<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
VerticalNet, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
[VERTICALNET LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 14, 2000
------------------------
To our Shareholders:
The 2000 annual meeting of shareholders of VerticalNet, Inc. will be held
at Williamson's Restaurant, 500 Blair Mill Road, Horsham, Pennsylvania, on
Wednesday, June 14, 2000, beginning at 9:00 a.m. local time. At the meeting, you
will be asked to act on the following matters:
(1) Election of 2 directors;
(2) Approval of an amendment to the amended and restated articles of
incorporation to increase the number of authorized shares of common
stock to 1,000,000,000 shares;
(3) Adoption of the VerticalNet, Inc. 2000 Equity Compensation Plan;
(4) Approval of an amendment to the employee stock purchase plan; and
(5) Any other matters that properly come before the meeting.
All holders of record of shares of VerticalNet's common stock at the close
of business on April 17, 2000 are entitled to vote at the meeting or any
postponements or adjournments of the meeting.
YOUR VOTE IS IMPORTANT. PLEASE READ THE PROXY STATEMENT AND THE VOTING
INSTRUCTIONS ON THE PROXY CARD AND THEN VOTE (1) BY COMPLETING THE PROXY CARD
AND RETURNING IT BY MAIL, (2) BY CALLING THE TOLL-FREE NUMBER PROVIDED IN THE
PROXY STATEMENT, OR (3) VIA THE INTERNET USING THE DIRECTIONS PROVIDED IN THE
PROXY STATEMENT.
By order of the board of directors,
/s/ James W. McKenzie, Jr.
JAMES W. MCKENZIE, JR.
Senior Vice President, General Counsel
and Secretary
May 10, 2000
Horsham, Pennsylvania
<PAGE> 3
[VERTICALNET LOGO]
700 DRESHER ROAD
HORSHAM, PENNSYLVANIA 19044
------------------------
PROXY STATEMENT
------------------------
This proxy statement contains information related to the annual meeting of
shareholders of VerticalNet, Inc. to be held on Wednesday, June 14, 2000,
beginning at 9:00 a.m. local time, at Williamson's Restaurant, 500 Blair Mill
Road, Horsham, Pennsylvania 19044, and at any postponements or adjournments
thereof. These proxy materials were first mailed to shareholders on or about May
10, 2000.
SHARE NUMBERS (OTHER THAN NUMBERS RELATING TO THE AUTHORIZED NUMBER OF
SHARES) AND SHARE PRICES PROVIDED IN THIS PROXY STATEMENT HAVE BEEN ADJUSTED TO
REFLECT TWO SEPARATE TWO-FOR-ONE STOCK SPLITS, THE FIRST OF WHICH WAS EFFECTED
ON AUGUST 20, 1999 AND THE SECOND OF WHICH WAS EFFECTED ON MARCH 31, 2000.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the annual meeting, shareholders will act upon the matters listed in the
Notice of Annual Meeting, including the election of directors, approval of the
amendment to VerticalNet's amended and restated articles of incorporation,
adoption of the VerticalNet 2000 Equity Compensation Plan and approval of the
amendment to the employee stock purchase plan. In addition, the management team
will report on the performance of VerticalNet during fiscal 1999 and respond to
questions from shareholders.
WHO CAN VOTE AT THE MEETING?
All shareholders of record at the close of business on April 17, 2000 are
entitled to vote at the meeting and any postponements or adjournments of the
meeting.
WHAT ARE THE VOTING RIGHTS OF THE HOLDERS OF THE COMMON STOCK?
Holders of the common stock will vote on all matters to be acted upon at
the annual meeting. Each outstanding share of the common stock will be entitled
to one vote on each matter to be voted upon at the meeting.
WHO CAN ATTEND THE MEETING?
All shareholders as of the record date, or their duly appointed proxies,
may attend the meeting. Each shareholder may be asked to present valid picture
identification, such as a driver's license or passport. If you hold your shares
through a broker or other nominee, you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date. Everyone must
check in at the registration desk at the meeting.
HOW DO I VOTE?
You can choose one of the following three ways to vote:
1. By mail: Complete, sign, date and return the proxy card in the enclosed
pre-paid envelope
2. By telephone: Call 1-800-PROXIES and follow the instructions
3. Via the Internet: Access www.voteproxy.com and follow the instructions
<PAGE> 4
By casting your vote in any of the three ways listed above, you are
authorizing the individuals listed on the proxy card to vote your shares in
accordance with your instructions. Please note that if your shares are held in
"street name" you must check the proxy card or contact your broker or nominee to
determine if you will be able to vote by telephone or via the Internet. If you
want to vote in person at the meeting, and you hold VerticalNet stock in street
name, you must obtain a proxy card from your broker and bring that proxy card to
the meeting, together with a copy of a brokerage statement reflecting your
ownership as of the record date.
IS MY VOTE CONFIDENTIAL?
Yes. Proxy cards, ballots and voting tabulations that identify shareholders
are kept confidential except in certain circumstances where it is important to
protect the interests of VerticalNet and its shareholders. American Stock
Transfer & Trust Company, VerticalNet's transfer agent, will count the vote and
act as the inspector of election for the meeting.
WHAT IF I DO NOT INDICATE MY PREFERENCE ON THE PROXY CARD?
If you do not indicate how you would like your shares to be voted for a
particular nominee for director, your shares will be voted FOR the election of
the nominee. If you "withhold" your vote for a particular nominee for director,
your shares will be voted AGAINST that particular nominee. If you do not
indicate how you wish to vote for the other proposals listed on the proxy card,
your shares will be voted FOR such proposals.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with the Secretary of
VerticalNet either a notice of revocation or a duly executed proxy bearing a
later date. The powers of the proxy holders will be suspended if you attend the
meeting in person and request to recast your vote. Attendance at the meeting
will not by itself revoke a previously granted proxy.
WHAT CONSTITUTES A QUORUM?
As of the record date, VerticalNet had 77,628,573 shares of its common
stock outstanding. The presence at the meeting, in person or by proxy, of the
holders entitled to cast at least a majority of votes which all shareholders are
entitled to cast as of the record date will constitute a quorum. Broker
non-votes, abstentions and votes withheld count as shares present at the meeting
for purposes of a quorum.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you otherwise instruct on your proxy card, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the board of directors. The board's recommendations are set forth below. In
summary, the board recommends a vote:
- FOR the election of the nominated slate of directors;
- FOR the approval of the amendment to the amended and restated articles of
incorporation;
- FOR the adoption of the VerticalNet, Inc. 2000 Equity Compensation Plan;
and
- FOR the approval of the amendment to the employee stock purchase plan.
The proxy holders will vote as recommended by the board of directors with
respect to any other matter that properly comes before the meeting. If no
recommendation is given by the board of directors on any such matter, the proxy
holders will vote in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to
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the election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes of
determining whether there is a quorum.
OTHER PROPOSALS. For each other proposal, the affirmative vote of a
majority of the votes cast by all shareholders entitled to vote for the proposal
will be required for approval. A properly executed proxy marked "ABSTAIN" with
respect to any such matter will be counted for purposes of determining whether
there is a quorum. However, under Pennsylvania law, a proxy marked "ABSTAIN" is
not considered a vote cast. Accordingly, an abstention will have no effect on
the approval of the other proposals.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. So, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in the voting results. Shares represented by
such "broker non-votes" will, however, be counted in determining whether there
is a quorum. Accordingly, broker non-votes will not be counted toward a
nominee's total of affirmative votes in the election of directors and will have
no effect on the approval of the other proposals.
WHO CONDUCTS THE PROXY SOLICITATION AND HOW MUCH WILL IT COST?
VerticalNet is soliciting the proxies and will bear the cost of the
solicitation. VerticalNet has retained Corporate Investor Communications, Inc.,
to aid in the solicitation. For these services, VerticalNet will pay Corporate
Investor Communications, Inc. a fee of $5,000 and reimburse it for certain
out-of-pocket disbursements and expenses. VerticalNet may ask its officers and
other employees, without compensation other than their regular compensation, to
solicit proxies by further mailing or personal conversations, or by telephone,
facsimile or electronic means. VerticalNet will also, if asked, reimburse
brokerage firms and others for their reasonable expenses in forwarding
solicitation material to the beneficial owners of the common stock.
ITEM 1 -- ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The board of directors is currently divided into three classes, each
consisting of two members and each having three-year terms that expire in
successive years.
The current term of office of directors in Class I expires at the 2000
annual meeting. The board of directors proposes that the nominees described
below, all of whom are currently serving as Class I directors, be re-elected for
a new term of three years and until their successors are duly elected and
qualified. Mr. Hindery has filled a vacancy left by the resignation of a former
director, Matthew Warta.
Each of the nominees has consented to serve a three-year term. If any of
them become unavailable to serve as a director, the board may designate a
substitute nominee. In that case, the persons named as proxies will vote for the
substitute nominee designated by the board.
THE BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE CLASS I DIRECTORS NOMINATED.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS FOR A TERM EXPIRING IN 2003.
WALTER W. BUCKLEY, III
Mr. Buckley, 40, has served as a director since 1996. Mr. Buckley is
co-founder, President, Chief Executive Officer and a director of Internet
Capital Group, Inc. Prior to joining Internet Capital Group, Mr. Buckley was
Vice President of Acquisitions for Safeguard Scientifics, Inc. between 1991 and
1996. Mr. Buckley directed many of Safeguard's investments and was also
responsible for developing and executing Safeguard's multi-media and Internet
investment strategies. Before Safeguard, Mr. Buckley was the President and
co-founder of Centralized Management Systems, Inc., a medical supply company,
which he sold in 1987. Mr. Buckley is a member of the board of directors of
Internet Capital Group, Breakaway Solutions, Inc.,
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<PAGE> 6
Safeguard Scientifics and eMerge Interactive, Inc. Mr. Buckley received his B.A.
from the University of North Carolina, Chapel Hill.
