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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
For Fiscal Year Ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition Period from _____________________ to ____________________
Commission File 000-26929
________________
INTERNET CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2996071
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
Building 800, 435 Devon Park Drive, Wayne, PA 19087
(Address of principal executive offices) (Zip Code)
(610) 989-0111
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class Name of Each Exchange on which Registered
Common Stock, $0.001 par value Nasdaq Stock Market
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[X]Yes [_]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The approximate aggregate market value of Common Stock held by non-affiliates of
the Company was $21.5 billion as of March 1, 2000. (For purposes of determining
this amount only, the Company has defined affiliates as including (a) the
executive officers named in Part I of this 10-K Report, (b) all directors of the
Company and (c) each stockholder that has informed the Company by March 1, 2000
that it is the beneficial owner of 10% or more of the outstanding common stock
of the Company.
The number of shares of the Company's Common Stock outstanding as of March 1,
2000 was 264,283,685 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy Statement") to
be filed with the Securities and Exchange Commission relative to the Company's
Annual Meeting of Stockholders for the fiscal year ended December 31, 1999 are
incorporated by reference into Part III of this Report.
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Internet Capital Group, Inc.
Form 10-K
December 31, 1999
TABLE OF CONTENTS
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Item Page No.
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PART I
1. Business......................................................................................................... 2
2. Properties....................................................................................................... 16
3. Legal Proceedings................................................................................................ 16
4. Submission of Matters to a Vote of Security Holders.............................................................. 16
4A. Executive Officers of the Registrant............................................................................. 17
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................................ 18
6. Selected Consolidated Financial Data............................................................................. 20
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 20
7A. Quantitative and Qualitative Disclosures About Market Risk ...................................................... 35
8. Financial Statements and Supplementary Data...................................................................... 35
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............................ 67
PART III
10. Directors and Executive Officers of the Registrant .............................................................. 67
11. Executive Compensation .......................................................................................... 67
12. Security Ownership of Certain Beneficial Owners and Management .................................................. 67
13. Certain Relationships and Related Transactions .................................................................. 67
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 67
SIGNATURES............................................................................................................ 73
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This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E
of the Securities Exchange Act. We have based these forward-looking statements
on our current expectations and projections about future events. These forward-
looking statements are subject to known and unknown risks, uncertainties and
assumptions about us and our partner companies, that may cause our actual
results, levels of activity, performance, or achievements to be materially
different from any future results, levels of activity, performance, or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those discussed elsewhere in this Report and
the risks discussed in our other Securities and Exchange Commission ("SEC")
filings including our Registration on Form S-1 declared effective on August 4,
1999 by the SEC (File No. 333-78193), our Registration on Form S-1 declared
effective on December 15, 1999 by the SEC (File No. 333-91447), and our Forms
10-Q filed on September 20, 1999 and November 15, 1999. The following
discussion should be read in conjunction with our audited Consolidated Financial
Statements and related Notes thereto included elsewhere in this report.
Although we refer in this Report to the companies in which we have acquired
an equity ownership interest as our "partner companies" and that we have a
"partnership" with these companies, we do not act as an agent or legal
representative for any of our partner companies, and we do not have the power or
authority to legally bind any of our partner companies, and we do not have the
types of liabilities in relation to our partner companies that a general partner
of a partnership would have.
PART I
ITEM 1. BUSINESS
Overview
Internet Capital Group is an Internet company actively engaged in business-
to-business, or B2B, e-commerce through a network of partner companies. Our goal
is to become the premier B2B e-commerce company by establishing an e-commerce
presence in major segments of the global economy. We believe that our sole focus
on the B2B e-commerce industry allows us to capitalize rapidly on new
opportunities and to attract and develop leading B2B e-commerce companies. As of
December 31, 1999, we owned interests in 49 B2B e-commerce companies that we
refer to as our partner companies.
Our operating strategy is to integrate our partner companies into a
collaborative network that leverages our collective knowledge and resources.
With the goal of holding our partner company interests for the long-term, we use
these collective resources to actively develop the business strategies,
operations and management teams of our partner companies. Our resources include
the experience, industry relationships and specific expertise of our management
team, our partner companies' management and our Advisory Board. Currently, our
Advisory Board consists of individuals with executive-level experience in
general management, sales and marketing and information technology at leading
companies such as Coca-Cola Company, Exodus Communications, IBM Corporation,
MasterCard, Merrill Lynch and Microsoft. We believe that building successful B2B
e-commerce companies enhances the ability of our collaborative network to
facilitate innovation and growth among our partner companies.
The substantial growth in B2B e-commerce creates tremendous market
opportunities for new emerging companies. Forrester Research estimates that the
United States B2B e-commerce market, defined as the intercompany trade of hard
goods over the Internet, will grow from $43 billion in 1998 to more than $1.3
trillion by 2003. International Data Corporation, or IDC, projects that the
Western European B2B e-commerce market will grow from $3.8 billion in 1998 to
over $350 billion by 2003. We focus on two types of B2B e-commerce companies,
which we call market makers and enabling service providers.
. Market makers bring buyers and sellers together by creating
Internet-based markets for the exchange of goods, services and
information. Market makers enable more effective and lower cost
commerce for traditional businesses by providing access through
the Internet to a broader range of buyers and sellers. Market
makers typically operate in a specific industry or provide
specific goods and services across multiple industries. Market
makers tailor their business models to match a target market's
distinct characteristics. At December 31, 1999 our partner
company network included significant interests in the following
30 market makers: Animated Images, Arbinet Communications,
asseTrade, AUTOVIA, Bidcom, Collabria, Commerx, ComputerJobs.com,
CourtLink, CyberCrop.com., Deja.com, e-Chemicals, eMarketWorld,
eMerge Interactive,
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EmployeeLife.com, ICG Commerce, Internet Commerce Systems,
iParts, JusticeLink, Metalsite, NetVendor, ONVIA.com,
PaperExchange.com, Plan Sponsor Exchange, Residential Delivery
Services, Retail Exchange, StarCite, Universal Access, USgift.com
and VerticalNet.
. Enabling service providers sell software and services to
businesses engaged in e-commerce. Many businesses need assistance
in designing business practices to take advantage of the Internet
and in building and managing the technological infrastructure
needed to support B2B e-commerce. At December 31, 1999, our
partner company network included significant interests in the
following 19 enabling service providers: Benchmarking Partners,
Blackboard, Breakaway Solutions, ClearCommerce, CommerceQuest,
Context Integration, Entegrity Solutions, iSky, Jamcracker,
LinkShare, PrivaSeek, SageMaker, Servicesoft Technologies, Syncra
Software, TRADEX Technologies, traffic.com, United Messaging, US
Interactive, and Vivant!
We have grown rapidly since our inception in 1996. In 1998 and 1999, we
added 12 and 29 B2B e-commerce companies, respectively, to our network. All of
our acquisitions as of December 31, 1999 have been B2B e-commerce companies
headquartered in the United States. We expect to continue to evaluate additional
acquisition opportunities in the United States. In addition, at the end of 1999
we opened an office in London, England which focuses on European B2B e-commerce
opportunities.
Internet Capital Group, Inc. is a successor to a business originally
founded in March 1996 as a Delaware limited liability company under the name
Internet Capital Group, L.L.C. As a limited liability company, Internet Capital
Group, L.L.C. was treated for income tax purposes as a partnership with taxes on
the income generated by Internet Capital Group, L.L.C. paid by its members.
Internet Capital Group, L.L.C. merged into Internet Capital Group, Inc. on
February 2, 1999 with Internet Capital Group, Inc. surviving (the
"Reorganization"). In connection with the Reorganization and as required by its
limited liability company agreement to satisfy the members' tax liabilities,
Internet Capital Group, L.L.C. declared a $10.7 million distribution to its
members. Internet Capital Group, Inc. has assumed all liabilities of Internet
Capital Group, L.L.C. including the distribution to members of Internet Capital
Group, L.L.C. Also as part of the Reorganization, Internet Capital Group, Inc.
issued 164,011,098 shares of common stock to the members of Internet Capital
Group, L.L.C. The separate existence of Internet Capital Group, L.L.C. ceased
in connection with the Reorganization.
Industry Overview
Growth of the Internet
People and businesses are increasingly relying on the Internet to access
and share information as well as to purchase and sell products and services.
IDC estimates that at the end of 1998 more than 142 million people were using
the Internet to communicate, participate in discussion forums and obtain
information about goods and services. IDC projects that this user base will grow
to 502 million people by the end of 2003. A rapidly growing number of businesses
use the Internet to market and sell their products and streamline business
operations. According to Forrester Research, 50% of all United States businesses
will be on-line by 2002.
Growth of B2B E-Commerce
The Internet's substantial growth creates tremendous market opportunities
for companies that connect buyers and sellers, and companies that create
applications and systems for traditional businesses wishing to engage in e-
commerce. Historically, B2B e-commerce has occurred through electronic data
interchange over proprietary networks, which are costly and available only to a
limited number of participants. The Internet provides an open platform with
common communication protocols to build efficient, cost-effective networks that
facilitate e-commerce. As Internet-based network reliability, speed and security
have improved in recent years and as more businesses have connected to the
Internet, traditional businesses are beginning to use the Internet to conduct e-
commerce and exchange information with customers, suppliers and distributors.
While the business-to-consumer e-commerce market currently is significant in
size, estimated by IDC to have encompassed $15 billion in goods and services in
1998, the B2B e-commerce market is larger and is predicted to grow dramatically.
Forrester Research projects that the United States B2B e-commerce market, which
Forrester Research defines as the intercompany trade of hard goods over the
Internet, will grow from $43 billion in 1998 to over $1.3 trillion by 2003. IDC
projects that the Western European B2B e-commerce market will grow from $3.8
billion in 1998 to over $350 billion by 2003.
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We believe that the B2B e-commerce market is beginning a period of rapid
development and growth for the following reasons:
. Expanded Access to New and Existing Customers and Suppliers.
Traditional businesses have relied on their sales forces and
purchasing departments to develop and maintain customer and
supplier relationships. This model is constrained by the time and
cost required to exchange current information regarding
requirements, prices and product availability, and the difficulty
of cost-effectively locating new customers and suppliers and
managing existing relationships. Traditional businesses can
leverage the Internet to obtain and communicate real-time,
accurate information regarding requirements, prices and products
to a global audience, including suppliers, customers and business
partners. This makes it easier for businesses to attract new
customers and suppliers, improve service and increase revenue.
. Increased Efficiency and Reduced Cost. Traditional businesses can
utilize the Internet to automate their internal operations,
including manufacturing, finance, sales and purchasing functions.
The Internet can also be used to increase information flow and
access throughout an organization. This increases operational
efficiency by reducing the time, costs and resources required to
transact business, lowering inventory levels and procurement
costs, and improving responsiveness to customers and suppliers.
Market Opportunities for Emerging B2B E-Commerce Companies
We believe that there are significant opportunities for companies that can
assist traditional businesses in using the Internet to create more efficient
markets and enable e-commerce. We call these companies B2B e-commerce companies.
We focus on two types of B2B e-commerce companies: market makers and enabling
service providers.
. Market Makers. Market makers bring buyers and sellers together by
creating Internet-based markets for the exchange of goods,
services and information. Market makers enable more effective and
lower cost commerce for traditional businesses by providing
access through the Internet to a broader range of buyers and
sellers. Market makers typically operate in a specific industry
or provide specific goods and services across multiple
industries. Market makers tailor their business models to match a
target market's distinct characteristics. We refer to market
makers operating in a particular industry as vertical market
makers, and to market makers operating across multiple industries
as horizontal market makers. Vertical and horizontal market
makers may:
. act as principals in transactions;
. automate business processes so as to make them more
efficient;
. operate exchanges where buyers and sellers dynamically
negotiate prices; or
. facilitate interaction and transactions among businesses and
professionals with common interests by providing an
electronic community.
Market makers may generate revenue by:
. selling products and services;
. charging fees based on the value of the transactions they
facilitate;
. charging fees for access to their Internet-based services;
or
. selling advertising on their Web sites.
. Enabling Service Providers. Enabling service providers sell
software and services to businesses engaged in e-commerce. Many
businesses need assistance in designing business practices to
take advantage of the Internet, and in building and managing the
technological infrastructure needed to support B2B e-commerce.
Enabling service providers help businesses in the following ways:
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. Strategic Consulting and Systems Integration. Strategic
consultants assist traditional businesses in developing
their e-commerce strategies. Systems integrators develop and
implement a technological infrastructure that enables e-
commerce. Systems integrators also integrate e-commerce
applications with existing enterprise applications.
Strategic consultants and systems integrators typically
charge their clients on a project-by-project basis.
. Software Providers. Software providers design and sell
software applications, tools and related services that
support e-commerce and integrate business functions.
Software providers may sell or license their products.
. Outsourced Service Providers. Outsourced service providers
offer software applications, infrastructure and related
services designed to help traditional businesses reduce
cost, improve operational efficiency and decrease time to
market. Outsourced service providers may charge fees on a
per-use or periodic basis.
Challenges Facing Emerging B2B E-Commerce Companies
We believe that emerging B2B e-commerce companies face certain challenges,
including:
. Developing a Successful Business Model. B2B e-commerce companies
must develop business models that capitalize on the Internet's
capabilities to provide solutions to traditional companies in
target industries. B2B e-commerce companies require industry
expertise because each industry and market has distinct
characteristics including existing distribution channels, levels
of concentration and fragmentation among buyers and sellers,
procurement policies, product information and customer support
requirements. B2B e-commerce companies also require Internet
expertise in order to apply their capabilities to their target
industries.
. Building Corporate Infrastructure. Many B2B e-commerce companies
have been recently formed and require sales and marketing,
executive recruiting and human resources, information technology,
and finance and business development assistance. These companies
also require capital as significant resources may be required to
build technological capabilities and internal operations.
. Finding the Best People. Entrants into the B2B e-commerce market
require management with expertise in the applicable market, an
understanding of the Internet's capabilities, the ability to
manage rapid growth and the flexibility to adapt to the changing
Internet marketplace. We believe that very few people have these
skills, and those that do are highly sought after. To be
successful, companies must attract and retain highly qualified
personnel.
We believe that the most successful B2B e-commerce companies will rapidly
identify market demands and move quickly to satisfy those demands. B2B e-
commerce companies that accomplish this goal may establish new standards, gain
market share, secure critical partnerships and create a brand name, making
competition more difficult for new entrants. In addition, B2B e-commerce
companies must keep abreast of Internet and industry-specific developments and
adapt to a rapidly changing environment.
Our Solution and Strategy
Our goal is to become the premier B2B e-commerce company by establishing an
e-commerce presence in major segments of the global economy. We believe that our
sole focus on the B2B e-commerce industry allows us to capitalize rapidly on new
opportunities and to attract and develop leading B2B e-commerce companies. As
of December 31, 1999, we owned interests in 49 B2B e-commerce companies that we
refer to as our partner companies.
Our operating strategy is to integrate our partner companies into a
collaborative network that leverages our collective knowledge and resources.
With the goal of holding our partner company interests for the long-term, we use
these collective resources to actively develop the business strategies,
operations and management teams of our partner companies. Our resources include
the experience, industry relationships and specific expertise of our management
team, partner companies, strategic investors and Advisory Board members.
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Our strategy is to:
. create or identify companies with the potential to become
industry leaders;
. acquire significant interests in partner companies and
incorporate them into our collaborative network;
. provide strategic guidance and operational support to our partner
companies; and
. promote collaboration among our partner companies.
In implementing our strategy, we leverage the collective knowledge and
experience of our partner companies, strategic investors and Advisory Board
members. Our Advisory Board consists of more than 15 experienced executives from
various backgrounds who provide our network with strategic guidance, sales,
marketing and information technology expertise and industry contacts. Ideally,
we would like to own 40% or more of each of our partner companies, with
management and public shareholders owning the remaining interests, but we
believe that we can have significant influence with lower ownership levels.
Our strategy includes acquiring interests in partner companies based in the
United States and abroad. We opened an office in London in late 1999 that
focuses on European B2B opportunities. We have staffed our London office with
two executives from one of Europe's leading private equity firms. These two
executives worked together on Internet acquisitions in Europe and cultivated a
broad network of technology and vertical market contacts. We anticipate opening
an office in continental Europe during 2000. We plan to staff our European
offices with personnel that will provide strategic guidance and operational
support to our partner companies operating in Europe.
We plan to acquire interests in European B2B e-commerce companies. If we
wish to enter a European market in which we cannot locate an attractive partner
company candidate, we may create a new company or assist one of our partner
companies located in the United States in expanding overseas. In addition, our
worldwide personnel will focus on providing connections and resources to all our
partner companies, creating an international expansion platform for each member
of the network.
Create or Identify Companies With the Potential to Become Market Leaders
Our expertise in the B2B e-commerce market allows us to build or identify
companies that are positioned to succeed. We apply a disciplined analysis that
capitalizes on this competitive advantage. When we evaluate whether to enter a
market by building a company or acquiring an interest in an existing company, we
weigh the following industry and partner company factors:.
. Industry Criteria
. Inefficiency. We consider whether the industry suffers from
inefficiencies that may be alleviated through e-commerce. We
also consider the relative amount of inefficiency, as more
inefficient industries present greater profit potential.
. Competition. We evaluate the amount of competition that a
potential partner company faces from e-commerce and
traditional businesses.
. Significance of Vertical Market. Our strategy includes
acquiring interests in market makers doing business in the
principal vertical markets of the global economy. When
evaluating market makers, we consider whether the market
maker has the potential to be a leader in its vertical
market.
. Industry Potential. When evaluating a market maker, we
consider the number and dollar value of transactions in its
corresponding industry. We evaluate the incremental
efficiency to be gained from conducting or supporting
transactions on-line and estimate the potential to migrate
transactions on-line. By considering these factors, we can
focus on vertical industries for which the leading market
maker can eventually generate significant transaction
activity for the market maker.
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. Centralized Information Sources. When evaluating market
makers, we consider whether the industry has product
catalogs, trade journals and other centralized sources of
information regarding products, prices, customers and other
factors. The availability of this information makes it
easier for a market maker to facilitate interaction and
transactions. We generally avoid industries where this
information is not available.
. Enabling Service Provider Profit Potential. When evaluating
enabling service providers, we examine the size of the
market opportunity, the profit potential in serving the
target market and whether the enabling service provider can
provide assistance to our market maker partner companies.
. Partner Company Criteria
. Industry Leader. We partner with a company only if we
believe that it has the products and skills to become a
leader in its industry.
. Significant Ownership. We consider whether we will be able
to obtain a significant position in the company and exert
influence over the company.
. Network Synergy. We consider the degree to which a potential
partner company may contribute to our network, and benefit
from our network and operational resources.
. Management Quality. We assess the overall quality and
industry expertise of a potential partner company's
management.
Acquire Interests in Partner Companies
After we identify an attractive potential partner company, we negotiate the
acquisition of a significant interest in the company. As a condition to an
acquisition, we require representation on the company's board of directors to
ensure our ability to provide active guidance to the partner company. We
structure acquisitions to permit the partner company's management and key
personnel to retain an equity stake in the company. As a result of our
experience, we believe that we have the ability to complete acquisitions quickly
and efficiently. After acquiring interests in partner companies, we frequently
participate in their follow-on financings and seek to increase our ownership
positions.
During our negotiations with potential partner companies we emphasize the
value of our collaborative network, which we believe gives us a competitive
advantage over other acquirors in successfully consummating transactions. Our
partner companies, strategic investors and Advisory Board members assist in
these discussions and assist in other stages of the acquisition process,
including the initial evaluation of potential partner companies and due
diligence.
Provide Strategic Guidance and Operational Support to Our Partner Companies
After we make an acquisition or form a partner company, we take an active
role in its affairs by providing both strategic guidance and operational
support:
. Strategic Guidance. We provide strategic guidance to our partner
companies regarding market positioning, business model
development and market trends. In addition, we advise our partner
companies' management and directors on day-to-day management and
operational issues. Our exclusive focus on the B2B e-commerce
market and the knowledge base of our partner companies, strategic
investors, management and Advisory Board give us valuable
experience that we share with our partner company network. For
example, Advisory Board and management team members who provide
strategic guidance to our partner companies include Todd Hewlin,
a former Partner with McKinsey & Company; Jeff Ballowe, a former
President of Ziff-Davis Inc. and the current Chairman of
Deja.com, Inc.; Alex W. Hart, a former Chief Executive Officer of
MasterCard International; Ron Hovsepian, Vice President of
Business Development at IBM Corporation; and Yossi Sheffi, Ph.D.,
a co-founder of Syncra Software, Inc. and e-Chemicals, Inc. and
currently a Professor at the Massachusetts Institute of
Technology.
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. Operational Support. B2B e-commerce companies often have
difficulty obtaining senior executive level guidance in certain
disciplines that successful companies need. We assist our partner
companies by providing access to skilled managers who guide our
partner companies in the following functional areas:
. Sales and Marketing. Several members of our Advisory Board
and management team provide guidance to our partner
companies' sales, marketing, product positioning and
advertising efforts. These individuals include Michael H.
Forster, a former Senior Vice President of Worldwide Field
Operations at Sybase, Inc. and currently one of our Senior
Partners; Christopher H. Greendale, a former Executive Vice
President at Cambridge Technology Partners and currently one
of our Managing Directors; Rowland Hanson, a former Vice
President of Corporate Communications at Microsoft
Corporation and currently founder of C. Rowland Hanson &
Associates; Charles W. Stryker, Ph.D., President, Marketing
Information Solutions, at IntelliQuest, Inc.; and Sergio
Zyman, a former Vice President and Chief Marketing Officer
of the Coca-Cola Company.
. Executive Recruiting and Human Resources. Members of our
management team assist our partner companies in recruiting
key executive talent. These individuals include Rick Devine,
one of our Managing Directors and a former partner at
Heidrick & Struggles, Inc., an executive recruiting firm. In
providing this assistance, we leverage the contacts
developed by our network of partner companies, management
and Advisory Board. We believe that this is one of the most
important functions that we perform on behalf of our partner
companies. B2B e-commerce companies must locate executives
with both industry and Internet expertise. The market for
these professionals is highly competitive since few persons
possess the necessary mix of skills and experience.
. Information Technology. Our Chief Technology Officer,
Richard G. Bunker, is dedicated to helping our partner
companies with their information systems strategies and
solving problems relating to their current information
technology challenges. Members of our Board of Directors and
Advisory Board who provide guidance in this area include
K.B. Chandrasekhar, Chairman of the Board of Directors of
Exodus Communications, and Peter A. Solvik, the Chief
Information Officer of Cisco Systems, Inc.
. Finance. One of our Managing Directors, John N. Nickolas, an
experienced finance executive, is dedicated to providing
financial guidance to our partner companies in areas such as
corporate finance, financial reporting, accounting and
treasury operations. In providing these services, Mr.
Nickolas leverages the skills and experience of our internal
finance and accounting group, our partner company network
and outside consultants.
. Business Development. B2B e-commerce companies may be
involved in evaluating, structuring and negotiating joint
ventures, strategic alliances, joint marketing agreements,
acquisitions or other transactions. We provide assistance to
our partner companies in all these areas. Our management
team, Advisory Board, strategic investors and partner
companies all assist in this function.
Promote Collaboration Among Our Partner Companies
One of the principal goals of our network is to promote innovation and
collaboration among our partner companies, which has resulted in shared
knowledge and business contacts among our partner companies and the formation of
numerous strategic alliances. We promote collaboration formally by hosting
regularly scheduled seminars relating to partner company operational and
business issues. At these seminars, the executives of partner companies share
their experiences with each other, our management team and the Advisory Board.
For example, at a seminar in 1999, thirteen chief executive officers of our
market maker and enabling service provider partner companies gathered to discuss
e-commerce strategies and business models. In addition, in the last six months
of 1999 we hosted four conferences for our partner companies on various
operational issues ranging from financing strategies to the use of technology.
On an informal basis, we promote collaboration by making introductions and
introducing partner companies to each other.
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Recent examples of collaboration among our partner companies include:
. PaperExchange.com and VerticalNet have developed a strategic
alliance that provides PaperExchange with co-branded access to
leading industry content, including news, feature articles and
interviews from VerticalNet's PulpandPaper On-line property.
VerticalNet's members will get access to PaperExchange's leading
pulp and paper exchange, which is an Internet-based marketplace
for buying and selling pulp and paper products. In addition, the
companies are joining forces to create a comprehensive equipment
listing and career site. By linking their sites together,
PaperExchange.com and VerticalNet are seeking to establish a
leading destination for pulp and paper professionals.
. Commerx, a provider of e-commerce solutions for the industrial
processing market, has formed a strategic alliance with
CommerceQuest, to provide integration solutions to connect
efficiently the systems of processors and manufacturers within
the industries served by Commerx. Commerx will use
CommerceQuest's enableNet solution for deployment of
PlasticsNet.com, the plastics industry's leading electronic
marketplace. CommerceQuest's enableNet provides reliable, real-
time delivery of data with enterprise-strength security and
accurate data transformation across many formats and
applications. This relationship allows PlasticsNet.com users to
conduct e-commerce over their clients' network of choice or
private lines. This state-of-the-art e-commerce infrastructure
will allow for cost efficient implementation and integration with
faster and more seamless transactions.
The collaboration of our partner companies is the result of our role as the
hub of our network. Through the network we identify prospective alliances, make
introductions, assist in strategic planning and monitor the ongoing
relationships among our partner companies. We encourage and facilitate the
information flow among our partner companies. We also control the information
flow by determining the composition of the network. If we believe that a partner
company is not contributing to our network or has lost its strategic importance,
we may sell our interest in that partner company.
Overview of Current Partner Companies
We focus our efforts on building and operating companies in two areas of
the B2B e-commerce market--market makers and enabling service providers.
Market Maker Categories
Market makers may operate in particular industries, such as chemicals, food
or auto parts, or may sell goods and services across multiple industries. Market
makers must tailor their business models to match their markets. We refer to
market makers operating in a particular industry as vertical market makers, and
to market makers operating across multiple industries as horizontal market
makers. Examples of vertical and horizontal market makers are as follows:
. Vertical. An example of one of our vertical market maker
companies is e-Chemicals. e-Chemicals believes that traditional
distribution channels for chemicals burden customers with
excessive transaction costs, high administrative costs and
inefficient logistics. To solve these problems, e-Chemicals has
developed an Internet-based marketplace through which it will
sell a wide range of industrial chemicals to business customers.
e-Chemicals provides products based on streamlined Web-based
ordering processes, outsourced logistics systems and on-line
support.
. Horizontal. One example of our horizontal market maker partner
companies is VerticalNet. As of December 31, 1999, VerticalNet
owned and operated over 50 industry-specific Web sites designed
to act as on-line B2B communities. These trade communities act as
comprehensive sources of information, interaction and e-commerce.
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Market Maker Profiles
Table of Market Makers. The partner companies listed below are integral
to our goal of owning numerous interests in vertical and horizontal market
makers that are strategically complementary to each other. We believe that
establishing an e-commerce presence in major industrial segments of the economy
will enable us to become the premier B2B e-commerce company. The table shows
certain information regarding our market maker partner companies by category as
of December 31, 1999. Our ownership positions have been calculated based on the
issued and outstanding common stock of each partner company, assuming the
issuance of common stock on the conversion or exercise of preferred stock and
convertible notes, but excluding the effect of unexercised options and warrants.
<TABLE>
<CAPTION>
Our Partner
Ownership Company
Category and Name Industry Description of Business Percentage Since
- -------------------------------- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vertical:
Animated Images, Inc. Apparel Provides Internet-based design, communication, 50% 1999
www.appliedintranet.com and procurement services for the apparel and
sewn goods industries.
Arbinet Communications, Inc. Telecommunications Provides an Internet-based trading floor and 8% 1999
www.arbinet.com clearinghouse for telecommunications carriers
to purchase bandwidth.
AUTOVIA Corporation Auto Parts Developing a system to provide Internet-based 16% 1998
www.autovia.net auto parts procurement for professional
automotive and truck repair shops.
Bidcom, Inc. Construction Provides Internet-based project planning and 35% 1999
www.bidcom.com management services for the construction
industry.
Collabria, Inc. Printing Provides Internet-based procurement and 11% 1999
www.collabria.com production services for the commercial
printing industry.
Commerx, Inc. Plastics Provides Internet-based procurement and 40% 1998
www.commerx.com sales of raw materials, tools and maintenance
and repair products for the plastics industry.
ComputerJobs.com, Inc. Technology Provides Internet-based job screening and 33% 1998
www.computerjobs.com Employment resume posting for information technology
professionals, corporations and staffing firms.
CourtLink Legal Provides on-line access to court documents. 19% 1999
www.courtlink.com
CyberCrop.com, Inc. Agriculture Developing a system to provide an 80% 1999
www.cybercrop.com Internet-based service for agricultural
producers to purchase services and inputs, as
well as market their grain crops that include
corn, wheat and soybeans.
Deja.com, Inc. Media Provides a Web-based community for potential 31% 1997
www.deja.com purchasers to access user comments on a
variety of products and services.
e-Chemicals, Inc. Chemicals Provides Internet-based sales and 37% 1998
www.e-chemicals.com distribution of industrial chemicals.
eMerge Interactive, Inc. Livestock Provides Internet-based content, community 28% 1999
www.emergeinteractive.com and transaction services in an on-line
marketplace for the cattle industry.
EmployeeLife.com Healthcare Provides Internet-based solutions for 52% 1999
www.employeelife.com employee health benefits management across
the health care industry.
Internet Commerce Systems, Food Provides Internet-based product introduction 43% 1999
Inc. and promotion services to wholesale and
www.icsfoodone.com retail food distributors.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
iParts Electronic Provides Internet-based sales and 66% 1999
www.ipartsupply.com Components distribution of electronic components.
JusticeLink, Inc. Legal Provides electronic filing, service and 37% 1999
www.justicelink.com retrieval of legal documents and information
among courts, attorneys, their clients and
other interested parties.
MetalSite, L.P. Metals Provides an Internet-based marketplace to 44% 1999
www.metalsite.com source, buy and sell metal products and
connect with metal professionals around the
world.
PaperExchange.com LLC Paper Provides Internet-based sales and 24% 1999
www.paperexchange.com distribution of all grades of pulp and paper.
Plan Sponsor Exchange, Inc. Asset Management Provides a Web-based community for asset 49% 1999
www.plansponsorexchange.com managers to reach fund sponsors.
Retail Exchange.com, Inc. Consumer Goods Provides an online B2B marketplace for the 30% 1999
www.retailexchange.com exchange of excess consumer products.
StarCite! Solutions, Inc. Travel Provides Internet-based services for planning 43% 1999
www.starcite.com and managing corporate meetings for event
planners.
Universal Access, Inc. Tele- Provides Internet-based ordering for 24% 1999
www.universalaccessinc.com communications provisioning and access and transportation
exchange services for network service
providers focused on business customers.
USgift.com Gift, Garden and Provides Internet-based sales and 38% 1999
www.USgift.com Home Decor distribution of gift, garden and home decor
accessories.
Horizontal:
asseTrade.Com, Inc. Used Capital Provides Internet-based asset and inventory 17% 1999
www.assetrade.com Equipment recovery, disposal and management solutions.
eMarketWorld, Inc. Special Event Provides industry-specific Web-based 42% 1999
www.emarketworld.com Services conferences and expositions that help
businesses understand the Internet.
ICG Commerce, Inc. Sourcing Provides strategic sourcing consulting and 60% 1999
www.icgcommerce.com on-line Internet purchasing.
NetVendor Inc. Asset Disposition Provides B2B, industry-specific Internet 27% 1999
www.netvendor.com commerce solutions for mid-size manufacturers
and distributors of automotive, industrial
and electronic products.
ONVIA.com, Inc. Small Business Provides small businesses with a wide breadth 23% 1999
www.onvia.com Services of tailored products and services over the
Internet.
Residential Delivery Logistics Provides home delivery services to e-commerce 38% 1999
Services, Inc. companies, retailers, and catalog companies
www.rdshome.com through a branded network of local agents.
VerticalNet, Inc. Industrial Services Provides industry-specific Web-based trade 34% 1996
www.verticalnet.com communities for businesses and professionals.
</TABLE>
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Enabling Service Provider Categories
Enabling service providers assist traditional businesses in the following
ways:
. Strategic Consulting and Systems Integration. Strategic
consultants assist traditional businesses in developing their e-
commerce strategies. Systems integrators develop and implement
technological infrastructure that enables e-commerce. Systems
integrators also integrate e-commerce applications with existing
enterprise applications. Strategic consultants and systems
integrators typically bill their clients on a project-by-project
basis.
. Software Providers. Software providers design and sell software
applications that support e-commerce and integrate business
functions. Software providers may sell or license their products.
. Outsourced Service Providers. Outsourced service providers offer
software applications, infrastructure and related services
designed to help traditional businesses reduce cost, improve
operational efficiency and decrease time to market. Outsourced
service providers may charge fees on a per-use or periodic basis.
Our current enabling service provider partner companies furnish a variety
of technology-based solutions to their customers. In the future, we may acquire
interests in enabling service providers that focus on two specific types of
solutions: physical fulfillment and financial fulfillment. Physical fulfillment
involves the movement of goods on behalf of market makers or traditional
businesses. Financial fulfillment includes a wide variety of financial services
such as the management of accounts receivable risk and commercial loans.
Enabling Service Provider Profiles
Table of Enabling Service Providers. The partner companies listed below are
important to our strategy because the growth of our partner companies increases
the value of our collaborative network. We believe that enabling service
providers will facilitate innovation and growth of our market maker companies by
providing them with critical services. The following table shows certain
information regarding our enabling service provider partner companies by
category as of December 31, 1999. Our ownership positions have been calculated
based on the issued and outstanding common stock of each partner company,
assuming the issuance of common stock on the conversion or exercise of preferred
stock and convertible notes, but excluding the effect of unexercised options and
warrants.
<TABLE>
<CAPTION>
Our Partner
Ownership Company
Category and Name Description of Business Percentage Since
- -------------------------------------- ------------------------------------------------------------ ------------- --------
<S> <C> <C> <C>
Strategic Consulting and
Systems Integration:
Benchmarking Partners, Inc. Provides e-commerce best practices research and 13% 1996
www.benchmarking.com consulting services to maximize return on investment from
demand/supply chain and e-business initiatives.
Context Integration, Inc. Provides systems integration services focused on customer 14% 1997
www.context.com support, data access and e-commerce.
US Interactive, Inc. Provides a range of consulting and technical services relating 3% 1996
www.usinteractive.com to Internet marketing solutions.
</TABLE>
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<TABLE>
<CAPTION>
Software Providers:
<S> <C> <C> <C>
Blackboard Inc. Provides universities and corporations with applications that 29% 1998
www.blackboard.com enable them to host classes and training on the Internet.
ClearCommerce Corp. Provides comprehensive e-commerce solutions including 15% 1997
www.clearcommerce.com transaction and payment processing, credit card authorization,
fraud tracking and reporting functions.
Entegrity Solutions Corporation Provides encryption software to secure transactions and 11% 1996
www.entegrity.com communications between business applications.
Servicesoft Technologies, Inc. Provides tools and services used by its customers to create 5% 1998
www.servicesoft.com Internet customer service applications consisting of
self-service, e-mail response and live interaction products.
Syncra Software, Inc. Provides software that improves supply chain efficiency through 35% 1998
www.syncra.com collaboration of trading partners over the Internet.
TRADEX Technologies, Inc. Provides e-commerce application software that enables 10% 1999
www.tradex.com enterprises to create on-line marketplaces and exchanges.
Outsourced Service Providers:
Breakaway Solutions, Inc. Provides application service hosting, e-commerce, consulting and 40% 1999
www.breakaway.com systems integration services to growing companies.
CommerceQuest, Inc. Provides a messaging service for data sharing across separate 28% 1998
www.commercequest.com enterprises. Also provides software, systems integration
services and managed network services for application
integration within enterprises or with external trading partners
and customers.
iSky Provides services to improve customer communications 31% 1996
www.isky.com and relationships.
Jamcracker Inc. Provides integrated application service provider services to 24% 1999
www.jamcracker.com middle market companies.
LinkShare Corporation Establishes affiliate relationships for on-line merchants 34% 1998
www.linkshare.com with other Web sites to facilitate e-commerce.
PrivaSeek, Inc. Provides consumers with control of their Web-based 8% 1998
www.privaseek.com personal profiles, allowing merchants to offer
consumers incentives for selective disclosure.
SageMaker, Inc. Provides services that combine an enterprise's external 21% 1998
www.sagemaker.com and internal information assets into a single, Web-
based knowledge management platform.
traffic.com, Inc. Provides real time traffic monitoring for logistics and 20% 1999
www.traffic.com transportation optimization.
United Messaging, Inc. Provides high performance electronic messaging services 37% 1999
www.unitedmessaging.com for organizations with mission critical e-mail networks.
Vivant! Corporation Provides process automation and decision support services 31% 1998
www.vivantcorp.com that enable companies to strategically manage contractors,
consultants and temporary employees.
</TABLE>
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Government Regulations and Legal Uncertainties
As of March 1, 2000, there were few laws or regulations directed
specifically at e-commerce. However, because of the Internet's popularity and
increasing use, new laws and regulations may be adopted. These laws and
regulations may cover issues such as the collection and use of data from Web
site visitors and related privacy issues, pricing, content, copyrights, on-line
gambling, distribution and the quality of goods and services. The enactment of
any additional laws or regulations may impede the growth of the Internet and B2B
e-commerce, which could decrease the revenue of our partner companies and place
additional financial burdens on them.
Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. For example, Congress recently
enacted laws regarding on-line copyright infringement and the protection of
information collected on-line from children. Although these laws may not have a
direct adverse effect on our business or those of our partner companies, they
add to the legal and regulatory burden faced by B2B e-commerce companies. Other
specific areas of legislative activity are:
. Taxes. Congress recently enacted a three-year moratorium, ending
on October 21, 2001, on the application of "discriminatory" or
"special" taxes by the states on Internet access or on products
and services delivered over the Internet. Congress further
declared that there will be no federal taxes on e-commerce until
the end of the moratorium. However, this moratorium does not
prevent states from taxing activities or goods and services that
the states would otherwise have the power to tax. Furthermore,
the moratorium does not apply to certain state taxes that were in
place before the moratorium was enacted.
