INTERNET CAPITAL GROUP INC, 8-K, 1999-11-22

INTERNET CAPITAL GROUP INC
8-K, 1999-11-22
BUSINESS SERVICES, NEC

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of earliest event reported: November 16, 1999
-----------------

Internet Capital Group, Inc.
----------------------------
(Exact name of registrant as specified in its charter)

Delaware 0-26929 23-2996071
- ---------------------- ------- ----------
State of Incorporation (Commission File Number) (IRS Employer Identification
No.)

435 Devon Park Drive, Building 800, Wayne, PA 19087
------------------------------------------------------
(Address of principal executive offices) (Zip Code)

(610) 989-0111
--------------
(Registrant's telephone number)
<PAGE>

Item 2. Acquisition of Assets.
---------------------

On November 16, 1999 Internet Capital Group, Inc. (the "Company")
acquired an interest in eMerge Interactive, Inc., a Delaware corporation
("eMerge"), pursuant to the Securities Purchase Agreement (the "Purchase
Agreement") dated as of October 27, 1999 by and among the Company, eMerge and J
Technologies, LLC, a South Dakota limited liability company ("J Technologies").
eMerge is a diverse Internet-based provider of e-commerce, information services
and technology solutions for the animal industry, primarily the cattle segment.

Pursuant to the Purchase Agreement, the Company acquired from eMerge
4,555,556 shares of eMerge Series D Preferred Stock and a warrant to purchase
911,111 shares of eMerge Class B Common Stock. Pursuant to the Purchase
Agreement, the Company also purchased 1,000,000 shares of eMerge Class A Common
Stock from J Technologies. The aggregate purchase price for the stock and the
warrant, which was established through arms-length negotiation, was $50,000,000,
composed of $27,000,000 in cash and a promissory note for $23,000,000. The cash
portion of the purchase price was funded from the Company's existing cash. The
promissory note is non interest-bearing and is due and payable one year after
issuance; provided, however, that in the event that eMerge does not consummate a
public offering of its Common Stock by March 15, 2000, eMerge can require the
Company to prepay up to $5,000,000 in principal on or after March 25, 2000.

Each share of eMerge Series D Preferred Stock will convert into one
share of eMerge Class B Common Stock upon the Company's election, completion of
an initial public offering of eMerge's Common Stock or a specified vote of the
holders of all Preferred Stock. Each of the Company's shares of Class B Common
Stock will convert into one share of Class A Common Stock upon transfer to a
non-affiliate of the Company. Each share of eMerge Series D Preferred Stock and
each share of eMerge Class B Common Stock is entitled to two and one half votes.
Each share of eMerge Class A Common Stock is entitled to one vote. The Company
currently has beneficial ownership (assuming conversion of each share of
Preferred Stock) of 30.7% of the eMerge Common Stock and has 45.9% of the voting
power with respect to eMerge. The Company may exercise the warrant during the
three-year period beginning upon the first to occur of an initial public
offering of eMerge's Common Stock, the closing of new equity financing from
private investors of at least $20,000,000 and the one-year anniversary of the
issuance of the warrant. The exercise price will equal the purchase price per
share to investors in the first to occur of the initial public offering or
private equity financing described in the preceding sentence or, if the one-year
anniversary of the issuance of the warrant occurs first, $9.00 per share.

Douglas A. Alexander, one of the directors of eMerge, is an executive
officer of the Company. E. Michael Forgash, one of the directors of eMerge, is
also a member of the board of directors of the Company. Safeguard Scientifics,
Inc., a Delaware corporation ("Safeguard"), may be considered a promoter of the
Company. Safeguard and its related parties own approximately 14.3% of the
outstanding shares of the Company, and approximately 47.5% of the outstanding
shares of eMerge. Additionally, the Company and Safeguard entered into the Joint
Venture Agreement dated as of October 27, 1999 (the "Joint Venture Agreement")

Pages 2 of 28 Pages
<PAGE>

pursuant to which they agreed, among other things, to vote their shares of
eMerge to elect two designees of the Company and two designees of Safeguard to
the board of directors of eMerge and to attempt to agree on mutually beneficial
courses of action. Additionally, the Joint Venture Agreement provides for rights
of first refusal with respect to certain sales of eMerge securities.

In connection with the consummation of the Purchase Agreement, the
Company also entered into a Stockholder Agreement dated as of November 16, 1999
with eMerge and certain stockholders of eMerge, including Safeguard and certain
of its affiliates (the "Stockholder Agreement"). The Stockholder Agreement
provides for, among other things, restrictions on the transferability of
securities and co-sale, drag-along and preemptive rights. The Stockholders
Agreement terminates upon an initial public offering of eMerge's Common Stock.
The Company and eMerge are also parties to a Registration Rights Agreement dated
as of November 16, 1999 (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, eMerge granted the Company certain demand and
piggyback registration rights.

Pages 3 of 28 Pages
<PAGE>

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------

(a) Financial Statements of Business Acquired

Independent Auditors' Report

To the Board of Directors of
eMerge Interactive, Inc.:

We have audited the accompanying consolidated balance sheets of eMerge
Interactive, Inc. as of December 31, 1997 and 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
each of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eMerge Interactive,
Inc. at December 31, 1997 and 1998 and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1998 in conformity with generally accepted accounting principles.

KPMG LLP

Orlando, Florida
April 20, 1999

Pages 4 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
(Unaudited)
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
<S> <C> <C> <C>
Assets
Current assets:
Cash................................. $ 400 $ 268 $ 1,650,134
Trade accounts receivable............ -- 368,421 2,790,427
Inventories (note 3)................. 635,963 706,557 655,129
Cattle deposits...................... -- -- 489,760
Prepaid expenses..................... 33,642 27,837 103,242
Net assets of discontinued operations
(note 12)........................... 1,066,804 2,285,341 390,336
----------- ------------ ------------
Total current assets................. 1,736,809 3,388,424 6,079,028
Property and equipment, net (note 4).. 428,140 513,837 1,711,404
Capitalized offering costs............ -- -- 341,967
Investment in Turnkey Computer
Systems, Inc. (note 12).............. -- -- 1,831,133
Intangibles, net (note 5)............. -- 2,699,828 6,273,309
----------- ------------ ------------
Total assets....................... $ 2,164,949 $ 6,602,089 $ 16,236,841
=========== ============ ============
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Current installments of capital lease
obligation with related party (note
9).................................. $ -- $ 79,852 $ 83,917
Note payable (note 12)............... -- -- 500,000
Accounts payable..................... 725,369 423,946 1,633,132
Accrued liabilities:
Salaries and benefits................ 175,597 283,103 908,271
Other................................ 98,704 319,989 1,435,987
Advance payments from customers...... -- -- 619,270
Due to related parties (notes 9
and 12)............................. 8,040,304 5,187,334 13,405,957
----------- ------------ ------------
Total current liabilities............ 9,039,974 6,294,224 18,586,534
Capital lease obligation with related
party, excluding current installments
(note 9)............................. -- 305,018 242,673
Note payable (note 12)................ -- -- 900,000
----------- ------------ ------------
Total liabilities.................... 9,039,974 6,599,242 19,729,207
----------- ------------ ------------
Commitments and contingencies (notes
11 and 12)
Class A common stock subject to a put
(note 12)............................ -- -- 400,000
----------- ------------ ------------
Stockholders' equity (deficit) (notes
6, 8 and 12):
Preferred stock, $.01 par value,
authorized 15,000,000 shares:
Series A preferred stock, (aggregate
involuntary liquidation preference
of $6,741,954 in 1997 and
$7,386,314 in 1998), designated
6,500,000 shares, issued and
outstanding 6,443,606 shares in
1997, 1998 and 1999................. 64,436 64,436 64,436
Series B junior preferred stock,
(aggregate involuntary liquidation
preference of $-0- in 1997 and
$4,801,315 in 1998), designated
2,400,000 shares, issued and
outstanding -0- shares in 1997 and
2,400,000 shares in 1998 and 1999... -- 24,000 24,000
Series C preferred stock, designated
1,300,000 shares, issued and
outstanding -0- shares in 1997 and
1998 and 1,100,000 shares in 1999... -- -- 11,000
Series D preferred stock, designated
4,555,556 shares, no shares issued
and outstanding in 1997, 1998 and
1999................................ -- -- --
Common stock, $.01 par value,
authorized 100,000,000 shares:
Class A common stock, designated
92,711,110 shares, issued and
outstanding 2,606,500 shares in
1997, 4,676,500 shares in 1998 and
5,616,155 shares in 1999............ 26,065 46,765 55,662
Class B common stock, designated
7,288,890 shares; no shares issued
and outstanding in 1997, 1998 and
1999................................ -- -- --
Additional paid-in capital........... 1,982,986 16,648,286 23,468,470
Accumulated deficit.................. (8,948,512) (16,780,640) (27,452,825)
Unearned compensation................ -- -- (63,109)
----------- ------------ ------------
Total stockholders' equity
(deficit)......................... (6,875,025) 2,847 (3,892,366)
----------- ------------ ------------
Total liabilities and stockholders'
equity (deficit).................. $ 2,164,949 $ 6,602,089 $ 16,236,841
=========== ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

Pages 5 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Consolidated Statements of Operations

See accompanying notes to consolidated financial statements.

Pages 6 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
Preferred
Preferred Stock Preferred Stock Preferred Stock Stock Common Stock Common Stock
Series A Series B Series C Series D Class A Class B
----------------- ----------------- ----------------- ------------- ----------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------- --------- ------- --------- ------- ------ ------ --------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995............ -- $ -- -- $ -- -- $ -- -- $-- 1,000 $ 10 -- $--
Issuance of
common stock to
XL Vision, Inc.,
for cash at $.01
per share....... -- -- -- -- -- -- -- -- 199,000 1,990 -- --
Issuance of
common stock for
cash at $.01 per
share........... -- -- -- -- -- -- -- -- 140,000 1,400 -- --
Exercise of
stock options
for cash at $.01
per share....... -- -- -- -- -- -- -- -- 20,000 200 -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --- --- --------- ------- --- ---
Balances at
December 31,
1996............ -- -- -- -- -- -- -- -- 360,000 3,600 -- --
Issuance of
common stock to
XL Vision, Inc.,
for cash at $.01
per share (note
9).............. -- -- -- -- -- -- -- -- 2,246,500 22,465 -- --
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 6)........ 6,443,606 64,436 -- -- -- -- -- -- -- -- -- --
Transfer of
technology by XL
Vision, Inc.
(note 9)........ -- -- -- -- -- -- -- -- -- -- -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --- --- --------- ------- --- ---
Balances at
December 31,
1997............ 6,443,606 64,436 -- -- -- -- -- -- 2,606,500 26,065 -- --
Contribution of
debt to equity
by XL Vision,
Inc. (note 9)... -- -- -- -- -- -- -- -- -- -- -- --
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
6 and 9)........ -- -- 2,400,000 24,000 -- -- -- -- -- -- -- --
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$1.00 per share
(note 5)........ -- -- -- -- -- -- -- -- 2,070,000 20,700 -- --
Contribution of
put rights by XL
Vision, Inc.
(note 5)........ -- -- -- -- -- -- -- -- -- -- -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --- --- --------- ------- --- ---
Balances at
December 31,
1998............ 6,443,606 64,436 2,400,000 24,000 -- -- -- -- 4,676,500 46,765 -- --
Exercise of
stock options
for cash at
$1.00 per share
(unaudited)..... -- -- -- -- -- -- -- -- 87,280 873 -- --
Issuance of
common stock in
connection with
CIN transaction
at $1.20 per
share (note 12)
(unaudited)..... -- -- -- -- -- -- -- -- 600,000 6,000 -- --
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$2.25 per share
(note 12)
(unaudited)..... -- -- -- -- -- -- -- -- 200,000 2,000 -- --
Issuance of
Series C
preferred stock
at $5.00 per
share (note 12)
(unaudited)..... -- -- -- -- 1,100,000 11,000 -- -- -- -- -- --
Exercise of
stock options
for cash at
$1.00 per share
(unaudited)..... -- -- -- -- -- -- -- -- 2,375 24 -- --
Issuance of
common stock in
connection with
Turnkey Computer
Systems, Inc at
$8.00 per share
(note 12)
(unaudited)..... -- -- -- -- -- -- -- -- 50,000 500 -- --
Reclassification
of common stock
subject to a put
(note 12)
(unaudited)..... -- -- -- -- -- -- -- -- -- (500) -- --
Put on Class A
common stock
issued in
connection with
Turnkey Computer
Systems, Inc.
(note 12)
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Net profit
(loss)
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Unearned
compensation
(note 8)
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
Amortization of
unearned
compensation
(note 8)
(unaudited)..... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --- --- --------- ------- --- ---
Balances at
September 30,
1999
(unaudited)..... 6,443,606 $64,436 2,400,000 $24,000 1,100,000 $11,000 -- $-- 5,616,155 $55,662 -- $--
========= ======= ========= ======= ========= ======= === === ========= ======= === ===
<CAPTION>
Additional
Paid-in Accumulated Unearned
Capital Deficit Compensation Total
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at
December 31,
1995............ $ 3,816 $ (1,745,397) $ -- $(1,741,571)
Issuance of
common stock to
XL Vision, Inc.,
for cash at $.01
per share....... -- -- -- 1,990
Issuance of
common stock for
cash at $.01 per
share........... -- -- -- 1,400
Exercise of
stock options
for cash at $.01
per share....... -- -- -- 200
Net profit
(loss).......... -- (1,719,492) -- (1,719,492)
------------ ------------- ------------ ------------
Balances at
December 31,
1996............ 3,816 (3,464,889) -- (3,457,473)
Issuance of
common stock to
XL Vision, Inc.,
for cash at $.01
per share (note
9).............. -- -- -- 22,465
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 6)........ 6,379,170 -- -- 6,443,606
Transfer of
technology by XL
Vision, Inc.
(note 9)........ (4,400,000) -- -- (4,400,000)
Net profit
(loss).......... -- (5,483,623) -- (5,483,623)
------------ ------------- ------------ ------------
Balances at
December 31,
1997............ 1,982,986 (8,948,512) -- (6,875,025)
Contribution of
debt to equity
by XL Vision,
Inc. (note 9)... 7,500,000 -- -- 7,500,000
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
6 and 9)........ 4,776,000 -- -- 4,800,000
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$1.00 per share
(note 5)........ 2,049,300 -- -- 2,070,000
Contribution of
put rights by XL
Vision, Inc.
(note 5)........ 340,000 -- -- 340,000
Net profit
(loss).......... -- (7,832,128) -- (7,832,128)
------------ ------------- ------------ ------------
Balances at
December 31,
1998............ 16,648,286 (16,780,640) -- 2,847
Exercise of
stock options
for cash at
$1.00 per share
(unaudited)..... 86,407 -- -- 87,280
Issuance of
common stock in
connection with
CIN transaction
at $1.20 per
share (note 12)
(unaudited)..... 714,000 -- -- 720,000
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$2.25 per share
(note 12)
(unaudited)..... 448,000 -- -- 450,000
Issuance of
Series C
preferred stock
at $5.00 per
share (note 12)
(unaudited)..... 5,489,000 -- -- 5,500,000
Exercise of
stock options
for cash at
$1.00 per share
(unaudited)..... 2,351 -- -- 2,375
Issuance of
common stock in
connection with
Turnkey Computer
Systems, Inc at
$8.00 per share
(note 12)
(unaudited)..... 399,500 -- -- 400,000
Reclassification
of common stock
subject to a put
(note 12)
(unaudited)..... (399,500) -- -- (400,000)
Put on Class A
common stock
issued in
connection with
Turnkey Computer
Systems, Inc.
(note 12)
(unaudited)..... 8,300 -- -- 8,300
Net profit
(loss)
(unaudited)..... -- (10,672,185) -- (10,672,185)
Unearned
compensation
(note 8)
(unaudited)..... 72,126 -- (72,126) --
Amortization of
unearned
compensation
(note 8)
(unaudited)..... -- -- 9,017 9,017
------------ ------------- ------------ ------------
Balances at
September 30,
1999
(unaudited)..... $23,468,470 $(27,452,825) $(63,109) $(3,892,366)
============ ============= ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

