the date on which such Liquidated Damages begin to accrue, and shall
be paid to holders of record of such Transfer Restricted Securities on such
interest payment date in the same manner as interest is paid under the
Indenture. The payment of any such Liquidated Damages shall in all respects be
subject to the terms and conditions set forth in the Indenture, including,
without limitation, the subordination provisions thereof. All obligations of
the Company set forth in the preceding paragraph that are outstanding with
respect to any Transfer Restricted Security at the time such security ceases to
be a Transfer Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
7
<PAGE>
4. Registration Procedures. In connection with the Company's registration
-----------------------
obligations hereunder, the Company shall effect such registrations on the
appropriate form selected by the Company available for the sale of the Transfer
Restricted Securities to permit the sale of Transfer Restricted Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company shall as expeditiously as possible:
(a) No fewer than five Business Days prior to the initial filing of a
Registration Statement or Prospectus and no fewer than two Business Days prior
to the filing of any amendment or supplement thereto (including any document
that would be incorporated or deemed to be incorporated therein by reference),
furnish to the registered (as of the most recent reasonably practicable date
which shall not be more than two Business Days prior to the date such notice is
personally delivered, delivered to a next-day courier, deposited in the mail or
telecopied, as the case may be) Holders of the Transfer Restricted Securities,
Special Counsel and the managing underwriters, if any, copies of all such
documents proposed to be filed, which documents (including those incorporated or
deemed to be incorporated by reference) will be subject to the review of such
Holders, Special Counsel and such underwriters, if any, and cause the officers
and directors of the Company, counsel to the Company and independent certified
public accountants to the Company to respond to such inquiries as shall be
necessary in connection with such Registration Statement, in the opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file any such Registration Statement or related Prospectus or any
amendments or supplements thereto to which the Holders of a majority in
aggregate principal amount, in the case of the Debentures, or the number, in the
case of the Common Stock, of the Transfer Restricted Securities being sold in
connection with this offering, Special Counsel, or the managing underwriters, if
any, shall reasonably object on a timely basis;
(b) Subject to Section 2(d) hereof, prepare and file with the SEC such
amendments, including post-effective amendments, to each Registration Statement
as may be necessary to keep such Registration Statement continuously effective
for the applicable time period set forth in Section 2(a) hereof; and cause the
related Prospectus to be supplemented by any required Prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) under the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or in such
Prospectus as so supplemented;
8
<PAGE>
(c) Notify the registered (as of the most recent reasonably practicable date
which shall not be more than two Business Days prior to the date such notice is
personally delivered, delivered to a next-day courier, deposited in the mail or
telecopied, as the case may be) Holders of Transfer Restricted Securities to be
sold or Special Counsel and the managing underwriters, if any, promptly (and in
the case of an event specified by clause (i)(A) of this paragraph in no event
fewer than two Business Days prior to such filing), and (if requested by any
such person), confirm such notice in writing, (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment is proposed to be filed, and,
(B) with respect to a Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request of the SEC or any other
Federal or state governmental authority for amendments or supplements to a
Registration Statement or related Prospectus or for additional information
related thereto, (iii) of the issuance by the SEC, any state securities
commission, any other governmental agency or any court of any stop order, order
or injunction suspending or enjoining the use or the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time any of the representations and warranties of the Company
contained in any agreement (including any underwriting agreement) contemplated
by Section 4(l) hereof are not true and correct in all material respects, (v) of
the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Transfer
Restricted Securities for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, and (vi) of the existence of any
fact and the happening of any event that makes any statement made in such
Registration Statement or related Prospectus untrue in any material respect, or
that requires the making of any changes in such Registration Statement or
Prospectus so that in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading and that, in the case of the Prospectus, such Prospectus will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except if the existence of such fact or the happening of any such event results
from a corporate development that is being pursued by the Company (A) the
disclosure of which in the Company's reasonable judgment would have a material
adverse effect on the Company and its subsidiaries taken as a whole and (B)
which, in the Company's reasonable judgment after consultation with counsel
would not, in the absence of an effective Registration Statement, be required to
be disclosed by the Company;
(d) Use all reasonable efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of any order enjoining or suspending the use or
effectiveness of a Registration
9
<PAGE>
Statement or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Transfer Restricted Securities for sale in any
jurisdiction, at the earliest practicable moment;
(e) Subject to Section 2(c) hereof, if reasonably requested by the managing
underwriters, if any, or the Holders of a majority in aggregate principal
amount, in the case of the Debentures, or the number, in the case of the Common
Stock, of the Transfer Restricted Securities being sold in connection with such
