UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-----------------------
COMMISSION FILE NUMBER 000-25269
VERTICALNET, INC.
PENNSYLVANIA 23-281834
(State of Incorporation) (I.R.S. ID)
300 CHESTER FIELD PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 240-0600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates of
the registrant as of March 15, 2002 was approximately $70,486,742.
The number of shares outstanding of the registrant's common stock as of
March 15, 2002 was 115,224,458.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for the
year ended December 31, 2001 as set forth in the pages attached hereto:
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTICALNET, INC.
April 30, 2002 By: /s/ John A. Milana
--------------------------------------------
John A. Milana
Chief Financial Officer (principal financial
officer and accounting officer)
2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth in Part I under the caption "Executive
Officers" is incorporated herein by reference.
KEVIN S. MCKAY, 48, has served as our President and Chief Executive
Officer since February 2002 and as a director since July 2001. Most recently,
Mr. McKay was President and CEO of Capita Technologies, a leading technology
service provider in the Interpublic Group. Mr. McKay previously served as Chief
Executive Officer of SAP America, Inc., where he had responsibility for the
company's North and Latin American operations, including all sales and marketing
efforts, customer implementation and support. Prior to that, Mr. McKay was the
Chief Operating Officer and the Chief Financial Officer at SAP America, where
his primary duties spanned the financial, accounting, and operational management
of SAP subsidiaries in the United States, Canada and Latin America. He was also
a member of the SAP AG Extended Management board and the SAP America, Inc. board
of directors.
HOWARD D. ROSS, 49, has served as a director since June 2000. Mr. Ross
is a founding partner of LLR Equity Partners, L.P. Prior to founding LLR Equity
Partners, he spent 26 years with Arthur Andersen LLP and served as partner in
charge of Arthur Andersen's Growth Company Practice in the mid-Atlantic region.
Mr. Ross is also a member of the board of directors of eResearch Technology,
Inc. and Iron Mountain Incorporated. Mr. Ross received a B.S. in Economics from
the Wharton School of Business, University of Pennsylvania, and is a Certified
Public Accountant.
MARK L. WALSH, 46, has served as a director since August 1997. Mr.
Walsh has been the Chief Technology Advisor to the Democratic National Committee
since January 2002. He served as Chairman of the Verticalnet board of directors
from July 2000 until February 2002. Prior to that, he served as President and
Chief Executive Officer from August 1997 to July 2000. Prior to joining
Verticalnet, he was a Senior Vice President and corporate officer at America
Online, Inc. from 1995 to 1997. He founded and managed AOL Enterprise, the
business-to-business division of AOL. Prior to his position with AOL, Mr. Walsh
was the President of GEnie, General Electric's online service from 1994 to 1995.
He also was the President of Information Kinetics, Inc., a venture capital
backed interactive information company focusing on the recruitment and
classified advertising market from 1993 to 1994. He received his MBA from
Harvard Business School and B.A. from Union College.
ROBERT F. BERNSTOCK, 50, has served as a director since December 2001.
Mr. Bernstock was the President and CEO of Atlas Commerce, Inc. from January
2001 to December 2001. Mr. Bernstock was President, Chief Executive Officer and
a board member of Vlasic Foods International Inc. from March 1998 when Vlasic
was spun-off from Campbell Soup Company, to December 2000. Vlasic filed
voluntarily for bankruptcy in January 2001 under Chapter 11 of the United States
Bankruptcy Code. Mr. Bernstock served as Executive Vice President of Campbell
Soup Company and President of its Specialty Foods Division from July 1997 to
March 1998. Prior to that, he was appointed President - U.S. Grocery Division
and Senior Vice President of Campbell Soup Company in March 1996. Mr. Bernstock
served as President International Grocery Division of Campbell Soup Company from
August 1994 to February 1996. He served as President - International Soup
Division of Campbell Soup Company from June 1993 to July 1994 and was Vice
President of Campbell Soup Company.