Pages 7 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
Years ended December 31, September 30,
------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net profit (loss)....... $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
Adjustments to reconcile
net profit (loss) to
net cash used in
operating activities:
Depreciation and
amortization.......... 1,503 122,486 438,576 230,964 1,380,940
Amortization of
unearned
compensation.......... -- -- -- -- 9,017
Changes in operating
assets and
liabilities:
Trade accounts
receivable, net....... -- -- (368,421) (138,705) (2,733,765)
Inventories............ -- (635,963) (70,594) (30,741) 51,428
Cattle deposits........ -- -- -- -- (489,760)
Prepaid expenses and
other assets.......... (1,304) (32,338) 5,805 (77,079) (75,405)
Net assets of
discontinued
operations............ (96,209) (853,501) (1,140,425) (1,477,150) 2,137,166
Accounts payable....... 5,675 719,694 (301,423) (32,037) 1,209,186
Accrued liabilities.... 75,542 198,759 328,791 151,016 1,741,166
Advance payments from
customers............. -- -- -- -- 619,270
----------- ----------- ----------- ----------- ------------
Net cash used by
operating
activities........... (1,734,285) (5,964,486) (8,939,819) (7,035,475) (6,822,942)
----------- ----------- ----------- ----------- ------------
Cash flows from
investing activities:
Purchases of property
and equipment.......... (56,861) (506,540) (460,290) (269,831) (1,767,093)
Purchase of
intangibles............ (100,000) -- (431,923) (431,923) (3,145,297)
Investment in Turnkey
Computer Systems,
Inc.................... -- -- -- -- (22,833)
----------- ----------- ----------- ----------- ------------
Net cash used by
investing
activities........... (156,861) (506,540) (892,213) (701,754) (4,935,223)
----------- ----------- ----------- ----------- ------------
Cash flows from
financing activities:
Net borrowings from
related parties........ 1,889,101 3,810 9,447,030 7,737,227 8,218,623
Proceeds from capital
lease financing with
related party.......... -- -- 440,832 -- --
Payments on capital
lease obligations...... -- -- (55,962) -- (58,280)
Offering costs.......... -- -- -- -- (341,967)
Sale of preferred
stock.................. -- 6,443,606 -- -- 5,500,000
Sale of common stock.... 3,590 22,465 -- -- 89,655
----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities........... 1,892,691 6,469,881 9,831,900 7,737,227 13,408,031
----------- ----------- ----------- ----------- ------------
Net increase
(decrease) in cash... 1,545 (1,145) (132) (2) 1,649,866
Cash--beginning of
period................. -- 1,545 400 400 268
----------- ----------- ----------- ----------- ------------
Cash--end of period..... $ 1,545 $ 400 $ 268 $ 398 $ 1,650,134
=========== =========== =========== =========== ============
Supplemental
disclosures:
Cash paid for interest.. $ -- $ -- $ 23,594 $ 13,517 $ 20,628
Non-cash investing and
financing activities:
Transfer of technology
by XL Vision, Inc.
(note 9).............. -- 4,400,000 -- -- --
Contribution of debt to
equity by XL Vision,
Inc. (note 9)......... -- -- 7,500,000 -- --
Issuance of preferred
stock in exchange for
contribution of debt
to equity by XL
Vision, Inc. (note
9).................... -- -- 4,800,000 -- --
Non-cash issuance of
Class A common stock
in connection with
Nutri-Charge
transaction (note 5).. -- -- 2,070,000 2,070,000 --
Contribution of put
rights by XL Vision,
Inc. (note 5)......... -- -- 340,000 340,000 --
Issuance of Class A
common stock in
connection with CIN
transaction (note
12)................... -- -- -- -- 720,000
Issuance of Class A
common stock with
Cyberstockyard
transaction (note
12)................... -- -- -- -- 450,000
Issuance of Class A
common stock with
Turnkey Computer
Systems, Inc.
transaction (note
12)................... -- -- -- -- 400,000
Put on Class A common
stock issued in
connection with
Turnkey Computer
Systems, Inc.
transaction (note
12)................... -- -- -- -- 8,300
Issuance of note
payable to Turnkey
Computer Systems, Inc.
(note 12)............. -- -- -- -- 1,400,000
</TABLE>

See accompanying notes to consolidated financial statements.

Pages 8 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements

(Information insofar as it relates to September 30, 1999 or the nine months
ended
September 30, 1998 and 1999 is unaudited)

(1) Organization

(a) Overview

eMerge Interactive, Inc. (the "Company") is a Delaware corporation that
was incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly
owned subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was
changed to eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge
Interactive, Inc. on June 11, 1999.

The Company was incorporated to develop and commercialize infrared
technology focused on the transportation segment. In 1997, the Company entered
a new business segment, animal sciences, by developing an infrared camera
system for use primarily by veterinarians. The Company further expanded its
operations in 1998 by licensing NutriCharge and infrared technology (see note
5) for commercialization. In December 1998, the Company's Board of Directors
decided to dispose of the transportation segment. The Company's AMIRIS thermal
imaging system, which was the sole product sold by the transportation segment,
was sold on January 15, 1999.

(b) Basis of Presentation

The consolidated financial statements as of December 31, 1998 include
the accounts of eMerge Interactive, Inc. and its wholly-owned subsidiary, STS
Agriventures, Ltd. ("STS"), a Canadian corporation. The consolidated financial
statements as of September 30, 1999 also include another wholly-owned
subsidiary, Cyberstockyard, Inc. ("Cyberstockyard").

All significant intercompany balances and transactions have been
eliminated upon consolidation.

As of September 30, 1999, the Company had a working capital deficiency
of $12,507,506 and stockholders' deficit of $3,892,366. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts for its products. Subsequent to September 30, 1999,
the Company obtained additional equity financing (see note 12). The Company
anticipates that net proceeds from its planned IPO of common stock will be
sufficient to satisfy its operating cash needs for at least eighteen months
following the IPO. Although management believes that its IPO will be
successful, there can be no assurances that it will be achieved or that the
Company will be successful in raising other financing. If the Company is
unable to obtain sufficient additional funds, the Company may have to delay,
scale back or eliminate some or all of its marketing and development
activities.

(2) Summary of Significant Accounting Policies

(a) Revenue Recognition

The Company recognizes revenue in accordance with the terms of the sale
or contract, generally as products are shipped or services are provided. The
Company bears inventory risk until the sales of their products and credit risk
until full payment is received from its customers. In cattle sales
transactions, the

Pages 9 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

Company purchases cattle from the seller, takes title at shipment and records
the cattle as inventory until delivered to and accepted by the buyer,
typically a 24 to 48 hour period. In both cattle auction and resale
transactions, the Company acts as a principal in purchasing cattle from
suppliers and sales to customers so that the Company recognizes revenue equal
to the amount paid by customers for the cattle.

(b) Inventories

Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.

Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Amortization of equipment under capital lease is computed
over the shorter of the lease term or the estimated useful life of the related
assets.

(d) Intangibles

Intangibles are stated at amortized cost. Amortization is computed using
the straight-line method over the estimated useful lives of the assets.

(e) Income Taxes

The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

(f) Stock-Based Compensation

Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25") and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.

(g) Use of Estimates

The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent Assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

Pages 10 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

(h) Estimated Fair Value of Financial Instruments

The carrying value of cash, trade accounts receivable, accounts payable,
accrued liabilities and amounts due to related parties reflected in the
consolidated financial statements approximates fair value due to the short-term
maturity of these instruments.

(i) Interim Financial Information

The consolidated financial statements as of September 30, 1999, and for
the periods ended September 30, 1998 and 1999, are unaudited but reflect
adjustments which are, in the opinion of management, necessary for the fair
presentation of financial position and results of operations. Operating results
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the full year.

(3) Inventories

Inventories consist of:

<TABLE>
<CAPTION>
December 31, (Unaudited)
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Raw materials............................. $346,335 $424,130 $594,337
Work-in-process........................... 289,628 282,427 60,792
-------- -------- --------
$635,963 $706,557 $655,129
======== ======== ========
</TABLE>

(4) Property and Equipment

Property and equipment consists of:

<TABLE>
<CAPTION>
December 31,
----------------- Estimated
1997 1998 useful lives
-------- -------- ------------
<S> <C> <C> <C>
Engineering and manufacturing equipment.. $258,082 $366,150 5 years
Office and computer equipment............ 179,315 259,462 3 years
Furniture and fixtures................... 67,282 104,706 7 years
Leasehold improvements................... 46,865 46,865 7 years
Automobiles.............................. -- -- 5 years
-------- --------
551,544 777,183
Less accumulated depreciation and
amortization............................ 123,404 263,346
-------- --------
Property and equipment, net.............. $428,140 $513,837
======== ========
</TABLE>

Assets under capital lease amounted to $-0- and $440,832 and as of
December 31, 1997 and 1998, respectively. Accumulated amortization for assets
under capital lease totaled approximately $-0- and $152,300 as of December 31,
1997 and 1998, respectively.

Pages 11 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

(5) Intangibles

Intangibles consists of:

<TABLE>
<CAPTION>
December 31,
--------------- Estimated
1997 1998 useful life
---- ---------- -----------
<S> <C> <C> <C>
NutriCharge license........................... $ -- $2,273,538 10 years
Infrared technology license................... -- 568,385 5 years
---- ----------
-- 2,841,923
Less accumulated amortization................. -- 142,095
---- ----------
Intangibles, net.............................. $ -- $2,699,828
==== ==========
</TABLE>

On July 29, 1998, the Company acquired licenses for NutriCharge and
infrared technology. The purchase price of $2,841,923 (consisting of $300,000
in cash, 2,070,000 of the Company's Class A common shares valued at $1 per
share, $131,923 in acquisition costs and the estimated fair value of put rights
granted by XL Vision) was allocated to the acquired NutriCharge and infrared
technology licenses based on estimated fair values determined by estimated cash
flows from the underlying licensed product. In connection with the transaction,
XL Vision granted a put right that allows the sellers to require XL Vision to
purchase up to 1,000,000 shares of the Company's Class A common stock at $3.00
per share in the event certain operating targets related to the licensed
product are not met by years four through seven after the transaction. The put
expires at the end of year seven after the transaction. The fair value of the
put was estimated to be $340,000 and was credited to additional paid-in
capital.

(6) Equity

Common Stock

As of December 31, 1998, the Company had authorized the issuance of
100,000,000 shares of common stock.

Class A--In 1999, the Company designated 92,711,110 as Class A common
stock.

Class B--In 1999, the Company designated 7,288,890 shares as Class B
common stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in all
other respects.

Preferred Stock

As of December 31, 1998, the Company had authorized the issuance of
10,000,000 shares of preferred stock and had designated 6,500,000 as Series A
shares, and 2,400,000 as Series B shares. Each share of preferred stock is
convertible into one share of Class A common stock at the option of the holder
or upon the vote of holders of two-thirds of the respective preferred stock
class outstanding except for Series D shares which is convertible at the
offering price into Class B common stock. Preferred stock is automatically
converted into common stock upon a qualified IPO of at least $10 million with a
Company valuation of at least $30 million or upon a public rights offering of
the Company to shareholders of Safeguard Scientifics, Inc. In 1999, the Company
increased the authorized preferred stock to 15,000,000 shares.

Pages 12 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

Series A--The Series A shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a)
$1.00 per share plus an additional $.10 per year (pro rated for partial years)
from July 16, 1997 or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to Class A common stock prior to
liquidation. The holders of Series A preferred stock are entitled to vote as a
separate class to elect two directors to the Board of Directors of the Company.

Series B--Series B shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $2.00 per
share plus an additional $.20 for each year (pro rated for partial years) from
December 31, 1998 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series B
shares are junior to Series A, C and D shares.

Series C--On April 15, 1999, the Company designated 1,300,000 as Series C
shares. Series C shares are entitled to a liquidation preference before any
distribution to common stockholders equal to the greater of (a) $5.00 per share
plus an additional $.50 for each year (pro rated for partial years) from April
15, 1999 or until the date of distribution of available assets or (b) the
amount which would be distributed if all of the preferred stock of the Company
were converted to Class A common stock prior to liquidation. Series C shares
are on parity with Series A and D shares except as to voting rights.

Series D (Unaudited)--On October 26, 1999, the Company designated
4,555,556 shares as Series D shares. Series D shares are entitled to a
liquidation preference before any distribution to common stockholders equal to
the greater of (a) $10.00 per share plus an additional $1.00 for each year (pro
rated for partial years) from August 24, 1999 or until the date of distribution
of available assets or (b) the amount which would be distributed if all the
preferred stock of the Company were converted to Class B common stock prior to
liquidation. Series D shares are on parity with Series A and C shares except as
to voting rights. Series D stockholders are entitled to two and one-half votes
per share.

