<PAGE>
As filed with the Securities and Exchange Commission on February 14, 2000
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
VERTICALNET, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 7319 23-2815834
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code No.)
700 Dresher Road, Suite 100
Horsham, Pennsylvania 19044
(215) 328-6100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
__________________
James W. McKenzie, Jr.
Senior Vice President and General Counsel
700 Dresher Road, Suite 100
Horsham, Pennsylvania 19044
(215) 328-6100
(Name and address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
Michael L. Pillion, Esq.
Rachel A. Gonzalez, Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
(215) 963-5000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title Of Each Class Proposed Maximum Proposed Maximum Amount Of
Of Securities Amount To Be Offering Price Per Aggregate Offering Registration
To Be Registered Registered Security Price Fee
----------------------- ---------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value per share ............. 163,758 shares $ 46.50(1) $ 35,453,607(1) $ 9,360
Common Stock, $.01
par value per share................... 752,131 shares $ 59.83(2) $ 44,989,997(2) $ 11,880
Common Stock, $.01 per
value per share....................... 109,769 shares $ 227.75(3) $ 24,999,889(3) $ 6,600
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
based upon the average of the high and low prices of the Common Stock
reported the on Nasdaq National Market on February 11, 2000.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(g) under the Securities Act of 1933, as amended, and based
upon a maximum exercise price of $59.83.
(3) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(g) under the Securities Act of 1933, as amended, and based upon
the $227.75 average closing prices of the Common Stock for the past 20
trading days as reported on the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
1,025,658 Shares
The information in this prospectus is not complete and may be changed. The
selling holders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
VERTICALNET, INC.
Common Stock
This prospectus relates to the offer and sale of 163,758 shares of common
stock and, 861,900 shares of common stock and such indeterminate additional
shares of common stock be issued upon the conversion of certain
convertible notes, in the principal amount of $70 million in each case by the
shareholders named in this prospectus. The convertible notes will automatically
convert into shares of our common stock upon the effectiveness of this
registration statement. With respect to one convertible note in the principal
amount of $25 million, the per share conversion price, and therefore the number
of shares of common stock issuable upon conversion of such note, is subject to
adjustment based on the average closing price of our common stock on the Nasdaq
National Market during the 20 trading days prior to the date on which this
registration statement becomes effective. Accordingly, the number of shares of
common stock into which such note is convertible may increase or decrease. The
remaining convertible notes, which have an aggregate principal amount of $45
million, will convert at a price of $59.83 per share, resulting in 752,131
shares of common stock. Based on the average closing price of our common stock
for the 20 trading days prior to February 14, 2000, such convertible note would
be convert into 109,769 shares of our common stock. The remaining convertible
notes, which have an aggregate principal amount of $45 million, will convert at
a price of $59.83 per share, resulting in 752,131 shares of common stock.
The selling shareholders may offer for resale through this prospectus the shares
of common stock at various times at market prices prevailing at the time of sale
or at privately negotiated prices. The selling shareholders may resell the
common stock to or through underwriters, broker-dealers or agents, who may
receive compensation in the form of discounts, concessions or commissions. We
will not receive any of the proceeds from the resale of the common stock offered
through this prospectus. All expenses of registration of the common stock which
may be offered through this prospectus under the Securities Act will be paid by
us (other than underwriting discounts and selling commissions, and fees and
expenses of advisors to the selling shareholder).
Shares of our common stock are quoted on the Nasdaq National Market under the
symbol ''VERT.'' The last reported sale price of the shares on February 11,
2000 was $213 per share. VerticalNet has applied to list the shares of
common stock offered through this prospectus on the Nasdaq National Market.
Investing in our common stock involves a high degree of risk.
Risk Factors begin on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
February , 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY..................................................................... 3
RISK FACTORS................................................................ 5
FORWARD-LOOKING STATEMENTS.................................................. 20
USE OF PROCEEDS............................................................. 20
DESCRIPTION OF CAPITAL STOCK................................................ 21
SELLING SHAREHOLDERS........................................................ 25
PLAN OF DISTRIBUTION........................................................ 26
LEGAL MATTERS............................................................... 27
EXPERTS..................................................................... 27
ADDITIONAL INFORMATION...................................................... 27
</TABLE>
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus or incorporated by reference
in this prospectus and may not contain all the information that is important to
you. All information in this offering prospectus reflects a two-for-one split
of our common stock effected on August 20, 1999. The information in this
prospectus does not reflect the two-for-one split of our common stock that our
board of directors has declared to holders of common stock on March 17, 2000
payable on March 31, 2000.
Our Company
VerticalNet, Inc. (www.verticalnet.com) owns and operates 55 industry-
specific Web sites designed as online business-to-business communities, known as
vertical trade communities. These vertical trade communities provide users with
comprehensive sources of information, interaction and e-commerce. They are
grouped into the following industry sectors:
ADVANCED TECHNOLOGIES MANUFACTURING AND METALS
COMMUNICATIONS PROCESS
ENVIRONMENTAL PUBLIC SECTOR
FOOD AND PACKAGING SERVICE
FOODSERVICE AND HOSPITALITY TEXTILES AND APPAREL
HEALTHCARE/SCIENCE
Additionally, VerticalNet provides auctions, catalogs, bookstores, career
services and other e-commerce capabilities horizontally across its communities
with technologies from acquired and organic sites like Industry Deals.com, IT
CareerHub.com, LabX.com and Professional Store.com. Through its acquisition of
NECX.com, VerticalNet intends to provide an online exchange for the electronic
components industry.
About VerticalNet
Principal Executive Offices: Internet Address:
VerticalNet, Inc. www.verticalnet.com (Information contained on
700 Dresher Road, Suite 100 our Web site is not a part of this
Horsham, Pennsylvania 19044 prospectus)
Phone: (215) 328-6100
3
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Summary Historical and Pro Forma Financial Data
The following table summarizes historical and pro forma financial and other
data for our business. The pro forma statement of operations data and other
pro forma data give effect to our acquisitions of NECX Exchange, LLC, Isadra,
Inc., CertiSource, Inc., LabX Technologies Inc. and Techspex, Inc., as if they
had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
----------------------- -------------------------------
1998 1999
1996 1997 1998 Pro Forma 1998 1999 Pro Forma
----------- ------------ ------------ ------------ ------------ -------------- --------------
(in thousands, except share and per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Exchange transactions......... $ -- $ -- $ -- $ 349,098 $ -- $ -- $ 270,895
Cost of exchange transactions. -- -- -- 311,545 -- -- 242,857
Net exchange revenues......... -- -- -- 37,553 -- -- 28,038
Advertising and e-commerce
revenues..................... 285 792 3,135 5,073 1,862 10,667 11,738
Combined net revenues......... 285 792 3,135 42,626 1,862 10,667 39,776
Amortization expense.......... -- -- 283 38,581 104 2,703 29,148
Operating loss................ (702) (4,664) (13,509) (47,128) (8,349) (39,528) (67,024)
Net loss...................... (709) (4,779) (13,594) (47,005) (8,334) (38,196) (67,096)
Basic and diluted net
loss per share............. $ (0.14) $ (0.95) $ (2.64) $ (6.30) $ (1.63) $ (1.29) $ (2.12)
Shares used in basic
and diluted net loss per
share calculation........... 5,167,296 5,053,730 5,141,100 7,461,409 5,101,238 29,596,145 31,641,892
Pro forma basic and diluted
net loss per share(1)....... $ (0.11) $ (0.39) $ (0.64) $ (1.99) $ (0.41) $ (1.18) $ (1.95)
Shares used in pro forma basic
and diluted net loss per
common share calculation.... 6,652,568 12,368,652 21,270,978 23,591,287 20,104,360 32,448,845 34,494,592
Other Data:
Deficiency of earnings to
cover fixed charges(2)...... $ 709 $ 4,779 $ 13,594 $ 47,005 $ 8,334 $ 38,196 $ 67,096
</TABLE>
(1) Pro forma net loss per share is computed using the weighted average
number of shares of common stock outstanding, including common equivalent
shares from the convertible preferred stock as if converted at the original
issuance date. All convertible preferred stock was converted into common
stock at the IPO date.
(2) For the periods indicated, earnings were inadequate to cover fixed
charges. For purposes of determining the deficiency of earnings to fixed
charges, loss is defined as losses from continuing operations.
The following table indicates a summary of our balance sheet as of
September 30, 1999. The pro forma column reflects our acquisition of NECX and
the net proceeds from the October 12, 1999, $15 million exercise of the over-
allotment provision of our 5 1/4% Convertible Subordinated Debentures due 2004,
as if they had occurred on September 30, 1999.
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------
Actual Pro Forma
------ ---------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................................ $ 91,710 $ 67,894
Working capital.......................................................... 107,350 102,635
Total assets............................................................. 194,091 332,387
Long-term debt, less current portion..................................... 101,739 116,739
Total shareholders' equity............................................... 75,226 174,772
</TABLE>
4
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RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to purchase the shares of common stock
offered through this prospectus.
Risks Related to Our Business
We have limited operating history upon which you may evaluate us
We launched our first vertical trade community in October 1995 and have a
limited operating history. In addition, our revenue model is evolving, making
an evaluation of our future prospects very difficult. Currently, our Internet-
based revenues are primarily generated from the sale of advertising on our
vertical trade communities. In the future, we expect to generate revenue from
multiple sources, including e-commerce and business services. We may not be
able to sustain our current revenues or successfully generate e-commerce or
business services revenue. If we do not generate such revenue, our business,
financial condition and operating results will suffer. We expect that a
significant percentage of our overall revenues will come from NECX Exchange
which we acquired December 16, 1999. We may not be able to successfully
integrate the revenue stream of NECX into an e-commerce platform. If we do not
generate revenue from NECX'S e-commerce applications, our business,
financial condition and operating results will suffer.
We anticipate we will incur continued losses for the foreseeable future
To date, we have not been profitable. We may never be profitable or, if we
become profitable, we may be unable to sustain profitability. We have incurred
significant losses since inception. We reported a net loss of $38.2 million for
the nine months ended September 30, 1999 actual and $67.1 million on a pro forma
basis, giving effect to the acquisitions of NECX, Isadra, CertiSource, LabX and
Techspex. We expect to continue to incur significant losses in the foreseeable
future. As of September 30, 1999, our accumulated deficit was $57.5 million.
As a result of our acquisitions, we expect our amortization expense to increase
significantly in the future. Our limited operating history makes predicting our
future operating results, including operating expenses, difficult. Our revenues
may not grow or may not even continue at their current level.
We expect our operating expenses to increase
Some of our expenses are fixed, including non-cancelable agreements,
equipment leases and real estate leases. If our revenues do not increase, we may
not be able to compensate by reducing expenses in a timely manner. In addition,
we plan to significantly increase our operating expenses to:
. launch additional vertical trade communities;
. increase our internal sales and marketing operations;
. enhance our technologies;
. develop and deploy our e-commerce initiatives;
. enter into additional sponsorship agreements;
. broaden our customer support capabilities; and
. pursue marketing and distribution alliances.
Expenses will also increase due to the potential impact of goodwill
amortization and other charges resulting from completed and future acquisitions.
5
<PAGE>
Leading Web sites, browser providers and other Internet distribution
channels may also begin to charge us for providing access to our products and
services. If any of these expenses are not accompanied by increased revenues,
our business, financial condition and operating results would be harmed.
Fluctuations in our quarterly results may cause our stock price to decline
We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:
. the seasonality of our revenues;
. the uncertain adoption of the Internet as an e-commerce and advertising
medium;
. dependence on development and adoption of the e-commerce market;
. the level of demand for our products and services;
. intense and increased competition;
. our ability to develop, introduce and market new products and
enhancements to our existing products on a timely basis;
. our dependence on content providers;
. license fees payable to content providers;
. uncertain acceptance of our Internet content;
. management of our growth; and
. risks associated with recent and future acquisitions.
Many of these factors are beyond our control.
Due to the limited history of businesses relying on the Internet as an
advertising and commercial medium, we believe that period-to-period comparisons
of our operating results are not meaningful, and that such comparisons may not
be accurate indicators of future performance. Additionally, if our operating
results in one or more quarters do not meet the securities analysts' or our
shareholders' expectations, the price of our common stock may fall.
In addition, after our acquisition of NECX on December 16, 1999, quarterly
fluctuations in NECX's revenues may disproportionately affect our revenues, due
to NECX's substantial contribution to our overall revenues.
Marketing and distribution alliances may not generate the expected number of new
customers or may be terminated
We use marketing and distribution alliances with other Internet companies
to create traffic on our vertical trade communities and consequently, to
generate revenues. These marketing and distribution alliances allow us to link
our vertical trade communities to search engines such as those offered by Lycos.
The success of these relationships depends on the amount of increased traffic we
receive from the alliance partners' Web sites. These arrangements may not
generate the expected number of new customers. We also may be unable to renew
these marketing and distribution alliance agreements. If any of these agreements
are terminated, the traffic on our vertical trade communities could decrease or
our advertising revenues derived from the sales of advertising on co-branded
pages could decrease. In June 1999, as part of our overall reconsideration of
our portal alliances, we terminated a three-year Sponsorship Agreement with
Excite, Inc. entered into on September 30, 1998. Additionally, in October 1999,
we terminated our Sponsorship Agreement with Alta Vista.
6
<PAGE>
We are interested in entering into additional partnerships with search
engine providers to increase traffic to our vertical trade communities, but we
cannot assure you that we will be able to enter into any new partnerships. If we
are unable to enter into new arrangements, the traffic on our vertical trade
communities may not increase. Additionally, even if we are able to enter into
additional partnerships with search engines, these partnerships may not
necessarily increase the traffic on our vertical trade communities.
There is intense competition for the Internet products and services,
advertising and sales of goods and services that we offer.
The market for Internet products and services, advertising and e-commerce
is intensely competitive, evolving and subject to rapid technological change. We
expect competition to intensify as current competitors expand their product
offerings and new competitors enter the market. Barriers to entry are minimal,
and competitors can launch new Web sites at a relatively low cost. We compete
for a share of a customer's advertising budget with online services and
traditional off-line media, such as print publications and trade associations.
Although to date we believe there are no companies with a larger portfolio of
vertical trade communities than ours, several companies offer competitive
vertical trade communities. We expect that additional companies will offer
competing vertical trade communities on a standalone or portfolio basis.
Many of our competitors have greater brand recognition and greater
financial, marketing and other resources than ours, and may have well-
established relationships with our existing and prospective customers. This may
place us at a disadvantage in responding to our competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. Our competitors may also develop Internet products or services that
are superior to, or have greater market acceptance than, our solutions. If we
are unable to compete successfully against our competitors, our business,
financial condition and operating results may be negatively impacted.
Acquisitions may disrupt or otherwise have a negative impact on our business
We have made, and plan to continue to make, significant investments in
complementary Internet and non-Internet traditional companies, technologies and
assets. Acquisitions are subject to the following risks:
. acquisitions may cause a disruption in our ongoing business, distract our
management and other resources and make it difficult to maintain our
standards, controls and procedures;
. we may acquire companies in markets in which we have little experience;
. we may not be able to retain key employees from acquired companies;
. we may not be able to successfully integrate the services, products and
personnel of any acquisition into our operations;
. we may be required to incur debt or issue equity securities, which may be
dilutive to existing shareholders, to pay for acquisitions;
. our acquisitions may not result in any return on our investment and we
may lose our entire investment and incur significant additional losses;
. our share price could decline following the market's reaction to our
acquisitions;
. our amortization expense will increase as a result of acquisitions; and
. our interest deductions may be disallowed for federal income tax
purposes.
7
<PAGE>
The integration of NECX into our operations will substantially affect our
revenue model and may be expensive and time-consuming
We recently acquired NECX, a marketplace for the electronics industry.
For the nine months ended September 30, 1999, NECX generated net revenues of
approximately $28.0 million, all of which was attributable to its off-line
market-making business. For the same period, VerticalNet generated net revenue
of approximately $10.7 million, all of which was derived from our on-line
advertising and e-commerce arrangements. We believe our acquisition of NECX will
result in substantially higher revenues to VerticalNet; however, we plan to
migrate NECX's off-line business to an on-line business. The effect of this
migration on NECX's revenue stream is uncertain. There can be no assurance that
we will be successful in this migration, nor that NECX customers will continue
to use NECX upon its integration.
In order to operationally integrate NECX into our vertical trade
communities, we have retained Computer Sciences Corporation to design and build
a new on-line exchange for NECX. The cost of designing and building a new
on-line exchange will be significant and this project may take a substantial
period of time to complete. There can be no assurance that this project will be
completed at the cost and on the timeline that we currently contemplate. The
failure of Computer Sciences or VerticalNet to effectively design, build and
integrate the operations of NECX into VerticalNet's on-line trade communities
could adversely affect our business, financial condition and operating results.
Future acquisitions may have a substantial dilutive effect on our stockholders.
Our growth strategy depends upon the use of acquisitions to expand our
business. The implementation of this strategy may require us to finance these
acquisitions with shares of our common stock. Accordingly, our stockholders
may experience substantial dilution because of our acquisition growth strategy.
We currently rely heavily on advertising revenues and if our advertising
revenues decline, our business would suffer
We currently rely on revenues generated from the sale of advertising on our
vertical trade communities for a significant majority of our revenues. If we do
not continue to develop advertising and other sources of revenues, our business
may suffer. Our ability to increase our advertising revenues depends, among
other things, on many factors, including:
. advertisers' acceptance of the Internet as a legitimate advertising
medium;
. the development of a large base of users on our vertical trade
communities who possess demographic characteristics attractive to
advertisers; and
. the expansion of our sales force.
Additionally, to some of our advertising customers, we provide extended
payment terms over the customer's advertising contract. To the extent that these
amounts are not collected, our advertising revenues, bad debt expense and cash
flows may be negatively impacted.
We also have barter arrangements where we provide banner advertisements and
storefronts to some of our customers in exchange for advertising on their Web
sites or in their publications. If our barter arrangements do not continue, our
advertising revenues may decline. For the nine months ended September 30, 1999,
approximately $2.4 million, or 22.9%, of our reported revenue was generated by
barter advertising arrangements.
Other factors could also affect our revenues. For example, widespread use
of "filter" software programs that limit access to storefront advertising from
the Internet user's browser could reduce advertising on the Internet, which
would impair our business, financial condition and operating results.
8
<PAGE>
The seasonality of our advertising revenues and usage causes our overall
revenues to fluctuate
Some of our revenue is seasonal, which causes our revenues to be lower in
the second and third quarters of each calendar year. As a result, after the
announcement of our results for the second and third quarters of each calendar
year, our stock price may be lower than at other times of the year. We
experience seasonality in our advertising revenue because advertising and media
buying tends to be highest in the first and fourth quarters of each calendar
year. We also experience seasonality in our traffic. User traffic on our
vertical trade communities and the Web sites of our partners is lower during the
summer and year-end vacation and holiday periods, when business usage of the Web
and our services typically declines.
Changes in industry advertising rates could negatively impact our revenues
Changes in industry pricing practices for advertising rates could
negatively impact our revenues in the future. Currently, we base our storefront
advertising rates on a variety of factors including the maturity of the
particular vertical trade community, the number of storefronts, the amount of
other advertising purchased and the length of the advertising contract. In the
future, advertising rates may be based on different criteria matrices such as
the number of sales inquiries generated or visitors sent from our vertical trade
communities to advertisers' Web sites. These changes could negatively impact our
revenues.
Our Internet content may not attract users with demographic characteristics
valuable to our advertisers
Our future success depends upon our ability to deliver compelling Internet
content about various industries that will attract users with demographic
characteristics valuable to our advertising customers. If we are unable to
develop Internet content that attracts a loyal user base possessing demographic
characteristics attractive to advertisers, it could impair our business,
financial condition and operating results. In addition, we may be unable to
anticipate or respond to rapidly changing buyer preferences to attract enough
users to our vertical trade communities. Internet users can freely navigate and
instantly switch among a large number of Web sites. Many of these Internet sites
offer original content. It may therefore be difficult for us to distinguish our
content and attract users.
We rely on third parties, such as trade publications and news wires, to
provide some of the content for our vertical trade communities. It is critical
to our business that we maintain and build our existing relationships with
content providers. We may not be able to maintain relationships with the third
parties we depend upon to provide the content for our vertical trade
communities, which could result in decreased traffic on our vertical trade
communities and decreased advertising revenue. Many of our agreements with
content providers are for initial terms of one to two years. The content
providers may choose not to renew the agreements or may terminate the agreements
early if we do not fulfill our contractual obligations, including our payment
obligations. If a significant number of content providers terminate our
agreements with them, it could result in decreased traffic on our vertical trade
communities and decreased advertising revenue. Because our agreements with
certain of our content providers are nonexclusive, a competitor could offer
content similar to or the same as ours.
The license fees we pay to content providers may increase
If licensing fees to content providers increase, our business, financial
condition and operating results may be negatively impacted. These license fees
may increase as competition for such content increases. Our content providers
may not enter into new agreements with us on similar terms as our current
agreements.
9
<PAGE>
If we do not develop the "VerticalNet" brand and our vertical trade community
brands, our advertising revenues could decrease
To be successful, we must establish and strengthen the brand awareness of
the "VerticalNet" brand as well as the brands associated with each individual
vertical trade community (e.g. wateronline.com). If our brand awareness is
weakened, it could decrease the attractiveness of our audiences to advertisers,
which could result in decreasing advertising revenues. We believe that brand
recognition will become more important in the future with the growing number of
Internet sites. Our brand awareness could be diluted, which could impair our
business, financial condition and operating results if users do not perceive our
products and services to be of high quality.
We may not develop significant revenues from e-commerce, which could adversely
affect our future growth
For the nine months ended September 30, 1999, approximately 7% of our
revenues were generated from e-commerce. If we do not generate increased revenue
from e-commerce, our business, financial condition and operating results could
be impaired. To generate significant e-commerce revenues, we will have to
continue to build and acquire significant e-commerce capabilities.
Recent acquisitions to enhance our e-commerce capabilities include NECX,
Isadra, LabX and CertiSource. These acquisitions may not meet our expectations.
Our e-commerce capability depends on real-time accurate product information
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. This process
entails a number of risks, including dependence on our suppliers to provide us
in a timely manner with accurate, complete and current information about their
products, and to promptly update this information when it changes. We will not
derive revenue from these products until this data is loaded in our system.
Timely loading of these products in our database depends upon a number of
factors, including the file formats of the data provided to us by suppliers and
our ability to further automate and expand our operations to accurately load
this data in our product database, any of which could delay the actual loading
of these products.
In addition, we are generally obligated under our supplier agreements to
load updated product data onto our database within a specified period of time
following its delivery from the supplier. While we intend to further automate
the loading and updating of supplier data on our system, we may not be able to
do so in a timely manner, in part because achieving the highest level of this
automation is dependent upon our suppliers' automating their delivery of product
data to us. If our suppliers do not provide us in a timely manner with accurate,
complete and current information about the products we offer, our database may
be less useful to our customers and users and may expose us to liability.
Although we screen our suppliers' information before we make it available to our
customers and users, we cannot guarantee that the product information available
in our database will always be accurate, complete and current, or comply with
governmental regulations. This could expose us to liability or result in
decreased adoption and use of our vertical trade communities, which could reduce
our revenues and therefore have a negative effect on our results of operations
and financial condition.
If our suppliers do not provide timely and professional delivery of products to
our customers, our business will be harmed
We rely on our suppliers and manufacturers to deliver products to our
customers in a professional, safe and timely manner. If our suppliers do not
deliver the products to our customers in a professional, safe and timely manner,
then our service will not meet customer expectations and our reputation and
brand will be damaged. In addition, deliveries that are nonconforming, late or
are not accompanied by information required by applicable law or regulations,
could expose us to liability or result in decreased adoption and use of our
vertical trade communities, which could have a negative effect on our business,
results of operations and financial condition. In some instances, we bear the
responsibility for product refunds and returns and the risk of non-
collectibility of accounts receivable from our customers.
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We may not be able to effect our growth strategy if we are not able to
consummate future acquisitions
We have been growing, and plan to continue to grow, our business by
acquisitions. We may not be able to identify additional suitable acquisition
candidates available for sale at reasonable prices or on reasonable terms. Even
if we are able to identify an appropriate acquisition candidate, we may not be
able to negotiate the terms of the acquisition successfully, finance the
acquisition or integrate the acquired business, products or technologies into
our existing business operation. If we are unable to consummate future
acquisitions, our business, financial condition and operating results could be
negatively impacted.