WALTER W. BUCKLEY, III, 42, has served as a director since 1996. Mr.
Buckley is co-founder, President, Chief Executive Officer and a director of
Internet Capital Group, Inc. Prior to joining Internet Capital Group, Mr.
Buckley was Vice President of Acquisitions for Safeguard Scientifics, Inc.
between 1991 and 1996. Mr. Buckley directed many of Safeguard's investments and
was also responsible for developing and executing Safeguard's multi-media and
Internet investment strategies. Before Safeguard Scientifics, Mr. Buckley was
the President and co-founder of Centralized Management Systems, Inc., a medical
supply company, which he sold in 1987. Mr. Buckley is also a member of the board
of directors of Safeguard Scientifics. Mr. Buckley received his B.A. from the
University of North Carolina, Chapel Hill.
JEFFREY C. BALLOWE, 46, has served as a director since July 1998. Mr.
Ballowe is retired from Ziff-Davis, Inc. where he was President, Interactive
Media and Development Group. Before leaving Ziff Davis at the end of 1998, Mr.
Ballowe led the launches of five magazines, ZDNet on the Web, ZDTV (now Tech TV)
and the initial ZD
3
Softbank investments in Yahoo!, USWeb, Gamespot and Herring Communications.
Currently he serves as a director of Onvia.com and is on the advisory boards of
Internet Capital Group and ShopEaze.com. He is the co-founder and President of
the not-for-profit Electronic Literature Organization. He received an MBA from
the University of Chicago, an M.A. in French from the University of
Wisconsin-Madison and a B.A. from Lawrence University.
MICHAEL J. HAGAN, 39, co-founded Verticalnet in 1995 and has served as
Chairman of the Board since February 2002. Prior to that, he served as our
President and Chief Executive Officer since January 2001. He has served as a
director since 1995. Since our founding, Mr. Hagan has held various executive
positions with us, including Executive Vice President and Chief Operating
Officer immediately before becoming President and Chief Executive Officer. Prior
to our founding, Mr. Hagan was Vice President and Senior Manager at Merrill
Lynch Asset Management from 1990 to 1995. He served at Merrill Lynch in the
areas of finance, technology and accounting. Prior to that time, Mr. Hagan
worked for Bristol Myers Squibb from 1988 to 1990. Mr. Hagan received a B.S.
from St. Joseph's University and is a Certified Public Accountant.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and holders of more than 10% of Verticalnet's common stock to file
reports of ownership and changes of ownership with the Securities and Exchange
Commission. To the best of Verticalnet's knowledge, the reports for all
officers, directors and holders of more than 10% of Verticalnet's common stock
were timely filed during fiscal 2001.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning total
compensation earned or paid to the all individuals serving as Verticalnet's
chief executive officer during the 2001 fiscal year, as well as the four other
most highly compensated executive officers of Verticalnet who served in such
capacities as of December 31, 2001, and one additional individual who would have
been one of the four most highly compensated executive officers if he had been
an executive officer at year end (the "named executive officers"), for services
rendered to Verticalnet during each of the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL
COMPENSATION NUMBER
---------------------- OF STOCK
FISCAL ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITIONS(1) YEAR SALARY BONUS GRANTED COMPENSATION
------------------------------- ---- ------ ----- ------- ------------
Mark L. Walsh ..................... 2001 $ 176,917 $ 0 0 $ --
Chairman 2000 300,000 0 400,000(2) --
1999 200,000 100,000 0 --
Michael J. Hagan .................. 2001 $ 206,250 $ 150,000 0 $ --
President and Chief Executive 2000 212,500 90,000 400,000(2) --
Officer(3) 1999 125,000 50,000 100,000 --
James W. McKenzie, Jr ............. 2001 $ 250,000 $ 100,000 975,000 $ --
Executive Vice President, 2000(3) 183,333 125,000 580,000(4) --
General Counsel and Secretary
David Kostman ..................... 2001 $ 250,000 $ 75,000 1,200,000 $ --
Chief Operating Officer and 2000(5) 119,318 75,000 300,000 --
Interim Chief Financial Officer
Christopher Larsen ................ 2001(6) $ 204,545 $ 225,000 1,100,000 $ --
Executive Vice President of
Sales and Marketing
4
Gene S. Godick .................... 2001(7) $ 216,989 $ 0 275,000 $ --
Executive Vice President and 2000 207,500 100,000 0 --
Chief Financial Officer 1999 148,352 60,000 198,000 --
------------------
(1) Since January 1, 2002, the positions held by the following named executive
officers have changed:
- Mr. Hagan currently serves as Chairman.
