<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): June 14, 1999
Commission File Number: 000-25269
VerticalNet, Inc.
(Exact name of registrant as specified in its charter.)
Pennsylvania 23-2815834
________________________________________ __________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Walnut Grove Drive
Horsham, PA 19044
___________________________________________________________
(Address of principal executive offices, including zip code)
(Registrant's telephone number (215) 328-6100, including area code)
Not Applicable
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 14, 1999, VerticalNet, Inc. (VerticalNet or the "Company"), a
Pennsylvania corporation, purchased all of the capital stock of Techspex, Inc.
("Techspex"), an Ohio corporation, the owner and operator of a vertical trade
community focused on machine tools that operates under the tradename "techspex
on-line."
The acquisition was consummated pursuant to an Agreement and Plan of Merger
dated June 14, 1999, among the Company, TSX Acquisition Corp., Techspex and the
stockholders of Techspex (the "Agreement"). The terms of the Agreement were
negotiated on an arms-length basis.
Pursuant to the Agreement, the consideration for the acquisition of Techspex was
$311,000 in cash, including transaction costs of $100,000, and 44,997 shares of
Company common stock with a fair market value of approximately $2,959,000. The
cash portion was financed by proceeds from the Company's initial public offering
in February 1999.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Techspex:
Report of Independent Public Accountants
Balance Sheets
Statements of Operations
Statements of Shareholders' Deficit
Statements of Cash Flows
Notes to Financial Statements
(b) Pro Forma Financial Information.
Pro Forma Financial Statements (unaudited):
Basis of Presentation
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Consolidated Statements of Operations
Notes to Pro Forma Condensed Consolidated Financial Statements
(c) Exhibits
2.1 Agreement and Plan of Merger among VerticalNet, Inc., TSX
Acquisition Corp., Techspex, Inc. and the Stockholders of
Techspex, Inc.
23.1 Consent of Arthur Andersen LLP
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Techspex, Inc.:
We have audited the accompanying balance sheet of Techspex, Inc. (an Ohio
corporation) as of December 31, 1998, and the related statements of operations,
shareholders' deficit and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Techspex, Inc. as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/S/ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
June 15, 1999
<PAGE>
TECHSPEX, INC.
--------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------------- ----------------
ASSETS (unaudited)
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 7,219 $ 74,817
Accounts receivable, net of allowance for
doubtful accounts of $16,700 126,571 63,840
--------- ---------
Total current assets 133,790 138,657
PROPERTY AND EQUIPMENT, net 10,377 8,586
--------- ---------
$ 144,167 $ 147,243
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Notes payable to shareholder $ 753,027 $ 736,979
Accounts payable 5,971 10,901
Accrued liabilities 8,540 10,221
Deferred revenues 175,241 200,713
--------- ---------
Total current liabilities 942,779 958,814
--------- ---------
COMMITMENTS (Note 6)
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 850 shares (425 Class A
and 425 Class B) authorized, 600 shares (300 Class A
and 300 Class B) issued and outstanding 3,000 3,000
Additional paid-in capital 72,000 78,000
Accumulated deficit (873,612) (892,571)
--------- ---------
Total shareholders' deficit (798,612) (811,571)
--------- ---------
$ 144,167 $ 147,243
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TECHSPEX, INC.
--------------
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31,
December 31, -----------------------------
1998 1998 1999
------------------ -------------- --------------
<S> <C> <C> <C>
(unaudited)
REVENUES $ 307,554 $ 46,561 $103,618
COST AND EXPENSES:
Editorial and operational 72,937 15,243 17,403
Product development 22,142 5,555 5,680
Sales and marketing 218,264 60,724 47,744
General and administrative 183,518 44,572 39,249
--------- -------- --------
Operating loss (189,307) (79,533) (6,458)
INTEREST EXPENSE 43,144 10,135 12,501
--------- -------- --------
NET LOSS $(232,451) $(89,668) $(18,959)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TECHSPEX, INC.
--------------
STATEMENTS OF SHAREHOLDERS' DEFICIT
-----------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------------ Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Deficit
---------- ------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 600 $3,000 $48,000 $(641,161) $(590,161)
Contribution of services by
related-party -- -- 24,000 -- 24,000
Net loss -- -- -- (232,451) (232,451)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 600 3,000 72,000 (873,612) (798,612)
Contribution of services by
related-party -- -- 6,000 -- 6,000
Net loss -- -- -- (18,959) (18,959)
--------- --------- --------- --------- ---------
BALANCE, MARCH 31, 1999
(unaudited) 600 $3,000 $78,000 $(892,571) $(811,571)
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TECHSPEX, INC.
--------------
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Three Months Ended
Year Ended March 31,
December 31, -----------------------------
1998 1998 1999
--------------- --------------- -------------
<S> <C> <C> <C>
(unaudited)
OPERATING ACTIVITIES:
Net loss $(232,451) $(89,668) $(18,959)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities-
Depreciation and amortization 9,513 2,344 1,791
Provision for doubtful accounts 16,700 -- --
Contribution of services by related-party 24,000 6,000 6,000
Change in assets--
Accounts receivable (116,115) (34,589) 62,731
Prepaid expenses 8,000 8,000 --
Change in liabilities--
Accounts payable 2,491 1,025 4,930
Accrued liabilities 5,541 11,706 1,681
Deferred revenues 108,546 51,882 25,472
--------- -------- --------
Net cash provided by (used in) operating
activities (173,775) (43,300) 83,646
--------- -------- --------
FINANCING ACTIVITIES:
Proceeds from notes payable to shareholder 161,704 -- --
Repayments of notes payable to shareholder (10,000) -- (16,048)
Net proceeds from advances from related-party -- 40,834 --
--------- -------- --------
Net cash provided by (used in) financing
activities 151,704 40,834 (16,048)
--------- -------- --------
INCREASE (DECREASE) IN CASH (22,071) (2,466) 67,598
CASH, BEGINNING OF PERIOD 29,290 29,290 7,219
--------- -------- --------
CASH, END OF PERIOD $ 7,219 $ 26,824 $ 74,817
========= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ 12,501
============== ============== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TECHSPEX, INC.
--------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
The Company
- -----------
Techspex, Inc. ("Techspex" or the "Company") is the owner and operator of a
vertical trade community focused on machine tools that operates under the
tradename "techspex on-line." Vertical trade communities are targeted business-
to-business communities of commerce on the Internet. The Company's vertical
trade community is a Web site that acts as a comprehensive source of
information, interaction and electronic commerce for the machine tool industry.
The Company's Web site provides a searchable database of machine tools, dealers
and tooling and accessory suppliers. The Company was incorporated on January 4,
1996.
The Company currently generates substantially all of its revenue from Internet
advertising and additional revenue from subscription fees to the Company's
database, the creation of Web sites and filtered search engines and royalties
from sales through the site.
Interim Financial Statements
- ----------------------------
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of results for these interim periods. The results of
operations for the three months ended March 31, 1998 and 1999 are not
necessarily indicative of the results to be expected for the entire year.
Property and Equipment
- ----------------------
Property and equipment are stated at cost, net of accumulated amortization and
depreciation computed on a straight-line basis over the estimated useful lives
of three years for computer and office equipment, purchased software and
furniture and five years for an automobile.
<PAGE>
Revenues and Editorial and Operational Expenses
- -----------------------------------------------
The Company's revenues are derived principally from advertising contracts, which
include the initial construction of the on-line advertisement. The advertising
contracts do not extend beyond one year. Advertising revenues are recognized
ratably over the contract period. Subscription revenue is recognized ratably
over the subscription period, while revenue related to the creation of Web sites
and filtered search engines is recognized upon completion of the project.
Revenue based upon royalties from sales conducted on the Company's Web site are
recognized upon shipment of the merchandise.
The Company has not recognized any revenue related to barter transactions, as
such transactions were immaterial for the year ended December 31, 1998 and the
three months ended March 31, 1998 and 1999.
Editorial and operational expenses primarily consist of Internet connection
charges, depreciation, purchased content, salaries and benefits of operating and
editorial personnel and other related operating costs.
Concentration of Credit Risk
- ----------------------------
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral on accounts receivable. The
Company maintains allowances for credit losses and such losses have been within
management's expectations. No single customer accounted for greater than 10% of
total revenues for the year ended December 31, 1998 and the three months ended
March 31, 1998 and 1999.
Financial Instruments
- ---------------------
The Company's financial instruments principally consist of cash, accounts
receivable, accounts payable, accrued expenses and notes payable that are
carried at cost, which approximates fair value.
Product Development
- -------------------
Product development costs consist principally of salaries and related costs,
which are charged to expense as incurred.
Advertising Costs
- -----------------
The Company charges advertising costs to expense as incurred. Advertising
expense was $41,123, $8,128 and $1,003 for the year ended December 31, 1998 and
the three months ended March 31, 1998 and 1999, respectively.
<PAGE>
Income Taxes
- ------------
The Company has elected to be taxed as an S Corporation. As a result, the
Company has not been subject to federal or state income taxes and the taxable
loss of the Company has been included in the shareholders' tax returns.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT:
-----------------------
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------- -------------------
<S> <C> <C>
Computer equipment and
purchased software $ 17,747 $ 17,747
Office equipment and furniture 1,323 1,323
Automobile 16,134 16,134
-------- --------
35,204 35,204
Less- Accumulated depreciation and amortization
------------------ (26,618)
(24,827) --------
--------
$ 10,377 $ 8,586
======== ========
</TABLE>
3. ADVANCES FROM RELATED-PARTY AND NOTES PAYABLE TO SHAREHOLDERS:
--------------------------------------------------------------
Since inception, the Company has received advances from Gosiger, Inc.
("Gosiger"), an entity owned by certain shareholders of the Company, to fund
operations. The related-party advances bear interest at 8.0% per year and have
no defined terms. Interest expense related to these advances was $3,435 and
$170 for the year ended December 31, 1998 and the three months ended March 31,
1998, respectively. There was no interest expense incurred related to these
advances during the three months ended March 31, 1999.
On December 31, 1996, 1997 and 1998, the then outstanding balances of the
related-party advances were repaid to Gosiger through borrowings from the
shareholders. The notes issued to the shareholders were $266,307, $335,016 and
$161,704 on December 31, 1996, 1997 and 1998, respectively. The Company repaid
$10,000 and $16,048 of the borrowings during the year ended December 31, 1998
and the three months ended March 31, 1999, respectively. The notes payable to
the shareholders are payable on demand and bear interest at prime minus .5%
(8.0%
<PAGE>
as of March 31, 1999), payable monthly. Interest expense related to these
notes for the year ended December 31, 1998 and the three months ended March 31,
1998 and 1999 was $39,709, $9,965, and $12,501, respectively. At December 31,
1998 and March 31, 1999, the total of all notes payable to shareholders was
$753,027 and $736,979, respectively.
4. OTHER RELATED-PARTY TRANSACTIONS:
---------------------------------
In addition to Gosiger providing the advances to the Company (see Note 3),
Gosiger provides certain administrative services and pays certain shared
expenses, such as payroll and insurance, for the Company. The Company does not
pay for the administrative services, but does reimburse Gosiger for shared
expenses. Accordingly, the Company has recorded the estimated fair value of the
administrative services in the accompanying statement of operations and a
corresponding amount as a capital contribution in the accompanying statements of
shareholders' deficit. The estimated fair value of the administrative services
was $24,000, $6,000 and $6,000 for the year ended December 31, 1998 and the
three months ended March 31, 1998 and 1999, respectively. Reimbursements during
the year ended December 31, 1998 and the three months ended March 31, 1998 and
1999 were approximately $162,000, $35,000 and $100,000, respectively. In
addition, the Company generated revenues of $6,900 and $3,800 for the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively, from
sales to Gosiger and its subsidiaries. The Company did not generate any revenue
from Gosiger or its subsidiaries during the three months ended March 31, 1998.
5. COMMON STOCK:
-------------
The Company is authorized to issue 850 shares (425 Class A and 425 Class B) of
voting Common stock with no par value.
The Company and its shareholders are parties to a shareholders' agreement that
provides for the election of the members of the Company's Board of Directors,
restricts transfers of outstanding shares and provides rights of first refusal
on sales of the Company's Common stock. The agreement also provides for the
Company to purchase, at the book value per share, a shareholder's stock interest
upon death and, in the case of the Class B shareholder, upon death, disability,
retirement or termination. The agreement terminates when only one shareholder
holds shares in the Company.
6. COMMITMENTS:
------------
Leases
- ------
The Company has an operating lease for its office space through June 1999. Rent
expense for the year ended December 31, 1998 was $12,540 and for the three
months ended March 31, 1998 and 1999 was $3,090 and $3,180, respectively.
Remaining minimum lease payments under the lease as of December 31, 1998 are
$6,360 through June 1999.
<PAGE>
Employment Agreements
- ---------------------
The Company has employment agreements with two employees which provide for
aggregate minimum annual compensation of $142,000 in 1999.
7. SUBSEQUENT EVENT:
-----------------
On June 14, 1999, the Company and its shareholders executed an agreement to sell
the stock of the Company to VerticalNet, Inc., an owner and operator of several
vertical trade communities.
<PAGE>
VERTICALNET, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(unaudited)
The accompanying unaudited pro forma condensed consolidated balance sheet as of
March 31, 1999 and the related pro forma consolidated statements of operations
for the year ended December 31, 1998 and for the three months ended March 31,
1999 give effect to the acquisition of all the capital stock of Techspex, Inc.,
as described in Note 2 of the Notes to Pro Forma Condensed Consolidated
Financial Statements, as if the transactions had occurred as of March 31, 1999
in the case of the pro forma condensed consolidated balance sheet, and as of
January 1, 1998, in the case of the pro forma condensed consolidated statements
of operations.
In addition, the unaudited pro forma consolidated statement of operations for
the year ended December 31, 1998 also give effect to the acquisitions of Boulder
Interactive Technology Services Company ("BITC") and Informatrix Worldwide, Inc.
("Informatrix"), as described in Note 3 of the Notes to the Pro Forma Condensed
Consolidated Financial Statements, as if the transactions had occurred as of
January 1, 1998.