We are growing rapidly and effectively managing our growth may be difficult
We have rapidly and significantly expanded our operations and expect to
continue to do so both by adding new products, hiring new employees and
acquiring new businesses. This growth has placed, and is expected to continue to
place, a significant strain on our resources and systems. To manage our growth,
we must implement systems and train and manage our employees. If we fail to
successfully integrate our recent and future acquisitions, our business,
financial condition and operating results could be negatively impacted.
Our international expansion may make it more difficult to manage our business
In February 2000, we announced the formation of VerticalNet Europe, a joint
venture with British Telecommunications, plc and Internet Capital Group and the
formation of VerticalNet Japan, a joint venture with Softbank Commerce Corp. We
intend to establish and promote European and Japanese business to business
trade communities through these new joint ventures. In June 1999, we entered
into a co-branding agreement with Metropolis Transactive (Proprietary) Limited,
a South African company creating on-line marketplaces focused on the African
market. We expect to further expand in international markets. To do so, we plan
to establish international operations, hire additional personnel and establish
relationships with additional suppliers and strategic partners. This expansion
will require significant management attention and financial resources and could
have a negative effect on our business, revenues, financial condition and
results of operations. We may not be able to create or sustain international
demand for our Internet-based, e-commerce business model and services. Even if
we are able to identify an appropriate international joint venture partner, we
may not be able to negotiate the terms of the venture successfully, finance the
venture or integrate the venture partner's business, products or technology into
our existing business operation, or we may become dependent on our joint venture
partners. In addition, our international business may be subject to a variety
of risks, including government regulation, difficulties in collecting
international accounts receivable, longer payment cycles, increased costs
associated with maintaining international marketing efforts, the introduction of
non-tariff barriers, possible currency risks and higher duty rates and
difficulties in enforcement of contractual obligations and intellectual property
rights, including licensing rights. These factors may have a negative effect on
any future international sales and, consequently, on our business, results of
operations and financial condition.
Risk of failure of our computer and communications hardware systems increases
without back-up facilities
The performance of our computer and communications hardware systems is
critical to our business and reputation and our ability to process transactions,
provide high quality customer service and attract and retain customers,
suppliers, users and strategic partners. Any system interruptions that cause our
vertical trade communities to be unavailable to users may reduce the
attractiveness of our vertical trade communities to advertisers and could impair
our business, financial condition and operating results. We maintain most of our
computer systems in two Web-hosting facilities in New Jersey. We do not
currently have back-up or redundant facilities for our computer systems.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events.
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Capacity limits on our technology, transaction processing system and network
hardware and software may be difficult to project and we may not be able to
expand and upgrade our systems to meet increased use
As traffic in our vertical trade communities continues to increase, we must
expand and upgrade our technology, transaction processing systems and network
hardware and software. We may not be able to accurately project the rate of
increase in our vertical trade communities. In addition, we may not be able to
expand and upgrade our systems and network hardware and software capabilities to
accommodate increased use of our vertical trade communities. If we do not
appropriately upgrade our systems and network hardware and software, our
business, financial condition and operating results will suffer.
Our acquisition of Isadra, including its agent-communication and agent-
brokering architecture, may not be successfully integrated into our existing
technology.
Our market is characterized by rapid technological change, which we may not be
able to keep up with in a cost-effective way
Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing vertical trade community technology obsolete. If we are unable to
successfully respond to these developments or do not respond in a cost-effective
way, our business, financial condition and operating results will suffer. To be
successful, we must adapt to our rapidly changing market by continually
improving the responsiveness, services and features of our vertical trade
communities, by developing new features to meet customer needs and by
successfully developing and introducing new versions of our Internet-based, e-
commerce business model on a timely basis. Our success will depend, in part, on
our ability to acquire or license leading technologies useful in our business,
enhance our existing services and develop new services and technology that
address the needs of our customers. We will also need to respond to
technological advances and emerging industry standards in a cost-effective and
timely basis.
We may not be able to acquire or maintain easily identifiable Web addresses or
prevent third parties from acquiring Web addresses similar to ours
We currently hold various Internet Web addresses relating to our brand.
These Web addresses include wateronline.com, wirelessdesignonline.com,
pollutiononline.com and other Web addresses. We may not be able to prevent third
parties from acquiring Web addresses that are similar to our addresses, which
could impair our business, financial condition and operating results. The
acquisition and maintenance of Web addresses generally is regulated by
governmental agencies and their designees. For example, in the United States,
the National Science Foundation has appointed Network Solutions, Inc. as the
exclusive registrar for the ".com," ".net" and ".org" generic top-level
addresses. The regulation of Web addresses in the United States and in foreign
countries is subject to change. We may not be able to acquire or maintain
relevant Web addresses in all countries where we conduct business. Furthermore,
the relationship between regulations governing such addresses and laws
protecting trademarks is unclear.
We may compete with Internet Capital Group, our largest shareholder
As a result of its stock ownership and board representation, Internet
Capital Group, LLC is in a position to significantly affect our business
strategy and operations, including corporate actions such as mergers or takeover
attempts in a manner that could conflict with the interests of our public
shareholders. At December 31, 1999, Internet Capital Group owned 12,295,010
shares, or 34.1%, of our common stock. Internet Capital Group also owns warrants
to purchase an additional 239,312 shares of common stock. Two representatives of
Internet Capital Group remain on our board of directors. We may compete with
Internet Capital Group for Internet-related opportunities. Internet Capital
Group seeks to expand, in part through acquisitions and investments, its number
of business-to-business assets. Internet Capital Group, therefore, may seek to
acquire companies that we would find attractive. While we may partner with
Internet Capital Group on future acquisitions, we have no current contractual
obligations to do so. We do not have any contracts or other
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understandings that would govern resolution of this potential conflict. This
competition, and the potential conflict posed by the designated directors, may
deter companies from partnering with us and may limit our business
opportunities.
Our success is dependent on our key personnel who we may not be able to retain
and we may not be able to hire enough additional personnel to meet our hiring
needs
We believe that our success depends on continued employment of our senior
management team and key technical personnel. If one or more members of our
senior management team were unable or unwilling to continue in their present
positions, our business, financial condition and operating results could be
materially adversely affected. Only one member of our senior management has an
employment agreement. We carry key person life insurance on certain, but not on
all, of our senior management personnel.
Our success also depends on having a highly trained sales force and
telesales group. Our telesales group was formed recently. We will need to
continue to hire additional personnel as our business grows. A shortage in the
number of trained salespeople could limit our ability to increase sales in our
existing vertical trade communities and to sell as we launch new vertical trade
communities.
We plan to expand our employee base to manage our anticipated growth.
Competition for personnel, particularly for employees with technical expertise,
is intense. Our business, financial condition and operating results will be
impaired if we cannot hire and retain suitable personnel.
Our systems may not be Year 2000 compliant, which could cause our vertical trade
communities to be unavailable for a period of time after January 1, 2000, which
could in turn have a negative impact on our business, operating results and
financial position
We may realize exposure and risk if the systems on which we are dependent
to conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software and
other equipment used internally. If our present efforts to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, operating results and financial position could be harmed.
In the event that our Web-hosting facilities are not Year 2000 compliant,
our production Web sites would be unavailable and we would not be able to
deliver services to our users. In the event that our production and operational
facilities that support our Web sites are not Year 2000 compliant, small
portions of our Web sites may become unavailable.
Risks Related to the Internet Industry
Our success depends on the development of the e-commerce market, which is
uncertain
Business-to-business e-commerce is a new and emerging business practice
that remains largely untested in the marketplace. If e-commerce does not grow or
grows slower than expected, our business will suffer. Our long-term success
depends on widespread market-acceptance of e-commerce.
A number of factors could prevent such acceptance, including the following:
. e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
. the necessary network infrastructure for substantial growth in usage of
the Internet may not be adequately developed;
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. security and confidentiality concerns of customers and suppliers;
. increased government regulation or taxation may adversely affect the
viability of e-commerce;
. insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
. adverse publicity and consumer concern about the security of e-commerce
transactions could discourage its acceptance and growth.
Adoption of the Internet as an advertising medium is uncertain
The growth of Internet advertising requires validation of the Internet as
an effective advertising medium. This validation has yet to fully occur.
Acceptance of the Internet among advertisers will also depend on growth in the
commercial use of the Internet. If widespread commercial use of the Internet
does not develop, or if the Internet does not develop as an effective and
measurable medium for advertising, our business, financial condition and
operating results could suffer.
No standards have been widely accepted to measure the effectiveness of
Internet advertising. If such standards do not develop, existing advertisers may
not continue their current levels of Internet advertising and advertisers who
are not currently advertising on the Internet may be reluctant to do so. Our
business, financial condition and operating results would suffer if the market
for Internet advertising fails to develop or develops slower than expected.
Adoption of the Internet as an e-commerce medium is uncertain
Our market is new and rapidly evolving, and depends on the increased
acceptance and use of the Internet as a medium of commerce. Our business would
suffer if Internet usage does not continue to grow and if the Internet is not
adopted as an e-commerce medium. Internet usage may be inhibited by a number of
reasons, such as:
. inadequate development of the necessary infrastructure;
. security and confidentiality concerns of customers and suppliers;
. inconsistent quality of service;
. lack of human contact that current traditional suppliers provide; and
. lack of availability of cost-effective, high-speed service.
Security risks and concerns may deter the use of the Internet for conducting e-
commerce
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence. Concerns regarding
security of transactions and transmitting confidential information over the
Internet may negatively impact our e-commerce business.
We believe that concern regarding the security of confidential information
transmitted over the Internet, such as credit card numbers, prevents many
potential customers from engaging in on-line transactions. If we do not add
sufficient security features to future product releases, our products may not
gain market acceptance or we may incur additional legal exposure. We have
included basic security features in some of our products to protect the privacy
and integrity of customer data, such as password requirements for access to
portions of our vertical trade communities. We do not currently use
authentication technology, which requires passwords and other information to
prevent unauthorized persons from accessing a customer's information, or
encryption, which transforms information
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into a "code" designed to be unreadable by third parties, to protect
confidential information such as credit card numbers. However, we intend to
license encryption technology to protect confidential transaction data.
Despite the measures we have taken, our infrastructure is potentially
vulnerable to physical or electronic break-ins, viruses or similar problems. If
a person circumvents our security measures, he or she could misappropriate
proprietary information or cause interruptions in our operations. Security
breaches that result in access to confidential information could damage our
reputation and expose us to a risk of loss or liability. We may be required to
make significant investments and efforts to protect against or remedy security
breaches. Additionally, as e-commerce becomes more prevalent (and consequently
becomes the focus of our development of direct marketing products), our
customers will become more concerned about security. If we do not adequately
address these concerns, this could impair our business, financial condition and
operating results.
Limited Internet infrastructure may affect service
The accelerated growth and increasing volume of Internet traffic may cause
performance problems, slowing the adoption of our Internet-based purchasing
solution. The growth of Internet traffic due to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This decreased
performance is caused by limitations inherent in the technology infrastructure
supporting the Internet and the internal networks of Internet users. If Internet
usage continues to grow rapidly, the infrastructure of the Internet and its
users may be unable to support the demands of growing e-commerce usage, and the
Internet's performance and reliability may decline. If our existing or potential
customers experience frequent outages or delays on the Internet, the adoption or
use of our Internet-based, e-commerce business model may grow more slowly than
we expect or even decline. Our ability to increase the speed and reliability of
our Internet-based business model is limited by and depends upon the reliability
of both the Internet and the internal networks of our existing and potential
customers. As a result, if improvements in the infrastructure supporting both
the Internet and the internal networks of our customers and suppliers are not
made in a timely fashion, we may have difficulty obtaining new customers, or
maintaining our existing customers, either of which could reduce our potential
revenues and have a negative impact on our business, results of operations and
financial condition.
Proprietary, Regulatory and Legal Risks
We may not be able to protect our proprietary rights and we may infringe the
proprietary rights of others
Proprietary rights are important to our success and our competitive
position. We have filed applications with the U.S. Patent and Trademark Office
to obtain registrations for ten of our marks. To date, five registrations have
been issued. Although we seek to protect our proprietary rights, our actions may
be inadequate to protect any trademarks and other proprietary rights or to
prevent others from claiming violations of their trademarks and other
proprietary rights. Generally, our domain names for our vertical trade
communities are not protectable as trademarks because they are too generic. In
addition, effective copyright and trademark protection may be unenforceable or
limited in certain countries, and the global nature of the Internet makes it
impossible to control the ultimate destination of our work. We also license
content from third parties and it is possible that we could become subject to
infringement actions based upon the content licensed from those third parties.
We generally obtain representations as to the origin and ownership of such
licensed content; however, this may not adequately protect us. Any of these
claims, with or without merit, could subject us to costly litigation and the
diversion of our technical and management personnel.
We may be subject to legal liability for publishing or distributing content over
the Internet
We may be subject to legal claims relating to the content in our vertical
trade communities, or the downloading and distribution of such content. For
example, persons may bring claims against us if material that is inappropriate
for viewing by young children can be accessed from our vertical trade
communities. Claims could also involve matters such as defamation, invasion of
privacy and copyright infringement. Providers of Internet products and services
have been sued in the past, sometimes successfully, based on the content of
material. In addition, some of
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the content provided on our vertical trade communities is drawn from data
compiled by other parties, including governmental and commercial sources, and we
re-key the data. This data may have errors. If our content is improperly used or
if we supply incorrect information, it could result in unexpected liability. Our
insurance may not cover claims of this type, or may not provide sufficient
coverage. Our business, financial condition and operating results could suffer a
material adverse effect if costs resulting from these claims are not covered by
our insurance or exceed our coverage.
We may be exposed to product liability claims
We face potential liability for claims based on the nature of the products
that we sell and distribute utilizing the Internet, including claims for breach
of warranty, product liability, misrepresentation, violation of governmental
regulations and other commercial claims. Most of the manufacturers whose
products we distribute have warranties on those products. We pass that warranty
through to our customers whenever possible. However, in some instances we bear
the risk of loss of revenue from the product sale if a purchaser does not pay
for a defective product. Although we maintain general liability insurance, our
insurance may not cover some claims or penalties, is subject to policy limits
and exclusions and may not adequately indemnify us or our employees from any
civil, governmental or criminal liability. Furthermore, this insurance may not
be available at commercially reasonable rates in the future. Any liability not
covered by our insurance or in excess of our insurance coverage could have a
negative effect on our business, financial condition and operating results.
We are subject to government regulation that exposes us to potential liability
and negative publicity
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping
and licensing requirements applicable to our business during the entire
transaction. Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are required to have our
own licenses. For example, if we are held to be a seller or a distributor of
regulated products because we took legal title, we may have inadvertently
violated some governmental regulations by not having the appropriate license or
permit and may be subject to potentially severe civil or criminal penalties and
fines for each offense. We are unable to verify that our suppliers have in the
past complied, or will in the future comply, with the applicable governmental
regulatory requirements, or that their actions are adequate or sufficient to
satisfy all governmental or other legal requirements that may be applicable to
our sales. We could be fined or exposed to civil or criminal liability,
including monetary fines and injunctions, and we could receive potential
negative publicity, if the applicable governmental regulatory requirements have
not been, or are not being, fully met by our suppliers or by us directly.
Negative publicity, fines and liabilities could also occur if an unqualified
person, or even a qualified customer, lacks the appropriate license or permits
to sell, use or ship, or improperly receives a dangerous or unlicensed product
through us. We do not maintain any reserve for potential liabilities resulting
from government regulation.
It is also possible that a number of laws and regulations may be adopted or
interpreted in the United States and abroad with particular applicability to the
Internet. These laws and regulations may, for example, cover issues such as user
privacy, freedom of expression, pricing, content and quality of products and
services, taxation, advertising, intellectual property rights, access charges
and information security. The enactment of such laws could have a negative
effect on our business, financial condition and operating results.
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Risks Related to this Offering
We may not have sufficient cash flow to service our debt
As of September 30, 1999, we had approximately $101,739,000 in long term
debt. After September 30, 1999, an additional $15 million in debt resulted from
the exercise of the over-allotment provision of our 5 1/4% convertible
subordinated debentures due 2004. Currently, we are not generating sufficient
cash flow to satisfy the annual debt service payments required as a result of
our September 1999 offering of convertible subordinated debentures. If we are
unable to satisfy our debt service requirements, substantial liquidity problems
could result, which would negatively impact our future prospects.
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We may require additional capital for our operations that could have a negative
effect on your investment
We currently anticipate that the net proceeds of our September 1999
offering of debentures, together with our existing borrowing arrangements and
available funds, will be sufficient to meet our anticipated needs for working
capital and capital expenditures for at least the next 12 months. We may need to
raise additional funds in the future in order to fund rapid expansion, to pursue
customer sales and implementation, to develop new or enhanced solutions and
services, to respond to competitive pressures or to acquire complementary
businesses, technologies or services.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders will be reduced,
shareholders may experience additional dilution and these securities may have
powers, preferences and rights that are senior to those of the rights of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us if at all. If adequate funds are not available or not
available on acceptable terms, we may be unable to fund our expansion, promote
our brand identity, take advantage of acquisition opportunities, develop or
enhance services or respond to competitive pressures. Any inability to do so
could have a negative effect on our business, revenues, financial condition and
results of operations.
Shares eligible for future sale by our current shareholders may cause our stock
price to decline
If our shareholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, then the market price of our common stock could fall.
Restrictions under the securities laws limit the number of shares of common
stock available for sale in the public market.
As of January 1, 2000, the holders of up to 24,321,679 shares of common
stock and warrants to purchase 395,208 shares of common stock have demand and
piggy-back registration rights. The exercise of such rights could adversely
affect the market price of our common stock. We have also filed a registration
statement to register shares of common stock under our stock option and employee
stock purchase plans. Shares issued upon exercise of stock options and employee
stock purchase plans will be eligible for resale in the public market without
restriction.
Anti-takeover provisions and our right to issue preferred stock could make a
third-party acquisition of us difficult
VerticalNet is a Pennsylvania corporation. Anti-takeover provisions of
Pennsylvania law could make it more difficult for a third party to acquire
control of us, even if such change in control would be beneficial to our
shareholders. Our articles of incorporation provide that our board of directors
may issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a staggered
three-year term. The issuance of preferred stock and the existence of a
classified board could make it more difficult for a third party to acquire us.
Our common stock price is likely to remain highly volatile
The market price of our common stock has been and will likely continue to
be highly volatile as the stock market in general, and the market for Internet-
related and technology companies in particular, has been highly volatile.
Investors may not be able to resell their shares of our common stock following
periods of volatility because of the market's adverse reaction to such
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks and
have reflected relative valuations substantially above historical levels. During
the same period, such companies' stocks have also been highly volatile and have
recorded lows well below such historical highs. Our stock may not trade at the
same levels as other Internet stocks, and Internet stocks in general may not
sustain their current market prices.
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Factors that could cause such volatility may include, among other things:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new sales models or new products or services;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet industry;
. changes in the market valuations of other Internet companies;
. failure to meet analysts' expectations;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
. capital commitments;
. additions or departures of key personnel;
. sales of common stock; and
. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet companies.
Many of these factors are beyond our control. These factors may cause the
market price of our common stock to fall, regardless of our operating
performance.
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FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this prospectus contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Such statements may
include words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. In particular,
these include among other things, statements relating to e-commerce strategy,
acquisition and expansion strategy, development of services, use of proceeds,
projected capital expenditures, liquidity, development of additional revenue
sources, development and maintenance of profitable marketing and distribution
alliances, market acceptance of the Internet, acquisition and/or development of
profitable new vertical trade communities, technological advancement, ability to
develop "brand" identification and global expansion.
Any or all of our forward-looking statements in this prospectus may turn
out to be wrong. They can be affected by inaccurate assumptions we might make or
by known or unknown risks and uncertainties. Many factors mentioned in our
discussion in this prospectus will be important in determining future results.
Consequently, no forward-looking statement can be generated. Actual future
results may vary materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any additional disclosures we make in our
reports to the SEC on Forms 10-K, 10-Q and 8-K. Also note that we provide a
cautionary discussion of risks and uncertainties under "Risk Factors" on page
5 of this prospectus. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors besides those
listed here could also adversely affect us. This discussion is provided as
permitted by the Private Securities Litigation Reform Act of 1995.
USE OF PROCEEDS
We will not receive any proceeds from the resale of the common stock
offered through this prospectus.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 90,000,000 shares of common stock,
par value $.01 per share, and 10,000,000 shares of preferred stock, par value
$.01 per share. VerticalNet is a Pennsylvania corporation and is subject to the
Pennsylvania Business Corporation Law of 1988.
Common Stock
Holders of the common stock are entitled to receive, as, when and if
declared by the board of directors from time to time, such dividends and other
distributions in cash, stock or property from our assets or funds legally
available for such purposes subject to any dividend preferences that may be
attributable to preferred stock that may be authorized. Holders of common stock
are entitled to one vote for each share held of record on all matters on which
shareholders may vote, except with respect to the election of directors in which
case shareholders are entitled to multiply the number of shares held of record
by the number of directors to be elected and distribute such number of votes for
one or among two or more nominees.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable. In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to share ratably in the assets
available for distribution.
Preferred Stock
Our board of directors, without further action by the shareholders, is
authorized to issue an aggregate of 10,000,000 shares of preferred stock. No
shares of preferred stock are outstanding and we have no plans to issue a new
series of preferred stock. Our board of directors may, without shareholder
approval, issue preferred stock with dividend rates, redemption prices,
preferences on liquidation or dissolution, conversion rights, voting rights and
any other preferences, which rights and preferences could adversely affect the
voting power of the holders of common stock. Issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions or
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or could discourage or delay a third party from
acquiring, a majority of our outstanding stock.
Classified Board of Directors
Our bylaws, as amended and restated, divide our board of directors into
three classes, with regular three-year staggered terms and initial terms of one
year for the class I directors, two years for the class II directors and three
years for the class III directors. This could prevent a party who acquires
control of the majority of the outstanding voting stock from obtaining control
of the board of directors.
Our shareholders do not have the right to cumulative voting in the election
of directors.
Shareholder Action by Written Consent
Under Pennsylvania law, any action that may be taken at a meeting of the
shareholders may be taken without a meeting if such action is authorized by the
unanimous written consent of all shareholders entitled to vote at a meeting for
such purposes.
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Special Meetings
Our articles of incorporation and bylaws provide that special meetings of
our shareholders may be called only by the board or by our chairman or chief
executive officer. This provision may make it more difficult for shareholders to
take action opposed by the board.
Amendments to Our Bylaws
Our bylaws provide that the vote of a majority of all directors or the vote
of the majority of the outstanding stock entitled to vote is required to alter,
amend or repeal our bylaws.
Indemnification of Directors and Officers
Section 1741 of the Pennsylvania corporate laws provides the power to
indemnify any officer or director acting in his capacity as our representative
who was, is or is threatened to be made a party to any action or proceeding for
expenses, judgments, penalties, fines and amounts paid in settlement in
connection with such action or proceeding. The indemnity provisions apply
whether the action was instituted by a third party or arose by or in our right.
Generally, the only limitation on our ability to indemnify our officers and
directors is if the act violates a criminal statute or if the act or failure to
act is finally determined by a court to have constituted willful misconduct or
recklessness.
Our bylaws provide a right to indemnification to the full extent permitted
by law for expenses, attorney's fees, damages, punitive damages, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by any director or officer whether or not the indemnified liability arises or
arose from any threatened, pending or completed proceeding by or in our right by
reason of the fact that such director or officer is or was serving as our
director, officer or employee or, at our request, as a director, officer,
partner, fiduciary or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, unless the act or
failure to act giving rise to the claim for indemnification is finally
determined by a court to have constituted willful misconduct or recklessness.
Our bylaws provide for the advancement of expenses to an indemnified party upon
receipt of an undertaking by the party to repay those amounts if it is finally
determined that the indemnified party is not entitled to indemnification.
Our bylaws authorize us to take steps to ensure that all persons entitled
to the indemnification are properly indemnified, including, if the board of
directors so determines, purchasing and maintaining insurance.
Limitation of Liability
Our articles of incorporation provide that none of our directors shall be
personally liable to us or our shareholders for monetary damages for a breach of
fiduciary duty as a director, except for liability:
. for any breach of such person's duty of loyalty;
. for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law;
. for the payment of unlawful dividends and certain other actions
prohibited by Pennsylvania corporate law; and
. for any transaction resulting in receipt by such person of an improper
personal benefit.
We maintain directors and officers' liability insurance to provide
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts. At
present, there is no pending litigation or proceeding, and we are not aware of
any threatened litigation or proceeding, involving any director, officer,
employee or agent where indemnification will be required or permitted under the
articles of incorporation or our bylaws.