- Kevin S. McKay currently serves as President and Chief Executive
Officer.
- Mr. Walsh currently serves as a member of the board of directors.
- Mr. Larsen resigned in April 2002.
- John A. Milana replaced Mr. Kostman as Chief Financial Officer in
February 2002.
(2) On December 19, 2000, the grants of 400,000 stock options to each of
Mr. Walsh and Mr. Hagan were voluntarily surrendered.
(3) Mr. McKenzie commenced employment in January 2000.
(4) In April 2002, Mr. McKenzie voluntarily surrendered his stock options
granted in fiscal 2000.
(5) Mr. Kostman commenced employment in July 2000.
(6) Mr. Larsen commenced employment in April 2001.
(7) Mr. Godick was not an executive officer at December 31, 2001. He
resigned in October 2001.
EMPLOYMENT AGREEMENTS
On October 1, 2001, the Company entered into employment agreements with
Michael J. Hagan ($150,000 salary), James W. McKenzie, Jr. ($250,000 salary) and
David Kostman ($250,000 salary). The agreements have a term of two years, with
automatic renewal unless either party gives at least one-year advance notice of
nonrenewal. The agreements have a target bonus of 35% of salary for Messrs.
McKenzie and Kostman and 50% of salary for Mr. Hagan, which is not guaranteed.
If the executive is terminated without cause (with one month advance notice of
termination without cause), then the executive will receive, in exchange for a
mutual general release: a lump sum payment equal to salary for six months (one
year for Mr. Hagan), but if the executive has been employed by the company at
least one year, then equal to salary for one year (two years for Mr. Hagan);
healthcare coverage paid by the company for one year; unvested options granted
in 2001 are accelerated for a period equal to six months plus one additional
month for each month that the executive has been employed by the company; all
vested options granted in 2001 will be exercisable for five years after
termination of employment. Upon a "change of control" the employment agreement
term would automatically restart for two years. If within two years after a
change of control, the executive is terminated without cause or chooses to leave
for "good reason," then the executive will receive, in addition to the
termination without cause benefits above, a lump sum payment equal to salary for
an additional six months, but if the executive has been employed by the company
at least one year, then equal to salary for an additional one year; a lump sum
payment equal to the target bonus (three times the target bonus for Mr. Hagan)
for the year in which termination occurs. The agreement prevents excess
parachute payments under sections 280G and 4999 of the Internal Revenue Code, by
applying a cap to the executive's compensation if it produces a greater net
benefit than an uncapped award would after accounting for the increased tax
obligation resulting from being an excess parachute payment. The agreement
defines "good reason" after a change of control as (1) the executive is
transferred more than 50 miles without consent; or (2) a material reduction of
authority, duties or responsibilities after reasonable notice and a chance to
cure; or (3) any failure of the company materially to comply with and satisfy
the terms of the agreement; or (4) non-renewal of the agreement by the company.
Mr. Larsen entered into a letter agreement upon the commencement of his
employment with the company on April 25, 2001. The agreement provided for a
$300,000 salary, a $25,000 signing bonus, a 2001 guaranteed bonus of $200,000,
and a target bonus thereafter of 50% of salary. The agreement provided for the
following severance benefits, in exchange for a general release, if Mr. Larsen
terminated his employment with the company for "good reason," which he did in
April 2002: salary continuation payments for six months; a severance payment
equal to $150,000, representing his 2002 target bonus; accelerated vesting of
25% of his options granted in 2001; and all vested options remain exercisable
for 180 days after termination of employment.