The pro forma condensed consolidated financial statements have been prepared by
the management of the Company and should be read in conjunction with the
historical consolidated financial statements, which have been previously filed
in the Company's Annual Report on Form 10-K for the year ended December 31, 1998
and Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, the
historical financial statements of Techspex, which are included elsewhere in
this Form 8-K and the historical financial statements of BITC and Informatrix
filed in the Company's Registration Statement filed on Form S-1 effective
February 11, 1999. Since the pro forma financial statements which follow are
based upon the financial condition and operating results of Techspex, BITC and
Informatrix during periods when they were not under the control or management of
VerticalNet, the information presented may not be indicative of the results
which would have actually been obtained had the acquisitions been completed on
January 1, 1998 nor are they indicative of future financial or operating
results.
<PAGE>
VERTICAL NET, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
31-Mar-99
<TABLE>
<CAPTION>
Historical (Notes 1)
---------------------------------------
Pro Forma
VertitcalNet Techspex Adjustments Pro Forma
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $10,457,327 $ 74,817 $ (311,000)(a) $ 10,221,144
Short-term investments 28,952,539 - - 28,952,539
Accounts receivable, net of allowance
for doubtful accounts 2,238,902 63,840 - 2,302,742
Prepaid expenses and other assets 2,741,061 - - 2,741,061
Total current assets 44,389,829 138,657 (311,000) 44,217,486
Property and equipment, net 1,418,052 8,586 - 1,426,638
Goodwill and other intangibles, net of
accumulated amortization 2,751,623 - 3,344,775 (b) 6,096,398
Long-term investments 17,545,994 - - 17,545,994
Deferred charges and other assets 53,318 - - 53,318
----------------- ----------------- ----------------- -----------------
Total assets $66,158,816 $ 147,243 $ 3,033,775 $ 69,339,834
================= ================= ================= =================
Liabilities and Shareholders' Equity (Deficit)
- ----------------------------------------------
Current liabilities:
Current portion of long-term debt $ 781,562 $ - $ - $ 781,562
Accounts payable 1,871,213 10,901 - 1,882,114
Accrued expenses 2,071,348 10,221 - 2,081,569
Deferred revenues 3,149,541 200,713 - 3,350,254
Notes payable 50,000 736,979 (736,979)(c) 50,000
----------------- ----------------- ----------------- -----------------
Total current liabilities 7,923,664 958,814 (736,979) 8,145,499
Long-term debt, net of current portion 642,388 - - 642,388
2,959,183 (a)
Shareholders' equity (deficit) 57,592,764 (811,571) 811,571 (d) 60,551,947
Total liabilities and shareholders'
equity (deficit) $66,158,816 $147,243 $ 3,033,775 $ 69,339,834
================= ================= ================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICAL NET, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Historical (Note 1)
--------------------------------------------------
VerticalNet BITC Informatrix Techspex Adjustments Pro Forma
----------- -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 3,134,769 $437,628 $ 32,442 $ 307,554 $ - $ 3,912,393
----------- -------- ----------- --------- ----------- -----------
Costs and Expenses:
Editorial and operational 3,237,971 121,726 253,503 72,937 (180,000)(g) 3,506,137
Product development 1,404,557 - 75,766 22,142 - 1,502,465
Sales and marketing 7,894,662 123,542 426,058 218,264 - 8,662,526
General and administrative 3,823,593 327,879 93,131 183,518 - 4,428,121
922,401 (i)
Amortization of goodwill 282,990 - - - 1,114,925 (e) 2,320,316
----------- -------- ----------- --------- ----------- -----------
Operating loss (13,509,004) (135,519) (816,016) (189,307) (1,857,326) (16,507,172)
----------- -------- ----------- --------- ----------- -----------
Interest and dividend income 212,130 143 - - - 212,273
43,144 (f)
Interest expense (297,401) - (37,978) (43,144) 35,025 (h) (300,354)
----------- -------- ----------- --------- ----------- -----------
Interest, net (85,271) 143 (37,978) (43,144) 78,169 (88,081)
----------- -------- ----------- --------- ----------- -----------
Net loss $(13,594,275) $(135,376) $ (853,994) $ (232,451) $ (1,779,157) $(16,595,253)
=========== ======== =========== ========= =========== ===========
Basic and diluted net loss per share $ (5.29) $ (6.26)
=========== ===========
Weighted average shares outstanding
used in basic and diluted
per-share calculation 2,570,550 2,651,767
=========== ===========
</TABLE>
<PAGE>
VERTICAL NET, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
Historical (Note 1)
-------------------------------------------
Pro Forma
VerticalNet Techspex Adjustments Pro Forma
------------------- ------------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Revenues $1,933,779 $103,618 $ - $2,037,397
------------------- ------------------- ------------------- ------------------
Costs and Expenses:
Editorial and operational 1,196,137 17,403 - 1,213,540
Product development 1,209,638 5,680 - 1,215,318
Sales and marketing 3,630,205 47,744 - 3,677,949
General and administrative 1,379,636 39,249 - 1,418,885
Amortization of goodwill 274,567 - 278,731 (e) 553,298
------------------- ------------------- ------------------- ------------------
Operating loss (5,756,404) (6,458) (278,731) (6,041,593)
------------------- ------------------- ------------------- ------------------
Interest and dividend income 336,893 - - 336,893
Interest expense (189,247) (12,501) 12,501 (f) (189,247
------------------- ------------------- ------------------- ------------------)
Interest, net 147,646 (12,501) 12,501 147,646
------------------- ------------------- ------------------- ------------------
Net loss ($5,608,758) ($18,959) ($266,230) ($5,893,947)
=================== =================== =================== ==================
Basic and diluted net loss per share ($0.55) ($0.58)
=================== ==================
Weighted average shares outstanding
used in basic and diluted
per-share calculation 10,156,587 10,201,584
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
VERTICALNET, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1: HISTORICAL FINANCIAL STATEMENTS:
The historical balances of VerticalNet, Inc. ("VerticalNet" or the "Company")
represent the consolidated balance sheet as of March 31, 1999 and the
consolidated results of operations for the year ended December 31, 1998 and for
the three months ended March 31, 1999 as reported in the consolidated financial
statements which have been previously filed in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and Quarterly Report on Form 10-Q
for the three months ended March 31, 1999. The historical balances of Boulder
Interactive Technology Services Company ("BITC") and Informatrix Worldwide, Inc.
("Informatrix") for the year ended December 31, 1998 represent the results of
operations for BITC and Informatrix prior to their acquisition by VerticalNet
during the year ended December 31, 1998 and were derived from their historical
financial statements included in the Company's Registration Statement filed on
Form S-1 effective February 11, 1999. The historical balances of Techspex Inc.
("Techspex") were derived from the historical balance sheet as of March 31, 1999
and the statements of operations for the year ended December 31, 1998 and the
three months ended March 31, 1999, included in this Form 8-K.
Note 2: ACQUISITIONS OF TECHSPEX, INC.:
On June 14, 1999, the Company acquired all of the capital stock of Techspex for
approximately $3.3 million, including transaction costs. The consideration for
the acquisition was $311,000 in cash (including transaction costs of $100,000)
and 44,997 shares of Company common stock with a fair market value of
approximately $3.0 million. The acquisition has been accounted for under the
purchase method of accounting. Under this method, the purchase price is
allocated to the assets acquired and liabilities assumed based on the fair
values at the acquisition date. Such allocation has been based on estimates that
may be revised at a later date. The purchase price plus the net liabilities
assumed was approximately $3.3 million, which has been recorded as goodwill and
will be amortized on a straight line basis over 36 months.
The following pro forma adjustments for the Techspex acquisition are reflected
in the pro forma condensed consolidated balance sheet as of March 31, 1999 and
the pro forma consolidated statements of operations for the year ended December
31, 1998 and the three months ended March 31, 1999.
Unaudited Pro Forma Adjustments to Condensed Consolidated Balance Sheet
- -----------------------------------------------------------------------
(a) Reflects the consideration issued by the Company to consummate the
acquisition as follows:
<TABLE>
<S> <C>
Cash $ 211,000
Transaction costs 100,000
VerticalNet Common Stock 2,959,183
----------
$3,270,183
==========
</TABLE>
(b) Reflects the recording of the purchase transaction. The book value of the
assets acquired and liabilities assumed are estimated to approximate fair
value.
<PAGE>
<TABLE>
<S> <C>
Total purchase price $3,270,183
Fair value of net liabilities
assumed (after cancellation
of notes payable -- see (e)) 74,592
-----------
$3,344,775
===========
</TABLE>
The purchase price plus the net liabilities assumed will be allocated to
goodwill and amortized over the estimated useful life of 36 months.
(c) Reflects the cancellation of the notes payable prior to the acquisition by
the Company.
(d) Reflects the elimination of the equity accounts of Techspex.
Unaudited Pro Forma Adjustments to Consolidated Statements of Operations
- ------------------------------------------------------------------------
(e) Represents additional amortization expense for the year ended December 31,
1998 and the three months ended March 31, 1999, respectively, relating to
goodwill based upon the estimated useful life of 36 months.
(f) Represents the elimination of interest expense incurred on the notes
payable of Techspex.
Note 3: BOULDER INTERACTIVE TECHNOLOGY SERVICES AND INFORMATRIX WORLDWIDE INC.
ACQUISITION INFORMATION:
On September 1, 1998 the Company acquired all of the outstanding stock capital
stock of BITC for $1.8 million in cash. On September 30, 1998 the Company
acquired all the outstanding capital stock of Informatrix for 46,154 shares of
the Company's common stock valued at $153,000. Contingent on achieving future
sales targets during 1998, Informatrix shareholders later received 3,738
additional shares of the Company's common stock valued at approximately $32,000.
Both acquisitions were accounted for using the purchase method of accounting.
The purchase price plus net liabilities assumed, which was recorded as goodwill
and amortized on a straight line basis over 36 months, was approximately $1.9
million and $903,000 for BITC and Informatrix, respectively. Refer to Company's
previously filed Annual Report on form 10-K and Registration Statement on
Form S-1 effective February 11, 1999 for additional information.
The following pro forma adjustments for the BITC and Informatrix acquisitions
are reflected in the pro forma consolidated statement of operations for the year
ended December 31, 1998:
Unaudited Pro Forma Adjustments to Consolidated Statements of Operations
- ------------------------------------------------------------------------
(g) Reflects the elimination of editorial and operational costs charged by
VerticalNet to Informatrix to maintain Informatrix's vertical trade
community.
(h) Reflects the elimination of interest expense incurred by Informatrix on
indebtedness to VerticalNet.
(i) Represents additional amortization expense for the year ended December 31,
1998, relating to goodwill based upon the estimated useful life of 36
months.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 25, 1999 VERTICALNET, INC.
By: /s/ Gene S. Godick
--------------------
Name: Gene S. Godick
Title: Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.1 Agreement and Plan of Merger among VerticalNet, Inc., TSX
Acquisition Corp., Techspex, Inc. and the Stockholders of
Techspex, Inc.
23.1 Consent of Arthur Andersen LLP
<PAGE>
Exhibit 2.1
2.1 Agreement and Plan of Merger among VerticalNet, Inc., TSX Acquisition
Corp., Techspex, Inc. and the Stockholders of Techspex, Inc.
AGREEMENT AND PLAN OF MERGER
among
VERTICALNET, INC.
(a Pennsylvania corporation),
TSX ACQUISITION CORP.
(a Delaware corporation),
TECHSPEX, INC.