22
<PAGE>
Pennsylvania Control-Share Acquisitions Law
Generally, subchapters 25E, F, G, H, I and J of the Pennsylvania corporate
laws place certain procedural requirements and establish certain restrictions
upon the acquisition of voting shares of a corporation which would entitle the
acquiring person to cast or direct the casting of a certain percentage of votes
in an election of directors. Subchapter 25E of the Pennsylvania corporate laws
provides generally that, if a company were involved in a "control transaction,"
shareholders of the company would have the right to demand from a "controlling
person or group" payment of the fair value of their shares. For purposes of
subchapter 25E, a "controlling person or group" is a person or group of persons
acting in concert that, through voting shares, has voting power over at least
20% of the votes which shareholders of the company would be entitled to cast in
the election of directors. A control transaction arises, in general, when a
person or group acquires the status of a controlling person or group.
In general, Subchapter 25F of the Pennsylvania corporate laws delays for
five years and imposes conditions upon "business combinations" between an
"interested shareholder" and us. The term "business combination" is defined
broadly to include various merger, consolidation, division, exchange or sale
transactions, including transactions utilizing our assets for purchase price
amortization or refinancing purposes. An "interested shareholder," in general,
would be a beneficial owner of at least 20% of our voting shares.
In general, Subchapter 25G of the Pennsylvania corporate laws suspends the
voting rights of the "control shares" of a shareholder that acquires for the
first time 20% or more, 33 1/3% or more, or 50% or more of a company's shares
entitled to be voted in an election of directors. The voting rights of the
control shares generally remain suspended until such time as the
"disinterested" shareholders of the company vote to restore the voting power
of the acquiring shareholder.
Subchapter 25H of the Pennsylvania corporate laws provides in certain
circumstances for the recovery by a company of profits made upon the sale of its
common stock by a "controlling person or group" if the sale occurs within 18
months after the controlling person or group became such and the common stock
was acquired during such 18 month period or within 24 months before such period.
In general, for purposes of Subchapter 25H, a "controlling person or group" is
a person or group that:
(1) has acquired;
(2) offered to acquire; or
(3) publicly disclosed or caused to be disclosed an intention to acquire
voting power over shares that would entitle such person or group to cast at
least 20% of the votes that shareholders of the company would be entitled to
cast in the election of directors.
If the disinterested shareholders of a company vote to restore the voting
power of a shareholder who acquires control shares subject to Subchapter 25G,
such company would then be subject to subchapters 25I and J of the Pennsylvania
corporate laws. Subchapter 25I generally provides for a minimum severance
payment to certain employees terminated within two years of such approval.
Subchapter 25J, in general, prohibits the abrogation of certain labor contracts
prior to their stated date of expiration.
The above descriptions of subchapters of the Pennsylvania corporate laws
summarize the material anti-takeover provisions contained in the Pennsylvania
corporate laws but are not a complete discussion of those provisions.
Certain Anti-Takeover Provisions
The ability of the board of directors to establish the rights of, and to
issue, substantial amounts of preferred stock without the need for shareholder
approval, may have the effect of discouraging, delaying or preventing a change
in control. Such preferred stock, among other things, may be used to create
voting impediments with respect to any changes in control or to dilute the stock
ownership of holders of common stock seeking to obtain control. See
23
<PAGE>
"Risk Factors--Risks Related to this Offering--Anti-takeover provisions and our
right to issue preferred stock could make a third-party acquisition of us
difficult," "--Common Stock" and "--Preferred Stock."
Registration Rights
In addition to the registration rights granted in connection with the
offering of the debentures, the holders of up to 24,321,679 shares of common
stock and warrants to purchase 395,208 shares of common stock are entitled to
certain registration rights. These rights are provided under the terms of
agreements between us and the holders of such securities. Such agreements
provide, in certain instances, demand registration rights. In addition, pursuant
to these agreements, the holders are entitled, subject to certain limitations,
to require us to include their registrable securities in future registration
statements we file under the Securities Act of 1933.
The holders also are entitled, subject to certain limitations, to require
us to register their registrable securities on a registration statement on Form
S-3 once we are eligible to use a Form S-3 in connection with such
registrations. Registration of shares of common stock pursuant to the exercise
of demand registration rights, piggyback registration rights or S-3 registration
rights under the Securities Act of 1933 would result in such shares becoming
freely tradeable without restriction under the Securities Act of 1933
immediately upon the effectiveness of such registration. "Risk Factors--Risks
Related to this Offering--Shares eligible for future sale by our current
shareholders may cause our stock price to decline" and "Shares Eligible for
Future Sale."
Transfer Agent
The transfer agent for our common stock is American Stock Transfer and
Trust Company.
24
<PAGE>
SELLING SHAREHOLDERS
The shares of common stock and the shares of common stock underlying the
convertible notes were originally issued by VerticalNet in connection with the
acquisitions of LabX Technologies, Inc., TextileWeb, Inc., GovCon, Inc. and NECX
Exchange, LLC. In each case, such transactions were exempt from the registration
requirements of the Securities Act. VerticalNet has agreed with each selling
shareholder to file the registration statement to register for resale the shares
of common stock set forth below.
The following table sets forth information, as of [December 31, 1999], with
respect to the selling shareholders, (1) the number of shares registered for
sale; (2) the number and approximate percentage of shares beneficially owned ;
and (3) the number and approximate percentage of shares to be owned after the
completion of this offering. The information below is based on information
provided by or on behalf of the selling shareholders. The selling shareholders
may offer all, some or none of the common stock. Because the selling
shareholders may offer all or some portion of the common stock, no estimate can
be given as to the amount of the common stock that will be held by the selling
shareholders upon termination of such sales. In addition, the selling
shareholders identified below may have sold, transferred or otherwise disposed
of all or a portion of their common stock since the date on which they provided
the information regarding their common stock in transactions exempt from the
registration requirements of the Securities Act.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY SHARES OFFERED OWNED AFTER OFFERING
NAME OWNED BEFORE OFFERING HEREBY NUMBER PERCENT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NECX Exchange
Trust(1).............. 861,900 861,900 0 *
Robert
Kafato(2)............. 25,210 23,210 0 *
Pride Consulting,
LLC(3)................ 30,600 30,600 0 *
Rick Reddel............ 19,150 19,150 0 *
Paul Risen............. 19,150 19,150 0 *
Joan Kafato(4)......... 22,200 22,200 0 *
David Coakley.......... 15,000 15,000 0 *
Dheeraj Khera(5)....... 14,700 14,700 0 *
Vivek Khera(6)......... 14,700 14,700 0 *
Kenneth Piech.......... 2,524 2,524 0 *
Ronald Randall......... 2,524 2,524 0 *
Total 1,025,658 1,025,658
</TABLE>
(1) All 861,900 shares of common stock set forth herein are
shares of common stock into which the notes are convertible. The
convertible notes will automatically convert into common stock upon the
effectiveness of this registration statement. With respect to one
convertible note in the principal amount of $25 million, the per share
conversion price, and therefore the number of shares of common stock
issuable upon conversion of such note, is subject to adjustment based on
the average closing price of our common stock on the Nasdaq National Market
during the 20 trading days prior to the date on which this registration
statement becomes effective. Accordingly, the number of shares of common
stock into which such note is convertible may increase or decrease. Based
on the average closing price of our common stock for the 20 trading days
prior to February 14, 2000, such note would be convertible into 109,769
shares of our common stock. The remaining convertible notes, which have an
aggregate principal amount of $45 million, will convert at a price of
$59.83 per share, resulting in 752,131 shares of common stock.
(2) Does not include an option to acquire 10,000 shares of common stock. Does
not include 22,200 shares of common stock beneficially owned by Joan
Kafato, as Robert Kafato disclaims beneficial ownership.
(3) Includes 10,600 shares held by Barry J. Friedman, principal manager of
Pride Consulting, LLC.
(4) Does not include 33,210 shares of common stock beneficially owned by
Robert Kafato, as to which Ms. Kafato disclaims beneficial ownership.
(5) Does not include 14,700 shares of common stock beneficially owned by Vivek
Khera, as to which Dheeraj Khera disclaims beneficial ownership.
(6) Does not include 14,700 shares of common stock beneficially owned by
Dheeraj Khera, as to which Vivek Khera disclaims beneficial ownership.
25
<PAGE>
PLAN OF DISTRIBUTION
The selling shareholders and their successors, which term includes
their transferees, pledgees or donees or their successors, may sell the common
stock directly to purchasers or through underwriters, broker-dealers or agents,
who may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders or the purchasers, which discounts,
concessions or commissions as to any particular underwriter, broker-dealer or
agent may be in excess of those customary in the types of transactions involved.
The common stock may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at prices related to
such prevailing market prices, at varying prices determined at the time of sale,
or at negotiated prices. Such sales may be effected in transactions, which may
involve crosses or block transactions (1) on any national securities exchange or
quotation service on which the debentures or the common stock may be listed or
quoted at the time of sale, (2) in the over-the-counter market, (3) in
transactions otherwise than on such exchanges or services or in the over-the-
counter market, (4) through the writing of options, whether such options are
listed on an options exchange or otherwise, or (5) through the settlement of
short sales. In connection with the sale of the common stock, the selling
shareholders may enter into hedging transactions with broker-dealers or other
financial institutions which may in turn engage in short sales of the common
stock and deliver these securities to close out such short positions, or loan or
pledge the common stock to broker-dealers that in turn may sell these
securities.
The aggregate proceeds to the selling shareholders from the sale of the
common stock offered by them hereby will be the purchase price of such common
stock less discounts and commissions, if any. Each of the selling shareholders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of common stock to be made
directly or through agents. We will not receive any of the proceeds from this
offering.
Our common stock is listed for trading on the Nasdaq National Market. We
intend to list the common stock offered through this prospectus for trading on
the Nasdaq National Market.
In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has have been registered or qualified for sale or an
exemption from registration or qualification requirements is available and is
complied with.
The selling shareholders and any underwriters, broker-dealers or agents
that participate in the sale of the common stock, may be "underwriters" within
the meaning of Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be underwriting
discounts and commissions under the Securities Act. Selling shareholders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. The
selling shareholders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M, and have agreed that they will
not engage in any transaction in violation of such provision.
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 of the Securities Act may be sold under Rule 144
rather than pursuant to this prospectus. A selling shareholder may not sell any
common stock described herein and may not transfer, devise or gift such
securities by other means not described in this prospectus.
To the extent required, the specific common stock to be sold, the names of
the selling shareholders, the respective purchase prices and public offering
prices, the names of any agent, dealer or underwriter, and any
26
<PAGE>
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by our general counsel, James W. McKenzie, Jr.
EXPERTS
The consolidated financial statements and schedules of VerticalNet, Inc. as
of December 31, 1997 and 1998, and for each of the years in the three-year
period ended December 31, 1998 and the financial statements of CertiSource, Inc.
as of December 31, 1998 and for the year then ended, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of Techspex, Inc., LabX Technologies Inc.,
Isadra, Inc. and NECX Exchange, LLC incorporated by reference in this prospectus
and elsewhere in the registration statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Commission permits us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file with the
Commission after the date of this prospectus will automatically update and
supersede this information. However, any information contained herein shall
modify or supersede information contained in documents we filed with the
Commission before the date of this prospectus.
We incorporate by reference our Annual Report on Form 10-K for the year
ended December 31, 1998. We incorporate by reference our Quarterly Reports on
Forms 10-Q for the quarters ended March 31, June 30, and September 30, 1999. We
incorporate by reference our Reports on Form 8-K dated June 14, July 29, August
10, August 25, September 9, September 21, November 16, December 16, 1999 and
February 11, 2000 and 8-K/A filed February 1, 2000. We also incorporate by
reference any future filings made with the Commission under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act until we sell all of the shares of common
stock being registered or until this offering is otherwise terminated.
If you request a copy of any or all of the documents incorporated by
reference by written or oral request, then we will send to you the copies you
requested at no charge. However, we will not send exhibits to such documents,
unless such exhibits are specifically incorporated by reference in such
documents. You should direct requests for such copies to VerticalNet, Inc., 700
Dresher Road, Suite 100, Horsham, Pennsylvania 19044, Attention: James W.
McKenzie, Jr., (215) 315-3592.
27
<PAGE>
In addition, we file reports, proxy statements and other information with
the Commission under the Exchange Act. You may read and copy this information at
the following locations of the Commission: (1) Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, (2) Midwest Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511, and (3) Northeast Regional
Office, Seven World Trade Center, New York, New York 10048.
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549, at prescribed rates. Further information on the operation of the
Commission's Public Reference Room in Washington, D.C. can be obtained by
calling the Commission at 1-800-SEC-0330.
Our common stock is quoted on The Nasdaq National Market. Reports, proxy
statements and other information concerning VerticalNet can be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a Web site that contains all
information filed electronically by us. The address of the Commission's Web site
is (http://www.sec.gov.).
28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses, other than
underwriting discounts and commissions, in connection with the shelf
registration of the debentures, all of which will be paid by VerticalNet, Inc.:
Registration fee.............................................. $
Transfer Agent and Registrar Fees.............................
Printing and Engraving........................................
Legal Fees.................................................... 40,000
Blue Sky Fees and Expenses....................................
Accounting Fees............................................... 25,000
Miscellaneous.................................................
Total.......................................................
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Articles of Incorporation provide that
pursuant to and to the extent permitted by Pennsylvania law, the Company's
directors shall not be personally liable for monetary damages for breach of any
duty owed to the Company and its shareholders. This provision does not eliminate
the duty of care, and, in appropriate circumstances, equitable remedies such as
an injunction or other forms of non-monetary relief would remain available under
Pennsylvania law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for acts
or omissions not in good faith or involving knowing violations of law, or for
actions resulting in improper personal benefit to the director, the provision
also does not affect a director's responsibilities under any other law, such as
federal securities laws or state or federal environmental laws. The Company's
Amended and Restated Bylaws provide that the Company shall indemnify its
officers and directors to the fullest extent permitted by Pennsylvania law,
including some instances in which indemnification is otherwise discretionary
under Pennsylvania law. Pennsylvania law permits the Company to provide similar
indemnification to employees and agents who are not directors or officers. The
determination of whether an individual meets the applicable standard of conduct
may be made by the disinterested directors, independent legal counsel or the
shareholders. Pennsylvania law also permits indemnification in connection with a
proceeding brought by or in the right of the Company to procure a judgment in
its favor. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in that Act and is therefore unenforceable.
In general, any officer or director of the Company shall be indemnified by
the Company against expenses including attorneys' fees, judgments, fines and
settlements actually and reasonably incurred by that person in connection with a
legal proceeding as a result of such relationship, whether or not the
indemnified liability arises from an action by or in the right of the Company,
if the officer or director acted in good faith, and in the manner believed to be
in or not opposed to the Company's best interest, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the conduct
was unlawful. Such indemnity is limited to the extent that (i) such person is
not otherwise indemnified and (ii) such indemnifications not prohibited by
Pennsylvania law or any other applicable law.
Any indemnification under the previous paragraph (unless ordered by a court)
shall be made by the Company only as authorized in the specific case upon the
determination that indemnification of the director or officer is proper in the
circumstances because that person has met the applicable standard of conduct
<PAGE>
set forth above. Such determination shall be made (i) by the Board of Directors
by a majority vote of a quorum of disinterested directors who are not parties to
such action or (ii) if such quorum is not obtainable or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion. To the extent that a director or officer of the Company shall
be successful in prosecuting an indemnity claim, the reasonable expenses of any
such person and the fees and expenses of any special legal counsel engaged to
determine the possibility of indemnification shall be borne by the Company.
Expenses incurred by a director or officer of the Company in defending a
civil or criminal action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that person is not entitled to be
indemnified by the Company as authorized by our Bylaws.
The indemnification and advancement of expenses provided by, or granted
pursuant to Article 8 of our Bylaws is not deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled, both as to action in that person's official capacity and as to action
in another capacity while holding such office.
The Board of Directors has the power to authorize the Company to purchase
and maintain insurance on behalf of the Company and others to the extent that
power to do so has not been prohibited by the Pennsylvania law, create any fund
to secure any of its indemnification obligations and give other indemnification
to the extent permitted by law. The obligations of the Company to indemnify a
director or officer under Article 8 of our Bylaws is a contract between the
Company and such director or officer and no modification or repeal of our Bylaws
shall detrimentally affect such officer or director with regard to that person's
acts or omissions prior to such amendment or repeal.
The Company has also purchased insurance for its directors and officers for
certain losses arising from claims or charges made against them in their
capacities as directors and officers of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration statement:
EXHIBITS
Exhibit Number Description
- -------------- -----------
4.1 Stock Purchase Agreement dated July 29, 1999 among
VerticalNet, Inc., 4052995 Manitoba Ltd., LabX Technologies,
Inc., Robert A. Kafato, Kenneth K. Piech and Ronald K.
Randall (1)
4.2 Asset Purchase Agreement dated November 16, 1999 by and
among VerticalNet, Inc., NECX Acquisition LLC, New England
Circuit Sales, Inc., NECX Exchange LLC, NECX Exchange Trust
and Henry J. Bertolon, Jr. (2)
4.3 Convertible Promissory Note in the Principal Amount of $10.5
million (2)
4.4 Convertible Promissory Note in the Principal Amount of $34.5
million (2)
4.5 Convertible Promissory Note in the Principal Amount of $25.0
million (2)
4.6 Asset Purchase Agreement dated December 29, 1999 by and
among VerticalNet, Inc., TextileWeb, Inc., Rick A. Reddel
and Paul M. Risen*
4.7 Asset Purchase Agreement dated December 29, 1999 by and
among VerticalNet, Inc., GovCon, Inc., Barry J. Friedman,
Dheeraj Khera, Vivek Khera and David Coakley*
5.1 Opinion of James W. McKenzie, Esq. regarding the
legality of the securities being registered *
23.1 Consent of KPMG LLP *
23.2 Consent of Arthur Andersen LLP *
23.3 Consent of Arthur Andersen LLP *
23.4 Consent of James W. McKenzie, Esq. (included in his
opinion filed as Exhibit 5 hereto)
24.1 Power of Attorney (included on signature page to this
Registration Statement)
<PAGE>
*Filed herewith
(1) Filed as an exhibit to the Registrant's report on Form 8-K dated August 12,
1999.
(2) Filed as an exhibit to the Registrant's report on Form 8-K dated December
29, 1999
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment hereof) which, individually or in aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any other
material change to such information in the registration statement.
(2) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities
<PAGE>
being offered therein and the offering of such securities at the time may be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities which are being registered which remain unsold at the
termination of the offering.
(4) That for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
by the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN HORSHAM, PENNSYLVANIA ON FEBRUARY ___, 2000.
VERTICALNET, INC.
By: /S/ MARK L. WALSH
________________________________
MARK L. WALSH
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
Each person in so signing also makes, constitutes and appoints Mark L. Walsh and
Gene S. Godick, and each of them acting alone, his or her true and lawful
attorney-in-fact, with full power of substitution, to execute and cause to be
filed with the Securities and Exchange Commission pursuant to the requirements
of the Securities Act of 1933, as amended, any and all amendments and post-
effective amendments to this registration statement, and including any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act, with exhibits thereto and
other documents in connection therewith, and hereby ratifies and confirms all
that said attorney-in-fact or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- ---- -------- ----
<S> <C> <C>
/S/ MARK L. WALSH
____________________________ President and Chief Executive February 14, 2000
MARK L. WALSH Officer and Director (Principal
Executive Officer)
/S/ MICHAEL J. HAGAN
____________________________ Executive Vice President and Chief February 14, 2000
MICHAEL J. HAGAN Operating Officer and Director
/S/ GENE S. GODICK
____________________________ Senior Vice President and Chief February 14, 2000
GENE S. GODICK Financial Officer (Principal
Financial and Accounting Officer)
/S/ DOUGLAS A. ALEXANDER
____________________________ Chairman of the Board and Director February 14, 2000
DOUGLAS A. ALEXANDER
/S/ JEFFREY C. BALLOWE
____________________________ Director February 14, 2000
JEFFREY C. BALLOWE
/S/ WALTER W. BUCKLEY III
____________________________ Director February 14, 2000
WALTER W. BUCKLEY III
</TABLE>
<PAGE>
Exhibit 5.1
[Letterhead of VerticalNet, Inc.]
James W. McKenzie, Jr.
Senior Vice President and General Counsel
700 Dresher Road, Suite 100
Horsham, Pennsylvania 19044
February 14, 2000
VerticalNet, Inc.
700 Dresher Rd., Suite 100
Horsham, PA 19044
Ladies and Gentlemen:
I have acted as counsel to you in connection with the registration under
the Securities Act of 1933, as amended, by VerticalNet, Inc. (the "Company") of
(i) 163,758 shares (the "Shares") of Common Stock of the Company, $.01 par value
per share (the "Common Stock"), and (ii) 861,900 shares of Common Stock and
such indeterminate additional shares of Common Stock (the "Conversion Shares")
required for issuance upon conversion of the Convertible Notes dated December
16, 1999 between VerticalNet, Inc. and NECX Exchange Trust (the "Convertible
Notes"). The Shares and the Conversion Shares are to be offered and sold by
certain security holders of the Company. In this regard, I have participated in
the preparation of a Registration Statement on Form S-3 relating to the Shares
and the Conversion Shares (the "Registration Statement") which you are filing
with the Securities and Exchange Commission.
I have examined the Registration Statement and such documents and records
of the Company and other documents as I have deemed necessary for the purpose of
this opinion. In all examinations made by me in connection with this opinion
letter, I have assumed the genuineness of all signatures, the legal capacity of
all natural persons executing agreements, instruments or documents, the
completeness and authenticity of all records and documents submitted to me as
originals, and the conformity with the originals of all documents submitted to
me as copies. Based upon the foregoing, I am of the opinion that (i) the Shares
have been duly authorized, validly issued, fully paid and nonassessable and (ii)
upon conversion of the Convertible Notes in accordance with their terms, the
Conversion Shares will be duly authorized, validly issued, fully paid and
nonassessable.
<PAGE>
The foregoing opinions shall be limited to the federal laws of the United
States of America and the laws of the Commonwealth of Pennsylvania.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me in the Prospectus included in
the Registration Statement under the heading "Legal Matters." In giving such
consent, I do not thereby admit that I am in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ James W. McKenzie, Jr.
<PAGE>
EXHIBIT 4.6
ASSET EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
This ASSET EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
---------
is made as of December 29, 1999, by and between VerticalNet, Inc., a
Pennsylvania corporation (the "Purchaser"), and TextileWeb, Inc., a North
---------
Carolina corporation (the "Company" or the "Seller") Rick A. Reddel and Paul M.
------- ------
Risen, each individuals employed by the Company and being the holders of all of
the issued and outstanding capital stock of the Company (the "Shareholders", and
------------
together with the Seller, the "Seller Parties.")
--------------
BACKGROUND
TextileWeb, Inc. is a North Carolina corporation dedicated to promoting the
goods and services of the textile industry via the Internet. The Company
utilizes the fictitious names TextileWeb, August Martin, OnlineTextileNews and
TextileShow and is engaged in the business (the "Business") of developing,
--------
owning and operating the Internet websites named "Textileweb,"
"Onlinetextilenews", "Textileshow" and "Nonwovensweb" with the respective domain
names Textileweb.com, Onlinetextilenews.com, Textileshow.com and
Nonwovensweb.com (each an "Active Website" and collectively the "Active
-------------- ------
Websites") and activities associated therewith. In addition, Seller conducts
- --------
web-design and development business operations for certain textile and non-
textile related customers as part of the Business.
Seller desires to sell, and Purchaser desires to buy, substantially all of
the assets of Seller associated with the Business upon the terms described
below.
The parties to this Agreement intend that the transactions contemplated
hereby be treated as a reorganization within the meaning of Section 368(a)(1)(C)
of the Internal Revenue Code of 1986, as amended.
In consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Sale and Purchase.