. On-line Privacy. Both Congress and the Federal Trade Commission
are considering regulating the extent to which companies should
be able to use and disclose information they obtain on-line from
consumers. If any regulations are enacted, B2B e-commerce
companies may find certain marketing activities restricted. The
Federal Trade Commission has issued regulations enforcing the
Children's On-line Privacy Protection Act, which take effect on
April 21, 2000. These regulations make it illegal to collect
information on-line from children under the age of 13 without
first obtaining parental consent. These regulations also require
Web site operators to allow parents to inspect and remove their
children's information from any database. Compliance with these
regulations could pose a significant administrative burden for
Web site operators whose products and services are targeted to
children or may be attractive to children. Also, the European
Union has directed its member nations to enact much more
stringent privacy protection laws than are generally found in the
United States, and has threatened to prohibit the export of
certain personal data to United States companies if similar
measures are not adopted. Such a prohibition could limit the
growth of foreign markets for United States B2B e-commerce
companies. The Department of Commerce is negotiating with the
European Union to provide exemptions from the European Union
regulations, but the outcome of these negotiations is uncertain.
. Regulation of Communications Facilities. To some extent, the
rapid growth of the Internet in the United States has been due to
the relative lack of government intervention in the marketplace
for Internet access. Lack of intervention may not continue in the
future. For example, several telecommunications carriers are
seeking to have telecommunications over the Internet regulated by
the Federal Communications Commission in the same manner as other
telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission to
regulate Internet service providers in a manner similar to long
distance telephone carriers and to impose access fees on these
providers. Some Internet service providers are seeking to have
broadband Internet access over cable systems regulated in much
the same manner as telephone services, which could slow the
deployment of broadband Internet access services. Because of
these proceedings or others, new laws or regulations could be
enacted which could burden the companies that provide the
infrastructure on which the Internet is based, thereby slowing
the rapid expansion of the medium and its availability to new
users.
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<PAGE>
. Other Regulations. The growth of the Internet and e-commerce may lead
to the enactment of more stringent consumer protection laws. The
Federal Trade Commission may use its existing jurisdiction to police
e-commerce activities, and it is possible that the Federal Trade
Commission will seek authority from Congress to regulate certain on-
line activities.
Generally applicable laws may affect us and our partner companies. The
exact applicability of many of these laws to B2B e-commerce, however, is
uncertain.
Proprietary Rights
Our partner companies have copyrights with respect to software
applications, Web sites and other materials. These materials may constitute an
important part of our partner companies' assets and competitive strengths.
Federal law generally protects such copyrights for 90 years from the creation of
the underlying material.
Competition
Competition From our Shareholders and Within our Network
We may compete with our shareholders and partner companies for Internet-
related opportunities. Comcast Corporation and Safeguard Scientifics own 8.1 %
and 13.7 % of our outstanding common stock, respectively, based on the number of
shares held by each of them on March 1, 2000. These shareholders may compete
with us to acquire interests in B2B e-commerce companies. Comcast Corporation
and Safeguard Scientifics currently each has a designee as a member of our board
of directors and IBM Corporation and AT&T Corp. each has a right to designate a
board observer, which may give these companies access to our business plan and
knowledge about potential acquisitions. In addition, we may compete with our
partner companies to acquire interests in B2B e-commerce companies, and our
partner companies may compete with each other for acquisitions or other B2B e-
commerce opportunities. In particular, VerticalNet seeks to expand, in part
through acquisition, its number of B2B communities. VerticalNet, therefore, may
seek to acquire companies that we would find attractive. While we may partner
with VerticalNet on future acquisitions, as of December 31, 1999, we have no
current contractual obligations to do so. We do not have any contracts or other
understandings with our shareholders or partner companies that would govern the
resolution of these potential conflicts. Such competition, and the complications
posed by the designated directors, may deter companies from partnering with us
and may limit our business opportunities.
Competition Facing our Partner Companies
Competition for Internet products and services is intense. As the market
for B2B e-commerce grows, we expect that competition will intensify. Barriers to
entry are minimal, and competitors can offer products and services at a
relatively low cost. Our partner companies compete for a share of a customer's:
. purchasing budget for services, materials and supplies with other on-
line providers and traditional distribution channels;
. dollars spent on consulting services with many established information
systems and management consulting firms; and
. advertising budget with on-line services and traditional off-line
media, such as print and trade associations.
In addition, some of our partner companies compete to attract and retain a
critical mass of buyers and sellers. Several companies offer competitive
solutions that compete with one or more of our partner companies. We expect that
additional companies will offer competing solutions on a stand-alone or combined
basis in the future. Furthermore, our partner companies' competitors may develop
Internet products or services that are superior to, or have greater market
acceptance than, the solutions offered by our partner companies. If our partner
companies are unable to compete successfully against their competitors, our
partner companies may fail.
Many of our partner companies' competitors have greater brand recognition
and greater financial, marketing and other resources than our partner companies.
This may place our partner companies at a disadvantage
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<PAGE>
in responding to their competitors' pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other initiatives.
Competition for Partner Companies
We face competition from other capital providers including publicly-traded
Internet companies, venture capital companies and large corporations. Many of
these competitors have greater financial resources and brand name recognition
than we do. These competitors may limit our opportunity to acquire interests in
new partner companies. If we cannot acquire interests in attractive companies,
our strategy to build a collaborative network of partner companies may not
succeed.
Employees
As of December 31, 1999, excluding our partner companies, we had 70
employees, 69 of whom work with us on a full-time basis. We consider our
relationships with our employees to be good. None of our employees are covered
by a collective bargaining agreement.
Financial Information About Segments
Segment Information is set forth in Note 10 of the Notes of Consolidated
Financial Statements included in Item 8 below and incorporated herein by
reference.
Financial Information About Geographic Areas
We do not believe that foreign or geographic area revenues are material or
significant to an understanding of our business and operations during the three-
year period ending December 31, 1999. Where appropriate, information concerning
our initiatives in Europe is discussed elsewhere in this Item 1.
ITEM 2. PROPERTIES
The location and general description of our properties by reportable
segments as of March 1, 2000 are as follows:
General ICG Operations
We lease approximately 33,000 square feet of office, administrative,
operations and data center space, principally in Wayne, Pennsylvania, San
Francisco, California, Boston, Massachusetts, Seattle, Washington and London,
England, under leases expiring from 2001 to 2017. Our corporate headquarters are
located at 435 Devon Park Drive, Building 800 in an office facility located in
Wayne, Pennsylvania, where we lease approximately 3,650 square feet. We plan to
move into a larger corporate headquarters in Wayne, Pennsylvania during the
first half of 2000.
Partner Company Operations
We lease approximately 21,000 square feet of office, administrative, sales
and marketing, operations and data center space, principally in Pennsylvania,
California, Illinois, Maine, Colorado and the United Kingdom.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during 1999.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, their ages and their positions are as follows:
Name Age Position
---- --- --------
Walter W. Buckley, III (1) 39 President, Chief Executive Officer
and Director
Douglas A. Alexander (2) 38 Managing Director, East Coast
Operations
Kenneth A. Fox (3) 29 Managing Director, West Coast
Operations and Director
David D. Gathman (4) 52 Chief Financial Officer and
Treasurer
Henry N. Nassau (5) 45 Managing Director, General Counsel
and Secretary
(1) Walter W. Buckley, III, is a co-founder and has served as our President
and Chief Executive Officer and as one of our directors since March 1996.
Prior to co-founding us, Mr. Buckley worked for Safeguard Scientifics, Inc. as
Vice President of Acquisitions from 1991 to February 1996. Mr. Buckley
directed many of Safeguard Scientifics' investments and was responsible for
developing and executing Safeguard Scientifics' multimedia and Internet
investment strategies. Mr. Buckley serves as a director of Breakaway
Solutions, Inc., e-Chemicals, Inc., iSky, Inc., PrivaSeek, Inc., Syncra
Software, Inc., VerticalNet, Inc. and Who?Vision Systems, Inc.
(2) Douglas A. Alexander has served as one of our Managing Directors since
September 1997. Prior to joining us, Mr. Alexander co-founded Reality Online,
Inc. in 1986 and sold it to Reuters Group in 1994. Mr. Alexander continued to
serve as President and Chief Executive Officer of Reality Online after its
acquisition by Reuters Group until September 1997 and was a key contributor to
Reuters' Internet initiatives. Mr. Alexander is Chairman of the Board of
VerticalNet, Inc. and serves as a director of Arbinet Communications, Inc.,
Blackboard Inc., ComputerJobs.com, Inc., Deja.com, Inc., eMerge Interactive,
Inc., LinkShare Corporation, SageMaker, Inc., StarCite, Inc. and traffic.com,
Inc.
(3) Kenneth A. Fox is a co-founder and has served as one of our Managing
Directors since our inception in March 1996. Mr. Fox has also served as one of
our directors since February 1999. Prior to co-founding us, Mr. Fox served as
Director of West Coast Operations for Safeguard Scientifics, Inc. and
Technology Leaders II, L.P., a venture capital partnership, from 1994 to 1996.
In this capacity, Mr. Fox led the development of and managed the West coast
operations for these companies. Mr. Fox serves as a director of AUTOVIA
Corporation, Bidcom, Inc., Commerx, Inc., Deja.com, Inc., Entegrity Solutions
Corporation, ONVIA.com, Inc. and Vivant! Corporation.
(4) David D. Gathman has served as our Chief Financial Officer and Treasurer
since January 1999. Prior to joining us, Mr. Gathman was Chief Financial
Officer and Executive Vice President, Finance and Administration of Integrated
Systems Consulting Group, Inc. from January 1997 through its merger with First
Consulting Group, Inc. in December 1998. He also served as Chief Operating
Officer, Vice President, Secretary and Assistant Treasurer of Integrated
Systems Consulting Group, Inc. from April 1994 to December 1998 and as a
director of the company. Mr. Gathman brings to us over 30 years of finance-
related experience, the last 16 of which were focused in the information
technology industry.
(5) Henry N. Nassau has served as one of our Managing Directors and as our
General Counsel and Secretary since May 1999. Mr. Nassau was a partner in the
law firm of Dechert Price & Rhoads from September 1987 to May 1999 and was
Chair of the Business Department from January 1998 to May 1999. At Dechert
Price & Rhoads, Mr. Nassau engaged in the practice of corporate law,
concentrating on mergers and acquisitions. Mr.
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Nassau serves as a director of The Albert Abela Corporation, Bliley Electric
Company, JusticeLink, Inc. and Data West Corporation which does business as
CourtLink.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Our common stock is traded on the Nasdaq National Market under the
symbol "ICGE." Our initial public offering of stock occurred on August 5, 1999
at $6.00 per share. The price range per share reflected in the table below is
the highest and lowest sale price for our stock as reported by the Nasdaq
National Market during each quarter our common stock has been publicly traded.
The information provided below has been restated to reflect a two-for-one stock
split, in the form of a 100% stock dividend, to each shareholder of record as of
December 6, 1999.
Three Months Ended
Sep. 30, 1999 Dec. 31, 1999
Price range per share:
Low $ 7.00 $ 43.00
High $53.75 $193.63
As of March 1, 2000, the last reported sale price for our common stock on
the Nasdaq National Market was $110.50 per share.
(b) Holders. As of March 1, 2000, there were approximately 1,392 holders
of record of our common stock.
(c) Dividends. We have never declared or paid cash dividends on our
capital stock, and we do not intend to pay cash dividends in the foreseeable
future. We plan to retain any earnings for use in the operation of our business
and to fund future growth.
(d) Sale of Unregistered Securities.
(1) In January 1999, Internet Capital Group, L.L.C. issued an
aggregate of 158,750 units of Membership Interests to a director of Internet
Capital Group and other purchasers in a private placement subscription offering
for an aggregate purchase price of $317,500.
(2) On February 2, 1999, each unit of the foregoing Membership
Interests was converted into one share of our Common Stock as a result of the
merger of Internet Capital Group, L.L.C. into Internet Capital Group.
(3) In February 1999, we issued an aggregate of 14,706,250 shares of
Common Stock to employees, directors, consultants and other purchasers in a
private placement subscription offering for an aggregate purchase price of
$29,412,500.
(4) In March 1999, we issued an aggregate of 1,125,000 shares of
Common Stock to consultants and other purchasers in a private placement
subscription offering for an aggregate purchase price of $2,250,000.
(5) On August 4, 1999, we issued 254,635 shares of Common Stock to
PaperExchange.com LLC in a private placement, in conjunction with our previous
agreement to acquire PaperExchange.com LLC, for a purchase price of $2,750,058.
(6) On August 5, 1999, we issued 3,750,000 shares of Common Stock to
International Business Machines Corporation in a private placement occurring a
the same time as our initial public offering for a
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purchase price of $45,000,000. Merrill Lynch & Co. acted as the placement agent
in connection with this transaction, and we paid $2,250,000 in placement agency
fees to Merrill Lynch & Co.
(7) On November 22, 1999, we issued 262,319 shares of Common Stock to
PaperExchange.com LLC in a private placement, in conjunction with our previous
agreement to acquire PaperExchange.com LLC, for a purchase price of $2,833,045.
(8) In December 1999, each of the above-described shares of Common
Stock of Internet Capital Group was converted into two shares of common stock
due to a stock split by way of a 100% stock dividend.
(9) On December 13, 1999, we issued 609,533 shares of Common Stock of
AT&T Corp. in a private placement for a purchase price of $50,000,000.
(10) On December 15, 1999, we issued 462,962 shares of Common Stock to
Ford Motor Company in a private placement occurring at the same as our follow-on
public offering of Common Stock for a purchase price of $50,000,000.
(11) On December 15, 1999, we issued 185,185 shares of Common Stock to
Internet Assets, Inc. in a private placement occurring at the same time as our
follow-on public offering of Common Stock for a purchase price of $20,000,000.
Warrants to Purchase Common Stock
On May 10, 1999, in conjunction with our issuance of convertible
subordinated notes, we granted to the holders of our convertible notes warrants
exercisable at the initial public offering price of $6 per share to purchase
approximately 3,000,000 shares of our Common Stock.
On April 30, 1999, in conjunction with our Secured Revolving Credit
Facility dated April 30, 1999, we granted to the lenders warrants exercisable at
$5 per share to purchase an aggregate of 400,000 shares of our Common Stock.
Notes Convertible to Common Stock
On May 10, 1999, we issued convertible subordinated notes in an aggregate
principal amount of $90 million. Upon consummation of our initial public
offering on August 5, 1999, the convertible notes automatically converted into
approximately 15,000,000 shares of our common stock at the initial public
offering price of $6 per share.
On December 15, 1999, we issued $20,000,000 principal amount of our 5-1/2%
Convertible Subordinated Notes due 2004 to Internet Assets, Inc. in a private
placement. The notes are convertible, at the option of the holder, at any time
on or before December 21, 2004 into shares of our Common Stock. The conversion
price is $127.44 per share, which is equal to a conversion rate of 7.8468 shares
per $1,000 principal amount of notes, subject to adjustment.
Options to Purchase Common Stock
We have granted from time to time stock options to our employees,
directors, advisory board members and certain employees of our partner
companies. For the 12 months ended December 31, 1999, option to purchase
28,995,500 shares of Common Stock were granted at a weighted average exercise
price of $6.82 per share.
The sale and issuance of securities in the transactions described above
were exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act as transactions by an issuer not involving a public
offering, where the purchasers were sophisticated investors who represented
their intention to acquire securities for investment only and not with a view to
distribution and received or had access to adequate information about the
Company, or in reliance on Rule 701 promulgated under the Securities Act.
19
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected historical financial
information of Internet Capital Group that has been derived from our audited
financial statements from March 4, 1996, the date of our inception, through
December 31, 1996 and for each of the three years ended December 31, 1997, 1998
and 1999, respectively. The financial information may not be indicative of our
future performance. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and Notes
thereto included in this Report.
<TABLE>
<CAPTION>
March 4, 1996
(Inception) to
(in thousands except per share amounts) December 31, Year Ended December 31,
-----------------------
1996 1997 1998 1999
---- ----------------------------------------
<S> <C> <C> <C> <C>
Consolidated Statements of Operations Data:
Revenue....................................................... $ 285 $ 792 $ 3,135 $ 16,536
------- ------- -------- ----------
Operating Expenses
Cost of revenue............................................. 427 1,767 4,643 8,156
Selling, general and administrative........................ 1,921 5,743 15,514 48,924
------- ------- -------- ----------
Total operating expenses................................... 2,348 7,510 20,157 57,080
------- ------- -------- ----------
(2,063) (6,718) (17,022) (40,544)
Other income, net.......................................... -- -- 30,483 67,384
Interest income (expense), net............................. 88 138 925 5,734
------- ------- -------- ----------
Income (Loss) Before Income Taxes, Minority
Interest and Equity Income (Loss).......................... (1,975) (6,580) 14,386 32,574
Income taxes.................................................. -- -- -- 23,722
Minority interest............................................. 427 (106) 5,382 6,026
Equity income (loss).......................................... (514) 106 (5,869) (92,099)
------- ------- -------- ----------
Net Income (Loss)............................................. $(2,062) $(6,580) $ 13,899 $ (29,777)
======= ======= ======== ==========
Net income (loss) per share - diluted......................... $(0.05) $(0.10) $0.12 $(0.15)
Weighted average shares outstanding - diluted................. 40,792 68,198 112,299 201,851
Pro forma net income (loss) (unaudited)....................... $ 8,756 $ (37,449)
Pro forma net income (loss) per share-diluted (unaudited)..... $0.08 $(0.19)
Consolidated Balance Sheet Data:
Cash and cash equivalents..................................... $ 3,215 $ 5,967 $ 26,841 $1,343,459
Working capital............................................... 4,883 2,391 20,453 1,305,380
Total assets.................................................. 13,629 31,481 96,785 2,050,384
Long-term debt................................................ 167 400 352 3,185
Convertible subordinated notes................................ -- -- -- 566,250
Total shareholders' equity.................................... 12,859 26,635 80,724 1,420,221
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth elsewhere in this Report and the risks discussed in
our other SEC filings. The following discussion should be read in conjunction
with our audited Consolidated Financial Statements and related Notes thereto
included elsewhere in this Report.
20
<PAGE>
General
Internet Capital Group is an Internet company actively engaged in B2B e-
commerce through a network of partner companies. As of December 31, 1999, we
owned interests in 49 B2B e-commerce companies that we refer to as our partner
companies. We focus on two types of B2B e-commerce companies, which we call
market makers and enabling service providers.
Because we acquire significant interests in B2B e-commerce companies, many
of which generate net losses, we have experienced, and expect to continue to
experience, significant volatility in our quarterly results. We do not know if
we will report net income in any period, and we expect that we will report net
losses in many quarters for the foreseeable future. While our partner companies
have consistently reported losses, we have recorded net income in certain
periods and experienced significant volatility from period to period due to one-
time transactions and other events incidental to our ownership interests in and
advances to partner companies. These transactions and events are described in
more detail under "Net Results of Operations-- General ICG Operations--Other
Income" and include dispositions of, and changes to, our partner company
ownership interests, dispositions of our holdings of available-for-sale
securities, and impairment charges. On a continuous basis, but no less
frequently than at the end of each reporting period, we evaluate the carrying
value of our ownership interests in and advances to each of our partner
companies for possible impairment based on achievement of business plan
objectives and milestones, the fair value of each ownership interest and advance
in the partner company relative to carrying value, the financial condition and
prospects of the partner company, and other relevant factors. The business plan
objectives and milestones we consider include, among others, those related to
financial performance such as achievement of planned financial results or
completion of capital raising activities, and those that are not primarily
financial in nature such as the launching of a Web site or the hiring of key
employees. The fair value of our ownership interests in and advances to
privately held partner companies is generally determined based on the value at
which independent third parties have invested or have committed to invest in our
partner companies.
The presentation and content of our consolidated financial statements is
largely a function of the presentation and content of the financial statements
of our partner companies. To the extent our partner companies change the
presentation or content of their financial statements, as may be required upon
review by the Securities and Exchange Commission or changes in accounting
literature, the presentation and content of our financial statements may also
change.
On August 23, 1999 the Securities and Exchange Commission granted our
request for an exemption under Section 3(b)(2) of the Investment Company Act,
declaring us to be primarily engaged in a business other than that of investing,
reinvesting, owning, holding or trading in securities. Because of our operating
focus, the significant ownership interests we hold in our partner companies and
the greater operating flexibility we obtain from the exemptive order, we do not
believe that the Investment Company Act will adversely affect our operations or
shareholder value.
Effect of Various Accounting Methods on our Results of Operations
The various interests that we acquire in our partner companies are
accounted for under three broad methods: consolidation, equity method and cost
method. The applicable accounting method is generally determined based on our
voting interest in a partner company.
Consolidation. Partner companies in which we directly or indirectly own
more than 50% of the outstanding voting securities are generally accounted for
under the consolidation method of accounting. Under this method, a partner
company's results of operations are reflected within our Consolidated Statements
of Operations. Participation of other partner company shareholders in the
earnings or losses of a consolidated partner company is reflected in the caption
"Minority interest" in our Consolidated Statements of Operations. Minority
interest adjusts our consolidated net results of operations to reflect only our
share of the earnings or losses of the consolidated partner company. VerticalNet
was our only consolidated partner company through December 31, 1998. However,
due to VerticalNet's initial public offering in February 1999, our voting
ownership interest in VerticalNet decreased below 50% and we have accounted for
VerticalNet under the equity method of accounting since February 1999. We
acquired controlling majority voting interests in Breakaway Solutions during the
three months ended March 31, 1999, EmployeeLife.com and iParts during the three
months ended June 30, 1999, CyberCrop.com (previously AgProducer Network) during
the three months ended September 30, 1999 and Animated Images and ICG
21
<PAGE>
Commerce during the three months ended December 31, 1999, each of which was
consolidated from the date of its acquisition. Due to Breakaway Solutions'
initial public offering in October 1999, our voting ownership interest in
Breakaway Solutions decreased below 50% and we have accounted for Breakaway
Solutions under the equity method of accounting since October 1999. As of
December 31, 1999, Animated Images, CyberCrop.com, EmployeeLife.com, ICG
Commerce, and iParts were our only consolidated partner companies.
The effect of a partner company's net results of operations on our net
results of operations is generally the same under either the consolidation
method of accounting or the equity method of accounting, because under each of
these methods only our share of the earnings or losses of a partner company is
reflected in our net results of operations in the Consolidated Statements of
Operations.
Equity Method. Partner companies whose results we do not consolidate, but
over whom we exercise significant influence, are generally accounted for under
the equity method of accounting. Whether or not we exercise significant
influence with respect to a partner company depends on an evaluation of several
factors including, among others, representation on the partner company's board
of directors and ownership level, which is generally a 20% to 50% interest in
the voting securities of the partner company, including voting rights associated
with our holdings in common, preferred and other convertible instruments in the
partner company. Under the equity method of accounting, a partner company's
results of operations are not reflected within our Consolidated Statements of
Operations; however, our share of the earnings or losses of the partner company
is reflected in the caption "Equity income (loss)" in the Consolidated
Statements of Operations. As of December 31, 1998, we accounted for eight of our
partner companies under the equity method of accounting. As of December 31,
1999, we accounted for 31 of our partner companies using this method.
Our partner companies accounted for under the equity method of accounting
at December 31, 1998 and 1999 included:
<TABLE>
<CAPTION>
Voting Ownership
----------------------------
Partner
Company December 31, December 31,
Since 1998 1999
----------------------------------------
<S> <C> <C> <C>
EQUITY METHOD:
AsseTRADE.com, Inc................................. 1999 N/A 17%
Bidcom, Inc........................................ 1999 N/A 35%
Blackboard Inc..................................... 1998 35% 29%
Breakaway Solutions, Inc........................... 1999 N/A 40%
CommerceQuest, Inc................................. 1998 N/A 28%
CommerX, Inc....................................... 1998 34% 40%
ComputerJobs.com, Inc.............................. 1998 33% 33%
CourtLink, Inc..................................... 1999 N/A 19%
eMarketWorld, Inc.................................. 1999 N/A 42%
eMerge Interactive, Inc............................ 1999 N/A 45%
Internet Commerce Systems, Inc..................... 1999 N/A 43%
iSky, Inc.......................................... 1996 31% 31%
Jamcracker, Inc.................................... 1999 N/A 24%
JusticeLink, Inc................................... 1999 N/A 37%
LinkShare Corporation.............................. 1998 34% 34%
MetalSite, LLC..................................... 1999 N/A 44%
NetVendor, Inc..................................... 1999 N/A 27%
ONVIA.com, Inc..................................... 1999 N/A 23%
PaperExchange.com LLC.............................. 1999 N/A 24%
Plan Sponsor Exchange, Inc......................... 1999 N/A 49%
Residential Delivery Services, Inc................. 1999 N/A 38%
RetailExchange, Inc................................ 1999 N/A 30%
SageMaker, Inc..................................... 1998 22% 21%
StarCite, Inc...................................... 1999 N/A 43%
Syncra Software, Inc............................... 1998 53% 35%
traffic.com, Inc................................... 1999 N/A 20%
United Messaging, Inc.............................. 1999 N/A 37%
Universal Access, Inc.............................. 1999 N/A 24%
Usgift.com, Inc.................................... 1999 N/A 38%
VerticalNet, Inc................................... 1996 N/A 34%
Vivant! Corporation................................ 1998 23% 31%
</TABLE>
22
<PAGE>
As of December 31, 1999, we owned voting convertible preferred stock in all
companies listed except Breakaway Solutions and VerticalNet. In addition, we
also owned common stock in CommerceQuest, iSky, SageMaker, and Universal
Access. Our voting ownership in Breakaway Solutions and VerticalNet consisted
only of common stock at December 31, 1999. VerticalNet was consolidated at
December 31, 1998. CommerceQuest and Universal Access were accounted for under
the cost method of accounting at December 31, 1998. We have representation on
the board of directors of all of the above partner companies. During the year
ended December 31, 1999, Sky Alland Marketing changed its name to iSky.
Most of our equity method partner companies are in a very early stage of
development and have not generated significant revenues. In addition, most
equity method partner companies incurred substantial losses in 1998 and 1999 and
are expected to continue to incur substantial losses in 2000. One equity method
partner company at December 31, 1998 generated a net profit of less than $1
million in 1998; however, this partner company did not generate a profit in
1999. Additionally, we recognize goodwill amortization expense related to the
"excess basis" of our equity method partner companies.
Cost Method. Partner companies not accounted for under either the
consolidation or the equity method of accounting are accounted for under the
cost method of accounting. Under this method, our share of the earnings or
losses of these companies is not included in our Consolidated Statements of
Operations.
Our partner companies accounted for under the cost method of accounting at
December 31, 1998 and 1999 included:
<TABLE>
<CAPTION>
Partner Voting Ownership
Company December 31, December 31,
Since 1998 1999
<S> <C> <C> <C>
COST METHOD:
Arbinet Communications, Inc.............................. 1999 N/A 8%
AUTOVIA Corporation...................................... 1998 15% 16%
Benchmarking Partners, Inc............................... 1996 13% 12%
ClearCommerce Corporation................................ 1997 17% 15%
Collabria, Inc........................................... 1999 N/A 11%
CommerceQuest, Inc....................................... 1998 0% N/A
Context Integration, Inc................................. 1997 18% 14%
Deja.com, Inc............................................ 1997 0% 2%
e-Chemicals, Inc......................................... 1998 0% 0%
Entegrity Solutions Corporation.......................... 1996 12% 11%
PrivaSeek, Inc........................................... 1998 16% 8%
ServiceSoft Technologies, Inc............................ 1998 12% 5%
TRADEX Technologies, Inc................................. 1999 N/A 10%
US Interactive, Inc...................................... 1996 4% 3%
</TABLE>
In most cases, we have representation on the board of directors of the
above companies, including those in which we hold non-voting securities. As of
December 31, 1999, we owned voting convertible preferred stock in all companies
listed except Deja.com, in which we owned non-voting convertible preferred
stock, and e-Chemicals, in which we owned non-voting convertible debentures. In
addition, we also owned common stock in Deja.com. We record our ownership in
debt securities at cost as we have the ability and intent to hold these
securities until maturity. In addition to our investments in voting and non-
voting equity and debt securities, we also periodically make advances to our
partner companies in the form of promissory notes. There were advances to cost
method partner companies totaling $2.1 million at December 31, 1999. During the
year ended December 31, 1999, RapidAutoNet Corporation changed its name to
AUTOVIA Corporation.
Most of our cost method partner companies are in a very early stage of
development and have not generated significant revenues. In addition, most cost
method partner companies incurred substantial losses in 1998 and 1999 and are
expected to continue to incur substantial losses in 2000. Two cost method
partner companies were profitable in 1998, one of which was not profitable in
1999. None of our cost method partner companies have paid
23
<PAGE>
dividends during our period of ownership and they generally do not intend to pay
dividends in the foreseeable future. US Interactive is accounted for under SFAS
115.
Effect of Various Accounting Methods on the Presentation of our Consolidated
Financial Statements
The presentation of our consolidated financial statements may differ from
period to period primarily due to whether or not we apply the consolidation
method of accounting or the equity method of accounting. For example, since our
inception through December 31, 1998 we consolidated VerticalNet's financial
statements with our own. However, due to VerticalNet's initial public offering
in February 1999, our voting ownership interest in VerticalNet decreased to
below 50%. Therefore, we have applied the equity method of accounting since
February 1999. We also consolidated Breakaway Solutions' financial statements
from the date of acquisition (January 6, 1999) through September 30, 1999.
However, due to Breakaway Solutions' initial public offering in October 1999,
our voting ownership interest in Breakaway Solutions decreased to below 50%.
Therefore, we have applied the equity method of accounting since October 1999.
We acquired controlling majority voting interests in Breakaway Solutions
during the three months ended March 31, 1999, EmployeeLife.com and iParts during
the three months ended June 30, 1999, CyberCrop.com during the three months
ended September 30, 1999, and Animated Images and ICG Commerce during the three
months ended December 31, 1999, each of which was consolidated from the date of
its acquisition. The presentation of our consolidated financial statements looks
substantially different for the year ended December 31, 1999 compared to 1998 as
a result of consolidating Animated Images, Breakaway Solutions, CyberCrop.com,
EmployeeLife.com, ICG Commerce, and iParts and no longer consolidating
VerticalNet in our consolidated financial statements.
To understand our net results of operations and financial position without
the effect of consolidating our majority owned subsidiaries, Note 11 to our
Consolidated Financial Statements summarizes our Parent Company Statements of
Operations and Balance Sheets which treat VerticalNet, Animated Images,
Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts
as if they were accounted for under the equity method of accounting for all
periods presented. Our share of the losses of VerticalNet, Animated Images,
Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts
is included in "Equity income (loss)" in the Parent Company Statements of
Operations. The losses recorded in excess of the carrying value of VerticalNet
at December 31, 1997 and 1998 are included in "Non-current liabilities" and the
carrying value of VerticalNet, Animated Images, Breakaway Solutions,
CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts as of December 31,
1999 are included in "Ownership interests in and advances to Partner Companies"
in the Parent Company Balance Sheets.
Net Results of Operations
Our reportable segments determined in accordance with Statement of
Financial Accounting Standards No. 131 are Partner Company Operations and
General ICG Operations. Partner Company Operations includes the effect of
consolidating VerticalNet for the period from our inception on March 4, 1996
through December 31, 1998 and Animated Images, Breakaway Solutions,
CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts from their dates of
acquisition in 1999, and recording our share of earnings or losses of partner
companies accounted for under the equity method of accounting. General ICG
Operations represents the expenses of providing strategic and operational
support to our partner companies, as well as the related administrative costs
related to these expenses. General ICG Operations also includes the effect of
transactions and other events incidental to our ownership interests in our
partner companies and our operations in general.
24
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
Year Ended December 31,
--------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Summary of Consolidated Net Income (Loss)
Partner Company Operations................................. $ (4,779) $ (14,081) $ (103,418)
General ICG Operations..................................... (1,801) 27,980 73,641
-------- --------- ----------
Net income (loss) -- Consolidated Total.................... $ (6,580) $ 13,899 $ (29,777)
======== ========= ==========
Partner Company Operations
Revenue.................................................... $ 792 $ 3,135 $ 16,536
Operating expenses
Cost of revenue......................................... 1,767 4,643 8,156
Selling, general and administrative..................... 3,689 12,001 25,535
-------- --------- ----------
Total operating expenses................................ 5,456 16,644 33,691
-------- --------- ----------
(4,664) (13,509) (17,155)
Other income (expense), net................................ -- -- (258)
Interest income............................................ 11 212 243
Interest expense........................................... (126) (297) (175)
-------- --------- ----------
Income (loss) from Partner Company Operations
before income taxes, minority interest and
equity income (loss).................................... (4,779) (13,594) (17,345)
Income taxes............................................... -- -- --
Minority interest.......................................... (106) 5,382 6,026
Equity income (loss)....................................... 106 (5,869) (92,099)
-------- --------- ----------
Loss from Partner Company Operations....................... $ (4,779) $ (14,081) $ (103,418)
======== ========= ==========
General ICG Operations
General and administrative................................. $ 2,054 $ 3,513 $ 23,389
-------- --------- ----------
(2,054) (3,513) (23,389)
Other income (expense), net................................ -- 30,483 67,642
Interest income............................................ 253 1,094 9,388
Interest expense........................................... -- (84) (3,722)
-------- --------- ----------
Income (loss) from General ICG Operations before
income taxes............................................ (1,801) 27,980 49,919
Income taxes............................................... -- -- 23,722
-------- --------- ----------
Income (loss) from General ICG Operations.................. $ (1,801) $ 27,980 $ 73,641
======== ========= ==========
Consolidated Total
Revenue.................................................... $ 792 $ 3,135 $ 16,536
Operating expenses
Cost of revenue......................................... 1,767 4,643 8,156
Selling, general and administrative..................... 5,743 15,514 48,924
-------- --------- ----------
Total operating expenses................................ 7,510 20,157 57,080
-------- --------- ----------
(6,718) (17,022) (40,544)
Other income (expense), net................................ -- 30,483 67,384
Interest income............................................ 264 1,306 9,631
Interest expense........................................... (126) (381) (3,897)
-------- --------- ----------
Income (loss) before income taxes, minority
interest and equity income (loss)...................... (6,580) 14,386 32,574
Income taxes............................................... -- -- 23,722
Minority interest.......................................... (106) 5,382 6,026
Equity income (loss)....................................... 106 (5,869) (92,099)
-------- --------- ----------
Net income (loss) -- Consolidated Total.................... $ (6,580) $ 13,899 $ (29,777)
======== ========= ==========
Pretax income (loss)....................................... $ 13,899 $ (53,499)
Pro forma income taxes..................................... (5,143) 16,050
--------- ----------
Pro forma net income (loss)................................ $ 8,756 $ (37,449)
========= ==========
</TABLE>
25
<PAGE>
Net Results of Operations-Partner Company Operations
Breakaway Solutions was consolidated from its acquisition in January 1999
through September 30, 1999 and accounted for $14.7 million and $24.2 million of
our Partner Company Operations' revenue and operating expenses, respectively,
for the year ended December 31, 1999. Breakaway Solutions was accounted for
under the equity method of accounting for the three months ended December 31,
1999.
Animated Images, CyberCrop.com, EmployeeLife.com, ICG Commerce and iParts
were consolidated from their dates of acquisition in 1999 and accounted for $1.8
million and $9.5 million of our Partner Company Operations' revenue and
operating expenses, respectively, for the year ended December 31, 1999.
For the years ended December 31, 1997 and 1998 VerticalNet was our only
consolidated partner company and accounted for all of the revenue and operating
expenses of our Partner Company Operations' segment. VerticalNet was accounted
for under the equity method of accounting in 1999.
Breakaway Solutions-Analysis of the Nine Months Ended September 30, 1999
Breakaway Solutions is a full service provider of e-business solutions that
allow growing enterprises to capitalize on the power of the Internet to reach
and support customers and markets. Breakaway Solutions' services consist of
Breakaway Solutions strategy consulting, Breakaway Solutions Internet solutions,
Breakaway Solutions eCRM solutions and Breakaway Solutions application hosting.
From Breakaway Solutions' inception in 1992 through 1998, the company's
operating activities primarily consisted of providing strategy consulting and
systems integration services. Prior to its acquisition of Applica in 1999,
Breakaway Solutions derived no revenues from application hosting. The company
believes, however, that application hosting will account for a significantly
greater portion of revenues in the future. Breakaway Solutions generated $6.1
million, $10 million, and $25.4 million of revenue in 1997, l998 and 1999,
respectively, resulting in net income in 1997 of $1.1 million and net losses in
1998 and 1999 of $.6 million and $10.4 million, respectively.
The following is a discussion of Breakaway Solutions' net results of
operations for the portion of the year ended December 31, 1999 that it was
consolidated, which was from the date of acquisition in January 1999 through
September 30, 1999 . Breakaway Solutions' comparative results of operations for
the comparable 1998 period are not meaningful.
Revenue. Breakaway Solutions' revenue of $14.7 million for the nine months
ended September 30, 1999 was derived primarily from Internet professional
services and eCRM solutions. Through organic growth and acquisitions, Breakaway
Solutions expanded in 1999 into custom Web development and application hosting.
Cost of Revenue. Cost of revenue of $7 million for the nine months ended
September 30, 1999 consists primarily of Breakaway Solutions' personnel-related
costs of providing its services. As Breakaway Solutions expands into custom Web
development and application hosting, it is incurring the direct costs of these
operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of $14.7 million for the nine months ended September 30,
1999 consist of trade show expenses, personnel costs, facility costs,
professional fees and general costs to support operations. Breakaway Solutions
expects selling, general and administrative expenses to increase significantly
in future periods due to the expected growth in its infrastructure, hiring of
additional dedicated sales and marketing employees and the expected significant
amortization of intangible assets from its acquisitions. Also included in
selling, general and administrative expenses for the nine months ended September
30, 1999 was $2.5 million of goodwill amortization related to the acquisition of
our ownership interest in Breakaway Solutions.
Other Consolidated Companies - Analysis of the Year Ended December 31, 1999
Animated Images, CyberCrop.com, EmployeeLife.com, ICG Commerce and iParts were
consolidated from their dates of acquisition in 1999 and accounted for $1.8
million and $8.6 million of our Partner Company Operations' revenue and
operating expenses, respectively, for the year ended December 31, 1999.