(a Ohio corporation)
and
THE STOCKHOLDERS OF TECHSPEX, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
<C> <S> <C>
1. Definitions.............................................. 1
2. The Merger............................................... 7
2.1 The Merger......................................... 7
2.2 Effective Time..................................... 8
2.3 Effects of the Merger.............................. 8
2.4 Articles of Incorporation and Bylaws............... 8
2.5 Directors and Officers............................. 8
2.6 Manner of Conversion and Merger Consideration...... 8
2.7 Stockholder Consent................................ 10
3. Closing.................................................. 10
3.1 Location, Date..................................... 10
3.2 Deliveries......................................... 10
4. Representations and Warranties of Seller Parties......... 10
4.1 Corporate Status................................... 10
4.2 Authorization...................................... 11
4.3 Consents and Approvals............................. 11
4.4 Stock Ownership.................................... 11
4.5 Financial Statements............................... 11
4.6 Title to Assets and Related Matters................ 11
4.7 Real Property...................................... 12
4.8 Certain Personal Property.......................... 12
4.9 Non-Real Estate Leases............................. 12
4.10 Accounts Receivable................................ 12
4.11 Inventory and Equipment............................ 13
4.12 Liabilities........................................ 13
4.13 Taxes.............................................. 13
4.14 Subsidiaries....................................... 14
4.15 Legal Proceedings and Compliance with Law.......... 14
4.16 Contracts.......................................... 15
4.17 Insurance.......................................... 16
4.18 Intellectual Property.............................. 17
4.19 Employees.......................................... 17
4.20 ERISA.............................................. 18
4.21 Corporate Records.................................. 19
4.22 Absence of Certain Changes......................... 19
4.23 Customers.......................................... 20
4.24 Previous Sales; Warranties......................... 20
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
4.25 Finder's Fees...................................... 20
4.26 Accuracy of Information............................ 20
4.27 Investigation and Evaluation; Risk................. 21
4.28 Investment Purpose................................. 21
4.29 Accredited Investor................................ 21
4.30 Reliance on Exemptions............................. 22
4.31 Governmental Review................................ 22
4.32 Transfer or Re-sale................................ 22
4.33 Legends............................................ 23
4.34 Additional Information............................. 23
4.35 Website Traffic.................................... 23
5. Representations and Warranties of Buyer.................. 24
5.1 Organizational Status.............................. 24
5.2 Authorization...................................... 24
5.3 Consents and Approvals............................. 24
5.4 Capitalization and Share Ownership................. 24
5.5 Finder's Fees...................................... 24
5.6 Accuracy of Information............................ 24
5.7 Survival of Newco.................................. 24
5.8 Reacquisition of Buyer's Common Stock.............. 24
5.9 Continuity of Business............................. 24
5.10 Buyer in Control of Newco.......................... 24
6. Covenants of Seller Parties.............................. 25
6.1 No Solicitation.................................... 25
6.2 Existing Employment Agreements and Other
Liabilities........................................ 26
6.3 Expenses........................................... 26
6.4 Non-Competition and Confidentiality................ 26
6.5 Transfer of Assets and Business.................... 27
6.6 Business Relations................................. 27
6.7 Related Parties.................................... 27
7. Covenants of Buyer....................................... 27
7.1 Fulfillment of Closing Conditions.................. 27
7.2 Expenses........................................... 28
7.3 Payments on Accounts Receivable of Seller.......... 28
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
8. Mutual Covenants......................................... 28
8.1 Fulfillment of Closing Conditions.................. 28
8.2 Disclosure of Certain Matters...................... 28
8.3 Public Announcements............................... 29
8.4 Confidentiality.................................... 29
8.5 No Tax Allocation to Restrictive Covenants......... 29
8.6 Taxes Prior to the Closing Date.................... 29
9. Conditions Precedent to Obligations of Seller Parties.... 29
9.1 Representations and Warranties..................... 29
9.2 Agreements, Conditions and Covenants............... 29
9.3 Officer's Certificate.............................. 29
9.4 Secretary's Certificate............................ 29
9.5 Legality........................................... 29
9.6 Employment Agreement............................... 29
9.7 Opinion of Counsel................................. 29
9.8 Buyer Required Consents............................ 29
10. Conditions Precedent to Obligations of Buyer............. 30
10.1 Due Diligence...................................... 30
10.2 Representations and Warranties..................... 30
10.3 Agreements, Conditions and Covenants............... 30
10.4 Officer's Certificate.............................. 30
10.5 Secretary's Certificate............................ 30
10.6 Legality........................................... 30
10.7 Employment Agreement............................... 30
10.8 Opinion of Counsel................................. 30
10.9 Seller Required Consents........................... 30
10.10 Repayment of Outstanding Debt...................... 30
11. Indemnification.......................................... 31
11.1 By Seller Parties.................................. 31
11.2 By Buyer........................................... 31
11.3 Holders' Representative............................ 31
11.4 Procedure for Claims............................... 32
11.5 Claims Period...................................... 34
11.6 Third Party Claims................................. 34
12. Termination.............................................. 34
12.1 Grounds for Termination............................ 34
12.2 Effect of Termination.............................. 35
13. General Matters.......................................... 35
13.1 Arbitration........................................ 35
13.2 Contents of Agreement.............................. 36
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
13.3 Amendment, Parties in Interest, Assignment, Etc.... 36
13.4 Further Assurances................................. 36
13.5 Interpretation..................................... 36
13.6 Counterparts....................................... 37
13.7 Schedules.......................................... 37
14. Remedies................................................. 37
15. Notices.................................................. 37
16. Governing Law............................................ 38
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Exhibits
- --------
<C> <S>
A Form of Ohio Articles of Merger
B Form of Delaware Certificate of Merger
C Form of Employment Agreement
D Form of Opinion of Counsel to Seller Parties
E Form of Opinion of Counsel to Buyer
Schedules
- ---------
2.5 Directors and Officers of Surviving Corporation
3.2 Allocation of Stock Merger Consideration
4.3 Consents and Approvals
4.4 Stock Ownership
4.5 Financial Statements
4.6 Title to Assets and Related Matters
4.7 Real Property
4.8 Certain Personal Property
4.9 Non-Real Estate Leases
4.10 Accounts Receivable
4.12 Liabilities
4.13 Taxes
4.15 Legal Proceedings and Compliance with Law
4.16 Contracts
4.17 Insurance
4.18(a) Intellectual Property
4.18(b) Contracts
4.18(c) Encumbrances on Intellectual Property
4.19(a) Employees
4.19(b) Current Directors and Officers of Seller
4.20 ERISA
4.22 Absence of Certain Changes
4.23 Customers
4.34 Additional Information
4.35 Website Traffic
</TABLE>
viii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of June __, 1999 by and among
VERTICALNET, INC., a Pennsylvania corporation ("Buyer"), TSX ACQUISITION CORP.,
a Delaware corporation and a wholly-owned subsidiary of Buyer ("Newco"),
TECHSPEX, INC., an Ohio corporation ("Seller"), and Nick Bloom, The Jane G.
Haley- Gosiger, Inc. Trust Dated August 1, 1998, The Peter G. Haley- Gosiger,
Inc. Trust dated September 1, 1998, The John R. Haley- Gosiger, Inc. Trust dated
September 1, 1998 and Trust UTA June 4, 1998 (Jerry L. Gecowets) (collectively,
the "Stockholders"). Certain other terms are used herein as defined below in
Section 1 or elsewhere in this Agreement.
BACKGROUND
The Stockholders own all of the issued and outstanding capital stock of
Seller.
The respective Boards of Directors of Newco and Seller deem it advisable
and in the best interests of Newco and Seller and their respective shareholders
that Seller merge with and into Newco (the "MERGER") pursuant to the terms and
conditions of this Agreement.
The Boards of Directors of Newco and Seller have approved and adopted this
Agreement as a plan of reorganization within the provisions of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended
(the "CODE").
In consideration of the premises and of the representations, warranties,
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS.
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms as
well as any other terms defined elsewhere in this Agreement shall be equally
applicable to both the singular and plural forms of the terms defined).
"ACCREDITED INVESTOR" is defined in Section 4.29.
"ACQUISITION PROPOSAL" is defined in Section 6.1.
"ACTION" is defined in Section 11.6.
"AFFILIATES" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
any officers, directors and majority-owned entities of that party and of its
other Affiliates. For the purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest shall be
deemed to constitute control.
"AGREEMENT" means this Agreement and the Exhibits and Disclosure Schedules
hereto, as each may be amended, restated, supplemented or modified from time to
time.
"APPLICABLE REPRESENTATIONS" is defined in Section 11.4(c).
"ASSETS" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible, wherever
situated and whether or not reflected in the most recent Financial Statements,
that are owned or possessed by Seller.
1
<PAGE>
"BALANCE SHEET" is defined in Section 4.5.
"BALANCE SHEET DATE" is defined in Section 4.5.
"BENEFIT PLAN" means: (i) as to employees employed in the United States of
America, any (y) "employee benefit plan" as defined in Section 3(3) of ERISA,
and (z) supplemental retirement, bonus, deferred compensation, severance,
incentive plan, program or arrangement or other employee fringe benefit plan,
program or arrangement; and (ii) as to employees employed outside the United
States of America, all employee benefit, health, welfare, supplemental
unemployment benefit, bonus, pension, profit sharing, deferred compensation,
stock compensation, stock purchase, retirement, hospitalization insurance,
medical, dental, legal, disability and similar plans or arrangements or
practices.
"BUSINESS" means Seller's entire business, operations and facilities.
"BUYER INDEMNIFIED PARTY" is defined in Section 11.1.
"BUYER CLOSING CERTIFICATES" means the certificates to be delivered by
Buyer under Sections 9.3 and 9.4 and any other provisions hereof.
"BUYER REQUIRED CONSENTS" is defined in Section 5.3.
"BUYER'S COMMON STOCK" means the common stock, par value $.01 per share, of
Buyer.
"CASH MERGER CONSIDERATION" is defined in Section 2.6(c).
"CHARTER DOCUMENTS" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"CLAIM NOTICE" is defined in Section 11.4(a).
"CLAIM RESPONSE" is defined in Section 11.4(a).
"CLOSING" is defined in Section 3.1.
"CLOSING DATE" is defined in Section 3.1.
"CODE" is defined in the Background Section.
"CONFIDENTIAL INFORMATION" means any confidential information or trade
secrets of Seller, including personnel information, know-how and other technical
information, customer lists, customer information and supplier information.
"CONSTITUENT CORPORATIONS" means Newco and Seller, collectively.
"CONTRACT" means any written or oral contract, agreement, lease,
instrument, or other commitment that is binding on any person or its property
under applicable law.
"COPYRIGHTS" means all copyrights in both published works and unpublished
works.
2
<PAGE>
"COURT ORDER" means any judgment, decree, injunction, order or ruling of
any federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any person or its property under applicable law.
"DAMAGES" is defined in Section 11.1.
"DEFAULT" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or a right to receive damages or a payment of
penalties.
"DELAWARE CERTIFICATE OF MERGER" is defined in Section 2.2.
"DETERMINATION DATE" is defined in Section 11.3(e).
"DGCL" is defined in Section 2.1.
"DISCLOSURE SCHEDULE" means the any of the Schedules containing information
relating to Seller pursuant to Section 4 and other provisions hereof that has
been provided to Buyer on the date hereof.
"EFFECTIVE TIME" is defined in Section 2.2.
"ENCUMBRANCES" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest.
"ENVIRONMENTAL CONDITION" is defined in Section 4.15(b).
"ENVIRONMENTAL LAW" means all Laws and Court Orders relating to pollution
or protection of public safety, safety or the environment as well as any
principles of common law under which a Party may be held liable for the release
or discharge of any materials into the environment.
"ENVIRONMENTAL LIABILITIES" means Liabilities, know or unknown, relating to
or arising under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPIRATION DATE" is defined in Section 11.5.
"FINANCIAL STATEMENTS" is defined in Section 4.5.
"GAAP" means generally accepted accounting principles.
"GOVERNMENTAL PERMITS" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"GROSS REVENUES" means total value of invoices issued for the applicable
period.
"HAZARDOUS SUBSTANCES" means any toxic or hazardous gaseous, liquid or
solid material or waste that may or could pose a hazard to the environment or
human health or safety including (i) any "hazardous substances" as defined by
the federal Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S)(S)
3
<PAGE>
9601 et seq., (ii) any "extremely hazardous substance," "hazardous chemical," or
-- ---
"toxic chemical" as those terms are defined by the federal Emergency Planning
and Community Right-to-Know Act, 42 U.S.C. (S)(S) 11001 et seq., (iii) any
-- ---
"hazardous waste," as defined under the federal Solid Waste Disposal Act,
as amended by the Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901
et seq., (iv) any "pollutant," as defined under the federal Water
- -- ---
Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq., any of such law in
-- ---
clauses (i) through (iv) as amended, and (v) any regulated substance or waste
under any Laws or Court Orders that have been enacted, promulgated or issued by
any federal, state or local governmental authorities concerning protection of
the environment.
"HOLDERS' REPRESENTATIVE" is defined in Section 11.3(a).
"IMMATERIAL LEASE" is defined in Section 4.9.
"INDEMNIFIED PARTY" is defined in Section 11.4(a).
"INDEMNITOR" is defined in Section 11.4(a).
"INDEMNIFICATION THRESHOLD" is defined in Section 11.1.
"INTELLECTUAL PROPERTY" means any Copyrights, Patents, Trademarks, service
marks, trade names, information, proprietary rights, processes, technology
rights and licenses, trade secrets, franchises, know-how, inventions and other
intellectual property.
"INVENTORY" means all inventory, including raw materials, supplies, work in
process and finished goods.
"LAW" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body, including those covering environmental, energy,
safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"LIABILITY" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"LIQUIDATED CLAIM NOTICE" is defined in Section 11.4(a).
"LITIGATION" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the Business,
including the financial condition, results of operations, liquidity, products
and customers thereof.
"MERGER" is defined above in the Background section.
"MERGER CONSIDERATION" is defined in Section 2.6(c).
"NON-COMPETITION PERIOD" is defined in Section 6.4(a).
"NON-REAL ESTATE LEASES" is defined in Section 4.9.
"OHIO ARTICLES OF MERGER" is defined in Section 2.2.
"ORC" is defined in Section 2.1.
4
<PAGE>
"ORDINARY COURSE" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"OUTSTANDING INDEBTEDNESS" is defined in Section 4.12.
"PATENTS" means all patents, patent applications, and inventions and
discoveries that may be patentable.
"PARTY" means any Person that is a party to this Agreement.
"PERMITTED BUSINESS" is defined in Section 6.4(a).
"PERSON" means any natural person, corporation, partnership, limited
liability company, proprietorship, association, trust or other legal entity.
"POSSIBLE BREACH" is defined in Section 11.4(c).
"POST-MERGER CONTINUITY PERIOD" is defined in Section 5.7.
"PRIME RATE" means the lending rate of interest as announced from time to
time in The Wall Street Journal.
"REAL ESTATE LEASES" is defined in Section 4.7.
"REAL PROPERTY" is defined in Section 4.7.
"RESPONSE PERIOD" is defined in Section 11.4(a).
"RESTRICTED PARTY" is defined in Section 6.4(a).
"RULE 144" is defined in Section 4.32.
"SECURITIES" is defined in Section 4.28.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLER CLOSING CERTIFICATES" means the certificates to be delivered by
various Seller Parties under Sections 10.4 and 10.5 and any other provisions
hereof.
"SELLER'S COMMON STOCK" means the common stock, no par value per share, of
Seller.
"SELLER CONTRACTS" is defined in Section 4.16(b).
"SELLER INDEMNIFIED PARTY" is defined in Section 11.2.
"SELLER'S KNOWLEDGE" or "KNOWLEDGE OF SELLER" means the actual knowledge of
any of the Stockholders, directors or officers of Seller.
"SELLER PARTIES" means Seller and the Stockholders.
"SELLER REPRESENTATIVES" means any investment advisors, accountants,
counsel, agents or other Persons who may act on behalf of Seller or any
Stockholders.
"SELLER REQUIRED CONSENTS" is defined in Section 4.3.
5
<PAGE>
"SPECIFICALLY APPLICABLE REPRESENTATIONS" is defined in Section 11.4(c).
"STOCK MERGER CONSIDERATION" is defined in Section 2.6(c).
"SURVIVING CORPORATION" is defined in Section 2.1.
"TAXES" means all taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority including, without limitation, income, gross
receipts, value-added, excise, withholding, personal property, real estate,
sale, use, ad valorem, license, lease, service, severance, stamp, transfer,
payroll, employment, customs, duties, alternative, add-on minimum, estimated and
franchise taxes (including any interest, penalties or additions attributable to
or imposed on or with respect to any such assessment).
"TAX RETURN" means any return (including any information return), report,
statement, schedule, notice, form, estimate or declaration of estimated tax
relating to or required to be filed with any governmental authority in
connection with the determination, assessment, collection or payment of any Tax.
"TECHSPEX WEBSITES" is defined in Section 4.35.
"TERMINATION DATE" is defined in Section 3.1.
"TRADE SECRETS" means all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints, owned, used or licensed (as
licensor or licensee) by Seller, except for any such item that is generally
available to the public.
"TRANSACTION CONSIDERATION" means the Merger Consideration.
"TRANSACTION DOCUMENTS" means this Agreement and the documents contemplated
hereby.
"TRANSACTIONS" means the Merger and the other transactions contemplated by
the Transaction Documents.
"UNCOLLECTIBLE RECEIVABLES" is defined in Section 11.3(e).
"UNLIQUIDATED CLAIM" is defined in Section 11.4(a).