LEO J. HINDERY, JR.
Mr. Hindery, 52, has served as a director since March 2000. Mr. Hindery is
the Chief Executive Officer and a director of Global Crossing, Ltd., a company
that provides global long distance telecommunications facilities and services.
He also serves as the Chairman and Chief Executive Officer of Global Center
Inc., a Global Crossing, Ltd. company and a leading Internet commerce-service
provider and network solutions company, a position he has held since November
1999. Mr. Hindery was the President and Chief Executive Officer of AT&T
Broadband & Internet Services, formed out of the March 1999 merger of Tele-
Communications, Inc. into AT&T, between March and November of 1999. Prior to the
merger, Mr. Hindery served as the President and Chief Executive Officer of
Tele-Communications, Inc. between March 1997 and March 1999. Prior to serving as
the President and Chief Executive Officer of Tele-Communications, Inc., Mr.
Hindery was the Managing General Partner of InterMedia Partners, which he
founded in 1988. Currently, Mr. Hindery serves on the boards of Global Crossing,
Ltd., Tanning Technology Corp. and TD Waterhouse Group, Inc. Mr. Hindery
received an MBA from Stanford University Graduate School of Business and a B.A.
from Seattle University.
INCUMBENT CLASS II DIRECTORS WITH TERMS EXPIRING IN 2001
JEFFREY C. BALLOWE
Mr. Ballowe, 44, has served as a director since July 1998. Mr. Ballowe
retired at the end of 1997 from Ziff-Davis, Inc. where, during his 11 years at
the company, he held several magazine publishing roles including Publisher of PC
Magazine and a number of corporate posts in which he was responsible for
establishing ZD's European operations, managing its largest magazine group,
launching its Internet publications, creating ZDNet, and launching ZDTV. At his
retirement from Ziff-Davis, he was President, Interactive Media and Development
Group, in charge of ZD's Internet publications, ZDNet, ZDTV, and all development
at the company. His development activities included spearheading ZD's and
Softbank's investments in Yahoo!, USWeb, Gamespot, and Herring Communications.
Prior to joining ZD, Mr. Ballowe worked as a marketing executive at various
technology and marketing services companies. Currently Mr. Ballowe serves as a
director on the boards of drkoop.com, Inc., Jupiter Communications, Inc., NBC
Internet, Inc., and Onvia.com, Inc. He received an MBA from the University of
Chicago, a master's degree from the University of Wisconsin-Madison, and a B.A.
from Lawrence University.
MICHAEL J. HAGAN
Mr. Hagan, 37, co-founded VerticalNet in 1995 and currently serves as an
Executive Vice President and the Chief Operating Officer. He has served as a
director since 1995. Prior to founding VerticalNet, Mr. Hagan was Vice President
and Senior Manager at Merrill Lynch Asset Management from 1990 to 1995. He
served at Merrill Lynch in the areas of finance, technology and accounting.
Prior to that time, Mr. Hagan worked for Bristol Myers Squibb from 1988 to 1990.
Mr. Hagan received a B.S. from St. Joseph's University and is a Certified Public
Accountant.
INCUMBENT CLASS III DIRECTORS WITH TERMS EXPIRING IN 2002
MARK L. WALSH
Mr. Walsh, 44, has served as President and Chief Executive Officer and as a
director since August 1997. Prior to joining VerticalNet, he was a Senior Vice
President and corporate officer at America Online, Inc. from 1995 to 1997. He
founded and managed AOL Enterprise, the business-to-business division of AOL.
Prior to his position with AOL, Mr. Walsh was the President of GEnie, General
Electric's online service from 1994 to 1995. He also was the President of
Information Kinetics, Inc., a venture capital backed interactive information
company focusing on the recruitment and classified advertising market from 1993
to 1994. He received his MBA from Harvard Business School and B.A. from Union
College.
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DOUGLAS A. ALEXANDER
Mr. Alexander, 38, has served as a director since September 1996 and has
served as the Chairman of the Board since 1997. Mr. Alexander is a Managing
Director of Internet Capital Group. He co-founded Reality Online, Inc. in 1986
and later sold it to Reuters in 1994. Mr. Alexander continued to serve as
President and Chief Executive Officer of Reality Online after its acquisition
until September 1997. Reality Online developed financial planning tools and
online services aimed at the individual investor and then later became a
provider of Internet solutions to the retail brokerage industry. Prior to
co-founding Reality Online, Mr. Alexander was a partner with Strategic
Management Group, a corporate training firm. Mr. Alexander is a director of
eMerge Interactive, Inc., as well as several private Internet companies. Mr.
Alexander received a B.S. in Engineering from the University of Pennsylvania and
B.S. in Economics from the Wharton School of Business.
HOW ARE DIRECTORS COMPENSATED?
BASE COMPENSATION. VerticalNet does not pay directors cash compensation.
However, they are reimbursed for expenses they incur in attending meetings.
OPTIONS. Each non-employee director is eligible to receive options to
purchase VerticalNet common stock. For fiscal 1999, none of VerticalNet's
non-employee directors received a stock option grant.
HOW OFTEN DID THE BOARD MEET DURING FISCAL 1999?
The board of directors met 13 times during fiscal 1999. Four of the
meetings were regular meetings and the other nine were special meetings. Each
director attended more than 75% of the total number of meetings of the board and
committees on which he served.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The board of directors has standing compensation and audit committees.
COMPENSATION COMMITTEE. The compensation committee is charged with
reviewing VerticalNet's general compensation policies; reviewing, approving,
recommending and administering VerticalNet's incentive compensation and stock
option plans; and approving certain employment arrangements. In fiscal 1999, the
compensation committee met one time. As of April 20, 2000, Mr. Ballowe replaced
Mr. Alexander as the sole member of the compensation committee.
AUDIT COMMITTEE. The audit committee met two times during fiscal 1999. Its
functions are to recommend the appointment of independent auditors; review the
arrangements for and scope of the audit by independent auditors; review the
audit reports of the independent auditors; and review procedures. The audit
committee consists of Messrs. Ballowe and Buckley.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 7, 2000, Microsoft Corporation and VerticalNet completed
Microsoft's purchase of 100,000 shares of VerticalNet's Series A 6.00%
convertible redeemable preferred stock, which are initially convertible into
1,151,080 shares of VerticalNet's common stock, for $100 million in cash. In
addition, Microsoft also received warrants entitling Microsoft to purchase
1,500,000 shares of VerticalNet's common stock at an exercise price of $69.50.
Under the terms of this investment, Microsoft received registration rights and
the right to nominate one member of VerticalNet's board of directors.
Microsoft's right to designate one board nominee continues for so long as
Microsoft and its affiliates own at least 25% of the shares of common stock that
remain issued and outstanding following, or that are issuable upon, the
conversion of the Series A preferred stock and that have not been sold pursuant
to a registration statement or Rule 144 under the Securities Act of 1933, as
amended. As of the filing of this proxy statement with the Securities and
Exchange Commission, Microsoft had not yet nominated anyone to the board of
directors.
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STOCK OWNERSHIP
WHO ARE THE LARGEST HOLDERS OF OUR STOCK?
Except as set forth below, VerticalNet knows of no single person or group
that is the beneficial owner of more than 5% of VerticalNet's common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------- -------------------- --------
<S> <C> <C>
Internet Capital Group, Inc................................. 25,318,664(1) 33.4%
435 Devon Park Drive, Bldg. 800
Wayne, PA 19087
</TABLE>
- ---------------
(1) Includes 478,624 shares of common stock issuable upon the conversion of
warrants and 250,000 shares of common stock issuable upon the conversion of
VerticalNet's 5 1/4% convertible subordinated debentures. All amounts are as
of April 1, 2000. Messrs. Alexander and Buckley disclaim beneficial
ownership of all shares held by Internet Capital Group. Mr. Alexander is a
Managing Director and Mr. Buckley is the President, Chief Executive Officer
and a director of Internet Capital Group.
HOW MUCH COMMON STOCK DO THE DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table shows the amount of common stock of VerticalNet
beneficially owned (unless otherwise indicated) by VerticalNet's directors, the
executive officers of VerticalNet named in the Summary Compensation Table below
and the directors and executive officers of VerticalNet as a group. Except as
otherwise indicated, all information is as of April 1, 2000.
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF
SHARES BENEFICIALLY ACQUIRABLE WITHIN PERCENT OF SHARES
NAME OWNED(1) 60 DAYS(2) OUTSTANDING(3)
- ---- ------------------- ----------------- -----------------
<S> <C> <C> <C>
Douglas A. Alexander....................... 25,237,096 741,958(4) 34.2%
Jeffrey C. Ballowe......................... 88,444 8,045 *
Walter W. Buckley, III..................... 24,641,612 728,624(4) 33.4
Gene S. Godick............................. 1,350 33,844 *
Michael J. Hagan........................... 2,138,436 184,614 3.1
Leo J. Hindery, Jr. ....................... 0 0 *
Blair LaCorte.............................. 2,896 35,772 *
Mark L. Walsh.............................. 149,864 1,411,117 2.0
Barry E. Wynkoop........................... 3,274 29,539 *
All current directors and executive
officers as a group (13 persons)......... 29,399,618 2,512,893 41.1%
</TABLE>
- ---------------
* Represents less than 1% of VerticalNet's outstanding common stock.