(7) Income Taxes

Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liability are as follows:

<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $3,237,000 $5,967,000
Amortization of acquired technology from XL
Vision (note 9)............................... 1,829,000 1,704,000
Research and experimentation tax credits....... 294,000 448,000
Other.......................................... 125,000 596,000
---------- ----------
5,485,000 8,715,000
Less valuation allowance....................... 5,370,000 8,715,000
---------- ----------
Net deferred tax assets...................... 115,000 --
Deferred tax liability:
Imputed interest............................... (115,000) --
---------- ----------
Net deferred tax assets (liability).......... $ -- $ --
========== ==========
</TABLE>

Pages 13 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

The Company has available at December 31, 1998, unused net operating loss
carryforwards of approximately $15,000,000 which may be applied against future
taxable income and expires in years beginning in 2010. The Company also has
approximately $448,000 in research and experimentation credits carryforwards.
The research and experimentation credits, which begin to expire in 2010, can
also be used to offset future regular tax liabilities. A valuation allowance
for deferred tax assets is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.

The difference between the "expected" tax benefit (computed by applying
the federal corporate income tax rate of 34% to the loss before income taxes)
and the actual tax benefit is primarily due to the effect of the valuation
allowance.

(8) Stock Plan

In January 1996, the Company adopted an equity compensation plan (the
"1996 Plan") pursuant to which the Company's Board of Directors may grant
shares of common stock or options to acquire common stock to certain directors,
advisors and employees. The Plan authorizes grants of shares or options to
purchase up to 1,735,000 shares of authorized but unissued common stock. Stock
options granted have a maximum term of ten years and have vesting schedules
which are at the discretion of the Compensation Committee of the Board of
Directors and determined on the effective date of the grant.

A summary of option transactions follows:

<TABLE>
<CAPTION>
Weighted
Range of average
exercise Weighted remaining
price per average contractual
Shares share exercise price life (in years)
--------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance outstanding,
December 31, 1996...... 2,500 $ 1.00 $1.00 4.85
====
Granted................ 268,000 1.00 1.00
--------- ---------- -----
Balance outstanding,
December 31, 1997....... 270,500 1.00 1.00 9.64
====
Granted................ 1,354,000 1.00-2.00 1.05
Canceled............... (318,500) 1.00 1.00
--------- ---------- -----
Balance outstanding
December 31, 1998....... 1,306,000 $1.00-2.00 $1.05 9.48
========= ========== ===== ====
</TABLE>

At December 31, 1997 and 1998, there were 61,375 and 331,500 shares
exercisable, respectively, at weighted average exercise prices of $1.00 and
$1.02, respectively.

At December 31, 1997 and 1998, 79,500 and 409,000 shares available for
grant, respectively.

Pages 14 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

The per share weighted-average fair value of stock options granted was $0
in 1996, $0 in 1997 and $0.10 in 1998 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Volatility.............................................. 0% 0% 0%
Dividend paid........................................... 0% 0% 0%
Risk-free interest rate................................. 6.35% 6.11% 4.73%
Expected life in years.................................. 5.77 6.75 5.57
</TABLE>

No volatility was assumed due to the use of the Minimum Value Method of
computation for options issued by the Company as a private entity as prescribed
by SFAS No. 123.

All stock options granted, except as noted in the paragraph below, have
been granted to directors or employees with an exercise price equal to the fair
value of the common stock at the date of grant. The Company applies APB Opinion
No. 25 for issuances to directors and employees in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements through December 31, 1998.

On March 19, 1999, the Company granted 288,500 stock options with an
exercise price of $2.00 and a fair value of $2.25. The Company recorded $72,126
of unearned compensation at the date of grant and is amortizing the unearned
compensation over the vesting period. Compensation expense amounted to $9,017
for the nine months ended September 30, 1999.

Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net loss as reported............... $(1,719,492) $(5,483,623) $(7,832,128)
=========== =========== ===========
Pro forma net loss................. $(1,719,492) $(5,483,623) $(7,964,078)
=========== =========== ===========
</TABLE>

(9) Related Party Transactions

Direct Charge Fee

Prior to April 1, 1997 personnel, and other services were provided by XL
Vision and the costs were allocated to the Company. Effective April 1, 1997,
the Company entered into a direct charge fee agreement with XL Vision which
allows for cost-based charges based upon actual hours incurred. Costs allocated
to or service fees charged by XL Vision were approximately $468,000 in 1996,
$720,000 in 1997 and $460,000 in 1998. A portion of the fees in 1998 and all of
the costs and fees in 1996 and 1997 were allocated to the discontinued
transportation segment.

Administrative Services Fee

Effective December 15, 1997, the Company entered into an agreement which
requires accrual of an administrative services fee based upon a percentage of
gross revenues. The fee for administrative support

Pages 15 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

services, including management consultation, investor relations, legal services
and tax planning, is payable monthly to XL Vision and Safeguard Scientifics,
Inc., the largest shareholder of XL Vision, based upon an aggregate of 1.5% of
gross revenues with such service fees to be not more than $300,000 annually.
Effective August 17, 1999, the agreement was amended such that the
administrative services fee is applied to net contribution margin on cattle
sales and gross revenue for all other sales. The fee is accrued monthly but is
only payable in months during which the Company has achieved positive cash flow
from operations. The agreement extends through December 31, 2002 and continues
thereafter unless terminated by any party. Administrative service fees were
approximately $10,300 in 1997 and $37,200 in 1998.

Technology Fee

On July 15, 1997, the Company entered into an agreement with XL Vision
for the transfer of certain technology that is used by the Company in the sale
of its products for a $4,400,000 note payable. The transfer was accounted for
as a distribution to XL Vision as it represented amounts paid for an asset to
an entity under common control in excess of the cost of such asset. The note
payable bears interest at 7% per annum. Interest expense was $141,167 in 1997
and $308,000 in 1998.

Lease

The Company leases equipment under a capital lease, effective April 20,
1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments,
including imputed interest at 7.53%, are $79,852 in 1999, $85,765 in 2000,
$92,684 in 2001, $100,154 in 2002 and $26,415 in 2003. Interest expense was
$23,594 in 1998.

The Company has a verbal lease with XL Vision for its facilities. Rent
expense varies based on space occupied by the Company and includes charges for
base rent, repairs and maintenance, telephone and networking expenses, real
estate taxes and insurance. Rent expense was $68,000 in 1996, $354,000 in 1997,
and $1,129,000 in 1998.

Amounts Due to XL Vision, Inc.

Amounts due to XL Vision consists of:

<TABLE>
<S> <C>
Balance as of December 31, 1996................................... $ 3,636,494
Allocation of costs and funding of working capital to the
Company........................................................ 6,318,405
Technology transfer fee......................................... 4,400,000
Interest charges on technology transferred...................... 141,167
Proceeds from Series A Preferred Stock.......................... (6,443,606)
Issuance of Class A common stock................................ (22,465)
-----------
Balance as of December 31, 1997................................... 8,029,995
Allocation of costs and funding of working capital to the
Company........................................................ 9,120,441
Interest charges on technology transferred...................... 308,000
Contribution of debt to equity.................................. (7,500,000)
Contribution of debt to equity in exchange for Series B
Preferred Stock................................................ (4,800,000)
-----------
Balance as of December 31, 1998................................... $ 5,158,436
===========
</TABLE>

The average outstanding balance due to XL Vision was approximately
$2,690,900 in 1996, $6,239,600 in 1997 and $12,782,400 in 1998.

Pages 16 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

Amounts Due to Safeguard Scientifics, Inc.

As of December 31, 1997 and December 31, 1998, the Company owed Safeguard
Scientifics, Inc. $10,309 and $28,898.

(10) Segment Information

In 1998, the Company adopted SFAS No. 131, which requires the reporting
of segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker. The Company's chief
operating decision-maker receives revenue and contribution margin (revenue less
direct costs and excluding overhead) by source, and all other statement of
operations data and balance sheet data on a consolidated basis. The Company's
reportable segments consist of cattle sales and animal sciences products and
services. While the Company operates entirely in the animal science
marketplace, the contribution margin associated with cattle sales and the
related prospects for this portion of the Company's business differ from the
rest of the Company's product offerings.

The following summarizes revenue and contribution margin information
related to the Company's two operating segments:

<TABLE>
<CAPTION>
Nine months Nine months
Year ended ended ended
December 31, September 30, September 30,
1998 1998 1999
------------ ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue:
Cattle............................... $ -- $ -- $ 17,022,862
Animal sciences...................... 1,792,471 1,106,452 1,315,783
---------- ----------- ------------
Total................................ $1,792,471 $ 1,106,452 $ 18,338,645
========== =========== ============
Direct costs:
Cattle............................... $ -- $ -- $ 16,860,452
Animal sciences...................... 900,824 603,410 492,115
---------- ----------- ------------
$ 900,824 $ 603,410 $ 17,352,567
========== =========== ============
Contribution margin:
Cattle............................... $ -- $ -- $ 162,410
Animal sciences...................... 891,647 503,042 823,668
---------- ----------- ------------
Total................................ $ 891,647 $ 503,042 $ 986,078
========== =========== ============
</TABLE>

The Company's assets, and other statement of operations data are not
allocated to a segment.

(11) Commitments and Contingencies

Voluntary Employee Savings 401(k) Plan

The Company established a voluntary employee savings 401(k) plan in 1997
which is available to all full time employees 21 years or older. The plan
provides for a matching by the Company of the employee's contribution to the
plan for 50% of the first 6% of the employee's annual compensation. The
Company's matching contributions were $6,300 in 1996, $38,195 in 1997 and
$62,108 in 1998.

Pages 17 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

Royalties

In connection with the NutriCharge license, the Company is obligated to a
royalty of 5% of gross revenues from the sale of NutriCharge products and
infrared technology related to the Company's Canadian license agreement.

The Company is also obligated to a royalty of 6% of net revenues from
product or services related to technology patented by Iowa State University.

(12) Subsequent Events

On January 1, 1999, the Company signed a revolving promissory note with
XL Vision for up to $3,000,000. The revolving promissory note bears interest at
the prime rate plus 1% and is due in full when the Company completes an IPO or
sells all of its assets or stock. The note is included in current liabilities
in the accompanying September 30, 1999 consolidated balance sheet.

Discontinued Operations

In December 1998, the Company's Board of Directors decided to dispose of
its transportation segment. The Company's AMIRIS thermal imaging system, which
was the sole product sold in the transportation segment, was sold on January
15, 1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company
received $200,000 of cash at closing and will receive the balance upon receipt
of the inventory by Sperry Marine, Inc. The Company is entitled to a royalty of
8% of net AMIRIS system sales, up to a maximum royalty of $4.3 million over a
four year period or up to a maximum royalty of $5.0 million, if $4.3 million is
not received within four years.

Net assets of the discontinued transportation segment consist of:

<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Accounts receivable.............................. $ 145,500 $ 381,435
Inventory, net................................... 1,076,043 2,020,625
Property and equipment, net...................... 22,650 134,098
Intangibles, net................................. 94,444 61,108
Accounts payable................................. (271,833) (80,510)
Accrued liabilities including provision for
operating loss during phase out period of
$72,667 in 1998................................. -- (231,415)
---------- ----------
Net assets................................... $1,066,804 $2,285,341
========== ==========
</TABLE>

Note Payable to XL Vision, Inc.

License

In February 1999, the Company signed a license agreement with XL Vision,
granting XL Vision a license to use Company software for the limited purpose of
evaluating whether the software could provide the basis for a new company that
would operate in the agricultural industry. The license agreement terminates on
November 30, 1999. If XL Vision forms a new company, the Company will negotiate
a long-term license

Pages 18 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

agreement. In addition, XL Vision is obligated to give the Company at least a
25% interest in the new company. The Company is obligated to transfer all
amounts up to 25% of the new company to Lost Pelican, L.L.C.

Acquisitions (Unaudited after April 20, 1999)

On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of CIN, LLC d/b/a/ Cattlemen's Information
Network ("CIN"). Immediately after the closing, CIN changed its name to Lost
Pelican, L.L.C. The purchase price for the assets consisted of 600,000 shares
of the Company's Class A common stock valued at $720,000, the assumption of up
to $600,000 of liabilities, a cash payment due in October 1999 of $383,000, and
an agreement to pay the first $350,000 from Internet sales of third party
products over the Company's Web site. In addition, the Company agreed to assume
$177,000 in liabilities related to employee bonuses and an outstanding grant
obligation. CIN is in the business of selling access to its cattle feedlot
performance measurements database.

On March 29, 1999, the Company acquired 100% of the stock of
Cyberstockyard, Inc. The purchase price consisted of 200,000 shares of the
Company's Class A common stock valued at $450,000. Cyberstockyard, Inc. is in
the business of selling cattle through its proprietary auction software over
the Internet.

On May 19, 1999, the Company acquired substantially all of the tangible
and intangible assets of PCC, LLC d/b/a Professional Cattle Consultants, L.L.C.
("PCC") for a cash payment of $1,800,000 and an assumption of approximately
$30,000 of liabilities. PCC is in the business of providing comparative
analysis and market information for the feedlot industry.

The aggregate purchase price of the above acquisitions was approximately
$4,606,600, which included related acquisition costs of approximately $97,000,
and was allocated as follows:

<TABLE>
<S> <C>
Goodwill..................................................... $4,015,300
Non-compete agreements....................................... 300,000
Equipment.................................................... 358,000
Current assets............................................... 28,300
Current liabilities.......................................... (95,000)
----------
$4,606,600
==========
</TABLE>

Goodwill is amortized on a straight-line basis over a period of three to
five years.

Unaudited pro forma information for the Company as if the acquisitions
above had been consummated as of January 1, 1998 and 1999 follows:

<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenue......................................... $ 1,687,077 18,560,565
=========== ===========
Net profit (loss)............................... $(4,987,862) (11,097,329)
=========== ===========
</TABLE>

Pages 19 of 28 Pages
<PAGE>

EMERGE INTERACTIVE, INC.

Notes to Consolidated Financial Statements--(Continued)

Sale of Series C Preferred Stock (Unaudited)

On May 4, 1999, the Company issued 1,100,000 shares of Series C preferred
stock for $5.00 per share.

Stock Plan (Unaudited)

On May 10, 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional
1,000,000 shares of authorized, unissued shares of common stock of the Company
are reserved for issuance to employees, advisors and for non-employee members
of the Board of Directors. Option terms under the 1999 Plan may not exceed 10
years.

Note Payable to Safeguard Delaware, Inc. - a Related Party (Unaudited)

On July 21, 1999, the Company obtained a $3,000,000 revolving note
payable from Safeguard Delaware, Inc. ("Safeguard"). The revolving note
payable, as amended in October 1999, bears interest payable monthly at the
prime rate plus 1% and is due November 30, 1999.

In August, September and October 1999, the Company signed demand notes
with interest payable monthly at the prime rate plus 1% with Safeguard for
$2,500,000, $2,000,000 and $2,500,000, respectively. These notes were cancelled
in October 1999, in exchange for a $7,050,000 note due in full on October 25,
2000, the repayment of a promissory note issued concurrently with the sale of
Series D preferred stock or an IPO, whichever is earlier.