"WEBSITE TRAFFIC STATEMENTS" is defined in Section 4.35.
2. THE MERGER.
2.1 THE MERGER. Upon the terms and subject to the conditions hereof,
and in accordance with the relevant provisions of the Ohio Revised Code (the
"ORC") and the Delaware General Corporation Law ("DGCL"), Seller shall be merged
with and into Newco at the Effective Time. Following the Merger, Newco shall
continue as the surviving corporation (the "SURVIVING CORPORATION") and shall
continue its existence under the laws of the State of Delaware, and the separate
corporate existence of Seller shall cease.
2.2 EFFECTIVE TIME. Upon the conclusion of the Closing, Seller and
Newco shall (i) file with the Secretary of State of the State of Ohio Articles
of Merger substantially in the form attached hereto as Exhibit A (the "Ohio
Articles of Merger") and in such form as required by the ORC and (ii) file with
the Secretary of State of the State of Delaware a certificate of merger
substantially in the form attached hereto as Exhibit B (the "Delaware
Certificate of Merger") and in such form as required by the DGCL. The Merger
shall become effective at such time as the later of the Ohio Articles of Merger
and the Delaware Certificate of Merger are so filed (the "Effective Time").
6
<PAGE>
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the ORC and the DGCL.
2.4 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
of Newco immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
until thereafter amended in accordance with the provisions therein and as
provided in the DGCL. The Bylaws of Newco as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation from and after
the Effective Time, continuing until thereafter amended in accordance with their
terms and the Articles of Incorporation of the Surviving Corporation and as
provided by the DGCL.
2.5 DIRECTORS AND OFFICERS. Schedule 2.5 sets forth the persons who
shall be the directors and officers of the Surviving Corporation at the
Effective Time. Such persons shall hold such positions as directors and offices
until their successors are elected or appointed in accordance with the Articles
of Incorporation and the Bylaws of the Surviving Corporation.
2.6 MANNER OF CONVERSION AND MERGER CONSIDERATION. At the Effective
Time, by virtue of the Merger and without any action on the part of Buyer,
Newco, Seller or the Stockholders, the shares of capital stock of each of the
Constituent Corporations shall be converted as follows:
(a) CAPITAL STOCK OF NEWCO. Each issued and outstanding share of
capital stock of Newco shall continue to be issued and outstanding and shall
represent shares of stock of the Surviving Corporation. Each stock certificate
of Newco evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(b) CONVERSION OF SELLER'S COMMON STOCK. Subject to Section 2.6(c),
all of the issued and outstanding shares of Seller's Common Stock that are
issued and outstanding immediately prior to the Effective Time shall
automatically be canceled and extinguished and converted, without any action on
the part of the holders thereof, into the right to receive the aggregate Cash
Merger Consideration and Stock Merger Consideration as set forth on SCHEDULE
3.2. All such shares of Seller's Common Stock, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto, except the right to receive
the consideration therefor upon the surrender of such certificate in accordance
with Section 2.6(c) of this Agreement.
(c) MERGER CONSIDERATION. For purposes of this Agreement, the
"MERGER CONSIDERATION" shall consist of $211,000 in cash (the "CASH MERGER
CONSIDERATION"), to be paid at Closing in immediately available funds, and
44,997 shares of Buyer's Common Stock (the "STOCK MERGER CONSIDERATION") to be
issued at Closing. The Cash Merger Consideration and Stock Merger Consideration
shall be paid in accordance with, and in the amounts and to the persons listed
on, SCHEDULE 3.2.
2.7 STOCKHOLDER CONSENT. Each of the Stockholders hereby votes all of
his or her shares of Seller's Common Stock in favor of the Merger, this
Agreement and the Transactions. None of the Stockholders shall rescind, revoke
or modify such vote prior to the Effective Time.
3. CLOSING.
3.1 LOCATION, DATE. The closing for the Transactions (the "CLOSING")
shall be held at the offices of Morgan, Lewis & Bockius LLP in Philadelphia, PA,
at 10:00 a.m. (local time) as promptly as practicable (and in any event within
three business days) after satisfaction or waiver of the conditions to the
consummation of the Transactions set forth in Sections 9 and 10 hereof, but in
any event not later than June 15, 1999 (the "TERMINATION DATE"), unless the
parties hereto agree in writing to another date or place. The date on which the
Closing occurs is referred to herein as the "CLOSING DATE."
3.2 DELIVERIES. At the Closing, subject to the terms and conditions
contained herein:
7
<PAGE>
(a) Newco and Seller shall deliver to counsel for Buyer for filing
with the Secretary of State of the State of Ohio the duly executed Ohio Articles
of Merger and, to counsel for Buyer for filing with the Secretary of State of
the State of Delaware, the Delaware Certificate of Merger, and the parties shall
take all such other and further actions as may be required by the ORC and the
DGCL and any other applicable Law to make the Merger effective upon the terms
and subject to the conditions hereof;
(b) Buyer shall deliver the Merger Consideration to the Stockholders,
consisting of the Cash Merger Consideration and the Stock Merger Consideration.
The Cash Consideration shall be delivered in immediately available funds in
accordance with SCHEDULE 3.2. The Stock Merger Consideration shall all be
registered in the names of the respective Stockholders or their designees, and
in due and proper form, as set forth on SCHEDULE 3.2; and
(c) the parties shall also deliver to each other the respective
agreements, legal opinions and other documents and instruments specified with
respect to them in Sections 9 and 10.
40 REPRESENTATIONS AND WARRANTIES OF SELLER PARTIES.
Seller Parties, jointly and severally (subject to the terms of Sections 4.4
and 4.29 below), hereby represent and warrant to Buyer as follows:
4.1 CORPORATE STATUS. Seller is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Ohio and is
qualified to do business as a foreign corporation in every jurisdiction where it
is required to be so qualified, except where the failure to be so qualified
would not have a Material Adverse Effect. Since its inception, Seller has been
an S corporation within the meaning of Section 1361 of the Code, and any similar
provision under each jurisdiction where Seller has done business prior to the
Closing Date. The Charter Documents and Code of Regulations of Seller that have
been delivered to Buyer as of the date hereof are effective under applicable
Laws and are current, correct and complete.
4.2 AUTHORIZATION. Seller has the requisite power and authority to own
the Assets and to carry on the Business. Seller has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions performed or to be performed by it. Such
execution, delivery and performance by Seller have been duly authorized by all
necessary corporate action, including approval by the Stockholders. Each
Transaction Document executed and delivered by Seller has been duly executed and
delivered by Seller and constitutes a valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as the same may
be limited by general principles of equity or any applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights.
4.3 CONSENTS AND APPROVALS. Except for filings that may be required to
effect the Merger under the ORC and the DGCL and any consents specified in
SCHEDULE 4.3 (collectively the "SELLER REQUIRED CONSENTS"), neither the
execution and delivery by any Seller Party of the Transaction Documents to which
it is a party, nor the performance of the Transactions performed or to be
performed by any Seller Party, require any filing, consent or approval,
constitute a Default or cause any payment obligation to arise under (a) the
Charter Documents or Code of Regulations of Seller, (b) any Law or Court Order
to which any Seller Party is subject, or (c) any Contract, Governmental Permit
or other document to which any Seller Party is a party or to which the
properties or other assets of any Seller Party may be subject, except, in the
case of clauses (b) and (c), where the failure to obtain such consents or
approvals, or to make such filings, would not have a Material Adverse Effect.
4.4 STOCK OWNERSHIP. The Stockholders are the sole record and
beneficial owners of all of the issued and outstanding shares of capital stock
of Seller, and the respective shares owned by the Stockholders are specified on
SCHEDULE 4.4. Except as set forth on SCHEDULE 4.4, there are no existing
options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or
8
<PAGE>
unissued shares of capital stock of Seller. Seller has no shares of treasury
stock of any nature whatsoever. Each Stockholder, individually, and not jointly
or severally, represents and warrants that, except as set forth on SCHEDULE 4.4,
it owns all of its issued and outstanding shares of capital stock of Seller free
and clear of any Encumbrances, including, without limitation, any agreement,
understanding or restriction affecting the voting rights or other incidents of
record or beneficial ownership pertaining to such shares of capital stock.
4.5 FINANCIAL STATEMENTS. Attached hereto as SCHEDULE 4.5 are the
following financial statements of Seller (collectively the "FINANCIAL
STATEMENTS"): (i) unaudited balance sheet and statement of income, changes in
stockholders' equity, and cash flow as of and for the fiscal year ended December
31, 1998, and (ii) unaudited balance sheet and statement of income, changes in
stockholders' equity, and cash flow as of and for the three month period ended
March 31, 1999. The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby and present fairly the financial condition of Seller
as of such dates and the results of operations of Seller for such periods. The
balance sheet of Seller as of March 31, 1999 that is included in the Financial
Statements is referred to herein as the "BALANCE SHEET," and the date thereof is
referred to as the "BALANCE SHEET DATE."
4.6 TITLE TO ASSETS AND RELATED MATTERS. Seller has good and marketable
title to, valid leasehold interests in or valid licenses to use, all of its
Assets, free from any Encumbrances except those specified in SCHEDULE 4.6. The
use of the Assets are not subject to any Encumbrances (other than those
specified in the preceding sentence), and such use does not encroach on the
property or rights of anyone else. Except as set forth on SCHEDULE 4.6, all
tangible personal property (other than Inventory) included in the Assets is
suitable for the purposes for which it is used, is in good working condition,
reasonable wear and tear excepted, and is free from any known defects.
4.7 REAL PROPERTY. SCHEDULE 4.7 describes all real estate used in the
operation of the Business as well as any other real estate that is owned, in the
possession of or leased by Seller and the improvements (including and other
structures) located on such real estate (collectively, the "REAL PROPERTY"), and
lists any lease buildings under which any such Real Property is possessed (the
"REAL ESTATE LEASES"). SCHEDULE 4.7 also describes any other real estate
previously owned, leased, occupied or otherwise operated by Seller and the time
periods of any such ownership, lease, occupation or operation. All of the Real
Property (a) is usable in the ordinary course of business and (b) to Seller's
knowledge, conforms with any applicable Laws relating to its construction, use
and operation and with applicable zoning Laws.
4.8 CERTAIN PERSONAL PROPERTY. SCHEDULE 4.8 describes all items of
tangible personal property that were included in the Balance Sheet and which
have a depreciated value in excess of $10,000. Except as specified in SCHEDULE
4.8, since the Balance Sheet Date, Seller has not acquired any items of tangible
personal property that have a depreciated value in excess of $10,000. All of
such personal property included in SCHEDULE 4.8 is usable in the ordinary course
of business, and all such personal property included in SCHEDULE 4.8 conforms
with any applicable Laws relating to its construction, use and operation.
Except for those items subject to the Non-Real Estate Leases, no Person other
than Seller owns any vehicles, equipment or other tangible assets that have been
used in the Business or that are necessary for the operation of the Business.
4.9 NON-REAL ESTATE LEASES. SCHEDULE 4.9 lists all assets and property
(other than Real Property) that are possessed by Seller under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $10,000 (each, an "IMMATERIAL LEASE"). SCHEDULE 4.9 also lists
the leases under which such assets and property listed in SCHEDULE 4.8 are
possessed. All of such leases (excluding Immaterial Leases) are referred to
herein as the "NON-REAL ESTATE LEASES."
4.10 ACCOUNTS RECEIVABLE. Except as set forth on SCHEDULE 4.10, all
accounts receivable of Seller (a) are valid and genuine, (b) arise out of bona
fide sales and deliveries of goods, performance of services or other business
transactions, (c) will be collected in full within 90 days after the Closing
Date, (d) to Seller's knowledge,
9
<PAGE>
are not subject to valid defenses, set-offs or counterclaims other than normal
returns and allowances, and (e) were generated only in the ordinary course of
business.
4.11 INVENTORY AND EQUIPMENT. Seller has no Inventory. All equipment
of Seller is reflected on the Balance Sheet, and all equipment owned by Seller
was acquired and has been maintained in accordance with the regular business
practices of Seller, consists of items of a quality and quantity useable in the
ordinary course of Seller's business consistent with past practice, and is
valued on the Balance Sheet in conformity with generally accepted accounting
principles applied on a consistent basis. No significant amount of such
equipment is obsolete.
4.12 LIABILITIES. Except for any Liabilities which would not
individually or in the aggregate have a Material Adverse Effect, Seller does not
have any Liabilities, other than (a) Liabilities specified in SCHEDULE 4.12, (b)
Liabilities specified in the Balance Sheet (except as heretofore paid or
discharged), (c) Liabilities incurred in the ordinary course since the Balance
Sheet Date (none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of Contract, breach of warranty, tort,
infringement or violation of Law), none of which represents a loss or potential
loss to the Company of an amount greater than $5,000, and (d) Liabilities under
any Contracts that are specifically disclosed in SCHEDULE 4.12 (or not required
to be disclosed because of the term or amount involved) that were not required
under GAAP to have been specifically disclosed or reserved for on the Balance
Sheet. Except for the indebtedness for borrowed money described on SCHEDULE
4.12 (the "OUTSTANDING INDEBTEDNESS") and indebtedness incurred in the ordinary
course of business, the Company does not have any Liabilities for borrowed
money. All of the Outstanding Indebtedness will be extinguished prior to the
Effective Time.
4.13 TAXES. Except as set forth on SCHEDULE 4.13,
(a) Seller has timely filed all Tax Returns required to be filed on
or before the Closing Date and all such Tax Returns are true, correct and
complete in all material respects. Seller has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return. No claim has ever
been made by any authority in any jurisdiction where Seller does not file Tax
Returns that Seller may be subject to taxation in that jurisdiction.
(b) The amount of Seller's liability for unpaid Taxes as of the
Balance Sheet Date did not exceed the amount of the current liability accruals
for Taxes (excluding reserves for deferred Taxes) shown on the Balance Sheet,
and the amount of Seller's liability for unpaid Taxes for all periods or
portions thereof ending on or before the Closing Date (including any Taxes
resulting from the termination of Seller's status as an S corporation) will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals are reflected on the books and
records of Seller on the Closing Date.
(c) Seller has no knowledge of any ongoing examinations or claims
against Seller for Taxes, and no notice of any audit, examination or claim for
Taxes, whether pending or threatened, has been received. Seller has not waived
or extended the statute of limitations with respect to the collection or
assessment of any Tax.