CyberCrop.com, EmployeeLife.com and iParts are development stage companies, have
generated negligible revenue since their inception, and incurred aggregate
operating expenses of $4.3 million during the year ended December 31, 1999.
Animated Images and ICG Commerce generated aggregate revenues of approximately
$1.8 million during the
26
<PAGE>
period from acquisition in 1999 through December 31, 1999 and incurred aggregate
operating expenses of $4.3 million during the same period, primarily general and
administrative expenses as they deploy their business models. Also included in
selling, general and administrative expenses for the year ended December 31,
1999 was $0.8 million of goodwill amortization related to our acquisitions of
these partner companies.
VerticalNet-Analysis of the Two Year Period Ended December 31, 1998
VerticalNet owns and operates industry-specific websites designed as online
business-to-business communities, known as vertical trade communities. These
vertical trade communities act as comprehensive sources of information,
interaction and electronic commerce.
During the periods ended December 31, 1996, 1997 and 1998 we acquired
equity ownership interests in VerticalNet for $1 million, $2 million and $4
million, respectively. In 1998, we made advances to VerticalNet in the form of
convertible notes of $5 million, of which $.8 million was repaid by VerticalNet,
$2.1 million was purchased from us by one of our shareholders, and $2.1 million
was converted into common stock during the three months ended March 31, 1999.
For the periods ended December 31, 1997 and 1998, VerticalNet was our only
consolidated partner company. The following is a discussion of VerticalNet's net
results of operations for the two year period ended December 31, 1998:
Revenue. Revenue was $.8 million for the year ended December 31, 1997 and
$3.1 million for the year ended December 31, 1998. The increase in revenue was
due primarily to an increase in the number of advertisers as a result of
VerticalNet's marketing efforts and the increase in the number of industry-
specific trade communities from 16 as of December 31, 1997 to 33 as of December
31, 1998. Advertising revenue and Web site development fees represented all of
VerticalNet's revenue in 1997. In 1998, most of VerticalNet's revenue was
generated from selling advertisements to industry suppliers in its trade
communities. All advertising revenue is recognized ratably in the period in
which the advertisement is displayed, provided that the collection is reasonably
assured. VerticalNet also generates revenue from career services, education, and
e-commerce, specifically the sale of books and third party software for which
they receive a transaction fee, and from barter transactions.
Cost of Revenue. Cost of revenue was $1.8 million in 1997 and $4.6 million
in 1998. Cost of revenue consists of editorial, operational and product
development expenses. The increase in cost of revenue was due to increased
staffing and the costs of enhancing the features, content and services of
VerticalNet's industry-specific trade communities, as well as increasing the
overall number of trade communities.
Selling, General and Administrative Expenses. Selling expenses were $2.3
million for the year ended December 31, 1997 and $7.9 million for the year ended
December 31, 1998. The increase in selling expenses was primarily due to the
increased number of sales and marketing personnel, increased sales commissions
and increased expenses related to promoting VerticalNet's industry-specific
trade communities. General and administrative expenses were $1.4 million for
the year ended December 31, 1997 and $4.1 million for the year ended December
31, 1998. The increase in general and administrative expenses was due primarily
to increased staffing levels, higher facility costs, professional fees to
support the growth of VerticalNet's infrastructure and goodwill amortization
related to VerticalNet's 1998 acquisitions.
Equity Income (Loss)
A significant portion of our net results of operations is derived from
companies in which we hold a significant minority ownership interest. These
companies are accounted for under the equity method of accounting. Equity income
(loss) fluctuates with the number of companies accounted for under the equity
method, our voting ownership percentage in these companies, the amortization of
goodwill related to newly acquired ownership interests in equity method
companies, and the net results of operations of these companies. During the
years ended December 31, 1998 and 1999 we utilized cash, stock, or notes payable
totalling $23.7 million and $495.6 million, respectively, to acquire partner
company interests accounted for under the equity method of accounting which
resulted in goodwill of $15.1 million and $293.7 million, respectively, which is
being amortized over 3 years. Without giving effect to additional acquisitions
in equity method companies subsequent to December 31, 1999, we expect goodwill
amortization related to equity method companies to approximate $102 million in
2000. The extent to which actual goodwill amortization in 2000 related to
equity method companies exceeds this estimate will depend
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primarily upon the amount of capital we deploy in 2000 for the acquisition of
additional ownership interests in equity method companies.
During the year ended December 31, 1999 we accounted for 31 companies under
the equity method of accounting, including VerticalNet, compared to eight
companies during 1998. All 31 of the companies incurred losses in the year ended
December 31, 1999. Our equity loss of $92.1 million for the year ended December
31, 1999 consisted of $72.3 million related to our share of the equity method
companies' losses and $19.8 million of amortization of the goodwill of these
companies. Of the $72.3 million equity loss related to our share of the losses
of companies accounted for under the equity method for the year ended December
31, 1999, $19.2 million and $9.3 million, respectively, were attributable to
VerticalNet and Onvia.com, while the other 29 companies accounted for the
remaining equity losses ranging from less than $0.1 million to $6.2 million.
For the year ended December 31, 1999, VerticalNet had revenue of $20.8
million and a net loss of $53.5 million compared to revenue of $3.1 million and
a net loss of $13.6 million for the comparable period in 1998. VerticalNet's
revenue increased period to period primarily due to a significant increase in
the number of storefronts as it grew the number of its vertical trade
communities from 29 as of December 31, 1998 to 55 as of December 31, 1999. In
addition, barter transactions, in which VerticalNet received advertising or
other services in exchange for advertising on its Web sites, accounted for 23%
of revenues for the year ended December 31, 1999 compared to 19% in 1998.
VerticalNet's losses increased period to period due to its costs of maintaining,
operating, promoting and increasing the number of its vertical trade communities
increasing more than revenue, increased amortization of goodwill associated with
acquisitions and a $13.6 million charge for in-process research and development
expensed in August 1999 relating to VerticalNet's acquisition of Isadra.
For the year ended December 31, 1999, Onvia.com had revenue of $27.2
million and a net loss of $43.4 million compared to revenue of $1.0 million and
a net loss of $.7 million for the comparable period in 1998. Onvia.com is a
business-to-busienss emarketplace for snall business buyers and sellers. The
company generated substantially all of its revenue in 1999 from product sales.
Animated Images, CyberCrop.com, EmployeeLife.com, ICG Commerce and iParts were
consolidated from their dates of acquisition in 1999 and accounted for $1.8
million and $8.6 million of our Partner Company Operations' revenue and
operating expenses, respectively, for the year ended December 31, 1999.
Onvia.com's revenue increased period to period due to increased product
sales to new and existing customers. Onvia.com's losses increased period to
period as a result of its increased operating expenses related to marketing and
advertising programs designed to build its brand and drive customer acquisition,
increases in administrative personnel and non-cash equity compensation charges
of $10.5 million.
VerticalNet expects to incur significant net losses for the foreseeable
future because of its aggressive expansion plans. Onvia.com expects increasing
losses for at least the next twelve months as a result of increased sales and
marketing expenses, expanded service and product offerings, and its investment
in technology and development. Due to the early stage of development of the
other companies in which we acquire interests, existing and new partner
companies accounted for under the equity method are expected to incur
substantial losses. Our share of these losses is expected to be substantial in
2000.
While VerticalNet, Onvia.com and most of the companies accounted for under
the equity method of accounting have generated losses in each of 1998 and 1999,
and therefore in most cases did not incur income tax liabilities, these
companies may generate taxable income in the future. Our share of these
companies' net income, if generated, would be reduced to the extent of our share
of these companies' tax expense.
The significant change in equity income (loss) from 1997 to 1998 reflects a
decrease in the net results of operations at iSky and the effect of equity
method partner companies in which we acquired an interest during 1998. One of
these companies, Syncra Software, represented approximately $4.3 million of our
$5.9 million equity loss in 1998. As of December 31, 1998, we accounted for
eight of our partner companies under the equity method of accounting. Most of
these companies were in a very early stage of development and incurred
substantial losses in 1998, and our share of these losses was substantial.
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Net Results of Operations-General ICG Operations
General and Administrative
Our general and administrative costs consist primarily of employee
compensation, outside services such as legal, accounting and consulting, and
travel-related costs. These costs also include the amortization of deferred
compensation expense in the periods ended December 31, 1997, 1998 and 1999 of
$.2 million, $.3 million and $.2 million, respectively, related to restricted
stock issuances. We commenced operations in March 1996 with offices in Wayne,
Pennsylvania and San Francisco, California. As the number of our employees grew
to support our operations and those of our partner companies, our general and
administrative costs increased. In late 1998, we opened an office in Boston,
Massachusetts, and in 1999 we established operations in Seattle, Washington and
London, England and we significantly increased the number of our employees. As a
result of these initiatives, our general and administrative costs increased 566%
for the year ended December 31, 1999 compared to 1998. We plan to continue to
hire new employees, open new offices, and build our overall infrastructure,
therefore we expect these costs to continue to be substantially higher compared
to historical periods.
During the years ended December 31, 1998 and 1999, we recorded aggregate
unearned compensation expense of $.7 million and $16.4 million respectively, in
connection with the grant of stock options to non-employees and the grant of
employee stock options with exercise prices less than the deemed fair value on
the respective dates of grant. General and administrative costs for the year
ended December 31, 1999 include $5.7 million of amortization expense related to
stock option grants. Without giving effect to any unearned compensation expense
related to equity granted subsequent to December 31, 1999, we expect to
recognize amortization of deferred compensation expense of $5.6 million in 2000,
$3.4 million in 2001, $1.9 million in 2002, $.9 million in 2003 and $.2 million
in 2004.
Other Income
Other income consists of the effect of transactions and other events
incidental to our ownership interests in our partner companies and our
operations in general. Other income may include, among other items, gains or
losses on the sales of all or a portion of minority interests, gains or losses
on the issuances of stock by our partner companies to reflect the change in our
share of the net equity of these companies, and impairment charges related to
our ownership interests in and advances to partner companies.
General ICG Operations' other income consisted of the following:
(in thousands) Year Ended December 31,
1998 1999
---- ----
Issuance of stock by VerticalNet..................... $ -- $50,717
Issuance of stock by Breakaway Solutions............. -- 17,304
Sale of SMART Technologies to i2 Technologies........ -- 2,942
Sale of Matchlogic to Excite......................... 12,822 --
Sales of Excite holdings............................. 16,814 2,051
Sale of Excite to @Home Corporation.................. -- 2,719
Sale of WiseWire to Lycos............................ 3,324 --
Sales of Lycos holdings.............................. 1,472 --
Partner company impairment charges................... (3,949) (8,097)
Other................................................ -- 6
-------- -------
$ 30,483 $67,642
======== =======
As a result of VerticalNet completing its initial public offering in
February 1999 and issuing additional shares for acquisitions in 1999, our share
of VerticalNet's net equity increased by $50.7 million. This increase adjusted
our carrying value in VerticalNet and resulted in a non-operating gain of $50.7
million, before deferred
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taxes of $17.7 million, in the year ended December 31, 1999. As a result of
Breakaway Solutions completing its initial public offering in October 1999, our
share of Breakaway Solutions' net equity increased by $17.3 million. This
increase adjusted our carrying value in Breakaway Solutions and resulted in a
non-operating gain of $17.3 million, before deferred taxes of $6.1 million, in
the year ended December 31, 1999. These gains were recorded in accordance with
SEC Staff Accounting Bulletin No. 84 and our accounting policy with respect to
such transactions. We believe there is a high likelihood that transactions
similar to these, in which a partner company we account for under the
consolidation or equity method of accounting issues shares of its common stock,
will occur in the future and we expect to record gains or losses related to such
transactions provided they meet the requirements of SEC Staff Accounting
Bulletin No. 84 and our accounting policy. In some cases, as described in SEC
Staff Accounting Bulletin No. 84, the occurrence of similar transactions may not
result in a non-operating gain or loss but would result in a direct increase or
decrease to our shareholders' equity.
In August 1999, we divested our ownership interest in SMART Technologies,
Inc. due to the agreement of merger of SMART Technologies, Inc. and i2
Technologies, Inc. Upon completion of this merger during the three months ended
September 30, 1999, our ownership interest in and advances to SMART
Technologies, Inc. were converted into cash, common stock and warrants to
purchase common stock of i2 Technologies, Inc. Our non-operating gain before
taxes from this transaction was $2.9 million.
In February 1998, we exchanged all of our holdings of Matchlogic, Inc. for
763,820 shares of Excite, Inc. The $14.3 million market value of the Excite
shares received on the date of exchange was used to determine the gain of $12.8
million. Throughout the remainder of 1998, we sold 716,082 shares of Excite
which resulted in $30.2 million of proceeds and $16.8 million of gains. During
the three month period ended March 31, 1999, we sold 23,738 shares of Excite
which resulted in $2.5 million of proceeds and $2.1 million of gains.
In May 1999, @Home Corporation announced it would exchange its shares for
all of the outstanding stock of Excite. As part of this merger, we received
shares of @Home Corporation in exchange for our shares in Excite, resulting in a
non-operating gain before taxes of $2.7 million.
In April 1998, we exchanged all of our holdings of WiseWire for 191,922
shares of Lycos, Inc. The $5.3 million market value of the Lycos shares received
on the date of exchange was used to determine the gain of $3.3 million.
Throughout the remainder of 1998, we sold 169,548 shares of Lycos which resulted
in $6.2 million of proceeds and $1.5 million of gains.
Our remaining holdings of @Home Corporation, Lycos, and i2 Technologies at
December 31, 1999 are accounted for as available-for-sale securities and are
marked to market, with the difference between carrying value and market value,
net of deferred taxes, recorded in "Accumulated other comprehensive income" in
the shareholders' equity section of our Consolidated Balance Sheets in
accordance with Statement of Financial Accounting Standards No. 115.
In December 1998, we recorded an impairment charge of $1.9 million for the
decrease in value of one of our partner companies accounted for under the cost
method of accounting as a result of selling the partner company interest below
our carrying value. We had acquired our ownership interest in the partner
company during 1996 and 1997. In December 1998, the partner company agreed to be
acquired by an independent third party. The transaction was completed in January
1999. The impairment charge we recorded was determined by calculating the
difference between the proceeds we received from the sale and our carrying
value.
For the years ended December 31, 1998 and 1999, we recorded impairment
charges of $2 million and $8.1 million, respectively, for the other than
temporary decline in the fair value of a cost method partner company. From the
date we initially acquired an ownership interest in this partner company through
December 31, 1999, our funding to this partner company represented all of the
outside capital the company had available to fund its net losses and capital
asset requirements. During the year ended December 31, 1999 we fully guaranteed
the partner company's new bank loan and agreed to provide additional funding. We
acquired additional non-voting convertible debentures of this partner company
for $8 million in 1999. The impairment charges we recorded were determined by
the decrease in net book value of the partner company caused by its net losses,
which were funded entirely based on our
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funding and bank guarantee. Given its continuing losses, we will continue to
determine and record impairment charges in a similar manner for this partner
company until the status of its financial position improves.
Interest Income
Our cash, cash equivalents and short-term investments are invested
primarily in money market accounts and highly liquid, high quality debt
instruments. During 1998, we received $38.2 million of proceeds from the sale of
our common stock and $36.4 million of proceeds from the sales of a portion of
our holdings in Excite and Lycos. During the year ended December 31, 1999, we
received (net of related costs) $32 million of proceeds from the sale of shares
of our common stock prior to our public offering, $90 million in convertible
notes, approximately $209.1 million in our initial public offering,
approximately $831 million in our follow-on stock offering and approximately
$549.9 million from the sale of convertible subordinated notes. The increase in
interest income in 1998 and 1999 was primarily due to the significant increase
in our cash and cash equivalents throughout 1998 and 1999 as a result of these
transactions.
Interest Expense
During May 1999, we issued $90 million in convertible notes bearing
interest at 4.99%. Interest accrued through August 5, 1999, the date of our
initial public offering, was waived in accordance with the terms of the notes
and reclassed to Additional Paid-in-Capital as a result of the conversion of the
convertible notes in connection with our initial public offering. During
December 1999 we issued approximately $566.3 million in convertible subordinated
notes due 2004 bearing interest at 5.5%. The increase in interest expense in
the year ended December 31, 1999 was a result of these transactions.
Income Taxes
From our inception on March 4, 1996 to February 2, 1999, we were organized
as a limited liability company and were treated as a partnership for income tax
purposes. As a result of our Reorganization as a corporation, we are subject to
corporate federal and state income taxes. For informational purposes, the
Consolidated Statement of Operations for the years ended December 31, 1998 and
1999 reflect pro forma income on an after-tax basis assuming we had been taxed
as a corporation since January 1, 1998. We did not have any net operating loss
carry forwards at December 31, 1998.
At the time of our Reorganization, we recorded a deferred tax benefit and
related deferred tax asset of $7.7 million, which primarily represented the
excess of tax basis over book basis of our partner companies. For the period
from the date of the Reorganization through December 31, 1999, we recorded an
additional tax benefit of $16.0 million related to our consolidated results of
operations for that period, net of deferred tax expense of $23.8 million
relating to our gain on VerticalNet's and Breakaway Solutions' common stock
issuances.
We have not recorded a valuation allowance related to our gross deferred
tax assets because we believe it is more likely than not that we will realize
the benefits of these assets. The assets relate primarily to the excess of tax
basis over book basis of our partner companies. These differences in basis
represent capital losses for tax purposes which, if recognized, can only be
deducted to the extent of capital gains. Additionally, these losses may be
carried back three years and carried forward five years from the year in which
they occur. While selling any portion of our ownership interests in partner
companies is something we will not do in the ordinary course of business, we
would consider pursuing such a sale at the minimum amount necessary to prevent
any capital losses from expiring unutilized. If we do not believe such a
strategy, or an alternative strategy, will be available in the time periods
allowed for carrying back and carrying forward losses, we will establish a
valuation allowance at that time. Most of our partner companies are in an early
stage of development, currently generate significant losses and are expected to
generate significant losses in the future. The marketability of the securities
we own of our partner companies is generally limited as they primarily represent
ownership interests in companies whose stock is not publicly traded. As of
December 31, 1999, our only publicly traded partner companies are VerticalNet,
Breakaway Solutions and US Interactive. As a result, there is significant risk
that we may not be able to realize the benefits of expiring carryforwards.
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Liquidity and Capital Resources
We have funded our operations with a combination of equity proceeds,
proceeds from the issuance of convertible notes, proceeds from the sales of a
portion of our Excite and Lycos holdings, and borrowings under bank credit
facilities.
We received equity commitments of $40 million in 1996, of which $13.7
million and $20.1 million was received in 1996 and 1997, respectively, and $6.2
million of which was funded with an in-kind contribution of holdings of a
partner company in 1996. We received additional commitments of $70 million in
1998, of which $38 million was received in 1998 and $32 million was received
during the year ended December 31, 1999, respectively.
In August 1999, we completed our initial public offering of 30,620,000
shares of our common stock at $6.00 per share. Concurrently, we completed a
private placement of 7,500,000 shares at the $6.00 initial public offering
price. Net proceeds to us from these transactions aggregated approximately
$209.1 million (net of underwriters' commission and offering expenses of
approximately $19.6 million).
In December 1999, we issued 609,533 shares of common stock in a private
placement for $50 million.
In December 1999, we completed a follow-on public offering of 6,900,000
shares of our common stock at $108.00 per share. Concurrently, we completed
private placements for an aggregate of 648,147 shares at the $108.00 offering
price. Net proceeds to us from these transactions aggregated approximately
$781.4 million (net of underwriters' commission and offering expenses of
approximately $33.8 million).
In December 1999, we issued $566.3 million in convertible subordinated
notes due 2004 bearing interest at 5.5%, including a private placement of $20
million. Net proceeds to us from this issuance aggregated approximately $549.9
million (net of underwriters' discount and offering expenses of approximately
$16.4 million).
In May 1999, we issued $90 million of convertible subordinated notes which
converted to 14,999,732 shares of our common stock upon the completion of our
initial public offering in August 1999. Upon the conversion of these notes, we
issued 3,000,000 warrants to purchase our common stock at $6.00 per share
through May 2002. In accordance with the terms of the notes, all accrued
interest was waived upon conversion.
Sales of Excite and Lycos stock generated proceeds of $36.4 million in 1998
and sales of Excite stock generated proceeds of $2.5 million in 1999.
In April 1999, we entered into a $50 million revolving bank credit
facility. In connection with the facility, we issued warrants to purchase
400,000 shares of common stock for an exercise price of $5.00 per share
exercisable for seven years. We valued these warrants at $1 million and
accounted for them as debt issuance costs. The facility matures in April 2000,
is subject to a .25% unused commitment fee, bears interest, at our option, at
prime and/or LIBOR plus 2.5%, and is secured by substantially all of our assets
(including all of our holdings in VerticalNet). Borrowing availability under the
facility is based on the fair market value of our holdings of publicly-traded
partner companies (VerticalNet, Breakaway Solutions, eMerge Interactive and US
Interactive as of February 29, 2000) and the value, as defined in the facility,
of our private partner companies. If the market price of our publicly traded
partner companies declines, availability under the credit facility could be
reduced significantly and could have an adverse effect on our ability to borrow
under the facility and could require an immediate repayment of a portion of our
outstanding borrowings, if any. Based on the provisions of the borrowing base,
borrowing availability at December 31, 1999 and February 29, 2000 was $50
million. We are currently in the process of increasing the amount of our bank
credit facility.
Existing cash, cash equivalents and short-term investments, availability
under our revolving bank credit facility, proceeds from the potential sales of
all or a portion of our minority interests and other internal sources of cash
flow are expected to be sufficient to fund our cash requirements through the
next 12 months, including commitments to new and existing partner companies and
general operations requirements. As of February 29, 2000 , we were contingently
obligated for approximately $5.5 million of guarantee commitments and $93.7
million of funding commitments to new and existing partner companies. We will
continue to evaluate acquisition opportunities and expect to acquire additional
ownership interests in new and existing partner companies in the next 12 months
which may make it necessary for us to raise additional funds. If additional
funds are raised through the issuance of equity securities, our existing
shareholders may experience significant dilution. Our revolving bank credit
facility matures in April 2000, at which time we may not be able to renew the
facility or obtain additional
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bank financing, or may only be able to do so on terms not favorable or
acceptable to us. We are currently in negotiations to obtain a new credit
facility.
From its inception through its initial public offering, VerticalNet funded
its operations through a combination of equity, investor and bank borrowings,
and leases. These sources included amounts both advanced and guaranteed by us.
VerticalNet raised $58.3 million in its initial public offering in February 1999
and $115 million in a convertible subordinated note offering in October 1999. We
have no obligation to provide additional funding to VerticalNet, and we have no
obligations with respect to its outstanding debt arrangements.
Prior to 1999, Breakaway Solutions funded its operations through a
combination of cash flow from operations, bank borrowings and leases. In January
1999, we acquired a majority voting interest in Breakaway Solutions for $8.3
million, of which Breakaway Solutions used $4.5 million to repurchase a portion
of its outstanding common stock. In July 1999, Breakaway Solutions completed a
private placement of equity securities of about $19.1 million, of which we
contributed $5 million. In October 1999, Breakaway Solutions completed its
initial public offering raising approximately $42 million. We recorded a non-
operating gain during the three months ended December 31, 1999 due to the
increase in our share of Breakaway Solutions' net equity as a result of their
issuance of shares. Our ownership interest in Breakaway Solutions after their
initial public offering is about 40% and will be accounted for under the equity
method. We have no obligation to provide additional funding to Breakaway
Solutions, and we have no obligations with respect to its outstanding debt
arrangements.
Consolidated working capital increased to $1.3 billion at December 31, 1999
from $20.5 million at December 31, 1998 primarily as a result of the equity and
convertible subordinated notes proceeds we raised in 1999 more than offsetting
the cost of ownership interests we acquired and other net cash outflows during
the year ended December 31, 1999.
Cash used in operating activities increased in 1997 and 1998 compared to
each of the prior years primarily due to VerticalNet's increased losses in each
of those years. Cash used in operating activities in the year ended December 31,
1999 increased compared to 1998 due to the increased cost of General ICG
Operations general and administrative expenses.
Cash used in investing activities primarily reflects the acquisition of
ownership interests in and advances to new and existing partner companies,
offset in 1998 and the year ended December 31, 1999 by the proceeds of $36.4
million and $2.5 million, respectively, from the sales of a portion of our
available-for-sale securities, Excite and Lycos.
We utilized $57.6 million, including $9 million contributed to VerticalNet,
to acquire interests in new and existing partner companies in 1998. In 1998, we
acquired interests in the following partner companies: AUTOVIA, Blackboard,
CommerceQuest, Commerx, ComputerJobs.com, Context Integration, Deja.com, e-
Chemicals, Entegrity Solutions, LinkShare, PrivaSeek, SageMaker, Servicesoft
Technologies, Syncra Software, US Interactive, VerticalNet and Vivant!.
We utilized $380.5 million, including $13.2 million contributed directly to
Breakaway Solutions and an additional $4 million used to purchase an additional
ownership interest in Breakaway Solutions directly from shareholders of
Breakaway Solutions, and including $30.1 million in the aggregate to acquire our
majority ownership interests in Animated Images, CyberCrop.com,
EmployeeLife.com, ICG Commerce, and iParts, to acquire interests in or make
advances to new and existing partner companies during the year ended December
31, 1999. These companies included: Arbinet Communications, asseTrade.com,
AUTOVIA, Benchmarking Partners, Bidcom, Blackboard, ClearCommerce, Collabria,
CommerceQuest, Commerx, CourtLink, Deja.com, e-Chemicals, eMarketWorld, eMerge
Interactive, Entegrity Solutions, Internet Commerce Systems, Jamcracker,
LinkShare, NetVendor, ONVIA.com, PaperExchange.com, PlanSponsor Exchange,
PrivaSeek, Residential Delivery Services, RetailExchange, SageMaker, Servicesoft
Technologies, StarCite, SMART Technologies, Syncra Software, TRADEX
Technologies, traffic.com, United Messaging, Universal Access, USgift.com,
VerticalNet and Vivant!.
During the year ended December 31, 1999, we acquired an interest in a new
partner company from shareholders of the partner company who have an option,
exercisable at any time through August 2000, of electing to receive cash of
$11.3 million or 2,083,333 shares of our common stock. As of December 31, 1999,
$5.6 million of the obligation has been converted into 1,033,908 shares of our
common stock.
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During the year ended December 31, 1999, we acquired an interest in
MetalSite for a combination of cash of $30 million and 852,631 shares of our
common stock valued at $150.2 million.
During the period from January 1, 2000 through February 29, 2000 we
utilized $220.6 million to acquire interests in or make advances to new and
existing partner companies. These companies included: asseTRADE.com, Arbinet
Communications, AUTOVIA, Benchmarking Partners, Buymedia, Centrimed,
ClearCommerce, Collabria, CourtLink, e-Chemicals, Entegrity Solutions, EU Medix,
EU Supply, FarmingOn-line, FreeBorders, Industrial America LLC, iSky,
LinkShare, Logistics.com, Inc., MetalSite, ServiceSoft Technologies, TALPX,
TeamOn, Universal Access, and Vivant!
During January 2000, we acquired an additional interest in an existing
partner company from a shareholder of the partner company for 150,000 shares of
our common stock valued at $26.6 million.
In February 2000, we entered into an agreement to acquire a significant
interest in eCredit.com, a leading provider of Internet based credit, financing
and related services. We will issue common stock worth approximately $450
million to eCredit.com shareholders, which is subject to customary closing
conditions and regulatory approval. We expect the transaction to close in the
quarter ending June 30, 2000.
In February 2000, we entered into an agreement to form a joint venture with
DuPont named CapSpan. CapSpan will provide management, growth capital,
financial, technical and infrastructure capabilities designed to accelerate the
development of B2B e-commerce.
In March 2000, we entered into an agreement to acquire a majority interest
in RightWorks, a leading provider of e-procurement software that powers B2B
exchanges. We will issue approximately $635 million of our common stock (valued
at $111.48 per share) to tendering RightWorks' preferred shareholders (subject
to adjustment based on the number of RightWorks' shares tendered) and also will
purchase newly issued RightWorks' shares for $22 million in cash. The
transaction is subject to customary closing conditions and regulatory approval.
We expect the transaction to close in the quarter ending June 30, 2000.
In March 2000, we entered into an agreement with Hutchinson Whampoa Ltd., a
Hong Kong based multi-national conglomerate, to acquire a majority interest in
Harbour Ring International Holdings, which will be renamed ICG AsiaWorks
Limited, with Hutchison Whampoa Ltd. We will expend approximately $117 million
upon the closing of this transaction which is expected to take place in the
quarter ending June 30, 2000, subject to customary closing conditions and
regulatory approval.
During the year ended December 31, 1999, Ariba, Inc. announced its
intention to acquire all of the outstanding stock of one of our partner
companies, TRADEX Technologies, in exchange for approximately $2.0 billion in
Ariba stock. Ariba closed its acquisition of TRADEX Technologies on March 9,
2000. Based on Ariba's closing price of $320.88 on March 9, 2000, we will
record a non-operating gain of approximately $290 million during the quarter
ended March 31, 2000. Our holdings of Ariba after the transaction will be
accounted for as available-for-sale securities and will be marked to market,
with the difference between carrying value and market value, net of deferred
taxes, recorded in "Accumulated other comprehensive income" in the shareholders'
equity section of our Consolidated Balance Sheets in accordance with Statement
of Financial Accounting Standards No. 115.
During the year ended December 31, 1999, VerticalNet acquired all of the
outstanding stock of NECX Exchange LLC in exchange for $70 million in
convertible notes, $10 million in cash and the assumption of debt and certain
other liabilities. Upon conversion of the $70 million in convertible notes
(expected in the first quarter of 2000), our voting ownership in VerticalNet
will decrease from 35% to approximately 34%. In addition, we expect to record a
non-operating gain due to the increase in our share of VerticalNet's net equity
as a result of their issuance of shares.
In January 2000, Breakaway Solutions announced it had signed a definitive
agreement to acquire EggRock Partners for 3,636,000 shares of its common stock
valued at $250 million at the date of signing the definitive agreement.
Consummation of the transaction is subject to customary closing conditions and
is expected to close in the quarter ending June 30, 2000. Upon closing, our
voting ownership in Breakaway Solutions will decrease from 40% to approximately
33%. In addition, we expect to record a non-operating gain due to the increase
in our share of Breakaway Solutions' net equity as a result of their issuance of
shares.
In March 2000, VerticalNet announced it had signed a definitive agreement
to acquire Tradeum, Inc. approximately for 2,000,000 shares of VerticalNet
common stock valued at approximately $500 million at the date of signing of the
definitive agreement. Consummation of the transaction is subject to customary
closing conditions and is expected to close in the second quarter of 2000. Upon
closing, our voting ownership of VerticalNet will
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decrease from 33% to approximately 31%. In addition, we expect to record a non-
operating gain due to the increase in our share of VerticalNet's net equity as a
result of their issuance of shares.
Our operations are not capital intensive, and capital expenditures in any
year normally will not be significant in relation to our overall financial
position. We committed funds in 1999 and expect to commit funds in 2000 to the
buildout of our larger new corporate headquarters in Wayne, Pennsylvania, our
international expansion, and the development of our information technology
infrastructure. There were no material capital asset purchase commitments as of
December 31, 1999.
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements
to have a significant impact on our net results of operations, financial
position or cash flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to equity price risks on the marketable portion of our
equity securities. Our public holdings at December 31, 1999 include equity
positions in companies in the Internet industry sector, including Excite@Home;
Breakaway Solutions, Inc.; i2 Technologies, Inc.; Lycos, Inc.; US Interactive,
Inc.; and VerticalNet, Inc., many of which have experienced significant
historical volatility in their stock prices. We typically do not attempt to
reduce or eliminate our market exposure on these securities. A 20% adverse
change in equity prices, based on a sensitivity analysis of our public holdings
as of December 31, 1999, would result in an approximate $522.4 million decrease
in the fair value of our public holdings . A significant portion of the value of
the potential decrease in equity securities, or $411.1 million, consisted of our
holdings in VerticalNet.
The carrying values of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and notes payable,
approximate fair value because of the short maturity of these instruments. The
fair value of convertible subordinated notes is approximately $835.2 million
versus a carrying value of $556.3 million. The carrying value of other long-term
debt approximates its fair value, as estimated by using discounted future cash
flows based on our current incremental borrowing rates for similar types of
borrowing arrangements.
Availability under our credit facility is determined by the market value of
the publicly traded and privately held securities pledged as collateral. As of
December 31, 1999, we had sufficient collateral to enable us to fully utilize
this facility. Additionally, we are exposed to interest rate risk primarily
through our bank credit facility. At December 31, 1999, there were no borrowings
outstanding.
We have historically had very low exposure to changes in foreign currency
exchange rates, and as such, have not used derivative financial instruments to
manage foreign currency fluctuation risk. As we expand globally, the risk of
foreign currency exchange rate fluctuation may dramatically increase. Therefore,
in the future, we may consider utilizing derivative instruments to mitigate such
risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements, and the related Notes thereto,
of Internet Capital Group, Inc. and the Report of Independent Auditors are filed
as a part of this Form 10-K.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report................................................. 36
Consolidated Balance Sheets as of December 31, 1998 and 1999................. 37
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999............................................. 38
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1998 and 1999....................................... 39
Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 1997, 1998 and 1999. ............................... 40
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999............................................. 41
Notes to Consolidated Financial Statements .................................. 42
</TABLE>
35
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Internet Capital Group, Inc.:
We have audited the accompanying consolidated balance sheets of Internet Capital
Group, Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity, comprehensive
income (loss) and cash flows for each of the years in the three-year period
ended December 31, 1999. 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 did
not audit the financial statements of certain nonsubsidiary investee companies
(ComputerJobs.com, Inc. and Syncra Software, Inc.) as of and for the year ended
December 31, 1998, which Internet Capital Group, Inc. originally acquired an
interest in during 1998. The Company's ownership interests in and advances to
these nonsubsidiary investee companies at December 31, 1998 were $8,392,155, and
its equity in net income (loss) of these nonsubsidiary investee companies was
$3,876,148 for the year ended December 31, 1998. We also did not audit the
financial statements of a nonsubsidiary investee company (Onvia.com, Inc.) as of
and for the year ended December 31, 1999. The Company's ownership interest and
advances to this nonsubsidiary investee company at December 31, 1999 were
$8,753,597 and its equity in net loss of the nonsubsidiary investee was
$9,327,340. The financial statements of these nonsubsidiary investee companies
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for these nonsubsidiary
investee companies as of and for the years ended December 31, 1998 and 1999, is
based solely on the reports of the other auditors.
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, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Internet Capital Group, Inc. and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
KPMG LLP
Philadelphia, Pennsylvania
March 8, 2000
36
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands except per share data) As of December 31,
-----------------------------------------
1998 1999
-------------------- -------------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents........................................................... $26,841 $1,343,459
Short-term investments.............................................................. -- 3,359
Accounts receivable, less allowances for doubtful accounts
($61-1998; $67-1999)............................................................. 1,842 1,207
Prepaid expenses and other current assets........................................... 1,119 6,347
------- ----------
Total current assets................................................................ 29,802 1,354,372
Fixed assets, net................................................................... 1,151 4,015
Ownership interests in and advances to Partner Companies............................ 59,492 547,339
Available-for-sale securities....................................................... 3,251 46,767
Intangible assets, net.............................................................. 2,476 23,649
Deferred taxes...................................................................... -- 34,388
Other............................................................................... 613 39,854
------- ----------
Total Assets......................................................................... $96,785 $2,050,384
======= ==========
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt................................................ $ 288 $ 3,000
Line of credit...................................................................... 2,000 --
Accounts payable.................................................................... 1,348 6,750
Accrued expenses.................................................................... 1,823 4,205
Notes payable to Partner Companies.................................................. 1,713 34,134
Deferred revenue.................................................................... 2,177 --
Other............................................................................... -- 903
------- ----------
Total current liabilities........................................................... 9,349 48,992
Long-term debt...................................................................... 352 3,185
Other liability (Note 8)........................................................... -- 4,255
Minority interest................................................................... 6,360 7,481
Convertible subordinated notes (Note 7)............................................ -- 566,250
Commitments and contingencies (Note 19)............................................
Shareholders' Equity
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued......................................................... -- --
Common stock, $.001 par value; 300,000 shares
authorized; 132,087 (1998) and
263,579 (1999) issued and outstanding............................................. 132 264
Additional paid-in capital.......................................................... 74,932 1,513,615
Retained earnings (accumulated deficit)............................................. 5,257 (26,539)
Unamortized deferred compensation................................................... (1,330) (11,846)
Notes receivable-shareholders....................................................... -- (79,790)
Accumulated other comprehensive income.............................................. 1,733 24,517
------- ----------
Total shareholders' equity.......................................................... 80,724 1,420,221
------- ----------
Total Liabilities and Shareholders' Equity........................................... $96,785 $2,050,384
======= ==========
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(in thousands except per share data) Year ended December 31,
1997 1998 1999
---------------- --------------------- ---------------------
<S> <C> <C> <C>
Revenue............................................... $ 792 $ 3,135 $ 16,536
Operating Expenses
Cost of revenue..................................... 1,767 4,643 8,156
Selling, general and administrative................. 5,743 15,514 48,924
------- -------- --------
Total operating expenses............................ 7,510 20,157 57,080
------- -------- --------
(6,718) (17,022) (40,544)
------- -------- --------
Other income, net (Note 18)........................... -- 30,483 67,384
Interest income....................................... 264 1,306 9,631
Interest expense...................................... (126) (381) (3,897)
------- -------- --------
Income (Loss) Before Income
Taxes, Minority Interest and
Equity Income (Loss)................................. (6,580) 14,386 32,574
Income taxes.......................................... -- -- 23,722
Minority interest..................................... (106) 5,382 6,026
Equity income (loss).................................. 106 (5,869) (92,099)
------- -------- --------
Net Income (Loss)..................................... $(6,580) $ 13,899 $(29,777)
======= ======== ========
Net Income (Loss) Per Share
Basic.......................................... $ (0.10) $ 0.12 $ (0.15)
======= ======== ========
Diluted........................................ $ (0.10) $ 0.12 $ (0.15)
======= ======== ========
Weighted Average
Shares Outstanding
Basic.......................................... 68,198 112,205 201,851
======= ======== ========
Diluted........................................ 68,198 112,299 201,851
======= ======== ========
Pro Forma Information
(Unaudited) (Note 2):
Pro forma net income (loss)
Pretax income (loss)........................... $ 13,899 $(53,499)
Pro forma income taxes......................... (5,143) 16,050
-------- --------
Pro forma net income (loss)......................... $ 8,756 $(37,449)
======== ========
Pro forma net income (loss) per share
Basic.......................................... $ 0.08 $ (0.19)
======== ========
Diluted........................................ $ 0.08 $ (0.19)
======== ========
Pro forma weighted average shares outstanding
Basic.......................................... 112,205 201,851
======== ========
Diluted........................................ 112,299 201,851
======== ========
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
(in thousands) Retained
Additional Earnings Unamortized Notes
Common Stock Paid-In (Accumulated Deferred Receivable--
Shares Amount Capital Deficit) Compensation Shareholders
-------------------- ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996...................... 51,779 $ 52 $ 15,762 $ (2,062) $ (893) $ --
Issuance of common stock............................. 40,275 40 20,097 -- -- --
Issuance of restricted stock......................... 3,546 4 414 -- (418) --
Forfeitures of restricted stock...................... (2,033) (2) (176) -- 178 --
Amortization of deferred compensation................ -- -- -- -- 218 --
Net loss............................................. -- -- -- (6,580) -- --
------- ------- ---------- -------- ----------- ------------
Balance as of December 31, 1997...................... 93,567 94 36,097 (8,642) (915) --
Issuance of common stock, net........................ 38,520 38 38,167 -- -- --
Issuance of stock options to non-employees........... -- -- 668 -- (668) --
Net unrealized appreciation in available-............ -- -- -- -- -- --
for-sale securities..............................