Investment in Turnkey Computer Systems, Inc. (Unaudited)

On August 16, 1999, the Company acquired 19% of the common stock of
Turnkey Computer Systems, Inc. ("Turnkey") for 50,000 shares of the Company's
Class A common stock valued at $400,000 and $1,400,000 in cash payable upon the
earlier of the completion of the Company's IPO or $500,000 at December 31,
1999, $500,000 at December 31, 2000 and $400,000 at December 31, 2001. In
addition, the common stock purchase agreement with Turnkey contains a put right
which allows Turnkey to have a one time right to put to the Company its 50,000
common shares with a fixed purchase price of $500,000. The put right can only
be exercised upon a change in control or after December 31, 2001, if the
Company has not completed an IPO. The fair value of the put was estimated to be
$8,300 and was credited to additional paid-in capital.

Sale of Series D Preferred Stock (Unaudited)

On October 26, 1999, the Company agreed to issue 4,555,556 shares of
Series D preferred stock and a warrant to acquire 911,000 shares of Class B
common stock for $38,815,000. Series D preferred shares convert into Class B
common stock at the offering price. The warrants are exercisable at the
Company's IPO price and are valued at $3,325,555. The Company will receive
$18,000,000 in cash in November 1999 and a non-interest bearing, promissory
note in the amount of $23,000,000 due on October 26, 2000. Imputed interest at
9.5% amounts to $2,185,000 over the life of the note.

Registration Statement (Unaudited)

On October 27, 1999, the Company filed a registration statement on Form
S-1 with the Securities and Exchange Commission to register shares of its common
stock.

Pages 20 of 28 Pages
<PAGE>

(b) Pro Forma Financial Information

INTERNET CAPITAL GROUP, INC.

Pro Forma Condensed Combined Financial Statements
Basis of Presentation
(Unaudited)

During 1998 and 1999, the Company acquired significant minority ownership
interests in 27 Partner Companies accounted for under the equity method of
accounting. In October 1999, the Company acquired a majority ownership interest
in Purchasing Solutions, Inc. In October 1999, Purchasing Solutions, Inc.
acquired all of the assets of Purchasing Group, Inc. and Integrated Sourcing,
LLC, two related businesses. In November 1999, the Company acquired a
significant minority ownership interest in eMerge Interactive, Inc. for total
purchase consideration of $48.2 million. All acquisitions have been accounted
for using the purchase method of accounting. In addition, the Company
deconsolidated VerticalNet, Inc. subsequent to December 31, 1998 and Breakaway
Solutions, Inc. subsequent to September 30, 1999 due to the decrease in the
Company's voting ownership percentage in each company from above to below 50%.

The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1998 gives effect to the acquisition of a
significant minority ownership interest in eMerge Interactive, Inc., the
acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and
Integrated Sourcing, LLC, the deconsolidation of VerticalNet, Inc, the 1998 and
1999 acquisitions of significant minority ownership interests in 27 equity
method Partner Companies, and the acquisition of the Company's ownership
interest in Breakaway Solutions, Inc. as a company accounted for under the
equity method as if the transactions had occurred on January 1, 1998. As
Breakaway Solutions, Inc. was initially acquired in the first quarter of 1999,
no pro forma adjustments to the 1998 financial statements are necessary to
reflect its deconsolidation subsequent to September 30, 1999.

The unaudited pro forma condensed combined statement of operations for
the nine months ended September 30, 1999 gives effect to the acquisition of a
significant minority ownership interest in eMerge Interactive, Inc., the
acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and
Integrated Sourcing, LLC, the 1999 acquisitions of significant minority
ownership interests in 19 equity method Partner Companies, and the acquisition
of the Company's ownership interest in Breakaway Solutions, Inc. as a company
accounted for under the equity method as if the transactions had occurred on
January 1, 1998. As VerticalNet, Inc. was deconsolidated in the first quarter
of 1999, no pro forma adjustments to the consolidated statement of operations
for the nine months ended September 30, 1999 are necessary to reflect its
deconsolidation.

The unaudited pro forma condensed combined balance sheet as of September
30, 1999 gives effect to the acquisition of a significant minority ownership
interest in eMerge Interactive, Inc., the acquisitions of Purchasing Solutions,
Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the deconsolidation
of Breakaway Solutions, Inc., and the acquisitions during the period from
October 1, 1999 through November 18, 1999 of significant minority ownership
interests in five new and six existing equity method Partner Companies as if
the transactions had occurred on September 30, 1999.

The unaudited pro forma condensed combined financial statements have been
prepared by the management of the Company and should be read in conjunction
with the Company's historical consolidated financial statements contained
elsewhere herein, and the historical consolidated financial statements of
eMerge Interactive, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC
which are included elsewhere herein. Since the unaudited pro forma financial
statements which follow are based upon the financial condition and operating
results of eMerge Interactive, Inc., Purchasing Solutions, Inc., Purchasing
Group, Inc., Integrated Sourcing, LLC and the equity method Partner Companies
acquired during periods when they were not under the control or management of
the Company, the information presented may not be indicative of the results
which would have actually been obtained had the acquisitions been completed on
the pro forma dates reflected nor are they indicative of future financial or
operating results. The unaudited pro forma financial information does not give
effect to any synergies that may occur due to the integration of the Company
with Purchasing Solutions, Inc., Purchasing Group, Inc., Integrated Sourcing,
LLC, eMerge Interactive, Inc. and the other equity method Partner Companies.

Pages 21 of 28 Pages
<PAGE>

INTERNET CAPITAL GROUP, INC.

Unaudited Pro Forma Condensed Combined Balance Sheet September 30, 1999

<TABLE>
<CAPTION>
Internet
Capital Breakaway Pro Forma Sub- e-Merge Pro Forma
Group, Inc. Deconsolidation Adjustments Total Acquisition Combined
------------ --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash
equivalents........... $186,137,151 $ (7,747,165) $(65,612,408)b $106,523,328 $(27,000,000)a $ 79,523,328
(7,699,800)c
1,445,550 c
Short-term
investments........... 22,845,079 -- -- 22,845,079 -- 22,845,079
Accounts receivable,
less allowance for
doubtful accounts..... 8,531,879 (8,531,879) 2,136,623 c 2,136,623 -- 2,136,623
Prepaid expenses and
other current assets.. 7,024,086 (5,077,192) 4,000,000 c 5,946,894 -- 5,946,894
------------ ------------ ------------ ------------ ------------ ------------
Total current assets... 224,538,195 (21,356,236) (65,730,035) 137,451,924 (27,000,000) 110,451,924
Fixed assets, net...... 6,169,802 (4,465,033) 55,626 c 1,760,395 -- 1,760,395
Ownership interests in
and advances to
Partner Companies..... 168,690,379 -- 65,612,408 b 245,691,816 48,160,000 a 293,851,816
11,389,029 d
Available-for-sale
securities............ 19,233,805 -- -- 19,233,805 -- 19,233,805
Intangible assets,
net................... 22,854,350 (13,731,600) 15,041,425 c 17,302,757 -- 17,302,757
(6,861,418)d
Deferred taxes......... 18,845,639 -- -- 18,845,639 -- 18,845,639
Other.................. 9,895,199 (274,641) -- 9,620,558 -- 9,620,558
------------ ------------ ------------ ------------ ------------ ------------
Total Assets............ $470,227,369 $(39,827,510) $ 19,507,035 $449,906,894 $ 21,160,000 $471,066,894
============ ============ ============ ============ ============ ============
Liabilities and
Shareholders' Equity
Current Liabilities
Current maturities of
long-term debt........ $ 735,885 $ (735,885) $ 4,141,625 c $ 4,141,625 -- $ 4,141,625
Accounts payable....... 4,478,916 (3,720,060) 3,837,799 c 4,596,655 -- 4,596,655
Accrued expenses....... 10,336,185 (6,113,895) -- 4,222,290 -- 4,222,290
Notes payable to
Partner Company....... -- -- -- -- $ 21,160,000 a 21,160,000
Deferred revenue....... 117,523 (117,523) -- -- -- --
Convertible note....... 8,499,942 -- -- 8,499,942 -- 8,499,942
------------ ------------ ------------ ------------ ------------ ------------
Total current
liabilities........... 24,168,451 (10,687,363) 7,979,424 21,460,512 21,160,000 42,620,512
--
Long-term debt......... 1,633,360 (1,633,360) 3,000,000 c 3,000,000 -- 3,000,000
Minority interest...... 25,908,961 -- 4,000,000 c 6,929,785 -- 6,929,785
(22,979,176)d
Shareholders' Equity
Total shareholders'
equity................ 418,516,597 (27,506,787) 27,506,787 d 418,516,597 -- 418,516,597
------------ ------------ ------------ ------------ ------------ ------------
Total Liabilities and
Shareholders' Equity... $470,227,369 $(39,827,510) $ 19,507,035 $449,906,894 $ 21,160,000 $471,066,894
============ ============ ============ ============ ============ ============
</TABLE>

See notes to unaudited pro forma condensed combined financial statements

Pages 22 of 28 Pages
<PAGE>

INTERNET CAPITAL GROUP, INC.

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended December 31, 1998

<TABLE>
<CAPTION>
Internet
Capital VerticalNet Pro Forma eMerge Pro Forma
Group, Inc. Deconsolidation Adjustments Sub-Total Acquisition Combined
------------ --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 3,134,769 $ (3,134,769) 6,455,747 f $ 6,455,747 -- $ 6,455,747
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses
Cost of revenue........ 4,642,528 (4,642,528) -- -- -- --
Selling, general and
administrative........ 15,513,831 (12,001,245) 7,853,901 f 11,366,487 -- 11,366,487
------------ ------------ ------------ ------------ ------------ ------------
Total operating
expenses.............. 20,156,359 (16,643,773) 7,853,901 11,366,487 -- 11,366,487
------------ ------------ ------------ ------------ ------------ ------------
(17,021,590) 13,509,004 (1,398,154) (4,910,740) -- (4,910,740)
Other income, net....... 30,483,177 -- -- 30,483,177 -- 30,483,177
Interest income......... 1,305,787 (212,130) 16,506 f 1,110,163 -- 1,110,163
Interest expense........ (381,199) 297,401 -- (83,798) (1,840,000)e (1,923,798)
------------ ------------ ------------ ------------ ------------ ------------
Income (Loss) Before
Income Taxes, Minority
Interest and Equity
Income (Loss).......... 14,386,175 13,594,275 (1,381,648) 26,598,802 (1,840,000) 24,758,802
Income taxes............ -- -- -- h -- -- h --
Minority interest....... 5,381,640 -- (4,828,981)f,j 552,659 -- 552,659
Equity income (loss).... (5,868,887) -- (58,817,710)g (64,686,597) (14,309,948)e (78,996,545)
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss)....... $ 13,898,928 $ 13,594,275 $(65,028,339) $(37,535,136) $(16,149,948) $(53,685,084)
============ ============ ============ ============ ============ ============
Net Income (Loss) Per
Share
Basic.................. $ 0.12 $ (0.48)
Diluted................ $ 0.12 $ (0.48)
Weighted Average Shares
Outstanding
Basic.................. 112,204,578 112,204,578
Diluted................ 112,298,578 112,204,578

</TABLE>

Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine
Months Ended September 30, 1999

<TABLE>
<CAPTION>
Internet
Capital Breakaway Pro Forma eMerge Pro Forma
Group, Inc. Deconsolidation Adjustments Sub-Total Acquisition Combined
------------ --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 14,783,096 $(14,743,431) 7,146,689 f 7,186,354 -- $ 7,186,354
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses
Cost of revenue........ 7,424,594 (7,038,070) -- 386,524 -- 386,524
Selling, general and
administrative........ 31,002,518 (14,722,352) 5,002,096 f,j 21,282,262 -- 21,282,262
------------ ------------ ------------ ------------ ------------ ------------
Total operating
expenses.............. 38,427,112 (21,760,422) 5,002,096 21,668,786 -- 21,668,786
------------ ------------ ------------ ------------ ------------ ------------
(23,644,016) 7,016,991 2,144,593 (14,482,432) -- (14,482,432)
Other income, net....... 47,001,191 (27,607) 15,348 f 46,988,932 -- 46,988,932
Interest income......... 4,176,770 (59,510) -- 4,117,260 -- 4,117,260
Interest expense........ (1,770,324) 53,969 -- (1,716,355) -- (1,716,355)
------------ ------------ ------------ ------------ ------------ ------------
Income (Loss) Before
Income Taxes, Minority
Interest and Equity
Income (Loss).......... 25,763,621 6,983,843 2,159,941 34,907,405 -- 34,907,405
Income taxes............ 12,840,423 -- 10,963,208 f,i 23,803,631 4,269,730 e 28,073,361
Minority interest....... 4,133,057 -- (3,412,725)f,j 720,332 -- 720,332
Equity income (loss).... (49,141,961) -- (33,483,392)g,j (82,625,353) (12,199,229)e (94,824,582)
------------ ------------ ------------ ------------ ------------ ------------
Net Income (Loss)....... $ (6,404,860) $ 6,983,843 $(23,772,968) $(23,193,985) $ (7,929,499) $(31,123,484)
============ ============ ============ ============ ============ ============
Net Income Per Share
Basic.................. $ (0.03) $ (0.17)
Diluted................ $ (0.03) $ (0.17)
Weighted Average Shares
Outstanding
Basic.................. 185,103,758 185,103,758
Diluted................ 185,103,758 185,103,758
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

Pages 23 of 28 Pages
<PAGE>

INTERNET CAPITAL GROUP, INC.

Notes to Pro Forma Condensed Combined Financial Statements
(Unaudited)

1 . Basis of presentation

The unaudited pro forma condensed combined balance sheet as of September
30, 1999 gives effect to the acquisitions of Purchasing Solutions, Inc.,
Purchasing Group, Inc. and Integrated Sourcing, LLC, the acquisition of a
significant minority ownership interest in eMerge Interactive, Inc. in November
1999, the deconsolidation of Breakaway Solutions, Inc., and the acquisition of
significant minority ownership interests in five new and six existing equity
method Partner Companies as if the transactions had occurred on September 30,
1999.

The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1998 gives effect to the acquisitions of Purchasing
Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the
acquisition of a significant minority ownership interest in eMerge Interactive,
Inc., the deconsolidation of VerticalNet, Inc., the 1998 and 1999 acquisitions
of significant minority ownership interests in 27 equity method Partner
Companies, and the acquisition of the Company's ownership interest in Breakaway
Solutions, Inc. as a company accounted for under the equity method as if the
transactions had occurred on January 1, 1998.