(1) The number of shares shown includes shares that are individually or jointly
owned, as well as shares over which the individual has either sole or shared
investment or voting authority. Certain of VerticalNet's directors and
executive officers disclaim beneficial ownership of some of the shares
included in the table, as follows:
- Mr. Alexander -- 24,590,020 shares held by Internet Capital Group, for
which Mr. Alexander serves as a Managing Director; and
- Mr. Buckley -- 24,590,020 shares by Internet Capital Group, for which
Mr. Buckley serves as the President, Chief Executive Officer and a
director.
(2) Unless otherwise noted, reflects the number of shares that could be
purchased by exercise of options available at April 1, 2000 or within 60
days thereafter under VerticalNet's stock option plans.
(3) Based on 75,138,698 shares outstanding at April 1, 2000.
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(4) Includes 478,624 shares of common stock issuable upon the conversion of
warrants held by Internet Capital Group and 250,000 shares of common stock
issuable upon the conversion of VerticalNet's 5 1/4% convertible
subordinated debentures held by Internet Capital Group. All amounts are as
of April 1, 2000. Mr. Alexander serves as a Managing Director and Mr.
Buckley serves as the President, Chief Executive Officer and a director of
Internet Capital Group. Messrs. Alexander and Buckley each disclaim
beneficial ownership of VerticalNet's warrants and debentures held by
Internet Capital Group.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and holders of more than 10% of the common stock to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
To the best of VerticalNet's knowledge, the reports for all officers, directors
and holders of more than 10% of VerticalNet's common stock were timely filed
during 1999 except for (i) the Form 4 reports for Jeffrey Ballowe, Michael J.
Hagan, Michael P. McNulty, Mario V. Shaffer and Mark L. Walsh for the month of
December 1999, which were all filed on January 11, 2000; and (ii) the Form 4
report for Internet Capital Group for the month of September 1999 which was
filed on March 3, 2000.
EXECUTIVE COMPENSATION
The following report of the compensation committee and the performance
graph included elsewhere in this proxy statement do not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other filing VerticalNet makes under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent VerticalNet specifically
incorporates this report or the performance graph by reference therein.
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee of the board of directors, which reviews
VerticalNet's general compensation policies and approves incentive compensation
and stock option plans, has furnished the following report on executive
compensation for fiscal 1999.
WHAT IS VERTICALNET'S PHILOSOPHY OF EXECUTIVE OFFICER COMPENSATION?
VerticalNet's philosophy of executive officer compensation is designed to
align the interests of executive officers with the short-and long-term interests
of VerticalNet shareholders. Towards that goal, the compensation program for
executives consists of three key elements:
- a base salary,
- a performance-based annual bonus, and
- periodic grants of stock options.
The compensation committee believes that this approach best serves the
interests of VerticalNet and its shareholders. VerticalNet operates in a
competitive environment and the committee must ensure that executive officers
are compensated in a way that advances both the short- and long-term interests
of shareholders. Under this approach, a significant portion of the officers'
total compensation is tied to performance -- namely, the annual bonus and stock
options. The variable annual bonus permits individual performance to be
recognized on an annual basis, and is based, in significant part, on an
evaluation of the contribution made by the officer to VerticalNet's performance.
Stock options relate a significant portion of long-term remuneration directly to
stock price appreciation realized by VerticalNet's shareholders.
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BASE SALARY: Base salaries for VerticalNet's executive officers, as well
as changes in such salaries, are determined after considering numerous factors
including:
- competitive salaries;
- the nature of the officer's position and its subjective importance to
VerticalNet's success;
- level of experience;
- expected amount of individual responsibility; and
- general market conditions.
ANNUAL BONUS: Annual bonuses for fiscal 1999 were paid to the executive
officers of VerticalNet based on the achievement of objective goals pertaining
to financial and operating targets as well as subjective goals relating to
targets for areas of responsibility. The bonus plan weighs the objective goals
more heavily than the subjective targets. During 1999, VerticalNet's executive
officers met the goals that the compensation committee set for the year. The
compensation committee reevaluates the performance targets each year to reflect
VerticalNet's goals for the coming year.
STOCK OPTIONS: The committee has utilized stock options to motivate and
retain officers. The committee believes that this form of compensation closely
aligns the officers' interests with those of shareholders and provides an
incentive to building long-term shareholder value. Options are typically granted
annually and are subject to vesting provisions to encourage officers to remain
employed with VerticalNet. Each officer receives stock options based upon that
officer's relative position, responsibilities and his or her anticipated
performance and responsibilities. Additionally, the committee reviews the prior
level of grants to the officers and to other members of senior management,
including the number of shares that continue to be subject to vesting under
outstanding options, in setting the level of options to be granted to the
executive officers. The stock options are granted at the market price on the
date of grant and provide value only if the price of VerticalNet's common stock
is over the exercise price on the date of exercise.
HOW IS THE CHIEF EXECUTIVE OFFICER COMPENSATED?
As Chief Executive Officer, Mr. Walsh is compensated pursuant to an
employment agreement entered into in August 1997. The agreement, which has no
term, provides for a minimum annual base salary of $200,000 and a bonus of
$100,000. The committee based the bonus paid to Mr. Walsh on his individual
performance and leadership of VerticalNet through its first year as a public
company. In reviewing Mr. Walsh's employment arrangement, the committee
considers the factors discussed above. The committee did not issue stock options
to Mr. Walsh in 1999.
HOW IS THE COMPANY ADDRESSING INTERNAL REVENUE CODE LIMITS ON DEDUCTIBILITY OF
COMPENSATION?
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public corporations for compensation over $1,000,000 paid for any
fiscal year to the individuals named in the Summary Compensation Table. However,
the statute exempts qualifying performance-based compensation from the deduction
limit if certain requirements are met. The compensation committee currently
intends to structure performance-based compensation, including stock option
grants and annual bonuses, to executive officers who may be subject to Section
162(m) in a manner that satisfies those requirements.
The compensation committee reserves the authority to award non-deductible
compensation as it may deem appropriate. Because of uncertainty surrounding the
interpretation of Section 162(m), the committee can give no assurance,
notwithstanding VerticalNet's efforts, that compensation intended to satisfy the
requirements for deductibility under Section 162(m) will in fact do so.
THE COMPENSATION COMMITTEE
Douglas A. Alexander
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee makes all compensation decisions. With the
exception of Matthew J. Warta, who served on the committee between June 1998 and
August 1999, and Mr. Ballowe's recent appointment in April 2000, Mr. Alexander
had served as the only member of the compensation committee since VerticalNet
formed the committee in June 1998. Prior to that time, the full board made
compensation decisions. None of the executive officers, directors or
compensation committee members presently serve, or in the past served, on the
compensation committee of any other company whose directors or executive
officers served on our compensation committee. Mr. Alexander is a Managing
Director of Internet Capital Group, which beneficially owns approximately 33% of
VerticalNet's common stock.
EMPLOYMENT AGREEMENTS
Under an employment letter dated August 1997, Mark L. Walsh agreed to be
the President and Chief Executive Officer of VerticalNet. Under this employment
letter, Mr. Walsh receives a base salary of $200,000 per year, and a bonus of up
to $100,000 per year based on performance objectives established at the sole
discretion of the compensation committee. In connection with the employment
letter, VerticalNet granted Mr. Walsh stock options to purchase 2,942,812 shares
of common stock. The employment letter has no term; however, if Mr. Walsh is
terminated for any reason other than for cause, he is entitled to a severance
payment equal to one year of his base salary. Internet Capital Group has
guaranteed up to $200,000 of any such severance payment.
Under an employment letter dated July 1998, Barry E. Wynkoop, the Executive
Vice President of Sales and Marketing, is entitled to receive an annual salary
of $175,000 and a bonus of up to $100,000, 30% of which is attributable to
VerticalNet's meeting overall revenue and margin targets set by the compensation
committee and 70% of which is attributable to VerticalNet's attaining annual
sales targets established by the compensation committee. If VerticalNet exceeds
its sales targets, Mr. Wynkoop could receive an additional bonus based on the
percentage by which actual sales exceeded targets. Under the terms of the
employment letter, VerticalNet granted Mr. Wynkoop stock options to purchase
492,308 shares of common stock. The employment letter has no term; however, if
Mr. Wynkoop is terminated for any reason other than for cause, he is entitled to
a severance payment equal to six months of his base salary.
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<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning total compensation
earned or paid to the Chief Executive Officer and the four other most highly
compensated executive officers of VerticalNet who served in such capacities as
of December 31, 1999 (the "named executive officers") for services rendered to
VerticalNet during each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION NUMBER
------------------- OF STOCK
FISCAL ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS GRANTED COMPENSATION
---------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark L. Walsh.......................... 1999 $200,000 $100,000 0 $ --
President and Chief Executive 1998 233,333 100,000 1,712,044 --
Officer 1997(1) 70,833 33,333 1,230,768 --
Michael J. Hagan....................... 1999 $125,000 $ 50,000 100,000 $ --
Executive Vice President and 1998 112,916 25,000 307,692 --
Chief Operating Officer 1997 101,933 0 0 --
Gene S. Godick......................... 1999 $148,352 $ 60,000 198,000 $ --
Senior Vice President and 1998(2) 67,882 27,000 307,692 --
Chief Financial Officer
Blair LaCorte.......................... 1999 $143,750 $ 75,000 480,052 $ --
Senior Vice President 1998(3) 0 0 55,384 --
Barry E. Wynkoop....................... 1999 $175,000 $ 70,000 170,000 $ --
Executive Vice President 1998(4) 72,916 35,000 492,308 --
</TABLE>
- ---------------
(1) Mr. Walsh commenced employment in August 1997.