-----------------
1.1 Sale and Purchase of Assets. Subject to the terms and conditions
---------------------------
set forth in this Agreement, Seller hereby sells, assigns, transfers and
delivers to Purchaser, and Purchaser hereby purchases, acquires and takes
assignment and delivery of, all of the right, title and interest of Seller in
and to all of the assets, properties and rights of any kind owned by Seller used
in connection with or related to the Business, of every type and description,
real, personal and mixed, tangible and intangible, wherever located and whether
or not reflected on the books and records maintained by Seller in connection
with the Business, excluding those assets, properties and rights which are
<PAGE>
specifically excluded pursuant to Section 1.2 hereof, free and clear of all
mortgages, liens, pledges, security interests, charges, claims, restrictions and
encumbrances of any nature whatsoever, except for the payment of the Assumed
Liabilities and performance of the Assumed Obligations as hereinafter defined
(collectively the "Purchased Assets"). Except as otherwise provided in Section
----------------
1.2, the Purchased Assets include, without limitation, all of the right, title
and interest of Seller in or to the following:
(a) any and all rights (including any and all rights to Intellectual
Property (as defined in Section 3.14 hereof)) of Seller to the domain names,
sites and content (including, without limitation, text and graphics) of the
websites owned by or registered to Seller (the "Websites");
--------
(b) any and all rights of Seller to software programs, modules,
routines, data, text or graphics files, source or object codes and other
components of the Websites used in operation of the Websites, or in the process
of being developed, by or on behalf of Seller for use in the Business;
(c) any and all rights of Seller to the domain names of the Websites,
the trade names, trade dress, trademarks and service marks used on the Websites
and the goodwill associated therewith;
(d) any and all rights of Seller to any other Intellectual Property
(as defined in Section 3.14 hereof) used in the conduct of the Business;
(e) all furniture, fixtures, equipment, machinery and other tangible
personal property used or held for use in the conduct of the Business at the
locations at which the Business is conducted or at suppliers' premises or
customers' premises on consignment, or otherwise used or held for use by Seller
in the conduct of the Business, including any of the foregoing purchased subject
to any conditional sales or title retention agreement in favor of any other
person;
(f) to the extent assignable and subject to any required consents,
all leases or subleases, if any, of tangible personal property or real property
used by Seller in the conduct of the Business as to which Seller is the lessor
or sublessor or is the lessee or sublessee, together with any options to
purchase or sell the underlying property (the "Business Leases");
---------------
(g) any and all rights of Seller in and under all arrangements
(written or oral) to provide advertising for third parties on the Active
Websites pursuant to which there are unbilled, partially billed or unfulfilled
obligations (the "Advertising Commitments");
------------------------
(h) any and all rights of Seller in and under all arrangements
(written or oral) to provide web-design and development business operations to
third parties pursuant to which there are unbilled, partially billed or
unfulfilled obligations (the "Web-Design Commitments");
----------------------
(i) any and all rights of Seller in and under all contracts,
agreements and arrangements (written or oral) to which Seller is a party and
which are utilized in the conduct of the
-2-
<PAGE>
Business (the "Business Contracts"), including but not limited to the Business
------------------
Leases, the Advertising Commitments and the Web Design Commitments;
(j) any and all rights of Seller to all information and records and
customer and/or visitor files maintained by Seller (in electronic or paper
format) used or held for use in the conduct of the Business including, without
limitation, principal contacts, E-mail and street addresses, telephone numbers,
personal information, and purchasing history of customers or visitors;
(k) any and all rights of Seller to cash or any other payment
received in connection with the Business on or after the Closing Date;
(l) any and all rights of Seller to accounts receivable, and all
notes, bonds and other evidences of indebtedness of and rights to receive
payments arising out of sales occurring in the conduct of the Business and the
security agreements related thereto, including any rights of Seller with respect
to any third party collection proceedings or any other actions or proceedings
which have been commenced in connection therewith (the "Accounts Receivable");
-------------------
(m) any and all rights of Seller to prepaid expenses relating to the
Business;
(n) to the extent assignable and subject to any required consents,
all government permits, licenses, franchises, approvals and authorizations
(including applications therefor and any credits arising therefrom) utilized by
Seller in the conduct of the Business (the "Business Permits"); and
----------------
(o) any and all rights of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
in connection with products sold to or services provided to Seller for the
Business.
1.2 Excluded Assets. Notwithstanding any provision of this Agreement to
---------------
the contrary, Purchaser shall not acquire and there shall be excluded from the
Purchased Assets, Seller's interest in each of the following (the "Excluded
--------
Assets"):
- ------
(a) any and all rights of Seller to cash received in the conduct of
the Business prior to the Closing Date, including all cash on hand or in banks,
cash equivalents, marketable and non-marketable securities and other investments
and all rights in any funds of any nature wherever maintained or held;
(b) all rights of Seller under this Agreement and the documents and
other papers delivered to Seller by Purchaser pursuant to this Agreement;
(c) the corporate seals, charter documents (including, but not
limited to the certificate or articles of incorporation), minute books, stock
books, tax returns, books of account or other records having to do with the
corporate organization of the Seller;
-3-
<PAGE>
(d) Seller's rights and interests in any liability, casualty, health,
life or other insurance policies;
(e) claims and rights of Seller to federal, state and local tax
refunds; and
(f) the property described on Schedule 1.2.
1.3 Assumed Liabilities and Obligations. At the Closing, except as
-----------------------------------
specified in Section 1.4, Purchaser shall only assume certain identified
liabilities of the Company or the Business, in an amount not to exceed $285,000
(the "Assumed Liabilities") as set forth on Schedule 1.3 and Purchaser shall
-------------------
assume, and agree to perform, fulfill and discharge, all obligations of the
Seller required to be performed after the Closing (excluding payment
obligations to third parties for goods or services the performance or delivery
of which occurs prior to the Closing) under any of the Business Contracts except
where (i) such obligations have arisen in contravention of this Agreement or
(ii) such obligations arise or have arisen out of any claim, lawsuit,
investigation, proceeding, arbitration or other dispute relating to an act or
omission taken or occurring prior to Closing (the "Assumed Obligations" and
-------------------
along with the Assumed Liabilities, the "Assumed Liabilities and Obligations").
----------------------- -----------
Purchaser shall promptly pay the Assumed Liabilities and shall timely perform
the Assumed Obligations.
1.4 No Other Liabilities and Obligations Assumed. Purchaser shall not and
--------------------------------------------
does not hereby assume any liability or obligation of Seller, known or unknown,
contingent or otherwise, asserted or unasserted, other than as specifically set
forth in Section 1.3. Subject to Section 1.3 hereof, nothing contained herein
shall cause Purchaser to assume (a) any liabilities or obligations arising out
of the conduct of the Business prior to the Closing, whether known or unknown on
the Closing Date; (b) any liabilities or obligations arising out of any
provision of any agreement, contract, commitment or lease of Seller, other than
any liability or obligation under Business Leases, the Advertising Commitments,
the Web-Design Commitments or the other Business Contracts to be performed after
the Closing; (c) any federal, state or local income or other tax (other than any
sales or use tax payable with respect to the acquisition of assets contemplated
herein, for which Purchaser agrees to be responsible): (i) payable with respect
to the business, assets, properties or operations of Seller, or (ii) incident to
or arising as a consequence of the negotiation or consummation by Seller of this
Agreement and the transactions contemplated hereby; (d) any liability or
obligation under or in connection with any assets not included in the Purchased
Assets; (e) any employment-related liability or obligation arising prior to or
as a result of the Closing to any employees, agents or independent contractors
of Seller, or under any benefit arrangement with respect thereto; or (f) any
liability or obligation of Seller arising or incurred in connection with the
negotiation, preparation and execution of this Agreement and the transactions
contemplated hereby and fees and expenses of counsel, accountants and other
experts. The parties to this Agreement acknowledge and agree that Purchaser
shall not have responsibility to comply with COBRA obligations arising from the
Closing with respect to former Seller employees as provided in Prop.
-4-
<PAGE>
Treasury Regulation Section 54.4980B-9 and 54.4980B-10, since Seller does not
have a statutory obligation under COBRA.
1.5 Consideration.
-------------
(a) Purchase Price. (i) The aggregate consideration to be paid in
--------------
the form of cash and stock by Purchaser to the Seller in exchange for the
Purchased Assets shall be (x) an earnout payment based on 50% of the net profits
from the non-textile related web design business for a period of two years
commencing December 31, 1999 (the "Earnout") which is to be split equally
-------
between the Shareholders as a liquidating distribution from the Seller (the
"Pro-Rata Earnout") and (y) 38,300 shares of Common Stock of the Purchaser (the
----------------
"Stock Consideration", which together with the Earnout shall constitute the
-------------------
"Purchase Price").
--------------
(ii) Payment of Earnout. Within a reasonable time (but in no
------------------
event later than sixty (60) days) after the fiscal years ending December 31,
2000 and December 31, 2001, Purchaser shall deliver the Pro-Rata Earnout to each
Shareholder by wire transfer of immediately available funds to such account as
each Shareholder shall designate. Furthermore, within thirty (30) days after the
Closing, the parties shall agree on the other terms of the Earnout, which terms
shall be reasonable and customary, and shall include, without limitation, terms
as to (i) a limitation on the indirect costs allocated to the revenues of the
non-textile related web design business for purposes of the Earnout, (ii) the
resources to be devoted by Purchaser to the non-textile related web design
business during the Earnout period, (iii) access of the Shareholders to the
Purchaser's books and records used to determine the Earnout, and (iv) management
of the non-textile related web design business by Rick A. Reddel so long as he
is employed by the Purchaser. The foregoing specified terms shall not be
construed to limit other certain requests of either party in agreeing on the
terms of the Earnout.
(iii) Delivery of Stock Consideration. As soon as possible after
-------------------------------
the Closing Date, Purchaser shall cause to be delivered to each Shareholder a
certificate issued in the Shareholder's name for one-half of the Stock
Consideration. The parties acknowledge and agree that the Stock Consideration
is being received by the Shareholders as a liquidating distribution from the
Seller.
(b) Freeware. Seller and Purchaser hereby agree that the
--------
consideration paid by Purchaser hereunder shall not be applied to, and is not in
consideration for, any freeware acquired by Purchaser under the terms of this
Agreement.
2. Closing. The closing of the purchase and sale of the Purchased Assets (the
-------
"Closing") shall take place simultaneously with the execution of this Agreement.
-------
The date on which the Closing occurs shall be called the "Closing Date." The
------------
Closing shall be consummated by facsimile transmission. The parties shall (x)
transmit facsimile copies of all executed documents required to be executed
pursuant to this Agreement and (y) mail via overnight courier four (4) executed
originals
-5-
<PAGE>
of each document to the offices of counsel for each of the respective parties.
On the Closing Date, subject to the terms and conditions herein contained, the
following shall occur:
2.1 Deliveries by Seller Parties at the Closing. On the Closing Date, the
---------------------------------------------
Seller Parties shall deliver, or cause to be delivered, to Purchaser:
(a) a Bill of Sale, Assignment and Assumption dated as of even date
herewith and in a form satisfactory to Purchaser, duly executed by the Seller;
(b) Employment Agreements, dated as of even date herewith and in a
form satisfactory to Purchaser, duly executed by Rick A. Reddel and Paul M.
Risen (each an "Employment Agreement" and collectively the "Employment
-------------------- ----------
Agreements");
- ----------
(c) Lock-Up Agreements, dated as of even date herewith and in a form
satisfactory to Purchaser, duly executed by Rick A. Reddel and Paul M. Risen
(each a "Lock-Up Agreement" and collectively the "Lock-Up Agreements");
----------------- ------------------
(d) a copy of the executed consents specified in Schedule 3.3 hereto;
(e) copies of the most recent statements for the bank accounts and
similar accounts held in connection with the Business;
(f) The disclosure schedules (the "Schedules") to the Agreement; and
(g) such other documentation reasonably requested by Purchaser, in a
form reasonably satisfactory to Purchaser and its counsel, as shall be necessary
and effective to transfer and assign to, and vest in, Purchaser all of Seller's
right, title and interest in and to the Purchased Assets, and simultaneously
with such delivery, all steps will be taken as may be required to put Purchaser
in actual possession and operating control of the Purchased Assets.
2.2 Deliveries by Purchaser at the Closing. On the Closing Date, or as
--------------------------------------
otherwise provided herein, Purchaser shall deliver, or cause to be delivered to
Seller:
(a) evidence of irrevocable instructions to the Company's transfer
agent to deliver the Stock Consideration to Seller's counsel on behalf of Rick
A. Reddel and Paul M. Risen in accordance with Section 1.5(a)(iii);
(b) the Bill of Sale, Assignment and Assumption Agreement duly
executed by Purchaser; and
(c) the Employment Agreements, each duly executed by Purchaser.
-6-
<PAGE>
3. Representations and Warranties of Seller Parties. The Seller Parties,
------------------------------------------------
jointly and severally, hereby represent, warrant and covenant to the Purchaser
as follows:
3.1 Organization. TextileWeb, Inc. is a North Carolina corporation and
------------
utilizes the fictitious names TextileWeb, August Martin, OnlineTextileNews and
TextileShow.
3.2 Power and Authority. Seller has full right, power, lawful authority
-------------------
and legal capacity to execute and deliver this Agreement and the Bill of Sale,
Assignment and Assumption Agreement (collectively, the "Seller Transaction
------------------
Agreements") and to consummate and perform the transactions contemplated hereby
- ----------
and thereby. The Seller Transaction Agreements have been, and any other
agreements, documents and instruments required to be delivered by Seller in
accordance with the provisions hereof have been or will be, duly executed and
delivered by or on behalf of Seller and constitute the legal, valid and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms, except as enforceability may be limited by laws of general
application relating to bankruptcy, reorganization, moratorium, insolvency and
debtors' relief and similar laws affecting the enforcement of creditors' rights,
and by general principles of equity.
3.3 Conflicts; Consents. Neither the execution and delivery of the Seller
-------------------
Transaction Agreements by Seller nor the Seller's consummation and performance
of the transactions contemplated thereby (a) will conflict with or violate any
agreement to which Seller is a party or by which Seller is bound or any federal,
state, local or other governmental law or ordinance or (b) will require the
authorization, approval or consent by, or any notice to or filing with, any
third party, except for (i) those authorizations, approvals and consents which
have already been granted or obtained and all of which are set forth on Schedule
3.3 attached hereto and (ii) such authorizations, approvals and consents which,
if not granted or obtained, would not in the aggregate have a material adverse
effect on the condition of the Purchased Assets or the Business.
3.4 Title. Seller has good, valid and marketable title to, or valid
-----
licenses to use, all of the Purchased Assets, free and clear of all liens,
pledges, mortgages, security interests, claims, liabilities, charges or
encumbrances of any nature whatsoever, except for the payment of the Assumed
Liabilities and performance of the Assumed Obligations. With respect to the
Purchased Assets leased by Seller, if any, Seller is in material compliance with
such leases.
3.5 Financial Statements. Seller has delivered to Purchaser unaudited
--------------------
financial records (including without limitation, the balance sheet, income
statement and statement of cash flows) of the Business (i) for the year ended
December 31, 1998, and (ii) for the nine-month period ended September 30, 1999
(collectively, the "Financial Records"). The Financial Records present fairly
-----------------
the revenues of the Business, as applicable, for the periods indicated and were
prepared on an income tax basis.
3.6 No Material Changes. Since September 30, 1999 there has not been (a)
-------------------
any material adverse change in the Purchased Assets or the operations or
condition (financial, traffic or otherwise) of the Business or of Seller; or (b)
any actual or threatened trouble or disruption of Seller's relations
-7-
<PAGE>
with the Business' agents, customers or suppliers. Since September 30, 1999,
Seller has conducted the Business only in the ordinary course consistent with
past practice, has not incurred any material liabilities, and has not entered
into any transaction, contract or arrangement, and/or made any payment or
distribution that reasonably can be expected to have a material adverse impact
on the Business.
3.7 Server Log Files. Seller has delivered to Purchaser true, correct and
----------------
complete copies of the log files of the web server computer (the "Server") to be
------
transferred from Seller to Purchaser pursuant to this Agreement.
3.8 Advertising and Web-Design Commitments.
--------------------------------------
(a) Attached hereto as Schedule 3.8 is a true, correct and complete
list of all Advertising Commitments as of the date hereof, including the name of
the advertising party, any amounts unbilled to or unpaid by such party and the
term of the obligation to provide advertising on the applicable Active Website.
(b) Attached hereto as Schedule 3.8 is a true, correct and complete
list of all Web-Design Commitments, and included in such schedule with respect
to each such commitment is the name of the party for which such web design was
or is being created, any amounts unbilled to or unpaid by such party and a
description of and the term of any outstanding obligations with respect to such
commitment as of the date hereof.
3.9 Customers. Attached hereto as Schedule 3.9 is a true, correct and
---------
complete list of all advertising and/or web-design customers of the Business.
Seller currently maintains good working relationships with all of the customers
and suppliers of the Business. No current customer or supplier of the Business
has given Seller notice terminating, canceling or threatening to terminate or
cancel any contract, commitment or relationship with Seller.
3.10 Tangible Property. Attached hereto as Schedule 3.10 is a true,
-----------------
correct and complete list of all tangible personal property, including without
limitation equipment, machinery, and furniture, in each case owned or leased by
Seller and material to the Business (collectively, the "Tangible Property")
-----------------
together with a description of all leases or subleases of Tangible Property to
which Seller is the lessor, sublessor, lessee or sublessee and all options to
purchase or sell the underlying property. Except as separately identified on
Schedule 3.10, no approval or consent of any person is needed so that the
interest of Seller in the Tangible Property shall continue to be in full force
and effect and enforceable by Purchaser following the transactions contemplated
by this Agreement.
3.11 Condition of Assets. All Purchased Assets constituting Tangible
-------------------
Property (i) are in good operating condition and repair (subject only to
ordinary wear and tear), (ii) are usable in the ordinary course of the Business
consistent with past practice and (iii) are in the possession or under the
control of Seller.
-8-
<PAGE>
3.12 Contracts. Seller is not party to any contracts, agreements or
---------
commitments in connection with the Business or the Purchased Assets other than
the Advertising Commitments, the Web-Design Commitments and the Business
Contracts. Attached hereto as Schedule 3.12 is a true, correct and complete
list of all Business Leases, Advertising and Web-Design Commitments, and any
other material Business Contracts in effect as of the date hereof that are in
writing, other than any that constitute Excluded Assets. Except as otherwise
indicated on Schedule 3.12, true and complete copies of all such listed Business
Contracts that are in writing have been delivered or made available to Purchaser
and each such listed Business Contract is a valid and binding obligation in full
force and effect in accordance with its respective terms with respect to Seller
(as applicable) and is a valid and binding obligation in full force and effect
in accordance with its respective terms with respect to any other party thereto,
except as enforceability may be limited by laws of general application relating
to bankruptcy, reorganization, moratorium, insolvency and debtors' relief and
similar laws affecting the enforcement of creditors' rights, and by general
principles of equity. Seller is not in material default under any of such
listed Business Contracts and, to the Seller's best knowledge and belief
("Seller's Knowledge"), and to the Shareholders best knowledge and belief, no
------------------
third party is in material default under any of the Business Contracts.
3.13 Legal Proceedings; Compliance with Law. There are no disputes,
--------------------------------------
claims, actions, suits or proceedings, arbitrations or investigations pending
or, to Seller's Knowledge after due inquiry, threatened against or affecting the
Business or the Purchased Assets. Seller does not have any knowledge of any
state of facts that might reasonably form the basis of any claim, liability or
litigation against Seller affecting the Business or the Purchased Assets. The
conduct of the Business by Seller, and Seller's use of the Purchased Assets, are
in material compliance with all applicable federal, state, local or other
governmental laws, ordinances, codes, rules and regulations. Seller owns or
possesses in the operation of the Business all franchises, licenses, permits,
consents, approvals, rights, waivers and other authorizations, governmental or
otherwise, which are necessary for Seller to conduct Seller's business as now
conducted; Seller is not in default, nor has Seller received any notice of any
claim or default thereunder, or any notice of any other claim or proceeding or
threatened proceeding relating thereto; and neither the execution or delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
require any notice or consent thereunder or have any material adverse effect
thereon.
3.14 Intellectual Property. Attached hereto as Schedule 3.14 is a true,
---------------------
correct and complete list of all license agreements, registered copyrighted
materials, trademarks, trade names, domain names, service marks and all patents,
and all applications therefor, used or held for use by Seller in the conduct of
the Business (including without limitation a list of the domain names of all
Websites). (i) Seller owns (or has adequate rights to use or transfer pursuant
to license, sublicense, agreement or permission) all patents, trademarks, trade
names, service marks, logos, designs (including those acquired by assignment),
domain names, websites and website content, goodwill, customer lists or other
information regarding customers, copyrights (including those acquired by
assignment), software, computer code, data, trade rets or know-how and
applications and registrations of any of the foregoing (collectively,
"Intellectual Property") used by Seller in the
---------------------
-9-
<PAGE>
Business or transferred pursuant to this Agreement free and clear of any lien,
mortgage, security interest, pledge, restriction, defect of title or other
claim, charge or encumbrance other than the payment of the Assumed Liabilities
or the performance of the Assumed Obligations; (ii) in connection with the
operation of the Business, to Seller's Knowledge, Seller does not infringe upon
or unlawfully or wrongfully use any material Intellectual Property owned or
claimed by any other person or entity or otherwise use any material that
violates any right of publicity, right of privacy or any other proprietary
rights or defames, slanders or libels any individual or entity; (iii) the Seller
shall own or shall have the lawful right to use all Intellectual Property that
is used in the operation of the Business in the ordinary course or otherwise;
(iv) the content of any and all websites, whether created by Seller for Seller
or for others or for which Seller directly or indirectly provided web hosting
services at any time prior to the Closing Date, was and continues to be lawful
provided that the foregoing representations shall be limited to Seller's
Knowledge as to any content supplied by others and not Seller; (v) Seller is not
in default under, and has not received any notice of any claim of infringement
or any other claim or proceeding relating to any of the Intellectual Property;
and (vi) no other person (other than licensors in situations where Seller is the
licensee) owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, in any of the Intellectual Property, or in any
application therefor, which Seller owns, possesses or uses in Seller's
operations as now or heretofore conducted.
3.15 Employee Relations. Seller is not a party to, involved in or, to the
------------------
Seller's Knowledge, threatened by, any labor or employment dispute, unfair labor
practice charge, employment discrimination charge or other employment or labor
related claims.
3.16 Real Estate. The leases with Koger Equity, Inc. ("Landlord") for
-----------
office suites 202 and 219 at 2300 West Meadowview Road, in Greensboro, NC, as
referenced in Schedule 3.16 hereto, are the only leases, licenses or other
agreements relating to the use and occupancy of real property (the "Leases") to
which the Company is a party, or to which the Purchaser shall otherwise be
subject as purchaser of the Business. All of the lease agreements, addenda,
amendments (including, without limitation, letter agreements) and other
agreements comprising a part of the Leases are identified in Schedule 3.16, and
Seller has heretofore delivered to Purchaser true, correct and complete copies
of each of the Leases. Other than as set forth in Schedule 3.16, neither of the
Leases has been amended as of this date. The Company is in full possession of
the entire premises demised under the Leases, and no portion of such premises
have been subleased, licensed or underlet by the Company in any manner. The
actual security deposit heretofore paid and the actual rents (basic and
additional) currently paid by Purchaser under each of the Leases is as reflected
on Schedule 3.16, and as of this date, rent has been paid through December 31,
1999, with he parties agreeing to apportion the Company's rental obligations at
Closing as of 5:00 p.m. that day. To Seller's Knowledge, neither the Landlord,
nor its agent, have declared the Company to be in default of its obligations
under either of the Leases, and no other default exists thereunder by either
party hereto, nor does there exist any fact or circumstance which, with the
passage of time or the delivery of notice, or both, might ripen into a default
or an event of default under either of the Leases. Without limitation of the
foregoing, the Company is neither owed by the Landlord nor owes the Landlord any
sum of money, construction obligation or services not heretofore paid or
performed.
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<PAGE>
The Company has not been notified of any election by its Landlord purporting to
elect to relocate the Company to other premises, and the Company has not
heretofore exercised any option to expand its premises or to accept additional
premises made available by the Landlord.
3.17 Operational Elements. The Purchased Assets include any and all
--------------------
rights (whether by ownership or license) for software programs, modules,
routines, data, text or graphic files, source or object codes and other
components of the Websites which are used in the operation of the Websites
(except for the Excluded Assets) and such operational elements shall include all
written or electronic documentation which is in the possession of Seller.
3.18 Consents and Approvals of Governmental Authorities. No consent,
--------------------------------------------------
approval or authorization of, or declaration, filing or registration with, any
court or other governmental or regulatory authority, agency, commission, or
other entity, domestic or foreign is required to be made or obtained by Seller
in connection with the execution, delivery and performance of this Agreement by
Seller or the consummation of the sale of the Purchased Assets to Purchaser.
3.19 Permits. Attached hereto as Schedule 3.19 is a true, correct and
-------
complete list of the Business Permits. All Business Permits are in full force
and effect and in good standing. Seller has not received notice of any claim of
revocation of any Business Permits and knows of no events which might given rise
to such a claim.
3.20 Undisclosed Liabilities. None of the Purchased Assets are subject to
-----------------------
any liability, indebtedness, obligation or claim of any type, whether accrued,
absolute, contingent, matured or unmatured ("Liabilities"), except those
-----------
Liabilities arising in the ordinary course of business consistent with past
practice and except for the payment of the Assumed Liabilities and the
performance of the Assumed Obligations.