The unaudited pro forma condensed combined statement of operations for
the nine months ended September 30, 1999 gives effect to the acquisitions of
Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing,
LLC, the acquisition of a significant minority ownership interest in eMerge
Interactive, Inc., the deconsolidation of Breakaway Solutions, Inc., the 1999
acquisitions of significant minority ownership interests in 19 equity method
Partner Companies and the acquisition of the Company's ownership interest in
Breakaway Solutions, Inc. as a company accounted for under the equity method,
as if the transactions had occurred on January 1, 1998.

The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets and liabilities assumed based upon management's best preliminary
estimate of fair value with any excess purchase price being allocated to
goodwill or other indentifiable intangibles. The preliminary allocation of the
purchase price will be subject to further adjustments, which are not
anticipated to be material, as the Company and Purchasing Solutions, Inc.
finalize their allocations of purchase price in accordance with generally
accepted accounting principles.

2. Pro Forma Balance Sheet Adjustments

The pro forma balance sheet adjustments as of September 30, 1999 reflect:

(a) The acquisition in November 1999 of a significant minority ownership
interest in eMerge Interactive, Inc. for $48.2 million consisting of
$27.0 million in cash and a $21.2 million note payable due in one
year, net of imputed interest discount of $1.8 million.

(b) The acquisition during the period from October 1, 1999 through
November 18, 1999 of new and additional significant minority
ownership interests in equity method Partner Companies for aggregate
cash consideration of $65.6 million.

(c) The acquisition of Purchasing Group, Inc. and Integrated Sourcing,
LLC for $7.7 million in cash, $6.0 million in a note payable, $1.1
million in other debt, $0.2 million of assumed net liabilities and
$0.2 million in common stock of Purchasing Solutions, Inc. The total
purchase price of approximately $15.2 million was allocated as
follows: cash--$1.4 million, net receivables--$2.1 million, fixed
and other assets--$0.1 million, accounts payables and accruals--$3.8
million and goodwill and intangibles--$15.0 million. Additionally,
approximately $4.0 million is due from another investor and is
reflected as both an other asset and minority interest.

(d) The elimination of $27.5 million for the equity accounts of
Breakaway Solutions, Inc. and the reclassification of the Company's
carrying value of its ownership interest of $11.4 million in
Breakaway Solutions, Inc. to the equity method of accounting from
consolidation.

Pages 24 of 28 Pages
<PAGE>

INTERNET CAPITAL GROUP, INC.

Notes to Pro Forma Condensed Combined Financial Statements--(Continued)
(Unaudited)

3. Pro Forma Statements of Operations Adjustments

The pro forma statements of operations adjustments for the year ended
December 31, 1998 and the nine months ended September 30, 1999 consist of:

(e) Equity income (loss) has been adjusted to reflect the Company's
acquisition of a significant minority ownership interest in eMerge
Interactive, Inc. and the related interest in the income (loss) and
amortization of the difference in the Company's carrying value and
ownership interest in the underlying net equity of eMerge
Interactive, Inc. over an estimated useful life of three years. For
the year ended December 31, 1998 and the nine months ended September
30, 1999, equity income (loss) of $14.3 million and $12.2 million
includes $2.4 million and $3.3 million, respectively, of equity
income (loss), and $11.9 million and $8.9 million, respectively, in
amortization of the difference between cost and equity in net
assets. For the nine months ended September 30, 1999, income tax
benefit has been adjusted $4.3 million to reflect the tax effect of
the eMerge Interactive, Inc. pro forma adjustments. Additionally,
$1.8 million of interest expense is reflected during the year ended
December 31, 1998 relating to the imputed interest discount on the
$23.0 million non-interest bearing note. No interest expense is
reflected in 1999 as the note is payable in one year (assumed from
January 1, 1998).

(f) Reflects additional revenue of $6.5 million and $7.1 million,
general and administrative expenses of $7.9 million and $7.3 million
(net of excess executive compensation of approximately $3.0 million
and $3.5 million for the year ended December 31, 1998 and the nine
months ended September 30, 1999, respectively), other income of
$16,506 and $15,348, income tax of $0 and $(34,998), and minority
interest of $(552,659) and $(25,998) related to the acquisitions of
Purchasing Group, Inc. and Integrated Sourcing, LLC. Included in
general and administrative expenses is approximately $5.0 million
and $3.8 million of goodwill amortization during the year ended
December 31, 1998 and the nine months ended September 30, 1999,
respectively, relating to these acquisitions.

(g) Equity income (loss) has been adjusted by $58.8 million and $31.2
million to reflect the Company's ownership interests in the income
(loss) of the equity method Partner Companies and the amortization
of the difference in the Company's carrying value in the Partner
Companies and the Company's ownership interest in the underlying net
equity of the Partner Companies over an estimated useful life of
three years. For the year ended December 31, 1998 and the nine
months ended September 30, 1999, equity income (loss) includes $23.8
million and $12.1 million, respectively, of equity income (loss) and
$35.0 million and $19.1 million, respectively, in amortization of
the difference between cost and equity in net assets.

(h) No income tax provision is required in 1998 due to the Company's tax
status as an LLC.

(i) Income tax benefit has been adjusted $10.9 million for the nine
months ended September 30, 1999 to reflect the tax effect of the pro
forma adjustments.

(j) Reflects elimination of $5.4 million and $3.4 million for the year
ended December 31, 1998 and the nine months ended September 30,
1999, respectively, related to VerticalNet, Inc. and Breakaway
Solutions, Inc. upon their deconsolidation, and the reclass of $2.3
million of amortization of goodwill related to the Company's
acquisition of Breakaway Solutions, Inc. from selling, general and
administrative expense to equity income (loss) upon its
deconsolidation.

Pages 25 of 28 Pages
<PAGE>

2.1 - Securities Purchase Agreement dated as of October 27, 1999 among
eMerge Interactive, Inc., Internet Capital Group, Inc. and J
Technologies, LLC. This exhibit contains a list of schedules to the
exhibit, all of which have been omitted. Upon request of the
Securities and Exchange Commission, the Company will furnish a copy to
it supplementally.

23.1 - Consent of Independent Public Accountants

Pages 26 of 28 Pages

<PAGE>

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

INTERNET CAPITAL GROUP, INC.

Dated: November 22, 1999 By:/s/ David D. Gathman
---------------------------
David D. Gathman
Chief Financial Officer

Pages 27 of 28 Pages
<PAGE>

EXHIBIT INDEX

Exhibit No. Description
- ----------- -----------

2.1 Securities Purchase Agreement dated as of
October 27, 1999 among eMerge Interactive,
Inc., Internet Capital Group, Inc. and J
Technologies, LLC

23.1 Consent of Independent Public Accountants

Pages 28 of 28 Pages

<PAGE>

Exhibit 2.1
eMerge Interactive, Inc.

Securities Purchase Agreement

October 27, 1999
<PAGE>

Table of Contents
-----------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Purchase and Sale of Securities.............................. 1

1.1 Sale and Issuance of Securities.............................. 1
1.2 Closing...................................................... 2

SECTION 2. Representations and Warranties of the Company to Investor.... 2

2.1 Organization and Standing; Certificate and Bylaws............ 3
2.2 Power and Authority.......................................... 3
2.3 Subsidiaries................................................. 3
2.4 Capitalization............................................... 3
2.5 Authorization; Enforceability................................ 4
2.6 Valid Issuance of Securities................................. 4
2.7 Offering..................................................... 5
2.8 Title to Properties; Liens and Encumbrances.................. 5
2.9 Intellectual Property........................................ 5
2.10 Material Contracts and Other Commitments..................... 6
2.11 Litigation................................................... 6
2.12 Taxes........................................................ 7
2.13 Insurance.................................................... 7
2.14 Employee Benefit Plans....................................... 7
2.15 Proprietary Information Agreements........................... 7
2.16 Registration Rights and Voting............................... 8
2.17 Consents..................................................... 8
2.18 Environmental and Safety Laws................................ 8
2.19 Related Party Transactions................................... 8
2.20 Broker's and Finders' Fees................................... 9
2.21 Compliance with Other Instruments............................ 9
2.22 Financial Statements......................................... 9
2.23 Permits...................................................... 9
2.24 Year 2000 Compliance......................................... 9
2.25 Employees.................................................... 10
2.26 Changes...................................................... 10
2.27 Undisclosed Liabilities...................................... 11
2.28 Certain Indebtedness......................................... 11
2.29 Corporate Documents.......................................... 12
2.30 Disclosure................................................... 12

SECTION 3. Representations and Warranties of JTL to Investor............ 12

3.1 Power and Authority.......................................... 12
3.2 Capitalization............................................... 12
3.3 Authorization; Enforceability................................ 12
</TABLE>

-i-
<PAGE>

<TABLE>
<S> <C>
3.4 Accuracy of Representations and Warranties................. 12
3.5 Broker's and Finders' Fees................................. 13
3.6 Organization and Standing.................................. 13

SECTION 4. Representations and Warranties of Investor................. 13

4.1 Investment Experience...................................... 13
4.2 Investment................................................. 13
4.3 Rule 144................................................... 13
4.4 Access to Information...................................... 13
4.5 Authorization; Enforceability.............................. 13
4.6 Broker's and Finders' Fees................................. 14
4.7 Non-Limitation............................................. 14
4.8 Legends.................................................... 14
4.9 Residence.................................................. 14

SECTION 5. Conditions of Investor's Obligations at Closing............ 14

5.1 Opinion of the Company's Counsel........................... 14
5.2 Registration Rights Agreement.............................. 14
5.3 Stockholder Agreement...................................... 15
5.4 HSR Approvals.............................................. 15
5.5 Opinion of JTL's Counsel................................... 15

SECTION 6. Conditions of Sellers' Obligations at Closing.............. 15

6.1 Note....................................................... 15
6.2 Pledge Agreement........................................... 15
6.3 HSR Approvals.............................................. 15
6.4 Registration Rights Agreement.............................. 15
6.5 Stockholder Agreement...................................... 15
6.6 Opinion of Investor's Counsel ............................. 15

SECTION 7. Certain Covenants.......................................... 16

7.1 Conduct Pending Closing.................................... 16
7.2 Approvals.................................................. 16
7.3 Registration of Securities................................. 16
7.4 Indemnification By Sellers................................. 17
7.5 Indemnification by Investor................................ 17
7.6 Securities Laws Compliance................................. 17
7.7 Proprietary Information Agreements......................... 17
7.8 Reservation of Shares...................................... 17
7.9 Books and Records.......................................... 18
7.10 Use of Proceeds............................................ 18
7.11 Investor Rights............................................ 18
7.12 Reports.................................................... 18
7.13 Certificate of the Company................................. 19
7.14 Certificate of JTL......................................... 19
7.15 Certificate of Investor.................................... 19
</TABLE>

-ii-
<PAGE>

<TABLE>
<S> <C>
SECTION 8. Miscellaneous.............................................. 19

8.1 Termination................................................ 19
8.2 Entire Agreement; Successors and Assigns................... 20
8.3 Governing Law.............................................. 20
8.4 Counterparts............................................... 20
8.5 Headings................................................... 20
8.6 Notices.................................................... 20
8.7 Survival of Representations and Warranties................. 20
8.8 Amendment of Agreement..................................... 20
8.9 Expenses................................................... 20
8.10 Further Assurances......................................... 21
</TABLE>

-iii-
<PAGE>

EXHIBITS
--------

Exhibit A - Certificate of Incorporation

Exhibit B - Warrant

Exhibit C - Note

Exhibit D - Registration Statement

Exhibit E - Schedule of Exceptions

Exhibit F - Bylaws

Exhibit G - Registration Rights Agreement

Exhibit H - Stockholder Agreement

Exhibit I - Pledge Agreement

Exhibit J - Post-Closing Capitalization Table

Exhibit K - Opinion Letter of Counsel to the Company

Exhibit L - Opinion Letter of Counsel to JTL

Exhibit M - Opinion Letter of Counsel to Investor

-iv-
<PAGE>

SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of October
27, 1999, by and among eMerge Interactive, Inc., a Delaware corporation (the
"Company"), J Technologies, LLC, a South Dakota limited liability company
("JTL"), and Internet Capital Group, Inc., a Delaware corporation (the
"Investor"). Each of JTL and the Company is referred to herein as a "Seller"
and, collectively, as "Sellers."

Background
----------

A. The Board of Directors and stockholders of the Company have adopted and
filed with the Secretary of State of the State of Delaware the Second Amended
and Restated Certificate of Incorporation in the form attached hereto as Exhibit
-------
A, which, among other matters, establishes the rights, preferences and
- -
privileges of the Company's Series D Preferred Stock, par value $0.01 (the
"Series D Preferred"), the Company's Class A Common Stock, par value $0.01 (the
"Class A Common Stock") and the Company's Class B Common Stock, par value $0.01
(the "Class B Common Stock").

B. The Company desires to sell a common stock purchase warrant and shares
of Series D Preferred to Investor, and Investor desires to purchase a common
stock purchase warrant and shares of Series D Preferred from the Company, on the
terms and subject to the conditions set forth in this Agreement.

C. JTL desires to sell shares of Class A Common Stock to Investor and
Investor desires to purchase shares of Class A Common Stock from JTL, on the
terms and subject to the conditions set forth in this Agreement.

Terms
-----

In consideration of the mutual covenants contained herein and intending to
be legally bound hereby, the parties hereto agree as follows:

SECTION 1.

Purchase and Sale of Securities.
-------------------------------

1.1 Sale and Issuance of Securities. At the Closing the Company shall
-------------------------------
issue to Investor and Investor shall purchase from the Company an aggregate of
4,555,556 shares of Series D Preferred (the "Company Shares") and a warrant in
the form attached hereto as Exhibit B (the "Warrant") to purchase 911,111 shares
---------
of such class of the Company's Common Stock, par value $0.01 (the "Common
Stock") as is specified in the Warrant. The aggregate purchase price for the
<PAGE>

Company Shares and the Warrant shall be forty-one million dollars ($41,000,000)
(the "Company Purchase Price"). At the Closing JTL shall sell to Investor and
Investor shall purchase from JTL an aggregate of 1,000,000 shares of Class A
Common Stock (the "JTL Shares" and together with the Company Shares, the
"Shares") free and clear of all liens and encumbrances for an aggregate purchase
price of nine million dollars ($9,000,000) (the "JTL Purchase Price" and,
together with the Company Purchase Price, the "Purchase Price").

1.2 Closing.
-------

(a) The closing under this Agreement (the "Closing") will take place
at 10:00 a.m., local time, on the second business day after all of the
conditions to closing identified in Sections 5 and 6 have been satisfied or
waived, at the offices of Dechert Price & Rhoads, 1717 Arch Street, 4000 Bell
Atlantic Tower, Philadelphia, PA 19103.