offering, (i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters, if any, and such
Holders agree should be included therein, and (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
- -------- -------
pursuant to this Section 4(e) that would, in the opinion of counsel for the
Company, violate applicable law;
(f) Furnish to each Holder who so requests, Special Counsel and each
managing underwriter, if any, without charge, at least one conformed copy of
each Registration Statement and each amendment thereto, including financial
statements (but excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits, unless requested in writing
by such Holder, counsel or managing underwriter);
(g) Deliver to each Holder, Special Counsel and the underwriters, if any,
without charge, as many copies of the Prospectus or Prospectuses (including each
form of prospectus) and each amendment or supplement thereto to such persons who
reasonably request; and, unless the Company shall have given notice to such
Holder pursuant to Section 4(c)(vi), the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders of Transfer Restricted Securities and the underwriters, if any, in
connection with the offering and sale of the Transfer Restricted Securities
covered by such Prospectus and any amendment or supplement thereto;
(h) Prior to any public offering of Transfer Restricted Securities, use all
reasonable efforts to register or qualify, or cooperate with the Holders of
Transfer Restricted Securities to be sold, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of, such Transfer Restricted
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder or
10
<PAGE>
underwriter reasonably requests in writing, keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things necessary legally to enable the disposition in such jurisdictions
of the Transfer Restricted Securities covered by the applicable Registration
Statement; provided, however, that the Company shall not be required to
-------- -------
qualify generally to do business in any jurisdiction where it is not then so
qualified or take any action that would subject it to general service of process
in any such jurisdiction where it is not then so subject;
(i) In connection with any sale or transfer of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, and unless any Transfer Restricted Securities shall be in
only book-entry form, cooperate with the Holders and the managing underwriters,
if any, to (A) facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold, which certificates shall
not bear any restrictive legends, shall bear a CUSIP number different from the
CUSIP number for the Transfer Restricted Securities and shall be in a form
eligible for deposit with The Depository Trust Company and (B) enable such
Transfer Restricted Securities to be in such denominations and registered in
such names as the managing underwriters, if any, or Holders may request at least
two Business Days prior to any sale of Transfer Restricted Securities;
(j) Upon the occurrence of any event contemplated by Section 4(c)(vi)
hereof, as promptly as practicable, prepare a supplement or amendment,
including, if appropriate, a post-effective amendment, to each Registration
Statement or a supplement to the related Prospectus or any document incorporated
or deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(k) Prior to the effective date of the Registration Statement relating to
the Transfer Restricted Securities, to provide a CUSIP number for the Transfer
Restricted Securities to be sold pursuant to the Registration Statement;
(l) Enter into such agreements (including an underwriting agreement in form,
scope and substance as is customary in underwritten offerings) reasonably
satisfactory to the Company and take all such other reasonable actions in
connection therewith (including those reasonably requested by the managing
underwriters, if any, or the Holders of a majority in aggregate principal
amount, in the case of the Debentures, or the number, in the case of the Common
Stock, of the Transfer Restricted Securities being
11
<PAGE>
sold) in order to expedite or facilitate the disposition of such Transfer
Restricted Securities, and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders of
such Transfer Restricted Securities and the underwriters, if any, with respect
to the business of the Company and its subsidiaries (including with respect to
businesses or assets acquired or to be acquired by any of them), and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings and reasonably acceptable to the Company, and confirm the same if and
when requested; (ii) seek to obtain opinions of counsel to the Company and
updates thereof, which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, and Special
Counsel to the Holders of the Transfer Restricted Securities being sold,
addressed to each of the underwriters, if any, covering the matters customarily
covered in opinions requested in underwritten offerings (including any such
matters as may be reasonably requested by such Special Counsel and
underwriters); (iii) use all reasonable efforts to obtain customary "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
or to be acquired by the Company for which financial statements and financial
data is, or is required to be, included in the Registration Statement),
addressed (where reasonably possible) to each selling Holder of Transfer
Restricted Securities and each of the underwriters, if any, such letters to be
in customary form and covering matters of the type customarily covered in "cold
comfort" letters in connection with underwritten offerings; (iv) if an
underwriting agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the selling Holders of Transfer
Restricted Securities and the underwriters, if any, than those set forth in
Section 6 hereof (or such other provisions and procedures acceptable to the
Company and Holders of a majority in aggregate principal amount of the Transfer
Restricted Securities covered by such Registration Statement and the managing
underwriters); and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority in aggregate principal amount,
in the case of the Debentures, or the number, in the case of the Common Stock,
of the Transfer Restricted Securities being sold in connection with this