(2) Mr. Godick commenced employment in June 1998.
(3) Mr. LaCorte commenced employment in January 1999. He served as a consultant
to VerticalNet from October 1998 to January 1999.
(4) Mr. Wynkoop commenced employment in August 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The table below shows information about stock options granted during fiscal
1999 to each of the named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL RATE
NUMBER OF OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS FOR OPTION TERM(2)
OPTIONS GRANTED TO EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED(1) EMPLOYEES PER SHARE DATE 5% 10%
---- ---------- ---------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Walsh.................. 0 0.00% N/A N/A N/A N/A
Michael J. Hagan............... 100,000 1.00 $19.86 09/30/09 $1,248,943 $3,165,070
Gene S. Godick................. 198,000 1.99 19.86 09/30/09 2,472,907 6,266,840
Blair LaCorte.................. 282,052 2.84 4.00 01/18/09 709,524 1,798,073
198,000 1.99 19.86 09/30/09 2,472,907 6,266,840
Barry E. Wynkoop............... 170,000 1.71 19.86 09/30/09 2,123,203 5,380,619
</TABLE>
- ---------------
(1) 28% of the grant vests on the first anniversary of the date of grant and 2%
of the grant vests each month thereafter for the next 36 months. The grant
will be fully vested 48 months from the grant date, assuming the individual
remains an employee.
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<PAGE> 13
(2) These columns show gains that may exist for the respective options, assuming
that the market price for the common stock appreciates from the date of
grant over a period of 10 years at annual rates of growth of 5% and 10%,
respectively. These rates of growth are mandated by rules of the Securities
and Exchange Commission. There can be no assurance that the actual stock
price appreciation over the 10-year option term will be at the assumed 5%
and 10% levels or at any other defined level. If the market price of the
common stock does not appreciate over the option term, no value will be
realized from the option grants.
OPTION EXERCISES AND VALUES FOR FISCAL 1999
The table below sets forth information with respect to option exercises
during fiscal 1999 by each of the named executive officers and the status of
their options at December 31, 1999:
AGGREGATED OPTION EXERCISES DURING FISCAL 1999
AND
OPTION VALUES ON DECEMBER 31, 1999
<TABLE>
<CAPTION>
NUMBER OF
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED UPON OPTIONS AT 12/31/99 MONEY OPTIONS AT 12/31/99(2)
EXERCISE OF VALUE REALIZED --------------------------- ----------------------------
NAME OPTION UPON EXERCISE(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ---------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Mark L. Walsh........ 284,000 $10,243,450 1,618,495 1,040,317 $132,197,790 $84,869,332
Michael J. Hagan..... 0 0 153,844 253,848 12,584,439 18,798,826
Gene S. Godick....... 90,000 2,015,200 33,075 382,617 2,690,403 27,321,047
Blair LaCorte........ 113,080 3,757,189 20,256 402,100 1,579,968 28,262,642
Barry E. Wynkoop..... 167,380 4,095,323 9,848 485,080 801,061 36,193,297
</TABLE>
- ---------------
(1) Represents the difference between the market price on the exercise date and
the exercise price, multiplied by the number of options exercised. Does not
necessarily reflect the value received if the individual sells the shares
acquired by the option exercise, since the market price of the shares at the
time of sale may be higher or lower than the market price on the date of
exercise.
(2) Represents the difference between the year-end stock price and the exercise
price associated with each option, multiplied by the number of shares
underlying the options.
11
<PAGE> 14
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total return of VerticalNet's
common stock with that of the Nasdaq Composite Index and The Street.com Internet
Index from February 11, 1999 (the date the common stock began to trade publicly)
through March 31, 2000. VerticalNet's fiscal year ends on December 31. The graph
assumes that you invested $100 at the close of market on February 11, 1999 in
VerticalNet common stock and $100 invested at that same time in each of the
indexes. The comparison assumes that all dividends, if any, are reinvested. The
comparisons in this graph are provided in accordance with Securities and
Exchange Commission disclosure requirements and are not intended to forecast or
be indicative of the future performance of the common stock.
[Performance Line Graph]
<TABLE>
<CAPTION>
THE STREET.COM INTERNET
VERTICALNET NASDAQ COMPOSITE INDEX INDEX
----------- ---------------------- -----------------------
<S> <C> <C> <C>
2/11/99 100.00 100.00 100.00
3/31/99 229.00 102.32 127.28
6/30/99 231.48 111.66 122.06
9/30/99 163.14 114.16 128.14
12/31/99 723.10 169.16 228.51
3/31/00 599.65 190.09 219.13
</TABLE>
ITEM 2 -- APPROVAL OF INCREASE IN AUTHORIZED COMMON STOCK
On January 15, 2000, the board of directors unanimously approved an
amendment to VerticalNet's amended and restated articles of incorporation to
increase the number of shares of authorized common stock to 1,000,000,000
shares. As of April 1, 2000, VerticalNet was authorized to issue up to
126,787,533 shares of common stock, of which 75,138,698 shares were issued and
outstanding. As of April 1, 2000, approximately 36,500,000 shares were reserved
for issuance upon exercise or conversion of warrants, convertible notes and
Series A 6.00% convertible redeemable preferred stock, as well as under
VerticalNet's compensation and benefit plans.
The board would like to increase the number of shares of common stock to
accommodate any future stock splits, acquisitions, financings and other
corporate purposes. Since the initial public offering of VerticalNet's common
stock in February 1999, the board has approved two separate two-for-one stock
splits, each effected in the form of a stock dividend. The board believes that
the stock splits enhance the liquidity and marketability of VerticalNet's common
stock by lowering the price of the stock and increasing the number of shares
outstanding. The availability of additional shares for issuance or reservation
will provide VerticalNet the flexibility to issue shares of its common stock in
any future stock splits, as well as for possible acquisitions,
12
<PAGE> 15
financings and other corporate purposes, without incurring the expense or delay
of a special shareholders' meeting. Other than with respect to the reservation
of shares of common stock in connection with VerticalNet's 2000 Equity
Compensation Plan or as publicly announced, VerticalNet has no existing or
proposed plans, agreements or understandings to issue, or reserve for future
issuance, any of the additional shares of common stock that would be authorized
by the proposed amendment. The new shares of common stock would have the same
rights as the presently authorized shares of common stock.
VerticalNet is subject to restrictions on its ability to issue additional
shares of common stock in some situations. The Nasdaq National Market requires
that VerticalNet obtain shareholder approval before it issues its common stock
in certain circumstances, including when the number of shares to be issued
equals or exceeds 20% of the voting power outstanding. There are numerous other
situations, however, where the board can issue shares of common stock without
seeking the approval of the shareholders. The issuance of additional shares of
common stock, other than in connection with a stock split, could have a dilutive
effect on your ownership of VerticalNet. Shareholders do not have preemptive
rights. Additionally, the issuance of shares in certain instances may have the
effect of forestalling a merger, tender offer, proxy contest, assumption of
control by a holder of a large block of VerticalNet's stock or the removal of
its incumbent management. The board does not intend or view the increase in
authorized common stock as an anti-takeover measure, nor is VerticalNet aware of
any proposed or contemplated transaction of this type.
THE FORM OF THE PROPOSED AMENDMENT IS ATTACHED TO THIS PROXY STATEMENT
AS ANNEX A.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT TO THE AMENDED AND
RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK TO 1,000,000,000 SHARES.
ITEM 3 -- APPROVAL OF THE VERTICALNET, INC. 2000 EQUITY COMPENSATION PLAN
On April 20, 2000, the board approved the VerticalNet, Inc. 2000 Equity
Compensation Plan, subject to the approval of VerticalNet shareholders at the
annual meeting. The board reserved 10,000,000 shares of common stock for the
2000 Equity Compensation Plan. The 2000 Equity Compensation Plan will provide
employees, individuals who have accepted employment, non-employee directors,
consultants and advisors of VerticalNet or its subsidiaries with the opportunity
to receive grants of stock options and awards of restricted stock.
The board believes it is in VerticalNet's best interest to adopt the 2000
Equity Compensation Plan. The 2000 Equity Compensation Plan is intended to
encourage employees to contribute materially to the growth of the company,
thereby benefiting its shareholders, and aligning the interests of the employees
with shareholders. At the annual meeting, a proposal to approve and adopt the
2000 Equity Compensation Plan will be presented to VerticalNet shareholders. If
you approve the 2000 Equity Compensation Plan, it will become effective as of
June 14, 2000.
THE 2000 EQUITY COMPENSATION PLAN IS SET FORTH IN ANNEX B TO THIS PROXY
STATEMENT. THE FOLLOWING DESCRIPTION OF THE 2000 EQUITY COMPENSATION PLAN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX B.
SUMMARY OF THE 2000 EQUITY COMPENSATION PLAN
The 2000 Equity Compensation Plan will be administered by the compensation
committee. The compensation committee will have the sole authority to determine
the individuals that receive grants; determine the type, size and terms of
grants, the timing of grants and the period grants will be exercisable or when
restrictions will lapse; amend the terms of previously issued grants; and deal
with any other matters arising under the 2000 Equity Compensation Plan.
Nonetheless, the compensation committee may delegate to VerticalNet's Chief
Executive Officer the authority to make certain grants in accordance with
applicable law and subject to any conditions and limitations imposed by the
compensation committee. The board may ratify and approve any grants it deems
appropriate.