OPTION GRANTS IN LAST FISCAL YEAR
The table below shows information about stock options granted during
fiscal 2001 to each of the named executive officers:
5
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------------------------------------------------ POTENTIAL REALIZABLE VALUE
% OF AT
NUMBER OF TOTAL ASSUMED ANNUAL RATE OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM(5)
OPTIONS TO PRICE PER EXPIRATION ---------------------------
NAME GRANTED EMPLOYEES SHARE DATE 5% 10%
--------------------- ---------- --------- ---------- ---------- ---------- ----------
Mark L. Walsh ....... 0 0.00 N/A N/A N/A N/A
Michael J. Hagan .... 0 0.00 N/A N/A N/A N/A
James W. McKenzie, Jr 400,000(1) 1.48 $ 1.94 03/15/2011 $488,022 $1,236,744
575,000(2) 2.13 $ 0.34 09/30/2011 122,949 311,577
David Kostman ....... 500,000(1) 1.85 $ 1.94 03/15/2011 610,028 1,545,930
700,000(2) 2.60 $ 0.34 09/30/2011 149,677 379,311
Christopher Larsen .. 400,000(3)(4) 1.48 $ 1.88 04/26/2011 472,929 1,198,494
700,000(2)(4) 2.60 $ 0.34 09/30/2011 149,677 379,311
Gene S. Godick ...... 275,000(1) 1.02 N/A N/A 335,515 850,261
------------------
(1) 12.5% of the grant vests on each of May 15, August 15, November 15 and
February 15 from May 15, 2001 through February 15, 2003.
(2) 25% of the grant vests on each of April 1 and October 1 from April 1, 2002
through October 1, 2003.
(3) 12.5% of the grant vests on each of July 27, October 27, January 27 and
April 27 from July 27, 2001 through April 27, 2003.
(4) 50% of Mr. Larsen's options expired unvested upon his separation of
employment in April 2002.
(5) These columns show gains that may exist for the respective options,
assuming that the market price for the common stock appreciates from the
date of grant over a period of 10 years at annual rates of growth of 5% and
10%, respectively. These rates of growth are mandated by rules of the
Securities and Exchange Commission. There can be no assurance that the
actual stock price appreciation over the 10-year option term will be at the
assumed 5% and 10% levels or at any other defined level. If the market
price of the common stock does not appreciate over the option term, no
value will be realized from the option grants.
OPTION EXERCISES AND VALUES FOR FISCAL 2001
The table below sets forth information with respect to option exercises
during fiscal 2001 by each of the named executive officers and the status of
their options at December 31, 2001:
AGGREGATED OPTION EXERCISES DURING FISCAL 2001
AND
OPTION VALUES ON DECEMBER 31, 2001
NUMBER OF
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED UPON VALUE REALIZED OPTIONS AT 12/31/01 MONEY OPTIONS AT 12/31/01(2)
EXERCISE OF UPON ---------------------------- -----------------------------
NAME OPTIONS EXERCISE(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------- ----------- ----------- ------------- ----------- -------------
Mark L. Walsh.......... 193,000 $1,047,025 1,017,093 214,224 $ 969,744 $ 159,061
Michael J. Hagan....... 0 0 357,538 50,154 361,846 7,385
James W. McKenzie, Jr.. 0 0 530,000 1,025,000 0 609,500
David Kostman.......... 0 0 312,364 1,187,636 0 742,000
Christopher Larsen..... 0 0 100,000 1,000,000 0 742,000
Gene S. Godick......... 153,848 241,002 214,005 258,995 0 0
------------------
(1) Represents the difference between the market price on the exercise date and
the exercise price, multiplied by the number of options exercised. Does not
necessarily reflect the value received if the individual sells the shares
acquired by the option exercise, since the market price of the shares at
the time of sale may be higher or lower than the market price on the date
of exercise.