offering, Special Counsel or the managing underwriters, if any, to evidence the
continued validity of the representations and warranties made pursuant to clause
(i) of this Section 4(l) and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company;
12
<PAGE>
(m) Make available for inspection by a representative of the Holders of
Transfer Restricted Securities being sold, any underwriter participating in any
such disposition of Transfer Restricted Securities, if any, and any attorney,
consultant or accountant retained by such selling Holders or underwriter, at the
offices where normally kept, during reasonable business hours, all financial and
other records, pertinent corporate documents and properties of the Company and
its subsidiaries as they may reasonably request (including with respect to
business and assets acquired or to be acquired to the extent that such
information is available to the Company), and cause the officers, directors,
agents and employees of the Company and its subsidiaries (including with respect
to business assets acquired or to be acquired to the extent that such
information is available to the Company) to supply all information in each case
reasonably requested by any such representative, underwriter, attorney,
consultant or accountant in connection with such Registration Statement;
provided, however, that any information that is reasonably and in good faith
- -------- -------
designated by the Company in writing as confidential at the time of delivery of
such information shall be kept confidential by such persons (and such persons
shall so agree in writing), unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information is
required by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of any Registration Statement or
the use of any prospectus referred to in this Agreement), (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard by any such person or (iv) such information becomes
available to any such person from a source other than the Company and such
source is not bound by a confidentiality agreement;
(n) Cause the Indenture to be qualified under the TIA not later than the
effective date of the Registration Statement relating to the Transfer Restricted
Securities; and in connection therewith, cooperate with the Trustee under the
Indenture and the Holders of the Transfer Restricted Securities to effect such
changes to the Indenture, if any, as may be required for such Indenture to be so
qualified in accordance with the terms of the TIA; and execute, and use all
reasonable efforts to cause the Trustee to execute, all customary documents as
may be required to effect such changes, and all other forms and documents
(including the Form T-1) required to be filed with the SEC to enable the
Indenture to be so qualified under the TIA in a timely manner;
(o) Comply with applicable rules and regulations of the SEC and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any similar rule promulgated under the Securities Act), no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal
13
<PAGE>
year), commencing on the first day of the first fiscal quarter after the
effective date of a Registration Statement, which statement shall cover said
period, consistent with the requirements of Rule 158; and
(p) (i) list all Common Stock covered by such Registration Statement on any
securities exchange on which the Common Stock is then listed or (ii) authorize
for quotation on The Nasdaq Stock Market all Common Stock covered by such
Registration Statement if the Common Stock is then so authorized for quotation.
5. Registration Expenses.
---------------------
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company shall be borne by it whether or not any
Registration Statement is filed or becomes effective and whether or not any
securities are issued or sold pursuant to any Registration Statement. The fees
and expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filings fees (including without limitation,
fees and expenses with respect to filings required to be made with the National
Association of Securities Dealers, Inc.), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Transfer Restricted
Securities in a form eligible for deposit with The Depository Trust Company and
of printing Prospectuses if the printing of Prospectuses is required by the
managing underwriters, if any, or by the Holders of a majority in aggregate
principal amount of the Transfer Restricted Securities included in any
Registration Statement, (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders (plus any local counsel, deemed appropriate by the Holders of a majority
in aggregate principal amount of the Transfer Restricted Securities) in
accordance with the provisions of Section 5(b) hereof, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 4(l)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(vi) Securities Act liability insurance, if the Company so desires such
insurance, and (vii) fees and expenses of all other persons retained by the
Company. In addition, the Company shall pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of an annual audit, and the
fees and expenses incurred in connection with the listing of the securities to
be registered on any securities exchange. Notwithstanding the foregoing or
anything in this Agreement to the contrary, each Holder shall pay all
underwriting discounts and commissions of any underwriters with respect to any
Transfer Restricted Securities sold by it.
14
<PAGE>
(b) In connection with any registration hereunder, the Company shall
reimburse the Holders of the Transfer Restricted Securities being registered or
tendered for in such registration for the fees and disbursements of not more
than one firm of attorneys representing the selling Holders (in addition to any
local counsel), in an amount not to exceed $25,000 in the aggregate for all such
registrations, which firm shall be chosen by the Holders of a majority in
aggregate principal amount, in the case of the Debentures, or the number, in the
case of the Common Stock, of the Transfer Restricted Securities. Chadbourne &
Parke LLP shall be Special Counsel for all purposes hereof unless and until
another Special Counsel shall have been selected by a majority in aggregate
principal amount of the Transfer Restricted Securities and notice hereof shall
have been given to the Company.