3.21 Tax Returns.
-----------
(a) Seller has filed all Tax Returns that it was required to file,
for any period or portion thereof ending on or before the Closing Date. All
Taxes due as of the Closing Date with respect to the Business which could result
in any lien or encumbrance on the Purchased Assets, have been fully paid by
Seller and all Taxes due after the Closing Date with respect to the Business for
any period or portion thereof ending on or before the Closing Date, which could
result in any lien or encumbrance on the Purchased Assets, shall be fully paid
by Seller after the Closing Date. All such Tax Returns were correct and complete
in all respects. All Taxes owed by Seller (whether or not shown on any Tax
Return) have been paid. No claim has ever been made by an authority in a
jurisdiction where the Seller does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no liens for Taxes except
for liens for Taxes not yet due and payable.
(b) Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
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<PAGE>
(c) As used in this Agreement, the term "Tax" and "Taxes" includes
all federal, state, local and foreign income, profits, franchise, gross
receipts, environmental, customs duty, capital stock, severance, stamp, payroll,
sales, employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, and the term "Tax Returns" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.22 Transactions with Affiliates. Except as set forth on Schedule 3.22
----------------------------
attached hereto, neither Seller nor any affiliate of Seller nor any member of
Seller's immediate family, owns or has a controlling ownership interest in any
corporation or other entity that is a party to any agreement, commitment or
other arrangement with Seller in connection with the Business or the Purchased
Assets. All disclosed transactions, if any, between Seller and an affiliate
thereof have been on substantially the same terms and conditions as similar
transactions between non-affiliated parties and are properly recorded on the
books and records maintained by Seller in connection with the Business.
3.23 Entire Business. Except for the Excluded Assets, the sale of the
---------------
Purchased Assets to be sold by Seller to Purchaser pursuant to this Agreement
shall effectively convey to Purchaser the entire business of, and all of the
tangible and intangible property used by, Seller (whether owned, leased or held
under license by Seller or by others) in connection with the conduct of the
Business as heretofore conducted by Seller. There are no material facilities,
services, assets or properties shared with any other person which are used by
Seller in the conduct of the Business.
3.24 Disclosure. There is no fact known to Seller which might materially
----------
and adversely affect the Business or the Purchased Assets which has not been
disclosed to Purchaser in this Agreement or a certificate, statement or other
document delivered by Seller.
3.25 Year 2000 Readinesss. "Year 2000 Ready" shall mean that the Seller's
--------------------
services and products (a) are designed (or have been modified) to be used prior
to, on and after January 1, 2000; (b) operate without error arising from the
creation, recognition, acceptance, calculation, display, storage, retrieval,
accessing, comparison, sorting, manipulation, processing or other use of dates
or date-based, date-dependent or date-related data, including but not limited to
century recognition, day-of-the-week recognition, leap years, date values and
interfaces of date functionalities; and (c) are not adversely affected by the
advent of the year 2000, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the twenty-
first century. Third party components included in the Seller's services and
products, if any, are subject only to the manufacturer's or licensor's Year 2000
warranty, if any. VerticalNet will be subrogated to Seller's rights under such
warranties to the extent that subrogation is available pursuant to the terms of
the applicable warranty. With respect to all material third party products,
programs, or services, provided to Seller, or for Seller's benefit, to enable
Seller to perform its obligations to VerticalNet under this Agreement, Seller
has obtained written representations from such third parties in the form
-12-
<PAGE>
attached as Schedule 3.25. If Seller has actual or constructive knowledge that
such product, program, or service may not be Year 2000 Ready, Seller will not
utilize such third party's product, program, or service to perform its
obligations to VerticalNet under this Agreement.
4. Representations and Warranties of Purchaser. Purchaser represents and
-------------------------------------------
warrants to the Seller Parties as follows:
4.1 Organization and Good Standing. Purchaser is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Purchaser has full corporate power and authority
to conduct its business as now conducted and to own and operate the assets and
properties now owned and operated by it.
4.2 Power and Authority. Purchaser has the corporate power and authority
-------------------
to execute and deliver this Agreement, the Bill of Sale, Assignment and
Assumption Agreement and the Employment Agreements (collectively, the "Purchaser
---------
Transaction Agreements") and to consummate and perform the transactions
- ----------------------
contemplated hereby and thereby. The execution, delivery and performance by
Purchaser of the Purchaser Transaction Agreements and any other agreements,
documents and instruments required to be delivered by Purchaser in accordance
with the provisions hereof have been duly authorized by all necessary corporate
action. The Purchaser Transaction Agreements have been duly executed and
delivered by or on behalf of Purchaser and constitute the legal, valid and
binding obligations of Purchaser, enforceable against Purchaser in accordance
with their respective terms, except as enforceability may be limited by laws of
general application relating to bankruptcy, reorganization, moratorium,
insolvency and debtors' relief and similar laws affecting the enforcement of
creditors' rights, and by general principles of equity.
4.3 Conflicts; Consents. The execution, delivery and performance of the
-------------------
Purchaser Transaction Agreements by Purchaser will not (i) violate or conflict
with the Articles of Incorporation, bylaws or other constitutional documents of
Purchaser; (ii) conflict with, or result in the breach or termination of, or
constitute a default under (whether with notice or lapse of time or both), or
accelerate or permit the acceleration of the performance required by, any
indenture, mortgage, lien, lease, agreement, commitment or other instrument or
any order, judgment or decree, to which Purchaser is a party or by which it or
its properties are bound; or (iii) constitute a violation of any law,
regulation, order, writ, judgment, injunction or decree applicable to Purchaser,
other than violations, conflicts, breaches, terminations, accelerations and
defaults specified in the foregoing clauses (ii) and (iii) which could not
reasonably be expected to have a material adverse effect on Purchaser's ability
to perform its obligations under any of the Purchaser Transaction Agreements.
No consent, approval or authorization of any governmental authority is required
on the part of Purchaser in connection with the execution, delivery and
performance of the Purchaser Transaction Agreements.
4.4 Valid Issuance of Common Stock of the Purchaser. The shares of Common
-----------------------------------------------
Stock of the Purchaser which are being issued as the Stock Consideration, when
issued, sold and delivered
-13-
<PAGE>
in accordance with the terms hereof, shall be duly and validly issued, fully
paid and nonassessable and, assuming the accuracy of the representations of
Seller in this Agreement, will be issued in compliance with all applicable
federal and state securities laws. The Stock Consideration will constitute
voting stock within the meaning of Section 368(a)(1)(C) of the Internal Revenue
Code of 1986, as amended.
4.5 SEC Documents. The Annual Report on Form 10-K for the year ended
-------------
December 31, 1998, the Quarterly Report on Form 10-Q for the period ended
September 30, 1999 and the Form 8-K filed on November 19, 1999 filed by
Purchaser with the Securities and Exchange Commission (the "SEC"), including all
---
exhibits thereto (collectively, the "SEC Documents"), complied in all material
-------------
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
--------------
amended, as in effect on the dates so filed. None of the SEC Documents (as of
their respective filing dates) contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Purchaser has heretofore furnished
to Seller copies of the SEC Documents.
4.6 Disclaimer.
----------
PURCHASER HAS NOT MADE ANY REPRESENTATION OR WARRANTY
RELATING TO PURCHASER, THE BUSINESS OF PURCHASER, THE COMMON
STOCK OF THE PURCHASER, OR OTHERWISE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OTHER THAN
THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT, THE SCHEDULES
HERETO AND THE DOCUMENTS TO BE DELIVERED PURSUANT TO SECTION
2.2 HEREOF. IT IS UNDERSTOOD THAT ANY ESTIMATES, PROJECTIONS
OR OTHER PREDICTIONS, OR ANY OTHER DATA NOT EXPRESSLY
INCLUDED IN THIS AGREEMENT, THE SCHEDULES HERETO OR THE
DOCUMENTS DELIVERED PURSUANT TO SECTION 2.2 HEREOF, ARE NOT
AND SHALL NOT BE DEEMED TO BE OR TO INCLUDE REPRESENTATIONS
OR WARRANTIES OF PURCHASER. EXCEPT AS SET FORTH HEREIN, NO
PERSON HAS BEEN AUTHORIZED BY PURCHASER TO MAKE ANY
REPRESENTATION OR WARRANTY RELATING TO PURCHASER, THE
BUSINESS OF PURCHASER , THE COMMON STOCK OF THE PURCHASER,
OR OTHERWISE, IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY, AND IF MADE, SUCH REPRESENTATION OR
WARRANTY MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY PURCHASER.
5. Other Agreements.
----------------
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<PAGE>
5.1 Best Efforts. Subject to the respective rights and obligations of
------------
Seller and Purchaser under this Agreement, each party shall use its best efforts
to cause the transactions contemplated by this Agreement to be consummated in
accordance with Section 2 hereof.
5.2 Assignment of Contracts. If any required consent to the assignment of
-----------------------
any of the Business Contracts is not obtained or if an attempted assignment
thereof would be ineffective, Seller and Purchaser shall cooperate to provide
Purchaser with the benefits and obligations thereunder in accordance with such
agreement until such consent or effective assignment can be obtained or until a
replacement contract is in place. To the extent the assignment of any of the
Business Contracts is not obtained, Seller shall, to the extent legally
permissible, terminate such contract at the request of Purchaser.
5.3 Changing Trade Names. Seller shall take all steps necessary to change
--------------------
any trade names pursuant to which it conducted the business, to a name
dissimilar to the names by which the Business is known.
5.4 Bank Accounts; Cash. Seller agrees and covenants that any bank
-------------------
accounts or similar accounts held in connection with the Business in Seller's
name or in any other name as of the Closing Date shall be closed within sixty
business days of the Closing Date. Any cash or other payments received by
Seller after the Closing (except for the payments described on Schedule 1.2
hereto) in connection with the Business shall be directed to Purchaser as
Purchaser may direct. Seller shall provide to Purchaser copies of any and all
statements and all other correspondence with respect to such accounts received
on or after the Closing within five business days of receipt by Seller.
5.5 Transition of the Business. Purchaser and Seller shall use
--------------------------
commercially reasonable efforts to cooperate in an orderly transition of the
Business and transfer of the Purchased Assets to Purchaser. Without limiting
the generality of the foregoing, Seller will cooperate with Purchaser in
migrating the contents and functionality of the Active Websites to such computer
systems as Purchaser shall direct.
5.6 Assignment of Intellectual Property. Seller shall, upon Purchaser's
-----------------------------------
request, take any and all actions necessary to transfer to Purchaser any and all
rights of Seller to the URLs, sites and contents of the Websites, including but
not limited to taking any and all actions necessary to effect the assignment of
the domain names for the Websites to Purchaser.
5.7 Software Licensing Agreements. Until the transition of the Business
-----------------------------
has been accomplished to the satisfaction of Purchaser or 90 calendar days after
the Closing Date, whichever occurs first, Seller hereby agrees (i) not to
terminate any and all software licensing agreements used by Seller in the
Business under which Seller is the licensee, and (ii) to maintain the existing
content and functionality of the Active Websites. Any costs associated with the
foregoing incurred on or after the Closing Date shall be borne by Purchaser.
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<PAGE>
5.8 Customers. Seller agrees and acknowledges that effective as of the
---------
Closing users accessing the Active Websites and any and all other customers of
the Business shall be considered customers of Purchaser and that Purchaser shall
have the right to contact such customers in any manner and for any reason as
Purchaser in its sole discretion deems appropriate.
5.9 Purchaser Common Stock Options. Purchaser has reserved 25,000 shares
------------------------------
of the Common Stock of the Purchaser for grants of options (the "Purchaser
---------
Options") to Shareholders after the Closing Date, of which 12,500 shares of
- -------
Common Stock of the Purchaser shall be for grants of options to Rick A. Reddel
and 12,500 shares of Common Stock of the Purchaser shall be for grants of
options to Paul M. Risen. The Purchaser Options shall be granted under
Purchaser's 1999 Equity Compensation Plan (the "Plan") and in accordance with
----
Purchaser's stock option policies. All Purchaser Options shall be granted with
an exercise price equal to the closing price of the Common Stock of the
Purchaser on the date of grant (or if such day is not a trading day, the last
trading day prior to the date of grant). For the purposes of this Section 5.9,
the closing price of Common Stock of the Purchaser on a trading day shall be the
day's last trade price as reported by the Nasdaq National Market. The Purchaser
Options shall vest in accordance with Purchaser's customary four-year vesting
schedule.
5.10 Tax-Free Reorganization. The parties to this Agreement intend that
-----------------------
the transactions provided for in this Agreement shall constitute a
reorganization as defined in Section 368(a )(1)(C) of the Internal Revenue Code
of 1986, as amended, for income tax purposes. Notwithstanding anything to the
contrary in this Agreement nor in any other instrument executed pursuant to this
Agreement, the parties shall not take or make any action that would prevent such
qualification. Each of the parties shall complete all relevant tax returns
consistent with such qualification and shall not take any positions inconsistent
with such qualification.
5.11 Liquidation of Seller. Seller shall take all steps necessary to
---------------------
liquidate simultaneously or within the time period thereafter required pursuant
to Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended.
5.12 Agreement to Offer Employment. Purchaser shall have extended offers
-----------------------------
of employment, including all standard benefits offered by the Purchaser, to
Billy Norman, Eric Swinson, Kent Lovern and Marjorie Richardson. Furthermore,
Purchaser shall have reserved an aggregate of 10,000 shares of Common Stock of
the Purchaser for grants of options to such individuals, and will grant such
options upon the later of acceptance of employment or the Closing Date with an
exercise price equal to the closing price of the Common Stock of the Purchaser
on the date of grant (or if such day is not a trading day, the last trading day
prior to the date of grant). For the purposes of this Section 5.12, the closing
price of Common Stock of the Purchaser on a trading day shall be the day's last
trade price as reported by the Nasdaq National Market. The Purchaser Options
shall vest in accordance with Purchaser's customary four-year vesting schedule.
6. Covenants of Purchaser.
----------------------
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<PAGE>
6.1 Monetization of Securities. Purchaser shall not prohibit the
--------------------------
monetization of one-third of the Stock Consideration in the aggregate by the
Shareholders. The foregoing rights shall be effective upon the Closing.
6.2 Registration Rights. Should the Shareholders choose not to monetize
-------------------
one-third of the Stock Consideration in the aggregate as provided in 6.1(a),
then the following rights shall apply. For the purposes of the foregoing
sentence, monetization shall not be deemed to include the incurrence of
indebtedness secured by the stock.
(a) Purchaser shall prepare and use its best efforts, on or prior to
February 28, 2000 (the "Required Filing Date") to file with the Commission a
registration statement with respect to the resale of an aggregate of one-third
of the Stock Consideration (the "Shares") by the Shareholders or their permitted
assignees (the "Required Registration Statement") and thereafter shall cause
such registration statement to be declared effective under the Securities Act as
promptly as practicable but in no event later than March 31, 2000 (the "Required
Effective Date"). Purchaser shall file a notification form for the listing of
additional shares to cover the listing of the Shares on the Nasdaq National
Market, or such other market or exchange, if any, on which the Common Stock
shall trade. Purchaser shall use its best efforts to cause the Required
Registration Statement to remain effective for a period of one year. Purchaser
acknowledges that the Shareholders are relying on Purchaser's commitment to
cause the Required Registration Statement to become effective not later than the
Required Filing Date, and agrees that if for any reason the Required
Registration Statement is not declared effective by such date (as it may be
extended as herein provided), even if Purchaser is using its best efforts to
cause such effectiveness to be declared, then the Shareholders shall be entitled
to recover damages for any consequential loss incurred. If the Required
Registration Statement shall not become effective by the Required Effective
Date, at the sole option and request of the Shareholders, in lieu of the
Required Registration Statement, the Purchaser will pay the processing costs
associated with monetization of the Shares, such costs not to exceed $15,000
(the "Processing Costs"). Should Shareholders not request Purchaser to pay such
Processing Costs, the commitment of the Purchaser to cause the Required
Registration Statement to become effective shall not be otherwise changed.
(b) If Purchaser proposes to file a registration statement with
respect to the Common Stock prior to the filing of the Required Registration
Statement, Purchaser shall give prompt notice to the Shareholders and will
include in such registration (the "Piggyback Registration") subject to the
allocation provisions discussed in Section 6.2(d) and 6.2(e), all Shares with
respect to which Purchaser has received written request for inclusion within
five (5) Business Days after such notice is given by Purchaser; provided,
however, that the Shareholders shall have no Piggyback Registration rights in
connection with a registration statement filed in connection with Purchaser's 5
1/4% Convertible Subordinated Debentures (the "Convertible Debentures"). No
Purchaser registration statement shall be declared effective unless and until
the Required Registration Statement shall have been declared effective, except
for the registration statement for
-17-
<PAGE>
the Convertible Debentures or if the Required Registration Statement is not
being declared effective due to a comment from the Commission that relates only
to the Shareholders.
(c) Purchaser will pay the expenses related to registration of the
Shares; provided, however, the Shareholders shall pay any underwriting
commissions related to the registration of the Shares.
(d) If a Piggyback Registration is an underwritten primary
registration on behalf of Purchaser and the managing underwriter advises
Purchaser in writing that marketing factors require a limitation on the number
of Shares to be offered and sold, there shall be included in the offering only
that number of Shares, if any, that such managing underwriter reasonably
believes, in its sole discretion, will not jeopardize the success of the
offering.
(e) If a Piggyback Registration is initiated as an underwritten
secondary registration on behalf of the holders of the Common Stock, and the
managing underwriters advise Purchaser in writing that marketing factors require
a limitation on the number of Shares to be offered and sold, Purchaser will
allocate the securities to be included as follows: pro rata on the basis of the
number of shares of Common Stock owned among (i) any other Person selling in the
registration and (ii) the Shareholders.
(f) If a Piggyback Registration is underwritten, the Shareholders
shall not be entitled to select the investment bank(s) or manager(s) nor shall
the Shareholders be entitled to make decisions regarding the underwriting
arrangements for the offering.
(g) If, prior to the Required Filing Date, Purchaser files a
registration statement with the Commission covering shares of its Common Stock
underlying the Convertible Debentures, Purchaser shall, within five (5) Business
Days of such filing, file the Required Registration Statement.
(h) Purchaser shall have no obligations under this Section 6.2 until
the Closing Date. If Purchaser files a registration statement covering shares of
its Common Stock underlying the Convertible Debentures prior to the Closing,
Purchaser, shall, within five (5) Business Days after the Closing, file a
registration statement covering the Shares.
7. Securities Act and Restrictions on Purchaser Stock.
--------------------------------------------------
7.1 Purchase Entirely for Own Account. The Seller Parties acknowledge and
---------------------------------
agree that the shares of Common Stock of the Purchaser to be received by
Shareholders as a liquidating distribution from the Seller will be acquired for
investment for each Shareholder's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that the
Shareholders have no present intention of selling, granting any participation
in, or otherwise distributing the same, but subject to the ability of the
Shareholders to distribute a Shareholder's
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<PAGE>
assets (including the Stock Consideration) to the Shareholder's affiliates (as
such term is defined in Section 144 of the Securities Act).
7.2 Investment Experience. The Shareholders represent and warrant that
---------------------
the Shareholders can bear the economic risk of an investment in Common Stock of
the Purchaser acquired pursuant to this Agreement and have such knowledge and
experience in financial or business matters that the Shareholders are capable to
protect the Shareholders' own interests in connection with the acquisition of
Common Stock of the Purchaser.
7.3 Information Supplied. The Shareholders represent and warrant that the
--------------------
Shareholders have had an adequate opportunity to ask questions and receive
answers from the officers of Purchaser concerning the terms and conditions of
the transaction contemplated by this Agreement and the shares of Common Stock of
the Purchaser to be issued in connection therewith. The Shareholders represent
and warrant that the Shareholders have asked any and all questions that the
Shareholders may have in the nature described in the preceding sentence and that
all such questions have been answered to the Shareholder's satisfaction. The
Shareholders represent and warrant that the Shareholders have reviewed the SEC
Documents and that the Shareholders have had adequate opportunity to ask
questions of and has received answers to the Shareholder's satisfaction from the
officers of Purchaser concerning the matters described therein.
7.4 Restricted Securities. The Shareholders understand that the shares of
---------------------
Common Stock of the Purchaser to be received by the Shareholders are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Purchaser in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may not be resold without registration under the Securities Act,
except in certain limited circumstances. In this connection, the Shareholder
represent that Shareholders are familiar with Rule 144 under the Securities Act,
as presently in effect, and understands the resale limitations imposed thereby
and by the Securities Act.
7.5 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above and subject to the terms and conditions set
forth in the Lock-Up Agreements, the Shareholders further agree not to make any
disposition of all or any portion of the shares representing the Stock
Consideration except to the Shareholder's affiliates unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) The Shareholders shall have notified Purchaser of the proposed
disposition and shall have furnished Purchaser with a detailed statement of the
circumstances surrounding the proposed disposition, and if reasonably requested
by Purchaser, the Shareholders shall have furnished Purchaser with an opinion of
counsel, reasonably satisfactory to Purchaser, that such disposition will not
require registration of such shares under the Securities Act. It is agreed that
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<PAGE>
Purchaser will not require opinions of counsel for transactions made pursuant to
Rule 144 by the Shareholders except in unusual circumstances.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Shareholder (i) to an affiliate of the Shareholder, or the transfer by
gift, will or intestate succession to the Shareholder's spouse or lineal
descendants or ancestors, if the transferee agrees in writing to be subject to
the terms of this Section 7 to the same extent as if he or she were a
Shareholder, or (ii) at any time after the provisions of subparagraph (k) of
Rule 144 are applicable to the Shareholders.
7.6 Legends. It is understood that the certificates evidencing the Stock
-------
Consideration may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES OR BLUE SKY LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES AND BLUE SKY LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF THE
SECURITIES ACT."
7.7 Reporting Requirements. Purchaser covenants and agrees that it shall
----------------------
remain current with respect to all SEC reporting requirements to which Purchaser
is subject.
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<PAGE>
8. Indemnification.
---------------
8.1 Survival. All of the representations, warranties, covenants and
--------
obligations contained in this Agreement or in any instrument or document
delivered pursuant to this Agreement shall survive the execution of this
Agreement and the Closing, notwithstanding any investigation heretofore or
hereafter made by or on behalf of any party hereto; provided, however, that all
-------- -------
representations and warranties contained in this Agreement, and the obligations
of Seller Parties and Purchaser to indemnify each of the other parties for
breaches thereof as set forth in this Section 8, shall survive and continue for,
and all indemnification claims with respect thereto shall be made within, two
years following the Closing Date, except for (i) the indemnification obligations
related to Section 8.2(a) and 8.3(a) which shall survive until expiration of the
applicable statute of limitations, and (ii) the representations, warranties and
related indemnification obligations for which notice of an indemnification claim
shall have been received as of the end of the applicable period referred to in
this Section 8.1, which shall survive with respect to such indemnification claim
until the final disposition thereof.
8.2 Indemnification by Seller Parties. Seller Parties shall reimburse and
---------------------------------
indemnify and hold Purchaser and each of its directors, officers, shareholders,
employees, representatives and agents (collectively, the "Purchaser Parties")
-----------------
harmless against and in respect of any and all damage, loss, liability,
deficiency, settlement payments, costs, levies, expenses or obligations,
whether or not the result of a third party claim, net of any insurance
recoveries (collectively, "Damages"), in connection with, resulting from or
-------
relating to:
(a) any and all liabilities or obligations of any nature whatsoever
of or relating to claims for federal, state, local, foreign or other taxes
assessed against Purchaser, the Business or the Purchased Assets, which arise
out of or are related to Seller's operation or conduct of the Business prior to
the Closing, and not specifically assumed by Purchaser hereunder.
(b) except for the Assumed Liabilities and Obligations, any and all
liabilities or obligations of any nature whatsoever of or relating to Seller, or
relating to or arising out of the Purchased Assets prior to the Closing Date,
Seller's operation of the Business prior to the Closing Date or the actions of
Seller's employees, representatives or agents;
(c) any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of Seller Parties under this Agreement;
(d) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to any of the foregoing;
(e) any claim that any content provided by Seller for use on any of
Purchaser's websites constitutes a defamation or invasion of the right of
privacy or publicity, or infringement of the copyright, trademark or other
intellectual property right, of any third party; and
-21-
<PAGE>
(f) any and all actions, suits, claims or liabilities in connection
with the Accordant Agreement for any work, software (including object and source
code), work product, concepts, specifications or documentation created or
performed prior to the Closing.