Amortization of deferred compensation................ -- -- -- -- 253 --
Net income........................................... -- -- -- 13,899 -- --
------- ------- ---------- -------- ----------- ------------
Balance as of December 31, 1998...................... 132,087 132 74,932 5,257 (1,330) --
Issuance of common stock, net........................ 78,258 78 1,072,494 -- -- --
Issuance of common stock and income tax
benefit upon exercise of options................. 35,992 36 90,512 -- -- (81,148)
Shareholder loans principal payments................. -- -- -- -- -- 1,358
Issuance of common stock for acquisitions............ 1,887 2 172,001 -- -- --
Issuance of common stock and waiving of
accrued interest upon conversion of
convertible notes................................ 15,000 15 91,070 -- -- --
Issuance of common stock upon exercise of
Warrants......................................... 784 1 3,968 -- -- --
Issuance of warrants in connection with line
of credit........................................ 1,030 -- -- --
Issuance of stock options to employees below
estimated fair value on date of grant............ -- -- 12,731 -- (12,731) --
Amortization of deferred compensation................ -- -- -- -- 5,699 --
Issuance of stock options to non-employees........... -- -- 3,691 -- (3,691) --
Foreign currency adjustment.......................... -- -- -- -- -- --
Net unrealized appreciation in available-for-sale
securities...................................... -- -- -- -- -- --
LLC termination (Note 2)............................. -- -- (8,657) 8,657 -- --
Distribution to former LLC members................... -- -- -- (10,676) -- --
Other................................................ (429) -- (157) -- 207 --
Net loss............................................. -- -- -- (29,777) -- --
------- ------- ---------- -------- ----------- ------------
Balance as of December 31, 1999...................... 263,579 $ 264 $1,513,615 $(26,539) $ (11,846) $ (79,790)
======= ======= ========== ======== =========== ============
<CAPTION>
(in thousands) Accumulated
Other
Comprehensive
Income Total
------ ---------
<S> <C> <C>
Balance as of December 31, 1996...................... $ -- $ 12,859
Issuance of common stock............................. -- 20,137
Issuance of restricted stock......................... -- --
Forfeitures of restricted stock...................... -- --
Amortization of deferred compensation................ -- 218
Net loss............................................. -- (6,580)
------------- ----------
Balance as of December 31, 1997...................... -- 26,634
Issuance of common stock, net........................ -- 38,205
Issuance of stock options to non-employees.......... -- --
Net unrealized appreciation in available-for-sale
securities...................................... 1,733 1,733
Amortization of deferred compensation................ -- 253
Net income........................................... -- 13,899
------------- ----------
Balance as of December 31, 1998...................... 1,733 80,724
Issuance of common stock, net........................ -- 1,072,572
Issuance of common stock and income tax
benefit upon exercise of options................. -- 9,400
Shareholder loans principal payments................. -- 1,358
Issuance of common stock for acquisitions............ -- 172,003
Issuance of common stock and waiving of
accrued interest upon conversion of
convertible notes................................ -- 91,085
Issuance of common stock upon exercise of
Warrants......................................... -- 3,969
Issuance of warrants in connection with line
of credit........................................ -- 1,030
Issuance of stock options to employees below
estimated fair value on date of grant............ -- --
Amortization of deferred compensation................ -- 5,699
Issuance of stock options to non-employees........... -- --
Foreign currency adjustment.......................... (1) (1)
Net unrealized appreciation in available-for-sale
securities...................................... 22,785 22,785
LLC termination (Note 2)............................. -- --
Distribution to former LLC members................... -- (10,676)
Other................................................ -- 50
Net loss............................................. -- (29,777)
------------- ----------
Balance as of December 31, 1999...................... $ 24,517 $1,420,221
============= ==========
</TABLE>
See notes to consolidated financial statements
39
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1997 1998 1999
------------- ------------- -------------
Net Income (Loss)............................................. $ (6,580) $13,899 $(29,777)
-------- -------- --------
<S> <C> <C> <C>
Other Comprehensive Income (Loss) Before Tax
Unrealized holding gains in available-for-sale securities... -- 1,733 38,039
Foreign currency translation adjustment..................... -- -- (1)
Reclassification adjustments................................ -- -- (2,051)
Tax Related to Comprehensive Income (Loss)
Unrealized holding gains in available-for-sale securities... -- -- (13,920)
Reclassification adjustments................................ -- -- 717
-------- -------- --------
Other Comprehensive Income.................................... -- 1,733 22,784
-------- -------- --------
Comprehensive Income (Loss)................................... $ (6,580) $15,632 $ (6,993)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands) 1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net income (loss).......................................................... $ (6,580) $ 13,899 $ (29,777)
Adjustments to reconcile to net cash used in operating activities:
Other income............................................................ -- (30,483) (67,636)
Depreciation and amortization........................................... 446 1,135 12,742
Equity (income) loss.................................................... (106) 5,869 92,099
Minority interest....................................................... 106 (5,382) (6,026)
Deferred taxes.......................................................... -- -- (23,722)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable, net................................................ 1,574 (1,183) (4,278)
Prepaid expenses and other assets....................................... (142) (1,347) (28,603)
Accounts payable........................................................ 566 620 7,194
Deferred revenue........................................................ 494 1,250 (49)
Accrued expenses........................................................ 205 1,415 6,700
-------- -------- --------
Net cash used in operating activities............................... (3,437) (14,207) (41,356)
Investing Activities
Capital expenditures.................................................... (272) (545) (7,120)
Proceeds from sales of available-for-sale securities.................... -- 36,431 2,496
Proceeds from sales of Partner Company ownership
interests........................................................... -- 300 3,506
Advances to Partner Companies........................................... (2,800) (12,779) (9,679)
Repayment of advances to Partner Companies.............................. 950 677 4,581
Acquisitions of ownership interests in Partner Companies................ (14,466) (35,822) (329,161)
Other acquisitions (Note 5).............................................. -- (1,858) (9,732)
Other advances........................................................... -- -- (12,850)
Purchase of short-term investments....................................... -- -- (22,279)
Proceeds from maturities of short-term investments....................... -- -- 18,920
Reduction in cash due to deconsolidation of Partner Companies............ -- -- (13,393)
------------- ------------- -------------
Net cash used in investing activities................................ (16,588) (13,596) (374,711)
Financing Activities
Issuance of common stock, net............................................ 20,138 38,205 1,077,405
Long-term debt and capital lease repayments.............................. (58) (322) (448)
Proceeds from convertible subordinated notes............................. -- -- 656,250
Line of credit borrowings................................................ 2,500 2,000 25,000
Line of credit repayments................................................ (2) (2,500) (25,281)
Distribution to former LLC members....................................... -- -- (10,676)
Advances to employees.................................................... -- -- (8,765)
Treasury stock purchase by subsidiary.................................... -- -- (4,469)
Issuance of stock by subsidiary.......................................... 200 11,293 23,669
-------- -------- --------
Net cash provided by financing activities............................ 22,778 48,676 1,732,685
-------- -------- ----------
Net Increase in Cash and Cash Equivalents.................................. 2,753 20,873 1,316,618
Cash and cash equivalents at beginning of period........................... 3,215 5,968 26,841
-------- -------- --------
Cash and Cash Equivalents at End of Period................................. $ 5,968 $ 26,841 $1,343,459
======== ======== ==========
</TABLE>
See notes to consolidated financial statements.
41
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies
Internet Capital Group, Inc. (or the "Company") was formed on March 4,
1996. The Company is an Internet company actively engaged in business-to-
business, or B2B, e-commerce through a network of companies. The Company defines
e-commerce as conducting or facilitating business transactions over the
Internet. As of December 31, 1999, the Company owned interests in 49 companies
engaged in e-commerce, which the Company calls its "Partner Companies". The
Company's goal is to become the premier B2B e-commerce company. The Company's
operating strategy is to integrate its Partner Companies into a collaborative
network that leverages the collective knowledge and resources of the Company and
the network.
Although the Company refers to the companies in which it has acquired an
equity ownership interest as its "Partner Companies" and that it has a
"partnership" with these companies, it does not act as an agent or legal
representative for any of its Partner Companies, it does not have the power or
authority to legally bind any of its Partner Companies, and it does not have the
types of liabilities in relation to its Partner Companies that a general partner
of a partnership would have.
Basis of Presentation
On February 2, 1999, the Company converted from a Limited Liability
Corporation ("LLC") to a Corporation. All shareholder transactions have been
presented as if the conversion occurred on March 4, 1996.
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries, Internet Capital Group Operations, Inc. (the
"Operations Company") and Internet Capital Group (Europe) Limited, and its
majority owned subsidiaries, VerticalNet, Inc. ("VerticalNet") for the years
ended December 31, 1997 and 1998 and Animated Images, Inc. , ("Animated
Images"), CyberCrop.com, Inc., ("CyberCrop.com"), EmployeeLife.com, ICG
Commerce, Inc. ("ICG Commerce") and iParts for portions of the year ended
December 31, 1999.
Additionally, the consolidated financial statements for the year ended
December 31, 1999 reflect Breakaway Solutions' results of operations and cash
flows as a consolidated company from the date of acquisition through September
1999 and accounted for under the equity method for the remainder of the year due
to the decrease in the Company's direct and indirect voting ownership interest
to below 50% in October 1999 as a result of Breakaway Solutions' initial public
offering.
In December 1999, the Company recorded a two for one stock split effected
as a one hundred percent (100%) stock dividend. The common stock and additional
paid-in capital accounts and all share and per share amounts have been
retroactively restated in these financial statements to give effect to this
stock dividend.
Principles of Accounting for Ownership Interests in Partner Companies
The various interests that the Company acquires in its Partner Companies
are accounted for under three broad methods: consolidation, equity method and
cost method. The applicable accounting method is generally determined based on
the Company's voting interest in a Partner Company.
Consolidation. Partner Companies in which the Company directly or
indirectly owns more than 50% of the outstanding voting securities are generally
accounted for under the consolidation method of accounting. Under this method, a
Partner Company's results of operations are reflected within the Company's
Consolidated Statements of Operations. All significant intercompany accounts and
transactions are eliminated. Participation of other Partner Company shareholders
in the earnings or losses of a consolidated Partner Company is reflected in the
caption ''Minority interest'' in the Company's Consolidated Statements of
Operations. Minority interest adjusts the Company's consolidated results of
operations to reflect only the Company's share of the earnings or losses of the
consolidated Partner Company. The results of operations and cash flows of a
Consolidated Partner Company are included through the latest interim period in
which the Company owned a greater than 50% direct or indirect voting ownership
for the
42
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
entire interim period. Upon dilution of control below 50%, the accounting method
is adjusted to the equity or cost method of accounting, as appropriate, for
subsequent periods.
In 1999, the Company acquired a controlling majority interest in Breakaway
Solutions, Inc. for $17.2 million and in Animated Images, CyberCrop.com,
EmployeeLife.com, ICG Commerce and iParts ("Other Majority Owned Subsidiaries")
for $29.8 million in the aggregate. Breakaway Solutions' operations have
historically consisted primarily of implementation of customer relational
management systems and custom integration to other related applications. In
1999, Breakaway Solutions expanded to provide service offerings in custom web
development and application hosting both through internal expansion and
acquisitions. Breakaway Solutions' revenue is generally recognized upon
performance of services. ICG Commerce provides strategic sourcing consulting and
on-line internet purchasing. The Other Majority Owned Subsidiaries, excluding
ICG Commerce, are development stage companies that have generated negligible
revenue since their inception. In connection with the acquisition of its
ownership interest in Breakaway Solutions and the Other Majority Owned
Subsidiaries, the Company recorded the excess of cost over net assets acquired
of $13.0 million and $11.8 million, respectively, as goodwill which is being
amortized over three years. Breakaway Solutions had revenue of $10.0 million and
$25.4 million for the years ended December 31, 1998 and 1999, respectively. ICG
Commerce had revenue of $1.3 million for the year ended December 31, 1999.
Direct and indirect voting interest in Animated Images, CyberCrop.com,
EmployeeLife.com, ICG Commerce, and iParts at December 31, 1999 was 50.1%, 80%,
52%, 60%, and 67%, respectively.
During the periods ended December 31, 1996, 1997 and 1998 the Company
acquired equity ownership interests in VerticalNet for $1.0 million, $2.0
million and $4.0 million, respectively. The excess of cost over net assets
acquired related to the 1996 and 1997 acquisitions was $.7 million and $.8
million, respectively. The Company's carrying value of VerticalNet, including
the excess of cost over net assets acquired related to the 1996 and 1997
acquisitions, was reduced to below zero and became a liability as a result of
consolidating VerticalNet's losses after amounts attributed to Minority Interest
were exhausted. For the same reason, the 1998 acquisition did not result in an
intangible asset. In 1998, the Company made advances in the form of convertible
notes to VerticalNet of $5.0 million. Of this amount, $.8 million was repaid by
VerticalNet, $2.1 million was purchased from the Company by one of its principal
shareholders, and $2.1 million was converted into common stock during the year
ended December 31, 1999. The Company's direct and indirect voting interest in
VerticalNet at December 31, 1997 and 1998 was 63% and 52%, respectively. The
consolidated financial statements for the year ended December 31, 1999, reflect
VerticalNet accounted for on the equity method of accounting due to the decrease
in the Company's ownership interest to below 50% in February 1999 as a result of
VerticalNet's initial public offering.
Equity Method. Partner Companies whose results are not consolidated, but
over whom the Company exercises significant influence, are accounted for under
the equity method of accounting. Whether or not the Company exercises
significant influence with respect to a Partner Company depends on an evaluation
of several factors including, among others, representation on the Partner
Company's Board of Directors and ownership level, which is generally a 20% to
50% interest in the voting securities of the Partner Company, including voting
rights associated with the Company's holdings in common, preferred and other
convertible instruments in the Partner Company. Under the equity method of
accounting, a Partner Company's results of operations are not reflected within
the Company's Consolidated Statements of Operations; however, the Company's
share of the earnings or losses of the Partner Company is reflected in the
caption ''Equity income (loss)'' in the Consolidated Statements of Operations.
The amount by which the Company's carrying value exceeds its share of the
underlying net assets of Partner Companies accounted for under the consolidation
or equity methods of accounting is amortized on a straight-line basis over three
years which adjusts the Company's share of the Partner Company's earnings or
losses. Goodwill
43
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
amortization of consolidated companies is included in selling, general, and
administrative, while goodwill amortization of equity method companies is
included in equity income (loss).
Cost Method. Partner Companies not accounted for under the consolidation or
the equity method of accounting are accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings or losses of
such companies is not included in the Consolidated Statements of Operations.
However, cost method Partner Company impairment charges are recognized in the
Consolidated Statement of Operations with the new cost basis not written-up if
circumstances suggest that the value of the Partner Company has subsequently
recovered.
The Company records its ownership interest in debt securities of Partner
Companies accounted for under the cost method at cost as it has the ability and
intent to hold these securities until maturity. The Company records its
ownership interest in equity securities of Partner Companies accounted for under
the cost method at cost, unless these securities have readily determinable fair
values based on quoted market prices, in which case these interests would be
classified as available-for-sale securities or some other classification in
accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. In addition to the Company's investments in voting and non-
voting equity and debt securities, it also periodically makes advances to its
Partner Companies in the form of promissory notes which are accounted for in
accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan.
The Company continually evaluates the carrying value of its ownership
interests in and advances to each of its Partner Companies for possible
impairment based on achievement of business plan objectives and milestones, the
value of each ownership interest in the Partner Company relative to carrying
value, the financial condition and prospects of the Partner Company, and other
relevant factors. The business plan objectives and milestones the Company
considers include, among others, those related to financial performance such as
achievement of planned financial results or completion of capital raising
activities, and those that are not primarily financial in nature such as the
launching of a web site or the hiring of key employees. The fair value of the
Company's ownership interests in and advances to privately held Partner
Companies is generally determined based on the value at which independent third
parties have or have committed to invest in its Partner Companies.
Revenue Recognition
All of the Company's revenue during 1997 and 1998 was attributable to
VerticalNet.
VerticalNet's revenue is derived principally from advertising contracts
which include the initial development of storefronts. A storefront is a Web page
posted on one of VerticalNet's trade communities that provides information on an
advertiser's products, links a visitor to the advertiser's Web site and
generates sales inquiries from interested visitors. The advertising contracts
generally do not extend beyond one year. Advertising revenue is recognized
ratably over the period of the advertising contract. Deferred revenue of $2.2
million at December 31, 1998 represents the unearned portion of advertising
contracts for which revenue will be recognized over the remaining period of the
advertising contract.
VerticalNet also generates revenue through providing educational courses
and selling books. Revenue from educational courses is recognized in the period
in which the course is completed and revenue from the sale of books is
recognized in the period in which the books are shipped.
Barter transactions are recorded at the lower of estimated fair value of
goods or services received or the estimated fair value of the advertisements
given. Barter revenue is recognized when the VerticalNet advertising impressions
(VNAI) are delivered to the customer and advertising expense is recorded when
the customer
44
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
advertising impressions (CAI) are received from the customer. If the CAI are
received from the customer prior to VerticalNet delivering the VNAI, a liability
is recorded, and if VerticalNet delivers the VNAI to the customer prior to
receiving the CAI, a prepaid expense is recorded. For the period March 4, 1996
(inception) through December 31, 1997, VerticalNet barter transactions were
immaterial. For the year ended December 31, 1998, VerticalNet recognized
approximately $.6 million and $.5 million of advertising revenues and expenses,
respectively, from barter transactions. Included in prepaid expenses and other
current assets at December 31, 1998 is approximately $.2 million relating to
barter transactions.
The Company's 1999 revenue was attributable to its consolidated
subsidiaries, including Animated Images, Breakaway Solutions, and ICG Commerce.
Due to Breakaway Solutions' initial public offering in October 1999, our voting
ownership interest in Breakaway Solutions decreased below 50%, therefore, we
apply the equity method of accounting beginning in October 1999. The Company's
other consolidated entities, CyberCrop.com, EmployeeLife.com, and iParts, have
generated negligible revenue since their inception.
Animated Images, Breakaway Solutions and ICG Commerce's revenues are
generally recognized as services are rendered.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
amounts recorded to reflect our share of losses of partner companies accounted
for under the equity method are based on unaudited results of operations of
those partner companies and may require adjustments in the future when audits of
these entities are made final.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of 90 days or less at the time of purchase to be cash equivalents. Cash
and cash equivalents at December 31, 1998 and 1999 are invested principally in
money market accounts and commercial paper.
Short-term Investments
Short-term investments are debt securities maturing in less than one year
and are carried at amortized cost, which approximates fair value.
Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are carried at cost which approximates fair value due to the
short-term maturity of these instruments. The Company's interests in public
Partner Companies accounted for under the equity method of accounting had a fair
value of $2.6 billion as of December 31, 1999 compared to a carrying value of
$42.6 million. Available-for-sale securities are carried at fair value. Long-
term debt is carried at cost which approximates fair value as the debt bears
interest at rates approximating current market rates. The Company's convertible
subordinated notes had a fair value of $835.2 million as of December 31, 1999
versus a carrying value of $566.3 million.
Available-for-Sale Securities
Available-for-sale securities are reported at fair value, based on quoted
market prices, with the net
45
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
unrealized gain or loss reported as a component of "Accumulated other
comprehensive income" in shareholders' equity.
Unrealized gains or losses related to available-for-sale securities
are recorded net of deferred taxes subsequent to February 2, 1999, the date the
Company converted from an LLC to a corporation.
Intangibles
Goodwill, the excess of cost over net assets of businesses acquired, and
other intangible assets are amortized on a straight-line basis over three to
five years. Goodwill at December 31, 1998 of $2.5 million, net of accumulated
amortization of $.3 million, was attributable to acquisitions by VerticalNet.
Goodwill and other intangible assets at December 31, 1999 of $23.6 million, net
of accumulated amortization of $1.1 million, is attributable to the Company's
acquisitions of ownership interests in Animated Images, Inc. ($6.6 million),
CyberCrop.com ($0.8 million), EmployeeLife.com ($1.1 million), ICG Commerce
($2.2 million) and iParts ($0.1 million) and ICG Commerce's acquisitions of
Purchasing Group, Inc and Integrated Sourcing, LLC ($12.8 million). Goodwill
related to the acquisition of Breakaway during 1999 was reclassified as of
December 31, 1999 in connection with the deconsolidation of Breakaway. The
carrying value of goodwill is evaluated for possible impairment based on
achievement of business plan objectives and milestones, the fair value of each
ownership interest in and advances to the partner company relative to carrying
value, the financial condition and prospects of the partner company, and other
relevant factors. If impairment exists, the carrying amount of the goodwill will
be reduced by the estimated shortfall of discounted cash flows.
Fixed Assets
Fixed assets are carried at cost less accumulated depreciation, which is
based on the estimated useful lives of the assets computed using the straight-
line method. Computer equipment and software, and office equipment have an
estimated useful life of three years, and furniture has an estimated useful life
of seven years. Leasehold improvements are amortized on a straight-line basis
over the lesser of the estimated useful life of the asset or the lease term.
Equipment acquired under long-term capital lease arrangements is recorded
at amounts equal to the net present value of the future minimum lease payments
using the interest rate implicit in the lease. Amortization is provided by use
of the straight-line method over the estimated useful lives of the related
assets.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method whereby
deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which the 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.
From the Company's inception in March 1996 to February 1999, the Company
was not subject to federal and state income taxes (Note 2).
Net Income (Loss) Per Share
Net income (loss) per share (EPS) is computed using the weighted average
number of common shares
46
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
outstanding during each year. Diluted EPS includes common stock equivalents
(unless anti-dilutive) which would arise from the exercise of stock options and
conversion of other convertible securities and is adjusted, if applicable, for
the effect on net income (loss) of such transactions and for the effect on net
income (loss) of the Company's share of dilution related to Partner Companies
which are consolidated or accounted under the equity method of accounting.
Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of an IPO, are required to be included in the
calculation of basic and diluted net income per share as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
Gain or Loss on Issuances of Stock By Partner Companies
Pursuant to SEC Staff Accounting Bulletin No. 84, at the time a Partner
Company accounted for under the consolidation or equity method of accounting
issues its common stock at a price different from the Partner Company's book
value per share, the Company's share of the Partner Company's net equity
changes. If at that time, the Partner Company is not a newly-formed, non-
operating entity, nor a research and development, start-up or development stage
company, nor is there question as to the Company's ability to continue in
existence, the Company records the change in its share of the Partner Company's
net equity as a gain or loss in its Consolidated Statements of Operations.
Foreign Currency Translation
The functional currency for the Company's international subsidiary is the
local currency of the country in which it operates. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Revenue,
expenses, gains and losses are translated at the average exchange rate in the
month those elements are recognized. Translation adjustments, which have not
been material to date, are included in other comprehensive income (loss).
Stock Based Compensation
The Company has adopted Statement of Financial Accounting No. 123,
Accounting for Stock Based Compensation (SFAS 123). As permitted by SFAS No.
123, the Company measures compensation cost in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees
and related interpretations. Accordingly, no accounting recognition is given to
stock options issued to employees that are granted at fair market value until
they are exercised. Stock options issued to non-employees are recorded at fair
value at the date of grant. Fair value is determined using the Black-Scholes
method and the expense is amortized over the vesting period. Upon exercise, net
proceeds, including tax benefits realized, are credited to equity.
Comprehensive Income (Loss)
The Company reports and displays comprehensive income (loss) and its
components in the Consolidated Statements of Comprehensive Income (Loss).
Comprehensive income (loss) is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. Excluding net income (loss), the Company's sources of
comprehensive income (loss) is from net unrealized appreciation on its
available-for-sale securities and foreign currency translation adjustments; such
translation adjustments have been negligible through December 31, 1999.
Reclassification adjustments result from the recognition in net income of gains
or losses that were included in comprehensive income (loss) in prior periods.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation. The impact of these changes is not material and did
not affect net income (loss).
47
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.
2. Pro Forma Information (Unaudited)
On February 2, 1999, the Company converted from an LLC to a C Corporation.
The Company became subject to corporate federal and state income taxes
concurrent with the conversion to a C corporation. The accompanying
Consolidated Statement of Operations for the years ended December 31, 1998 and
1999 and include pro forma information with respect to income taxes, net income
(loss) and net income (loss) per share assuming the Company had been taxed as a
C Corporation since January 1, 1998. The unaudited pro forma information
provided does not necessarily reflect the income taxes, net income (loss) and
net income (loss) per share that would have occurred had the Company been taxed
as a C corporation since January 1, 1998.
Pro Forma Income Taxes
The Company's 1998 and 1999 pro forma effective tax rate of 37% and 30%,
respectively differed from the federal statutory rate of 35% principally due to
non-deductible permanent differences.
Based upon the cumulative temporary differences (primarily relating to the
difference between the book and tax carrying value of its Partner Companies),
the Company would have recognized a pro forma net deferred federal and state
asset of $8.2 million at December 31, 1998. In the opinion of management, it is
more likely than not that such asset would be realized and accordingly, a
valuation allowance was not considered necessary in calculating this pro forma
amount.
In 1998, the difference between basic and diluted weighted average shares
outstanding of 94,000 was due to the dilutive effect of stock options.
3. Net Income (Loss) per Share
The calculations of Net Income (Loss) per Share were:
<TABLE>
<CAPTION>
(in thousands except per share amounts) Year ended December 31,
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Basic
Net Income (loss) $(6,580) $ 13,899 $(29,777)
------- -------- --------
Average common shares outstanding 68,198 112,205 201,851
======= ======== ========
Basic $ (0.10) $ 0.12 $ (0.15)
======= ======== ========
Diluted
Net Income (loss) $(6,580) $ 13,899 $(29,777)
------- -------- --------
Average common shares outstanding 68,198 112,205 201,851
Effect of dilutive securities -- 94 --
------- -------- --------
Average common shares assuming dilution 68,198 112,299 201,851
======= ======== ========
Diluted $ (0.10) $ 0.12 $ (0.15)
======= ======== ========
</TABLE>
Options to purchase 188,000 and 5,173,000 shares of common stock at average
prices of $0.50 and $23.74, respectively, were outstanding as of December 31,
1997 and 1999, but were not included in the computation
48
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
of diluted EPS. Warrants to purchase 2,215,717 shares of common stock at $6.00
per share were outstanding as of December 31, 1999, but were not included in the
computation of diluted EPS. Convertible subordinated notes convertible into
4,443,267 shares of common stock were outstanding as of December 31, 1999, but
were not included in the computation of diluted EPS. An option to convert a Note
Payable into 1,049,426 shares of common stock was outstanding as of December 31,
1999, but was not included in the computation of diluted EPS. These options and
warrants are not included in diluted EPS as their effect would have been anti-
dilutive.
4. Ownership Interests in and Advances to Partner Companies
The following summarizes the Company's ownership interests in and advances
to Partner Companies accounted for under the equity method or cost method of
accounting. The ownership interests are classified according to applicable
accounting methods at December 31, 1998 and 1999. Cost basis represents the
Company's original acquisition cost less any impairment charges in such
companies.
<TABLE>
<CAPTION>
(in thousands) As of December 31, 1998 As of December 31, 1999
--------------------------------- ----------------------------------
Carrying Value Cost Basis Carrying Value Cost Basis
----------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Equity Method.............. $21,311 $27,588 $491,977 $578,922
Cost Method................ 38,181 38,181 55,362 55,362
------- --------
$59,492 $547,339
======= ========
</TABLE>
At December 31, 1999 the Company's carrying value in its Partner Companies
accounted for under the equity method of accounting exceeded its share of the
underlying equity in the net assets of such companies by $293.7 million. This
excess relates to ownership interests acquired through December 31, 1999 and is
being amortized over a three year period. Amortization expense of $.4 million
and $19.8 million is included in "Equity income (loss)" in the accompanying
Consolidated Statements of Operations for the years ended December 31, 1998 and
1999, respectively.
During the year ended December 31, 1999 the Company acquired an interest in
a new Partner Company from shareholders of the Partner Company who have an
option, exercisable at any time through August 2000, of electing to receive cash
of $11.3 million or 2,083,334 shares of the Company's common stock. As of
December 31, 1999, $5.6 million of the obligation has been converted into
1,033,908 shares of the Company's common stock.
During the year ended December 31, 1999 the Company acquired an interest in
a new Partner Company from shareholders of the Partner Company by exchanging
852,631 shares of the Company's common stock, valued at $150.2 million, as
consideration, in addition to cash.
During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company by issuing a short-term note payable for $21.2 million,
net of imputed interest of $1.8 million, in addition to cash.
During the year ended December 31, 1999 the Company acquired an interest in
a new Partner Company by committing $7 million in cash consideration to be paid
in 2000, in addition to cash consideration paid in 1999.
As of December 31, 1999, the Company had $9.6 million in advances to
Partner Companies which mature on various dates through 2004 and bear interest
rates between 5.25% and 12.50% and are convertible into the Partner Companies'
equity.
The following unaudited summarized financial information for Partner
Companies accounted for under the equity method of accounting at December 31,
1998 and 1999 and for each of the years in the three-year period ending December
31, 1999 has been compiled from the financial statements of the respective
Partner Companies.
49
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
<TABLE>
<CAPTION>
Balance Sheets
(in thousands) As of December 31,
------------------
1998 1999
---- ----
<S> <C> <C>
Current assets.......................... $33,645 $494,745
Non-current assets...................... 7,148 329,133
------- --------
Total assets....................... $40,793 $823,878
------- --------
Current liabilities..................... 11,712 149,799
Non-current liabilities................. 759 268,197
Shareholder's equity.................... 28,322 405,882
------- --------
Total liabilities and
$40,793 $823,878
Shareholders' equity.............. ======= ========
</TABLE>
Results of Operations
<TABLE>
<CAPTION>
(in thousands) Year Ended December
-------------------
1997 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Revenue................... $18,912 $ 21,496 $ 192,759
Net income (loss).......... $ 255 $(14,969) $(254,027)
</TABLE>
5. Other Acquisitions
During 1999, the Company expended approximately $29.8 million to acquire
interests in five companies that it owns a direct or indirect interest of more
than 50% of the outstanding voting securities as of December 31, 1999. The
Company accounts for these Partner Companies under the consolidation method of
accounting, and accordingly, the purchase price of these acquisitions has been
allocated to the assets purchased and liabilities assumed based upon their fair
values at the dates of acquisition. The consolidated financial statements
reflect the operations and cash flows of the acquired interests since the
respective acquisition dates. The excess of the purchase price over the fair
value of the net assets acquired of approximately $11.8 million was recorded as
goodwill and is being amortized over three years. Accumulated amortization
relating to this goodwill totaled $1.1 million at December 31, 1999.
In May 1999, the Company expended approximately $3.9 million in the
acquisition of its interest in EmployeeLife.com, which provides Internet-based
solutions that enable the online procurement and management of employee health
and welfare benefits.
In June 1999, the Company expended approximately $.8 million in the
acquisition of its interest in iParts, which provides Internet-based sales and
distribution of electronic components.
In September 1999, the Company expended approximately $3.9 million and $9.2
million in its acquisitions of its interests in CyberCrop.com and Animated
Images, respectively. Cybercrop.com is developing a system to provide an
Internet-based service for agriculture producers to purchase services and
inputs, as well as market their grain crops that include corn and wheat
soybeans. Animated Images provides Internet-based design, communication, and
procurement services for the apparel and sewn goods industries.
In October 1999, the Company expended $12 million in its acquisition of its
interest in ICG Commerce which provides strategic sourcing consulting and on-
line Internet purchasing.In 1999, ICG Commerce acquired all of the outstanding
capital stock of Purchasing Group, Inc. (PGI) and Integrated Sourcing, LLC (ISL)
from two of ICG Commerce's founders for $14.9 million in cash and notes payable
to these founders. These acquisitions were accounted for using the purchase
method of accounting. The excess of purchase price over the fair value of the
net assets acquired of approximately $12.9 million was recorded as goodwill and
is being amortized over 5 years. Accumulated amortization relating to this
goodwill totaled $0.8 million at December 31, 1999.
50
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
The following unaudited pro forma financial information presents the
combined results of operations as if the Company had owned EmployeeLife.com,
iParts, CyberCrop.com Animated Images, and ICG Commerce since January 1, 1998;
and is if ICG Commerce had owned PGI and ISL since January 1, 1998, after giving
effect to certain adjustments including goodwill and income taxes. The unaudited
pro forma financial information is provided for informational purposes only and
should not be construed to be indicative of the Company's consolidated results
of operations had the acquisitions been consummated on the dates assumed and do
not project the Company's results of operations for any future period:
<TABLE>
<CAPTION>
(Unaudited)
-----------
(in thousands) Year Ended December 31,
-----------------------
1998 1999
---------- ---------
<S> <C> <C>
Revenue.......................................... $11,441 $ 24,477
Pro forma net income (loss)...................... $ 9,788 $(32,486)
Pro forma net income (loss) per share............ $ (0.09) $ (0.16)
</TABLE>
These pro forma amounts exclude the impact of 12 acquisitions of equity
method Partner Companies consummated or announced through March 8, 2000.
6. Fixed Assets
Fixed assets consists of the following:
<TABLE>
<CAPTION>
(in thousands) As of December 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Computer equipment and software, office
equipment and furniture.......................... $1,877 $2,855
Construction in progress............................ -- 1,483
Leasehold improvements.............................. 46 354
------ ------
1,923 4,692
Less: accumulated depreciation and amortization..... (772) (677)
------ ------
$1,151 $4,015
====== ======
</TABLE>
7. Debt
Convertible Subordinated Notes
In May, 1999, the Company issued $90 million of convertible subordinated
notes which converted to 14,999,732 shares of the Company's common stock upon
the completion of the Company's initial public offering in August 1999. The
notes bore interest at an annual rate of 4.99% during the first year and at the
prime rate for the remaining two years. In connection with the conversion of
these notes, all accrued interest was waived and reclassed to additional paid-
in-capital and the Company issued 3,000,000 warrants to purchase the Company's
common stock at $6 per share (the IPO price) through May 2002 which will
increase additional paid-in capital upon exercise. The warrants may also be
exercised by a cashless exercise or net issue, whereby a portion of the warrants
are forfeited based upon an average fair market price in place of cash. During
1999, 661,434 and 122,849 shares of the Company's common stock were issued in
connection with cash and net issue warrant exercises, respectively.
In December, 1999, the Company issued $566.3 million of convertible
subordinated notes. The notes bear interest at an annual rate of 5.5% and
mature in December, 2004. The notes are convertible at the option of the
holder, at any time on or before maturity into shares of the Company's common
stock at a conversion price of $127.44 per share, which is equal to a conversion
rate of 7.8468 shares per $1,000 principal of notes. Additionally, the notes
may be redeemed by the Company if the Company's closing stock price exceeds 150%
of the conversion price then in effect for at least 20 trading days within a
period of 30 consecutive trading days. The conversion rate is subject to
adjustment. The Company recorded interest expense of $1.0 million relating to
these notes during 1999
51
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements - (Continued)
with the first interest payment due June 21, 2000 and subsequent interest
payments due each six months following through December 21, 2004. Issuance costs
of $18.3 million were recorded in other assets and are being amortized as
interest expense over the term of the notes using the effective interest method.
Revolving Credit Facilities
In March 1998, the Company entered into an unsecured $3 million revolving
credit facility. Borrowings under this facility accrued interest at a premium to
prime ranging from .75% to 1.5%. The Company borrowed up to $2 million under
this facility during 1998. No amounts were outstanding at December 31, 1998 and
the facility expired in March 1999.
In April 1999, the Company entered into a $50 million revolving bank credit
facility. In connection with the facility, the Company issued 400,000 warrants
exercisable for seven years at $5 per share. The warrants, valued at $1.0
million, were recorded as debt issuance costs in other assets and additional
paid-in-capital and are being amortized to interest expense over the one year
term of the credit facility.
The facility expires in April 2000, is subject to a .25% unused commitment
fee, bears interest, at the Company's option, at prime and/or LIBOR plus 2.5%,
and is secured by substantially all of the Company's assets. Borrowing
availability under the facility is based on the fair market value of the
Company's holdings of publicly traded Partner Companies and the value, as
defined in the facility, of the Company's private Partner Companies. During year
ended December 31, 1999, the Company borrowed and repaid $25 million under the
facility. The Company is currently in negotiations to replace this line of
credit on or before its expiration date.