The number of shares reserved for issuance under the 2000 Equity
Compensation Plan is 10,000,000 shares of common stock. All shares subject to
grants that expire or are cancelled, surrendered or terminated for any reason
will be available for new grants under the 2000 Equity Compensation Plan. The
2000 Equity
13
<PAGE> 16
Compensation Plan limits the aggregate number of shares for which options or
stock awards may be granted to any person during any calendar year to 750,000
shares. The compensation committee may adjust these limits, as well as the
number of shares covered by outstanding grants, and the price per share of
outstanding grants if there is any change in the number or class of shares
because of stock dividends, stock split, merger, reclassification, or other
similar changes in VerticalNet's stock because of a corporate transaction.
All of VerticalNet's employees and employees of its subsidiaries will be
eligible to participate in the 2000 Equity Compensation Plan, including
employees who are officers or members of the board and individuals who have
accepted employment with VerticalNet or any of its subsidiaries. VerticalNet's
non-employee directors, as well as certain consultants and advisors who perform
services for VerticalNet or its subsidiaries, will also be eligible to
participate in the 2000 Equity Compensation Plan.
The 2000 Equity Compensation Plan permits grants of incentive stock
options, nonqualified stock options and stock awards.
Incentive stock options may be granted only to employees. Nonqualified
stock options may be granted to employees, individuals who have accepted
employment, non-employee directors, consultants and advisors. The exercise price
underlying the option will be determined by the compensation committee. The
exercise price for non-qualified stock options may be equal to, greater than, or
less than the fair market value of VerticalNet's stock on the date of grant. The
exercise price for incentive stock options may be equal to or greater than the
fair market value of VerticalNet's stock on the date of grant, and an incentive
stock option granted to a 10% shareholder must have an exercise price of not
less than 110% of the fair market of VerticalNet's stock on the date of grant.
Participants may pay the exercise price of an option by (i) cash, (ii) with
the approval of the compensation committee, by delivering shares of common stock
owned by the grantee, (iii) payment though a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board, or (iv) by
such other method as the compensation committee may approve.
Options will become exercisable according to the terms and conditions
determined by the compensation committee and specified in the grant instrument.
The compensation committee may accelerate the exercisability of any or all
outstanding options at any time for any reason. The compensation committee will
determine the term of each option, up to a maximum ten-year term. The term of an
incentive stock option granted to an employee who owns more than 10% of
VerticalNet's stock may not exceed five years from the date of grant. Options
may be exercised while the grantee is an employee, consultant, advisor or member
of the board, or within a specified period of time after termination of
employment or service.
The compensation committee may issue shares of common stock to employees,
individuals who have accepted employment, consultants, advisors and non-employee
directors subject to restrictions or no restrictions. Unless the compensation
committee determines otherwise, during any restriction period, grantees will
have the right to vote shares of stock awards and to receive dividends or other
distributions paid on such shares. Unless the compensation committee determines
otherwise, if a grantee's employment or service terminates during any
restriction period or if any other conditions are not met, the stock awards will
terminate as to all shares on which restrictions are still applicable, and the
shares must be immediately returned to VerticalNet.
Grants under the 2000 Equity Compensation Plan may not be transferred
except upon the grantee's death or, with respect to grants other than incentive
stock options, if permitted by the compensation committee pursuant to a domestic
relations order. The compensation committee, on such terms as it deems
appropriate, may permit a grantee to transfer nonqualified stock options to
family members or other entities that benefit or are owned by family members.
The board may amend or terminate the 2000 Equity Compensation Plan at any
time. However, the board may not make any amendment without shareholder approval
if such approval is required under the applicable provisions of the Internal
Revenue Code or stock exchange requirements. The 2000 Equity Compensation Plan
will terminate on the day immediately preceding the tenth anniversary of its
effective date, unless the
14
<PAGE> 17
board terminates the 2000 Equity Compensation Plan earlier or extends it with
the approval of the shareholders.
The 2000 Equity Compensation Plan provides that in the event of a change of
control, unless the compensation committee determines otherwise, each
outstanding option will continue in effect according to its terms. The
compensation committee may take any of the following actions in the event of a
change of control: (i) require that all outstanding options be assumed by or
replaced with comparable options of the surviving company and that restricted
stock be replaced with restricted stock of the surviving company, (ii) provide
that all outstanding options are fully exercisable and that all restrictions on
outstanding restricted stock immediately lapse, (iii) require grantees to
surrender their outstanding options in exchange for payment by VerticalNet, in
cash or common stock, of an amount equal to the amount by which the fair market
value of VerticalNet's common stock exceeds the option price of the options, or
(iv) determine that all outstanding options not exercised within a certain
period will terminate.
A "change of control" will be deemed to occur if (i) any person becomes a
beneficial owner, directly or indirectly, of VerticalNet's securities
representing more than 50% of the voting power of VerticalNet's then outstanding
securities, or (ii) its shareholders approve (or, if shareholder approval is not
required, the board approves) an agreement providing for (x) the merger or
consolidation of VerticalNet where the shareholders immediately before the
transaction will not hold, immediately after the transaction, a majority of the
stock of the surviving corporation, (y) a sale of substantially all of
VerticalNet's assets, or (z) a liquidation or dissolution.
FEDERAL INCOME TAX CONSEQUENCES
The current federal income tax consequences of grants under the 2000 Equity
Compensation Plan are generally described below. This description of tax
consequences is not a complete description, and is based on the Internal Revenue
Code as presently in effect, which is subject to change, and is not intended to
be a complete description of the federal income tax aspects of options and stock
awards under the 2000 Equity Compensation Plan.
NONQUALIFIED STOCK OPTIONS
An optionee will not be subject to federal income tax upon the grant of a
nonqualified stock option. Upon the exercise of a nonqualified stock option, the
optionee will recognize ordinary compensation income in an amount equal to the
excess, if any, of the then fair market value of the shares acquired over the
exercise price. VerticalNet will generally be able to take a deduction with
respect to this compensation income for federal income tax purposes. The
optionee's tax basis in the shares acquired will equal the exercise price plus
the amount taxable as compensation to the optionee. Upon a sale of the shares
acquired upon exercise, any gain or loss is generally long-term or short-term
capital gain or loss, depending on how long the shares are held. The required
holding period for long-term capital gain is presently more than one year. The
optionee's holding period for shares acquired upon exercise will begin on the
date of exercise.
INCENTIVE STOCK OPTIONS
An optionee who receives incentive stock options generally incurs no
federal income tax liability at the time of grant or upon exercise of the
options. However, the spread will be an item of tax preference which may give
rise to alternative minimum tax liability at the time of exercise. If the
optionee does not dispose of the shares before the date that is two years from
the date of grant and one year from the date of exercise, the difference between
the exercise price and the amount realized upon disposition of the shares will
constitute long-term capital gain or loss, as the case may be. Assuming both
holding periods are satisfied, no deduction will be allowable to VerticalNet for
federal income tax purposes in connection with the option. If, within two years
of the date of grant or within one year from the date of exercise, the holder of
shares acquired upon exercise of an incentive stock option disposes of the
shares, the optionee will generally realize ordinary compensation income at the
time of the disposition equal to the difference between the exercise price and
the lesser of the fair market value of the stock on the date of exercise or the
amount realized on the disposition.
15
<PAGE> 18
The amount realized upon such a disposition will generally be deductible by
VerticalNet for federal income tax purposes.
STOCK AWARDS
If a grantee receives an unrestricted stock award, the grantee will
recognize compensation income upon the grant of the stock award. If a grantee
receives a restricted stock award, the grantee normally will not recognize
taxable income upon receipt of the stock award until the stock is transferable
by the grantee or no longer subject to a substantial risk of forfeiture,
whichever occurs earlier. When the stock is either transferable or no longer
subject to a substantial risk of forfeiture, the grantee will recognize
compensation income in an amount equal to the fair market value of the shares
(less any amount paid for such shares) at that time. A grantee may, however,
elect to recognize ordinary compensation income in the year the stock award is
granted in an amount equal to the fair market value of the shares (less any
amount paid for the shares) at that time, determined without regard to the
restrictions. VerticalNet will generally be entitled to a corresponding
deduction at the same time, and in the same amount, as the grantee recognizes
compensation income with respect to a stock award. Any gain or loss recognized
by the grantee upon subsequent disposition of the shares will be capital gain or
loss.
TAX DEDUCTIBILITY UNDER SECTION 162(m)
Section 162(m) of the Internal Revenue Code disallows a public company's
deductions for employee compensation exceeding $1,000,000 per year for the chief
executive officer and the four other most highly compensated executive officers.
Section 162(m) contains an exception for performance-based compensation that
meets specific requirements. The 2000 Equity Compensation Plan is intended to
permit all options to qualify as performance-based compensation.
WITHHOLDING
VerticalNet has the right to deduct from all grants paid in cash or other
compensation, any taxes required to be withheld with respect to grants under the
2000 Equity Compensation Plan. VerticalNet may require that the participant pay
to it the amount of any required withholding. The compensation committee may
permit the participant to elect to have withheld from the shares issuable to him
or her with respect to an option and restricted stock a number of shares with a
value equal to the required tax withholding amount.
FUTURE GRANTS
At present, the compensation committee does not have definitive plans for
granting of awards under the 2000 Equity Compensation Plan. No determination has
been made as to the number of stock options or stock awards to be granted, or
the number or identity of optionees or recipients of awards.