15
<PAGE>
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i) the Initial
Purchasers, (ii) each Holder of Transfer Restricted Securities, (iii) each
person, if any, who controls (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) any of the foregoing (any of the persons
referred to in this clause (iii) being hereinafter referred to as a "controlling
person"), and (iv) the respective officers, directors, partners, employees,
representatives and agents of the Initial Purchasers, each Holder of Transfer
Restricted Securities, or any controlling person (any person referred to in
clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an
"Indemnified Person"), from and against any and all losses, claims, damages,
liabilities, expenses and judgments caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
Prospectus or form of Prospectus or in any amendment or supplement thereto or in
any preliminary Prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of Prospectus or
supplement thereto, in the light of the circumstances under which they were
made) not misleading, except insofar as such losses, claims, damages,
liabilities, expenses or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Indemnified Person furnished in writing to the Company by or on behalf of
such Indemnified Person expressly for use therein; provided that the foregoing
--------
indemnity with respect to any preliminary Prospectus shall not inure to the
benefit of any Indemnified Person from whom the person asserting such losses,
claims, damages, liabilities, expenses and judgments purchased securities if
such untrue statement or omission or alleged untrue statement or omission made
in such preliminary Prospectus is eliminated or remedied in the Prospectus and a
copy of the Prospectus shall not have been furnished to such person in a timely
manner, unless such Prospectus was not furnished because the Company failed to
provide the Indemnified Person with sufficient copies of such corrected
Prospectus within the time period required.
(b) In case any action shall be brought against any Indemnified Person,
based upon any Registration Statement or any such Prospectus or any amendment or
supplement thereto and with respect to which indemnity may be sought against the
Company, such Indemnified Person shall promptly notify the Company in writing
and the Company shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Person and payment of all
fees and expenses. Any Indemnified Person shall have the right to employ
separate counsel in any such action and participate in (but not control) the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Person, unless (i) the
16
<PAGE>
employment of such counsel shall have been specifically authorized in writing by
the Company, (ii) the Company shall have failed to assume the defense and employ
counsel or (iii) such Indemnified Person or Persons shall have been advised by
counsel that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action or that there may be legal defenses available to such
Indemnified Person or Persons different from or in addition to those available
to the indemnifying party or parties (in which case the Company shall not have
the right to assume the defense of such action on behalf of such Indemnified
Person, it being understood, however, that the Company shall not, in connection
with any one such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys, (in addition to any local counsel) for all such Indemnified
Persons, which firm shall be designated in writing by such Indemnified Persons
and shall be reasonably satisfactory to the Company, and that all such fees and
expenses shall be reimbursed as they are incurred). The Company shall not be
liable for any settlement of any such action effected without its written
consent but if settled with the written consent of the Company, the Company
agrees to indemnify and hold harmless any Indemnified Person from and against
any loss or liability by reason of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party (which consent shall
not be unreasonably withheld), effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action.
(c) In connection with any Registration Statement in which the Holder of
Transfer Restricted Securities is participating, such Holder of Transfer
Restricted Securities agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers and any person controlling the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, to the same extent as the foregoing indemnity from the Company
to each Indemnified Person but only with reference to information relating to
such Indemnified Person furnished in writing by or on behalf of such Indemnified
Person expressly for use in such Registration Statement. In case any action
shall be brought against the Company, any of its directors, any such officer or
any person controlling the Company based on such Registration Statement and in
respect of which indemnity may be sought against any Indemnified Person, the
Indemnified Person shall have the rights and duties given to the Company (except
that if the Company shall have assumed the defense thereof, such Indemnified
Person shall not be required to do so, but may employ separate counsel therein
and participate in (but not
17
<PAGE>
control) the defense thereof but the fees and expenses of such counsel shall be
at the expense of such Indemnified Person), and the Company, its directors, any
such officers and any person controlling the Company shall have the rights and
duties given to the Indemnified Person, by Section 6(b) hereof.
(d) If the indemnification provided for in this Section 6 is unavailable to
an indemnified party in respect of any losses, claims, damages, liabilities,
expenses or judgments referred to therein, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities, expenses and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and each
Indemnified Person on the other hand from the offering of the Transfer
Restricted Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and each such Indemnified Person in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and each such Indemnified
Person shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or such Indemnified
Person and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Initial Purchasers agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were determined by pro
rata allocation (even if the Indemnified Persons were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities, expenses or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 6, no
Indemnified Person shall be required to contribute any amount in excess of the
amount by which the total proceeds received by it in connection with the sale of
the Transfer Restricted Securities pursuant to this Agreement exceeds the amount
of any damages which such Indemnified Person has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act)
18
<PAGE>
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Indemnified Persons' obligations to contribute
pursuant to this Section 6(d) are several in proportion to the respective amount
of Transfer Restricted Securities included in and sold pursuant to any such
Registration Statement by each Indemnified Person and not joint.
(e) The agreements contained in this Section 6 shall survive the sale of the
Transfer Restated Securities pursuant to any Registration Statement and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Indemnified Person.