(d) Seller currently has, and in each year since its incorporation
has had, a taxable year ended on December 31. Seller currently utilizes the
accrual method of accounting for income Tax purposes and such method of
accounting has not changed since Seller's incorporation. Seller has not agreed
to, and is not and will not be required to, make any adjustments under Code
Section 481(a) as a result of a change in accounting methods.
(e) Seller has withheld and paid over to the proper governmental
authorities all Taxes required to have been withheld and paid over, and complied
with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto, in connection with amounts
paid to any employee, independent contractor, creditor or third party.
10
<PAGE>
(f) Copies of (A) any Tax examinations, (B) extensions of statutory
limitations for the collection or assessment of Taxes and (C) all of the Tax
Returns of Seller since Seller's incorporation have been made available to
Buyer.
(g) There are (and as of immediately following the Closing there
will be) no Liens on the assets of Seller relating to or attributable to Taxes,
except for liens for Taxes not yet due. To Seller's knowledge, there is no basis
for the assertion of any claim relating to or attributable to Taxes which, if
adversely determined, would result in any Lien on the assets of Seller or
otherwise have a Material Adverse Effect.
(h) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Seller that, individually or collectively, could
give rise to any payment (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code. Seller has not filed a
consent under Section 341(f) of the Code. Seller is not and has not been a
United States real property holding company within the meaning of Code Section
897(c) during the period specified in Code Section 897(c)(1)(A)(ii).
(i) Seller is not or has not been at any time, a party to a tax
sharing, tax indemnity or tax allocation agreement, and Seller has not assumed
the tax liability of any other person under contract.
(j) To the knowledge of Seller, Seller has not taken any action or
refrained from taking any action that would cause the Merger not to qualify as a
reorganization as defined under Code Section 368(a)(1)(A) and Code Section
368(a)(2)(D).
4.14 SUBSIDIARIES. Seller does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
limited liability company, trust, joint venture or other legal entity.
4.15 LEGAL PROCEEDINGS AND COMPLIANCE WITH LAW.
(a) Except as set forth in SCHEDULE 4.15, to Seller's knowledge,
there is no Litigation that is pending or threatened against Seller. There has
been no Default under any Laws applicable to Seller, including Laws relating to
pollution or protection of the environment, and Seller has not received any
notices from any governmental entity regarding any alleged Defaults under any
Laws. There has been no Default with respect to any Court Order applicable to
Seller.
(b) Without limiting the generality of Section 4.15(a), except as
described in SCHEDULE 4.15, there is not and never has been any Environmental
Condition (i) at the premises at which the Business has been conducted by Seller
or any predecessor of Seller, (ii) (A) at any property owned, leased, occupied
or operated at any time by Seller or (B) at any property owned, leased, occupied
or operated at any time by any Person controlled by Seller or any predecessor of
any of them in connection with the Business, or (iii) at any property at which
wastes have been deposited or disposed by, from or at the behest or direction of
any of the foregoing, nor has Seller received written notice of any such
Environmental Condition. "ENVIRONMENTAL CONDITION" means any condition or
circumstance, including the presence of Hazardous Substances, whether created by
Seller or any third party, at or relating to any such property or premises
specified in any of clauses (i) through (iii) above that did, does or may
reasonably be expected to (A) require abatement or correction under an
Environmental Law, (B) give rise to any civil or criminal liability on the part
of Seller under an Environmental Law, or (C) create a public or private
nuisance.
(c) Seller has delivered to Buyer complete copies of any written
reports, studies or assessments in the possession or control of any Seller Party
that relate to any Environmental Condition and to the Business or any Assets and
has identified on SCHEDULE 4.15 all other reports, studies and assessments of
which any Seller Party has knowledge.
11
<PAGE>
(d) Seller has obtained and is in full compliance with all
Governmental Permits, all of which are listed in SCHEDULE 4.15 along with their
respective expiration dates, that are required for the complete operation of the
Business as currently operated or that relate to the Real Property, (ii) all of
such Governmental Permits are currently valid and in full force and (iii) Seller
has filed such timely and complete renewal applications as may be required with
respect to its Governmental Permits. To Seller's knowledge, no revocation,
cancellation or withdrawal thereof has been threatened.
4.16 CONTRACTS.
(a) SCHEDULE 4.16 lists all Contracts of the following types to which
Seller is a party or by which it is bound:
(i) Contracts with any present or former stockholder, director,
officer, employee, partner or consultant of Seller or any Affiliate
thereof.
(ii) Contracts for the future purchase of, or payment for,
supplies or products, or for the lease of any real or personal
property from or the performance of services by a third party, in
excess of $1,000 in any individual case, or any Contracts for the
sale of products that involve an amount in excess of $5,000 with
respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to perform
services that involve an amount in excess of $5,000 in any individual
case;
(iv) Contracts to lease to or to operate for any other party any
real or personal property that involve an amount in excess of $5,000
in any individual case;
(v) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other Contracts for the
borrowing or lending of money (including loans to or from officers,
directors, partners, stockholders or Affiliates of Seller or any
members of their immediate families), agreements or arrangements for
a line of credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
(vii) Any other Contracts (other than those Contracts described
in any of (i) through (vi) above) not made in the ordinary course of
business.
(b) The Contracts listed in SCHEDULE 4.16 are referred to herein as
the "SELLER CONTRACTS." Seller is not in Default under any Seller Contracts
(including any Real Estate Leases and Non-Real Estate Leases). Seller has not
received any communication from, or given any communication to, any other party
indicating that Seller or such other party, as the case may be, is in Default
under any Seller Contract. To the knowledge of Seller, (i) none of the other
parties in any such Seller Contract is in Default thereunder, and (ii) each such
Seller Contract is enforceable against any other parties thereto in accordance
with terms thereof, except as the same may be limited by general principles of
equity or any applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights
4.17 INSURANCE. SCHEDULE 4.17 lists all policies or binders of insurance
held by or on behalf of Seller, specifying with respect to each policy the title
of the policy, the insurer, the amount of the coverage, the expiration date, the
policy number and any pending claims thereunder. To Seller's knowledge, there is
no Default with respect to any such policy or binder, nor has there been any
failure to give any notice or present any claim under any such
12
<PAGE>
policy or binder in a timely fashion or in the manner or detail required by the
policy or binder. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that has been
received by Seller.
4.18 INTELLECTUAL PROPERTY.
(a) INTELLECTUAL PROPERTY. Except as disclosed on SCHEDULE 4.18(A),
there is no Intellectual Property necessary for the conduct of the Business and
operations of Seller (as now conducted and as proposed to be conducted). A list
of all Intellectual Property owned by Seller, or with respect to which Seller
has filed an application, is set forth on SCHEDULE 4.18(A). There are no
outstanding options, licenses or agreements of any kind to which Seller is a
party or by which it is bound relating to any Intellectual Property, whether
owned by Seller or another person, except as disclosed on SCHEDULE 4.18(A). The
business of Seller as formerly and presently conducted did not and does not
utilize any Intellectual Property right, and did not and does not conflict with
or infringe upon any Intellectual Property right, owned or claimed by another.
(b) CONTRACTS. SCHEDULE 4.18(B) contains a complete and accurate list
and summary description, including any royalties paid or received by Seller, of
all Contracts relating to the Intellectual Property to which Seller is a party
or by which Seller is bound, except for any license implied by the sale of a
product and perpetual, paid-up licenses for commonly available software programs
with a value of less than $1,000 under which Seller is the licensee. There are
no outstanding and, to Seller's knowledge, no threatened disputes or
disagreements with respect to any such agreement, except for such disputes or
disagreements which would not have a Material Adverse Effect.
(c) ENCUMBRANCES ON INTELLECTUAL PROPERTY. Except as described on
SCHEDULE 4.18(C), Seller is the owner of all right, title and interest in and to
each item of Intellectual Property, free and clear of any Encumbrances, and has
the right to use without payment to a third party all of the Intellectual
Property.
4.19 EMPLOYEES.
(a) Except as disclosed on SCHEDULE 4.19(A), Seller is not a party to
any Contract or other employment agreement with any of its employees. All
employees of Seller other than those listed on SCHEDULE 4.19(A) are at-will
employees terminable, without any further obligations, immediately upon notice
thereof, subject to any discrimination or civil rights violations.
(b) Seller is not (i) a party to, involved in or, to Seller's
knowledge, threatened by, any labor dispute or unfair labor practice charge, or
(ii) currently negotiating any collective bargaining agreement. Seller has not
experienced during the last three years any work stoppage. Seller has delivered
to Buyer a complete and correct list of the names and salaries, bonus and other
cash compensation of all employees (including officers) of Seller. SCHEDULE
4.19(B) lists the current directors and officers of Seller.
4.20 ERISA.
(a) SCHEDULE 4.20 contains a complete list of all Benefit Plans
sponsored or maintained by Seller or under which Seller is obligated. The
Benefit Plans listed on SCHEDULE 4.20 will terminate upon Closing and
thereafter, Seller shall have no further liability or obligations whatsoever
with respect to such Benefit Plans. Seller will provide all employees of Seller
notices as required by the Consolidated Omnibus Budget Reconciliation Act of
1985 and the Health Insurance Portability and Accountability Act of 1996.
(b) Seller does not sponsor a defined benefit plan subject to Title IV
of ERISA, nor does it have a current or contingent obligation to contribute to
any multiemployer plan (as defined in Section 3(37) of ERISA). Seller does not
have any liability with respect to any employee benefit plan (as defined in
Section 3(3) of ERISA).
13
<PAGE>
(c) There are no pending or, to the knowledge of Seller, any
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of Seller or any of its officers, directors
or employees under any Laws or any applicable regulations, or claiming benefit
payments (other than those made in the ordinary operation of such plans), nor is
there, to the knowledge of Seller, any basis for such claim. The Benefit Plans
are not the subject of any pending (or to the knowledge of Seller, any
threatened) investigation or audit by the Internal Revenue Service or the
Department of Labor.
(d) Seller has timely made all required contributions under such
Benefit Plans.
4.21 CORPORATE RECORDS. The minute book of Seller contains complete,
correct and current copies of its Charter Documents and Code of Regulations and
of all minutes of meetings, resolutions and other proceedings of its Board of
Directors and stockholders. The stock record books of Seller are complete,
correct and current.
4.22 ABSENCE OF CERTAIN CHANGES. Except as contemplated by this
Agreement or except as disclosed on SCHEDULE 4.22, Seller has conducted the
Business in the ordinary course since the Balance Sheet Date, and there has not
been with respect to Seller, the Assets or the Business any of the items
specified below since the Balance Sheet Date:
(a) any change in the operations or condition (financial or otherwise)
that has had or is reasonably likely to have a Material Adverse Effect;
(b) except as disclosed in SCHEDULE 4.22, any distribution or payment
declared or made in respect of its capital stock by way of dividends,
purchase or redemption of shares or otherwise;
(c) except as disclosed in SCHEDULE 4.22, any increase in the
compensation payable or to become payable to any director, officer,
employee or agent, except for increases for non-officer employees made in
the ordinary course of business, nor any other change in any employment or
consulting arrangement;
(d) any sale, assignment or transfer of Assets, or any additions to or
transactions involving any Assets, other than those made in the ordinary
course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(f) other than in the ordinary course of business, any incurrence of a
material liability including, without limitation, indebtedness for borrowed
money;
(g) any payments to any Affiliate of Seller, except as specified in
SCHEDULE 4.22;
(h) except as disclosed in SCHEDULE 4.22, any material change in the
net worth or working capital of Seller, as reflected on the Balance Sheet; or
(i) any actual or threatened trouble or disruption in the relations
between Seller and its agents, customers or suppliers.
4.23 CUSTOMERS. SCHEDULE 4.23 contains a list of the names of each of
the 10 customers that, in the aggregate, for the period from May 1, 1998 through
May 1, 1999 were the largest dollar volume customers of products or services, or
both, sold by Seller. Except as specified in SCHEDULE 4.23, none of such
customers has
14
<PAGE>
given Seller written notice terminating, canceling or threatening to terminate
or cancel any Contract or relationship with Seller.
4.24 PREVIOUS SALES; WARRANTIES. Seller has not breached any express or
implied warranties in connection with the sale or distribution of goods or the
performance of services, except for breaches that, individually and in the
aggregate, would not have a Material Adverse Effect.
4.25 FINDER'S FEES. No Person retained by any Seller Party is or will
be entitled to any commission or finder's or similar fee in connection with the
Transactions.
4.26 ACCURACY OF INFORMATION. To Seller's knowledge, no representation
or warranty by any Seller Party in any Transaction Document, and no information
contained therein or otherwise delivered by or on behalf of any Seller Party to
Buyer in connection with the Transactions, including the Financial Statements,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
4.27 INVESTIGATION AND EVALUATION; RISK. Seller and the Stockholders
have not relied on Buyer or any of its directors, officers, attorneys,
accountants and advisors with respect to any matter in connection with Seller's
and the Stockholders' evaluation of Buyer and its business, assets and
liabilities and the Transactions, other than the representations and warranties
of Buyer specifically set forth in Article V and other documents filed publicly
by Seller with the Securities and Exchange Commission. Stockholders each
understand that their investment in the Securities involves a significant degree
of risk.
4.28 INVESTMENT PURPOSE. As of the date hereof, each Stockholder is
acquiring the Buyer's Common Stock (such shares of Buyer's Common Stock being
referred to herein as the "SECURITIES") for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the Securities Act;
provided, however, that by making the representation herein, Stockholders do not
- -------- -------
agree to hold any of the Securities for any minimum or other specific term and
reserve the right to dispose of the Securities at any time in accordance with or
pursuant to a registration statement or an exemption under the Securities Act.
4.29 ACCREDITED INVESTOR. Each Stockholder individually, and not
jointly or severally, represents and warrants that it is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "ACCREDITED
INVESTOR").
4.30 RELIANCE ON EXEMPTIONS. Each Stockholder understands that the
Securities are being offered and sold to them in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that Buyer is relying upon the truth and accuracy of, and
Seller's and Stockholders' compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Seller and Stockholders set
forth herein in order to determine the availability of such exemptions and the
eligibility of Stockholders to acquire the Securities.