EmployeeLife.com has a $1,000,000 revolving credit facility and a $500,000
equipment line of credit at December 31, 1999. Borrowings under the credit
facility accrue interest at a rate of prime plus .75% and the equipment line of
credit accrues interest at the two year treasury rate plus 1.75%. No amounts
were outstanding at December 31, 1999. The revolving credit facility expires in
March 2001 and the equipment line expires in June 2000.
Long-Term Debt
The Company's long-term debt relates to its Consolidated Partner Companies,
is non-recourse to the Company, and consists of the following:
<TABLE>
<CAPTION>
(in thousands) As of December 31,
---------------------------
1998 1999
-------- --------
<S> <C> <C>
Term notes with related parties......... $ -- $ 6,136
Capital leases.......................... 640 49
----- -------
640 6,185
Less: current portion................... (288) (3,000)
----- -------
Long-term debt.......................... $ 352 $ 3,185
===== =======
</TABLE>
The term notes with related parties of ICG Commerce and EmployeeLife.com
relate to a secured notes due to shareholders with interest rates ranging from
8.0% to 9.25% at December 31, 1999. These notes will mature through 2001.
CyberCrop.com has capital leases on its equipment with a lease term of five
years. The interest rate implicit in the leases is 11.0%. At December 31, 1999,
the book value of assets held under capital leases was approximately equal to
the principal balance due.
At December 31, 1999, long-term debt, including capital leases, is
scheduled to mature as follows:
52
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements - (Continued)
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
2000............... $3,000
2001............... 3,158
2002............... 18
2003............... 6
2004............... 3
------
Total.............. $6,185
======
</TABLE>
8. Other Liability
In October 1999, ICG Commerce sold shares of redeemable convertible
preferred stock that are convertible, at the option of the holder, into common
stock. The $4.3 million balance as of December 31, 1999 represents those shares
sold to a holder other than the Company and the related accrued dividend
payable. Upon conversion of this other liability balance by the holder, minority
interest will be increased.
9. Accrued Expenses
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
(in thousands) As of December 31,
------------------------
1998 1999
-------- --------
<S> <C> <C>
Accrued compensation and benefits..... $ 454 $ 868
Accrued interest...................... -- 952
Accrued marketing costs............... 446 --
Other................................. 923 2,385
------ ------
$1,823 $4,205
====== ======
</TABLE>
10. Segment Information
The Company's reportable segments, using the "management approach", consist of
Partner Company Operations and General ICG Operations. Partner Company
Operations includes the effect of consolidating VerticalNet for the year ended
December 31, 1997 and December 31, 1998 and Animated Images, Breakaway
Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts for the
period from acquisition in 1999 through December 31, 1999, excluding results of
operations subsequent to de-consolidation, if applicable, and recording the
Company's share of earnings and losses of Partner Companies accounted for under
the equity method of accounting. VerticalNet's operations include creating and
operating industry-specific trade communities on the Internet. Breakaway
Solutions' operations include implementation of various computer applications.
Animated Images' operations include software development and consulting services
and ICG Commerce's operations include purchasing services and consulting
services. CyberCrop.com, EmployeeLife.com and iParts are development stage
companies that have generated negligible revenue since their inception. Partner
Companies accounted for under the equity method of accounting operate in various
Internet-related businesses. General ICG Operations represents the expenses of
providing strategic and operational support to the Internet-related Partner
Companies, as well as the related administrative costs. General ICG Operations
also includes the effect of transactions and other events incidental to the
Company's general operations and the Company's ownership interests in and
advances to Partner Companies. The Company's and Partner Companies' operations
were principally in the United States of America during 1997, 1998 and 1999.
The following summarizes the information related to the Company's segments.
All significant intersegment activity has been eliminated. Assets are owned or
allocated assets used by each operating segment.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
(in thousands) 1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Partner Company Operations
Revenue.................................... $ 792 $ 3,135 $ 16,536
-------- -------- ---------
Operating expenses
</TABLE>
53
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements - (Continued)
<TABLE>
<S> <C> <C> <C>
Cost of revenue......................................... 1,767 4,643 8,156
Selling, general and administrative..................... 3,689 12,001 25,535
-------- -------- ---------
Total operating expenses................................ 5,456 16,644 33,691
-------- -------- ---------
( 4,664) (13,509) (17,155)
Other income (expense), net............................. -- -- (258)
Interest income......................................... 11 212 243
Interest expense........................................ (126) (297) (175)
-------- -------- ---------
Income (loss) before income taxes, minority interest
and equity income (loss)............................... ( 4,779) (13,594) (17,345)
Income taxes............................................ -- -- --
Minority interest....................................... (106) 5,382 6,026
Equity income (loss).................................... 106 (5,869) (92,099)
-------- -------- ---------
Loss from Partner Company Operations...................... $ (4,779) $(14,081) $(103,418)
======== ======== =========
General ICG Operations
General and administrative.............................. $ 2,054 $ 3,513 $ 23,389
-------- -------- ---------
Other income, net....................................... -- 30,483 67,642
Interest income......................................... 253 1,094 9,388
Interest expense........................................ --- (84) (3,722)
-------- -------- ---------
Income (loss) from General ICG Operations before
income taxes........................................... (1,801) 27,980 49,919
Income taxes............................................ -- -- 23,722
-------- -------- ---------
Income (loss) from General ICG Operations................. $ (1,801) $ 27,980 $ 73,641
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
As of December 31,
---------------------
1998 1999
------- ---------
<S> <C> <C>
Assets
Partner Company Operations
Carrying value of equity method Partner Companies..................... $21,311 $ 491,977
Other................................................................. 12,343 45,075
------- ----------
33,654 537,052
General ICG Operations
Cash and cash equivalents............................................. 21,178 1,326,560
Carrying value of cost method Partner Companies....................... 38,181 55,362
Other................................................................. 3,772 131,410
------- ----------
63,131 1,513,332
------- ----------
$96,785 $2,050,384
======= ==========
</TABLE>
11. Parent Company Financial Information
Parent Company financial information is provided to present the financial
position and results of operations of the Company as if VerticalNet, Animated
Images, Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce and
iParts ("consolidated companies") were accounted for under the equity method of
accounting for all periods presented. The Company's share of consolidated
companies' losses is included in "Equity income (loss)" in the Parent Company
Statements of Operations for all periods presented based on the Company's
ownership percentage in each period. The losses recorded in excess of carrying
value of VerticalNet at December 31, 1998 are
54
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to Consolidated Financial Statements - (Continued)
included in "Non-current liabilities" and the carrying value of the consolidated
companies as of December 31, 1999 are included in "Ownership interests in and
advances to Partner Companies" in the Parent Company Balance Sheets.
Parent Company Balance Sheets
<TABLE>
<CAPTION>
(in thousands) As of December 31,
---------------------------
1998 1999
-------- -----------
<S> <C> <C>
Assets
Current assets.................................................. $21,597 $1,332,803
Ownership interests in and advances to Partner Companies........ 59,492 571,706
Other........................................................... 3,354 125,166
------- ----------
Total assets................................................. $84,443 $2,029,675
======= ==========
Liabilities and shareholders' equity
Current liabilities............................................. 2,082 43,204
Non-current liabilities......................................... 1,637 566,250
Shareholders' equity............................................ 80,724 1,420,221
------- ----------
Total liabilities and shareholders' equity................... $84,443 $2,029,675
======= ==========
</TABLE>
Parent Company Statements of Operations
<TABLE>
<CAPTION>
(in thousands) Year ended December 31,
1997 1998 1999
---------- ------------ ------------
<S> <C> <C> <C>
Revenue................................. $ -- $ -- $ --
Operating expenses
General and administrative.......... 2,054 3,513 23,389
------- -------- ---------
Total operating expenses........... 2,054 3,513 23,389
------- -------- ---------
(2,054) (3,513) (23,389)
Other income, net....................... -- 30,483 67,642
Interest income, net.................... 253 1,010 5,666
------- -------- ---------
Income (loss) before income taxes
and equity income (loss).............. (1,801) 27,980 49,919
Income taxes............................ -- -- 23,722
Equity income (loss).................... (4,779) (14,081) (103,418)
------- -------- ---------
Net income (loss)....................... $(6,580) $ 13,899 $ (29,777)
======= ======== =========
</TABLE>
Parent Company Statements of Cash Flows
<TABLE>
<CAPTION>
(in thousands) Year Ended December 31,
1997 1998 1999
-------- -------- ----------
<S> <C> <C> <C>
Operating Activities
Net income (loss).................................................... $ (6,580) $ 13,899 $ (29,777)
Adjustments to reconcile to net cash used in operating activities:
Gains included in other income .................................. -- (32,552) (67,636)
</TABLE>
55
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements -- (Continued)
<TABLE>
<S> <C> <C> <C>
Depreciation and amortization.............................................. 55 298 6,558
Equity (income) loss....................................................... 4,779 16,150 103,418
Deferred taxes............................................................. -- -- (23,722)
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable, net................................................... 2,003 (125) --
Prepaid expenses and other assets.......................................... 1 (262) (23,382)
Accounts payable........................................................... 56 39 5,344
Accrued expenses........................................................... 70 12 3,844
-------- -------- ----------
Net cash provided by (used in) operating activities...................... 384 (2,541) (25,353)
Investing Activities
Capital expenditures....................................................... (37) (61) (3,558)
Proceeds from sales of available-for-sale securities....................... -- 36,431 2,496
Proceeds from sales of Partner Company ownership
interests and advances to shareholders.................................... -- 300 3,506
Advances to Partner Companies.............................................. (2,640) (12,224) (10,079)
Repayment of advances to Partner Companies................................. 950 677 4,581
Acquisitions of ownership interests in Partner Companies................. (16,466) (44,822) (368,159)
Other advances............................................................. -- -- (12,850)
Purchase of short-term investments......................................... -- -- (18,920)
Proceeds from maturities of short-term investments........................ -- -- 18,920
-------- -------- ----------
Net cash provided by (used in) investing activities...................... (18,193) (19,699) (384,063)
Financing Activities
Issuance of common stock, net.............................................. 20,138 38,205 1,077,405
Proceeds from convertible subordinated notes............................... -- -- 656,250
Line of credit borrowings.................................................. -- -- 25,000
Line of credit repayments.................................................. -- -- (25,000)
Distribution to former LLC members......................................... (2) -- (10,676)
Advances to employees...................................................... -- -- (8,181)
-------- -------- ----------
Net cash provided by financing activities................................ 20,136 38,205 1,714,798
-------- -------- ----------
Net Increase in Cash and Cash Equivalents.................................... 2,327 15,965 1,305,382
Cash and cash equivalents at beginning of period............................. 2,886 5,213 21,178
-------- -------- ----------
Cash and Cash Equivalents at End of Period................................... $ 5,213 $ 21,178 $1,326,560
======== ======== ==========
</TABLE>
12. Shareholders' Equity
During 1999, the Company increased it's authorized capital stock to
300,000,000 shares of common stock, par value $.001 per share. The holders of
common stock are entitled to one vote per share and are entitled to dividends as
declared.
Dividends may be restricted by the inability to liquidate ownership
interests in Partner Companies to fund cash dividends and may be subject to the
preferential rights of the holders of the Company's preferred stock, if any. No
cash dividends have been declared to date and may not be declared for the
foreseeable future. As of December 31, 1999, the Company's bank line of credit
agreement precludes dividends.
The Company may establish one or more classes or series of preferred stock.
The holders of the preferred stock may be entitled to preferences over common
stock or shareholders with respect to dividends, liquidation, dissolution, or
winding up of the Company, as established by the Company's Board of Directors.
At December 31, 1999, 10,000,000 shares of preferred stock were authorized.
Certain shareholders were granted registration rights and piggy-back rights
which were effective after completion of the Company's public offering in August
1999.
Shareholders' equity contributions are recorded when received. The Company
issued 31,980,000 shares of common stock for net proceeds of $32 million in
1999. These shares had been subscribed at December 31, 1998.
Initial Public Offering
56
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements -- (Continued)
In August 1999, the Company completed its initial public offering ("IPO")
of 30,620,000 shares of its common stock at $6.00 per share. Concurrently, the
Company completed a private placement of 7,500,000 shares of its common stock at
$6.00 per share. Net proceeds to the Company from these transactions aggregated
approximately $209.5 million (net of underwriters' commission and offering
expenses of approximately $19.2 million).
Stock Dividend
In December 1999, the Company recorded a one hundred percent (100%) stock
dividend effected in the form of a 2 for 1 stock split. The common stock and
additional paid-in capital accounts and all share and per share amounts have
been retroactively restated in these financial statements to reflect this stock
dividend.
Secondary Offering
In December 1999, the Company completed its secondary offering of common
stock and convertible subordinated notes (Note 7). The Company sold 6,900,000
shares of its common stock at $108.00 per share. Just prior to and concurrent
with the secondary offering, the Company completed private placements of 609,533
shares and 648,147 shares of its common stock at $82.02 and $108.00 per share,
respectively. Net proceeds to the Company from these transactions aggregated
approximately $831.0 million (net of underwriters' commission and offering
expenses of approximately $34.2 million).
Issuance of Common Stock Under Equity Compensation Plans
During 1996 and 1997, 12,054,034 and 1,513,216 shares of restricted common
stock ("restricted stock") were granted, net of forfeitures, to employees,
consultants and advisors at no cost as performance incentives under the
Membership Profit Interest Plan. The restricted stock vests in equal annual
installments over a five year period.
At December 31, 1997 and 1998, the 13,567,250 shares of restricted stock
has been granted at a weighted average fair value of $0.10 per share or an
aggregate of $1.3 million based on independent valuations of the shares. These
independent valuations took into account certain factors, primarily the
restrictions on the ability of restricted shareholders to receive distributions
of dividends or profits and the uncertainty of realization of any return from
these shares. The $1.3 million of deferred compensation is classified as a
reduction of shareholders' equity and is being amortized over the five-year
vesting period. Through 1999, 486,532 shares were forfeited and were available
for grant in the form of restricted stock or stock options. These forfeitures
reduced additional paid-in capital by $0.1 million. Compensation expense
related to the restricted stock totaling $0.2 million, $0.3 million and $0.2
million was recorded in 1997, 1998 and 1999, respectively.
In April through July 1999 the Company's Board of Directors authorized the
acceptance of full recourse promissory notes totaling $79.8 million from its
employees and a director as consideration for exercising all or a portion of
their vested and unvested stock options issued under the 1999 Equity
Compensation Plan (a total of 35,991,500 shares of common stock were issued in
connection with these exercises). The $79.8 million notes receivable from
employees is recorded as a reduction of Shareholders' Equity at December 31,
1999 to offset the increase in additional paid-in capital as a result of the
common stock issuance. The Company has the right, but not the obligation, to
repurchase unvested shares under certain circumstances. The exercise of
unvested options by the employees and director and the acceptance of promissory
notes by the Company was in accordance with the terms of the Company's equity
compensation plans and related option agreements. The Company's Board of
Directors also
57
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements -- (Continued)
approved loaning employees the funds, under the terms of full recourse
promissory notes, to pay the income taxes that become due in connection with the
option exercises. These loans totaled $8.1 million and are classified as Other
Assets. The Company recorded 1999 interest income of $3.3 million related to
these loans of which $2.3 million is included in other current assets as a
receivable at December 31, 1999.
Through December 31, 1999, the Company recorded aggregate unearned
compensation expense of $17.1 million, net of $5.5 million in accumulated
amortization, in connection with the grant of stock options to non-employees and
the grant of stock options to employees, under the 1999 Equity Compensation
Plan, where it was determined that the exercise prices was less than the deemed
fair value on the respective dates of grant.
Tax Distribution
In March 1999 the Company made a distribution of $10.7 million to former
LLC members in accordance with the LLC agreements to satisfy the members' tax
liabilities.
13. Stock Option Plans
Incentive or non-qualified stock options may be granted to Company
employees, directors and consultants under the Membership Profit Interest Plan
("MPI") or the 1999 Equity Compensation Plan ("1999 Plan") (together the
"Plans"). Generally, the options vest over a four to five year period and
expire eight to ten years after the date of grant. At December 31, 1999, the
Company reserved 6,008,500 and 486,532 shares of common stock under the 1999
Plan and MPI Plan, respectively, for possible future issuance. Most Partner
Companies also maintain their own stock option plans.
The following table summarizes the activity of the Company's stock option
plans:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
----------- --------------
<S> <C> <C>
Outstanding at January 1, 1997...................................................... -- $ --
Options granted..................................................................... 188,000 0.50
-----------
Options canceled/forfeited.......................................................... -- --
Outstanding at December 31, 1997.................................................... 188,000 0.50
Options granted..................................................................... 12,144,000 1.00
Options canceled/forfeited.......................................................... (94,000) (0.50)
-----------
Outstanding at December 31, 1998.................................................... 12,238,000 1.00
Options granted..................................................................... 28,995,500 6.82
Options exercised................................................................... (35,991,500) 2.26
Options cancelled/forfeited......................................................... (69,000) 2.44
-----------
Outstanding at December 31, 1999.................................................... 5,173,000 $23.74
===========
</TABLE>
At December 31, 1997, 1998 and 1999 there were 188,000, 12,238,000 and
4,688,000 options exercisable at $0.50, $1.00 and $24.62 per share under the
plans, respectively.
The following table summarizes information about stock options outstanding
at December 31:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Number Average Number Average
Outstanding Remaining Outstanding Remaining Outstanding Remaining
at Contractual at Contractual at Contractual
Exercise Price 1997 Life (in Years) 1998 Life (in Years) 1999 Life (in Years)
- ------------------ ------------ ---------------- ------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$0.50 - $ 4.00 188,000 9.0 12,238,000 10.0 2,771,000 9.2
$4.01 - $50.00 -- -- -- -- 606,000 9.6
</TABLE>
58
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
$50.01- $ 60.00 -- -- -- -- 1,450,000 9.8
$60.01- $108.13 -- -- -- -- 346,000 9.9
------- --- ---------- ---- --------- ---
188,000 9.0 12,238,000 10.0 5,173,000 9.5
Included in the 1998 option grants are 94,000 stock options to non-
employees. The fair value of these options of $.4 million was recorded as
deferred compensation in 1998 and is being amortized over the five year vesting
period. The fair value of these options was determined using the Black-Scholes
method assuming a volatility of 80%, a dividend yield of 0%, an average expected
option life of 5 years, and a risk-free interest rate of 5.2%.
Included in the 1999 option grants are 1,636,000 stock options to non-
employees. The fair value of these options of $3.7 million was recorded as
deferred compensation in 1999 and is being amortized over the five year vesting
period. The fair value of these options was determined using the Black-Scholes
method assuming a volatility of 80%, a dividend yield of 0%, an average expected
option life of 5 years, and a risk-free interest rate of 5.2%.
Included in the 1999 option grants are 23,047,500 stock options to
employees issued below market value on the date of grant. The aggregate
difference between the strike price and market value on the date of grant, for
these options granted, of $12.7 million was recorded as deferred compensation in
1999 and is being amortized over the five year vesting period.
The Company applies APB 25 and related interpretations to account for its
stock options plans. Had compensation cost been recognized pursuant to SFAS
123, the Company's net income (loss) would have been as follows:
<TABLE>
<CAPTION>
(in thousands except per share amounts) Year Ended December 31,
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Net income (loss)
As reported..................................................... $(6,580) $13,899 $(29,777)
SFAS 123 pro forma.............................................. $(6,649) $13,437 $(41,499)
Net income (loss) per share
As reported..................................................... $ (.10) $ .12 $ (.15)
SFAS 123 pro forma.............................................. $ (.10) $ .12 $ (.21)
</TABLE>
The per share weighted-average fair value of options issued by the Company
during 1997, 1998 and 1999 was approximately $0.11, $0.22 and $3.94,
respectively.
Prior to its initial public offering, the Company used the minimum value
method to value option grants using a 5.2% to 5.5% risk-free interest rate, an
expected life of 5 years, and no dividend yield. The following assumptions were
used to determine the fair value of stock options granted to employees by the
Company following its initial public offering through December 31, 1999:
Volatility................................................ 101.5%
Average expected option life.............................. 5 years
Risk-free interest rate.................................. 5.5%
Dividend yield............................................ 0.0%
The Company also includes its shares of its Partner Companies SFAS 123 pro
forma expense in the Company's SFAS 123 pro forma expense. The methods used by
the Partner Companies included the minimum value method for private Partner
Companies and the Black-Scholes method for public Partner Companies with
assumptions between 2 to 6 years for average expected option life, 5.0% to 5.5%
for risk-free interest rate, no dividend yield, and volatility up to 100%.
14. Income Taxes
59
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
At December 31, 1999, the Company had a net operating loss carry forward of
approximately $6.0 million which may be used to offset future taxable income.
These carry forwards expire beginning in 2019 and may be limited should certain
changes in the Company's ownership occur.
Income taxes for the year ended December 31, 1999 comprise a $23.7 million
deferred tax benefit relating primarily to differences in the book and tax basis
of ownership interests in Partner Companies.
The Company's net deferred tax assets consist of the following:
(in thousands) As of December 31, 1999
-------------------------
Net operating loss carryforward $ 2,065
Partner Company basis difference 37,695
Stock compensation 8,283
Other, net (466)
Other comprehensive income (13,189)
--------
Net deferred tax asset $ 34,388
========
The Company's deferred tax asset includes approximately $15.0 million of
additional Partner Company basis difference generated from the conversion of
1,033,908 shares of the Company's common stock (Note 4).
The effective tax rate differs from the federal statutory rate as follows:
Year ended
December 31, 1999
-----------------
Tax benefit at statutory rate (35.0)%
Change in tax status (14.5)%
Stock-based compensation 3.0 %
Non-deductible expenses and other 2.2 %
------
(44.3)%
======
15. Related Parties
The Company provides strategic and operational support to its Partner
Companies in the normal course of its business. These services are generally
provided by the Company's employees, members of its Advisory Board and Board of
Directors and outside consultants. The costs related to employees are paid by
the Company and are reflected by the Company in general and administrative
expenses of the General ICG Operations segment. Members of the Company's
Advisory Board and Board of Directors are generally compensated with stock
options in the Company which are accounted for in accordance with Statement of
Financial Accounting Standards No. 123 with any expense related to these options
included in general and administrative expenses of the General ICG Operations
segment. The cost of outside consultants are generally paid directly by the
Partner Company.
The Company entered into various cost sharing arrangements with the same
principal shareholder during 1997, 1998 and 1999, whereby the Company
reimbursed, under fair market terms, this shareholder for certain operational
expenses. The amounts incurred for such items were $0.1 million, $0.2 million
and $0.3 million in 1997, and 1998 and 1999, respectively.
The Company loaned an officer $.1 million during 1998, evidenced by a term
note with an interest rate of prime plus 1% (8.75% at December 31, 1998) to
purchase a portion of the Company's interest in a Partner Company at the
Company's cost. This note was repaid in January 1999 and is included in other
current assets in the December 31, 1998 Consolidated Balance Sheet.
In September 1998 the Company entered into a $.2 million one-year
consulting contract with a Partner Company.
60
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
The Company shares certain acquisition rights with certain of its
principal shareholders whereby these shareholders have the ability to purchase a
portion of the Company's interest in certain Partner Companies. During 1998 and
1999, one shareholder exercised this right and acquired a portion of the
Company's interest in or advances to three Partner Companies for cash of $3.0
million and assumption of $.4 million of a payable to a Partner Company. At the
time of the transactions, there was no difference between the consideration
received and the Company's cost basis of the ownership interest or advance sold.
These rights terminated upon our initial public offering in August 1999.
The Company loaned an officer $0.6 million during 1999, evidenced by a term
note with an interest rate of 4.98% to purchase the Company's stock in the
initial public offering. This note was repaid in 1999.
Certain executives of the Company and its Partner Companies have the option
to purchase a portion of the Company's ownership interest in various Partner
Companies at the Company's cost.
16. Other supplemental non-cash financing and investing activities
During the years ended December 31, 1997, 1998 and 1999, the Company
converted $1.4 million, $1.8 million and $2.8 million, respectively, of advances
to Partner Companies into ownership interests in Partner Companies.
During the year ended December 31, 1998, the Company exchanged all of its
holdings in Matchlogic and Wisewire for shares of Excite and Lycos, respectively
(Note 18).
Interest paid in the periods ended December 31, 1998 and 1999 was $0.2
million and $0.1 million, respectively.
The Company paid no income taxes in 1997 and 1998 due to its tax status as
an LLC. No income taxes were paid in 1999 as the Company had a net operating
loss.
In 1998, the Company acquired an ownership interest in a Partner Company in
exchange for a $1.7 million note payable. The note was payable in two equal
installments through June 1999, did not bear interest and was secured with the
acquired stock of the Partner Company. In March 1999, a shareholder of the
Company assumed $.4 million of this note. This note was paid in 1999.
17. Defined Contribution Plan
In 1997, the Company established a defined contribution plan that covers
all of its employees. Participants may contribute 1% to 15% of pre-tax
compensation, as defined. The Company may make discretionary contributions to
the plan but has never done so.
18. Other Income
Other income consists of the following:
Year Ended December 31,
(in thousands) 1998 1999
---- ----
Issuance of stock by VerticalNet ................. $ -- $50,717
61
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
Issuance of stock by Breakaway Solutions.......... -- 17,304
Sale of SMART Technologies to i2 Technologies..... -- 2,942
Sale of Matchlogic to Excite...................... 12,822 --
Sales of Excite holdings.......................... 16,814 2,051
Sale of Excite to @Home Corporation............... -- 2,719
Sale of WiseWire to Lycos......................... 3,324 --
Sales of Lycos holdings........................... 1,472 --
Partner company impairment charges................ (3,949) (8,097)
Other............................................. -- (252)
-------- -------
$ 30,483 $67,384
======== =======
Gains on sales of Partner Companies' and available-for-sale securities are
determined using average cost.
As a result of VerticalNet completing its initial public offering in
February 1999 and issuing additional shares for acquisitions in 1999, the
Company's share of VerticalNet's net equity increased by $50.7 million. This
increase adjusts the Company's carrying value in VerticalNet and results in a
non-operating gain of $50.7 million, before deferred taxes of $17.7 million, in
the year ended December 31, 1999. As a result of Breakaway Solutions completing
its initial public offering in October 1999, the Company's share of Breakaway
Solutions' net equity increased by $17.3 million. This increase adjusts the
Company's carrying value in Breakaway Solutions and results in a non-operating
gain of $17.3 million, before deferred taxes of $6.1 million, in the year ended
December 31, 1999. These gains were recorded in accordance with SEC Staff
Accounting Bulletin No. 84 and the Company's accounting policy with respect to
such transactions.
In August 1999, the Company divested its ownership interest in SMART
Technologies, Inc. due to the agreement of merger of SMART Technologies, Inc.
and i2 Technologies, Inc. Upon completion of this merger, during the three
months ended September 30, 1999, the Company's ownership interest in and
advances to SMART Technologies, Inc. were converted into cash, common stock and
warrants to purchase common stock of i2 Technologies, Inc. The Company's non-
operating gain before taxes from this transaction was $2.9 million.
In February 1998, the Company exchanged all of its holdings of Matchlogic,
Inc. for 763,820 shares of Excite, Inc. The $14.3 million market value of the
Excite shares received on the date of exchange was used to determine the gain of
$12.8 million. Throughout the remainder of 1998, the Company sold 716,082 shares
of Excite, which resulted in $30.2 million of proceeds and $16.8 million of
gains. During 1999, the Company sold 23,738 shares of Excite, which resulted in
$2.5 million of proceeds and $2.1 million of gains.
In May 1999, @Home Corporation announced it would exchange its shares for
all of the outstanding stock of Excite. As part of this merger, the Company
received shares of @Home Corporation in exchange for its shares in Excite,
resulting in a non-operating gain before taxes of $2.7 million.
In April 1998, the Company exchanged all of its holdings of WiseWire for
191,922 shares of Lycos, Inc. The $5.3 million market value of the Lycos shares
received on the date of exchange was used to determine the gain of $3.3 million.
Throughout the remainder of 1998, the Company sold 169,548 shares of Lycos which
resulted in $6.2 million of proceeds and $1.5 million of gains.
The Company's remaining holdings of @Home Corporation, Lycos, and i2
Technologies at December 31, 1999 are accounted for as available-for-sale
securities and are marked to market, with the difference between carrying value
and market value, net of deferred taxes, recorded in "Accumulated other
comprehensive income" in the shareholders' equity section of its Consolidated
Balance Sheets in accordance with Statement of Financial Accounting Standards
No. 115.
62
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
In December 1998, the Company recorded an impairment charge of $1.9 million
for the decrease in value of one of its partner companies accounted for under
the cost method of accounting as a result of selling the partner company
interest below its carrying value. The Company had acquired its ownership
interest in the partner company during 1996 and 1997. In December 1998, the
partner company agreed to be acquired by an independent third party. The
transaction was completed in January 1999. The impairment charge it recorded was
determined by calculating the difference between the proceeds it received from
the sale and its carrying value.
For the years ended December 31, 1998 and 1999, the Company recorded
impairment charges of $2 million and $8.1 million, respectively, for the other
than temporary decline in the fair value of a cost method partner company. From
the date the Company initially acquired an ownership interest in this partner
company through December 31, 1999, its funding to this partner company
represented all of the outside capital the company had available to fund its net
losses and capital asset requirements. During the year ended December 31, 1999
the Company fully guaranteed the partner company's new bank loan and agreed to
provide additional funding. The Company acquired additional non-voting
convertible debentures of this partner company for $8 million in 1999. The
impairment charges the Company recorded were determined by the decrease in net
book value of the partner company caused by its net losses, which were funded
entirely based on the Company's funding and bank guarantee. Given its continuing
losses, the Company will continue to determine and record impairment charges in
a similar manner for this partner company until the status of its financial
position improves.
19. Commitments and Contingencies
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the amount of the ultimate liability with respect to these actions
will not materially affect the financial position, results of operations or cash
flows of the Company and its subsidiaries.
In connection with its ownership interests in certain Partner Companies as
of December 31, 1999, the Company guaranteed $5.5 million of bank loan and other
commitments and has committed capital of $9.2 million to existing Partner
Companies to be funded in 2000.
The Company and its consolidated subsidiaries, Animated Images,
CyberCrop.com, Breakaway Solutions, EmployeeLife.com, ICG Commerce and iParts,
lease their facilities under operating lease agreements expiring through 2004.
Future minimum lease payments as of December 31, 1999 under the leases are as
follows:
(in thousands)
2000...................... $ 1,640
2001...................... 1,641
2002...................... 1,531
2003...................... 1,329
2004...................... 1,161
Thereafter................ 10,205
Rent expense under the noncancelable operating leases was approximately $.1
million in 1997, $.3 million in 1998 and $.4 million in 1999.
Because many of its Partner Companies are not majority-owned subsidiaries,
changes in the value of the Company's interests in Partner Companies and the
income or loss and revenue attributable to them could require the
63
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
Company to register under the Investment Company Act unless it takes action to
avoid being required to register. However, the Company believes it can take
steps to avoid being required to register under the Investment Company Act which
would not adversely affect its operations or shareholder value.
Animated Images, CyberCrop.com, EmployeeLife.com, and ICG Commerce have
entered into employment agreement with certain employees. The agreements are
cancelable, but require severance upon termination. As of December 31, 1999,
Animated Images, CyberCrop.com, EmployeeLife.com, and ICG Commerce would be
required to pay up to $1.3 million in aggregate severance in the event that
these employment agreements are cancelled.
20. Selected Quarterly Financial Information (Unaudited)
The following table sets forth selected quarterly financial and stock price
information for the years ended December 31, 1998 and 1999. The operating
results for any given quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
(in thousands)
Fiscal 1998 Quarter Ended Fiscal 1999 Quarter Ended
Mar. 31 Jun.30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
-------- -------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 377 $ 587 $ 897 $ 1,273 $ 3,111 $ 4,480 $ 7,192 $ 1,753
Cost of revenue 628 1,075 1,195 1,744 1,553 2,450 3,421 731
Selling, general and
administrative 2,459 3,220 4,151 5,684 3,848 9,428 17,727 17,922
_____ ______ ______ _____ ______ _______ _______ _______
(2,710) (3,708) (4,449) (6,155) (2,290) (7,398) (13,956) (16,900)
Other income, net 12,322 11,727 (534) 6,969 28,677 2,397 15,927 20,382
Interest income 56 247 443 559 310 975 2,892 5,454
Interest expense (110) (108) (15) (148) (14) (953) (803) (2,125)
------- ------- ------- ------- ------- -------- -------- --------
9,558 8,158 (4,555) 1,225 26,683 (4,979) 4,060 6,811
Income taxes -- -- -- -- 663 5,134 7,044 10,882
Minority interest -- 976 1,723 2,682 146 1,302 2,685 1,893
Equity income (loss) (290) (2,390) (1,289) (1,899) (7,413) (12,667) (29,063) (42,958)
------- ------- ------- ------- ------- -------- -------- --------
Net income (loss) $ 9,268 $ 6,744 $(4,121) $ 2,008 $20,079 $(11,210) $(15,274) $(23,372)
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
The selected quarterly financial information includes the accounts of the
Company, its wholly owned subsidiary, Internet Capital Group Operations, Inc.
and its majority owned subsidiaries, VerticalNet, for each of the quarters in
the year ended December 31, 1998; Breakaway Solutions for the period from
January 1, 1999 through October 4, 1999 (the date of Breakaway's initial public
offering); EmployeeLife.com and iParts for each of the quarters in the year
ended December 31, 1999; CyberCrop.com for the quarters ended September 30, 1999
and
64
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
December 31, 1999; and Applied Intranet Technologies and ICG Commerce for the
quarter ended December 31, 1999, all of which were consolidated from their date
of acquisition.
During the period January 1 through March 8, 2000, the Company has issued
150,000 shares of common stock for an acquisition, is contingently obligated to
issue up to 11,197,238 shares of common stock for acquisitions, and has granted
options to purchase 6,766,000 shares of common stock at an average exercise
price of $110.50 per share.
21. Fiscal 2000 Events (Unaudited)
In February 2000, eMerge Interactive completed its initial public offering
(IPO), selling 7,200,000 newly issued shares of its common stock at $15 per
share. The Company's ownership following the offering was approximately 22%.
In March 2000, Onvia.com, Inc. completed its IPO, selling 8,000,000 newly
issued shares of its common stock at $21 per share, including 2,666,666 shares
sold to the Company at the IPO price in a concurrent private placement. The
Company's ownership following the offering was approximately 22%.
During the period from January 1, 2000 through February 29, 2000 we
utilized $220.6 million to acquire interests in or make advances to new and
existing partner companies. These companies included: asseTRADE.com, Arbinet
Communications, AUTOVIA, Benchmarking Partners, Buymedia, Centrimed,
ClearCommerce, Collabria, CourtLink, e-Chemicals, Entegrity Solutions, EU Medix,
EU Supply, FarmingOn-line, FreeBorders, Industrial America LLC, iSky, LinkShare,
Logistics.com, Inc., MetalSite, ServiceSoft Technologies, TALPX, TeamOn,
Universal Access, and Vivant!
During January 2000, we acquired an additional interest in an existing
partner company from a shareholder of the partner company for 150,000 shares of
our common stock valued at $26.6 million.
During the year ended December 31, 1999, Ariba, Inc. announced its
intention to acquire all of the outstanding stock of one of our partner
companies, TRADEX Technologies, in exchange for approximately $2.0 billion in
Ariba stock. Ariba closed its acquisition of TRADEX Technologies on March 9,
2000. Based on Ariba's closing price of $320.88 on March 9, 2000, we will record
a non-operating gain of approxiamtely $290 million during the quarter ended
March 31, 2000. Our holdings of Ariba after the transaction will be accounted
for as available-for-sale securities and will be marked to market, with the
difference between carrying value and market value, net of deferred taxes,
recorded in "Accumulated other comprehensive income" in the shareholders' equity
section of our Consolidated Balance Sheets in accordance with Statement of
Financial Accounting Standards No. 115.
During the year ended December 31, 1999, VerticalNet acquired all of the
outstanding stock of NECX Exchange LLC in exchange for $70 million in
convertible notes, $10 million in cash and the assumption of debt and certain
other liabilities. Upon conversion of the $70 million in convertible notes
(expected in the first quarter of 2000), our voting ownership in VerticalNet
will decrease from 35% to approximately 34%. In addition, we expect to record a
non-operating gain due to the increase in our share of VerticalNet's net equity
as a result of their issuance of shares.
In January, 2000, Breakaway Solutions announced it had signed a definitive
agreement to acquire EggRock Partners for 3,636,000 shares of Breakaway
Solutions common stock valued at $250 million at the date of signing of the
definitive agreement. Consummation of the transaction is subject to customary
closing conditions and is expected to close in April 2000. Upon closing, our
voting ownership in Breakaway Solutions will decrease from 40% to approximately
33%. In addition, we expect to record a non-operating gain due to the increase
in our share of Breakaway Solutions' net equity as a result of their issuance of
shares.
65
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements - (Continued)
In February 2000, we entered into an agreement to form a joint venture with
DuPont named CapSpan. CapSpan will provide management, growth capital,
financial, technical and infrastructure capabilities designed to accelerate the
development of B2B e-commerce.
In February, 2000, we entered into an agreement to acquire a significant
interest in eCredit.com, a leading provider of Internet based financing. We
will issue common stock worth approximately $450 million to eCredit.com
shareholders. We expect the transaction to close in the quarter ending June 30,
2000.
In March, 2000, we entered into an agreement to acquire a majority interest
in RightWorks, a leading provider of e-procurement software for B2B exchanges.
We will issue approximately $635 million in Internet Capital Group common stock
(valued at $111.48 per share) to tendering RightWorks' preferred shareholders
(subject to adjustment based on the number of RightWorks' shares tendered) and
also will purchase newly issued RightWorks shares for $22 million in cash. We
expect the transaction to close in the quarter ending June 30, 2000.
In March 2000, we entered into an agreement to acquire a majority interest
in Harbour Ring International Holdings, which will be renamed ICG AsiaWorks
Limited, with Hutchison Whampoa Ltd., a Hong Kong based multi-national
conglomerate, to facilitate our entrance into the Asian e-commerce markets. We
will expend approximately $117 million upon the closing of this transaction
which is expected to take place in the quarter ending June 30, 2000.