7. Rules 144 and 144A.
------------------
The Company shall use all reasonable efforts to file the reports required to
be filed by it under the Securities Act and the Exchange Act in a timely manner
and, if at any time it is not required to file such reports but in the past had
been required to or did file such reports, it will, upon the request of any
Holder, make available other information as required by, and so long as
necessary to permit sales of, its Transfer Restricted Securities pursuant to
Rule 144 and Rule 144A. Notwithstanding the foregoing, nothing in this Section
7 shall be deemed to require the Company to register any of its securities
pursuant to the Exchange Act.
8. Underwritten Registrations.
--------------------------
If any of the Transfer Restricted Securities covered by the Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be investment bankers of recognized national
standing selected by the Holders of a majority in aggregate principal amount, in
the case of the Debentures, or the number, in the case of the Common Stock, of
such Transfer Restricted Securities included in such offering, subject to the
consent of the Company (which will not be unreasonably withheld or delayed).
No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Transfer Restricted Securities on
the basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
9. Miscellaneous.
-------------
19
<PAGE>
(a) Remedies. In the event of a breach by the Company, or by a Holder of
--------
Transfer Restricted Securities, of any of their obligations under this
Agreement, each Holder of Transfer Restricted Securities or the Company,
respectively, in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company and each Holder of Transfer
Restricted Securities agree that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agree that, in the event of any
action for specific performance in respect of such breach, they shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company shall not enter into any
--------------------------
agreement with respect to its securities that is inconsistent with the rights
granted to the holders of Transfer Restricted Securities in this Agreement or
otherwise conflicts with the provisions hereof. The Company is not currently a
party to any agreement granting any registration rights with respect to any of
its securities to any person which conflicts with the Company's obligations
hereunder or gives any other party the right to include any securities in any
Registration Statement filed pursuant hereto, except for such rights and
conflicts as have been irrevocably waived. Without limiting the generality of
the foregoing, without the written consent of the Holders of a majority in
aggregate principal amount in the case of the Debentures, or the number, in the
case of Common Stock, of the Transfer Restricted Securities, the Company shall
not grant to any person the right to request it to register any of its
securities under the Securities Act unless the rights so granted are subject in
all respect to the prior rights of the holders of Transfer Restricted Securities
set forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(c) No Adverse Action Affecting the Transfer Restricted Securities. Subject
--------------------------------------------------------------
to the Company's right to suspend use of the Prospectus pursuant to Section 2(d)
hereof, or give a notice pursuant to Section 4(c)(vi) hereof, the Company will
not take any action with respect to the Transfer Restricted Securities which
would adversely affect the ability of any of the Holders of Transfer Restricted
Securities to include such Transfer Restricted Securities in a registration
undertaken pursuant to this Agreement.
(d) No Piggyback on Registrations. The Company shall not grant to any of
-----------------------------
its security holders (other than the Holders of Transfer Restricted Securities
in such capacity) the right to include any of its securities in any Shelf
Registration Statement other than Transfer Restricted Securities.
20
<PAGE>
(e) Amendments and Waivers. The provisions of this Agreement, including the
----------------------
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
without the written consent of the Holders of a majority in aggregate principal
amount, in the case of the Debentures, or the number, in the case of the Common
Stock, of the Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders of Transfer Restricted
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other Holders of
Transfer Restricted Securities may be given by Holders of a majority in
aggregate principal amount, in the case of the Debentures, or the number, in the
case of the Common Stock, of the Transfer Restricted Securities being sold by
such Holders pursuant to such Registration Statement; provided, however, that
-------- -------
the provisions of this sentence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding sentence.
(f) Notices. All notices and other communications provided for herein shall
-------
be made in writing by hand-delivery, next-day air courier, certified first-class
mail, return receipt requested or telecopy:
(i) if to a Holder of Transfer Restricted Securities, to the
address of such Holder as it appears in the Debenture or Common Stock register
of the Company, as applicable; and
(ii) if to the Company, to:
VerticalNet, Inc.
700 Dresher Road
Suite 100
Horsham, PA 19044
Telecopy: (215) 784-1968
Attention:
with a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-6993
Telecopy: (215) 963-5299
Attention: James McKenzie, Esq.
21
<PAGE>
(iii) if to the Special Counsel, to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Telecopy: (212) 541-5369
Attention: Barbara L. Becker, Esq.
or such other Special Counsel at such other address and telecopy number as a
majority in aggregate principal amount of the Transfer Restricted Securities
shall have given notice to the Company as contemplated by Section 5(b) hereof.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given, when delivered by hand, if personally
delivered; one Business Day after being timely delivered to a next-day air
courier, five Business Days after being deposited in the mail, postage prepaid,
if mailed; and when receipt is acknowledged by the recipient's telecopier
machine, if telecopied.