(b) At the Closing, each Seller shall deliver to Investor a
certificate evidencing the Shares that Investor is purchasing from such Seller,
accompanied by stock powers duly executed in blank or duly executed instruments
of transfer, if appropriate, and any other documents that are necessary to
transfer to Investor good title to the Shares, free and clear of all liens and
encumbrances. At the Closing the Company shall issue and deliver the Warrant to
Investor.

(i) delivery of nine million dollars ($9,000,000) to JTL by
wire transfer of immediately available funds to an account designated not less
than two business days before the Closing in writing by JTL;

(ii) delivery of eighteen million dollars ($18,000,000) to the
Company by wire transfer of immediately available funds to an account designated
not less than two days before the Closing in writing by the Company (the "Cash
Payment"), the Cash Payment and the Note delivered in accordance with clause
(iii) below shall be allocated equally among all the Company Shares and the
Warrant as payment of the Company Purchase Price; and

(iii) delivery of a non-negotiable promissory note of Investor
in favor of the Company in the aggregate principal amount of twenty-three
million dollars ($23,000,000) in the form attached hereto as Exhibit C (the
---------
"Note").

(d) At the Closing, the closing certificates and other documents
required to be delivered pursuant to this Agreement shall be exchanged.

SECTION 2.

Representations and Warranties of the Company to Investor.
---------------------------------------------------------

Except (i) as described in the draft Company registration statement on Form
S-1 dated October 27, 1999 attached hereto as Exhibit D (the "Registration
---------
Statement"), or (ii) as set forth on

2
<PAGE>

the Schedule of Exceptions attached hereto as Exhibit E specifically identifying
---------
the subparagraph of this Section 2 to which each such exception relates, the
Company hereby represents and warrants to Investor as of the date hereof as
follows:

2.1 Organization and Standing; Certificate and Bylaws. The Company is a
-------------------------------------------------
corporation duly organized, validly existing under, and by virtue of, the laws
of the State of Delaware, and is in good standing under such laws. The Company
has all requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as currently conducted and
as proposed to be conducted. The Company is duly qualified and authorized to
transact business and is in good standing as a foreign corporation in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on the Company. The Company has furnished Investor with copies of its
Certificate and Bylaws, as amended (attached hereto as Exhibit A and Exhibit F,
--------- ---------
respectively). Such copies are true, correct and complete and contain all
amendments as of the date hereof.

2.2 Power and Authority. The Company has all requisite legal and
-------------------
corporate power and authority to execute and deliver this Agreement, the
Registration Rights Agreement attached hereto as Exhibit G (the "Registration
---------
Rights Agreement"), the Stockholder Agreement attached hereto as Exhibit H (the
---------
"Stockholder Agreement"), the Warrant, the Note and the Pledge Agreement
attached hereto as Exhibit I (the "Pledge Agreement and, collectively with the
---------
Stockholder Agreement, the Registration Rights Agreement, the Warrant and the
Note, the "Related Agreements"), to sell and issue the Company Shares hereunder,
to issue the Class A Common Stock and Class B Common Stock issuable upon
exercise of the Warrant (the "Underlying Warrant Stock"), to issue the Class B
Common Stock issuable upon conversion of the Company Shares (the "Underlying
Common Stock"), to issue the Class A Common Stock issuable upon conversion of
the Class B Common Stock underlying the Warrant and the Company Shares (the
"Conversion Stock") and to carry out and perform its obligations under the terms
of this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby.

2.3 Subsidiaries. The Company has no Subsidiaries or affiliated companies
------------
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association or other business entity. The Company
is not a participant in any joint venture, partnership or similar arrangement.
As used herein, the term "Subsidiary" shall mean any corporation or other entity
more than 50% of the stock or other ownership interest of which (measured by
virtue of voting rights) in the aggregate is owned by the Company.

2.4 Capitalization. The authorized capital stock of the Company consists
--------------
of 100,000,000 shares of Common Stock, 92,711,110 of which have been designated
as shares of Class A Common Stock, of which 5,616,155 shares are issued and
outstanding, and 7,288,890 of which have been designated as shares of Class B
Common Stock, none of which are issued and outstanding, and 15,000,000 shares of
Preferred Stock, $0.01 par value, 6,500,000, of which have been designated
Series A Preferred, and 6,443,606 of which are issued and outstanding, 2,400,000
of which have been designated Series B Preferred, and 2,400,000 of which are
issued and outstanding, 1,300,000 of which have been designated Series C
Preferred, and 1,100,000 of which are issued and outstanding and 4,555,556 of
which have been designated Series D Preferred, and none of which are issued and

3
<PAGE>

outstanding. All such issued and outstanding shares, including the JTL Shares,
have been duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with federal and state securities law. The
Company has reserved 6,500,000 shares of Class A Common Stock for issuance upon
conversion of the Series A Preferred, 2,400,000 shares of Class A Common Stock
for issuance upon conversion of the Series B Preferred, 1,300,000 shares of
Class A Common Stock for issuance upon conversion of the Series C Preferred,
4,555,556 shares of Class B Common Stock for issuance upon conversion of the
Series D Preferred and 911,111 shares of Class A Common Stock and Class B Common
Stock for issuance upon exercise of the Warrant. The Company has reserved
1,588,595 shares of its Common Stock for issuance pursuant to exercise of
options granted under its 1996 Stock Option Plan (the "1996 Plan"), and
2,000,000 shares of its Class A Common Stock, 1,000,000 of which is subject to
Stockholder approval, for issuance pursuant to exercise of options granted under
its 1999 Stock Option Plan (the "1999 Plan" and, together with the 1996 Plan,
the "Plans"), which are the only stock option, stock purchase or similar
incentive or benefit plans currently in effect with respect to the Company. To
date, the Company has granted options for an aggregate of 2,478,200 shares of
its Class A Common Stock under the Plans, 466,030 of which have expired or been
terminated and 113,780 of which have been exercised by the holders thereof to
date. The Shares shall have the rights, preferences, privileges and
restrictions set forth in the Certificate. Except as contemplated herein, there
are no outstanding options, warrants, conversion rights, preemptive rights,
rights of first refusal, or similar rights currently outstanding to purchase or
otherwise acquire from the Company any securities of the Company, nor are there
any agreements or understandings with respect thereto. Schedule 2.4(a) sets
forth the holders of the Company's outstanding shares of capital stock and
options or other rights to purchase stock of the Company and the number of
outstanding shares of each class or series of capital stock, options or other
rights to purchase stock of the Company held by each such holder. With the
exception of the Stockholder Agreement, the Company is not a party or otherwise
subject to any agreement or understanding, and, to the Company's knowledge,
there is no agreement or understanding between any persons or entities, which
affects or relates to the voting or giving of written consents either by a
director of the Company or with respect to any capital stock of the Company.
Immediately after the Closing, the fully-diluted capitalization of the Company
will be as set forth in Exhibit J.
---------

2.5 Authorization; Enforceability. All corporate action on the part of
-----------------------------
the Company, its officers, directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Related Agreements by the Company, the authorization, sale, issuance (or
reservation for issuance) and delivery of the Shares, the Warrant, the
Underlying Warrant Stock, the Underlying Common Stock, and the Conversion Stock
and the performance of all of the Company's obligations hereunder and under the
Related Agreements has been taken or will be taken prior to Closing. This
Agreement constitutes and as of the Closing the Related Agreements will
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms.

2.6 Valid Issuance of Securities. The Company Shares, when issued, sold
----------------------------
and delivered in compliance with the provisions of this Agreement, will be duly
and validly issued, fully paid and nonassessable and issued in compliance with
applicable federal and state securities laws. The

4
<PAGE>

Warrant, when issued, sold and delivered in compliance with the provisions of
this Agreement, will constitute a valid and legally binding obligation of the
Company, enforceable in accordance with its terms. The Underlying Common Stock,
the Underlying Warrant Stock and the Conversion Stock have been duly and validly
reserved and, when issued in compliance with the provisions of the Certificate,
will be duly and validly issued and will be fully paid and nonassessable and
issued in compliance with applicable federal and state securities laws. The
Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock
and the Conversion Stock will be free and clear of any liens or encumbrances;
provided, however, that the Shares, the Warrant, the Underlying Warrant Stock,
the Underlying Common Stock and the Conversion Stock may be subject to
restrictions on transfer under state and/or federal securities laws. Except as
set forth in the Related Agreements, the Shares, the Warrant, the Underlying
Warrant Stock, the Underlying Common Stock and the Conversion Stock are
convertible are not subject to any preemptive rights, rights of first refusal or
restrictions on transfer.

2.7 Offering. Subject in part to the accuracy of Investor's
--------
representations in Section 4, the offer, sale and issuance of the Shares in
conformity with the terms of this Agreement (and the issuance of the Warrant,
the Underlying Warrant Stock, the Underlying Common Stock and the Conversion
Stock) constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), and
from all applicable state securities or Blue Sky laws.

2.8 Title to Properties; Liens and Encumbrances. The Company has good and
-------------------------------------------
valid title to all of its properties and assets, and is in compliance with the
lease of all properties leased by it, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than the lien of current taxes
not yet due and payable. The Company is not in default under or in breach of
any provision of its leases, and the Company holds valid leasehold interests in
the properties which it leases. The Company's properties and assets are in good
condition and repair.

2.9 Intellectual Property. The Company owns or possesses sufficient legal
---------------------
rights to all patents, patent applications, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, know-how, concepts, computer
programs, technical data, proprietary rights, proprietary processes and other
information necessary for or used in its business as now conducted and as
proposed to be conducted (each such item "Company Intellectual Property")
without any conflict with or, to the Company's knowledge, infringement of the
rights of others. The Company has not received any communications alleging, nor
does the Company have reason to believe, that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights, trade secrets, or other
proprietary rights or processes of any other person or entity, and to the
Company's knowledge, there is no reasonable basis therefor. To the Company's
knowledge, none of its employees, agents, consultants or contractors is
obligated under any contract (including licenses, covenants, or commitments of
any nature) or other agreement, or subject to any judgment, decree, or order of
any court or administrative agency, that would interfere with the use of such
person's or entity's best efforts to promote the interests of the Company, or
that would conflict with the Company's business as proposed to be conducted. To
the Company's knowledge, there has been no violation or

5
<PAGE>

infringement by a third party of any of the Company Intellectual Property.
Neither the execution nor the delivery of this Agreement or the Related
Agreements, nor the carrying on of the Company's business by the employees,
agents, consultants or contractors of the Company, nor the conduct of the
Company's business as currently proposed, will conflict with or result in a
material breach of the terms, conditions, or provisions of, or constitute a
default under, any contract, covenant, or instrument under which the Company or
any of such employees, agents, consultants or contractors is now obligated. The
Company has no plan to utilize, and does not believe it is or will be necessary
to utilize, any inventions of any of its employees (or people it currently
intends to hire) made prior to their employment or engagement by the Company.

2.10 Material Contracts and Other Commitments.
----------------------------------------

(a) Except for the Related Agreements, there are no material
agreements, understandings or proposed transactions between the Company and any
of its officers, directors, affiliates, or any affiliate thereof.

(b) Except for agreements explicitly contemplated by this Agreement or
the Related Agreements, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company or any of its
Subsidiaries is a party or by which it is bound that involve (i) obligations
(contingent or otherwise) of or payments to the Company or any of its
Subsidiaries in excess of $100,000, (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company or any of its
Subsidiaries, or (iii) the grant of rights to manufacture, produce, assemble,
license, market, or sell its products or services to any other person or affect
the Company's exclusive right to develop, manufacture, assemble, distribute,
market or sell its products or services.

(c) The Company has not since December 31, 1998 (i) declared or paid
any dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or incurred any other liabilities in excess of $100,000, (iii) made any
loans or advances to any person, other than ordinary advances to employees for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the nonexclusive license of software to end-users
in the ordinary course of business.

(d) All the material contracts, agreements and instruments to which
the Company is a party are listed on the exhibit index to the Registration
Statement and such contracts, agreements and instruments are valid, binding and
in full force and effect in all material respects, and are valid, binding and
enforceable by the Company in accordance with their respective terms. The
Company is not in material default under any contract, and, to the Company's
knowledge, no other party to any such contract is in material default.

2.11 Litigation. There are (i) no actions, suits, proceedings, or
----------
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or governmental agency (nor is there
any basis therefor) which are reasonably likely to have a material adverse
effect on the Company, and (ii) no actions, suits, proceedings or investigations
are pending

6
<PAGE>

or, to the Company's knowledge, threatened against it or its employees that may
relate to their employment with or conduct on behalf of the Company, or that
question the validity of this Agreement, the Related Agreements or any action
taken or to be taken in connection herewith or therewith. The foregoing
includes, without limitation, any action, suit, proceeding, or investigation
pending or currently threatened involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party or subject to any
writ, order, decree, injunction or judgment of any court, governmental agency,
or instrumentality (nor, to the Company's knowledge, is there any reasonable
basis therefor). There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company currently intends to initiate.

2.12 Taxes. The Company has timely filed all tax returns and reports
-----
(federal, state and local) as required by law, and such returns and reports are
true and correct in all material respects. The Company has paid all taxes and
other assessments due. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the assessment of any tax or
deficiency against the Company, and there are no actions, suits, proceedings,
investigations or claims now pending against the Company with respect to any tax
or assessment or any matters under discussion with any federal, state, local or
foreign authority relating to any taxes or assessments, or any claims for
additional taxes or assessments asserted by any such authority, and there is no
basis for the assertion of any additional taxes as assessments against the
Company. The Company has not elected pursuant to the Internal Revenue Code of
1986, as amended ("Code"), to be treated as an S corporation or a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation, or amortization) that
would have a material effect on the business, properties, prospects, or
financial condition of the Company. The Company has never had any tax
deficiency proposed or assessed against it. The Company has never been audited
by governmental authorities. The Company has withheld or collected from each
payment made by it to each of its employees the amount of all taxes, including,
but not limited to, income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositaries.

2.13 Insurance. The Company has in full force and effect fire, casualty
---------
and liability insurance policies with recognized insurers. The Company believes
that this insurance is sufficient in amount as of the Closing Date, subject to
reasonable deductibles, relative to other companies of similar size in similar
industries.

2.14 Employee Benefit Plans. The Company does not have any Employee
----------------------
Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.

2.15 Proprietary Information Agreements. Each current and former employee,
----------------------------------
officer and director of the Company has executed an agreement with the Company
regarding confidentiality and

7
<PAGE>

proprietary information. To the Company's knowledge, none of its current or
former employees, officers or directors is in violation of such agreement. Each
current or former consultant to or material vendor of the Company that has had
access to the Company's confidential information has executed a written
agreement under which, among other things, each such consultant or material
vendor is obligated to maintain the confidentiality of the Company's
confidential information. To the Company's knowledge, none of its consultants or
material vendors are in violation of such agreement.