During the period January 1 through March 8, 2000, the Company has issued
150,000 shares of common stock for an acquisition, is contingently obligated to
issue up to 11,197,238 shares of common stock for acquisitions, and has granted
options to purchase 6,766,000 shares of common stock at an average exercise
price of $110.50 per share.
66
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We incorporate by reference the information contained under the captions
"Election of Directors (Item 1 on Proxy Card)" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in our Definitive Proxy Statement relative to
our annual meeting of shareholders, to be filed within 120 days after the end of
the year covered by this Form 10-K Report pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended. We also incorporate by reference
"Executive Officers of the Registrant" as set forth under Item 4A of this Report
on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
We incorporate by reference the information contained under the captions
"Executive Compensation" and "Other Forms of Compensation" in our Definitive
Proxy Statement relative to its annual meeting of shareholders, to be filed
within 120 days after the end of the year covered by this Form 10-K Report
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We incorporate by reference the information contained under the caption
"Security Ownership of Certain Beneficial Owners and Directors and Officers" in
our Definitive Proxy Statements relative to our annual meeting of shareholders,
to be filed within 120 days after the end of the year covered by this Form 10-K
Report pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Internet Capital Group incorporates by reference the information
contained under the caption "Certain Relationships and Related Transactions" in
its Definitive Proxy Statement relative to its annual meeting of shareholders,
to be filed within 120 days after the end of the year covered by this Form 10-K
Report pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
The Consolidated Financial Statements and related Notes thereto as set
forth under Item 8 of this Report on Form 10-K are incorporated herein by
reference.
2. Financial Statement Schedules
67
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Internet Capital Group, Inc.:
Under date of March 8, 2000, we reported on the consolidated balance sheets of
Internet Capital Group, Inc. and subsidiaries as of December 31, 1998 and 1999,
and the related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended December 31, 1999. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule. The financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
March 8, 2000
The following financial statement schedule of Internet Capital Group, Inc.
for each of the years ended December 31, 1997, 1998 and 1999 should be read in
conjunction with our Consolidated Financial Statements and related Notes
thereto.
INTERNET CAPITAL GROUP
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Balance at
the Balance at
Beginning Charged to Costs the End of
of the Year and Expenses Write-offs the Year
----------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1997 $19 $ 11 $ -- $30
December 31, 1998 $30 $ 62 $ (31) $61
December 31, 1999 $61 $ 72 (a) $ (66) (b) $67
Ownership interests in and advances to Partner Companies:
December 31, 19997 $-- $ 80 $ -- $80
December 31, 1998 $80 $1,820 $(1,880) (c) $20
December 31, 1999 $20 $ -- $ (20) $--
</TABLE>
(a) Reserve of $72 established from acquisition of Animated Images.
(b) Reserve of $61 was eliminated upon deconsolidation of VeticalNet.
(c) Reserve of $80 was eliminated upon acquiring Informatrix.
Schedules other than those listed above have been omitted since they are
either not required, not applicable, or the information has otherwise been
included.
(b) Report of Form 8-K
On November 16, 1999, we filed a Current Report on Form 8-K dated November
19, 1999 to report under Item 2 (Other Events) the execution of the Securities
Purchase Agreement between Internet Capital Group, eMerge Interactive, Inc. and
J Technologies, LLC. The filing included the required financial statements and
pro forma financial information.
On January 11, 2000, we filed a Current Report on Form 8-K dated December
29, 1999 to report under Item 2 the execution of the Securities Purchase
Agreement between Internet Capital Group and Weirton Steel Corporation. The
financial statements required were omitted and will be filed by amendment as
soon as practicable but not later than 60 days after the date that this report
must be filed.
On March 13, 2000, we filed an amended Current Report on Form 8-K/A dated
December 29, 1999 to report under Item 5 (Other Events) the execution of the
Securities Purchase Agreement between Internet Capital Group and Weirton Steel
Corporation. The filing included the required financial statements and pro
forma financial information.
68
<PAGE>
(c) Exhibits
The following is a list of exhibits required by Item 601 of Regulation S-K
filed as part of this Report. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For exhibits incorporated
by reference, the location of the exhibit in the previous filing is indicated in
parentheses.
Exhibit
Number Document
- ------ --------
2.1 Agreement of Merger, dated February 2, 1999, between Internet Capital
Group, L.L.C. and Internet Capital Group, Inc. (incorporated by
reference to Exhibit 2.1 to the Registration Statement on Form S-1
filed by the Company on May 11, 1999 (Registration No. 333-78193) (the
"IPO Registration Statement"))
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form 8-A filed by the
Company on August 4, 1999 (Registration No. 000-26989) (the "8-A
Registration Statement"))
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 2.2
to the 8-A Registration Statement)
4.1 Specimen Certificate for Internet Capital Group's Common Stock
(incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the
IPO Registration Statement filed by the Company on August 2, 1999
(Registration No. 333-78193) (the "IPO Amendment No. 3"))
4.2 Indenture between Internet Capital Group, Inc. and Chase Manhattan
Trust Company, National Association, as Trustee, for the 5 1/2%
Convertible Subordinated Notes due 2004
4.3 Form of 5 1/2% Convertible Subordinated Notes due 2004 of Internet
Capital Group (included in Exhibit 4.2)
10.1 Internet Capital Group, L.L.C. 1998 Equity Compensation Plan
(incorporated by reference to Exhibit 10.1 to the IPO Registration
Statement)
10.1.1 Internet Capital Group, Inc. 1999 Equity Compensation Plan
(incorporated by reference to Exhibit 10.1.1 to the IPO Registration
Statement)
10.1.2 Internet Capital Group, Inc. 1999 Equity Compensation Plan as Amended
and Restated May 1, 1999 (incorporated by reference to Exhibit 10.1.2
to the IPO Registration Statement)
10.1.3 Amendment No. 1 to the Internet Capital Group, Inc. 1999 Equity
Compensation Plan as Amended and Restated May 1, 1999 (incorporated by
reference to Exhibit 10.1.3 to Amendment No. 2 to the IPO Registration
Statement filed by the Company on July 16, 1999 (Registration No. 333-
79193) (the "IPO Amendment No. 2"))
10.2 Internet Capital Group, L.L.C. Option Plan for Non-Employee Managers
(incorporated by reference to Exhibit 10.2 to the IPO Registration
Statement)
10.2.1 Internet Capital Group, Inc. Directors' Option Plan (incorporated by
reference to Exhibit 10.2.1 to the IPO Registration Statement)
69
<PAGE>
10.3 Internet Capital Group, L.L.C. Membership Profit Interest Plan
(incorporated by reference to Exhibit 10.3 to the IPO Registration
Statement)
10.4 Form of Internet Capital Group, Inc. Long-Term Incentive Plan
10.5 Amended and Restated Limited Liability Company Agreement of Internet
Capital Group, L.L.C. dated September 30, 1998 (incorporated by
reference to Exhibit 10.5 to the IPO Registration Statement)
10.5.1 Amended and Restated Limited Liability Company Agreement of Internet
Capital Group, L.L.C. dated January 4, 1999 (incorporated by reference
to Exhibit 10.5.1 to the IPO Registration Statement)
10.6 Securities Holders Agreement dated February 2, 1999 among Internet
Capital Group, Inc. and certain holders named therein (incorporated by
reference to Exhibit 10.6 to the IPO Registration Statement)
10.7 Form of Internet Capital Group, Inc. Common Stock Purchase Warrant
dated May 10, 1999 issued in connection with the May 10, 1999
Convertible Notes (incorporated by reference to Exhibit 10.21 to the
IPO Registration Statement)
10.8 Form of Internet Capital Group, Inc. Convertible Note dated May 10,
1999 (incorporated by reference to Exhibit 10.22 to the IPO
Registration Statement)
10.9 Stock Purchase Agreement between Internet Capital Group, Inc. and
Safeguard Scientifics, Inc. (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)
10.9.1 Stock Purchase Agreement between Internet Capital Group, Inc. and
International Business Machines Corporation (incorporated by reference
to Exhibit 10.23.1 to the IPO Amendment No. 2)
10.10 Letter describing the oral lease between Internet Capital Group and
Safeguard Scientifics, Inc. for premises located in Wayne,
Pennsylvania (incorporated by reference to Exhibit 10.24 to Amendment
No. 1 to the IPO Registration Statement filed by the Company on June
22, 1999 (Registration No. 333-78193) (the "IPO Amendment No. 1"))
10.11 Form of Office Lease between Friends' Provident Life Office and IBIS
(505) Limited for premises located in London, England (incorporated by
reference to Exhibit 10.11 to Amendment No. 3 to the Registration
Statement filed by the Company on December 15, 1999 (Registration No.
333-91447) (the "Follow-on Amendment No. 3"))
10.12 Office Lease dated September, 1999 between Internet Capital Group
Operations, Inc. and 45 Milk Street, L.P. for premises located in
Boston, Massachusetts (incorporated by reference to Exhibit 10.12 to
the Registration Statement filed by the Company on November 22, 1999
(Registration No. 333-91447) (the "Follow-on Registration Statement"))
10.13 Office Lease dated February 25, 1999 between OTR and Internet Capital
Group Operations, Inc. for premises located in San Francisco,
California (incorporated by reference to Exhibit 10.27 to the IPO
Amendment No. 1)
10.14 Credit Agreement dated as of April 30, 1999 by and among Internet
Capital Group, Inc., Internet Capital Group Operations, Inc., the
Banks named therein and PNC Bank, N.A. (incorporated by reference to
Exhibit 10.26 to the IPO Registration Statement)
70
<PAGE>
10.15 Amendment No. 1 to the Credit Agreement dated October 27, 1999 by and
among Internet Capital Group, Inc., Internet Capital Group Operations,
Inc., the Banks named therein and PNC Bank, N.A. (incorporated by
reference to Exhibit 10.15 to the Follow-on Registration Statement)
10.15.1 Amendment No. 2 to the Credit Agreement dated November 19, 1999 by and
among Internet Capital Group, Inc., Internet Capital Group Operations,
Inc., the Banks named therein and PNC Bank, N.A. (incorporated by
reference to Exhibit 10.15.1 to the Follow-on Registration Statement)
10.15.2 Amended and Restated Amendment No. 2 to the Credit Agreement dated
November 19, 1999 by and among Internet Capital Group, Inc., Internet
Capital Group Operations, Inc., the Banks named therein and PNC Bank,
N.A.
10.15.3 Amendment No. 3 to the Credit Agreement dated February 25, 2000 by and
among Internet Capital Group, Inc., Internet Capital Group Operations,
Inc., the Banks named therein and PNC Bank, N.A.
10.16 Benchmarking Partners, Inc. Option Agreement dated January 1, 1997 by
and between Christopher H. Greendale and Internet Capital Group,
L.L.C. (incorporated by reference to Exhibit 10.28 to the IPO
Registration Statement)
10.16.1 Amendment to Benchmarking Partners, Inc. Option Agreement dated July
19, 1999 by and between Christopher H. Greendale and Internet Capital
Group, Inc. (incorporated by reference to Exhibit 10.29.1 to the IPO
Amendment No. 3)
10.17 Syncra Software, Inc. Option Agreement dated August 1, 1998 by and
between Michael H. Forester and Internet Capital Group, L.L.C.
(incorporated by reference to Exhibit 10.29 to the IPO Registration
Statement)
10.18 Letter Agreement between Internet Capital Group, L.L.C. and Douglas
Alexander dated July 18, 1997 (incorporated by reference to Exhibit
10.31 to the IPO Amendment No. 1)
10.19 Letter Agreement between Internet Capital Group, L.L.C. and Robert
Pollan dated April 27, 1998 (incorporated by reference to Exhibit
10.32 to the IPO Amendment No. 1)
10.20 Form of Promissory Note issued in connection with the exercise of
Internet Capital Group's stock options in May, June and July of 1999
(incorporated by reference to Exhibit 10.33 to the IPO Amendment No.
1)
10.21 Form of Restrictive Covenant Agreement issued in connection with the
exercise of Internet Capital Group's stock options in May, June and
July of 1999 (incorporated by reference to Exhibit 10.34 to the IPO
Amendment No. 1)
10.22 Securities Purchase Agreement dated October 27, 1999 by and among
eMerge Interactive, Inc., J. Technologies, LLC and Internet Capital
Group, Inc. (incorporated by reference to the Company's Current Report
on Form 8-K filed November 22, 1999 (File No. 0-26929))
10.23 Joint Venture Agreement dated October 26, 1999 by and between Internet
Capital Group, Inc. and Safeguard Scientifics, Inc. (incorporated by
reference to Exhibit 10.23 to the Follow-on Registration Statement)
10.24 Purchase Agreement dated November 5, 1999 between JusticeLink, Inc.
and Internet Capital Group, Inc. (incorporated by reference to Exhibit
10.24 to the Registration
71
<PAGE>
Statement filed by the Company on December 6, 1999 (Registration No.
333-91447) (the "Follow-on Amendment No. 1"))
10.25 Purchase Agreement dated December 6, 1999 between Internet Capital
Group, Inc. and AT&T Corp. (incorporated by reference to Exhibit 10.25
to the Follow-on Amendment No. 1)
10.26 Purchase Agreement dated December 6, 1999 between Internet Capital
Group, Inc. and Internet Assets, Inc. (incorporated by reference to
Exhibit 10.26 to the Follow-on Amendment No. 1)
10.27 Purchase Agreement dated December 6, 1999 between Internet Capital
Group, Inc. and Ford Motor Company (incorporated by reference to
Exhibit 10.27 to the Follow-on Amendment No. 3)
10.28 Securities Purchase Agreement dated December 28, 1999 between Internet
Capital Group, Inc. and Weirton Steel Corporation (incorporated by
reference to the Company's Current Report on Form 8-K filed January
11, 2000 (File No. 0-26929))
10.29 Press Release regarding Acquisition of eCredit.com (incorporated by
reference to the Company's filing on Form 425 filed February 24, 2000
(File No. 132-01812))
10.30 Sublease Agreement dated January 6, 2000 between SP Investments Inc.
and Internet Capital Group, Inc. for premises located in Seattle,
Washington
11.1 Statement Regarding Computation of Per Share Earnings (included herein
at Note 1-"Significant Accounting Policies" in the subsection "Net
Income (Loss) Per Share" to the Consolidated Financial Statements and
Note 3-"Net Income (Loss) Per Share" to the Consolidated Financial
Statements)
13.1 Sections entitled "Election of Directors (Item 1 on Proxy Card),"
"Section 16(a) Beneficial Ownership Reporting Compliance," "Executive
Compensation," "Other Forms of Compensation," "Security Ownership of
Certain Beneficial Owners and Directors and Officers" and "Certain
Relationships and Related Transactions" in the Company's Definitive
Proxy Statement relative to its annual meeting of shareholders, to be
filed within 120 days after the end of the year covered by this Form
10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended
21.1 Subsidiaries of Internet Capital Group
27.1 Financial Data Schedule for the Year ended December 31, 1999
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Security Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 16, 2000 INTERNET CAPITAL GROUP, INC.
By: /s/ David D. Gathman
--------------------
Name: David D. Gathman
Title: Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities set forth above.
Signature Title
- --------- -----
/s/ Walter W. Buckley President, Chief Executive Officer and
- ---------------------
Walter W. Buckley Director (Principal Executive Officer)
/s/ David D. Gathman Chief Financial Officer and Treasurer
- --------------------
David D. Gathman (Principal Financial and Accounting
Officer)
/s/ Kenneth A. Fox Director
- ------------------
Kenneth A. Fox
/s/ Julian A. Brodsky Director
- ---------------------
Julian A. Brodsky
/s/ Thomas P. Gerrity Director
- ---------------------
Thomas P. Gerrity
/s/ Warren V. Musser Director
- --------------------
Warren V. Musser
/s/ Peter A. Solvik Director
- -------------------
Peter A. Solvik
73
<PAGE>
Exhibit Index
The following is a list of exhibits required by Item 601 of Regulation S-K
filed as part of this Report. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For exhibits incorporated
by reference, the location of the exhibit in the previous filing is indicated in
parentheses.
Exhibit
Number Document
- ------ --------
2.1 Agreement of Merger, dated February 2, 1999, between Internet Capital
Group, L.L.C. and Internet Capital Group, Inc. (incorporated by
reference to Exhibit 2.1 to the Registration Statement on Form S-1
filed by the Company on May 11, 1999 (Registration No. 333-78193) (the
"IPO Registration Statement"))
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form 8-A filed by the
Company on August 4, 1999 (Registration No. 000-26989) (the "8-A
Registration Statement"))
3.2 Amended and Restated Bylaws (incorporated by reference to Exhibit 2.2
to the 8-A Registration Statement)
4.1 Specimen Certificate for Internet Capital Group's Common Stock
(incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the
IPO Registration Statement filed by the Company on August 2, 1999
(Registration No. 333-78193) (the "IPO Amendment No. 3"))
4.2 Indenture between Internet Capital Group, Inc. and Chase Manhattan
Trust Company, National Association, as Trustee, for the 5 1/2%
Convertible Subordinated Notes due 2004
4.3 Form of 5 1/2% Convertible Subordinated Notes due 2004 of Internet
Capital Group (included in Exhibit 4.2)
10.1 Internet Capital Group, L.L.C. 1998 Equity Compensation Plan
(incorporated by reference to Exhibit 10.1 to the IPO Registration
Statement)
10.1.1 Internet Capital Group, Inc. 1999 Equity Compensation Plan
(incorporated by reference to Exhibit 10.1.1 to the IPO Registration
Statement)
10.1.2 Internet Capital Group, Inc. 1999 Equity Compensation Plan as Amended
and Restated May 1, 1999 (incorporated by reference to Exhibit 10.1.2
to the IPO Registration Statement)
10.1.3 Amendment No. 1 to the Internet Capital Group, Inc. 1999 Equity
Compensation Plan as Amended and Restated May 1, 1999 (incorporated by
reference to Exhibit 10.1.3 to Amendment No. 2 to the IPO Registration
Statement filed by the Company on July 16, 1999 (Registration No. 333-
79193) (the "IPO Amendment No. 2"))
10.2 Internet Capital Group, L.L.C. Option Plan for Non-Employee Managers
(incorporated by reference to Exhibit 10.2 to the IPO Registration
Statement)
10.2.1 Internet Capital Group, Inc. Directors' Option Plan (incorporated by
reference to Exhibit 10.2.1 to the IPO Registration Statement)
74
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10.3 Internet Capital Group, L.L.C. Membership Profit Interest Plan
(incorporated by reference to Exhibit 10.3 to the IPO Registration
Statement)
10.4 Form of Internet Capital Group, Inc. Long-Term Incentive Plan
10.5 Amended and Restated Limited Liability Company Agreement of Internet
Capital Group, L.L.C. dated September 30, 1998 (incorporated by
reference to Exhibit 10.5 to the IPO Registration Statement)
10.5.1 Amended and Restated Limited Liability Company Agreement of Internet
Capital Group, L.L.C. dated January 4, 1999 (incorporated by reference
to Exhibit 10.5.1 to the IPO Registration Statement)
10.6 Securities Holders Agreement dated February 2, 1999 among Internet
Capital Group, Inc. and certain holders named therein (incorporated by
reference to Exhibit 10.6 to the IPO Registration Statement)
10.7 Form of Internet Capital Group, Inc. Common Stock Purchase Warrant
dated May 10, 1999 issued in connection with the May 10, 1999
Convertible Notes (incorporated by reference to Exhibit 10.21 to the
IPO Registration Statement)
10.8 Form of Internet Capital Group, Inc. Convertible Note dated May 10,
1999 (incorporated by reference to Exhibit 10.22 to the IPO
Registration Statement)
10.9 Stock Purchase Agreement between Internet Capital Group, Inc. and
Safeguard Scientifics, Inc. (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999)
10.9.1 Stock Purchase Agreement between Internet Capital Group, Inc. and
International Business Machines Corporation (incorporated by reference
to Exhibit 10.23.1 to the IPO Amendment No. 2)
10.10 Letter describing the oral lease between Internet Capital Group and
Safeguard Scientifics, Inc. for premises located in Wayne,
Pennsylvania (incorporated by reference to Exhibit 10.24 to Amendment
No. 1 to the IPO Registration Statement filed by the Company on June
22, 1999 (Registration No. 333-78193) (the "IPO Amendment No. 1"))
10.11 Form of Office Lease between Friends' Provident Life Office and IBIS
(505) Limited for premises located in London, England (incorporated by
reference to Exhibit 10.11 to Amendment No. 3 to the Registration
Statement filed by the Company on December 15, 1999 (Registration No.
333-91447) (the "Follow-on Amendment No. 3"))
10.12 Office Lease dated September, 1999 between Internet Capital Group
Operations, Inc. and 45 Milk Street, L.P. for premises located in
Boston, Massachusetts (incorporated by reference to Exhibit 10.12 to
the Registration Statement filed by the Company on November 22, 1999
(Registration No. 333-91447) (the "Follow-on Registration Statement"))
10.13 Office Lease dated February 25, 1999 between OTR and Internet Capital
Group Operations, Inc. for premises located in San Francisco,
California (incorporated by reference to Exhibit 10.27 to the IPO
Amendment No. 1)
10.14 Credit Agreement dated as of April 30, 1999 by and among Internet
Capital Group, Inc., Internet Capital Group Operations, Inc., the
Banks named therein and PNC Bank, N.A. (incorporated by reference to
Exhibit 10.26 to the IPO Registration Statement)
75
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10.15 Amendment No. 1 to the Credit Agreement dated October 27, 1999 by and
among Internet Capital Group, Inc., Internet Capital Group Operations,
Inc., the Banks named therein and PNC Bank, N.A. (incorporated by
reference to Exhibit 10.15 to the Follow-on Registration Statement)
10.15.1 Amendment No. 2 to the Credit Agreement dated November 19, 1999 by and
among Internet Capital Group, Inc., Internet Capital Group Operations,
Inc., the Banks named therein and PNC Bank, N.A. (incorporated by
reference to Exhibit 10.15.1 to the Follow-on Registration Statement)
10.15.2 Amended and Restated Amendment No. 2 to the Credit Agreement dated
November 19, 1999 by and among Internet Capital Group, Inc., Internet
Capital Group Operations, Inc., the Banks named therein and PNC Bank,
N.A.
10.15.3 Amendment No. 3 to the Credit Agreement dated February 25, 2000 by and
among Internet Capital Group, Inc., Internet Capital Group Operations,
Inc., the Banks named therein and PNC Bank, N.A.
10.16 Benchmarking Partners, Inc. Option Agreement dated January 1, 1997 by
and between Christopher H. Greendale and Internet Capital Group,
L.L.C. (incorporated by reference to Exhibit 10.28 to the IPO
Registration Statement)
10.16.1 Amendment to Benchmarking Partners, Inc. Option Agreement dated July
19, 1999 by and between Christopher H. Greendale and Internet Capital
Group, Inc. (incorporated by reference to Exhibit 10.29.1 to the IPO
Amendment No. 3)
10.17 Syncra Software, Inc. Option Agreement dated August 1, 1998 by and
between Michael H. Forester and Internet Capital Group, L.L.C.
(incorporated by reference to Exhibit 10.29 to the IPO Registration
Statement)
10.18 Letter Agreement between Internet Capital Group, L.L.C. and Douglas
Alexander dated July 18, 1997 (incorporated by reference to Exhibit
10.31 to the IPO Amendment No. 1)
10.19 Letter Agreement between Internet Capital Group, L.L.C. and Robert
Pollan dated April 27, 1998 (incorporated by reference to Exhibit
10.32 to the IPO Amendment No. 1)
10.20 Form of Promissory Note issued in connection with the exercise of
Internet Capital Group's stock options in May, June and July of 1999
(incorporated by reference to Exhibit 10.33 to the IPO Amendment No.
1)
10.21 Form of Restrictive Covenant Agreement issued in connection with the
exercise of Internet Capital Group's stock options in May, June and
July of 1999 (incorporated by reference to Exhibit 10.34 to the IPO
Amendment No. 1)
10.22 Securities Purchase Agreement dated October 27, 1999 by and among
eMerge Interactive, Inc., J. Technologies, LLC and Internet Capital
Group, Inc. (incorporated by reference to the Company's Current Report
on Form 8-K filed November 22, 1999 (File No. 0-26929))
10.23 Joint Venture Agreement dated October 26, 1999 by and between Internet
Capital Group, Inc. and Safeguard Scientifics, Inc. (incorporated by
reference to Exhibit 10.23 to the Follow-on Registration Statement)
10.24 Purchase Agreement dated November 5, 1999 between JusticeLink, Inc.
and Internet Capital Group, Inc. (incorporated by reference to Exhibit
10.24 to the Registration
76
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Statement filed by the Company on December 6, 1999 (Registration No.
333-91447) (the "Follow-on Amendment No. 1"))
10.25 Purchase Agreement dated December 6, 1999 between Internet Capital
Group, Inc. and AT&T Corp. (incorporated by reference to Exhibit 10.25
to the Follow-on Amendment No. 1)
10.26 Purchase Agreement dated December 6, 1999 between Internet Capital
Group, Inc. and Internet Assets, Inc. (incorporated by reference to
Exhibit 10.26 to the Follow-on Amendment No. 1)
10.27 Purchase Agreement dated December 6, 1999 between Internet Capital
Group, Inc. and Ford Motor Company (incorporated by reference to
Exhibit 10.27 to the Follow-on Amendment No. 3)
10.28 Securities Purchase Agreement dated December 28, 1999 between Internet
Capital Group, Inc. and Weirton Steel Corporation (incorporated by
reference to the Company's Current Report on Form 8-K filed January
11, 2000 (File No. 0-26929))
10.29 Press Release regarding Acquisition of eCredit.com (incorporated by
reference to the Company's filing on Form 425 filed February 24, 2000
(File No. 132-01812))
10.30 Sublease Agreement dated January 6, 2000 between SP Investments Inc.
and Internet Capital Group, Inc. for premises located in Seattle,
Washington
11.1 Statement Regarding Computation of Per Share Earnings (included herein
at Note 1 - "Significant Accounting Policies" in the subsection "Net
Income (Loss) Per Share" to the Consolidated Financial Statements and
Note 3 - "Net Income (Loss) Per Share" to the Consolidated Financial
Statements)
13.1 Sections entitled "Election of Directors (Item 1 on Proxy Card),"
"Section 16(a) Beneficial Ownership Reporting Compliance," "Executive
Compensation," "Other Forms of Compensation," "Security Ownership of
Certain Beneficial Owners and Directors and Officers" and "Certain
Relationships and Related Transactions" in the Company's Definitive
Proxy Statement relative to its annual meeting of shareholders, to be
filed within 120 days after the end of the year covered by this Form
10-K Report pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended
21.1 Subsidiaries of Internet Capital Group
27.1 Financial Data Schedule for the Year ended December 31, 1999
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Exhibit 4.2
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INTERNET CAPITAL GROUP, INC.
and
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
as Trustee
INDENTURE
-----------------------------
Dated as of December 21, 1999
-----------------------------
5 1/2% Convertible Subordinated Notes due 2004
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TABLE OF CONTENTS
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ARTICLE I Definitions and Other Provisions of General Application................................................ 1
Section 1.01. Definitions..................................................................................... 1
Section 1.02. Compliance Certificates and Opinions............................................................ 9
Section 1.03. Form of Documents Delivered to Trustee.......................................................... 9
Section 1.04. Acts of Holders................................................................................ 10
Section 1.05. Notices, Etc., ................................................................................ 12
Section 1.06. Notice to Holders; Waiver...................................................................... 12
Section 1.07. Effect of Headings and Table of Contents....................................................... 12
Section 1.08. Successors and Assigns......................................................................... 13
Section 1.09. Separability Clause............................................................................ 13
Section 1.10. Benefits of Indenture.......................................................................... 13
Section 1.11. Governing Law.................................................................................. 13
Section 1.12. Legal Holidays................................................................................. 13
Section 1.13. Personal Immunity from Liability for Incorporators, Stockholders, Etc.......................... 13
Section 1.14. Conflict with Trust Indenture Act.............................................................. 13
ARTICLE II Securities Forms...................................................................................... 14
Section 2.01. Forms of Securities............................................................................ 14
Section 2.02. Form of Trustee's Certificate of Authentication................................................ 14
Section 2.03. Securities Issuable in Global Form............................................................. 14
ARTICLE III The Securities........................................................................................ 15
Section 3.01. Title and Term................................................................................. 15
Section 3.02. Denominations.................................................................................. 15
Section 3.03. Execution, Authentication, Delivery and Dating................................................. 15
Section 3.04. Registration, Registration of Transfer and Exchange............................................ 16
Section 3.05. Mutilated, Destroyed, Lost and Stolen Securities............................................... 18
Section 3.06. Payment of Interest; Interest Rights Preserved................................................. 19
Section 3.07. Persons Deemed Owners.......................................................................... 20
Section 3.08. Cancellation................................................................................... 20
Section 3.09. Computation of Interest........................................................................ 21
ARTICLE IV Satisfaction and Discharge............................................................................ 21
Section 4.01. Satisfaction and Discharge of Indenture........................................................ 21
Section 4.02. Application of Trust Funds..................................................................... 22
ARTICLE V Remedies.............................................................................................. 23
Section 5.01. Events of Default.............................................................................. 23
Section 5.02. Acceleration of Maturity; Rescission and Annulment............................................. 24
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Section 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee................................ 25
Section 5.04. Trustee May File Proofs of Claim............................................................... 26
Section 5.05. Trustee May Enforce Claims Without Possession of Securities.................................... 27
Section 5.06. Application of Money Collected................................................................. 27
Section 5.07. Limitation on Suits............................................................................ 28
Section 5.08. Unconditional Right of Holders to Receive Principal, Premium, If Any, and Interest............. 28
Section 5.09. Restoration of Rights and Remedies............................................................. 28
Section 5.10. Rights and Remedies Cumulative................................................................. 29
Section 5.11. Delay or Omission Not Waiver................................................................... 29
Section 5.12. Control by Holders of Securities............................................................... 29
Section 5.13. Waiver of Past Defaults........................................................................ 29
Section 5.14. Waiver of Usury, Stay or Extension Laws........................................................ 30
Section 5.15. Undertaking for Costs.......................................................................... 30
ARTICLE VI The Trustee........................................................................................... 31
Section 6.01. General........................................................................................ 31
Section 6.02. Certain Rights of Trustee...................................................................... 31
Section 6.03. Individual Rights of Trustee................................................................... 33
Section 6.04. Trustee's Disclaimer........................................................................... 33
Section 6.05. Notice of Default.............................................................................. 33
Section 6.06. Conflicting Interests of Trustee............................................................... 33
Section 6.07. Compensation and Indemnity..................................................................... 33
Section 6.08. Replacement of Trustee......................................................................... 34
Section 6.09. Successor Trustee by Merger, Etc............................................................... 35
Section 6.10. Eligibility.................................................................................... 35
Section 6.11. Money Held in Trust............................................................................ 35
Section 6.12. Withholding Taxes.............................................................................. 35
Section 6.13. Preferential Collection of Claims.............................................................. 36
Section 6.14. Trustee's Application for Instructions from the Company ....................................... 36
ARTICLE VII Holders' Lists and Reports by Trustee and Company..................................................... 36
Section 7.01. Disclosure of Names and Addresses of Holders................................................... 36
Section 7.02. Reports by Trustee............................................................................. 36
Section 7.03. Reports by Company............................................................................. 37
Section 7.04. Company to Furnish Trustee Names and Addresses of Holders...................................... 37
ARTICLE VIII Consolidation, Merger, Sale, Lease or Conveyance...................................................... 38
Section 8.01. Consolidations and Mergers of Company and Sales, Leases and
Conveyances Permitted Subject to Certain Conditions............................................ 38
Section 8.02. Rights and Duties of Successor Corporation..................................................... 38
Section 8.03. Officers' Certificate and Opinion of Counsel................................................... 39
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ARTICLE IX Supplemental Indentures............................................................................... 39
Section 9.01. Supplemental Indentures Without Consent of Holders ............................................ 39
Section 9.02. Supplemental Indentures with Consent of Holders................................................ 40
Section 9.03. Execution of Supplemental Indentures........................................................... 41
Section 9.04. Effect of Supplemental Indentures.............................................................. 41
Section 9.05. Conformity with Trust Indenture Act............................................................ 41
Section 9.06. Reference in Securities to Supplemental Indentures ............................................ 41
ARTICLE X Covenants............................................................................................. 41
Section 10.01. Payment of Principal, Premium, If Any, and Interest............................................ 41
Section 10.02. Maintenance of Office or Agency................................................................ 42
Section 10.03. Money for Securities Payments to Be Held in Trust.............................................. 42
Section 10.04. Existence...................................................................................... 43
Section 10.05. Payment of Taxes and Other Claims.............................................................. 44
Section 10.06. Statement as to Compliance..................................................................... 44
Section 10.07. Waiver of Certain Covenants.................................................................... 44
ARTICLE XI Redemption of Securities.............................................................................. 44
Section 11.01. Provisional and Optional Redemption by the Company ............................................ 44
Section 11.02. Election to Redeem; Notice to Trustee.......................................................... 45
Section 11.03. Selection by Trustee of Securities to Be Redeemed.............................................. 45
Section 11.04. Notice of Redemption........................................................................... 46
Section 11.05. Deposit of Redemption Price.................................................................... 47
Section 11.06. Securities Payable on Redemption Date.......................................................... 48
Section 11.07. Securities Redeemed in Part.................................................................... 48
ARTICLE XII Repurchase at Option of Holders upon Change in Control................................................ 49
Section 12.01. Right to Require Repurchase.................................................................... 49
Section 12.02. Conditions to the Company's Election to Pay the Repurchase Price in Common Stock............... 49
Section 12.03. Notices; Method of Exercising Repurchase Right, Etc............................................ 50
Section 12.04. Certain Definitions............................................................................ 53
Section 12.05. Change in Control.............................................................................. 53
Section 12.06. References to Repurchase Price................................................................. 54
ARTICLE XIII Conversion............................................................................................ 54
Section 13.01. Conversion Privilege and Conversion Price...................................................... 54
Section 13.02. Exercise of Conversion Privilege............................................................... 56
Section 13.03. Fractions of Shares............................................................................ 56
Section 13.04. Adjustment of Conversion Price................................................................. 57
Section 13.05. Notice of Adjustments of Conversion Price...................................................... 65
Section 13.06. Notice of Certain Corporate Action............................................................. 65
Section 13.07. Company's Obligation Regarding Common Stock.................................................... 66
Section 13.08. Taxes on Conversions........................................................................... 66
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Section 13.09. Covenant as to Common Stock.................................................................... 66
Section 13.10. Cancellation of Converted Securities........................................................... 67
Section 13.11. Provisions in Case of Reclassification, Consolidation, Merger or Sale of Assets................ 67
Section 13.12. Company's Obligation........................................................................... 67
ARTICLE XIV Subordination......................................................................................... 67
Section 14.01. Securities Subordinate to Senior Indebtedness.................................................. 67
Section 14.02. Payment over of Proceeds upon Dissolution, Etc................................................. 68
Section 14.03. No Payment When Senior Indebtedness in Default................................................. 69
Section 14.04. Payment Permitted If No Default................................................................ 70
Section 14.05. Subrogation to Rights of Holders of Senior Indebtedness........................................ 70
Section 14.06. Provisions Solely to Define Relative Rights.................................................... 70
Section 14.07. Trustee to Effectuate Subordination............................................................ 71
Section 14.08. No Waiver of Subordination Provisions.......................................................... 71
Section 14.09. Notice to Trustee.............................................................................. 72
Section 14.10. Reliance on Judicial Order or Certificate of Liquidating Agent................................. 72
Section 14.11. Trustee Not Fiduciary for Holders of Senior Indebtedness....................................... 73
Section 14.12. Rights of Trustee as Holder of Senior Indebtedness; Preservation of Trustee's Rights........... 73
Section 14.13. Article Applicable to Paying Agents............................................................ 73
Section 14.14. Certain Conversions Deemed Payment............................................................. 73
SIGNATURES
ACKNOWLEDGMENTS
EXHIBIT A - FORMS OF CERTIFICATION
EXHIBIT A-2 - FORM OF RESTRICTIVE LEGEND
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INDENTURE, dated as of December 21, 1999, between INTERNET CAPITAL
GROUP, INC., a Delaware corporation (the "Company"), having its principal office
at 435 Devon Park Drive, Building 800, Wayne, Pennsylvania 19087 and CHASE
MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association
organized under the laws of the United States of America, as Trustee hereunder
(the "Trustee"), having an office at One Liberty Place, 52nd Floor, 1650 Market
Street, Suite 5210, Philadelphia, Pennsylvania 19103.
RECITALS OF THE COMPANY
The Company has duly authorized the issue of its 5 1/2% Convertible
Subordinated Notes due 2004 (the "Securities"), and to provide for such
issuance, the Company has duly authorized the execution and delivery of this
Indenture.
This Indenture is subject to the provisions of the Trust Indenture
Act of 1939 that are deemed to be incorporated into this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all the holders of the Securities, as
follows:
ARTICLE I
Definitions and Other Provisions of General Application
Section 1.01. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the TIA,
either directly or by reference therein, have the meanings assigned to them
therein, and the terms "cash transaction" and "self-liquidating paper," as used
in TIA Section 311, shall have the meanings assigned to them in the rules of the
Commission adopted under the TIA;
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP;
<PAGE>
(d) the word "including" means "including without
limitation," and
(e) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act," when used with respect to any Holder, has the meaning
specified in Section 1.04.
"affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authorized Newspaper" means a newspaper, printed in the English
language or in an official language of the country of publication, customarily
published on each Business Day, whether or not published on Saturdays, Sundays
or holidays, and of general circulation in each place in connection with which
the term is used or in the financial community of each such place. Whenever
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different Authorized
Newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Bankruptcy Law" has the meaning specified in Section 5.01.
"Board of Directors" means the board of directors of the Company, the
executive committee of that board or any committee of that board duly authorized
to act hereunder.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" when used with respect to any Place of Payment or any
other particular location referred to in this Indenture or in the Securities,
means, any day, other than a Saturday or Sunday, that is neither a legal holiday
nor a day on which banking institutions in that Place of Payment or particular
location are authorized or required by law, regulation or executive order to
close.
Eclipsing Price" has the meaning specified in Section 13.03.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after
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execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties on such date.