(2) Represents the difference between the year-end closing stock price ($1.40
per share) and the exercise price associated with each option, multiplied
by the number of shares underlying the options.
COMPENSATION COMMITTEE
The compensation committee is charged with reviewing Verticalnet's
general compensation policies; reviewing, approving, recommending and
administering Verticalnet's incentive compensation and stock option
6
plans; and approving certain employment arrangements. In fiscal 2001, the
compensation committee met five times. The compensation committee consists of
Messrs. Ballowe and Ross.
BOARD OF DIRECTORS COMPENSATION
Verticalnet does not pay its directors cash compensation for regular
service on the board. However, they are reimbursed for expenses they incur in
attending meetings. Additionally, each non-employee, non-investor director is
eligible to receive options to purchase Verticalnet common stock. New
non-employee, non-investor directors receive an option to purchase 50,000 shares
upon joining the board for the first time. Continuing non-employee, non-investor
directors receive an option to purchase 50,000 shares on the date of the annual
meeting if they remain directors after the meeting ends. Therefore, retiring
directors would not get a new grant. The options are non-qualified stock options
for 50,000 shares of common stock, granted at the closing price per share on the
date of grant. Options are fully vested on the date of grant. Options have a
maximum term of 10 years, except that a director has 90 days to exercise after
leaving the board. Options can be exercised at any time, but there is a sale
restriction on the underlying shares as follows: 12,500 shares can be sold
starting on the grant date, and an additional 12,500 shares can be sold after
each additional three month period. This sale restriction lapses on the set
dates irrespective of the person's continuing status as a director. In fiscal
2001, Verticalnet granted its three non-employee, non-investor directors an
aggregate of 150,000 shares.
Verticalnet pays the members of its audit committee $3,500 for each
fiscal quarter that they serve on the committee. Verticalnet pays the members of
its compensation committee $1,500 for each fiscal quarter that they serve on the
committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as set forth in the following table, Verticalnet knows of no
single person or group that is the beneficial owner of more than 5% of
Verticalnet's common stock.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
Internet Capital Group, Inc. 35,841,747 (1)(2) 31.6%
435 Devon Park Drive, Bldg. 600
Wayne, PA 19087
Safeguard Scientifics, Inc. 10,523,103 (2) 9.4%
800 The Safeguard Building
435 Devon Park Drive, Bldg. 800
Wayne, PA 19087
------------------
(1) Includes 478,624 shares of common stock issuable upon the conversion of
warrants and 250,000 shares of common stock issuable upon the conversion of
Verticalnet's 5 1/4% convertible subordinated debentures. All amounts are
as of March 15, 2002. Excludes 51,592 shares owned by Walter W. Buckley
III. Mr. Buckley disclaims beneficial ownership of all shares held by
Internet Capital Group. Mr. Buckley is the President, Chief Executive
Officer and a director of Internet Capital Group.
(2) Includes the 10,523,103 shares owned by Safeguard Scientifics. Internet
Capital Group filed a Schedule 13D on March 15, 2002 stating that they had
reached an agreement with Safeguard Scientifics that provides ICG with the
right of first refusal to purchase the shares that Safeguard owns.
The following table shows the amount of common stock of Verticalnet
beneficially owned (unless otherwise indicated) by Verticalnet's directors, the
executive officers of Verticalnet named in the Summary Compensation Table
appearing later in this proxy statement and the directors and named executive
officers of Verticalnet as a group. Except as otherwise indicated, all
information is as of April 19, 2002.