The closing price of VerticalNet's stock as reported on the Nasdaq National
Market on April 25, 2000 was $45.125.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE 2000 EQUITY COMPENSATION
PLAN.
ITEM 4 -- APPROVAL OF AMENDMENT TO VERTICALNET'S EMPLOYEE STOCK PURCHASE PLAN
On February 7, 1999, VerticalNet's shareholders adopted the VerticalNet,
Inc. Employee Stock Purchase Plan, and 300,000 shares of VerticalNet's common
stock were reserved for purchase thereunder. The number of shares authorized
under the stock purchase plan have been subsequently adjusted to reflect two
separate two-for-one splits of VerticalNet's common stock effective as of August
20, 1999 and March 31, 2000. Currently, the total number of shares of
VerticalNet's common stock authorized to be purchased under the stock purchase
plan is 1,200,000. As of April 1, 2000, 1,006,264 of these shares remained
available for future purchases under the stock purchase plan. The stock purchase
plan is intended to allow eligible employees of VerticalNet and its subsidiaries
to purchase shares, which the board believes is to the mutual benefit of the
employees and VerticalNet.
16
<PAGE> 19
On April 20, 2000, the board approved an amendment to the stock purchase
plan to increase the number of shares reserved for purchase under the stock
purchase plan to 2,000,000, subject to the approval of VerticalNet's
shareholders at the annual meeting. This is an increase of 800,000 shares of
common stock available for issuance under the stock purchase plan. The board
believes it is in VerticalNet's best interest to increase the number of shares
authorized for purchase under the stock purchase plan. The amendment also
includes certain administrative amendments. If approved, the amendment would
become effective on June 14, 2000.
THE PROPOSED AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
IS SET FORTH IN ANNEX C TO THIS PROXY STATEMENT.
SUMMARY OF THE STOCK PURCHASE PLAN
The compensation committee administers the stock purchase plan.
Employees are eligible to participate in the stock purchase plan if their
employment with VerticalNet or a designated subsidiary is customarily 20 hours
or more per week and for five or more months in a calendar year, and the
employee is not deemed, under the provisions of the Internal Revenue Code, to
own 5% or more of VerticalNet's common stock. Unless the compensation committee
determines otherwise, eligible employees may elect to participate in the stock
purchase plan at least 15 days prior to the applicable purchase period. As of
April 17, 2000, there were approximately 800 employees participating in the
stock purchase plan.
The stock purchase plan is implemented in a series of consecutive purchase
periods, each approximately six months long. Unless the compensation committee
specifies otherwise, each purchase period begins on October 1 and April 1 and
continues until the succeeding March 30 and September 30, respectively. On the
first day of each purchase period, each participant is granted an option to
purchase shares of VerticalNet's common stock, which option will be
automatically exercised on the last date of the purchase period. The number of
shares that a participant will acquire during a purchase period is determined by
dividing the balance of the participant's account on the last day of the
purchase period by the per share purchase price. The participant's account
consists of accumulations of after-tax payroll deductions of, at his or her
election, between 1% to 10% of the participant's compensation, as well as
additional deposits made by the participant during the purchase period. However,
the total amount that a participant may contribute to his or her account during
a purchase period may not exceed 10% of his or her base compensation for that
period. The purchase price for a share of VerticalNet common stock is the lower
of 85% of the fair market value of the common stock on the date of grant or 85%
of the fair market value on the purchase date. The maximum number of shares that
an employee may purchase during a purchase period is 4,000 shares. No
participant will be granted an option under the stock purchase plan that would
permit the participant to purchase shares having an aggregate fair market value
of more than $25,000, as determined when the option is granted, for any calendar
year.
Employees may end their participation in the stock purchase plan at any
time during the purchase period, but an employee's election to discontinue
participation in the stock purchase plan must be made no later than the 20th day
of the month preceding the next purchase date, unless the compensation committee
determines otherwise. Participation ends automatically, however, if the employee
is no longer eligible to participate in the stock purchase plan or at
termination of employment, whichever is earlier. During the participant's
lifetime, only the participant may exercise the option under the stock purchase
plan, and the participant may not transfer or otherwise assign his or her right
to the option. If an employee dies while participating in the stock purchase
plan, unless the employee's legal representative directs otherwise, any amounts
withheld from his or her compensation will be used to purchase stock on the
purchase date for the purchase period, and the purchased shares and any residual
amounts will be delivered to the employee's estate.
If the number of shares of VerticalNet's common stock available in any
purchase period is insufficient to cover the total number of shares to be
purchased, the number of shares each employee is entitled to purchase will be
proportionally reduced and the stock purchase plan will automatically terminate,
unless the board acts to increase the number of shares available under the plan.
In the event of an increase or decrease in the number of issued shares of
VerticalNet's common stock resulting from a subdivision or consolidation of
shares
17
<PAGE> 20
or other capital adjustment, or the payment of a stock dividend, or other
increase or decrease of such shares, the aggregate number of shares reserved for
purchase under the stock purchase plan, the maximum number of shares that may be
purchased during a purchase period, and the purchase price may be appropriately
adjusted.
The board of directors has the right to amend the stock purchase plan at
any time, except that any amendment that is required to be approved by the
shareholders under Section 423 of the Internal Revenue Code must be submitted to
the shareholders for approval. The plan will terminate ten years from its
effective date, unless the board terminates it sooner.
FEDERAL INCOME TAX CONSEQUENCES
The stock purchase plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
The stock purchase plan is not qualified under Section 401 of the Internal
Revenue Code and is not subject to the requirements of the Employee Retirement
Income Security Act of 1974. The following discussion assumes that the purchase
price for shares offered under the stock purchase plan is 85% of the market
value of VerticalNet's common stock on the purchase date. This description of
the federal tax consequences of the stock purchase plan is not a complete
description. There may be different tax consequences under certain
circumstances, and there may be federal gift and estate tax consequences and
state and local tax consequences.
Under the Internal Revenue Code, as currently in effect, an employee will
not recognize income, nor will VerticalNet be entitled to a deduction, when the
employee purchases VerticalNet common stock under the stock purchase plan.
Instead, an employee will recognize income when he or she sells or otherwise
disposes of shares purchased under the stock purchase plan or when he or she
dies.
If an employee sell shares purchased under the stock purchase plan more
than two years after the date on which the option to purchase the shares was
granted and more than one year after the purchase of the shares (the "statutory
holding period"), a portion of the gain will be ordinary income and a portion
will be capital gain. The employee will be taxed at ordinary income tax rates on
an amount equal to 15% of the value of the stock on the option grant date (the
first day of the purchase period) or, if less, the entire gain on the sale. An
employee will have additional capital gain or loss equal to the difference, if
any, between the proceeds of the sale and his basis in the shares (the purchase
price plus any ordinary income realized). The capital gain rate will depend on
how long a participant holds the stock. VerticalNet will not be entitled to any
tax deduction with respect to the sale after the statutory holding period.
If an employee sells shares before the end of the statutory holding period,
he or she generally will be taxed at ordinary income tax rates to the extent
that the value of the shares when the shares were purchased (on the last day of
the purchase period) exceeded the purchase price. VerticalNet will be entitled
to a corresponding deduction. The employee will have additional capital gain or
loss on the difference between the proceeds of the sale and his or her basis in
the shares (the purchase price plus any ordinary income realized). The capital
gain rate will depend on how long the participant holds the stock.
The estate of a participant who dies while holding shares purchased under
the stock purchase plan will recognize ordinary income in the year of the
participant's death of an amount equal to 15% of the value of the stock on the
option grant date (the first day of the purchase period) or, if less, the amount
by which the market value of the shares at the date of death exceeds the
purchase price.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN.
OTHER MATTERS
As of the date of this proxy statement, the board knows of no business that
will be presented for consideration at the annual meeting other than the items
referred to above. If any other matter is properly brought before the meeting
for action by shareholders, proxies properly completed and returned to
VerticalNet will be voted in accordance with the recommendation of the board of
directors or, in the absence of such a recommendation, in accordance with the
judgment of the proxy holder.
18
<PAGE> 21
A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 2000, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCLUDING
EXHIBITS, MAY BE OBTAINED BY SHAREHOLDERS WITHOUT CHARGE BY WRITTEN REQUEST
ADDRESSED TO: VERTICALNET, INC., 700 DRESHER ROAD, HORSHAM, PENNSYLVANIA 19044,
ATTENTION: INVESTOR RELATIONS.
SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Shareholders interested in submitting a proposal for inclusion in the proxy
materials for the annual meeting of shareholders in 2001 may do so by submitting
a proposal in writing to the Secretary of VerticalNet. In submitting proposals,
shareholders must follow the procedures prescribed in Rule 14a-8 under the
Securities Exchange Act of 1934. To be eligible for inclusion, the Secretary
must receive shareholder proposals by no later than January 10, 2001.
By order of the Board of Directors,
/s/ James W. McKenzie, Jr.
James W. McKenzie, Jr.
Senior Vice President, General Counsel
and Secretary
May 10, 2000
19
<PAGE> 22
PROXY PROXY
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS OF
VERTICALNET, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate your vote, on the back of this
card. Please return this card in the enclosed envelope as soon as possible. Your
vote is important.
When you sign and return this proxy card, you:
- Appoint Mark L. Walsh and Gene S. Godick, and each of them (or any
substitutes they may appoint to take their place), as proxies to vote
your shares as you have instructed on the reverse side of this card, at
the Annual Meeting to be held on June 14, 2000 and at any adjournments or
postponements of the meeting;
- Authorize the proxies to vote, in their discretion, upon any other
business properly presented at the meeting; and
- Revoke any previous proxy you may have signed.