"Common Stock" means the common stock of the Company, $0.001 par
value, as it exists on the date of this Indenture and any shares of any class or
classes of capital stock of the Company resulting from any reclassification or
reclassifications thereof.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"company" shall mean such successor corporation.
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by the Chief Executive
Officer, Chief Financial Officer, the President, a Vice President or a Managing
Director of the Company and delivered to the Trustee.
"Conversion Agent" means any Person authorized by the Company
pursuant to Section 10.02 to convert Securities in accordance with Article 13.
"Conversion Rate" has the meaning specified in Section 13.01.
"Corporate Trust Office" means the office of the Trustee at which, at
any particular time, its corporate trust business as it relates to this
Indenture shall be principally administered, which office at the date hereof is
located at Chase Manhattan Trust Company, One Liberty Place, 52nd Floor, 1650
Market Street, Suite 5210, Philadelphia, Pennsylvania 19103, Attention: Capital
Markets Fiduciary Services (Internet Capital Group 5 1/2% Convertible
Subordinated Notes due 2004).
"corporation" means a corporation, association, partnership,
companies (including limited liability companies) joint-stock company or
business trust.
"Custodian" has the meaning specified in Section 5.01.
"Defaulted Interest" has the meaning specified in Section 3.06.
"Dollar" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"DTC" means The Depository Trust Company.
"Event of Default" has the meaning specified in Article 5.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, as used in the United States, applied on a consistent basis.
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"Government Obligations" means securities which are (i) direct
obligations of the United States of America, for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which is not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
"Holder" means the Person in whose name a Security is registered in
the Security Register.
"Indebtedness" means, with respect to any Person, and without
duplication, (a) all indebtedness, obligations and other liabilities (contingent
or otherwise) of such Person for borrowed money (including obligations of such
Person in respect of overdrafts, foreign exchange contracts, currency exchange
or similar agreements, interest rate protection, hedging or similar agreements,
and any loans or advances from banks, whether or not evidenced by notes or
similar instruments) or evidenced by bonds, debentures, notes or similar
instruments (whether or not the recourse of the lender is to the whole of the
assets of such Person or to only a portion thereof) other than any account
payable or other accrued current liability or obligation, in each case incurred
in the ordinary course of business in connection with the obtaining of materials
or services; (b) all reimbursement obligations and other liabilities (contingent
or otherwise) of such Person with respect to letters of credit, bank guarantees,
bankers acceptances, security purchase facilities or similar credit
transactions; (c) all obligations and liabilities (contingent or otherwise) in
respect of deferred and unpaid balances on any purchase price of any property,
including interests in Partner Companies; (d) all obligations and liabilities
(contingent or otherwise) in respect of leases of such Person required, in
conformity with generally accepted accounting principles, to be accounted for as
capitalized lease obligations on the balance sheet of such Person and all
obligations and other liabilities (contingent or otherwise) under any lease or
related document, including, without limitation, the balance deferred and unpaid
on any purchase price of any property and a purchase agreement in connection
with the lease of real property which provides that such Person is contractually
obligated to purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the lessor
and the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property; (e) all
obligations of such Person (contingent or otherwise) with respect to an interest
rate or other swap, cap or collar agreement or other similar instrument or
agreement or foreign currency hedge, exchange, purchase or similar instrument or
agreement; (f) all direct or indirect guarantees or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or otherwise)
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of such Person to purchase or otherwise acquire or otherwise assure a creditor
against loss in respect of indebtedness, obligations or liabilities of another
Person of the kind described in clauses (a) through (f); (g) any indebtedness or
other obligations described in clauses (a) through (f) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person; and (h) any and all deferrals,
renewals, extensions, refinancing, replacements, restatements and refundings of,
or amendments, modifications or supplements to, or any indebtedness, or
obligation issued in exchange for, any indebtedness, obligation or liability of
the kind described in clauses (a) through (g).
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date," means the Stated Maturity of an installment
of interest on such Security.
"Make-Whole Payment" has the meaning specified in Section 11.01.
"Maturity," means the date on which the principal of the Securities
becomes due and payable as therein or herein provided, whether at the Stated
Maturity, conversion or by declaration of acceleration, notice of redemption,
notice of option to elect repayment or otherwise.
"Material Adverse Effect" has the meaning specified in Section 10.04.
"Officers Certificate" means a certificate signed by the Chairman of
the Board of Directors, a Managing Director, the President or a Vice President
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or who may be an employee of or other counsel for the
Company and who shall be reasonably satisfactory to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder, money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying
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Agent) for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(iii) Securities which have been paid pursuant to Section
3.05 or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the Trustee
proof satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company; and
(iv) Securities converted into Common Stock pursuant to or
in accordance with this Indenture;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 313, Securities owned by the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in making such
calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities which the Trustee knows to
be so owned shall be so disregarded. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor.
"Partner Company" means a Person some or all of whose outstanding
voting securities are owned or are hereafter acquired, directly or indirectly,
by the Company or one of its Subsidiaries.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment," means the place or places where the principal of
(and premium, if any), interest on and the Redemption Prices and the Repurchase
Price with respect to the Securities are payable as specified as contemplated by
Section 10.2.
"Predecessor Security" means every previous Security evidencing all
or a portion of the same debt as that evidenced by such Security; and, for the
purposes of this definition, any Security authenticated and delivered under
Section 3.05 in exchange for or in lieu
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of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence
the same debt as the mutilated, destroyed, lost or stolen Security.
"Redemption Date," when used with respect to any Security to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture as set forth in such Security.
"Redemption Price," when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities means the date specified for that purpose as contemplated by
Section 3.06, whether or not a Business Day.
"Repurchase Date" means, when used with respect to any Security to be
repaid at the option of the Holder, the date fixed for such repayment by or
pursuant to this Indenture.
"Repurchase Price" means, when used with respect to any Security to be
repaid at the option of the Holder, the price at which it is to be repaid by or
pursuant to this Indenture.
"Responsible Officer," when used with respect to the Trustee, means the
chairman or vice-chairman of the Board of Directors, the chairman or
vice-chairman of the executive committee of the Board of Directors, the
president, any vice president (whether or not designated by a number or a word
or words added before or after the title "vice president,") the secretary, any
assistant secretary, the treasurer, any assistant treasurer, any corporate trust
officer, the controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of such officer's
knowledge and familiarity with the particular subject.
"Security" has the meaning stated in the first recital of this Indenture
and, more particularly, means any Security or Securities authenticated and
delivered under this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.04.
"Senior Indebtedness" means the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and all other amounts
owed in respect of all Indebtedness of the Company, whether outstanding on the
date of this Indenture or thereafter created, incurred, assumed, guaranteed or
in effect guaranteed by the Company (including all deferrals, renewals,
extensions, refinancings, replacements, restatements or refundings of, or
amendments, modifications or supplements to, the foregoing); except for (i) any
such Indebtedness the terms of which expressly provide that such Indebtedness
shall not be senior in right of payment to the Securities, (ii) any such
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Indebtedness that is by its terms subordinated to or pari passu with the
Securities, and (iii) any Indebtedness between or among the Company or any of
its Subsidiaries or its Affiliates, including all other debt securities and
guarantees in respect of those debt securities issued to any trust, or trustees
of any trust, partnership or other entity affiliated with the Company that is,
directly or indirectly, a financing vehicle used by the Company in connection
with the issuance by that financing vehicle of preferred securities or other
securities that rank pari passu with, or junior to, the Securities but excluding
any Indebtedness incurred by the Company in connection with its acquisition of
beneficial interests in a Partner Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" (as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act of 1933) of the Company.
"Special Record Date" for the payment of any Defaulted Interest on the
Securities means a date fixed by the Trustee pursuant to Section 3.06.
"Stated Maturity," means the date specified in the Securities as the fixed
date on which the principal of, or interest on, such Securities is due and
payable.
"Subsidiary" means a corporation a majority of the outstanding voting stock
of which is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries of the Company, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
that ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Trading Day" has the meaning specified in Section 13.03.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as in
force at the date hereof; provided, however, that in the event the Trust
Indenture Act of 1939 or such rules and regulations are amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
Trust Indenture Act of 1939 and such rules and regulations as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this Indenture until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder.
"United States" means the United States of America (including the states
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
"United States person" means an individual who is a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in or under the laws
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of the United States or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source.
Section 1.02 Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need
refurnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate
or opinion has read such condition or covenant and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or covenant has
been complied with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.03 Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to some matters and one or more other such Persons as to other
matters, and any such Person may certify or give an opinion as to such matters
in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as
it relates to legal matters, upon an Opinion of Counsel, or a certificate or
representations by counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the opinion, certificate or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such Opinion of Counsel or certificate or representations may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Company stating that
the information as to such factual matters is
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in the possession of the Company, unless such counsel knows that the certificate
or opinion or representations as to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications,
requests, consents, certificates, statements, opinions or other instruments
under this Indenture, they may, but need not, be consolidated and form one
instrument.
Section 1.04 Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders of the Outstanding Securities, may be embodied in
and evidenced by one or more instruments of substantially similar tenor signed
by such Holders in person or by agents duly appointed in writing. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments or record or both are delivered to the Trustee
and, where it is hereby expressly required, to the Company. Such instrument or
instruments and any such record (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments or so voting at any such meeting. Proof of
execution of any such instrument or of a writing appointing any such agent, or
of the holding by any Person of a Security, shall be sufficient for any purpose
of this Indenture and conclusive in favor of the Trustee and the Company and any
agent of the Trustee or the Company, if made in the manner provided in this
Section 1.04.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
(c) The ownership of the Securities shall be proved by the
Security Register.
(d) (i) If the Company shall solicit from the Holders of any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, in or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so; provided that the Company
shall not be entitled to set a record date for, and the provisions of this
paragraph shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in clause 1.04(d)(iii) below.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such
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request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(ii) Subject to clause 1.04(d)(iii) below, in the absence of
any such record date fixed by the Company, regardless as to whether any
solicitation of the Holders is occurring on behalf of the Company or any Holder,
the Trustee may, at its option, fix in advance a record date for the
determination of such Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Trustee
shall have no obligation to do so. Any such record date shall be a date not more
than 30 days prior to the first solicitation of Holders generally in connection
therewith and no later than the date of such solicitation.
(iii) The Trustee may set any day as a record date for the
purpose of determining the Holders of Outstanding Securities entitled to join in
the giving or making of (A) any notice of default, (B) any declaration of
acceleration referred to in Section 5.02, (C) any request to institute
proceedings referred to in Section 5.07(b), or (D) any direction referred to in
Section 5.12. If any record date is set pursuant to this paragraph, the Holders
of Outstanding Securities on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to any applicable
expiration date by Holders of the requisite principal amount of Outstanding
Securities on such record date. Nothing in this paragraph shall be construed to
prevent the Trustee from setting a new record date for any action (whereupon the
record date previously set shall automatically and without any action by any
Person be cancelled and of no effect), nor shall anything in this paragraph be
construed to render ineffective any action taken by Holders of the requisite
principal amount of Outstanding Securities on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the Trustee,
at the Company's expense, shall cause notice of such record date, the proposed
action by Holders and the applicable expiration date to be given to the Company
in writing and to each Holder of Securities in the manner set forth in Section
1.06.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, any
Security Registrar, any Paying Agent or the Company in reliance thereon, whether
or not notation of such action is made upon such Security.
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Section 1.05 Notices, Etc., to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with:
(a) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with the Trustee at its Corporate Trust Office, Attention: Capital
Markets Fiduciary Services; provided that notices to the Trustee shall only be
deemed given when actually received by the Trustee,
(b) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing and mailed, first class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this Indenture or at any other address previously furnished in
writing to the Trustee by the Company.
Section 1.06 Notice to Holders; Waiver. Where this Indenture provides for
notice of any event to Holders by the Company or the Trustee, such notice shall
be sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class postage prepaid, to each such Holder affected by such
event, at his address as it appears in the Security Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Holders is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders given as provided herein. Any notice mailed to a Holder in the
manner herein prescribed shall be conclusively deemed to have been received by
such Holder, whether or not such Holder actually receives such notice.
If by reason of the suspension of or irregularities in regular mail service or
by reason of any other cause it shall be impracticable to give such notice by
mail, then such notification to Holders as shall be made with the approval of
the Trustee shall constitute a sufficient notification to such Holders for every
purpose hereunder.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
Where this Indenture provides for notice in any manner, such notice maybe waived
in writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
Section 1.07 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
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Section 1.08 Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.09 Separability Clause. In case any provision in this Indenture
or in any Security shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 1.10 Benefits of Indenture. Nothing in this Indenture or in the
Securities, express or implied, shall give to any Person, other than the parties
hereto, any Security Registrar, any Paying Agent and their successors hereunder
and the Holders any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 1.11 Governing Law. This Indenture and the Securities shall be
governed by and construed in accordance with the law of the State of New York
without regard to conflicts of laws principles. This Indenture is subject to the
provisions of the TIA that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
Section 1.12 Legal Holidays. In any case where any Interest Payment Date,
Redemption Date, Repurchase Date, Stated Maturity or Maturity of any Security or
the last date on which a Holder has the right to convert his Securities shall
not be a Business Day at any Place of Payment, then (notwithstanding any other
provision of this Indenture or any Security), payment of Redemption Price,
Repurchase Price, interest or principal (and premium, if any), or conversion of
the Securities, need not be made at such Place of Payment on such date, but may
be made on the next succeeding Business Day at such Place of Payment with the
same force and effect as if made on the Interest Payment Date, Redemption Date,
Repurchase Date or at the Stated Maturity or Maturity or on such last day for
conversion; provided that no interest shall accrue on the amount so payable for
the period from and after such Interest Payment Date, Redemption Date,
Repurchase Date, Stated Maturity or Maturity or on such last day for conversion,
as the case may be.
Section 1.13 Personal Immunity from Liability for Incorporators,
Stockholders, Etc. No recourse shall be had for the payment of the principal of
or premium, if any, or interest, if any, on any Security, or for any claim based
thereon, or otherwise in respect of any Security, or based on or in respect of
this Indenture or any indenture supplemental hereto, against any incorporator,
or against any past, present or future stockholder, director or officer, as
such, of the Company or of any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being expressly waived and released as
a condition of, and as consideration for, the execution of this Indenture and
the issue of Securities.
Section 1.14 Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with a provision of the TIA which is required
under such Act to be a part of and govern this Indenture, the latter provision
shall control. If any provision of this Indenture modifies or excludes any
provision of the TIA which may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or to be excluded, as
the case
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may be. To the extent a Security conflicts with a provision in the Indenture,
the Indenture governs.
ARTICLE II
Securities Forms
Section 2.01 Forms of Securities. The Securities shall be in substantially
the form of Exhibit A hereto, and shall have notations, legends or endorsements
required by law, stock exchange rate or usage. Except as otherwise provided in a
Company Order, all Securities other than Securities issuable in global form
shall be issued in definitive form and shall include a legend substantially in
the Form of Exhibit A-2 attached hereto.
Section 2.02 Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in substantially the
following form:
This is one of the Securities described in the within-mentioned Indenture.
DATED:
--------------------------------
as Trustee
By:
-----------------------------
Authorized Signatory
Section 2.03 Securities Issuable in Global Form. Except as otherwise
provided in this Section 2.03, the Securities shall be issuable in global form,
and any such Security shall represent such of the Outstanding Securities as
shall be specified therein and may provide that it shall represent the aggregate
amount of Outstanding Securities from time to time endorsed thereon and that the
aggregate amount of Outstanding Securities represented thereby may from time to
time be increased or decreased to reflect exchanges. Any endorsement of a
Security in global form to reflect the amount, or any increase or decrease in
the amount, of Outstanding Securities represented thereby shall be made by the
Trustee in such manner and upon instructions given by such Person or Persons as
shall be specified therein or in the Company Order to be delivered to the
Trustee pursuant to Section 3.03. Subject to the provisions of Section 3.03, the
Trustee shall deliver and redeliver any Security in global form in the manner
and upon instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 3.03 has been,
or simultaneously is, delivered, any instructions by the Company with respect to
endorsement or delivery or redelivery of a Security in global form shall be in
writing but need not comply with Section 1.02 and need not be accompanied by an
Opinion of Counsel.
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The provisions of the last sentence of Section 3.03 shall apply to any
Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 1.02 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 3.03.
Notwithstanding the provisions of Section 3.07, payment of principal of and
any premium and interest on any Security in global form shall be made to the
Person or Persons specified therein.
Notwithstanding the provisions of Section 3.07 and except as provided in
the preceding paragraph, the Company, the Trustee and any agent of the Company
and the Trustee shall treat as the Holder of such principal amount of
Outstanding Securities represented by a global Security as the Holder of such
global Security in registered form.
At the instruction of the Company, any Security may be issued in definitive
form, subject to Section 2.01 hereof.
ARTICLE III
The Securities
Section 3.01 Title and Term. The Securities shall be and are hereby
authorized to be designated as "5 1/2% Convertible Subordinated Notes due 2004",
limited in aggregate principal amount to $566,250,000. The Securities shall
mature and the principal thereof shall be due and payable, together will all
accrued and unpaid interest thereon, on December 21, 2004. The Securities shall
be convertible into shares of Common Stock, $0.001 par value, of the Company, as
such shares shall be constituted at the time of conversion, in accordance with
Article 13 hereof.
Section 3.02 Denominations. The Securities shall be issuable in
denominations of $1,000 and any integral multiple thereof.
Section 3.03 Execution, Authentication, Delivery and Dating. The Securities
shall be executed on behalf of the Company by the Chief Executive Officer, Chief
Financial Officer, the President, a Vice President or a Managing Director of the
Company and attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these individuals on the Securities may be manual or
facsimile signatures of the present or any future such authorized officer and
may be imprinted or otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such
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individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Securities or did not hold such offices at
the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities, executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized signatory, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 3.08 together
with a written statement (which need not comply with Section 1.02 and need not
be accompanied by an Opinion of Counsel) stating that such Security has never
been issued and sold by the Company, for all purposes of this Indenture such to
have been authenticated and delivered hereunder and shall never be entitled to
the benefits of this Indenture.
Section 3.04 Registration, Registration of Transfer and Exchange. The
Company shall cause to be kept at the Corporate Trust Office of the Trustee or
in any office or agency of the Company in a Place of Payment a register for the
Securities (the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of the Securities and of transfers of the Securities. The Security Register
shall be in written form or any other form capable of being converted into
written form within a reasonable time. The Trustee, at its Corporate Trust
Office, is hereby appointed "Security Registrar" for the purpose of registering
the Securities and transfers of the Securities on such Security Register as
herein provided. In the event that the Trustee shall cease to be Security
Registrar, it shall have the right to examine the Security Register at all
reasonable times.
Subject to the provisions of this Section 3.04 and except as otherwise
provided in any Security including any legend thereon, upon surrender for
registration of transfer of any Security at any office or agency of the Company
in a Place of Payment, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities, of any authorized denominations and of
a like aggregate principal amount, bearing a number not contemporaneously
outstanding, and containing identical terms and provisions.
Subject to the provisions of this Section 3.04, at the option of the
Holder, the Securities may be exchanged for other Securities, of any authorized
denomination or
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denominations and of a like aggregate principal amount, containing identical
terms and provisions, upon surrender of the Securities to be exchanged at any
such office or agency. Whenever any such Securities are so surrendered for
exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive.
Notwithstanding the foregoing, any global Security shall be exchangeable
only as provided in this paragraph. The depositary for the global Securities
shall be DTC, and the global Securities may be transferred, in whole but not in
part, only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor
to DTC for such global Security selected or approved by the Company or to a
nominee of such successor to DTC. If at any time DTC notifies the Company that
it is unwilling or unable to continue as depositary for the applicable global
Security or Securities or if at any time DTC ceases to be a clearing agency
registered under the Securities Exchange Act of 1934 if so required by
applicable law or regulation, the Company shall appoint a successor depositary
with respect to such global Security or Securities. If (x) a successor
depositary for such global Security or Securities is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such unwillingness, inability or ineligibility, (y) an Event of Default has
occurred and is continuing and the beneficial owners representing a majority in
principal amount of the applicable Securities represented by such global
Security or Securities advise DTC to cease acting as depositary for such global
Security or Securities or (z) the Company, in its sole discretion, determines at
any time that all Outstanding Securities (but not less than all) issued or
issuable in the form of one or more global Securities shall no longer be
represented by such global Security or Securities, then the Company shall
execute, and the Trustee shall authenticate and deliver, definitive Securities
of like rank, tenor and terms in definitive form in an aggregate principal
amount equal to the principal amount of such global Security or Securities. If a
Security is issued in exchange for any portion of a global Security after the
close of business at the office or agency where such exchange occurs on (i) any
Regular Record Date and before the opening of business at such office or agency
on the relevant Interest Payment Date or (ii) any Special Record Date and the
opening of business at such office or agency on the related proposed date for
payment of Defaulted Interest, interest or Defaulted Interest, as the case may
be, will not be payable on such Interest Payment Date or proposed date for
payment, as the case may be, in respect of such Security, but will be payable on
such Interest Payment Date or proposed date for payment, as the case may be,
only to the Person to whom interest in respect of such portion of such global
Security is payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange or redemption shall (if so required by the Company or the Security
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the
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Company and the Security Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 10.05, 11.07 or 12.03(f) not involving any
transfer.
The Company or the Trustee, as applicable, shall not be required (i) to
issue, register the transfer of or exchange any Security if such Security may be
among those selected for redemption during a period beginning at the opening of
business 15 days before selection of the Securities to be redeemed under Section
11.03 and ending at the close of business on the day of the mailing of the
relevant notice of redemption or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except, in the case
of any Security to be redeemed in part, the portion thereof not to be redeemed,
or (iii) to issue, register the transfer of or exchange any Security which has
been surrendered for repayment at the option of the Holder, except the portion,
if any, of such Security not to be so repaid.
Section 3.05 Mutilated, Destroyed, Lost and Stolen Securities. If any
mutilated Security is surrendered to the Trustee or the Company, together with
such security or indemnity as may be required by the Company or the Trustee to
save each of them or any agent of either of them harmless, the Company shall, at
the relevant Holder's expense, execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of the same principal amount,
containing identical terms and provisions and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company, at the relevant Holder's expense, shall execute and upon
its request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of the same principal amount,
containing identical terms and provisions and bearing a number not
contemporaneously outstanding, appertaining to such destroyed, lost or stolen
Security.
Notwithstanding the provisions of the previous two paragraphs, in case any
such mutilated, destroyed, lost or stolen Security has become or is about to
become due and payable, the Company in its discretion may, instead of issuing a
new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
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Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security, shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.06 Payment of Interest; Interest Rights Preserved. Interest on
any Security that is payable, and is punctually paid or duly provided for, on
any Interest Payment Date shall be paid to the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 10.02; provided,
however, that each installment of interest on any Security may at the Company's
option be paid by (i) mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 3.07, to the
address of such Person as it appears on the Security Register or (ii) transfer
to an account maintained by the payee located inside the United States;
provided, however, that payments to DTC will be made by wire transfer of
immediately available funds to the account of DTC or its nominee. The term
"Regular Record Date" with respect to any Interest Payment Date shall mean the
December 6 or June 6 preceding December 21 or June 21, respectively.
Any interest on any Security that is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date (herein called "Defaulted Interest")
shall forthwith cease to be payable to the registered Holder thereof on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause 3.06(a) or 3.06(b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the date
of the proposed payment (which shall not be less than 30 days after such notice
is received by the Trustee) and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed to be paid
in respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit on or prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment. The Trustee shall promptly notify the Company
of such Special Record Date and, in the name and at
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the expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of Securities at his address as it
appears in the Security Register not less than 10 days prior to such Special
Record Date. The Trustee may, in its discretion, in the name and at the expense
of the Company, cause a similar notice to be published at least once in an
Authorized Newspaper in each place of payment, but such publications shall not
be a condition precedent to the establishment of such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest shall be
paid to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following clause (b).
(b) The Company may make payment of any Defaulted Interest on
the Securities in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
Section 3.07 Persons Deemed Owners. Prior to due presentment of a Security
for registration of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of (and premium, if any), and (subject to Sections 3.04 and 3.06)
interest on, such Security and for all other purposes whatsoever, whether or not
such Security be overdue, and neither the Company, the Trustee nor any agent of
the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by any depositary, as a Holder, with respect to
such global Security or impair, as between such depositary and owners of
beneficial interests in such global Security, the operation of customary
practices governing the exercise of the rights of such depositary (or its
nominee) as Holder of such global Security.
Section 3.08 Cancellation. All Securities surrendered for payment,
redemption, repayment at the option of the Holder, registration of transfer or
exchange or for credit against
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any sinking fund payment shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee, and any such Securities surrendered
directly to the Trustee for any such purpose shall be promptly canceled by it;
provided, however, where the Place of Payment is located outside of the United
States, the Paying Agent at such Place of Payment may cancel the Securities
surrendered to it for such purposes prior to delivering the Securities to the
Trustee. The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and may deliver to the Trustee (or
to any other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly canceled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section, except as
expressly permitted by this Indenture. Canceled Securities held by the Trustee
shall be destroyed by the Trustee and the Trustee shall deliver a certificate of
such destruction to the Company, unless by a Company Order the Company directs
their return to it.
Section 3.09 Computation of Interest. Interest on the Securities shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
ARTICLE IV
Satisfaction and Discharge
Section 4.01 Satisfaction and Discharge of Indenture. This Indenture shall
upon Company Request cease to be of further effect with respect to any Security
specified in such Company Request (except as to any surviving rights of
conversion, registration of transfer or exchange of Securities herein expressly
provided for), and the Trustee, upon receipt of a Company Order, and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when:
(a) either:
(i) all Securities theretofore authenticated and
delivered have been delivered to the Trustee for cancellation; or
(ii) all Securities not theretofore delivered to the
Trustee for cancellation:
(A) have become due and payable, or
(B) will become due and payable at their Stated
Maturity within one year, or
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(C) if redeemable at the option of the Company,
are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (A), (B) or (C) above, has irrevocably deposited
or caused to be deposited with the Trustee as trust funds in trust (1) an amount
of money, (2) Government Obligations that through the scheduled payment of
principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, money in an
amount, or (3) a combination thereof, sufficient in each case to pay and
discharge the entire indebtedness on such Securities not theretofore delivered
to the Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be;
(b) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee and any predecessor Trustee under
Section 6.07, and, if money shall have been deposited with and held by the
Trustee pursuant to Section 4.01(a)(ii), the obligations of the Trustee under
Section 4.02 and the last paragraph of Section 10.03 shall survive.
Section 4.02 Application of Trust Funds. Subject to the provisions of the
last paragraph of Section 10.03, all amounts deposited with the Trustee pursuant
to Section 4.01 shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent), as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and any interest for whose payment such amounts
have been deposited with or received by the Trustee, but such amounts need not
be segregated from other funds except to the extent required by law. All moneys
deposited with the Trustee pursuant to Section 4.01 (and held by it or any
Paying Agent) for the payment of Securities subsequently converted shall be
returned to the Company upon Company Request.
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ARTICLE V
Remedies
Section 5.01 Events of Default. "Event of Default," wherever used herein
with respect to the Securities, means any one of the following events (whatever
the reason for such Event of Default and whether or not it shall be occasioned
by the provisions of Article 14 or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) default in the payment of any interest upon any
Security, when such interest becomes due and payable, and continuance of such
default for a period of 30 days (whether or not such payment is prohibited by
the provisions of Article 14); or
(b) default in the payment of (i) the principal of (or
premium, if any, on) any Security when it becomes due and payable at its
Maturity, or (ii) the payment of the Redemption Price (including the Make-Whole
Payment, if any) with respect to any Security when it becomes due and payable
(whether or not such payment is prohibited by the provisions of Article 14); or
(c) default in the payment of the Repurchase Price in
respect of any Security on the Repurchase Date therefor (whether or not such
payment is prohibited by the provisions of Article 14 hereof); or
(d) failure by the Company to deliver shares of Common Stock
(together with cash in lieu of fractional shares) when such Common Stock (or
cash in lieu of fractional shares) is required to be delivered following
conversion of a Security and continuation of such default for a period of 10
days; or
(e) default in the performance, or breach, of any covenant
or warranty of the Company in this Indenture with respect to any Security (other
than a covenant or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with) and continuance of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(f) a default under any bonds, debentures, notes or other
evidences of indebtedness for money borrowed of the Company or under any
mortgages, indentures or instruments under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the
Company, whether such indebtedness now exists or shall hereafter be created,
which indebtedness, individually or in the aggregate, has a principal amount
outstanding in excess of $10,000,000, which default shall have resulted in such
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indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 30 days after there shall have been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% in principal amount of the Securities then
Outstanding, a written notice specifying such default and requiring the Company
to cause such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of Default"
hereunder (unless such default has been cured or waived); or
(g) the Company or any Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief
against it in an involuntary case,
(iii) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its
creditors; or
(h) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any
Significant Subsidiary in an involuntary case,
(ii) appoints a Custodian of the Company or any
Significant Subsidiary or for all or substantially all of the property of any of
them, or
(iii) orders the winding up or liquidation of the
Company or any Significant Subsidiary,
and the order or decree remains unstayed and in effect for 60 days.
As used in this Section 5.01, the term "Bankruptcy Law" means title
11, U.S. Code or any similar Federal or State law for the relief of debtors and
the term "Custodian" means any receiver, trustee, assignee, liquidator or other
similar official under any Bankruptcy Law.
Section 5.02 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default with respect to Securities at the time Outstanding occurs and
is continuing, then and in
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every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities may declare the principal of all the
Securities to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by the Holders), and upon any such
declaration such principal shall become immediately due and payable. If an Event
of Default specified in Section 5.01(g) or 5.01(h) occurs, the principal of, and
accrued interest on, all the Securities shall automatically, and without any
declaration or other action on the part of the Trustee or any Holder, become
immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter in this Article
provided, the Holders of a majority in principal amount of the Outstanding
Securities, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue installments of interest on all Outstanding
Securities,
(ii) the principal of (and premium, if any, on) any Outstanding
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates borne by or provided for
in such Securities,
(iii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate or rates borne by or
provided for in such Securities, and
(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel; and
(b) all Events of Default with respect to Securities, other than the
nonpayment of the principal of (or premium, if any) or interest on Securities
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Section 5.03 Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if:
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
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(b) default is made in the payment of the principal of (or premium,
if any, on) any Security at its Maturity, then the Company will, upon demand of
the Trustee, pay to the Trustee, for the benefit of the Holders of such
Securities, the whole amount then due and payable on such Securities for
principal (and premium, if any) and interest, with interest upon any overdue
principal (and premium, if any) and, to the extent that payment of such interest
shall be legally enforceable, upon any overdue installments of interest, if any,
at the rate or rates borne by or provided for in such Securities, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities occurs and is continuing,
the Trustee may in its discretion proceed to protect and enforce its rights and
the rights of the Holders of Securities by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
Section 5.04 Trustee May File Proofs of Claim. In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the property of the
Company or of such other obligor or their creditors, the Trustee (irrespective
of whether the principal of the Securities shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company for the payment of overdue
principal, premium, if any, or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount, or such lesser
amount as may be provided for in the Securities, of principal (and premium, if
any) and interest, owing and unpaid in respect of the Securities and to file
such other papers or documents as may be necessary or advisable in order to have
the claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby directed by
each Holder of Securities to make such payments to the Trustee, and in the event
that the Trustee shall request the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee and any
predecessor Trustee, their agents and counsel, and any other amounts due the
Trustee or any predecessor Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder of a
Security, any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder of a Security in any
such proceeding; provided; however, that the Trustee may, on behalf of the
Holders, vote for the election of a trustee in bankruptcy or similar official
and be a member of a creditors' or other similar committee.
Section 5.05 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or any of the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 5.06 Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities, or both, as the case may be, and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee and any
predecessor Trustee under Section 6.07;
SECOND: To the holders of Senior Indebtedness to the extent
required by the provisions of Article 14.
THIRD: To the payment of the amounts then due and unpaid upon the
Securities for principal (and premium, if any) and interest payable, in respect
of which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the aggregate amounts
due and payable on such Securities for principal (and premium, if any) and,
interest, respectively; and
FOURTH: To the payment of the remainder, if any, to the Company.
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Section 5.07 Limitation on Suits. No Holder of any Security shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
Section 5.08 Unconditional Right of Holders to Receive Principal, Premium,
If Any, and Interest. Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right which is absolute and unconditional
to receive payment of the principal of, and premium, if any, including the
Redemption Prices and Make-Whole Payment upon redemption pursuant to Article 11,
and (subject to Sections 3.04 and 3.06) interest on such Security on the
respective due dates expressed in such Security (or, in the case of redemption
or repurchase, on the Redemption Date or Repurchase Date, as the case may be)
and to convert such Security in accordance with the provisions of this Indenture
and to institute suit for the enforcement of any such payment and right to
convert, and such rights shall not be impaired without the consent of such
Holder.
Section 5.09 Restoration of Rights and Remedies. If the Trustee or any
Holder of a Security has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, the Company, the Trustee and the
Holders of Securities shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder and
thereafter all rights
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and remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 5.10 Rights and Remedies Cumulative. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 3.05, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders of Securities
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11 Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities, as the case may be.
Section 5.12 Control by Holders of Securities. The Holders of not less than
a majority in principal amount of the Outstanding Securities shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Securities, provided that:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve
it in personal liability or be unduly prejudicial to the Holders of Securities
not joining therein.
Section 5.13 Waiver of Past Defaults. The Holders of not less than a
majority in principal amount of the Outstanding Securities may on behalf of the
Holders of all the Securities waive any past default hereunder with respect to
such Securities and its consequences, except a default:
(a) in the payment of the principal of (or premium, if any)
or interest on any Security,
(b) in respect of the conversion by the Company of any
Security into Common Stock,
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(c) in the payment of the Redemption Prices or Make-Whole
Payment pursuant to Article 11,
(d) in the payment of the Repurchase Price pursuant to
Article 12, or
(e) in respect of a covenant or provision hereof which under
Article 9 cannot be modified or amended without the consent of the Holder of
each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
Section 5.14 Waiver of Usury, Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any usury, stay or extension law wherever enacted, now or at any
time hereafter in force, which may affect the covenants or the performance of
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15 Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Security by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of any undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal amount of the
Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of the payment of the principal of (or premium, if any) or interest
on any Security on or after the respective Stated Maturities expressed in such
Security (or, in the case of redemption or repurchase, on or after the
Redemption Date or the Repurchase Date, respectively), or the right to convert
any Security in accordance with Article 13.
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ARTICLE VI
The Trustee
Section 6.01 General. The duties and responsibilities of the Trustee shall
-------
be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if the Trustee in its sole discretion shall believe that repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it. Whether or not herein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Article 6.
Section 6.02 Certain Rights of Trustee. Subject to TIA Sections 315(a)
through (d):
(a) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement, instrument,
facsimile transmission, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, made or presented
by the proper person and may accept and rely upon the same as conclusive
evidence of the truth and accuracy of the statement and opinions contained
therein. The Trustee need not investigate any fact or matter stated in any such
document;
(b) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall conform
to Section 1.02. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(c) the Trustee may consult with counsel and the written
advice of such counsel shall be full and complete authorization and protection
with respect to any action taken, suffered or omitted by it hereunder in good
faith and reliance thereon and may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the holders, unless such holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction;
(e) the Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within its
rights or powers or for any action it takes or omits to take in accordance with
the written direction of the holders of a majority in
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principal amount of the Outstanding Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this Indenture;
(f) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate;
(g) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee, in its discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company personally or by agent or
attorney;
(h) the Trustee shall not be required to take notice or be
deemed to have notice of any default hereunder unless the Trustee be
specifically notified of such default in writing by the Company or any holder of
the Securities, and in the absence of such notice the Trustee may conclusively
assume that there is no default; provided that if the Trustee is acting as
Paying Agent, the Trustee shall be required to take and be deemed to have notice
of its failure to receive payments of interest or principal hereunder;
(i) except for information provided by the Trustee concerning
the Trustee, the Trustee shall have no responsibility with respect to any
information in any offering memorandum or other disclosure material distributed
with respect to the Securities, and the Trustee shall have no responsibility for
compliance with securities laws in connection with the issuance and sale of the
Securities;
(j) in the event the Trustee shall receive inconsistent or
conflicting requests and indemnity from two or more groups of holders of the
Securities, each representing at least 25% (but less than 50%) of the aggregate
principal amount of the Securities then outstanding, the Trustee will act in
accordance with instructions received by the holders of the greater percentage
thereof;
(k) except as otherwise expressly provided by the provisions
of this Indenture, the Trustee shall not be obligated and may not be required to
give or furnish any notice, demand, report, request, reply, statement, advice or
opinion to the holder of any Security or to the Company or any other Person, and
the Trustee shall not incur any liability for its failure or refusal to give or
furnish the same unless obligated or required to do so by the express provisions
hereof; and
(l) the Trustee shall not be required to give any bond or
surety with respect to the performance of its duties or the exercise of its
powers under this Indenture.
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Section 6.03 Individual Rights of Trustee. The Trustee, any Paying Agent,
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and may otherwise
deal with the Company, its Subsidiaries or its Affiliates with the same rights
it would have if it were not the Trustee, Paying Agent, Security Registrar or
such other agent. Any registrar, co-registrar, paying agent, conversion agent or
authenticating agent may do the same with like rights. However, the Trustee is
subject to TIA Sections 310(b) and 311.
Section 6.04 Trustee's Disclaimer. The Trustee (i) makes no representation
as to the validity or adequacy of this Indenture or the Securities, (ii) shall
not be accountable for the Company's use or application of the proceeds from the
Securities and (iii) shall not be responsible for any statement in the
Securities other than its certificate of authentication.
Section 6.05 Notice of Default. If any Event of Default occurs and is
continuing and if the Trustee has actual knowledge of such Event of Default, the
Trustee shall mail to each holder in the manner and to the extent provided in
TIA Section 313(c) notice of the Event of Default within 90 days after it
occurs, unless such Event of Default has been cured or waived; provided,
however, that, except in the case of a default in the payment of the principal
of (or premium, if any) or interest on any Security, the Trustee shall be
protected in withholding such notice if and so long as Responsible Officers of
the Trustee in good faith determine that the withholding of such notice is in
the interests of the Holders of the Securities; and provided further that in the
case of any default or breach referred to in Section 5.01(e) with respect to the
Securities, no such notice to Holders shall be given until at least 90 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default with respect to the Securities.