8.3 Indemnification by Purchaser. Purchaser shall reimburse and indemnify
----------------------------
and hold the Seller Parties and each of its directors, officers, shareholders,
employees, representatives and agents harmless against and in respect of any
Damages in connection with, resulting from or relating to:
(a) any and all liabilities or obligations of any nature whatsoever
of or relating to claims for federal, state, local, foreign or other taxes
assessed against Seller which arise out of or are related to Purchaser's
operation or conduct of the Business after the Closing (excluding any claims
with respect to tax filings made after the Closing relating to the period prior
to the Closing);
(b) any and all liabilities or obligations of any nature whatsoever
of or relating to the Assumed Liabilities and Obligations or to the Business
(except for those liabilities and obligations of or relating to Seller or the
Business existing as of the Closing Date not included among the Assumed
Liabilities and Obligations) arising out of Purchaser's operation of the
Business after the Closing;
(c) any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of Purchaser under this Agreement;
(d) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to the foregoing; and
(e) any and all sales or use tax imposed upon Seller under state law
as a consequence of the acquisition contemplated herein.
8.4 Procedure for Indemnification. If any claim is made against a party
-----------------------------
(an "Indemnified Party") that, if sustained, would give rise to a liability of
-----------------
another party (the "Indemnifying Party") under this Agreement, the Indemnified
------------------
Party shall promptly, and in any case within seven (7) calendar days, cause
notice of the claim to be delivered to the Indemnifying Party along with all of
the facts, information or materials relating to such claim of which the
Indemnified Party is aware and shall afford the Indemnifying Party and its
counsel, at the Indemnifying Party's sole expense, the opportunity to defend or
settle the claim.
(a) The Indemnifying Party shall have thirty (30) calendar days after
delivery thereof to elect, in writing to the Indemnified Party, to defend or
settle the claim, exercising reasonable business judgment, at its own expense.
Until written notice electing to defend or settle any claim that, if sustained,
would give rise to a liability under this Agreement, the Indemnified Party may
take, at the expense of the Indemnifying Party, any action it reasonably
believes necessary
-22-
<PAGE>
to preserve its rights with respect to such claim, after promptly notifying the
Indemnifying Party of its intention to take such action and the Indemnifying
Party does not elect to take such other action.
(b) If the Indemnifying Party shall so elect to defend or settle the
claim, the Indemnifying Party may not settle such claim without the prior
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld; provided that, if the Indemnified Party does not consent
--------
to such a settlement, the Indemnifying Party's liability to indemnify the
Indemnified Party for such claim shall be limited to the expenses and costs
reasonably necessary to preserve its rights to such claim (other than any costs
of counsel retained by the Indemnified Party solely to monitor the Indemnifying
Party's obligations hereunder) that the Indemnified Party has incurred up to the
time of the proposed settlement plus the amount of the proposed settlement. The
Indemnified Party agrees to use commercially reasonable efforts to cooperate
with the Indemnifying Party in defending any claim, at the Indemnifying Party's
expense.
(c) If the Indemnifying Party shall fail to so elect to defend or
settle such claim (exercising reasonable business judgment) at its own expense,
within thirty (30) calendar days of delivery of notice of the claim, or
otherwise so fail to defend or settle the claim, the Indemnified Party shall
have the right, but not the obligation, to undertake the defense of and to
settle (exercising reasonable business judgment) the claim on behalf, for the
account and at the risk, of the so failing party. The Indemnified Party shall
use commercially reasonable efforts to settle any such claim at commercially
reasonable amounts determined in good faith by the Indemnified Party.
(d) In the event the Indemnified Party should have a claim against
the Indemnifying Party that does not involve a claim or demand by a third party,
the Indemnified Party shall promptly cause notice of such claim to be delivered
to the Indemnifying Party. The Indemnifying Party shall have fifteen (15)
calendar days after delivery thereof to elect, in writing to the Indemnified
Party, to settle the claim at its own expense. If the Indemnifying Party (i)
does not notify the Indemnified Party within fifteen (15) calendar days after
the Indemnified Party's notice that it disputes such claim or (ii) notifies the
Indemnified Party that it does not dispute such claim, the amount of such claim
shall be conclusively deemed as a liability of the Indemnifying Party. If the
Indemnifying Party notifies the Indemnified Party within the 15-day period that
it disputes such claim, the Indemnifying Party and the Indemnified Party shall
attempt in good faith for a period of twenty (20) calendar days to settle any
such dispute.
8.5 Limitations on Indemnification. No Indemnifying Party shall be
------------------------------
obligated to make any payment to an Indemnified Party pursuant to this Section 8
until such time as all claims for indemnification made by such Indemnified Party
pursuant to this Section 8 exceed $20,000 in the aggregate, at which point the
Indemnifying Party shall be obligated to make payment for all claims of such
Indemnified Party pursuant to this Section 8, but only to the extent such
claims, in the aggregate, exceed such initial $20,000 of claims; provided,
--------
however, that in no event shall an Indemnifying Party be liable under this
- -------
Section 8 for an amount which is in excess of $4,000,000, and provided further
that in no event shall the personal liability of each Shareholder under this
Section 8 or otherwise with respect to this Agreement, exceed $2,000,000 each.
Notwithstanding
-23-
<PAGE>
anything to the contrary in this Agreement and except for willful misconduct,
with respect to any domain names other than TextileWeb.com,
Onlinetextilenews.com, Textileshow.com and Nonwovensweb.com, Seller makes no
representations, warranties or covenants other than that it is assigning to
Purchaser all such rights the Seller has in the domain names (other than those
constituting Excluded Assets). Seller Parties shall have no liability or other
responsibility for Purchaser's use of or other actions or omissions with respect
to any such domain names after the Closing.
8.6 Other Remedies. The indemnity of this Section 8 shall be the
--------------
exclusive remedy of any party for a breach, misrepresentation, nonfulfillment,
or default in the performance of the representations, warranties, covenants, or
agreements of this Agreement or any certificate, exhibit, or schedule
contemplated hereby, except in the event of actual fraud or fraud in the
inducement.
9. Miscellaneous.
-------------
9.1 Broker's Fees. Each of the parties hereto (a) represents and warrants
-------------
that it, he or she (as the case may be) has not taken and will not take any
action that would cause any other party hereto to have any obligation or
liability to any person for a finder's or broker's fee except as may be agreed
to in writing and (b) agrees to indemnify the other parties hereto for breach of
the foregoing representation and warranty.
9.2 Expenses. Each party hereto shall pay its, his or her (as the case may
--------
be) own expenses, including without limitation the reasonable fees and expenses
of its, his or her counsel, incurred in connection with this Agreement and the
transactions contemplated hereby.
9.3 Bulk Sales Compliance. Purchaser hereby waives compliance by Seller
---------------------
with the provisions of the Bulk Sales Law of any state which may be applicable
to this transaction. In consideration of such waiver, Seller Parties agree to
defend and indemnify Purchaser against and hold it harmless from any and all
loss, liability, claims, damage or expense (including reasonable attorneys'
fees) arising out of or resulting from such noncompliance, provided that such
loss, liability, claim, damage or expense was not caused by Purchaser's conduct
of the Business or failure to pay the Assumed Liabilities or perform the Assumed
Obligations.
9.4 Contents of Agreement; Amendment; Parties in Interest; Assignment;
-----------------------------------------------------------------
Etc. This Agreement, which includes all schedules and exhibits hereto, sets
- ----
forth the entire understanding of the parties hereto with respect to the subject
matter hereof. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties, including, without limitation, that certain
letter of intent bearing a November 30, 1999 date (the h"Letter of Intent")
----------------
entered into by Seller Parties and Purchaser which is hereby rendered null and
void ab initio; provided, however, that Section 4 of the Letter of Intent shall
-- ------ -------- -------
survive and continue in full force and effect. This Agreement may be amended,
modified or supplemented only by written instrument duly executed by each of the
parties hereto. All representations, warranties, covenants,
-24-
<PAGE>
terms and conditions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the parties hereto. No party hereto shall
assign this Agreement or any right, benefit or obligation hereunder to any other
party without obtaining the prior written consent of the other party; provided,
--------
however, that Purchaser may assign its rights and benefits hereunder, including
- -------
without limitation the benefit of any representation, warranty or covenant, to
any affiliated entity and shall provide Seller with written notice thereof;
provided further, that no such assignment shall release Purchaser from its
- -------- -------
obligations hereunder. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
9.5 Notices. All notices and other communications hereunder shall be in
-------
writing (including wire, telefax or similar writing) and shall be delivered,
addressed, or telefaxed as follows:
If to Purchaser:
VerticalNet, Inc.
700 Dresher Road, Suite 100
Horsham, PA 19044
Attn: Mr. Gene S. Godick
Facsimile: 215-784-1968
with a required copy to (which copy shall not constitute notice):
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Attn: James W. McKenzie, Esquire
Facsimile: 215-963-5299
If to Seller:
TextileWeb, Inc.
2300 Meadowview Road
Suite 202
Greensboro, NC 27407
Facsimile: 336-218-8542
-25-
<PAGE>
with a required copy to (which copy shall not constitute notice):
Brooks, Pierce, McLendon, Humphrey, and Leonard, L.L.P.
P.O. Box 26000
Greensboro, NC 27420
FOR HAND DELIVERY ONLY:
2000 Renaissance Plaza
Greensboro, NC 27401
Attn: Mark Davidson, Esq.
Facsimile: 336.378.1001
Each such notice, request or other communication shall be given by hand
delivery, by nationally recognized courier service or by telefax, receipt
confirmed. Each such notice, request or communication shall be effective (i) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 9.5 (or in accordance with the latest
unrevoked written direction from such party); (ii) if given by telefax, when
such telefax is transmitted to the telefax number specified in this Section 9.5
(or in accordance with the latest unrevoked written direction from such party),
and the appropriate confirmation is received.
9.6 Severability. The invalidity of any provision of this Agreement or
------------
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
9.7 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN
-------------
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO
ITS PROVISIONS CONCERNING CONFLICT OF LAWS.
9.8 Public Announcements. Seller shall not make any public statements,
--------------------
including without limitation, any press releases, with respect to this Agreement
and the transactions contemplated hereby without the prior consent of Purchaser,
except as may be required by law.
9.9 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be considered an original and all of which
together shall constitute the same instrument. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to produce or account
for any of the other counterparts.
9.10 Further Assurances. Each party hereto agrees to execute any and all
------------------
documents, and to perform such other acts, to the extent permitted by law, that
may be reasonably necessary or expedient to further the purposes of this
Agreement or to further assure the benefits intended to be conferred hereby.
-26-
<PAGE>
9.11 Incorporation of Exhibits and Schedules. The exhibits and schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof. The term "Agreement" shall include all such exhibits, schedules,
---------
certificates, and writings.
9.12 Rights of Third Parties. Nothing in this Agreement shall be construed
-----------------------
as giving any person, firm, corporation, or other entity, other than the parties
who are signatory hereto and their respective successors and permitted assigns,
any right, remedy, or claim under or in respect of this Agreement or any
provision hereof.
* * *
-27-
<PAGE>
IN WITNESS WHEREOF, this Asset Exchange Agreement and Plan of
Reorganization has been executed by the parties hereto as of the day and year
first written above.
PURCHASER:
VERTICALNET, INC., a Pennsylvania corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
COMPANY:
TEXTILEWEB, INC., a North Carolina
corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
SHAREHOLDERS:
__________________________________________
RICK A. REDDEL
__________________________________________
PAUL M. RISEN
S-1
<PAGE>
Schedule 1.2
- ------------
I-1
<PAGE>
Schedule 1.3
- ------------
I-2
<PAGE>
Schedule 3.3
- ------------
I-3
<PAGE>
Schedule 3.8
- ------------
I-4
<PAGE>
Schedule 3.9
- ------------
I-5
<PAGE>
Schedule 3.10
- -------------
I-6
<PAGE>
Schedule 3.12
- -------------
I-7
<PAGE>
Schedule 3.14
- -------------
I-8
<PAGE>
Schedule 3.16
- -------------
I-9
<PAGE>
Schedule 3.19
- -------------
I-10
<PAGE>
Schedule 3.22
- -------------
I-11
<PAGE>
Schedule 3.25
- -------------
I-12
<PAGE>
Exhibit 4.7
ASSET EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
This ASSET EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
---------
is made as of December 29, 1999, by and between VerticalNet, Inc., a
Pennsylvania corporation (the "Purchaser"), and GovCon, Inc., a Delaware
---------
corporation (the "Company" or the "Seller") Barry J. Friedman, Dheeraj Khera,
-------
Vivek Khera and David Coakley, each (other than Barry J. Friedman) individuals
employed by the Company and each being the holders of all of the issued and
outstanding capital stock of the Company (the "Shareholders", and together with
------------
the Seller, the "Seller Parties").
--------------
BACKGROUND
GovCon, Inc. is a Delaware corporation dedicated to providing business
information and opportunities to companies and individuals desiring or doing
business with the federal government. The Company utilizes the fictitious names
GovCon, Government Contractor Resource Center, Government Contractor Resource
Institute and BidRadar and is engaged in the business (the "Business") of
--------
developing, owning and operating the Internet websites named "GovCon" and
"BidRadar" with the respective domain names govcon.com and bidradar.com each an
"Active Website" and collectively the "Active Websites") and activities
-------------- ---------------
associated therewith.
Seller desires to sell, and Purchaser desires to buy, substantially all of
the assets of Seller associated with the Business upon the terms described
below.
The parties to this Agreement intend that the transactions contemplated
hereby be treated as a reorganization within the meaning of Section 368(a)(1)(C)
of the Internal Revenue Code of 1986, as amended.
In consideration of the mutual covenants and agreements set forth in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Sale and Purchase.
-----------------
1.1 Sale and Purchase of Assets. Subject to the terms and conditions set
---------------------------
forth in this Agreement, Seller hereby sells, assigns, transfers and delivers to
Purchaser, and Purchaser hereby purchases, acquires and takes assignment and
delivery of, all of the right, title and interest of Seller in and to all of the
assets, properties and rights of any kind owned by Seller used in connection
with or related to the Business, of every type and description, real, personal
and mixed, tangible and intangible, wherever located and whether or not
reflected on the books and records maintained by Seller in connection with the
Business, excluding those assets, properties and rights which are
<PAGE>
specifically excluded pursuant to Section 1.2 hereof (collectively the
"Purchased Assets"), free and clear of all mortgages, liens, pledges, security
----------------
interests, charges, claims, restrictions and encumbrances of any nature
whatsoever. The Purchased Assets include, without limitation, all of the right,
title and interest of Seller in or to the following:
(a) any and all rights (including any and all rights to Intellectual
Property (as defined in Section 3.15 hereof)) of Seller to the domain names,
sites and content (including, without limitation, text and graphics) of the
websites owned by or registered to Seller (the "Websites");
--------
(b) except as provided on Schedule 1.1(b) hereto, any and all rights of
---------------
Seller to software programs, modules, routines, data, text or graphics files,
source or object codes and other components of the Websites used in operation of
the Websites, or in the process of being developed, by or on behalf of Seller
for use in the Business;
(c) any and all rights of Seller to the domain names of the Websites, the
trade names, trade dress, trademarks and service marks used on the Websites and
the goodwill associated therewith;
(d) any and all rights of Seller to any other Intellectual Property (as
defined in Section 3.15 hereof) used in the conduct of the Business;
(e) all furniture, fixtures, equipment, machinery and other tangible
personal property used or held for use in the conduct of the Business at the
locations at which the Business is conducted or at suppliers' premises or
customers' premises on consignment, or otherwise used or held for use by Seller
in the conduct of the Business, including any of the foregoing purchased subject
to any conditional sales or title retention agreement in favor of any other
person;
(f) to the extent assignable and subject to any required consents, all
leases or subleases, if any, of tangible personal property used by Seller in the
conduct of the Business as to which Seller is the lessor or sublessor or is the
lessee or sublessee, together with any options to purchase or sell the
underlying property (the "Business Leases");
---------------
(g) any and all rights of Seller in and under all arrangements (written or
oral) to provide advertising for third parties on the Active Websites pursuant
to which there are unbilled, partially billed or unfulfilled obligations (the
"Advertising Commitments");
- ------------------------
(h) any and all rights of Seller in and under all arrangements (written or
oral) to provide web-design and development business operations to third parties
pursuant to which there are unbilled, partially billed or unfulfilled
obligations (the "Web-Design Commitments");
----------------------
(i) any and all rights of Seller in and under all contracts, agreements and
arrangements (written or oral) to which Seller is a party and which are
utilized in the conduct of the
-2-
<PAGE>
Business, including but not limited to the Business Leases, the Advertising
Commitments and the Web Design Commitments (the "Business Contracts");
------------------
(j) any and all rights of Seller to all information and records and
customer and/or visitor files maintained by Seller (in electronic or paper
format) used or held for use in the conduct of the Business including, without
limitation, principal contacts, E-mail and street addresses, telephone numbers,
personal information, and purchasing history of customers or visitors;
(k) except as otherwise provided in Section 1.2(a) hereof, any and all
rights of Seller to cash or any other payment received in connection with the
Business on or after the Closing Date;
(l) except as otherwise provided in Section 1.2(a) hereof, any and all
rights of Seller to accounts receivable, and all notes, bonds and other
evidences of indebtedness of and rights to receive payments arising out of sales
occurring in the conduct of the Business and the security agreements related
thereto, including any rights of Seller with respect to any third party
collection proceedings or any other actions or proceedings which have been
commenced in connection therewith (the "Accounts Receivable");
-------------------
(m) any and all rights of Seller to prepaid expenses relating to the
Business;
(n) to the extent assignable and subject to any required consents, all
government permits, licenses, franchises, approvals and authorizations
(including applications therefor and any credits arising therefrom) utilized by
Seller in the conduct of the Business (the "Business Permits"); and
----------------
(o) any and all rights of Seller under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
in connection with products sold to or services provided to Seller for the
Business.
1.2 Excluded Assets. Notwithstanding any provision of this Agreement to
---------------
the contrary, Purchaser shall not acquire and there shall be excluded from the
Purchased Assets, Seller's interest in each of the following (the "Excluded
--------
Assets"):
- ------
(a) any and all rights of Seller to cash received in the conduct of the
Business prior to the Closing Date, including all cash on hand or in banks, cash
equivalents, marketable and non-marketable securities and other investments and
all rights in any funds of any nature wherever maintained or held, but excluding
deferred advertising revenues as set forth in Section 1.4(a);
(b) all rights of Seller under this Agreement and the documents and other
papers delivered to Seller by Purchaser pursuant to this Agreement; and
-3-
<PAGE>
(c) the corporate seals, charter documents (including, but not limited to
the certificate or articles of incorporation), minute books, stock books, tax
returns, books of account or other records having to do with the corporate
organization of the Seller; and
(d) Seller's rights and interests in any liability, casualty, health, life
or other insurance policies, if any.
1.3 Assumed Obligations. At the Closing Purchaser shall assume, and agree
-------------------
to perform, fulfill and discharge, all obligations of the Seller (the "Assumed
-------
Obligations") required to be performed after the Closing (excluding payment
- -----------
obligations to third parties for goods or services the performance or delivery
of which occurs prior to the Closing) under any of the Business Contracts except
where (i) such obligations have arisen in contravention of this Agreement or
(ii) such obligations arise or have arisen out of any claim, lawsuit,
investigation, proceeding, arbitration or other dispute relating to an act or
omission taken or occurring prior to Closing.
1.4 No Other Liabilities or Obligations Assumed. Purchaser shall not and
-------------------------------------------
does not hereby assume any liability or obligation of Seller, known or unknown,
contingent or otherwise, asserted or unasserted, other than as specifically set
forth in Section 1.3. Subject to Section 1.3 hereof, nothing contained herein
shall cause Purchaser to assume (a) any liabilities or obligations arising out
of the conduct of the Business prior to the Closing, whether known or unknown on
the Closing Date, except for the performance of the deferred advertising
services for E-Serve in the amount of $4,000; (b) any liabilities or obligations
arising out of any provision of any agreement, contract, commitment or lease of
Seller, other than any liability or obligation under Business Leases, the
Advertising Commitments, the Web-Design Commitments or the other Business
Contracts to be performed after the Closing; (c) any federal, state or local
income or other tax (other than any sales or use tax payable with respect to the
acquisition of assets contemplated herein, for which Purchaser agrees to be
responsible): (i) payable with respect to the business, assets, properties or
operations of Seller, or (ii) incident to or arising as a consequence of the
negotiation or consummation by Seller of this Agreement and the transactions
contemplated hereby; (d) any liability or obligation under or in connection with
any assets not included in the Purchased Assets; (e) any employment-related
liability or obligation arising prior to or as a result of the Closing to any
employees, agents or independent contractors of Seller, or under any benefit
arrangement with respect thereto; or (f) any liability or obligation of Seller
arising or incurred in connection with the negotiation, preparation and
execution of this Agreement and the transactions contemplated hereby and fees
and expenses of counsel, accountants and other experts.
1.5 Consideration.
-------------
(1) Purchase Price.
--------------
(i) In exchange for the Purchased Assets and for the covenants
not to compete (the "Non-Compete Covenants") set forth in the Employment
---------------------
Agreement (as hereinafter defined)
-4-
<PAGE>
Purchaser shall deliver to the Shareholders seventy five thousand (75,000)
shares of Common Stock of the Purchaser (the "Consideration", which shall also
-------------
constitute the "Purchase Price").
--------------
(ii) Delivery of Consideration. As soon as possible after the
-------------------------
Closing Date, Purchaser shall cause to be delivered to each Shareholder a
certificate issued in the Shareholder's name for the portion of the Stock
Consideration represented by the percentage allocation set forth on Schedule
1.5. The parties acknowledge and agree that the Consideration is being received
by the Shareholders as a liquidating distribution from the Seller.
(b) Freeware. Seller and Purchaser hereby agree that the
--------
consideration paid by Purchaser hereunder shall not be applied to, and is not in
consideration for, any freeware acquired by Purchaser under the terms of this
Agreement.
2. Closing. The closing of the purchase and sale of the Purchased Assets (the
-------
"Closing") shall take place simultaneously with the execution of this Agreement.
-------
The date on which the Closing occurs shall be called the "Closing Date." The
------------
Closing shall be consummated by facsimile transmission. The parties shall (x)
transmit facsimile copies of all executed documents required to be executed
pursuant to this Agreement and (y) mail via overnight courier four (4) executed
originals of each document to the offices of counsel for each of the respective
parties. On the Closing Date, subject to the terms and conditions herein
contained, the following shall occur:
2.1 Deliveries by Seller Parties at the Closing. On the Closing Date, the
-------------------------------------------
Seller Parties shall deliver, or cause to be delivered, to Purchaser:
(a) a Bill of Sale, Assignment and Assumption Agreement dated as of
even date herewith and in a form satisfactory to Purchaser, duly executed by
Seller;
(b) Employment Agreement, dated as of even date herewith and in a form
satisfactory to Purchaser, duly executed by David Coakley (the "Employment
----------
Agreement");
- ---------
(c) Consulting Agreements, dated as of even date herewith and in a
form satisfactory to Purchaser, duly executed by Vivek Khera and Dheeraj Khera
(the "Consulting Agreements");
(d) a copy of the executed consents specified in Schedule 3.3 hereto;
(e) copies of the most recent statements for the bank accounts and
similar accounts held in connection with the Business;
(f) evidence of termination of Cyberreps Agreement;
(g) The disclosure schedules (the "Schedules") to the Agreement; and
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<PAGE>
(h) such other documentation reasonably requested by Purchaser, in a
form reasonably satisfactory to Purchaser and its counsel, as shall be necessary
and effective to transfer and assign to, and vest in, Purchaser all of Seller's
right, title and interest in and to the Purchased Assets, and simultaneously
with such delivery, all steps will be taken as may be required to put Purchaser
in actual possession and operating control of the Purchased Assets.
2.2 Deliveries by Purchaser at the Closing. On the Closing Date or as
--------------------------------------
otherwise provided herein, Purchaser shall deliver, or cause to be delivered to
Seller:
(a) evidence of irrevocable instructions to the Company's transfer
agent to deliver the Consideration to Seller's counsel on behalf of the
Shareholders in accordance with Section 1.5(a)(ii);
(b) the Bill of Sale, Assignment and Assumption Agreement duly
executed by Purchaser;
(c) the Employment Agreement, duly executed by Purchaser; and
(d) the Consulting Agreements, duly executed by Purchaser.
3. Representations and Warranties of Seller Parties. The Seller Parties,
------------------------------------------------
jointly and severally, hereby represent, warrant and covenant to Purchaser as
follows:
3.1 Organization. GovCon, Inc. is a Delaware corporation and utilizes the
------------
fictitious names GovCon, Government Contractor Resource Center, Government
Contractor Resource Institute and BidRadar.