IF YOU DO NOT SPECIFY HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR EACH
NOMINEE AND FOR PROPOSALS 2, 3 AND 4, AND IN THEIR DISCRETION AS TO ANY OTHER
MATTER PROPERLY PRESENTED AT THE MEETING.
(Continued and to be Signed and Dated on the Reverse Side)
<PAGE> 23
ANNUAL MEETING OF SHAREHOLDERS OF
VERTICALNET, INC.
JUNE 14, 2000
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call. If you vote by
telephone, please do not mail your proxy card.
TO VOTE BY INTERNET
Please access the web page at www.voteproxy.com and follow the on-screen
instructions. Have your control number available when you access the web page.
If you vote by Internet, please do not mail your proxy card.
YOUR CONTROL NUMBER IS
Please Detach and Mail in the Envelope Provided
<PAGE> 24
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
PLEASE MARK YOUR VOTE AS INDICATED IN THIS EXAMPLE [X]
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C>
Nominees: Walter W. Buckley, III FOR ALL NOMINEES WITHHOLD AUTHORITY FOR ALL
Leo J. Hindery, Jr. (EXCEPT AS INDICATED
TO THE CONTRARY)
[ ] [ ]
</TABLE>
* To withhold authority to vote for any individual nominee, write the nominees
name on the space provided below:
- ------------------------------------------
2. APPROVAL OF THE AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
3. ADOPTION OF THE VERTICALNET 2000 EQUITY COMPENSATION PLAN
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
4. APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
5. OTHER MATTERS
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or at any adjournments or
postponements of the meeting.
<TABLE>
<S> <C> <C>
SIGNATURE
------------------------------------------ --------------------------------------- DATE ---------- 2000
SIGNATURE IF HELD JOINTLY
</TABLE>
NOTE: PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME APPEARS ON THIS CARD.
Include your title if you are signing as an attorney, executor, administrator,
trustee or guardian, or on behalf of a corporation or partnership. All joint
owners must sign.
<PAGE> 25
ANNEX A
PROPOSED AMENDMENT TO VERTICALNET'S
AMENDED AND RESTATED ARTICLES OF INCORPORATION
Article SEVENTH is hereby amended to read in its entirety as follows:
SEVENTH; Capital Stock. The aggregate number of shares which the
corporation shall have authority to issue is 1,010,000,000 shares, par
value one cent ($0.01) per share, consisting of:
(a) 1,000,000,000 shares of Common Stock ("Common Stock"); and
(b) 10,000,000 shares of Preferred Stock.
A-1
<PAGE> 26
ANNEX B
VERTICALNET, INC.
2000 EQUITY COMPENSATION PLAN
The purpose of the VerticalNet, Inc. 2000 Equity Compensation Plan (the
"Plan") is to provide (i) designated employees of VerticalNet, Inc. (the
"Company") and its subsidiaries, (ii) certain consultants and advisors who
perform services for the Company or its subsidiaries, and (iii) non-employee
members of the Board of Directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options and restricted stock. The Company believes that the Plan will encourage
the participants to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.
1. ADMINISTRATION
(a) Authority. The Plan shall be administered by a committee appointed by
the Board (the "Committee"), which may consist of two or more persons who are
"outside directors," as defined under section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and related Treasury regulations, and
"non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). However, the Board may
ratify or approve any grants as it deems appropriate.
(b) Committee Authority. The Committee shall have the sole authority to
(i) determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv) amend
the terms of any previously issued grant, and (v) deal with any other matters
arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
(d) Delegation of Authority. Notwithstanding the foregoing, the Committee
may delegate to the Chief Executive Officer of the Company the authority to make
grants under the Plan to employees of the Company and its subsidiaries who are
not subject to the restrictions of section 16(b) of the Exchange Act and who are
not expected to be subject to the limitations of section 162(m) of the Code. The
grant of authority under this subsection 1(d) shall be subject to such
conditions and limitations as may be determined by the Committee.
2. GRANTS
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options") or restricted stock as described in Section 6 ("Restricted Stock")
(hereinafter collectively referred to as "Grants"). All Grants shall be subject
to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument or an amendment to the grant instrument (the "Grant Instrument"). The
Committee shall approve the form and provisions of each Grant Instrument. Grants
under a particular Section of the Plan need not be uniform as among the
grantees.
B-1
<PAGE> 27
3. SHARES SUBJECT TO THE PLAN
(a) Shares Authorized. Subject to the adjustment as described below, the
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is 10,000,000 shares, and the
maximum aggregate number of shares of Company Stock that shall be subject to
Grants made under the Plan to any individual during any calendar year shall be
750,000 shares. The shares may be authorized but unissued shares of Company
Stock or reacquired shares of Company Stock, including shares purchased by the
Company on the open market for purposes of the Plan. If and to the extent
Options granted under the Plan terminate, expire, or are canceled, forfeited,
exchanged or surrendered without having been exercised or if any Restricted
Stock is forfeited, the shares subject to such Grants shall again be available
for purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of shares of
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the applicable market value of such Grants may
be appropriately adjusted by the Committee to reflect any increase or decrease
in the number of, or change in the kind or value of, issued shares of Company
Stock to preclude, to the extent practicable, the enlargement or dilution of
rights and benefits under such Grants; provided, however, that any fractional
shares resulting from such adjustment shall be eliminated. Any adjustments
determined by the Committee shall be final, binding and conclusive.
4. ELIGIBILITY FOR PARTICIPATION
(a) Eligible Persons. All employees of the Company and its subsidiaries,
including employees who are officers or members of the Board and persons who
have accepted employment with the Company or any subsidiary ("Employees"), and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services to the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services and such services are not in connection with the offer or sale of
securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
Non-Employee Directors and Key Advisors to receive Grants and shall determine
the number of shares of Company Stock subject to a particular Grant in such
manner as the Committee determines. Employees, Key Advisors and Non-Employee
Directors who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
5. GRANTING OF OPTIONS
(a) Number of Shares. The Committee shall determine the number of shares
of Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422
of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified
Stock Options, all in accordance with the terms and conditions set forth
herein. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors and Key Advisors.
B-2
<PAGE> 28
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal
to, greater than, or less than the Fair Market Value (as defined below) of
a share of Company Stock on the date the Option is granted; provided,
however, that (x) the Exercise Price of an Incentive Stock Option shall be
equal to, or greater than, the Fair Market Value of a share of Company
Stock on the date the Incentive Stock Option is granted and (y) an
Incentive Stock Option may not be granted to an Employee who, at the time
of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or any parent or
subsidiary of the Company, unless the Exercise Price per share is not less
than 110% of the Fair Market Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or
the Nasdaq National Market, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest
preceding date upon which a sale was reported, or (y) if the Company Stock
is not principally traded on such exchange or market, the mean between the
last reported "bid" and "asked" prices of Company Stock on the relevant
date, as reported on Nasdaq or, if not so reported, as reported by the
National Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee determines.
If the Company Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.
(c) Option Term. The Committee shall determine the term of each Option.
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.
(d) Exercisability of Options. Options shall become exercisable in
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The Committee
may accelerate the exercisability of any or all outstanding Options at any time
for any reason.
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by, or providing service to, the Company as an
Employee, Key Advisor or member of the Board. In the event that a Grantee
ceases to be employed by, or provide service to, the Company for any reason
other than Disability (as defined below), death, or termination for Cause
(as defined below), any Option which is otherwise exercisable by the
Grantee shall terminate unless exercised within 90 days after the date on
which the Grantee ceases to be employed by, or provide service to, the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the
Grantee's Options that are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by, or provide service to, the
Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a termination for Cause (as defined
below) by the Company, any Option held by the Grantee shall terminate as of
the date the Grantee ceases to be employed by, or provide service to, the
Company. In addition, notwithstanding any other provisions of this Section
5, if the Committee determines that the Grantee has engaged in conduct that
constitutes Cause at any time while the Grantee is employed by, or
providing service to, the Company or after the Grantee's termination of
employment or service, any Option held by the Grantee shall immediately
terminate and the Grantee shall automatically forfeit all shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a
forfeiture.
B-3
<PAGE> 29
(iii) In the event the Grantee ceases to be employed by, or provide
service to, the Company because the Grantee is Disabled (as defined below),
any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within one year after the date on which the Grantee ceases
to be employed by, or provide service to, the Company (or within such other
period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Grantee's Options which are not
otherwise exercisable as of the date on which the Grantee ceases to be
employed by, or provide service to, the Company shall terminate as of such
date.
(iv) If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to
be employed or provide service on account of a termination specified in
Section 5(e)(i) above (or within such other period of time as may be
specified by the Committee), any Option that is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date
on which the Grantee ceases to be employed by, or provide service to, the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the
Grantee's Options that are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by, or provide service to, the
Company shall terminate as of such date.
(v) For purposes of this Section 5(e) and Section 6:
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations or other entities, as determined by the
Committee.
(B) "Employed by, or provide service to, the Company" shall mean
employment or service as an Employee, Key Advisor or member of the Board
(so that, for purposes of exercising Options and satisfying conditions
with respect to Restricted Stock, a Grantee shall not be considered to
have terminated employment or service until the Grantee ceases to be an
Employee, Key Advisor and member of the Board), unless the Committee
determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within
the meaning of section 22(e)(3) of the Code or the Grantee becomes
entitled to receive long-term disability benefits under the Company's
long-term disability plan.