7
AGGREGATE NUMBER OF
SHARES BENEFICIALLY ACQUIRABLE WITHIN 60 PERCENT OF SHARES
NAME OWNED(1) DAYS(2) OUTSTANDING (3)
---------------------------- ------------------- -------------------- -----------------
Jeffrey C. Ballowe.......... 33,804 187,140 *
Robert F. Bernstock......... 0 162,885 *
Walter W. Buckley, III...... 24,641,612(4) 728,624(5) 23.3%(4)(5)
Michael J. Hagan............ 1,951,050 377,692 2.0%
David Kostman............... 6,921 822,391 *
Christopher Larsen.......... 0 550,000 *
Kevin S. McKay.............. 0 81,250 *
James W. McKenzie, Jr....... 13,258 537,500 *
Howard D. Ross.............. 0 100,000 *
Mark L. Walsh............... 530,782 1,398,194 1.7%
All directors and named
executive officers as a
group (10 persons)....... 27,177,427 4,945,676(4) 26.7%
------------------
* Represents less than 1% of Verticalnet's outstanding common stock.
(1) The number of shares shown includes shares that are individually or jointly
owned, as well as shares over which the individual has either sole or
shared investment or voting authority.
(2) Unless otherwise noted, reflects the number of shares that could be
purchased by exercise of options available at April 1, 2002 or within 60
days thereafter under Verticalnet's stock option plans.
(3) Based on 115,582,508 shares outstanding at April 19, 2002.
(4) Includes 24,590,020 shares by Internet Capital Group, for which Mr. Buckley
serves as the President, Chief Executive Officer and a director, as
disclosed in a Schedule 13G filed February 14, 2002. Does not include the
10,523,103 shares owned by Safeguard Scientifics over which Internet
Capital Group shares beneficial ownership, as disclosed in a Schedule 13D
filed by Internet Capital Group on March 15, 2002.
(5) Includes 478,624 shares of common stock issuable upon the conversion of
warrants held by Internet Capital Group and 250,000 shares of common stock
issuable upon the conversion of Verticalnet's 5 1/4% convertible
subordinated debentures held by Internet Capital Group. All amounts are as
of March 15, 2002. Mr. Buckley serves as the President, Chief Executive
Officer and a director of Internet Capital Group. Mr. Buckley disclaims
beneficial ownership of Verticalnet's warrants and debentures held by
Internet Capital Group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 7, 2000, Microsoft Corporation and Verticalnet completed
Microsoft's purchase of 100,000 shares of Verticalnet's Series A 6.00%
convertible redeemable preferred stock, which are initially convertible into
1,151,080 shares of Verticalnet's common stock, for $100 million in cash. In
addition, Microsoft also received warrants entitling Microsoft to purchase
1,500,000 shares of Verticalnet's common stock at an exercise price of $69.50.
Under the terms of this investment, Microsoft received registration rights and
the right to nominate one member of Verticalnet's board of directors.
Microsoft's right to designate one board nominee continues for so long as
Microsoft and its affiliates own at least 25% of the shares of common stock that
remain issued and outstanding following, or that are issuable upon, the
conversion of the Series A preferred stock and that have not been sold pursuant
to a registration statement or Rule 144 under the Securities Act of 1933, as
amended. Microsoft currently has no nominee named to Verticalnet's board of
directors.
Robert F. Bernstock had an employment agreement as President and Chief
Executive Officer of Atlas Commerce, Inc., dated January 1, 2001. As a result of
the merger of Atlas Commerce, Inc. with Verticalnet on December 28, 2001, Mr.
Bernstock terminated the Atlas Commerce employment agreement for "good reason"
and received under the terms of the employment agreement a termination payment
of $1.05 million equal to two times his salary and bonus, a bonus payment of
$225,000 for 2001, and full acceleration of his outstanding options. In
addition, in exchange for a mutual general release, Mr. Bernstock entered into
an agreement to be a part-time employee of Verticalnet and advisor to the
Chairman of the Board through January 2, 2003, at $5,000 per month, to receive a
grant on January 2, 2003 of 148,047 shares of fully vested shares of Verticalnet
restricted stock at a price of $0.01 per share, of which 35,825 shares are
subject to the escrow agreement entered into by Atlas Commerce shareholders in
the merger, and to be a member of the Verticalnet board of directors at least
until the 2003 annual meeting of shareholders.
8