3.2 Power and Authority. Seller has full right, power, lawful authority
-------------------
and legal capacity to execute and deliver this Agreement, the Bill of Sale,
Assignment and Assumption Agreement and the Employment Agreement (collectively,
the "Seller Transaction Agreements") and to consummate and perform the
-----------------------------
transactions contemplated hereby and thereby. The Seller Transaction Agreements
have been, and any other agreements, documents and instruments required to be
delivered by Seller in accordance with the provisions hereof have been or will
be, duly executed and delivered by or on behalf of Seller and constitute the
legal, valid and binding obligations of Seller, enforceable against Seller in
accordance with their respective terms, except as enforceability may be limited
by laws of general application relating to bankruptcy, reorganization,
moratorium, insolvency and debtors' relief and similar laws affecting the
enforcement of creditors' rights, and by general principles of equity.
3.3 Conflicts; Consents. Neither the execution and delivery of the Seller
-------------------
Transaction Agreements by Seller nor the consummation and performance of the
transactions contemplated thereby (a) will conflict with or violate any
agreement to which Seller is a party or by which Seller is bound or any federal,
state, local or other governmental law or ordinance or (b) will require the
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<PAGE>
authorization, approval or consent by, or any notice to or filing with, any
third party, except for (i) those authorizations, approvals and consents which
have already been granted or obtained and all of which are set forth on Schedule
3.3 attached hereto and (ii) such authorizations, approvals and consents which,
if not granted or obtained, would not in the aggregate have a material adverse
effect on the condition of the Purchased Assets or the Business.
3.4 Title. Seller has good, valid and marketable title to, or valid
-----
licenses to use, all of the Purchased Assets, free and clear of all liens,
pledges, mortgages, security interests, claims, liabilities, charges or
encumbrances of any nature whatsoever. With respect to the Purchased Assets
leased by Seller, if any, Seller is in compliance with such leases.
3.5 Financial Statements. Seller has delivered to Purchaser unaudited
--------------------
financial records (including without limitation, the balance sheet, income
statement and statement of cash flows) of the Business (i) for the year ended
December 31, 1998, and (ii) for the ten-month period ended October 31, 1999
(collectively, the "Financial Records"). The Financial Records present fairly
-----------------
the revenues of the Business, as applicable, for the periods indicated and were
prepared in accordance with the modified accrual basis.
3.6 No Material Changes. Since October 31, 1999 there has not been (a)
-------------------
any material adverse change in the Purchased Assets or the operations or
condition (financial, traffic or otherwise) of the Business or of Seller; or (b)
any actual or threatened trouble or disruption of Seller's relations with the
Business' agents, customers or suppliers. Since October 31, 1999, Seller has
conducted the Business only in the ordinary course consistent with past
practice, has not incurred any material liabilities, and has not entered into
any transaction, contract or arrangement, or made any payment or distribution
that reasonably can be expected to have a material adverse impact on the
Business.
3.7 Server Log Files. Seller has delivered to Purchaser true, correct and
----------------
complete copies of the log files of the web server computer (the "Server") to be
------
transferred from Seller to Purchaser pursuant to this Agreement.
3.8 Advertising Commitments. Attached hereto as Schedule 3.8 is a true,
-----------------------
correct and complete list of all Advertising Commitments as of the date hereof,
including the name of the advertising party, any amounts unbilled to or unpaid
by such party and the term of the obligation to provide advertising on the
applicable Active Website.
3.9 Web-Design Commitments. Attached hereto as Schedule 3.9 is a true,
----------------------
correct and complete list of all Web-Design Commitments, and included in such
schedule with respect to each such commitment is the name of the party for which
such web design was or is being created, the applicable domain name, any amounts
unbilled to or unpaid by such party and a description of and the term of any
outstanding obligations with respect to such commitment as of the date hereof.
3.10 Customers. Attached hereto as Schedule 3.10 is a true, correct and
---------
complete list of all advertising customers of the Business. Seller currently
maintains good working relationships
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<PAGE>
with all of the customers and suppliers of the Business. No current customer or
supplier of the Business has given Seller notice terminating, canceling or
threatening to terminate or cancel any contract, commitment or relationship with
Seller.
3.11 Tangible Property. Attached hereto as Schedule 3.11 is a true,
-----------------
correct and complete list of all tangible personal property, including without
limitation equipment, machinery, and furniture, in each case owned or leased by
Seller and material to the Business (collectively, the "Tangible Property")
-----------------
together with a description of all leases or subleases of Tangible Property to
which Seller is the lessor, sublessor, lessee or sublessee and all options to
purchase or sell the underlying property. Except as separately identified on
Schedule 3.11, no approval or consent of any person is needed so that the
interest of Seller in the Tangible Property shall continue to be in full force
and effect and enforceable by Purchaser following the transactions contemplated
by this Agreement.
3.12 Condition of Assets. All Purchased Assets constituting Tangible
-------------------
Property (i) are in "as is" condition (ii) are usable in the ordinary course of
the Business consistent with past practice and (iii) are in the possession or
under the control of Seller.
3.13 Contracts. Seller is not party to any contracts, agreements or
---------
commitments in connection with the Business or the Purchased Assets other than
the Advertising Commitments, the Web-Design Commitments and the other Business
Contracts. Attached hereto as Schedule 3.13 is a true, correct and complete
list of all Business Contracts in effect as of the date hereof. Except as
otherwise indicated on Schedule 3.13, true and complete copies of all Business
Contracts have been delivered to Purchaser and each Business Contract is a valid
and binding obligation in full force and effect in accordance with its
respective terms with respect to Seller (as applicable) and is a valid and
binding obligation in full force and effect in accordance with its respective
terms with respect to any other party thereto, except as enforceability may be
limited by laws of general application relating to bankruptcy, reorganization,
moratorium, insolvency and debtors' relief and similar laws affecting the
enforcement of creditors' rights, and by general principles of equity. Seller
is not in material default under any of the Business Contracts and, to Seller's
best knowledge and belief ("Seller's Knowledge"), no third party is in material
------------------
default under any of the Business Contracts.
3.14 Legal Proceedings; Compliance with Law. There are no disputes,
--------------------------------------
claims, actions, suits or proceedings, arbitrations or investigations pending
or, to Seller's Knowledge after due inquiry, threatened against or affecting the
Business or the Purchased Assets. Seller does not have any knowledge of any
state of facts that might reasonably form the basis of any claim, liability or
litigation against Seller affecting the Business or the Purchased Assets. The
conduct of the Business by Seller, and Seller's use of the Purchased Assets, are
in material compliance with all applicable federal, state, local or other
governmental laws, ordinances, codes, rules and regulations. Seller owns or
possesses in the operation of the Business all franchises, licenses, permits,
consents, approvals, rights, waivers and other authorizations, governmental or
otherwise, which are necessary for Seller to conduct Seller's business as now
conducted; Seller is not in default, nor has Seller received any notice of any
claim or default thereunder, or any notice of any other claim or
-8-
<PAGE>
proceeding or threatened proceeding relating thereto; and neither the execution
or delivery of this Agreement nor the consummation of the transactions
contemplated hereby will require any notice or consent thereunder or have any
material adverse effect thereon.
3.15 Intellectual Property. Attached hereto as Schedule 3.15 is a true,
---------------------
correct and complete list of all license agreements, copyrighted materials,
trademarks, trade names, domain names, service marks and all patents, and all
applications therefor, used or held for use by Seller in the conduct of the
Business (including without limitation a list of the domain names of all
Websites). (i) Seller owns (or has adequate rights to use or transfer pursuant
to license, sublicense, agreement or permission) all patents, trademarks, trade
names, service marks, logos, designs (including those acquired by assignment),
domain names, websites and website content, goodwill, customer lists or other
information regarding customers, copyrights (including those acquired by
assignment), software, computer code, data, trade secrets or know-how and
applications and registrations of any of the foregoing (collectively,
"Intellectual Property") used by Seller in the Business or transferred pursuant
- ----------------------
to this Agreement free and clear of any lien, mortgage, security interest,
pledge, restriction, defect of title or other claim, charge or encumbrance; (ii)
in connection with the operation of the Business, to Seller's Knowledge, Seller
does not infringe upon or unlawfully or wrongfully use any material Intellectual
Property owned or claimed by any other person or entity or otherwise use any
material that violates any right of publicity, right of privacy or any other
proprietary rights or defames, slanders or libels any individual or entity;
(iii) the Seller shall own or shall have the lawful right to use all
Intellectual Property that is used in the operation of the Business in the
ordinary course or otherwise; (iv) the content of any and all websites, whether
created by Seller for Seller or for others or for which Seller directly or
indirectly provided web hosting services at any time prior to the Closing Date,
was and continues to be lawful; (v) Seller is not in default under, and has not
received any notice of any claim of infringement or any other claim or
proceeding relating to any of the Intellectual Property; and (vi) subject to
Schedule 1.1(b), no other person (other than licensors in situations where
Seller is the licensee) owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part, in any of the Intellectual
Property, or in any application therefor, which Seller owns, possesses or uses
in Seller's operations as now or heretofore conducted.
3.16 Employee Relations. Seller is not a party to, involved in, or to the
------------------
Seller's Knowledge, threatened by, any labor or employment dispute, unfair labor
practice charge, employment discrimination charge or other employment or labor
related claims.
3.17 Operational Elements. The Purchased Assets include any and all
--------------------
rights (whether by ownership or license) for software programs, modules,
routines, data, text or graphic files, source or object codes and other
components of the Websites which are used in the operation of the Websites
(except for the Excluded Assets) and such operational elements shall include all
written or electronic documentation which is in the possession of Seller.
3.18 Consents and Approvals of Governmental Authorities. No consent,
--------------------------------------------------
approval or authorization of, or declaration, filing or registration with, any
court or other governmental or regulatory authority, agency, commission, or
other entity, domestic or foreign is required to be made
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<PAGE>
or obtained by Seller in connection with the execution, delivery and performance
of this Agreement by Seller or the consummation of the sale of the Purchased
Assets to Purchaser.
3.19 Permits. Attached hereto as Schedule 3.19 is a true, correct and
-------
complete list of the Business Permits. All Business Permits are in full force
and effect and in good standing. Seller has not received notice of any claim of
revocation of any Business Permits and knows of no events which might given rise
to such a claim.
3.20 Undisclosed Liabilities. None of the Purchased Assets are subject to
-----------------------
any liability, indebtedness, obligation or claim of any type, whether accrued,
absolute, contingent, matured or unmatured ("Liabilities"), except those
-----------
Liabilities arising in the ordinary course of business consistent with past
practice.
3.21 Tax Returns.
------------
(a) Seller has filed all Tax Returns that it was required to file, for
any period or portion thereof ending on or before the Closing Date, (i) due as
of the Closing Date with respect to the Business which could result in any lien
or encumbrance on the Purchased Assets, have been fully paid by Seller or (ii)
due after the Closing Date with respect to the Business which could result in
any lien or encumbrance on the Purchased Assets, shall be fully paid by Seller
after the Closing Date. All such Tax Returns were correct and complete in all
respects. All Taxes owed by Seller (whether or not shown on any Tax Return)
have been paid. No claim has ever been made by an authority in a jurisdiction
where the Seller does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no liens for Taxes except for liens
for Taxes not yet due and payable.
(b) Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(c) As used in this Agreement, the term "Tax" and "Taxes" includes all
federal, state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, capital stock, severance, stamp, payroll, sales,
employment, unemployment, disability, use, property, withholding, excise,
production, value added, occupancy and other taxes, duties or assessments of any
nature whatsoever, together with all interest, penalties and additions imposed
with respect to such amounts and any interest in respect of such penalties and
additions, and the term "Tax Returns" includes all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.22 Transactions with Affiliates. Except as set forth on Schedule 3.22
----------------------------
attached hereto, neither Seller nor any affiliate of Seller nor any member of
Seller's immediate family, owns or has a controlling ownership interest in any
corporation or other entity that is a party to any agreement, commitment or
other arrangement with Seller in connection with the Business or the Purchased
-10-
<PAGE>
Assets. All disclosed transactions, if any, between Seller and an affiliate
thereof have been on substantially the same terms and conditions as similar
transactions between non-affiliated parties and are properly recorded on the
books and records maintained by Seller in connection with the Business.
3.23 Entire Business. The sale of the Purchased Assets to be sold by
---------------
Seller to Purchaser pursuant to this Agreement shall effectively convey to
Purchaser the entire business of, and all of the tangible and intangible
property used by, Seller (whether owned, leased or held under license by Seller
or by others) in connection with the conduct of the Business as heretofore
conducted by Seller, except to the extent that Seller has used Seller's home in
the conduct of the Business. There are no material facilities, services, assets
or properties shared with any other person which are used by Seller in the
conduct of the Business, except to the extent that the Business has been and is
operated in the Seller's home. Seller is subletting space on a month-to-month
basis and the Assets of the Seller are located in such facilities.
3.24 Disclosure. There is no fact known to Seller which might materially
----------
and adversely affect the Business or the Purchased Assets which has not been
disclosed to Purchaser in this Agreement or a certificate, statement or other
document delivered by Seller.
4. Representations and Warranties of Purchaser. Purchaser represents and
-------------------------------------------
warrants to Seller as follows:
4.1 Organization and Good Standing. Purchaser is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Purchaser has full corporate power and authority
to conduct its business as now conducted and to own and operate the assets and
properties now owned and operated by it.
4.2 Power and Authority. Purchaser has the corporate power and authority
-------------------
to execute and deliver this Agreement, the Bill of Sale, Assignment and
Assumption Agreement, the Employment Agreement and the Consulting Agreements
(collectively, the "Purchaser Transaction Agreements") and to consummate and
--------------------------------
perform the transactions contemplated hereby and thereby. The execution,
delivery and performance by Purchaser of the Purchaser Transaction Agreements
and any other agreements, documents and instruments required to be delivered by
Purchaser in accordance with the provisions hereof have been duly authorized by
all necessary corporate action. The Purchaser Transaction Agreements have been
duly executed and delivered by or on behalf of Purchaser and constitute the
legal, valid and binding obligations of Purchaser, enforceable against Purchaser
in accordance with their respective terms, except as enforceability may be
limited by laws of general application relating to bankruptcy, reorganization,
moratorium, insolvency and debtors' relief and similar laws affecting the
enforcement of creditors' rights, and by general principles of equity.
4.3 Conflicts; Consents. The execution, delivery and performance of the
-------------------
Purchaser Transaction Agreements by Purchaser will not (i) violate or conflict
with the Articles of Incorporation, bylaws or other constitutional documents of
Purchaser; (ii) conflict with, or result in
-11-
<PAGE>
the breach or termination of, or constitute a default under (whether with notice
or lapse of time or both), or accelerate or permit the acceleration of the
performance required by, any indenture, mortgage, lien, lease, agreement,
commitment or other instrument or any order, judgment or decree, to which
Purchaser is a party or by which it or its properties are bound; or (iii)
constitute a violation of any law, regulation, order, writ, judgment, injunction
or decree applicable to Purchaser, other than violations, conflicts, breaches,
terminations, accelerations and defaults specified in the foregoing clauses (ii)
and (iii) which could not reasonably be expected to have a material adverse
effect on Purchaser's ability to perform its obligations under any of the
Purchaser Transaction Agreements. No consent, approval or authorization of any
governmental authority is required on the part of Purchaser in connection with
the execution, delivery and performance of the Purchaser Transaction Agreements.
4.4 Valid Issuance of Common Stock of the Purchaser. The shares of Common
-----------------------------------------------
Stock of the Purchaser which are being issued to Seller hereunder, when issued,
sold and delivered in accordance with the terms hereof, shall be duly and
validly issued, fully paid and nonassessable and, assuming the accuracy of the
representations of Seller in this Agreement, will be issued in compliance with
all applicable federal and state securities laws. The Consideration will
constitute voting stock within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended.
4.5 SEC Documents. The Annual Report on Form 10-K for the year ended
-------------
December 31, 1998 and the Quarterly Report on Form 10-Q for the period ended
September 30, 1999 filed by Purchaser with the Securities and Exchange
Commission (the "SEC"), including all exhibits thereto (collectively, the "SEC
--- ---
Documents"), complied in all material respects with all applicable requirements
- ---------
of the Securities Act of 1933, as amended (the "Securities Act") and the
--------------
Securities Exchange Act of 1934, as amended, as in effect on the dates so filed.
None of the SEC Documents (as of their respective filing dates) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
Purchaser has heretofore furnished to Seller copies of the SEC Documents.
4.6 Disclaimer.
----------
PURCHASER HAS NOT MADE ANY REPRESENTATION OR WARRANTY RELATING TO
PURCHASER, THE BUSINESS OF PURCHASER, THE COMMON STOCK OF THE
PURCHASER, OR OTHERWISE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, OTHER THAN THOSE EXPRESSLY SET FORTH
IN THIS AGREEMENT, THE SCHEDULES HERETO AND THE DOCUMENTS TO BE
DELIVERED PURSUANT TO SECTION 2.2 HEREOF. IT IS UNDERSTOOD THAT ANY
ESTIMATES, PROJECTIONS OR OTHER PREDICTIONS, OR ANY OTHER DATA NOT
EXPRESSLY INCLUDED IN THIS AGREEMENT, THE
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<PAGE>
SCHEDULES HERETO OR THE DOCUMENTS DELIVERED PURSUANT TO SECTION 2.2
HEREOF, ARE NOT AND SHALL NOT BE DEEMED TO BE OR TO INCLUDE
REPRESENTATIONS OR WARRANTIES OF PURCHASER. EXCEPT AS SET FORTH
HEREIN, NO PERSON HAS BEEN AUTHORIZED BY PURCHASER TO MAKE ANY
REPRESENTATION OR WARRANTY RELATING TO PURCHASER, THE BUSINESS OF
PURCHASER , THE COMMON STOCK OF THE PURCHASER, OR OTHERWISE, IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, AND IF MADE,
SUCH REPRESENTATION OR WARRANTY MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY PURCHASER.
5. Other Agreements.
----------------
5.1 Best Efforts. Subject to the respective rights and obligations of
------------
Seller and Purchaser under this Agreement, each party shall use its best efforts
to cause the transactions contemplated by this Agreement to be consummated in
accordance with Section 2 hereof.
5.2 Assignment of Contracts. If any required consent to the assignment of
-----------------------
any of the Business Contracts is not obtained or if an attempted assignment
thereof would be ineffective, Seller and Purchaser shall cooperate to provide
Purchaser with the benefits and obligations thereunder in accordance with such
agreement until such consent or effective assignment can be obtained or until a
replacement contract is in place. To the extent the assignment of any of the
Business Contracts is not obtained, Seller shall, to the extent legally
permissible, terminate such contract at the request of Purchaser.
5.3 Changing Trade Names. Seller shall take all steps necessary to change
--------------------
any trade names pursuant to which it conducted the business, to a name
dissimilar to the names by which the Business is known.
5.4 Bank Accounts; Cash. Seller agrees and covenants that any bank
-------------------
accounts or similar accounts held in connection with the Business in Seller's
name or in any other name as of the Closing Date shall be closed within sixty
business days of the Closing Date. Any cash or other payments received by
Seller after the Closing (except for the payments described on Schedule 1.2
hereto) in connection with the Business shall be directed to Purchaser as
Purchaser may direct. Seller shall provide to Purchaser copies of any and all
statements and all other correspondence with respect to such accounts received
on or after the Closing within five business days of receipt by Seller.
5.5 Transition of the Business. Purchaser and Seller shall use
--------------------------
commercially reasonable efforts to cooperate in an orderly transition of the
Business and transfer of the Purchased Assets to Purchaser. Without limiting
the generality of the foregoing, Seller will cooperate with Purchaser in
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<PAGE>
migrating the contents and functionality of the Active Websites to such computer
systems as Purchaser shall direct.
5.6 Assignment of Intellectual Property. Seller shall, upon Purchaser's
-----------------------------------
request, take any and all actions necessary to transfer to Purchaser any and all
rights of Seller to the URLs, sites and contents of the Websites, including but
not limited to taking any and all actions necessary to effect the assignment of
the domain names for the Websites to Purchaser.
5.7 Software Licensing Agreements. Until the transition of the Business
-----------------------------
has been accomplished to the satisfaction of Purchaser or 90 calendar days after
the Closing Date, whichever occurs first, Seller hereby agrees (i) not to
terminate any and all software licensing agreements used by Seller in the
Business under which Seller is the licensee, and (ii) to maintain the existing
content and functionality of the Active Websites. Any costs associated with the
foregoing incurred on or after the Closing Date shall be borne by Purchaser.
5.8 Customers. Seller agrees and acknowledges that effective as of the
---------
Closing users accessing the Active Websites and any and all other customers of
the Business shall be considered customers of Purchaser and that Purchaser shall
have the right to contact such customers in any manner and for any reason as
Purchaser in its sole discretion deems appropriate.
5.9 Purchaser Common Stock Options. Purchaser has reserved up to 30,000
------------------------------
shares of the Common Stock of the Purchaser for grants of options (the
"Purchaser Options") to David Coakley after the Closing Date. The Purchaser
-----------------
Options shall be granted under Purchaser's 1999 Equity Compensation Plan (the
"Plan") and in accordance with Purchaser's stock option policies. As required
----
under the terms of the Plan, granting of the Purchaser Options shall be subject
to the prior approval of the Compensation Committee of Purchaser's Board of
Directors. All Purchaser Options shall be granted with an exercise price equal
to the closing price of the Common Stock of the Purchaser on the date of grant
(or if such day is not a trading day, the last trading day prior to the date of
grant). For the purposes of this Section 5.9, the closing price of Common Stock
of the Purchaser on a trading day shall be the day's last trade price as
reported by the Nasdaq National Market. The Purchaser Options shall vest in
accordance with Purchaser's customary four-year vesting schedule.
5.10 Non-Competition Agreement
-------------------------
(a) For a period of three (3) years from and after the Closing Date,
the Shareholders hereby agree that they will not directly or indirectly own,
manage, operate, finance, join, control or participate in the ownership,
management, operation, financing or control of, or be connected as an officer,
employee, partner, principal, agent, representative, consultant or otherwise
with any business or enterprise engaged anywhere in the world that shall be
competitive with any of those activities in which the Purchaser or the
Shareholders were engaged in business at any time within two (2) years prior to
the date hereof, including without limitation any business or enterprise that:
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<PAGE>
(i) is engaged in the business of (i) owning or operating
industrial trade communities or portal sites on the Internet specializing in
government contracts, or (ii) owning or operating industrial trade communities
or portal sites on the Internet which are competitive with any industrial trade
communities operated or planned by VerticalNet, provided that the Shareholders
must have knowledge of such planned communities; and/or
(ii) is a competitor of VerticalNet, as set forth on the attached
Exhibit I; provided, however, that: (i) Dheeraj Khera and Vivek Khera shall be
- ---------
permitted to directly or indirectly own, manage, operate, join or participate in
the ownership, management, operation, financing or control of, or be connected
as an officer, employee, partner, principal, agent, representative, consultant
or otherwise with any business that purchases, licenses or enters into a co-
branding agreement or other similar arrangement with respect to the "AppSuite"
or "morebusiness.com" websites or products (or such other name that may be used
for such business), and (ii) Barry Friedman shall be permitted to directly or
indirectly own, manage, operate, join or participate in the ownership,
management, operation, financing or control of, or be connected as an officer,
employee, partner, principal, agent, representative, consultant or otherwise
with respect to Mondial Marketing, Inc. or the "radiodeals.com" website (or such
other name that may be used for such business).
(b) The Shareholders shall be permitted to own securities of a public
company not in excess of five percent (5%) of any class of such securities and
to own stock, partnership interests or other securities of any entity not in
excess of five percent (5%) of any class of such securities and such ownership
shall not be considered to be in competition with the Company.
(c) Each Shareholder acknowledges and understands that (i) the
Purchaser is and will be relying upon the agreements made by the Shareholders in
this Section 5.10 in entering into this Agreement and consummating the
transactions contemplated hereby; (ii) the restrictions contained in this
Section 5.10 are reasonable and necessary to protect the legitimate interests of
the Purchaser, and that any violation will result in irreparable injury to the
Purchaser, (iii) that the covenants contained in this Section 5.10 are
reasonable as to geographic and temporal scope and that such restrictions are
intended solely to protect the legitimate interests of the Purchaser, rather
than to prevent the Shareholders from earning a livelihood; (iv) that the
Purchaser competes for the industrial trade community market on the Internet on
a worldwide basis, and that the Employee's access to confidential information
makes it necessary for the Purchaser to restrict the Employee's activities in
all markets where the Purchaser competes and where the Employee's access to
confidential information and other proprietary information could be used to the
detriment of the Purchaser; and (v) that the Purchaser has the skills and
training to be able to continue to earn a livelihood without violating the terms
of the covenants contained in this Section 5.10.