(g) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each existing and future Holder of Transfer
Restricted Securities. The Company may not assign its rights or obligations
hereunder without the prior written consent of each Holder of Transfer
Restricted Securities, other than by operation of law pursuant to a merger or
consolidation to which the Company is a party. In the event the Debentures
become convertible into common stock of another person pursuant to Section 12.11
of the Indenture, the Company shall cause such person to assume the Company's
obligations hereunder.
(h) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(i) Governing Law; Submission to Jurisdiction.
-----------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE
22
<PAGE>
CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN
THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(j) Severability. The remedies provided herein are cumulative and not
------------
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof. All
references made in this Agreement to "Section" and "paragraph" refer to such
Section or paragraph of this Agreement, unless expressly stated otherwise.
(l) Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
23
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
VERTICALNET, INC.
By:_____________________________
Name:
Title:
LEHMAN BROTHERS INC.
HAMBRECHT & QUIST LLC
SG COWEN SECURITIES CORPORATION
VOLPE BROWN WHELAN & COMPANY, LLC
BY LEHMAN BROTHERS INC.
By:______________________________
Name:
Title:
24
<PAGE>
Exhibit 10.20
VERTICALNET, INC
1999 EQUITY COMPENSATION PLAN
-----------------------------
Adopted August 23, 1999
The purpose of the VerticalNet, Inc. 1999 Equity Compensation Plan (the
"Plan") is to provide designated employees of VerticalNet, Inc. (the "Company")
and its subsidiaries with the opportunity to receive grants of nonqualified
stock options. The Company believes that the Plan will encourage the
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.
1. Administration
--------------
(a) Committee. The Plan shall be administered and interpreted by the Board
---------
of Directors of the Company (the "Board") or by an individual or committee
appointed by the Board. References in the Plan to the "Committee" shall refer
to the Board, committee or individual who is authorized to administer the Plan.
(b) Committee Authority. The Committee shall have the sole authority to
-------------------
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise period, including the criteria for
exercisability and the acceleration of exercisability, (iv) amend the terms of
any previously issued grant, and (v) deal with any other matters arising under
the Plan.
(c) Committee Determinations. The Committee shall have full power and
------------------------
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
2. Options
-------
Awards under the Plan shall consist of grants of nonqualified stock options
as described in Section 5 ("Options"). All Options shall be subject to the
terms and conditions set forth herein and to such other terms and conditions
consistent with this Plan as the Committee deems appropriate and as are
specified in writing by the Committee to the individual in a grant
-1-
<PAGE>
instrument or an amendment to the grant instrument (the "Grant Instrument"). The
Committee shall approve the form and provisions of each Grant Instrument.
Options under a particular Section of the Plan need not be uniform as among the
grantees.
3. Shares Subject to the Plan
--------------------------
(a) Shares Authorized. Subject to adjustment as described below, the
-----------------
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 600,000 shares. The shares may
be authorized but unissued shares of Company Stock or reacquired shares of
Company Stock, including shares purchased by the Company on the open market for
purposes of the Plan. If and to the extent Options granted under the Plan
terminate, expire, or are canceled, forfeited, exchanged or surrendered without
having been exercised, the shares subject to such Options shall again be
available for purposes of the Plan. If shares of Company Stock are used to pay
the exercise price of an Option, only the net number of shares received by the
grantee pursuant to such exercise shall be considered to have been issued or
transferred under the Plan with respect to such Option, and the remaining number
of shares subject to the Option shall again be available for purposes of the
Plan.
(b) Adjustments. If there is any change in the number or kind of shares of
-----------
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Options, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Options, the kind of shares issued under the
Plan, and the price per share of such Options may be appropriately adjusted by
the Committee to reflect any increase or decrease in the number of, or change in
the kind or value of, issued shares of Company Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Options; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
4. Eligibility for Participation
-----------------------------
(a) Eligible Persons. All employees of the Company and its subsidiaries
----------------
("Employees"), other than (except as provided below) employees who are officers
or directors of the Company, shall be eligible to participate in the Plan.
Employees who are officers or directors of the Company shall not be eligible to
receive Options except to the extent that such Options are issued to a person
not previously employed by the Company as an inducement essential to the
person's entering into an employment contract with the Company.
-2-
<PAGE>
(b) Selection of Grantees. The Committee shall select the Employees to
---------------------
receive Options and shall determine the number of shares of Company Stock
subject to a particular Option in such manner as the Committee determines.
Employees who receive Options under this Plan shall hereinafter be referred to
as "Grantees"
5. Granting of Options
-------------------
(a) Number of Shares. The Committee shall determine the number of shares
----------------
of Company Stock that will be subject to each grant of Options to Employees.