4.31 GOVERNMENTAL REVIEW. Stockholders each understand that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
4.32 TRANSFER OR RE-SALE. Each Stockholder understands that (i) the
sale or re-sale of the Securities has not been and is not being registered under
the Securities Act or any applicable state securities laws, and the Securities
may not be transferred unless (a) such sale or re-sale is subsequently included
in an effective registration statement thereunder, (b) sold or transferred to an
Aaffiliate@ (as defined in Rule 144 promulgated under the Securities Act (or a
successor rule) (ARULE 144")) of Stockholders who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 4.32 and who is an
Accredited Investor or (c) the Securities are sold
15
<PAGE>
pursuant to Rule 144 or any other applicable exemption; (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any re-sale of
such Securities under circumstances in which Seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission thereunder; and (iii) none of the Stockholders nor any other person
is under any obligation to register such Securities under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
4.33 LEGENDS. Each Stockholder understands that, until such time as the
Securities have been registered under the Securities Act or otherwise may be
sold pursuant to Rule 144 or any other applicable exemption without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the Securities may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities may not be
sold, transferred or assigned in the absence of an effective registration
statement for the securities under said Act, or an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, that registration is not required under said Act or unless
sold pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and Buyer shall issue a certificate
without such legend to the holder of any Securities upon which it is stamped,
if, unless otherwise required by applicable state securities laws, (a) such
Securities are registered for sale under an effective registration statement
filed under the Securities Act, or (b) such holder provides Buyer with
reasonable assurances that such Securities can be sold pursuant to Rule 144
without any restriction as to the number of Securities acquired as of a
particular date that can then be immediately sold. Stockholders each agree to
sell all Securities, including those represented by a certificate(s) from which
the legend has been removed, in compliance with applicable prospectus delivery
requirements, if any.
4.34 ADDITIONAL INFORMATION. SCHEDULE 4.34 accurately lists the
following:
(a) the names and addresses of every bank or other financial
institution in which Seller maintains an account (whether checking, saving
or otherwise), lock box or safe deposit box, and the account numbers and
names of Persons having signing authority or other access thereto; and
(b) all names under which Seller has conducted the Business or which
it has otherwise used at any time during the past five years.
4.35 WEBSITE TRAFFIC. Attached hereto as SCHEDULE 4.35 is a report of
Seller (the "WEBSITE TRAFFIC STATEMENTS") setting forth, to Seller's knowledge,
the number of users and visitors to Techspex.com and Toolcrib.net ("TECHSPEX
WEBSITES") for the year ended December 31, 1998 and for the three month period
ended March 31, 1999. Seller does not own the domain name, copyright or
language code with respect to, or otherwise have any interest in, any Internet
websites other than the Techspex Websites. To Seller's knowledge, the Website
Traffic Statements are true, correct and complete and present fairly the number
of users and visitors to each of the Techspex Websites for the periods
indicated.
50 REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller Parties as follows:
16
<PAGE>
5.1 ORGANIZATIONAL STATUS. Buyer is a corporation duly organized,
validly existing and in good standing under the Laws of the Commonwealth of
Pennsylvania and is qualified to do business in every jurisdiction where it is
required to be so qualified, except where the failure to be so qualified would
not have a material adverse effect on the Company. The Charter Documents of
Buyer that have been delivered to Seller as of the date hereof are effective
under applicable Laws and are current, correct and complete. Newco is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Delaware and is qualified to do business in every jurisdiction
where it is required to be so qualified, except where the failure to be so
qualified would not have a material adverse effect on Newco.
5.2 AUTHORIZATION. Buyer and Newco have the requisite power and
authority to own their assets and to carry on their business. Buyer and Newco
have the requisite power and authority to execute and deliver the Transaction
Documents to which they are a party and to perform the Transactions performed or
to be performed by them. Such execution, delivery and performance by Buyer and
Newco have been duly authorized by all necessary corporate action. Each
Transaction Document executed and delivered by Buyer has been duly executed and
delivered by Buyer and constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as the same may
be limited by general principles of equity or any applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights. Each Transaction Document executed and delivered
by Newco has been duly executed and delivered by Newco and constitutes a valid
and binding obligation of Newco, enforceable against Newco in accordance with
its terms, except as the same may be limited by general principles of equity or
any applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights.
5.3 CONSENTS AND APPROVALS. Except for filings that may be required to
effect the Merger under the ORC and the DGCL (the "BUYER REQUIRED CONSENTS"),
neither the execution and delivery by Buyer of the Transaction Documents to
which it is a party, nor the performance of the Transactions performed or to be
performed by Buyer, require any filing, consent or approval, constitute a
Default or cause any payment obligation to arise under (a) any Law or Court
Order to which Buyer is subject, (b) the Charter Documents or Bylaws of Buyer or
(c) any Contract, Governmental Permit or other document to which Buyer is a
party or by which the properties or other assets of Buyer may be subject,
except, in the case of clauses (a) and (c), where the failure to obtain such
consents or approvals, or to make such filings, would not have a material
adverse effect on the business and operations of the Buyer.
5.4 CAPITALIZATION AND SHARE OWNERSHIP. Upon consummation of the
Transactions and as of the Closing Date, the authorized capital stock of Buyer
consists of 90,000,000 shares of Buyer's Common Stock. As of May 31, 1999,
16,842,548 of such shares of Buyer's Common Stock were issued and outstanding
and 161,340 shares were held by Buyer as treasury stock. Additionally, as of
May 31, 1999, there were outstanding options to purchase 2,427,960 shares of
Buyer's Common Stock pursuant to the terms of the Buyer's Amended and Restated
1996 Equity Compensation Plan, as amended. Buyer owns all of the issued and
outstanding shares of capital stock of Newco, and all of such capital stock has
been validly issued and is fully paid and nonassessable.
5.5 FINDER'S FEES. No Person retained by Buyer is or will be entitled
to any commission or finder's or similar fee in connection with the
Transactions.
5.6 ACCURACY OF INFORMATION. To Buyer's actual knowledge, no
representation or warranty by Buyer in any Transaction Document, and no
information contained therein or otherwise delivered by or on behalf of Buyer to
any other Party in connection with the Transactions contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements contained herein or therein not misleading.
5.7 SURVIVAL OF NEWCO. Buyer represents and warrants that it has no plan
or intention to, and that it will not, for a period of one year after the
Closing Date (the "POST-MERGER CONTINUITY PERIOD"), liquidate Newco, merge Newco
with and into another corporation, sell or otherwise dispose of any of the stock
of Newco, or cause
17
<PAGE>
Newco to sell or otherwise dispose of any of the assets of Seller acquired
pursuant to this Agreement, except for dispositions made in the ordinary course
of business.
5.8 REACQUISITON OF BUYER'S COMMON STOCK. Buyer represents and warrants
that it has no plan or intention to reacquire any of the Buyer's Common Stock
issued as the Stock Merger Consideration pursuant to Section 2.6(c) of this
Agreement.
5.9 CONTINUITY OF BUSINESS. The Buyer and Newco represent and warrant
that, following the transaction, Newco will continue the historic business of
Seller or use a significant portion of Seller's historic business assets in
Newco's business.
5.10 BUYER IN CONTROL OF NEWCO. The Buyer and Newco represent and warrant
that, prior to the Closing Date, and during the Post-Merger Continuity Period,
Buyer will be in control of Newco within the meaning of Section 368(c)(1) of the
Code.
60 COVENANTS OF SELLER PARTIES.
6.1 NO SOLICITATION. From and after the date hereof, without the prior
written consent of Buyer, each Seller Party will not, and will not authorize or
permit any Seller Representative to, directly or indirectly, solicit, initiate
or encourage (including by way of furnishing information) or take any other
action to facilitate knowingly any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to an Acquisition Proposal
from any Person, or engage in any discussion or negotiations relating thereto or
accept any Acquisition Proposal. Any Seller Party that receives any such
inquiries, offers or proposals shall (a) notify Buyer orally and in writing of
any such inquiries, offers or proposals (including the terms and conditions of
any such proposal and the identity of the person making it), within 48 hours of
the receipt thereof, (b) keep Buyer informed of the status and details of any
such inquiry, offer or proposal, and (c) give Buyer five days' advance notice of
any agreement to be entered into with, or any information to be supplied to, any
Person making such inquiry, offer or proposal. As used herein, "ACQUISITION
PROPOSAL" means a proposal or offer (other than pursuant to this Agreement) for
a tender or exchange offer, merger, consolidation or other business combination
involving any or any proposal to acquire in any manner a substantial equity
interest in, or all or substantially all of the Assets.
6.2 EXISTING EMPLOYMENT AGREEMENTS AND OTHER LIABILITIES. Nick Bloom,
effective as of the Closing, hereby consents to the cancellation of that certain
Employment Agreement, dated May 1, 1996, between he and Seller, and also
releases and discharges Seller and any of its Affiliates from any and all
Liabilities other than those arising out of this Agreement or any other
Transaction Documents and those related to wages due to the him in the ordinary
course.
6.3 EXPENSES. The Stockholders shall cause to be paid prior to the
Closing all of the legal, accounting and other expenses incurred by the Seller
Parties in connection with the Transactions.
6.4 NON-COMPETITION AND CONFIDENTIALITY.
(a) During the period beginning on the Closing Date and ending on the
fifth anniversary thereof (the "NON-COMPETITION PERIOD"), no Seller Party or
Affiliate of any Seller Party (each, a "RESTRICTED PARTY") shall, within North
America, directly or indirectly, in any capacity, render services, engage or
have a financial interest in, any business that shall be competitive with any of
those business activities in which the Business has been engaged, including
providing maintenance and repair services, applications and software consulting,
spare parts and logistical support for imaging equipment and related processes
(other than a Permitted Business), nor shall any Restricted Party assist any
Person that shall be engaged in any such business activities, including by
making available to any such Person any information related to the Business
(other than a Permitted Business). As used herein, the term "Permitted
Business" means any business or enterprise in the machine tool industry that is
not principally in the business of owning or operating industrial trade
communities or portal sites on
18
<PAGE>
the Internet. The foregoing restriction, however, shall not restrict a
Restricted Party's ability to own up to 1% of any entity whose equity securities
are traded on NASDAQ or on a national securities exchange. In addition, no
Restricted Party shall solicit any employee of the Business for the purposes of
having any such employee terminate his or her employment with the Business. If a
court determines that the foregoing restrictions are too broad or otherwise
unreasonable under applicable law, including with respect to time or space, the
court is hereby requested and authorized by the parties hereto to revise the
foregoing restriction to include the maximum restrictions allowable under
applicable law. Each Restricted Party acknowledges, however, that this Section
6.4 has been negotiated by the Parties and that the geographical and time
limitations, as well as the limitation on activities, are reasonable in light of
the circumstances pertaining to the Business.
(b) Each Seller Party recognizes and acknowledges that by reason of
its or his involvement with or employment in the Business, it or he has had
access to Trade Secrets relating to the Business. Each Seller Party
acknowledges that such Trade Secrets are a valuable and unique asset and
covenants that it or he will not disclose any such Trade Secrets to any Person
for any reason whatsoever, unless such information (a) is in the public domain
through no wrongful act of such Seller Party, (b) has been rightfully received
from a third party without restriction and without breach of this Agreement or
(c) except as may be required by law.
(c) The Seller Parties agree that the rights and privileges granted to
the Buyer by the Seller Parties pursuant to this Section 6.4 of this Agreement,
are of a special and unique character, the loss of which may not be reasonably
or adequately compensated in damages in any action at law, and that a breach by
any Seller Party of this Section 6.4 may cause the Buyer irreparable harm.
Accordingly, the Seller Parties hereby expressly agree that in the event of any
breach or threatened breach by any Seller Party of any provision of Section 6.4,
Buyer will be entitled to seek injunctive or other equitable relief, restraining
such party from using or disclosing any Trade Secrets in whole or in part, or
from engaging in conduct that would constitute a breach of the obligations of a
Seller Party under this Section 6.4. Such relief shall be in addition to and
not in lieu of any other remedies that may be available against such party,
including an action for the recovery of Damages, all of which may be sought only
in accordance with the arbitration provisions of this Agreement.
(d) The terms of this Section 6.4 shall apply to each Seller Party and
to any other Person controlled by any Seller Party and any of their respective
Affiliates that it or he controls to the same extent as if they were parties
hereto, and each such party shall take whatever actions may be necessary to
cause any such party or Affiliate to adhere to the terms of this Section 6.4.
6.5 TRANSFER OF ASSETS AND BUSINESS. Seller shall take such reasonable
steps as may be necessary or appropriate, in the judgment of Buyer, so that
Buyer shall be placed in actual possession and control of all of the Assets and
the Business.
6.6 BUSINESS RELATIONS. Seller shall use commercially reasonable
efforts to maintain its relations and goodwill with its suppliers, customers,
distributors and any others having business relations with it.
6.7 RELATED PARTIES. The Stockholders shall cause Seller to perform its
obligations hereunder and under any other Transaction Document.
7. COVENANTS OF BUYER.
7.1 FULFILLMENT OF CLOSING CONDITIONS. At and prior to the Closing, Buyer
shall use commercially reasonable efforts to fulfill the conditions specified in
Sections 9 and 10 to the extent that the fulfillment of such conditions is
within its control. In connection with the foregoing, Buyer will (a) refrain
from any actions that would cause any of its representations and warranties to
be inaccurate in any material respect as of the Closing, (b) execute and deliver
the applicable agreements and other documents referred to in Sections 9 and 10,
(c) comply in all material respects with all applicable Laws in connection with
its execution, delivery and performance of this Agreement and the Transactions,
(d) use commercially reasonable efforts to obtain in a timely manner all
necessary
19
<PAGE>
waivers, consents and approvals required under any Laws, Contracts or otherwise,
including any Buyer Required Consents, and (e) use commercially reasonable
efforts to take, or cause to be taken, all other actions and to do, or cause to
be done, all other things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the Transactions.
7.2 EXPENSES. Buyer shall pay all of the legal, accounting and other
expenses incurred by Buyer in connection with the Transactions.
7.3 ACCOUNTS RECEIVABLE. Buyer shall apply any payments received from
customers which comprise the accounts receivable of Seller as of the Closing
Date towards the settlement of the earliest invoices owed by such customers,
unless the customers or payments indicate otherwise.