(d) The Shareholders agree that the Purchaser shall be entitled to
preliminary and permanent injunctive relief, without the necessary or proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 5.10,
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<PAGE>
which rights shall be cumulative and in addition to any other rights or remedies
to which the Purchaser may be entitled. In the event that any of the provisions
of this Section 5.10 should ever be adjudicated to exceed the time, geographic,
product or service, or other limitations permitted by applicable law in any
jurisdiction, then such provisions shall be deemed reformed in such jurisdiction
to the maximum time, geographic, product or service, or other limitations
permitted by applicable law.
5.11 Tax-Free Reorganization. The parties to this Agreement intend that
-----------------------
the transactions provided for in this Agreement shall constitute a
reorganization as defined in Section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended, for income tax purposes. Notwithstanding anything to the
contrary in this Agreement nor in any other instrument executed pursuant to this
Agreement, the parties shall not take or make any action that would prevent such
qualification. Each of the parties shall complete all relevant tax returns
consistent with such qualification and shall not take any positions inconsistent
with such qualification.
5.12 Liquidation of Seller. Seller shall take all steps necessary to
---------------------
liquidate simultaneously or within the time period thereafter required pursuant
to Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended.
6. Covenants of Purchaser.
----------------------
6.1 Registration Rights.
-------------------
(a) Purchaser shall prepare and use its best efforts, and no later
than March 31, 2000 (the "Required Filing Date") to file with the Commission a
registration statement with respect to the resale of the shares received as
Consideration (the "Shares") by the Seller or its permitted assignees (the
"Required Registration Statement") and thereafter shall cause such registration
statement to be declared effective under the Securities Act as promptly as
practicable but in no event later than May 31, 2000 (the "Required Effective
Date"). Purchaser shall file a notification form for the listing of additional
shares to cover the listing of the Shares on the Nasdaq National Market, or such
other market or exchange, if any, on which the Common Stock shall trade.
Purchaser shall use its best efforts to cause the Required Registration
Statement to remain effective for a period of one year. Purchaser acknowledges
that Seller is relying on Purchaser's commitment to cause the Required
Registration Statement to become effective not later than the Required Filing
Date, and agrees that if for any reason the Required Registration Statement is
not declared effective by such date (as it may be extended as herein provided),
even if Purchaser is using its best efforts to cause such effectiveness to be
declared, then Seller shall be entitled to recover damages for any consequential
loss incurred.
(b) If Purchaser proposes to file a registration statement with
respect to the Common Stock prior to the filing of the Required Registration
Statement, Purchaser shall give prompt notice to the Seller and will include in
such registration (the "Piggyback Registration") subject to the allocation
provisions discussed in Section 6.1(d) and 6.1(e), all Shares with respect
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<PAGE>
to which Purchaser has received written request for inclusion within five (5)
Business Days after such notice is given by Purchaser; provided, however, that
the Seller shall have no Piggyback Registration rights in connection with a
registration statement filed in connection with Purchaser's 5 1/4% Convertible
Subordinated Debentures (the "Convertible Debentures"). No Purchaser
registration statement shall be declared effective unless and until the Required
Registration Statement shall have been declared effective, except for the
registration statement for the Convertible Debentures or if the Required
Registration Statement is not being declared effective due to a comment from the
Commission that relates only to a Seller.
(c) Purchaser will pay the expenses related to registration of the
Shares; provided, however, the Seller shall pay any underwriting commissions
related to the registration of the Shares.
(d) If a Piggyback Registration is an underwritten primary
registration on behalf of Purchaser and the managing underwriter advises
Purchaser in writing that marketing factors require a limitation on the number
of Shares to be offered and sold, there shall be included in the offering only
that number of Shares, if any, that such managing underwriter reasonably
believes, in its sole discretion, will not jeopardize the success of the
offering.
(e) If a Piggyback Registration is initiated as an underwritten
secondary registration on behalf of the holders of the Common Stock, and the
managing underwriters advise Purchaser in writing that marketing factors require
a limitation on the number of Shares to be offered and sold, Purchaser will
allocate the securities to be included as follows: pro rata on the basis of the
number of shares of Common Stock owned among (i) any other Person selling in the
registration and (ii) the Seller.
(f) If a Piggyback Registration is underwritten, the Seller shall not
be entitled to select the investment bank(s) or manager(s) nor shall the Seller
be entitled to make decisions regarding the underwriting arrangements for the
offering.
(g) If, prior to the Required Filing Date, Purchaser files a
registration statement with the Commission covering shares of its Common Stock
underlying the Convertible Debentures, Purchaser shall, within five (5) Business
Days of such filing, file the Required Registration Statement.
(h) Purchaser shall have no obligations under this Section 6.1 until
the Closing Date. If Purchaser files a registration statement covering shares of
its Common Stock underlying the Convertible Debentures prior to the Closing,
Purchaser, shall, within five (5) Business Days after the Closing, file a
registration statement covering the Shares.
7. Securities Act and Restrictions on Purchaser Stock.
--------------------------------------------------
7.1 Purchase Entirely for Own Account. The Seller Parties acknowledge and
---------------------------------
agree that the shares of Common Stock of the Purchaser to be received by the
Shareholders as a distribution
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<PAGE>
from the Seller, will be acquired for investment for Shareholder's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that Shareholders have no present intention of selling,
granting any participation in, or otherwise distributing the same, but subject
to the ability of Shareholders to distribute Shareholders assets (including the
Consideration) to Shareholders affiliates (as such term is defined in Section
144 of the Securities Act).
7.2 Investment Experience. The Shareholders represent and warrant that
---------------------
Shareholders can bear the economic risk of an investment in Common Stock of the
Purchaser acquired pursuant to this Agreement and have such knowledge and
experience in financial or business matters that Shareholders are capable to
protect Shareholder's own interests in connection with the acquisition of Common
Stock of the Purchaser.
7.3 Information Supplied. Shareholders represent and warrant that
--------------------
Shareholders have had an adequate opportunity to ask questions and receive
answers from the officers of Purchaser concerning the terms and conditions of
the transaction contemplated by this Agreement and the shares of Common Stock of
the Purchaser to be issued in connection therewith. Shareholders represent and
warrant that Shareholders have asked any and all questions that Shareholders may
have in the nature described in the preceding sentence and that all such
questions have been answered to Shareholder's satisfaction. Shareholders
represent and warrant that Shareholders have reviewed the SEC Documents and that
Shareholders have had adequate opportunity to ask questions of and has received
answers to Shareholder's satisfaction from the officers of Purchaser concerning
the matters described therein.
7.4 Restricted Securities. Shareholders understand that the shares of
---------------------
Common Stock of the Purchaser to be received by Shareholders are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from Purchaser in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
not be resold without registration under the Securities Act, except in certain
limited circumstances. In this connection, Shareholders represent that
Shareholders are familiar with Rule 144 under the Securities Act, as presently
in effect, and understands the resale limitations imposed thereby and by the
Securities Act.
7.5 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, Shareholders further agree not to make any
disposition of all or any portion of the shares representing the Stock
Consideration except to Shareholder's affiliates unless and until:
(a) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) Shareholders shall have notified Purchaser of the proposed
disposition and shall have furnished Purchaser with a detailed statement of the
circumstances surrounding the proposed disposition, and if reasonably requested
by Purchaser, Shareholders shall have furnished
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<PAGE>
Purchaser with an opinion of counsel, reasonably satisfactory to Purchaser, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that Purchaser will not require opinions of counsel
for transactions made pursuant to Rule 144 by Shareholders except in unusual
circumstances.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by Shareholders (i) to an affiliate of Shareholders, or the transfer by gift,
will or intestate succession to Shareholder's spouse or lineal descendants or
ancestors, if the transferee agrees in writing to be subject to the terms of
this Section 7 to the same extent as if he or she were Shareholders, or (ii) at
any time after the provisions of subparagraph (k) of Rule 144 are applicable to
Shareholders.
7.6 Legends. It is understood that the certificates evidencing the
-------
Consideration may bear the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
ANY STATE SECURITIES OR BLUE SKY LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES AND BLUE SKY LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF THE
SECURITIES ACT."
7.7 Reporting Requirements. Purchaser covenants and agrees that it shall
----------------------
remain current with respect to all SEC reporting requirements to which Purchaser
is subject.
-19-
<PAGE>
8. Indemnification.
---------------
8.1 Survival. All of the representations, warranties, covenants and
--------
obligations contained in this Agreement or in any instrument or document
delivered pursuant to this Agreement shall survive the execution of this
Agreement and the Closing, notwithstanding any investigation heretofore or
hereafter made by or on behalf of any party hereto; provided, however, that all
-------- -------
representations and warranties contained in this Agreement, and the obligations
of Seller Parties and Purchaser to indemnify each other for breaches thereof as
set forth in this Section 8, shall survive and continue for, and all
indemnification claims with respect thereto shall be made within, two years
following the Closing Date, except for (i) the indemnification obligations
related to Section 8.2(a) which shall survive until expiration of the applicable
statute of limitations, and (ii) the representations, warranties and related
indemnification obligations for which notice of an indemnification claim shall
have been received as of the end of the applicable period referred to in this
Section 8.1, which shall survive with respect to such indemnification claim
until the final disposition thereof.
8.2 Indemnification by Seller Parties. Seller Parties shall reimburse and
---------------------------------
indemnify and hold Purchaser and each of its directors, officers, shareholders,
employees, representatives and agents (collectively, the "Purchaser Parties")
-----------------
harmless against and in respect of any and all damage, loss, liability,
deficiency, settlement payments, costs, levies, expenses or obligations,
whether or not the result of a third party claim (collectively, "Damages"), in
-------
connection with, resulting from or relating to:
(a) any and all liabilities or obligations of any nature whatsoever
of or relating to claims for federal, state, local, foreign or other taxes
assessed against Purchaser, the Business or the Purchased Assets, which arise
out of or are related to Seller's operation or conduct of the Business prior to
the Closing, and not specifically assumed by Purchaser hereunder.
(b) any and all liabilities or obligations of any nature whatsoever
of or relating to Seller, or relating to or arising out of the Purchased Assets
prior to the Closing Date, Seller's operation of the Business prior to the
Closing Date or the actions of Seller's employees, representatives or agents;
(c) any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of Seller Parties under this Agreement;
(d) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to any of the foregoing; and
(e) any claim that any content provided by Seller for use on any of
Purchaser's websites constitutes a defamation or invasion of the right of
privacy or publicity, or infringement of the copyright, trademark or other
intellectual property right, of any third party.
-20-
<PAGE>
8.3 Indemnification by Purchaser. Purchaser shall reimburse and indemnify
----------------------------
and hold Seller Parties and each of its directors, officers, shareholders,
employees, representatives and agents harmless against and in respect of any
Damages in connection with, resulting from or relating to:
(a) any and all liabilities or obligations of any nature whatsoever
of or relating to claims for federal, state, local, foreign or other taxes
assessed against Seller which arise out of or are related to Purchaser's
operation or conduct of the Business after the Closing (excluding any claims
with respect to tax filings made after the Closing relating to the period prior
to the Closing);
(b) any and all liabilities or obligations of any nature whatsoever
of or relating to the Business (except for those liabilities and obligations of
or relating to Seller or the Business existing as of the Closing Date not
included among the Assumed Obligations) arising out of Purchaser's operation of
the Business after the Closing;
(c) any misrepresentation, breach of warranty or nonfulfillment of
any covenant or agreement on the part of Purchaser under this Agreement;
(d) any and all actions, suits, claims, allegations, proceedings,
investigations, audits, demands, assessments, fines, judgments, settlements,
levies, costs and other expenses (including without limitation reasonable audit
and legal fees) incident to the foregoing; and
(e) any and all sales or use tax imposed upon Seller under state law
as a consequence of the acquisition contemplated herein.
8.4 Procedure for Indemnification. If any claim is made against a party
-----------------------------
(an "Indemnified Party") that, if sustained, would give rise to a liability of
-----------------
another party (the "Indemnifying Party") under this Agreement, the Indemnified
------------------
Party shall promptly, and in any case within seven (7) calendar days, cause
notice of the claim to be delivered to the Indemnifying Party along with all of
the facts, information or materials relating to such claim of which the
Indemnified Party is aware and shall afford the Indemnifying Party and its
counsel, at the Indemnifying Party's sole expense, the opportunity to defend or
settle the claim.
(a) The Indemnifying Party shall have thirty (30) calendar days after
delivery thereof to elect, in writing to the Indemnified Party, to defend or
settle the claim, exercising reasonable business judgment, at its own expense.
Until written notice electing to defend or settle any claim that, if sustained,
would give rise to a liability under this Agreement, the Indemnified Party may
take, at the expense of the Indemnifying Party, any action it reasonably
believes necessary to preserve its rights with respect to such claim, after
promptly notifying the Indemnifying Party of its intention to take such action
and the Indemnifying Party does not elect to take such other action.
(b) If the Indemnifying Party shall so elect to defend or settle the
claim, the Indemnifying Party may not settle such claim without the prior
written consent of the Indemnified
-21-
<PAGE>
Party, which consent shall not be unreasonably withheld; provided that, if the
--------
Indemnified Party does not consent to such a settlement, the Indemnifying
Party's liability to indemnify the Indemnified Party for such claim shall be
limited to the expenses and costs reasonably necessary to preserve its rights to
such claim (other than any costs of counsel retained by the Indemnified Party
solely to monitor the Indemnifying Party's obligations hereunder) that the
Indemnified Party has incurred up to the time of the proposed settlement plus
the amount of the proposed settlement. The Indemnified Party agrees to use
commercially reasonable efforts to cooperate with the Indemnifying Party in
defending any claim, at the Indemnifying Party's expense.
(c) If the Indemnifying Party shall fail to so elect to defend or
settle such claim (exercising reasonable business judgment) at its own expense,
within thirty (30) calendar days of delivery of notice of the claim, or
otherwise so fail to defend or settle the claim, the Indemnified Party shall
have the right, but not the obligation, to undertake the defense of and to
settle (exercising reasonable business judgment) the claim on behalf, for the
account and at the risk, of the so failing party. The Indemnified Party shall
use commercially reasonable efforts to settle any such claim at commercially
reasonable amounts determined in good faith by the Indemnified Party.
(d) In the event the Indemnified Party should have a claim against
the Indemnifying Party that does not involve a claim or demand by a third party,
the Indemnified Party shall promptly cause notice of such claim to be delivered
to the Indemnifying Party. The Indemnifying Party shall have fifteen (15)
calendar days after delivery thereof to elect, in writing to the Indemnified
Party, to settle the claim at its own expense. If the Indemnifying Party (i)
does not notify the Indemnified Party within fifteen (15) calendar days after
the Indemnified Party's notice that it disputes such claim or (ii) notifies the
Indemnified Party that it does not dispute such claim, the amount of such claim
shall be conclusively deemed as a liability of the Indemnifying Party. If the
Indemnifying Party notifies the Indemnified Party within the 15-day period that
it disputes such claim, the Indemnifying Party and the Indemnified Party shall
attempt in good faith for a period of twenty (20) calendar days to settle any
such dispute.
8.5 Limitations on Indemnification. No Indemnifying Party shall be
------------------------------
obligated to make any payment to an Indemnified Party pursuant to this Section 8
until such time as all claims for indemnification made by such Indemnified Party
pursuant to this Section 8 exceed $20,000 in the aggregate, at which point the
Indemnifying Party shall be obligated to make payment for all claims of such
Indemnified Party pursuant to this Section 8, but only to the extent such
claims, in the aggregate, exceed such initial $20,000 of claims; provided,
--------
however, that in no event shall an Indemnifying Party be liable under this
- -------
Section 8 for an amount which is in excess of the Purchase Price in the
aggregate.
8.6 Other Remedies. The indemnity of this Section 8 shall be the exclusive
--------------
remedy of any party for a breach, misrepresentation, nonfulfillment,
or default in the performance of the representations, warranties, covenants, or
agreements of this Agreement or any certificate, exhibit, or schedule
contemplated hereby, except in the event of actual fraud or fraud in the
inducement.
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<PAGE>
9. Miscellaneous.
-------------
9.1 Broker's Fees. Each of the parties hereto (a) represents and warrants
-------------
that it, he or she (as the case may be) has not taken and will not take any
action that would cause any other party hereto to have any obligation or
liability to any person for a finder's or broker's fee except as may be agreed
to in writing and (b) agrees to indemnify the other parties hereto for breach of
the foregoing representation and warranty.
9.2 Expenses. Each party hereto shall pay its, his or her (as the case may
--------
be) own expenses, including without limitation the reasonable fees and expenses
of its, his or her counsel, incurred in connection with this Agreement and the
transactions contemplated hereby.
9.3 Bulk Sales Compliance. Purchaser hereby waives compliance by Seller
---------------------
with the provisions of the Bulk Sales Law of any state which may be applicable
to this transaction. In consideration of such waiver, Seller Parties agree to
defend and indemnify Purchaser against and hold it harmless from any and all
loss, liability, claims, damage or expense (including reasonable attorneys'
fees) arising out of or resulting from such noncompliance, provided that such
loss, liability, claim, damage or expense was not caused by Purchaser's conduct
of the Business.
9.4 Contents of Agreement; Amendment; Parties in Interest; Assignment;
------------------------------------------------------------------
Etc. This Agreement, which includes all schedules and exhibits hereto, sets
- ---
forth the entire understanding of the parties hereto with respect to the subject
matter hereof. There are no restrictions, promises, representations,
warranties, covenants or undertakings other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties, including, without limitation, that certain
letter of intent bearing a November 24, 1999 date (the "Letter of Intent")
----------------
entered into by Seller Parties and Purchaser which is hereby rendered null and
void ab initio; provided, however, that Section 4 of the Letter of Intent shall
-- ------ -------- -------
survive and continue in full force and effect. This Agreement may be amended,
modified or supplemented only by written instrument duly executed by each of the
parties hereto. All representations, warranties, covenants, terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. No party hereto shall assign this
Agreement or any right, benefit or obligation hereunder to any other party
without obtaining the prior written consent of the other party; provided,
--------
however, that Purchaser may assign its rights and benefits hereunder, including
- -------
without limitation the benefit of any representation, warranty or covenant, to
any affiliated entity and shall provide Seller with written notice thereof;
provided further, that no such assignment shall release Purchaser from its
- -------- -------
obligations hereunder. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written instrument
duly executed by such party.
9.5 Notices. All notices and other communications hereunder shall be in
-------
writing (including wire, telefax or similar writing) and shall be delivered,
addressed, or telefaxed as follows:
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<PAGE>
If to Purchaser:
VerticalNet, Inc.
700 Dresher Road, Suite 100
Horsham, PA 19044
Attn: Mr. Gene S. Godick
Facsimile: 215.784.1968
with a required copy to (which copy shall not constitute notice):
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Attn: James W. McKenzie, Esquire
Facsimile: 215.963.5299
If to Seller:
GovCon, Inc.
1445 Research Blvd. -- 5/th/ floor
Rockville, MD 20850
Attn: Dheeraj Khera
Barry J. Friedman
12900 Brushwood Road
Potamac, MD 20854
Dheeraj Khera
9805 Juniper Hill Road
Rockville, MD 20850
with a required copy to (which copy shall not constitute notice):
Law Offices of Morton S. Taubman
915 Fifteenth Street, N.W. - 2/nd/ floor
Washington, D.C. 20005
Attn: Mort Taubman, Esq.
Facsimile: 202.393.2411
Each such notice, request or other communication shall be given by hand
delivery, by nationally recognized courier service or by telefax, receipt
confirmed. Each such notice, request or communication shall be effective (i) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 9.5 (or in accordance with the
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<PAGE>
latest unrevoked written direction from such party); (ii) if given by telefax,
when such telefax is transmitted to the telefax number specified in this Section
9.5 (or in accordance with the latest unrevoked written direction from such
party), and the appropriate confirmation is received.
9.6 Severability. The invalidity of any provision of this Agreement or
------------
portion of a provision shall not affect the validity of any other provision of
this Agreement or the remaining portion of the applicable provision.
9.7 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN
-------------
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO
ITS PROVISIONS CONCERNING CONFLICT OF LAWS.
9.8 Public Announcements. Seller shall not make any public statements,
--------------------
including without limitation, any press releases, with respect to this Agreement
and the transactions contemplated hereby without the prior consent of Purchaser,
except as may be required by law.
9.9 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be considered an original and all of which
together shall constitute the same instrument. It shall not be necessary in
making proof of this Agreement or any counterpart hereof to produce or account
for any of the other counterparts.
9.10 Further Assurances. Each party hereto agrees to execute any and all
------------------
documents, and to perform such other acts, to the extent permitted by law, that
may be reasonably necessary or expedient to further the purposes of this
Agreement or to further assure the benefits intended to be conferred hereby.
9.11 Incorporation of Exhibits and Schedules. The exhibits and schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof. The term "Agreement" shall include all such exhibits, schedules,
---------
certificates, and writings.
9.12 Rights of Third Parties. Nothing in this Agreement shall be construed
-----------------------
as giving any person, firm, corporation, or other entity, other than the parties
who are signatory hereto and their respective successors and permitted assigns,
any right, remedy, or claim under or in respect of this Agreement or any
provision hereof.
* * *
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<PAGE>
IN WITNESS WHEREOF, this Asset Exchange Agreement and Plan of
Reorganization has been executed by the parties hereto as of the day and year
first written above.
PURCHASER:
VERTICALNET, INC., a Pennsylvania corporation
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
COMPANY:
GOVCON, INC., a Delaware corporation
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
SHAREHOLDERS:
___________________________________________
BARRY J. FRIEDMAN
___________________________________________
DHEERAJ KHERA
___________________________________________
VIVEK KHERA
___________________________________________
DAVID COAKLEY
S-1
<PAGE>
Schedule 1.1(b)
- ---------------
I-1
<PAGE>
Schedule 1.2
- ------------
I-2
<PAGE>
Schedule 1.5
- ------------
Barry J. Friedman 40.8%
Dheeraj Khera 19.6%
Vivek Khera 19.6%
David Coakley 20%
I-3
<PAGE>
Schedule 3.3
- ------------
I-4
<PAGE>
Schedule 3.8
- ------------
I-5
<PAGE>
Schedule 3.9
- ------------
I-6
<PAGE>
Schedule 3.10
- -------------
I-7
<PAGE>
Schedule 3.11
- -------------
I-8
<PAGE>
Schedule 3.13
- -------------
I-9
<PAGE>
Schedule 3.15
- -------------
I-10
<PAGE>
Schedule 3.19
- -------------
I-11
<PAGE>
Schedule 3.22
- -------------
I-12
<PAGE>
EXHIBIT I
---------
List of Competitors
3DNet
Adams Publishing
Advanstar
AndoverNet
Aspect
Biomednet
Biz Buyer.com
Bio Online
BizPro Link
Cahners
Canon Publishing
Chemdex
Chem Web
Chemtronics
Chip Center
Cintas
CMI
Crain Communications
Discoveryplace
edtn.com
E-steel
Fisher
FMC
Grainger
Gulf
Harris infoSource
Harts
hospitality.org
Idg.net
Instill
Laurin
Lippincott-Raven
Medexplorer
Miller Freeman
Nepforma
Manufacturing Marketplace
Marshalls
McGraw Hill
Metal Site
I-13
<PAGE>
Netbuy
Noranda
Order Zone
Pall corp
Partminer
Pennwell
Penton
Phillips
PlasticsNet
Primedia
Pulandpaper.net
Questlink
SciQuest
Stagnito
Summit Publishing
Technologynet
Thomas Publishing
Trade Compass
Tradex
Trade Out
VWR
Wells Publishing
York International
I-14
<PAGE>
Exhibit 23.1
Consent Of Independent Auditors
The Board of Directors
VerticalNet, Inc.:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 10, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports on the financial
statements of Techspex, Inc., LabX Technologies Inc. and Isadra, Inc. dated June
15, 1999, July 30, 1999 and June 2, 1999, respectively, which are included in
VerticalNet Inc.'s current reports on Form 8-K dated June 14, 1999, July 29,
1999 and August 25, 1999, respectively, and to all references to our Firm
included in this registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
February 11, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report on the financial
statements of NECX Exchange, LLC dated December 23, 1999 included in
VerticalNet, Inc.'s current report on Form 8-K/A dated December 16, 1999 and to
all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 11, 2000