(b) Type of Option and Price.
------------------------
(i) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal to,
greater than, or less than the Fair Market Value (as defined below) of a share
of Company Stock on the date the Option is granted.
(ii) The Fair Market Value per share shall be determined as follows:
(x) if the principal trading market for the Company Stock is a national
securities exchange or the Nasdaq National Market, the last reported sale price
thereof on the relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, (y) if the Company Stock
is not principally traded on such exchange or market, the mean between the last
reported "bid" and "asked" prices of Company Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Committee determines, or (z) if the Company
Stock is not publicly traded or, if publicly traded, is not subject to reported
transactions or "bid" or "asked" quotations as set forth above, the Fair Market
Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Option.
-----------
The term of an Option shall not exceed ten years from the date of grant.
(d) Exercisability of Options. Options shall become exercisable in
-------------------------
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(e) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by the Company. In the event that a Grantee ceases to
be employed by the Company for any reason other than Disability, death, or
termination for Cause, any Option which is otherwise exercisable by the Grantee
shall terminate unless exercised within 90 days after the
-3-
<PAGE>
date on which the Grantee ceases to be employed by the Company (or within such
other period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Grantee's Options that are not otherwise
exercisable as of the date on which the Grantee ceases to be employed by the
Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the Company
on account of a termination for Cause by the Company, any Option held by the
Grantee shall terminate as of the date the Grantee ceases to be employed by the
Company. In addition, notwithstanding any other provisions of this Section 5, if
the Committee determines that the Grantee has engaged in conduct that
constitutes Cause at any time while the Grantee is employed by the Company or
after the Grantee's termination of employment or service, any Option held by the
Grantee shall immediately terminate, and the Grantee shall automatically forfeit
all shares underlying any exercised portion of an Option for which the Company
has not yet delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a forfeiture.
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee is Disabled, any Option which is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date on
which the Grantee ceases to be employed by the Company (or within such other
period of time as may be specified by the Committee), but in any event no later
than the date of expiration of the Option term. Except as otherwise provided by
the Committee, any of the Grantee's Options which are not otherwise exercisable
as of the date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed or provide
service on account of a termination specified in Section 5(e)(i) above (or
within such other period of time as may be specified by the Committee), any
Option that is otherwise exercisable by the Grantee shall terminate unless
exercised within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be specified
by the Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the
Grantee's Options that are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such date.
(v) For purposes of this Section 5(e):
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations.
-4-
<PAGE>
(B) "Employed by the Company" shall mean employment or service as an
Employee, consultant or member of the Board (so that, for purposes of
exercising Options, a Grantee shall not be considered to have terminated
employment until the Grantee ceases to be an Employee, consultant and
member of the Board), unless the Committee determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as
amended.
(D) "Cause" shall mean, except to the extent specified otherwise by
the Committee, a finding by the Committee that the Grantee (i) has breached
his or her employment or services contract with the Company, (ii) has
engaged in disloyalty to the Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the
course of his or her employment, (iii) has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive
such information or (iv) has engaged in such other behavior detrimental to
the interests of the Company as the Committee determines.
(f) Exercise of Options. A Grantee may exercise an Option that has become
-------------------
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee (including Company Stock acquired in connection with the exercise of an
Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or by attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal to the
Exercise Price, or (z) by such other method as the Committee may approve,
including payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board. Shares of Company Stock used to
exercise an Option shall have been held by the Grantee for the requisite period
of time to avoid adverse accounting consequences to the Company with respect to
the Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 6) at the time of exercise.
6. Withholding of Taxes
--------------------
(a) Required Withholding. All Options under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require that the Grantee or other person
exercising Options pay to the Company the amount of any federal, state or local
taxes that the Company is required to withhold with respect to such Options, or
the Company may deduct from other wages paid by the Company the amount of any
withholding taxes due with respect to such Options.
-5-
<PAGE>
(b) Election to Withhold Shares. If the Committee so permits, a Grantee
---------------------------
may elect to satisfy the Company's income tax withholding obligation with
respect to an Option by having shares withheld up to an amount that does not
exceed the Grantee's minimum applicable withholding tax rate for federal
(including FICA), state and local tax liabilities. The election must be in a
form and manner prescribed by the Committee and may be subject to the prior
approval of the Committee.
7. Transferability of Options
--------------------------
(a) Nontransferability of Options. Except as provided below, only the
-----------------------------
Grantee may exercise rights under an Option during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or if permitted in any specific case by the Committee, pursuant
to a domestic relations order. When a Grantee dies, the personal representative
or other person entitled to succeed to the rights of the Grantee ("Successor
Grantee") may exercise such rights. A Successor Grantee must furnish proof
satisfactory to the Company of his or her right to receive the Option under the
Grantee's will or under the applicable laws of descent and distribution.