2.16 Registration Rights and Voting. Except as provided in the Registration
------------------------------
Rights Agreement, the Company is not under any obligation and has not granted
any rights to register under the Securities Act any of its currently outstanding
securities or any of its securities that may subsequently be issued. To the
Company's knowledge, except as contemplated in the Stockholder Agreement, no
stockholder of the Company has entered into any agreement with respect to the
voting of the Company's securities.

2.17 Consents. No consent, approval, qualification or authorization of, or
--------
registration, designation, declaration or filing with any person, including, any
local, state or federal governmental authority, on the part of the Company is
required in connection with the valid execution, delivery or performance of this
Agreement or the Related Agreements, or the offer, sale or issuance of the
Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock
and the Conversion Stock, or the consummation of any transaction contemplated
hereby, except (i) such filings as have been made prior to the date hereof, (ii)
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (iii) such additional post-closing filings as may
be required to comply with applicable state and federal securities laws, and
with applicable general corporation laws of the various states, each of which
will be filed with the proper authority by the Company in a timely manner.

2.18 Environmental and Safety Laws. The Company is not in material
-----------------------------
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and no material expenditures are
or will be required in order to comply with any such existing statute, law, or
regulation.

2.19 Related Party Transactions. No employee, officer, stockholder or
--------------------------
director of the Company or member of his or her immediate family is indebted to
the Company, nor is the Company indebted (or committed to make loans or extend
or guarantee credit) to any of them, other than (i) for payment of salary for
services previously rendered, (ii) as reimbursement for reasonable expenses
incurred on behalf of the Company, or (iii) for other standard employee benefits
made generally available to all employees (not including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company). To the Company's knowledge, none of such persons has any direct
or indirect ownership interest in any firm or corporation with which the Company
is affiliated or with which the Company has a business relationship, or any firm
or corporation that competes with the Company, except that employees, officers
or directors of the Company and members of their immediate families may own
stock representing less than 1% equity ownership in publicly traded companies
that may compete with the

8
<PAGE>

Company. To the Company's knowledge, no officer, director, or stockholder or any
member of their immediate families is, directly or indirectly, interested in any
material contract with the Company (other than such contracts as relate to any
such person's ownership of capital stock or other securities of the Company).

2.20 Broker's and Finders' Fees. The Company has not incurred, and will
--------------------------
not incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.

2.21 Compliance with Other Instruments. The Company is not in violation or
---------------------------------
default of any provisions of its Certificate or Bylaws, or of any mortgage,
indenture, agreement, instrument, judgment, order, writ, decree or contract to
which it is a party or by which it is bound, or any provision of any federal or
state statute, rule or regulation applicable to the Company. The execution,
delivery and performance of and compliance with this Agreement and the Related
Agreements, and the consummation of the transactions contemplated hereby and
thereby, will not result in any such material violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any of the properties or assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business, operations, properties or assets.

2.22 Financial Statements. The books of account and related records of the
--------------------
Company fairly reflect in reasonable detail its assets, liabilities and
transactions. The following financial statements (collectively, the "Financial
Statements") are included in the Registration Statement: (i) audited statements
of income, cash flows and stockholders' equity of the Company for the fiscal
years ended December 31, 1996 through 1998, inclusive, and balance sheets of the
Company as at each of such dates (it being understood that the balance sheet of
the Company as at December 31, 1998 is hereinafter referred to as the "Balance
Sheet") and (ii) unaudited statements of income, cash flows and stockholders'
equity of the Company for the six-month period ended June 30, 1999 and a balance
sheet of the Company as at such date. The Financial Statements: (a) fairly
present in all material respects the financial condition, assets and liabilities
of the Company as at their respective dates and the results of operations and
cash flows for the periods covered thereby and (b) have been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited Financial Statements to normal year-end
audit adjustments and the absence of related notes.

2.23 Permits. The Company has all material franchises, permits, licenses,
-------
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company, and
believes it can obtain, without undue burden or expense, any necessary authority
for the conduct of its business as currently planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses or other similar authority.

9
<PAGE>

2.24 Year 2000 Compliance. The Company's computer systems and software are
--------------------
and will be, and the products developed, manufactured, sold or licensed by the
Company are and will be, able accurately to: (i) process any date rollover,
(ii) process calculations or computations regardless of the dates used in such
calculations whether before, on or after January 1, 2000, (iii) accept and
respond to two digit year date input in a manner that resolves any ambiguities
as to the century to which such two digit year date input relates in an
appropriate manner and (iv) store and display date data in a manner that is
unambiguous as to the century to which such two digit year date input relates.
Based upon a reasonable investigation made by the Company, none of the above-
referenced systems, software or products are reasonably expected to malfunction,
cease to function, generate incorrect data or provide incorrect results when
providing and/or receiving data in connection with any valid date, whether
occurring before, on or after January 1, 2000.

2.25 Employees. There is no strike, labor dispute or union organization
---------
activity pending or, to the Company's knowledge, threatened between the Company
and its employees. None of the Company's employees belongs to any union or
collective bargaining unit. The Company has complied in all material respects
with all applicable state and federal equal opportunity and other laws related
to employment. To the Company's knowledge, none of its employees is currently
in violation of any judgment, decree, order, or agreement relating to the
relationship of any such employee with the Company or any other party, due to
either (i) the nature of the Company's business as conducted currently or
proposed to be conducted, or (ii) the use by the employee of his or her best
efforts with respect to the conduct of such business. The Company is not a
party to or bound by any currently effective employment contract, deferred
compensation agreement, bonus plan, incentive plan, profit sharing plan,
retirement agreement, or other employee compensation agreement that covers
executive officers and directors of the Company. To the Company's knowledge, no
officer or key employee intends to terminate his or her employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer or key employee. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company, with or
without cause.

2.26 Changes. Since June 30, 1999, other than immaterial and nonadverse
-------
changes in the ordinary course of business, there has not been:

(a) any change in the assets, liabilities, financial condition, or
operating results of the Company;

(b) any damage, destruction or loss, whether or not covered by
insurance, affecting the business, properties, prospects, or financial condition
of the Company (as such business is currently conducted and as it is currently
proposed to be conducted);

(d) any satisfaction or discharge of any lien, claim, or encumbrance
or payment of any obligation by the Company affecting the business, properties,
prospects, or financial condition of

10
<PAGE>

the Company (as such business is currently conducted and as it is currently
proposed to be conducted);

(e) any entering into or change in the terms of any material contract
or arrangement by which the Company or any of its assets or properties is bound
or to which the Company or any of such assets or properties is subject;

(f) any change in any compensation arrangement or agreement with any
employee, officer, director or stockholder;

(g) any sale, assignment, or transfer of any Company Intellectual
Property;

(h) any resignation or termination of employment of any director,
officer or key employee of the Company, nor does the Company have any knowledge
of the impending resignation or termination of employment of any such person;

(i) any receipt of notice by the Company that there has been a loss
of, or material order cancellation by, any customer of the Company;

(j) any mortgage, pledge, transfer of a security interest in, or lien
created by the Company with respect to any of its material properties or assets,
except liens for taxes not yet due or payable;

(k) any loans or guarantees made by the Company to or for the benefit
of its employees, stockholders, officers, or directors, or any members of their
immediate families, other than customary travel advances and other advances made
in the ordinary course of its business;

(l) any declaration, setting aside, or payment of any dividend or
other distribution of the Company's assets in respect of any of the Company's
capital stock, or any direct or indirect redemption, purchase, or other
acquisition of any of such stock by the Company;

(m) to the Company's knowledge after reasonable investigation, any
other event or condition of any character that might affect the business,
properties, prospects, or financial condition of the Company (as such business
is currently conducted and as it is currently proposed to be conducted); or

(n) any agreement or commitment by the Company to do any of the things
described in this Section 2.26.

2.27 Undisclosed Liabilities. The Company does not have any material
-----------------------
liabilities or obligations of any nature, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due except as and
to the extent set forth on the most recent balance sheet included in the
Registration Statement and the notes thereto.

11
<PAGE>

2.28 Certain Indebtedness. As of the date hereof, other than interest
--------------------
accrued after September 30, 1999, the aggregate amount of debt owed to Safeguard
by the Company is $10,147,979 and the aggregate amount of debt owed to XL Vision
by the Company is $5,757,978.

2.29 Corporate Documents. The Certificate and Bylaws of the Company are in
-------------------
the forms attached hereto as Exhibits A and F, respectively. The copy of the
---------- -
minute books of the Company provided to counsel to Investor contains minutes of
all meetings of the Board of Directors and stockholders and all actions by
written consent without a meeting by the Board of Directors and stockholders
since the date of the Company's incorporation, and accurately reflects all
actions by the Board of Directors (and any committee thereof) and stockholders
with respect to all transactions referred to in such minutes in all material
respects. Neither the stockholders nor the Board of Directors of the Company
have taken any action relating to the merger, consolidation, sale of assets or
business, liquidation, dissolution or any other reorganization of the Company.

2.30 Disclosure. The Company has provided Investor with all access to of
----------
the information which Investor has requested in connection with the execution of
this Agreement and the purchase of the Shares and the Warrant. No representation
or warranty of the Company contained in this Agreement, the Related Agreements
or any certificate or document furnished or to be furnished to Investor prior to
or at the Closing contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. The Registration
Statement does not contain any untrue statement of a material fact and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading.

SECTION 3.

Representations and Warranties of JTL to Investor.
-------------------------------------------------

JTL hereby represents and warrants to Investor as of the date hereof as
follows:

3.1 Power and Authority. JTL has all requisite legal power and authority
-------------------
to execute and deliver this Agreement, to sell the JTL Shares and to carry out
and perform its obligations under the terms of this Agreement and the
transactions contemplated hereby.

3.2 Capitalization. JTL is the sole record and beneficial owner of the
--------------
shares of Class A Common Stock set forth opposite its name on Schedule 2.4, free
and clear of any lien, security interest, restriction, encumbrance or claim.

3.3 Authorization; Enforceability. All action on the part of JTL and its
-----------------------------
officers and members necessary for the authorization, execution, delivery and
performance of this Agreement by JTL, the sale and delivery of the JTL Shares by
JTL and the performance of all of JTL's obligations hereunder has been taken.
This Agreement constitutes the valid and legally binding obligation of JTL,
enforceable in accordance with its terms.

12
<PAGE>

3.4 Accuracy of Representations and Warranties. To JTL's actual
------------------------------------------
knowledge, which need not be based on any inquiry, the representations and
warranties of the Company contained in this Agreement are true and accurate in
all respects.

3.5 Broker's and Finders' Fees. No broker, investment banker or other
--------------------------
person is entitled to any brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement or any transaction
contemplated hereby based on arrangements made by JTL.

3.6 Organization and Standing. JTL is a limited liability company duly
-------------------------
organized, validly existing under, and by virtue of, the laws of the State of
South Dakota, and is in good standing under such laws. The Company has all
requisite power and authority to own and operate its properties and assets, and
to carry on its business as currently conducted and as proposed to be conducted.

SECTION 4.

Representations and Warranties of Investor.
------------------------------------------

Investor represents and warrants to Sellers as follows:

4.1 Investment Experience. Investor has substantial experience in
---------------------
evaluating and investing in private placement transactions of securities in
companies similar to the Company such that Investor is capable of evaluating the
merits and risks of its investment in the Company and has the capacity to
protect its own interests. Investor is an "Accredited Investor" as defined in
Rule 501 of Regulation D promulgated under the Securities Act.

4.2 Investment. Investor is acquiring the Shares and the Warrant for
----------
investment for Investor's own account, not as a nominee or agent, and not with
the view to, or for resale in connection with, any distribution thereof.

4.3 Rule 144. Investor acknowledges that the Shares, the Warrant, the
--------
Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock
must be held indefinitely unless registered under the Securities Act or unless
an exemption from such registration is available. Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, which may include, among other things, the existence of a
public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker" and the number of shares being sold during any three-month period
not exceeding specified limitations.

4.4 Access to Information. Investor's officers and agents have had an
---------------------
opportunity to discuss the Company's management, prospects, business plan and
financial condition with the Company's management.

13
<PAGE>

4.5 Authorization; Enforceability. Investor has all requisite legal and
-----------------------------
corporate power and authority to execute and deliver this Agreement and the
Related Agreements and to carry out and perform its obligations under the terms
of this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby. This Agreement constitutes and as of the Closing each of
the Related Agreements will constitute a valid and legally binding obligation of
such Investor, enforceable in accordance with its terms.

4.6 Broker's and Finders' Fees. No broker, investment banker or other
--------------------------
person is entitled to any brokerage or finders' fees or agents' commissions or
any similar charges in connection with this Agreement or any transaction
contemplated hereby based on arrangements made by Investor.

4.7 Non-Limitation. The foregoing representations and warranties,
--------------
however, do not limit or modify the representations and warranties in Section 2
or Section 3 of this Agreement or the right of Investor to rely thereon.

4.8 Legends. It is understood that each certificate representing the
-------
Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock
and the Conversion Stock shall bear the following legend or a substantially
similar legend:

"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE TRANSFERRED IN THE ABSENCE OF (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS HAVING BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
STOCKHOLDER AGREEMENT ENTERED INTO BY THE HOLDER OF THESE SHARES AND THE
COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.

4.9 Residence. The office of Investor in which its investment decision
---------
was made is located at the address set forth on the signature page to this
Agreement.

SECTION 5.

Conditions of Investor's Obligations at Closing.
-----------------------------------------------

The obligations of Investor under Section 1 of this Agreement are subject
to the fulfillment at or before the Closing of each of the following conditions,
any of which may be waived in writing by Investor:

14
<PAGE>

5.1 Opinion of the Company's Counsel. There shall have been delivered to
--------------------------------
Investor an opinion of Morgan Lewis & Bockius, counsel to the Company, in
substantially the form attached hereto as Exhibit K.
---------

5.2 Registration Rights Agreement. The Company shall have executed and
-----------------------------
delivered the Registration Rights Agreement.

5.3 Stockholder Agreement. The Company shall have executed and delivered
---------------------
the Stockholder Agreement.

5.4 HSR Approvals. Any applicable waiting period (and any extension
-------------
thereof) applicable to the consummation of the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.

5.5 Opinion of JTL's Counsel. There shall have been delivered to Investor
------------------------
an opinion of Morris & Titus, counsel to JTL, in substantially the form attached
hereto as Exhibit L.
---------

SECTION 6.