(D) "Cause" shall mean, except to the extent specified otherwise by
the Committee, a finding by the Committee that the Grantee has (i)
breached his or her employment or service contract with the Company,
(ii) has been engaged in disloyalty to the Company, including, without
limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of his or her employment or service, (iii) has
disclosed trade secrets or confidential information of the Company to
persons not entitled to receive such information, (iv) has breached any
written noncompetition or nonsolicitation agreement between the Grantee
and the Company, or (v) has engaged in such other behavior detrimental
to the interests of the Company as the Committee determines.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Grantee shall pay
the Exercise Price for an Option as specified by the Committee (w) in cash,
(x) with the approval of the Committee, by delivering shares of Company
Stock owned by the Grantee (including Company Stock acquired in connection
with the exercise of an Option, subject to such restrictions as the
Committee deems appropriate) and having a Fair Market Value on the date of
exercise equal to the Exercise Price or by attestation (on a form
prescribed by the Committee) to ownership of shares of Company Stock having
a Fair Market Value on the date of exercise equal to the Exercise Price,
(y) by payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board, or (z) by such other method as
the Committee may approve. Shares of Company Stock used to exercise an
Option shall have been held by the Grantee for the requisite period of time
to avoid adverse accounting consequences to the Company with respect to the
Option. The Grantee shall pay the Exercise Price and the amount of any
withholding tax due (pursuant to Section 7) at the time of exercise.
B-4
<PAGE> 30
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that, if the aggregate Fair Market Value of the stock on the
date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under
the Plan or any other stock option plan of the Company or a parent or
subsidiary, exceeds $100,000, then the Option, as to the excess, shall be
treated as a Nonqualified Stock Option. An Incentive Stock Option shall not
be granted to any person who is not an Employee of the Company or a parent
or subsidiary (within the meaning of section 424(f) of the Code).
6. RESTRICTED STOCK GRANTS
The Committee may issue or transfer shares of Company Stock to an Employee,
Non-Employee Director or Key Advisor under a Grant of Restricted Stock, upon
such terms as the Committee deems appropriate. The following provisions are
applicable to Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or
transferred for consideration or for no consideration, and subject to
restrictions or no restrictions, as determined by the Committee. The
Committee may establish conditions under which restrictions on shares of
Restricted Stock shall lapse over a period of time or according to such
other criteria as the Committee deems appropriate. The period of time
during which the Restricted Stock will remain subject to restrictions will
be designated in the Grant Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a
Restricted Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Grantee ceases to be
employed by, or provide service to, the Company (as defined in Section
5(e)) during a period designated in the Grant Instrument as the Restriction
Period, or if other specified conditions are not met, the Restricted Stock
Grant shall terminate as to all shares covered by the Grant as to which the
restrictions have not lapsed, and those shares of Company Stock must be
immediately returned to the Company. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems
appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 8(a). Each certificate for a share of Restricted
Stock shall contain a legend giving appropriate notice of the restrictions
in the Grant. The Grantee shall be entitled to have the legend removed from
the stock certificate covering the shares subject to restrictions when all
restrictions on such shares have lapsed. The Committee may determine that
the Company will not issue certificates for shares of Restricted Stock
until all restrictions on such shares have lapsed, or that the Company will
retain possession of certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have
the right to vote shares of Restricted Stock and to receive any dividends
or other distributions paid on such shares, subject to any restrictions
deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period
and the satisfaction of all conditions imposed by the Committee. The
Committee may determine, as to any or all Restricted Stock Grants, that the
restrictions shall lapse without regard to any Restriction Period.
7. WITHHOLDING OF TAXES
(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local tax withholding
requirements. The Company may require that the Grantee or other
B-5
<PAGE> 31
person receiving or exercising Grants pay to the Company the amount of any
federal, state or local taxes that the Company is required to withhold with
respect to such Grants, or the Company may deduct from other wages paid by the
Company the amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee
may elect to satisfy the Company's income tax withholding obligation with
respect to a Grant by having shares withheld up to an amount that does not
exceed the Grantee's minimum applicable withholding tax rate for federal
(including FICA), state and local tax liabilities. The election must be in a
form and manner prescribed by the Committee and may be subject to the prior
approval of the Committee.
8. TRANSFERABILITY OF GRANTS
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except (i) by will or by the laws of
descent and distribution or (ii) with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant to a
domestic relations order or otherwise as permitted by the Committee. When a
Grantee dies, the personal representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing,
the Committee may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members, or one or more trusts or other
entities for the benefit of or owned by family members, consistent with
applicable securities laws, according to such terms as the Committee may
determine; provided that the Grantee receives no consideration for the transfer
of the Nonqualified Stock Option and the transferred Nonqualified Stock Option
shall continue to be subject to the same terms and conditions as were applicable
to the Nonqualified Stock Option immediately before the transfer.
9. CHANGE OF CONTROL OF THE COMPANY
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) Any "person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of the voting power of the then
outstanding securities of the Company; or
(b) The shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for
(i) the merger or consolidation of the Company with another corporation
where the shareholders of the Company, immediately prior to the merger or
consolidation, will not beneficially own, immediately after the merger or
consolidation, shares entitling such shareholders to more than 50% of all
votes to which all shareholders of the surviving corporation would be
entitled in the election of directors (without consideration of the rights
of any class of stock to elect directors by a separate class vote), (ii)
the sale or other disposition of all or substantially all of the assets of
the Company, or (iii) a liquidation or dissolution of the Company.
10. CONSEQUENCES OF A CHANGE OF CONTROL
(a) Subject to Subsection (b) below, in the event of a Change of Control,
the Committee may take any of the following actions with respect to any or all
outstanding Grants: the Committee may (i) determine that outstanding Options
that are not exercised shall be assumed by, or replaced with comparable options
by the surviving corporation, and outstanding Restricted Stock shall be
converted to restricted stock of the surviving corporation; (ii) determine that
outstanding Options shall automatically accelerate and become fully exercisable
and that the restrictions and conditions on outstanding Restricted Stock shall
immediately lapse; (iii) require that Grantees surrender their outstanding
Options in exchange for a payment by the Company, in
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cash or Company Stock as determined by the Committee, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's unexercised Options exceeds the Exercise Price of the
Options; or (iv) after giving Grantees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender or termination shall take place
as of the date of the Change of Control or such other date as the Committee may
specify. The Committee shall have no obligation to take any of the foregoing
actions, and, in the absence of any such actions, outstanding Grants shall
continue in effect according to their terms.
(b) Limitations. Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (a) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
11. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES
(a) Limitations on Issuance or Transfer of Shares. No Company Stock shall
be issued or transferred in connection with any Grant hereunder unless and until
all legal requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
12. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment. The Board may amend or terminate the Plan at any time;
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required in order to comply with the Code or other
applicable laws, or to comply with applicable stock exchange requirements.
(b) Termination of Plan. The Plan shall terminate on the day immediately
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 18(b). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 18(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
13. FUNDING OF THE PLAN
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.
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14. RIGHTS OF PARTICIPANTS
Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.
15. NO FRACTIONAL SHARES
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
16. HEADINGS
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
17. EFFECTIVE DATE OF THE PLAN.
Subject to approval of the Company's shareholders, the Plan shall be
effective on June 14, 2000.
18. MISCELLANEOUS
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary from the
terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the substitute
grants.
(b) Compliance with Law. The Plan, the exercise of Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that the Plan and applicable Grants under the
Plan comply with applicable provisions of sections 162(m) and 422 of the Code.
To the extent that any legal requirement of section 16 of the Exchange Act or
sections 162(m) or 422 of the Code as set forth in the Plan ceases to be
required under section 16 of the Exchange Act or sections 162(m) or 422 of the
Code, that Plan provision shall cease to apply. The Committee may revoke any
Grant if it is contrary to law or modify a Grant to bring it into compliance
with any valid and mandatory government regulation. The Committee may also adopt
rules regarding the withholding of taxes on payments to Grantees. The Committee
may, in its sole discretion, agree to limit its authority under this Section.
(c) Governing Law. The validity, construction, interpretation and effect
of the Plan and Grant Instruments issued under the Plan shall be governed and
construed by and determined in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the conflict of laws provisions thereof.
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ANNEX C
PROPOSED AMENDMENT TO VERTICALNET
EMPLOYEE STOCK PURCHASE PLAN
AMENDMENT 2000 -- 1 TO THE VERTICALNET, INC.
EMPLOYEE STOCK PURCHASE PLAN
Pursuant to Section 6.04 of the VerticalNet, Inc. Employee Stock Purchase
Plan (the "Plan"), the Plan is hereby amended as follows:
1. Section 2.06 of the Plan is amended in its entirety to read as follows:
Sec. 2.06 "Election Date" means the Effective Date and, beginning
October 1, 1999, each October 1 and April 1, or such other dates as the
Committee shall specify. The Committee may establish a special Election
Date for Employees who are first eligible to participate in the Plan as
a result of the Company's acquisition of their employer, or under other
circumstances that the Committee deems appropriate.
2. The first sentence of Section 4.01 of the Plan is amended in its
entirety to read as follows:
There shall be 2,000,000 shares of Stock reserved for issuance or
transfer under the Plan, subject to adjustment in accordance with
Section 5.02.
3. The third sentence of Section 4.04(a) of the Plan is amended to read, in
its entirety, as follows:
The maximum number of shares that a Participant may purchase during a
Purchase Period is 4,000 shares.
4. The effective date of this amendment to the Plan is June 14, 2000. After
the effective date, all the references to the Plan, wherever made, shall
mean the Plan as amended by this amendment.
VERTICALNET, INC.
By:
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Name:
Title:
C-1