8. MUTUAL COVENANTS.
8.1 FULFILLMENT OF CLOSING CONDITIONS. At and prior to the Closing,
each party shall use commercially reasonable efforts to fulfill, and to cause
each other to fulfill, as soon as practicable after the conditions specified in
Sections 9 and 10 to the extent that the fulfillment of such conditions is
within its or his control. In connection with the foregoing, each party will
(a) refrain from any actions that would cause any of its representations and
warranties to be inaccurate as of the Closing, and take any reasonable actions
within its control that would be necessary to prevent its representations and
warranties from being inaccurate as of the Closing, (b) execute and deliver the
applicable agreements and other documents referred to in Sections 9 and 10, (c)
comply with all applicable Laws in connection with its execution, delivery and
performance of this Agreement and the Transactions, (d) use commercially
reasonable efforts to obtain in a timely manner all necessary waivers, consents
and approvals required under any Laws, Contracts or otherwise, including any
Seller Required Consents in the case of the Seller Parties and any Buyer
Required Consents in the case of Buyer, (e) use commercially reasonable efforts
to take, or cause to be taken, all other actions and to do, or cause to be done,
all other things reasonably necessary, proper or advisable to consummate and
make effective as promptly as practicable the Transactions.
8.2 DISCLOSURE OF CERTAIN MATTERS. Each Seller Party on the one hand,
and Buyer, on the other hand, shall give Buyer and the Seller Parties,
respectively, prompt notice of any event or development that occurs of which
Seller Party or the Buyer, as the case may be, become aware, that (a) had it
existed or been known on the date hereof would have been required to be
disclosed by such party under this Agreement, (b) would cause any of the
representations and warranties of such party contained herein to be inaccurate
or otherwise misleading, except as contemplated by the terms hereof, or (c)
gives any such party any reason to believe that any of the conditions set forth
in Section 9 or 10 will not be satisfied prior to the Termination Date (defined
below).
8.3 PUBLIC ANNOUNCEMENTS. The Seller Parties and Buyer shall consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the Transactions and, except as may be
required by applicable law, none of such Parties nor any other Parties shall
issue any such press release or make any such public statement without the
consent of the other parties hereto.
8.4 CONFIDENTIALITY. If the Transactions are not consummated, each
party shall treat all information obtained in its investigation of another party
or any Affiliate thereof, and not otherwise known to them or already in the
public domain, as confidential and shall return to such other party or Affiliate
all copies made by it or its representatives of Confidential Information
provided by such other party or Affiliate, and shall comply with the terms of
that certain Letter dated April 21, 1999 executed by Buyer, Seller and certain
of the Stockholders.
8.5 NO TAX ALLOCATION TO RESTRICTIVE COVENANTS. Buyer, Seller and
Stockholders acknowledge and agree that no allocation of the Merger
Consideration is to be made to the covenant-not-to-compete and confidentiality
agreement referenced to in Section 6.4 hereof. Buyer, Seller and Stockholders
agree to file all income tax returns consistent with this Section 8.5.
20
<PAGE>
8.6 TAXES PRIOR TO THE CLOSING DATE. Notwithstanding any provision
contained in this Agreement to the contrary, the following provisions shall
apply:
(a) The Buyer and Newco agree that the Stockholders and their duly
appointed representatives shall have the sole right to handle, manage,
negotiate, resolve, settle or contest any audit of any of Seller's, or Newco's
federal, state and local income tax, foreign tax, or any other tax returns for
tax attributable to any period ending on or before the Closing Date; provided,
however, that the Stockholders shall not settle, compromise or abandon without
Buyer's prior written consent any such audit which, when offset by the then
present value of any tax benefits available to Seller or Buyer by reason of any
such settlement (taken into account as and when Buyer reasonably believes such
tax benefits could be utilized to reduce the tax liability of Seller, Newco or
the Buyer), would adversely affect the tax liability of Seller, Newco or the
Buyer in any period to any extent (including, but not limited to, the imposition
of income tax deficiencies, the reduction of asset basis or cost adjustments,
the lengthening of any amortization or depreciation periods, the denial of
amortization or depreciation deductions, or the reduction of loss or credit
carry forwards). Such consent shall not be unreasonably withheld, and shall not
be necessary to the extent the Stockholders have indemnified the Buyer against
the effects of any such settlement. Newco and the Buyer shall promptly notify
the Stockholders of the commencement of any tax audit described in this Section
8.5(a).
(b) The Buyer and Newco agree that the Stockholders shall be
responsible for preparing a draft of all tax returns due after the Closing Date
relating to periods ending on or before the Closing Date ("Draft Tax Returns").
The Stockholders shall (i) in respect of the Draft Tax Returns, determine the
income, gain, expenses, losses, deductions and credits of Seller in a manner
consistent with prior practice and in a manner that apportions such income,
gain, expenses, losses, deductions and credits under Seller's normal method of
accounting pursuant to Treas. Reg. Section 1.1362-3(a), and (ii) prepare such
returns in a manner consistent with prior years. The Buyer shall cause Newco to
provide the Stockholders and their accountants full access to the books,
records, facilities and employees of Seller and shall cooperate fully with the
Stockholders' accountants, in each case to the extent required by the
Stockholders' accountants, in order to prepare the Draft Tax Returns; provided,
however, that (A) such review shall be conducted in such a manner as not to
interfere unreasonably with the operation of the business of Newco and (B) the
Buyer shall not be required to supply the Stockholders' representatives with any
information which the Buyer shall be under a legal obligation not to supply, so
long as the Buyer provides the Stockholders or the Stockholders' representatives
with a detailed written explanation as to why it is under a legal obligation not
to supply such information.
(c) As soon as practicable after the Draft Tax Returns are prepared,
but in any event within 75 calendar days prior to the due date of such returns,
the Stockholders shall provide the Buyer the Draft Tax Returns and the work
papers relating to the same for the Buyer's Tax Accountants' review. Within 15
calendar days of the receipt by the Buyer of the Draft Tax Returns, the Buyer's
Tax Accountants shall provide to the Buyer, with a copy to the Stockholders, a
report indicating their agreement or objections to the Draft Tax Returns. Any
such objections shall be set forth in reasonable detail in a report (the
"Buyer's Tax Return Report") that shall indicate the grounds upon which the
Buyer's Tax Accountants dispute that the Draft Tax Returns are correct or
otherwise prepared on a basis consistent with that applied in the preparation of
the tax returns for prior years. Within 15 calendar days of the receipt by the
Buyer and the Stockholders of the Buyer's Tax Return Report, the Buyer and
Stockholders shall endeavor to agree on any matters in dispute. If the Buyer
and the Stockholders are unable to agree on any matters in dispute within 15
calendar days after the receipt of the Buyer's Tax Return Report, the matters in
dispute will be submitted for resolution to the National Office of Price
Waterhouse Coopers or such other independent accounting firm of national
reputation as may be mutually acceptable to the Stockholders and the Buyer (the
"Independent Tax Accounting Firm") which shall, within 30 calendar days of such
submission, determine and issue a written report to the Stockholders and the
Buyer upon such disputed items and such written decision shall be final and
binding upon the parties. The Stockholders and the Buyer agree to cooperate
with each other and each other's representatives to enable the Independent Tax
Accounting Firm to render a written decision as promptly as possible. The fees
and disbursements of the Independent Tax Accounting Firm shall be shared equally
by the Stockholders and the Buyer. The final tax returns incorporating the
resolution of the matters in dispute (if any)
21
<PAGE>
(the "Final Tax Returns") shall have the legal effect of an arbitral decision
and shall be final, binding and conclusive on the parties hereto. In acting
under this Agreement, the Buyer's Tax Accountants, the Stockholders'
accountants, and the Independent Tax Accounting Firm shall be entitled to the
privileges and immunities of arbitrators.
(d) The Buyer or Newco shall not, without the prior written consent of
the Stockholders, amend any federal, state or local tax return for any type of
tax of Seller or Newco relating to a period ending before the Closing Date.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER PARTIES.
All obligations of the Seller Parties to consummate the Transactions are
subject to the satisfaction (or waiver) prior thereto of each of the following
conditions:
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and warranties speak as of
an earlier date) shall also be true and correct on and as of the Closing Date
with the same force and effect as if made on and as of the Closing Date.
9.2 AGREEMENTS, CONDITIONS AND COVENANTS. Buyer shall have performed or
complied with all agreements, conditions and covenants required by this
Agreement to be performed or complied with by it on or before the Closing Date.
9.3 OFFICER'S CERTIFICATE. The Seller Parties shall have received a
certificate of an executive officer of Buyer to the effect set forth in Sections
9.1 and 9.2 with respect to Buyer.
9.4 SECRETARY'S CERTIFICATES. The Buyer shall have delivered to Seller a
certificate signed by the Secretary of the Buyer attaching true and correct
copies of (A) the Articles of Incorporation of the Buyer, (B) the Bylaws of the
Buyer, and (C) minutes of the Board of Directors authorizing the Buyer to enter
into this Agreement and the transactions and other agreements contemplated
hereby. The Buyer shall have delivered to Seller a certificate signed by the
Secretary of Newco attaching true and correct copies of (A) the Articles of
Incorporation of Newco, (B) the Bylaws of Newco, and (C) minutes of the Board of
Directors authorizing Newco to enter into this Agreement and the transactions
and other agreements contemplated hereby.
9.5 LEGALITY. No Law or Court Order shall have been enacted, entered,
promulgated or enforced by any court or governmental authority that is in effect
and has the effect of making the Transactions illegal or otherwise prohibiting
the consummation of the Transactions.
9.6 EMPLOYMENT AGREEMENT. The Surviving Corporation shall, as of
Closing, have enter into an employment agreement with Nick Bloom in
substantially the form of EXHIBIT C hereto.
9.7 OPINION OF COUNSEL. Seller and Stockholders shall have received an
opinion from counsel to Buyer, dated the Closing Date, in substantially the form
of EXHIBIT D hereto.
9.8 BUYER REQUIRED CONSENTS. Buyer shall have obtained Buyer Required
Consents without any modification that Seller reasonably deems unacceptable.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.
All obligations of Buyer to consummate the Transactions are subject to the
satisfaction (or waiver) prior thereto of each of the following conditions:
22
<PAGE>
10.1 DUE DILIGENCE. Buyer and its counsel shall have completed all
business and legal due diligence review of Seller and Stockholders, and the
results of such review shall have been satisfactory to Buyer.
10.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Seller Parties contained in this Agreement shall be true and correct on
the date hereof and (except to the extent such representations and warranties
speak as of an earlier date) shall also be true and correct on and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date.
10.3 AGREEMENTS, CONDITIONS AND COVENANTS. The Seller Parties shall
have performed or complied with all agreements, conditions and covenants
required by this Agreement to be performed or complied with by them on or before
the Closing Date.
10.4 OFFICER'S CERTIFICATE. Buyer shall have received a certificate of
an executive officer of Seller and of each Stockholder to the effect set forth
in Sections 10.2 and 10.3.
10.5 SECRETARY'S CERTIFICATE. Seller shall have delivered to the Buyer a
certificate signed by the Secretary of Seller attaching true and correct copies
of (A) Seller's Charter Documents certified by an appropriate authority in the
State of Ohio, (B) the Code of Regulations of Seller certified as in full force
and effect as of the Closing Date, and (C) minutes of the Board of Directors
authorizing Seller to enter into this Agreement and the transactions and other
agreements contemplated hereby.
10.6 LEGALITY. No Law or Court Order shall have been enacted, entered,
promulgated or enforced by any court or governmental authority that is in effect
and (a) has the effect of making the Transactions illegal or otherwise
prohibiting the consummation of the Transactions or (b) has a reasonably
likelihood of causing a Material Adverse Effect.
10.7 EMPLOYMENT AGREEMENT. Nick Bloom shall, as of Closing, have
entered into an employment agreement with the Surviving Corporation in
substantially the form of EXHIBIT C hereto.
10.8 OPINION OF COUNSEL. Buyer shall have received an opinion from
counsel to Seller and Stockholders, dated the Closing Date, in substantially the
form of EXHIBIT E hereto.
10.9 SELLER REQUIRED CONSENTS. Seller shall have obtained Seller
Required Consents without any modification that Buyer reasonably deems
unacceptable.
10.10 REPAYMENT OF OUTSTANDING DEBT. Buyer shall have received evidence
to its satisfaction that the Outstanding Indebtedness has been repaid in full in
accordance with its terms without compromise, set-off or reduction.
11. INDEMNIFICATION.
11.1 BY SELLER PARTIES. From and after the Closing Date, the
Stockholders, jointly and severally (subject to the terms of Sections 4.4 and
4.29), shall indemnify and hold harmless Buyer and its successors and assigns,
and their respective officers, directors, employees, stockholders, agents,
Affiliates and any Person who controls any of such Persons within the meaning of
the Securities Act or the Exchange Act (each, a "BUYER INDEMNIFIED PARTY") from
and against any liabilities, claims, demands, judgments, losses, costs, damages
or expenses whatsoever (including reasonable attorneys', consultants' and other
professional fees and disbursements of every kind, nature and description
incurred by such Buyer Indemnified Party in connection therewith including
consequential damages) (collectively, "DAMAGES") that such Buyer Indemnified
Party may sustain, suffer or incur and that result from, arise out of or relate
to (a) any breach of any of the respective representations, warranties,
covenants or agreements of any the Seller Parties contained in this Agreement or
in the Seller Closing Certificates, (b) any Environmental Condition existing on
or before the Closing, and (c) any Liability of any Seller Party involving Taxes
due and payable by, or imposed with respect to any Seller Party for any all
taxable periods ending
23
<PAGE>
on or prior to the Closing Date (whether or not such Taxes have been due and
payable). Stockholders shall be liable under this Agreement up to an amount
equal to (i) for the period from the Closing Date through the first anniversary
date of the Closing Date, (A) the fair market value of the Transaction
Consideration on the date that the indemnification obligations pursuant to this
Section 11 are first due and payable, less (B) any amounts previously paid by
Stockholders pursuant to this Section 11.1. and (ii) for the period from the
first anniversary date through the Expiration Date, (A) 50% of the fair market
value of the Transaction Consideration on the date that the indemnification
obligations pursuant to this Section 11 are first due and payable, less (B) any
amounts previously paid by Stockholders pursuant to this Section 11.1.
Notwithstanding anything in this Agreement to the contrary, (i) the Stockholders
shall not have any liability under this Section 11.1 unless the aggregate
indemnification obligations under this Section 11.1 exceed $25,000 (the
"INDEMNIFICATION THRESHOLD"), and (ii) the Stockholders shall only have
liability under this Section 11.1 to the extent that the aggregate
indemnification obligations under this Section 11.1 exceed the Indemnification
Threshold.