Conditions of Sellers' Obligations at Closing.
---------------------------------------------

The obligations of the Company under Section 1 of this Agreement are
subject to the fulfillment at or before Closing of each of the following
conditions, any of which may be waived in writing by the Company. The
obligations of JTL under Section 1 of this Agreement are subject to the
fulfillment at or before Closing of the condition set forth in Section 6.3,
which may be waived in writing by JTL.

6.1 Note. Investor shall have executed and delivered the Note.
----

6.2 Pledge Agreement. Investor shall have executed and delivered the
----------------
Pledge Agreement.

6.3 HSR Approvals. Any applicable waiting period (and any extension
-------------
thereof) applicable to the consummation of the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.

6.4 Registration Rights Agreement. Investor shall have executed and
-----------------------------
delivered the Registration Rights Agreement.

6.5 Stockholder Agreement. Investor shall have executed and delivered
---------------------
the Stockholder Agreement.

15
<PAGE>

6.6 Opinion of Investor's Counsel. There shall have been delivered to
------------------------------
the Company an opinion of Dechert Price & Rhoads, in substantially the form
attached hereto as Exhibit M.
---------

SECTION 7.

Certain Covenants.
------------------

7.1 Conduct Pending Closing. Each of the parties shall use its respective
-----------------------
best efforts to cause all of the conditions to its obligation to close to be
satisfied on or prior to the Closing. The Company shall use its best efforts to
conduct the business of the Company in the ordinary course consistent with past
practice and in such a manner that at the Closing the representations and
warranties of the Company contained in this Agreement shall be true and correct
as though such representations and warranties were made on, as of, and with
reference to such date. Each Seller will promptly notify Investor in writing of
any event or fact which represents or is likely to cause a breach of any of its
representations, warranties, covenants or agreements. The Company shall
promptly advise Investor in writing of the occurrence of any condition or
development of a nature that is or may be materially adverse to the business,
properties, operations, prospects, condition (financial or otherwise), assets or
liabilities of its business.

7.2 Approvals.
---------

(a) Promptly after the execution of this Agreement, each of the
parties hereto shall prepare and make or cause to be made any required filings,
submissions and notifications under the laws of any domestic or foreign
jurisdiction, including under the HSR Act, to the extent that such filings are
necessary to consummate the transactions contemplated hereby and will use its
best efforts to take all other actions necessary to consummate the transactions
contemplated hereby in a manner consistent with applicable law. Each of the
parties hereto will furnish to the other parties such necessary information and
reasonable assistance as such other parties may reasonably request in connection
with the foregoing.

(b) Each party hereto shall promptly inform the other of any material
communication from the Federal Trade Commission, the Antitrust Division of the
United States Department of Justice or any other governmental body regarding any
of the transactions contemplated hereby. If any party hereto or any affiliate
thereof receives a request for additional information or documentary material
from any such governmental body with respect to the transactions contemplated
hereby, then such party shall endeavor in good faith to make, or cause to be
made, as soon as reasonably practicable and after consultation with the other
party, an appropriate response in compliance with such request.

7.3 Registration of Securities. The Company intends to file the
--------------------------
Registration Statement with the Securities and Exchange Commission and to effect
an underwritten public offering of its Class A Common Stock as soon as
practicable after the date hereof; provided, however, that the Company will not
proceed with such public offering in the event that its Board of Directors (in
its sole discretion) determines that existing market conditions make such offer
inadvisable. The Company shall promptly provide Investor with a true and
complete copy of the registration

16
<PAGE>

statement on Form S-1 filed with the Securities and Exchange Commission and all
supplements and amendments thereto.

7.4 Indemnification By Sellers. Each Seller hereby agrees to indemnify,
--------------------------
defend and hold harmless Investor from and against any loss, liability, claim,
obligation, damage, deficiency, costs and expenses, fines or penalties
(including without limitation reasonable attorney fees and other defense costs
or other response actions) of or to Investor (a) arising out of or resulting
from any misrepresentation or breach of representation or warranty of such
Seller contained in this Agreement or in any agreement or statement or
certificate furnished or to be furnished to Investor pursuant hereto or in
connection with the transactions contemplated hereby and (b) arising out of or
resulting from any breach or nonfulfillment of any covenant or agreement of such
Seller contained in this Agreement or in any agreement or statement or
certificate furnished or to be furnished to Investor pursuant hereto or in
connection with the transactions contemplated hereby.

7.5 Indemnification by Investor. Investor hereby agrees to indemnify and
---------------------------
hold harmless Sellers from and against any loss, liability, claim, obligation,
damage, deficiency, costs and expenses, fines or penalties (including without
limitation reasonable attorney fees and other defense costs or other response
actions) of or to Sellers (a) arising out of or resulting from any
misrepresentation or breach of representation or warranty of Investor contained
in this Agreement or in any agreement or statement or certificate furnished or
to be furnished to Sellers pursuant hereto or in connection with the
transactions contemplated hereby and (b) arising out of or resulting from any
breach or nonfulfillment of any covenant or agreement of Investor contained in
this Agreement or in any agreement or statement or certificate furnished or to
be furnished to Sellers pursuant hereto or in connection with the transactions
contemplated hereby.

7.6 Securities Laws Compliance. The Company shall make in a timely manner
--------------------------
any filings required by applicable federal or state securities or Blue Sky laws,
or those of any other applicable jurisdiction.

7.7 Proprietary Information Agreements. The Company shall require all
----------------------------------
future officers, directors, employees and consultants of the Company and its
Subsidiaries to execute and deliver an agreement which provides protection from
misappropriation or assignment of the Company Intellectual Property.

7.8 Reservation of Shares. For so long as Investor shall have any right
---------------------
to receive the Underlying Common Stock upon conversion of the Company Shares,
the Company shall reserve and keep available out of its authorized but unissued
Class B Common Stock the full number of shares of Underlying Common Stock
deliverable upon conversion of all the then outstanding Company Shares and
shall, at its own expense, take all such actions and obtain such permits and
orders as may be necessary to enable the Company lawfully to issue such
Underlying Common Stock upon conversion of the Company Shares. For so long as
the Warrant is outstanding, the Company shall reserve and keep available out of
its authorized but unissued Class A Common Stock and Series B Common Stock the
full number of shares of Underlying Warrant Stock deliverable upon execution of
the Warrant and shall, at its own expense, take all such actions and obtain such
permits and orders as may be necessary to enable the Company lawfully to issue
such Underlying Warrant Stock upon

17
<PAGE>

exercise of the Warrant. For so long as any of the Underlying Common Stock, the
Warrant and the Underlying Warrant Stock is outstanding, the Company shall
reserve and keep available out of its authorized but unissued Class A Common
Stock the full number of shares of Class A Common Stock deliverable upon
conversion of all shares of Underlying Common Stock and Underlying Warrant Stock
and shall, at its own expense, take all such actions and obtain such permits and
orders as may be necessary to enable the Company lawfully to issue such Class A
Common Stock upon conversion of Underlying Common Stock and the Underlying
Warrant Stock.

7.9 Books and Records. The Company shall maintain complete and accurate
-----------------
records and books of account in which entries shall be made in accordance with
generally accepted accounting principles consistently applied, reflecting all
transactions of the Company and its Subsidiaries, if any.

7.10 Use of Proceeds. The Company agrees that, prior to a Public Offering,
---------------
it will not reduce its outstanding indebtedness by more than $4,500,000 and it
will not make any payments in excess of $1,000,000 in the aggregate with respect
to indebtedness incurred after the date hereof.

7.11 Investor Rights. Until the consummation of a Public Offering, the
---------------
Company shall permit Investor at Investor's expense to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by Investor; provided, however, that the
Company shall not be obligated pursuant to this section to provide access to any
information that it reasonably considers to be a trade secret or similar
confidential information. For purposes of this Agreement, the term "Public
Offering" means the effectiveness of a registration statement filed by the
Company pursuant to the Securities Act (other than on Form S-4 or S-8 on any
successor forms thereto) covering the offer and sale of Class A Common Stock in
an underwritten public offering on a firm commitment basis in which the gross
proceeds of the offering will equal or exceed $10,000,000 (calculated before
deducting underwriters' discounts and commissions and other offering expenses),
and in which the public offering price per share of Class A Common Stock
(calculated before deducting underwriters' discounts and commissions) results in
a valuation of the total number of outstanding shares of capital stock of the
Company immediately prior to the closing of the public offering of at least
$30,000,000.

7.12 Reports. Until the consummation of a Public Offering, the Company
-------
will provide Investor the following reports:

(a) Annual Reports. As soon as practicable after the end of each
--------------
fiscal year, and in any event within seventy-five (75) days thereafter,
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of income,
stockholders' equity and cash flows of the Company and its subsidiaries, if any,
for such year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and audited (without
qualification as to scope) by independent auditors of national standing selected
by the Company.

18
<PAGE>

(b) Monthly and Quarterly Reports. As soon as practicable after the
-----------------------------
end of each month and fiscal quarter, and in any event within thirty (30) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such period, consolidated statements of income,
consolidated statements of changes in financial condition, a consolidated
statement of cash flow of the Company and its subsidiaries and a statement of
stockholders' equity for such period and for the current fiscal year to date,
and setting forth in each case in comparative form the figures for corresponding
periods in the previous fiscal year, and setting forth in comparative form the
budgeted figures, prepared in accordance with generally accepted accounting
principles (other than for accompanying notes), subject to changes resulting
from year-end audit adjustments, all in reasonable detail and signed by the
principal financial or accounting officer of the Company.

(c) Annual Budget. As soon as practicable, but in any event thirty
-------------
(30) days prior to the end of each fiscal year, a projected operating budget and
business plan for the next fiscal year, prepared on a monthly basis, including
balance sheets and sources and applications of funds statements for such months
and, as soon as prepared, any other budgets or revised budgets prepared by the
Company.

7.13 Certificate of the Company. At the Closing, the Company shall deliver
--------------------------
to Investor a certificate dated as of the date of the Closing, stating that (a)
the representations and warranties of the Company contained in Section 2 are
true on and as of the Closing with the same effect as if made on and as of the
Closing and (b) the Company has performed or fulfilled all agreements,
obligations and conditions contained in this Agreement required to be performed
or fulfilled by the Company before Closing.

7.14 Certificate of JTL. At the Closing, JTL shall deliver to Investor,
------------------
which delivery may be by facsimile, a certificate dated as of the date of the
Closing, stating that (a) the representations and warranties of JTL contained in
Section 3 are true on and as of the Closing with the same effect as if made on
and as of the Closing and (b) JTL has performed or fulfilled all agreements,
obligations and conditions contained in this Agreement required to be performed
or fulfilled by JTL before Closing.

7.15 Certificate of Investor. At the Closing, Investor shall deliver to
-----------------------
Sellers a certificate dated as of the date of the Closing, stating that (a) the
representations and warranties of Investor contained in Section 4 are true on
and as of the Closing with the same effect as if made on and as of the Closing
and (b) Investor has performed or fulfilled all agreements, obligations and
conditions contained in this Agreement required to be performed or fulfilled by
Investor before Closing.

SECTION 8.

Miscellaneous.
-------------

8.1 Termination. This Agreement may be terminated at any time prior to
-----------
Closing: (a) by mutual consent of Sellers and Investor and (b) by Investor or
the Company if the Closing shall not have occurred prior to December 31, 1999;
provided, that Investor or the Company may terminate
- --------

19
<PAGE>

this Agreement pursuant to this clause (b) only if the Closing shall not have
occurred by such date for a reason other than a failure by such party to satisfy
the conditions to Closing of the other party set forth herein. In the event of
termination of this Agreement by either Investor or the Company, as provided
above, this Agreement shall forthwith terminate and there shall be no liability
on the part of either Sellers or Investor, other than the obligation to
indemnify the other party pursuant to the terms of this Agreement for
liabilities arising from a breach of this Agreement prior to such termination.

8.2 Entire Agreement; Successors and Assigns. This Agreement and the
----------------------------------------
exhibits hereto constitute the entire agreement between Sellers and Investor
relative to the subject matter hereof. Any previous agreement between Investor
and Sellers is superseded by this Agreement. Subject to the exceptions
specifically set forth in this Agreement, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.

8.3 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts entered into and wholly to be performed within the Commonwealth of
Pennsylvania by Pennsylvania residents.

8.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.

8.5 Headings. The headings of the Sections of this Agreement are for
--------
convenience and shall not by themselves determine the interpretation of this
Agreement.

8.6 Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be conclusively deemed effectively given upon personal
delivery, or delivery by overnight courier, or five days after deposit in the
United States mail, by registered or certified mail, postage prepaid, addressed
(i) if to the Company, as set forth below the Company's name on the signature
page of this Agreement, (ii) if to JTL, as set forth below JTL's name on the
signature page of this Agreement, and (iii) if to Investor, as set forth below
Investor's name on the signature page of this Agreement, or at such other
address as the Company, JTL or Investor may designate by ten (10) days' advance
written notice to the other parties.

8.7 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of the parties contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing. Sellers
acknowledge that their representations and warranties in this Agreement shall
not be affected or mitigated by any investigation conducted by Investor or its
representatives prior to Closing or any knowledge of Investor.

8.8 Amendment of Agreement. No provision of this Agreement may be amended
----------------------
except by a written instrument signed by the parties.

8.9 Expenses. Each party will pay its own costs and expenses incurred in
--------
connection with this Agreement and the transactions contemplated hereby;
provided, however, that all filing fees under the HSR Act shall be divided
equally between the Company and Investor.

20
<PAGE>

8.10 Further Assurances. Each party shall cooperate and take such action
------------------
as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.

21
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Securities
Purchase Agreement as of the day and year first above written.

EMERGE INTERACTIVE, INC.
a Delaware corporation

By: /s/ Charles L. Abraham
--------------------------
Name: Charles L. Abraham
------------------------
Title: CEO
-----------------------

Address: 10315 102/nd/ Terrace
Sebastian, FL 32958

J TECHNOLOGIES, LLC

By: /s/ John R. Johanns Jr.
--------------------------
Name: John R. Johanns Jr.
------------------------
Title: Authorized Member
-----------------------

Address: 940 Quail Hollow
Dakota Dunes, SD 57049

INTERNET CAPITAL GROUP, INC.
a Delaware corporation

By: /s/ Henry N. Nassau
-------------------------
Name: Henry N. Nassau
-----------------------
Title: Managing Director
----------------------

Address: 800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087

<PAGE>

EXHIBIT 23.1
------------

The Board of Directors
eMerge Interactive, Inc.:

We consent to the inclusion of our report dated April 20, 1999, with respect to
the consolidated balance sheets of eMerge Interactive, Inc. and subsidiaries as
of December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 1998, which report appears in the
Form 8-K of Internet Capital Group, Inc. dated November 22, 1999.

/s/ KPMG LLP

Orlando, Florida
November 22, 1999