(b) Transfer of Options. Notwithstanding the foregoing, the Committee may
-------------------
provide, in a Grant Instrument, that a Grantee may transfer Options to family
members, or one or more trusts or other entities for the benefit of or owned by
family members, consistent with applicable securities laws, according to such
terms as the Committee may determine; provided that the Grantee receives no
consideration for the transfer of an Option and the transferred Option shall
continue to be subject to the same terms and conditions as were applicable to
the Option immediately before the transfer.
8. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 50% of the voting power of the then outstanding securities of the
Company; or
(b) The shareholders of the Company approve (or, if shareholder approval is
not required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the shareholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii)
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<PAGE>
the sale or other disposition of all or substantially all of the assets of the
Company, or (iii) a liquidation or dissolution of the Company.
9. Consequences of a Change of Control
-----------------------------------
(a) Notice and Acceleration. Upon a Change of Control, unless the
-----------------------
Committee determines otherwise, (i) the Company shall provide each Grantee with
outstanding Options written notice of such Change of Control and (ii) all
outstanding Options shall automatically accelerate and become fully exercisable.
(b) Assumption of Options. Upon a Change of Control where the Company is
---------------------
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
that are not exercised shall be assumed by, or replaced with comparable options
by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, subject to
------------------
subsection (d) below, in the event of a Change of Control, the Committee may
take one or both of the following actions: the Committee may (i) require that
Grantees surrender their outstanding Options in exchange for a payment by the
Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's unexercised Options exceeds the Exercise Price of
the Options, or (ii) after giving Grantees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender or termination shall take place
as of the date of the Change of Control or such other date as the Committee may
specify.
(d) Limitations. Notwithstanding anything in the Plan to the contrary, in
-----------
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
10. Requirements for Issuance or Transfer of Shares
-----------------------------------------------
No Company Stock shall be issued or transferred in connection with any
Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Option granted to any Grantee hereunder on such Grantee's undertaking in
writing to comply with such restrictions on his or her subsequent disposition of
such shares of Company Stock as the Committee shall deem necessary or advisable,
and certificates representing such shares may be legended to reflect any such
restrictions.
-7-
<PAGE>
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
11. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time as it
---------
deems appropriate.
(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or extended by the Board.
(c) Termination and Amendment of Outstanding Options. A termination or
------------------------------------------------
amendment of the Plan that occurs after an Option is granted shall not
materially impair the rights of a Grantee unless the Grantee consents or unless
the Committee acts under Section 17(b). The termination of the Plan shall not
impair the power and authority of the Committee with respect to an outstanding
Option. Whether or not the Plan has terminated, an outstanding Option may be
terminated or amended under Section 17(b) or may be amended by agreement of the
Company and the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
12. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Options under this Plan. In no event shall
interest be paid or accrued on any Option.
13. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee or other person to any
claim or right to be granted an Option under this Plan. Neither this Plan nor
any action taken hereunder shall be construed as giving any individual any
rights to be retained by or in the employ of the Company or any other employment
rights.
14. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Option. The Committee shall determine whether cash, other
awards or other property
-8-
<PAGE>
shall be issued or paid in lieu of such fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
15. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
16. Effective Date of the Plan.
--------------------------
The Plan shall be effective as of August 23, 1999.
17. Miscellaneous
-------------
(a) Options in Connection with Corporate Transactions and Otherwise.
---------------------------------------------------------------
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to grant Options under this Plan in connection with the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of any corporation, firm or association, including Options to employees
thereof who become Employees of the Company, or for other proper corporate
purposes, or (ii) limit the right of the Company to grant stock options or make
other awards outside of this Plan. Without limiting the foregoing, the
Committee may grant an Option to an employee of another corporation who becomes
an Employee by reason of a corporate merger, consolidation, acquisition of stock
or property, reorganization or liquidation involving the Company or any of its
subsidiaries in substitution for a stock option granted by such corporation.
The terms and conditions of the substitute Options may vary from the terms and
conditions required by the Plan and from those of the substituted stock
incentives. The Committee shall prescribe the provisions of the substitute
Options.
(b) Compliance with Law. The Plan, the exercise of Options and the
-------------------
obligations of the Company to issue or transfer shares of Company Stock under
Options shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. The Committee may revoke
any Option if it is contrary to law or modify an Option to bring it into
compliance with any valid and mandatory government regulation. The Committee
may, in its sole discretion, agree to limit its authority under this Section.
(c) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall be governed and
construed by and determined in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the conflict of laws provisions thereof.
-9-
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<PAGE>
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