11.2 BY BUYER. From and after the Closing Date, Buyer shall indemnify
and hold harmless Seller Parties and their respective successors and assigns,
and their respective officers, directors, employees, stockholders, agents,
Affiliates and any Person who controls any of such Persons within the meaning of
the Securities Act or the Exchange Act (each, a "SELLER INDEMNIFIED PARTY") from
and against any Damages that such Seller Indemnified Party may sustain, suffer
or incur and that result from, arise out of or relate to any breach of any of
the respective representations, warranties, covenants or agreements of Buyer
contained in this Agreement or in the Buyer Closing Certificates. Buyer shall
not be liable under this Agreement for an aggregate amount in excess of the
Transaction Consideration.
11.3 HOLDERS' REPRESENTATIVE.
(a Jerry L. Gecowets shall act as the Stockholders' representative
(the "HOLDERS' REPRESENTATIVE") for the purpose of settling on behalf of the
Stockholders any indemnification claims made by Buyer Indemnified Party
hereunder, and taking any other action that is specifically delegated to the
Holders' Representative hereunder. Buyer shall give notice under Section 11.4
of any claim for indemnification against the Stockholders to the Stockholders
and the Holders' Representative, and only the Holders' Representative shall be
empowered following such notice to respond to or take any other action on behalf
of the Stockholders with respect to the claim. The Stockholders shall be bound
by any and all actions taken by the Holders' Representative on their behalf in
accordance with this Agreement.
(b Buyer shall be entitled to rely exclusively upon any
communications or writings given or executed by the Holders' Representative and
shall not be liable in any manner whatsoever for any action taken or not taken
in reliance upon the actions taken or not taken or communications or writings
given or executed by the Holders' Representative. Buyer shall be entitled to
disregard any notices or communications given or made by the Stockholders unless
given or made through the Holders' Representative.
(c In the event of the death of the Holders' Representative or his
inability to perform his functions hereunder, the Stockholders who immediately
prior to the Closing owned a majority of shares of Seller's Common Stock shall
choose another Holders' Representative.
(d The Holders' Representative shall not be liable to any
Stockholder or any other party for any action taken or omitted to be taken by
him as Holders' Representative except, in the case of willful misconduct or
gross negligence. The Stockholders shall jointly indemnify the Holders'
Representative and hold him harmless from and against any loss, liability or
expense of any nature incurred by the Holders' Representative arising out of or
in connection with the administration of his duties as Holders' Representative,
including reasonable legal fees and other costs and expenses of defending or
preparing to defend against any claim or liability in the premises, unless such
loss, liability or expense shall be caused by the Holders' Representative's
willful misconduct or gross negligence.
24
<PAGE>
(e Solely with respect to Damages arising out of a breach by the
Seller Parties of any of the representations, warranties or covenants contained
in Section 4.10, (i) any accounts receivable of Seller collected by Buyer later
than 90 days from the Closing Date but within 180 days of the Closing Date shall
be credited against the Indemnification Threshold (or remitted to Seller Parties
to the extent that the Seller Parties have made indemnification payments to
Buyer in connection with such accounts receivable), and (ii) any accounts
receivable of Seller outstanding (the "UNCOLLECTIBLE RECEIVABLES") as of that
date which is 180 days following the Closing Date (the "DETERMINATION DATE")
shall be the net amount of the Uncollectible Receivables to be applied against
the Indemnification Threshold. Within 15 days of the Determination Date, the
Uncollectible Receivables as of the Determination Date shall be assigned by
Buyer to the Holders' Representative for collection on behalf of the
Stockholders for their own account.
11.4 PROCEDURE FOR CLAIMS.
(a Any Person that desires to seek indemnification under any part of
this Section 11 (each, an "INDEMNIFIED PARTY") shall give notice (a "CLAIM
NOTICE") to each party responsible or alleged to be responsible for
indemnification hereunder (an "INDEMNITOR") prior to any applicable Expiration
Date specified below. Such notice shall briefly explain the nature of the claim
and the parties known to be invoked, and shall specify the amount thereof. If
the matter to which a claim relates shall not have been resolved as of the date
of the Claim Notice, the Indemnified Party shall estimate the amount of the
claim in the Claim Notice, but also specify therein that the claim has not yet
been liquidated (an "UNLIQUIDATED CLAIM"). If an Indemnified Party gives a
Claim Notice for an Unliquidated Claim, the Indemnified Party shall also give a
second Claim Notice (the "LIQUIDATED CLAIM NOTICE") within 60 days after the
matter giving rise to the claim becomes finally resolved, and the Second Claim
Notice shall specify the amount of the claim. Each Indemnitor to which a Claim
Notice is given shall respond to any Indemnified Party that has given a Claim
Notice (a "CLAIM RESPONSE") within 20 days (the "RESPONSE PERIOD") after the
later of (i) the date that the Claim Notice is given or (ii) if a Claim Notice
is first given with respect to an Unliquidated Claim, the date on which the
Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be
given in accordance with the notice requirements hereunder, and any Claim
Response shall specify whether or not the Indemnitor giving the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor. For
the purposes of the immediately preceding sentence, an Indemnitor's failure to
give a timely Claim Response shall not be deemed an election not to dispute a
Claim Notice unless the Indemnified Party shall have given an additional Claim
Notice after expiration of the Response Period and another 20 days after the
date on which the Indemnified Party shall have given such additional Claim
Notice shall have expired without the Indemnitor's having given a Response
Notice within such period.
(b If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the Claim Response Period the amount to which such
Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 11, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor in accordance with the arbitration provisions of
this Agreement. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor Party shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to the Prime Rate, and the Prime Rate in effect on the first business day
of each calendar quarter shall apply to the amount of the unpaid obligation
during such calendar quarter.
(c Whenever there is an event, condition or a circumstance (a
"POSSIBLE BREACH") the subject matter of which is covered by more than one of
the representations and warranties contained in Section 4 or Section 5 (the
"APPLICABLE REPRESENTATIONS") and one or more of such representations (the
"SPECIFICALLY APPLICABLE REPRESENTATIONS") more specifically relate to the
subject matter of the Possible Breach, then if such
25
<PAGE>
Possible Breach would cause a breach of any Specifically Applicable
Representations, the fact that a breach may not have occurred with respect to
any of the more general Applicable Representation shall not affect an
Indemnified Party's ability to claim a breach of the Specifically Applicable
Representations.
11.5 CLAIMS PERIOD. Any claim for indemnification under this Section 11
shall be made by giving a Claim Notice under Section 11.4 on or before the
second anniversary date of the Closing Date (the "EXPIRATION DATE"). So long as
an Indemnified Party gives a Claim Notice for an Unliquidated Claim on or before
the Expiration Date, such Indemnified Party shall be entitled to pursue its
rights to indemnification regardless of the date on which such Indemnified Party
gives the related Liquidated Claim Notice.
11.6 THIRD PARTY CLAIMS. An Indemnified Party that desires to seek
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "ACTION") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or if so requested by such Indemnified Party, any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
satisfactory to such Indemnified Party; provided, however, that such Indemnified
--------- -------
Party shall have the right to participate at its own expense in the defense of
such Action; and provided, further, that the Indemnitor shall not consent to the
-----------------
entry of any judgment or enter into any settlement, except with the written
consent of such Indemnified Party (which consent shall not be unreasonably
withheld). Any failure to give prompt notice under this Section 11.6 shall not
bar an Indemnified Party's right to claim indemnification under this Section 11,
except to the extent that an Indemnitor shall have been harmed by such failure.
12. TERMINATION.
12.1 GROUNDS FOR TERMINATION. This Agreement may be terminated at any
time before the Effective Time:
(a By mutual written consent of Seller and Buyer;
(b By Seller or Buyer if the Closing shall not have been consummated
on or before the Termination Date; provided, however, that the right to
-------- -------
terminate this Agreement under this Section 12.1(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing to occur on or before
the Termination Date; and
(c By Seller or Buyer if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued a Court Order (which Court Order the parties shall use commercially
reasonable efforts to lift) that permanently restrains, enjoins or otherwise
prohibits the Transactions, and such Court Order shall have become final and
nonappealable;
12.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 12.1, the agreements contained in Section 8.4 shall survive the
termination hereof and any party may pursue any legal or equitable remedies that
may be available if such termination is based on a breach of another party.
13. GENERAL MATTERS.
13.1 ARBITRATION.
(a) All disputes concerning this Agreement shall be decided by
arbitration in accordance with the commercial rules and regulations of the
American Arbitration Association (except to the extent such rules and
regulations are inconsistent with the provisions of this Section).
26
<PAGE>
(b) If the parties agree on one arbitrator, the arbitration shall be
conducted by such arbitrator. If the parties do not so agree, the parties shall
each select one independent, qualified arbitrator. For this purpose, all
parties whose interest in the matter being arbitrated are substantially
identical shall be treated as a single party entitled to select one arbitrator.
If an even number of arbitrators is selected, such arbitrators shall select an
additional arbitrator.
(c) Each party reserves the right to object to any individual
arbitrator who is employed by or affiliated with an organization that competes
with such party.
(d) The parties shall have the right to conduct discovery as specified
for up to three months. Such discovery shall include the right to take
depositions and subpoena witnesses.
(e) At the request of any party, arbitration proceedings shall be
conducted in the utmost secrecy. In such case, all documents, testimony, and
records shall be received, heard and maintained by the arbitrators in secrecy
under seal, available for the inspection only of the parties and their
respective attorneys and experts who have agreed in advance in writing to
receive and maintain all such information in confidence until such information
becomes generally known.
(f) The arbitrators shall act by majority vote. The arbitrators shall
issue a written opinion of their findings of fact and their conclusions of law
at the request and at the expense of either party.
(g) The arbitrators shall be able to decree any and all relief of an
equitable nature, including without limitation such relief as a temporary
restraining order and a preliminary or permanent injunction, and shall also be
able to award damages, with or without an accounting, and costs, except that the
prevailing party shall be entitled to its reasonable attorneys fees. The decree
or judgment of an award rendered by the arbitrators shall be binding upon the
parties and may be entered in any court having jurisdiction thereof.
(h) Reasonable notice of the time and place of arbitration shall be
given to all persons as required by law. Such persons and their authorized
representatives shall have the right to attend or participate in all the
arbitration hearings in such manner as the law requires.
13.2 CONTENTS OF AGREEMENT. This Agreement, together with the other
Transaction Documents, sets forth the entire understanding of the parties with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
13.3 AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This Agreement
may be amended, modified or supplemented only by a written instrument duly
executed by each of the parties hereto. If any provision of this Agreement,
other than a provision which provides for the payment of any portion of the
Transaction Consideration, shall for any reason be held to be invalid, illegal,
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective heirs, legal
representatives, successors and permitted assigns of the parties. Nothing in
this Agreement shall confer any rights upon any Person other than Seller Parties
and Buyer and their respective heirs, legal representatives, successors and
permitted assigns. No party hereto shall assign this Agreement or any right,
benefit or obligation hereunder. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
13.4 FURTHER ASSURANCES. At and after the Closing, Seller Parties and
Buyer shall execute and deliver any and all documents and take any and all other
actions that may be deemed reasonably necessary by their respective counsel to
complete the Transactions.
27
<PAGE>
13.5 INTERPRETATION. Unless the context of this Agreement clearly
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) references to any gender include
all genders, (c) "or" has the inclusive meaning frequently identified with the
phrase "and/or," (d) "including" has the inclusive meaning frequently identified
with the phrase "but not limited to" and (e) references to "hereunder" or
"herein" relate to this Agreement. The section and other headings contained in
this Agreement are for reference purposes only and shall not control or affect
the construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, Schedule and Exhibit references are to this Agreement
unless otherwise specified. Each accounting term used herein that is not
specifically defined herein shall have the meaning given to it under GAAP. Any
reference to a party's being satisfied with any particular item or to a party's
determination of a particular item presumes that such standard will not be
achieved unless such party shall be satisfied or shall have made such
determination in its sole or complete discretion.
13.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be binding as of the date first written above,
and all of which shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
13.7 SCHEDULES. Any items listed or described on Schedules shall be
listed or described under a caption that identifies the Sections of this
Agreement to which the item relates.
14. REMEDIES.
The indemnification rights under Section 11 are independent of and in
addition to such rights and remedies as the parties may have in equity for any
misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including the right to seek
specific performance, rescission or restitution, none of which rights or
remedies shall be affected or diminished by Section 11.
15. NOTICES.
All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by mail, facsimile
message or Federal Express or other delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other Party
hereto:
If to Seller or any Stockholder:
Techspex, Inc.
Jerry L. Gecowets
108 McDonough Street
Facsimile: 937-228-5189
28
<PAGE>
with a required copy to:
Coolidge, Wall, Womsley & Lombard
33 West First Street
Suite 600
Dayton, OH 45402-1289
Attn: Hugh E. Wall, III
Facsimile: 937-223-6705
and
Schuyler, Roche & Zwirner
1 Prudential Plaza
130 E. Raldolph Street
Suite 3800
Chicago, IL 60601
Attn: David Addis
Facsimile: 312-565-8300
If to Buyer:
VerticalNet, Inc.
2 Walnut Grove Drive, Suite 150
Horsham, PA 19044
Attn: Mr. Gene S. Godick
Facsimile: 215-443-3336
with a required copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Attn: James W. McKenzie, Jr., Esq.
Facsimile: 215-963-5299
16. GOVERNING LAW.
This Agreement shall be construed and interpreted in accordance with the
laws of the Commonwealth of Pennsylvania without regard to its provisions
concerning conflict of laws.
29
<PAGE>
IN WITNESS WHEREOF, this Agreement and Plan of Merger has been executed by
the parties hereto as of the day and year first written above.
TECHSPEX, INC. TSX ACQUISITION CORP.
By:_______________________ By:
Name: Nick Bloom Name: Gene S. Godick
Title: President Title: Vice President
__________________________ VERTICALNET, INC.
Nick Bloom
By:
Name: Gene S. Godick
Title: Vice President
__________________________
The Jane G. Haley- Gosiger, Inc. Trust
Dated August 1, 1998
__________________________ _______________________________________
Trust UTA June 4, 1998 (Jerry L. Gecowets) The John R. Haley- Gosiger, Inc.
Trust
________________________________
The Peter G. Haley- Gosiger, Inc. Trust
Dated September 1, 1998
30
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, included in this Form 8-K, into VerticalNet, Inc.'s previously filed
Form S-8 Registration Statement File No. 333-72143.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
June 25, 1999