Section 6.06 Conflicting Interests of Trustee. If the Trustee has or shall
acquire a conflicting interest within the meaning of the TIA, the Trustee shall
either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of the TIA and this Indenture.
Section 6.07 Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses and advances incurred or made
by the Trustee in accordance with this Indenture. Such expenses shall include
the reasonable compensation and expenses of the Trustee's agents and counsel.
The Company shall indemnify and hold harmless the Trustee and its
directors, agents and employees (collectively the "Indemnitees") against any and
all losses, liabilities, obligations, damages, penalties, fines, judgments,
actions, suits, proceedings, reasonable costs and expenses (including reasonable
fees and disbursements of counsel) of any kind whatsoever which may be incurred
by or imposed on the Indemnitees or any of them arising out of or in connection
with the acceptance or administration of its duties under this Indenture;
provided, however, that the Company need not reimburse any expense or indemnify
against any loss,
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obligation, damage, penalty, fine, judgment, action, suit, proceeding,
reasonable cost or expense (including reasonable fees and disbursements of
counsel) of any kind whatsoever which may be incurred by Indemnitees or any of
them which results from the negligence or willful misconduct of the Indemnitees
or any of them. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Company
shall not relieve the Company of its obligations hereunder, unless the Company
is materially prejudiced thereby. The Company shall defend the claim and the
Trustee shall cooperate in the defense. Unless otherwise set forth herein, the
Indemnitees of any of them may have separate counsel and the Company shall pay
the reasonable fees and expenses of such counsel. The Company need not pay for
any settlement made without its consent, which consent shall not be unreasonably
withheld. The provisions of this Section 6.07 shall survive the termination of
this Indenture and the resignation or removal of the Trustee for any reason.
To secure the Company's payment obligations in this Section 6.07, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, in its capacity as Trustee, except money or
property held in trust to pay principal of, premium, if any, and interest on
particular Securities.
If the Trustee incurs expenses or renders services after the occurrence of
an Event of Default specified in Section 5.01(g) or Section 5.01(h), the
expenses and the compensation for the services will be intended to constitute
expenses of administration under Title 11 of the United States Bankruptcy Code
or any applicable federal or state law for the relief of debtors.
Section 6.08 Replacement of Trustee. A resignation or removal of the Trustee
and appointment of a successor Trustee shall become effective only upon the
successor Trustee's acceptance of appointment as provided in this Section 6.08.
The Trustee may resign at any time by so notifying the Company in writing
at least thirty (30) days prior to the date of the proposed resignation. The
holders of a majority in principal amount of the Outstanding Securities may
remove the Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the prior consent of the Company. The Company may remove
the Trustee if: (i) the Trustee is no longer eligible under Section 6.10; (ii)
the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or other
public officer takes charge of the Trustee or its property; or (iv) the Trustee
becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the holders
of a majority in principal amount of the Outstanding Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 6.08 within thirty (30) days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
holders of a majority in principal amount of the Outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
6.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each holder.
If the Trustee is no longer eligible under Section 6.10, any holder
who satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all holders. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
6.08, the Company's obligation under Section 6.07 shall continue for the benefit
of the retiring Trustee.
Section 6.09 Successor Trustee by Merger, Etc. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all of its
corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein.
Section 6.10 Eligibility. This Indenture shall always have a Trustee who
satisfies the requirements of TIA Section 310(a)(1). The Trustee (or the bank
holding company to which the Trustee is a member) shall have a combined capital
and surplus of at least $25 million as set forth in its most recent published
annual report of condition.
Section 6.11 Money Held in Trust. Subject to the provisions of Section
10.03 and Section 14.02, all monies received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received. The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law and except for money held in trust under Article 4 of
this Indenture.
Section 6.12 Withholding Taxes. The Trustee, as agent for the Company,
shall exclude and withhold from each payment of principal and interest and other
amounts due hereunder or under the Securities any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Securities, to withhold such amounts and timely pay
the same to the appropriate authority in the name of and on behalf of the
holders of the Securities, that it will file any necessary withholding tax
returns or statements when due, and that, as promptly as possible
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after the payment thereof, it will deliver to each holder of a Security
appropriate documentation showing the payment thereof, together with such
additional documentary evidence as such holders may reasonably request from time
to time.
Section 6.13 Preferential Collection of Claims. If and when the Trustee
shall be or become a creditor of the Company (or any other obligor upon the
Securities), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
Section 6.14 Trustee's Application for Instructions from the Company . Any
application by the Trustee for written instructions from the Company (other than
with regard to any action proposed to be taken or omitted to be taken by the
Trustee that affects the rights of the holders of the Securities or holders of
Senior Indebtedness under this Indenture, including, without limitation, under
Article 14 hereof) may, at the option of the Trustee, set forth in writing any
action proposed to be taken or omitted by the Trustee under this Indenture and
the date on and/or after which such action shall be taken or such omission shall
be effective. The Trustee shall not be liable for any action taken by, or
omission of, the Trustee in accordance with a proposal included in such
application on or after the date specified in such application (which date shall
not be less than ten (10) Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
ARTICLE VII
Holders' Lists and Reports by Trustee and Company
Section 7.01 Disclosure of Names and Addresses of Holders. Every Holder of
Securities, by receiving and holding the same, agrees with the Company and the
Trustee that neither the Company nor the Trustee nor any Paying Agent nor any
Security Registrar shall be held accountable by reason of the disclosure of any
information as to the names and addresses of the Holders of Securities in
accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
Section 7.02 Reports by Trustee. Within 60 days after May 15 of each year
commencing with the first May 15 after the first issuance of Securities pursuant
to this Indenture, the Trustee shall transmit by mail to all Holders of
Securities as provided in TIA Section 313(c) a brief report dated as of such May
15 if required by TIA Section 313(a). A copy of each such report shall at the
time of such transmission to Holders be filed by the Trustee with each stock
exchange upon which any Securities are listed with the Commission and the
Company. The Company will notify the Trustee when any Securities are listed on
any stock exchange and of any delisting thereof.
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Section 7.03 Reports by Company. The Company will:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Sections 13(a) or 13(b) or Section 15(d) of the
Securities Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of such Sections, then it
will file with the Trustee, in accordance with rules and regulations prescribed
from time to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to Section 13
of the Securities Exchange Act of 1934 in respect of a security listed and
registered on a national securities exchange as may be prescribed from time to
time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations; and
(c) file with the Trustee and the Commission, if applicable,
and transmit by mail to the Holders of Securities, within 30 days after the
filing thereof with the Trustee, in the manner and to the extent provided in TIA
Section 313(c), such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of this
Section as may be required by rules and regulations prescribed from time to time
by the Commission and other information as may be required pursuant to the TIA
at the time and in the manner provided pursuant to such Act.
Section 7.04 Company to Furnish Trustee Names and Addresses of Holders. (a)
---------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee:
(i) semi-annually, not later than 10 days after the Regular
Record Date for interest for the Securities, a list, in such form as the Trustee
may reasonably require, of the names and addresses of the Holders of Securities
as of such Regular Record Date, or if there is no Regular Record Date for
interest for the Securities, semi-annually, upon such dates as are set forth in
the Board Resolution or indenture supplemental hereto; and
(ii) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior to the
time such list is furnished,
provided, however, that, so long as the Trustee is the Security Registrar, no
such list shall be required to be furnished.
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(b) The Company shall provide the Trustee with at least 30 days'
prior notice of any change in location of its principal executive offices or
other principal place of business.
ARTICLE VIII
Consolidation, Merger, Sale, Lease or Conveyance
Section 8.01 Consolidations and Mergers of Company and Sales, Leases and
Conveyances Permitted Subject to Certain Conditions. The Company may consolidate
with, or sell, lease, transfer, convey or otherwise dispose of all or
substantially all of its assets to, or merge with or into any other Person,
provided that in any such case, (1) either the Company shall be the continuing
corporation, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
or leases the Company's assets substantially as an entirety is a corporation,
partnership, limited liability company or trust organized and existing under the
laws of any United States jurisdiction and expressly assumes the due and
punctual payment of the principal of (and premium, if any) and any interest
payable pursuant to this Indenture on all of the Securities, according to their
tenor, and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed by the Company and
shall have provided for conversion rights, if applicable, in accordance with the
provisions of Article 13 hereof, by supplemental indenture, complying with
Article 9 hereof, satisfactory to the Trustee, executed and delivered to the
Trustee by such corporation and (2) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Company or such Person or any Subsidiary as a result thereof as having been
incurred by the Company or such Subsidiary at the time of such transaction, no
Event of Default, and no event which, after notice or the lapse of time, or
both, would become an Event of Default, shall have occurred and be continuing.
Section 8.02 Rights and Duties of Successor Corporation. In case of any
such consolidation, merger, sale, lease or conveyance and upon any such
assumption by the successor Person, such successor Person shall succeed to and
be substituted for the Company, with the same effect as if it had been named
herein as the party of the first part, and the predecessor corporation, except
in the event of a lease, shall be relieved of any further obligation under this
Indenture and the Securities. Such successor Person thereupon may cause to be
signed, and may issue either in its own name or in the name of the Company, any
or all of the Securities issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the Trustee; and, upon the order of
such successor corporation, instead of the Company, and subject to all the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall deliver any Securities which previously shall have
been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Trustee for that purpose. All the
Securities so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Securities theretofore or thereafter issued in
accordance with the
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terms of this Indenture as though all of such Securities had been issued at the
date of the execution hereof.
In case of any such consolidation, merger, sale, lease or conveyance,
such changes in phraseology and form (but not in substance) may be made in the
Securities thereafter to be issued as may be appropriate.
Section 8.03 Officers' Certificate and Opinion of Counsel. Any
consolidation, merger, sale, lease, transfer, conveyance or other dispositions
permitted under Section 8.01 is also subject to the condition that the Trustee
receive an Officers' Certificate and an Opinion of Counsel to the effect that
any such consolidation, merger, sale, lease, transfer or conveyance or other
dispositions and the assumption by any successor Person, complies with the
provisions of this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
ARTICLE IX
Supplemental Indentures
Section 9.01 Supplemental Indentures Without Consent of Holders . Without
the consent of any Holders of Securities, the Company, when authorized by or
pursuant to a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the Company
contained herein and the Securities issued hereunder;
(b) to add to the covenants of the Company for the equal and
ratable benefit of the Holders of the Securities or to surrender any right,
power or option herein conferred upon the Company;
(c) to add any additional Events of Default for the benefit of
the Holders of the Securities; provided, however, that in respect of any such
additional Events of Default such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter or longer
than that allowed in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to the Trustee
upon such default or may limit the right of the Holders of a majority in
aggregate principal amount of those Securities to which such additional Events
of Default apply to waive such default;
(d) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities and to add to or
change any of the
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provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee;
(e) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein; provided such provisions shall not adversely affect the interests of the
Holders of Securities in any material respect;
(f) to make any change that does not adversely affect the
rights of any holder of Securities;
(g) to make any change to comply with any requirement of the
Commission in connection with the qualification of the Indenture under TIA; or
(h) to provide for the issuance of uncertificated Securities
in addition to or in place of certificated Securities; provided, however, that
the uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code.
Section 9.02 Supplemental Indentures with Consent of Holders. With the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Securities affected by such supplemental indenture, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by or pursuant to a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby:
(a) reduce the principal amount, Repurchase Price or
Redemption Price with respect to any Security, or extend the Stated Maturity of
any Security or alter the manner of payment or rate of interest on any Security
or make any Security payable in money or securities other than that stated in
the Security;
(b) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver with respect to Securities (or compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences) provided for in
this Indenture;
(c) make any change that adversely affects the right to
convert any Security;
(d) modify the provisions of the Indenture relating to the
ranking of the Securities in a manner adverse to the Holders of the Securities;
or
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(e) impair the right to institute suit for the enforcement of
any payment with respect to, or conversion of, the Securities.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.03 Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Article 6)
shall be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 9.04 Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
Section 9.05 Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act as then in effect.
Section 9.06 Reference in Securities to Supplemental Indentures .
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall, if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE X
Covenants
Section 10.01 Payment of Principal, Premium, If Any, and Interest. The
Company covenants and agrees for the benefit of the Holders of Securities that
it will duly and punctually pay the principal of (and premium, if any), interest
on, and the Repurchase Price, the Redemption Price and the Make-Whole Payment
with respect to the Securities in accordance with the terms of the Securities
and this Indenture. At the option of the Company, all payments of principal may
be paid by check to the registered Holder of the Security or other person
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entitled thereto against surrender of such Security. The conversion of
any Securities pursuant to Article 13 hereof, together with any cash payments
required to be made in accordance with the terms of the Securities and this
Indenture, will satisfy the Company's obligations under this Section 10.01 with
respect to such Securities.
Section 10.02 Maintenance of Office or Agency. The Company shall maintain a
Place of Payment for the Securities an office or agency where the Securities may
be presented or surrendered for payment or conversion or redemption, where the
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of each such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee its agent to receive all such presentations, surrenders, notices and
demands.
The Company may from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
of such purposes, and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in accordance with the
requirements set forth above for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency. The Company hereby
designates as a Place of Payment of the Securities the office or agency of the
Company in the Borough of Manhattan, The City of New York, and initially
appoints the Trustee c/o The Chase Manhattan Bank, 55 Water Street, 2nd Floor,
New York, NY 10041, Attention: Securities Window, as Paying Agent in such city
and as its agent to receive all such presentations, surrenders, notice and
demands.
Section 10.03 Money for Securities Payments to Be Held in Trust. If the
Company shall at any time act as its own Paying Agent with respect to any
Securities, it will, on or before each due date of the principal of (and
premium, if any), or interest on the Securities, segregate and hold in trust for
the benefit of the Persons entitled thereto a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, before each due date of the principal of (and premium, if
any), or interest on, the Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest, so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its action or failure
so to act.
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The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of principal of
(and premium, if any,) or interest on the Securities, in trust for the benefit
of the Persons entitled thereto, until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any such payment of
principal (and premium, if any) or interest; and
(c) at any time during the continuance of any Event of Default
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and
discharge of this Indenture or for any other purpose, pay, or by Company Order
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
Except as otherwise provided in the Securities, any money deposited
with the Trustee or any Paying Agent, or then held by the Company, in trust for
the payment of the principal of (and premium, if any) or interest on any
Security and remaining unclaimed for two years after such principal (and
premium, if any) or interest has become due and payable shall be paid to the
Company upon Company Request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment of such
principal of (and premium, if any) or interest on any Security, without interest
thereon, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in an Authorized Newspaper, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining, will be repaid to the Company.
Section 10.04 Existence. Subject to Article 8, the Company will do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence, rights (charter and statutory) and franchises, except
to the extent that the Board of Directors shall determine that the failure to do
so would not have a material adverse effect on the business, assets, financial
condition or results of operation of the Company (a "Material Adverse
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Effect"); provided, however, that the Company shall not be required to preserve
any right or franchise if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the Holders.
Section 10.05 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary and have a Material Adverse Effect; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
Section 10.06 Statement as to Compliance. The Company will deliver to the
Trustee, within 120 days after the end of each fiscal year of the Company, a
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all terms, conditions and provisions under this Indenture and,
in the event of any noncompliance, specifying such noncompliance and the nature
and status thereof. For purposes of this Section 10.06, such compliance shall be
determined without regard to any period of grace or requirement of notice under
this Indenture.
Section 10.07 Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any term, provision or condition set forth in
Sections 10.04 to 10.05, inclusive, if before the time for such compliance the
Holders of at least a majority in principal amount of all outstanding
Securities, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
ARTICLE XI
Redemption of Securities.
Section 11.01 Provisional and Optional Redemption by the Company. (a) The
Securities may be redeemed at the election of the Company, as a whole or from
time to time in part, at any time prior to December 21, 2002 (a "Provisional
Redemption"), upon notice as set forth in Section 11.04, at a redemption price
equal to $1,000 per $1,000 principal amount of the Securities redeemed plus
accrued and unpaid interest, if any, to but excluding the date of redemption
(the "Provisional Redemption Date") if the Closing Price of the Common Stock has
exceeded 150% of the conversion price (as defined in Article 13) then in effect
for at least 20
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Trading Days in any consecutive 30-Trading Day period ending on the Trading Day
prior to the date of mailing of the provisional notice of redemption pursuant to
Section 11.04 (the "Notice Date").
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") with respect to the Securities called
for redemption to holders on the Notice Date in an amount equal to $152.54 per
$1,000 principal amount of the Securities, less the amount of any interest
actually paid on such Securities prior to the Notice Date. The Company shall
make the Make-Whole Payment on all Securities called for Provisional Redemption,
including those Securities converted into Common Stock between the Notice Date
and the Provisional Redemption Date.
(b) The Securities may be redeemed at the election of the Company, as
a whole or from time to time in part, at any time on or after December 21, 2002,
and prior to maturity (an "Optional Redemption"), upon notice as set forth in
Section 11.04, at the following optional redemption prices (expressed as
percentages of the principal amount), together in each case with accrued and
unpaid interest, if any, up to but not including the date fixed for redemption.
The table below shows Redemption Prices with respect to $1,000 principal
amount of the Securities if redeemed during the twelve-month periods described
below:
Period Redemption Price
- ------ ----------------
December 21, 2002 through December 20, 2003 102.2%
Thereafter 101.1%.
Section 11.02 Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities shall be evidenced by or pursuant to a Board
Resolution. In case of any redemption at the election of the Company of all or
any part of the Securities pursuant to Section 11.01 (Provisional Redemption or
Optional Redemption), the Company shall, at least 45 days prior to the giving of
the notice of redemption in Section 11.04 (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of the Redemption Date and of
the principal amount of Securities to be redeemed. In the case of any redemption
of Securities prior to the expiration of any restriction on such redemption
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction.
Section 11.03 Selection by Trustee of Securities to Be Redeemed. If less
than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from the Outstanding Securities not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate.
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If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed, solely for
purposes of determining the aggregate principal amount of the Securities to be
redeemed, to be the portion selected for redemption (provided, however, that the
Holder of such Security so converted and deemed redeemed shall not be entitled
to any additional interest payment as a result of such deemed redemption than
such Holder would have otherwise been entitled to receive upon conversion of
such Security). Securities which have been converted during a selection of
Securities to be redeemed may be treated by the Trustee as Outstanding for the
purpose of such selection.
Securities in denominations of $1,000 may only be redeemed in whole. The
Trustee may select for redemption portions (equal to $1,000 or any multiple
thereof) of the principal of Securities that have denominations larger than
$1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Security redeemed or to be redeemed only in part, to the portion of
the principal amount of such Security which has been or is to be redeemed.
Section 11.04 Notice of Redemption. Notice of redemption shall be given in
the manner provided in Section 1.06, not less than 30 days nor more than 60 days
prior to the Redemption Date to each Holder of Securities to be redeemed, but
failure to give such notice in the manner herein provided to the Holder of any
Security designated for redemption as a whole or in part, or any defect in the
notice to any such Holder, shall not affect the validity of the proceedings for
the redemption of any other such Security or portion thereof.
Any notice that is mailed to the Holders of Securities in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives the notice.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price, accrued interest to the Redemption Date
payable as provided in Section 11.06, if any, and, with respect to Securities
called for Provisional Redemption, the Make-Whole Payment;
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(c) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption, the principal amount) of
the particular Securities to be redeemed;
(d) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed;
(e) that on the Redemption Date, the Redemption Price and accrued
interest to the Redemption Date payable as provided in Section 11.06, if any,
and, with respect to Securities called for Provisional Redemption, the Make-
Whole Payment, will become due and payable upon each such Security, or the
portion thereof, to be redeemed and, if applicable, that interest thereon shall
cease to accrue on and after said date;
(f) the Place or Places of Payment where such Securities, maturing
after the Redemption Date, are to be surrendered for payment of the Redemption
Price and accrued interest, if any, and, with respect to Securities called for
Provisional Redemption, the Make-Whole Payment, or for conversion,
(g) that Securities called for redemption must be presented and
surrendered to the Paying Agent to collect the redemption price;
(h) the then current Conversion Price;
(i) that the Securities called for redemption may be converted at any
time before the close of business on the Redemption Date;
(j) the CUSIP number of such Security, if any; and
(k) that a Holder of Securities who desires to convert Securities must
satisfy the requirements for conversion contained in such Securities.
Notice of redemption of Securities to be redeemed shall be given by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
Section 11.05 Deposit of Redemption Price. Not later than 11:00 a.m. New
York City time on the Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.03) an amount of
money sufficient to pay on the Redemption Date, the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, and, with respect to the Securities called for Provisional
Redemption, the Make-Whole Payment on, all the Securities or portions thereof
which are to be redeemed on that date, other than Securities or portions thereof
called for redemption on that date which have been delivered by the Company to
the Trustee for cancellation or have been converted; provided that,
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with respect to a Provisional Redemption, any money so deposited for payment of
the Make-Whole Payment shall remain segregated and held in trust for payment of
the Make-Whole Payment which shall be made on all Securities called for
Provisional Redemption, including Securities converted into shares of Common
Stock after the Notice Date and prior to the Provisional Redemption Date.
Section 11.06 Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified (together with accrued interest, if any, to the Redemption Date), and
from and after such date (unless the Company shall default in the payment of the
Redemption Price and accrued interest) such Securities shall, if the same were
interest-bearing, cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date and with respect to Securities called for Provisional
Redemption (including Securities converted into Common Stock pursuant to the
terms hereof after the Notice Date and prior to the Provisional Redemption
Date), the Make-Whole Payment; and provided, however, that if the Provisional
Redemption Date is an Interest Payment Date, the semi-annual payment of interest
becoming due on such date shall be payable to the Holders of such Securities
registered as such on the relevant Regular Record Date according to their terms
and the provisions of Section 3.06, and with respect to a Provisional
Redemption, the holder of any Securities converted into Common Stock pursuant to
the terms hereof after the Notice Date and prior to the Provisional Redemption
Date shall have the right to the Make-Whole Payment regardless of the conversion
of such Securities.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any (including
the Make-Whole Payment, if any), shall, until paid, bear interest from the
Redemption Date at the rate borne by the Security and such Security shall remain
convertible into Common Stock until the principal and premium, if any (including
the Make-Whole Payment, if any), shall have been paid.
Section 11.07 Securities Redeemed in Part. Any Security which is to be
redeemed only in part (pursuant to the provisions of this Article) shall be
surrendered at a Place of Payment therefor (with, if the Company or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing) and the Company shall execute and
the Trustee shall authenticate and deliver to the Holder of such Security
without service charge a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
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ARTICLE XII
Repurchase at Option of Holders upon Change in Control
Section 12.01 Right to Require Repurchase. In the event that a Change in
Control shall occur, each Holder shall have the right, at the Holder's option,
to require the Company to repurchase (subject to the provisions of Section 14.03
hereof), and upon the exercise of such right the Company shall repurchase, all
of such Holder's Securities, or any portion of the principal amount thereof that
is an integral multiple of $1,000 (provided that no single Security may be
repurchased in part unless the portion of the principal amount of such Security
to be outstanding after such repurchase is equal to $1,000 or an integral
multiple of $1,000), on the date (the "Repurchase Date") that is not later than
45 Business Days after the date of the occurrence of a Change in Control at a
purchase price equal to 100% of the principal amount plus interest accrued and
unpaid to the Repurchase Date (subject to the right of Holders of record on the
Regular Record Date to receive interest on the relevant Interest Payment Date)
(the "Repurchase Price"). At the option of the Company, the Repurchase Price may
be paid in cash or, subject to the fulfillment by the Company of the conditions
set forth in Section 12.02, by delivery of shares of Common Stock having a fair
market value equal to the Repurchase Price as described in Section 12.02. If the
Repurchase Date is between a Regular Record Date and the related Interest
Payment Date, then the interest payable on such Interest Payment Date shall be
paid to the Holder of record of the Security on such Regular Record Date.
Section 12.02 Conditions to the Company's Election to Pay the Repurchase
Price in Common Stock.
The Company may elect to pay the Repurchase Price by delivery of
shares of Common Stock pursuant to Section 12.01 if and only if the following
conditions have been satisfied:
(a) The shares of Common Stock deliverable in payment of the
repurchase Price shall have a fair market value as of the Repurchase Date of not
less than the Repurchase Price. For purposes of this Section 12.02, the fair
market value of shares of Common Stock shall be determined by the Company and
shall be equal to 95% of the average of the Closing Prices of the Common Stock
for the five consecutive Trading Days ending on and including the third Trading
Day immediately preceding the Repurchase Dates;
(b) The shares of Common Stock deliverable in payment of the
Repurchase Price shall be listed for trading on a U.S. national securities
exchange or approved for trading on an established automated over-the-counter
trading market in the United States, in either case, immediately prior to the
repurchase date; and
(c) All shares of Common Stock deliverable in payment of the
Repurchase Price shall be issued out of the Company's authorized but unissued
Common Stock
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and will, upon issue, be duly and validly issued and fully paid and non-
assessable and free of any preemptive rights.
If all of the conditions set forth in this Section 12.02 are not
satisfied in accordance with the terms thereof, the Repurchase Price shall be
paid by the Company only in cash.
Section 12.03 Notices; Method of Exercising Repurchase Right, Etc. (a)
Unless the Company shall have theretofore called for redemption all of the
Outstanding Securities, on or before the 15th day after the occurrence of a
Change in Control, the Company or, at the written request of the Company, on or
before the tenth (10th) day after receipt of such request, the Trustee, at the
Company's expense, shall give notice to all Holders of the Securities (the
"Company Notice") of the occurrence of the Change in Control and of the
repurchase right set forth herein arising as a result thereof. If the Company
gives such notice of a repurchase right, the Company shall also deliver a copy
of such notice of a repurchase right to the Trustee.
Each Company Notice shall state:
(i) the date of such Change in Control and, briefly, the events
causing such Change in Control;
(ii) the date by which the Change in Control Purchase Notice (as
defined below) must be delivered;
(iii) the Repurchase Date;
(iv) the Repurchase Price, and whether the Repurchase Price shall
be paid by the Company in cash or by delivery of shares of Common Stock;
(v) a description of the procedure which a Holder must follow to
exercise a repurchase right;
(vi) the procedures for withdrawing a Change in Control Purchase
Notice;
(vii) the place or places where such Securities are to be
surrendered for payment of the Repurchase Price and accrued interest, if any;
(viii) briefly, the conversion rights of Holders of Securities;
(ix) the conversion price and any adjustments thereto, the date on
which the right to convert the Securities will terminate and the places where
such Securities may be surrendered for conversion;
(x) that Holders who want to convert Securities must satisfy the
requirements set forth in the Securities; and
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(xi) that no failure of the Company to give the foregoing
notice or defect therein shall limit any Holder's right to exercise a
repurchase right or affect the validity of the proceedings for the
repurchase of the Securities.
(b) To exercise a repurchase right, a Holder shall deliver to the
Paying Agent or an office or agency maintained by the Company for such purpose
in the Borough of Manhattan, The City of New York, prior to the close of
business on or before the Repurchase Date written notice of the Holder's
exercise of such right (the "Change in Control Purchase Notice"), which notice
shall set forth (i) the name of the Holder, the principal amount of the
Securities to be repurchased (and, if any Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the Person in which the portion thereof to remain outstanding after such
repurchase is to be registered) and a statement that an election to exercise the
repurchase right is being made thereby pursuant to the applicable provisions of
the Securities, and, in the event that the Repurchase Price shall be paid in
shares of Common Stock, the name or names (with addresses) in which the
certificate or certificates for shares of Common Stock shall be issued, and (ii)
the certificate numbers of the Securities with respect to which the repurchase
right is being exercised.
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid to
the Paying Agent the Repurchase Price in cash or shares of Common Stock, as
provided above, for payment to the Holder on the Repurchase Date or, if shares
of Common Stock are to be issued, with respect to the Securities (or portion
thereof) as to which the repurchase right has been exercised; provided, however,
that such Security for which a repurchase right has been exercised has been
delivered to the Paying Agent at any time after the notice of exercise of a
repurchase right shall have been given. Payment of the Repurchase Price for such
Security or, if shares of Common Stock are to be issued, shall be made promptly
following the later of the Business Day following the Repurchase Date and time
of delivery of the Security. If the Paying Agent holds money sufficient to pay
the Repurchase Price on the Business Day following the Repurchase Date, then,
immediately after the Repurchase Date, such Security shall cease to be
outstanding and interest will cease to accrue and will be deemed paid regardless
of whether such Security has been delivered to the Paying Agent, and all other
rights of the Holder shall terminate (other than the right of such Holder to
receive the Repurchase Price upon delivery of such Security).
(d) On or prior to the Repurchase Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust as provided in Section 10.03 of the
Indenture) an amount of money sufficient to pay the Repurchase Price of the
Securities which are to be repaid on the Repurchase Date.
(e) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Business Day following the Repurchase Date, the
principal amount of such Security (or portion thereof, as the case may be)
shall, until paid, bear interest from the Repurchase Date at the rate of 5 1/2%
per annum, and each Security shall remain convertible into
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Common Stock in accordance with Article 13 herein until the principal of such
Security (or portion thereof, as the case may be) shall have been paid or duly
provided for.
(f) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities, containing identical terms and conditions,
each in an authorized denomination in aggregate principal amount equal to and in
exchange for the portion of the principal of the Security so surrendered that
was not repurchased.
(g) Any Holder that has delivered to the Trustee a Change in
Control Purchase Notice shall have the right to withdraw such notice at any time
prior to the close of business on the Repurchase Date by delivery of a written
notice of withdrawal to the Paying Agent prior to the close of business on such
date. The notice of withdrawal shall state the principal amount and the
certificate numbers of the Securities as to which the withdrawal notice relates
and the principal amount, if any, which remains subject to the notice of
exercise of a repurchase right. A Security in respect of which a Holder has
exercised its option to require repurchase upon a Change in Control may
thereafter be converted into Common Stock only if such Holder withdraws its
notice in accordance with the preceding sentence.
(h) Any issuance of shares of Common Stock in respect of the
Repurchase Price shall be deemed to have been effected immediately prior to the
close of business on the Repurchase Date and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such repurchase shall be deemed to have become on the Repurchase
Date the holder or holders of record of the shares represented thereby;
provided, however, that any surrender for repurchase on a date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for such shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open. No payment or adjustment shall be made for dividends or
distributions on any Common Stock issued upon repurchase of any Security
declared prior to the Repurchase Date.
(i) No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon repurchase of Securities. If more than
one Security shall be repurchased from the same holder and the Repurchase Price
shall be payable in shares of Common Stock, the number of full shares which
shall be issued upon repurchase shall be computed on the basis of the aggregate
principal amount of the Securities (or specified portions thereof to the extent
permitted hereby) so repurchased. If any fractional share of stock otherwise
would be issuable upon repurchase of any Security or Securities, the Company
shall make an adjustment therefor in cash at the current market value thereof to
the Holder of Securities. For
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these purposes, the current market value of a share of Common Stock shall be the
Closing Price on the first Trading Day immediately preceding the Repurchase
Date.
(j) The issue of stock certificates on repurchase of Securities
shall be made without charge to the Holder of Securities being repurchased for
any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of stock in any name other than that of the Holder of
any Security repurchased, and the Company shall not be required to issue or
deliver any such stock certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
Section 12.04. Certain Definitions. For purposes of this Article 12:
(a) the terms "beneficial owner" and "beneficial ownership" shall
be determined in accordance with Rules 13d-3 and 13d-5 promulgated by the
Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except that a Person shall be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time; and
(b) the term "person" shall include any syndicate or group which
would be deemed to be a "Person" under Section 13(d)(3) of the Exchange Act.
Section 12.05. Change in Control. A "Change in Control" shall be deemed to
have occurred at such time after the original issuance of the Securities as:
(a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), acquires the beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction, of more than 50% of the Company's total outstanding voting stock
other than an acquisition by the Company, any of its Subsidiaries or any of its
employee benefit plans.
(b) the Company shall consolidate with, or merge with or into
another Person or convey, transfer, lease or otherwise dispose of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges with or into the Company, in any event pursuant to a transaction in
which the Company's outstanding voting stock is converted into or exchanged for
cash, securities or other property, other than any such transactions where:
(i) the Company's voting stock is not converted or
exchanged at all (except to the extent necessary to reflect a change in the
Company's jurisdiction of incorporation) or is converted into or exchanged
for voting stock (other than Redeemable Capital Stock) of the surviving or
transferee corporation, and
(ii) immediately after such transaction, no "person" or
"group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is the "beneficial
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owner", directly or indirectly, of more than 50% of the total outstanding voting
stock of the surviving or transferee corporation;
(c) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors (together with any
new directors whose election to such Board of Directors, or whose nomination for
election by the Company's stockholders, was approved by a vote of a majority of
the directors then still in office who were either directors at the beginning of
such period of whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office;
(d) a special resolution is passed by the Company's stockholders
approving the plan of liquidation or dissolution other than in a transaction
which complies with the provisions described in Article 8 of the Indenture.
"Redeemable Capital Stock" means any class of series of capital stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final stated maturity of the Securities or is redeemable at the option of
the holder thereof at any time prior to such final stated maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final stated maturity; provided, however, that Redeemable Capital Stock shall
not include any common stock the holder of which has the right to put to the
Company upon certain terminations of employment.
Section 12.06. References to Repurchase Price. Whenever in this Indenture
there is a reference, in any context, to the principal of any Security as of any
time, such reference shall be deemed to include reference to the Repurchase
Price payable in respect of such Security to the extent that such Repurchase
Price is, was or would be so payable at such time, and express mention of the
Repurchase Price in any provision of this Indenture shall not be construed as
excluding the Repurchase Price in those provisions of this Indenture when such
express mention is not made; provided, however, that for the purposes of this
Article 12, such reference shall be deemed to include reference to the
Repurchase Price only if the Repurchase Price is payable in cash.
ARTICLE XIII
Conversion
Section 13.01. Conversion Privilege and Conversion Price. Subject to and
upon compliance with the provisions of this Article 13, at the option of the
Holder thereof, any Security or any portion of the principal amount thereof
which is $1,000 or an integral multiple of $1,000 may be converted at the
principal amount thereof, or of such portion thereof, into fully paid and
nonassessable shares of Common Stock of the Company (the "Conversion Shares") at
any time following the date of original issuance of Securities at the conversion
price, determined
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as hereinafter provided, in effect at the time of conversion. Such conversion
right shall expire at the close of business on December 21, 2004, subject to any
rules and procedures of the depositary for such security in effect from time to
time (the "Applicable Procedures"). In case a Security or portion thereof has
previously been called for redemption at the election of the Company, such
conversion right in respect of the Security or portion so called shall expire at
the close of business, New York City time, on the Redemption Date, unless the
Company defaults in making the payment due upon redemption (in each case subject
as aforesaid to any Applicable Procedures). A Security in respect of which a
Holder has delivered a Change in Control Purchase Notice (as defined in Article
12 hereof) exercising the option of such Holder to require the Company to
purchase such Security may be converted only if such notice is withdrawn by a
written notice of withdrawal delivered by the Holder to the Paying Agent prior
to the close of business on the Repurchase Date, in accordance with the terms of
this Indenture.
The price at which shares of Common Stock shall be delivered upon
conversion (herein called the "conversion price") shall be initially $127.44 per
share of Common Stock, which is equal to a conversion rate of 7.8468 shares per
$1,000 principal amount of the Securities (the "Conversion Rate"). The
conversion price shall be adjusted in certain instances as provided in Section
13.04.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Common Stock referred to in Section 13.04(d) or 13.04(e)
(including dividends or distributions referred to in the last sentence of
Section 13.04(d)), the Holder of each Security, upon the conversion thereof
pursuant to this Article 13 subsequent to the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution pursuant to Section 13.04(d) or 13.04(e), shall
also be entitled to receive for each share of Common Stock into which such
Security is converted, the portion of the evidences of indebtedness, shares of
capital stock, securities, cash and other property so distributed applicable to
one share of Common Stock; provided, however, that, at the election of the
Company (whose election shall be evidenced by a Board Resolution) with respect
to all Holders so converting, the Company may, in lieu of distributing to such
Holder any portion of such distribution not consisting of cash or securities of
the Company, pay such Holder an amount in cash equal to the fair market value
thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution). If any
conversion of a Security described in the immediately preceding sentence occurs
prior to the payment date for a distribution to holders of Common Stock which
the Holder of the Security so converted is entitled to receive in accordance
with the immediately preceding sentence, the Company may elect (such election to
be evidenced by a Board Resolution) to distribute to such Holder a due bill for
the evidences of indebtedness, shares of capital stock, securities, cash or
assets to which such Holder is so entitled; provided that such due bill (i)
meets any applicable requirements of the principal national securities exchange
or other market on which the Common Stock is then traded and (ii) requires
payment or delivery of such evidences of indebtedness, shares of capital stock,
securities, cash or assets no later than the date of payment or delivery thereof
to holders of Common Stock receiving such distribution.
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Section 13.02. Exercise of Conversion Privilege. In order to exercise the
conversion privilege, the Holder of any Security to be converted shall surrender
such Security, duly endorsed or assigned to the Company or in blank, at any
office or agency maintained by the Company pursuant to Section 10.02 of this
Indenture, accompanied by (a) written notice to the Company in substantially the
form of conversion notice attached to the form of Security attached as Exhibit A
hereto at such office or agency that the Holder elects to convert such Security
or, if less than the entire principal amount thereof is to be converted, the
portion thereof to be converted and (b) if shares or any portion of such
Security not to be converted are to be issued in the name of a Person other than
the Holder thereof, the name of the Person in which to issue such shares.
Except as provided in Section 5.02 of this Indenture, no Holder of
Security will be entitled upon conversion thereof to any payment or adjustment
on account of accrued and unpaid interest thereon or on account of dividends on
the shares of Common Stock issued in connection therewith. Securities
surrendered for conversion during the period from the close of business on any
Regular Record Date to the opening of business on the corresponding Interest
Payment Date (except Securities or a portion thereof being converted that shall
have been called for redemption on a Redemption Date during the period from the
close of business on any Regular Record Date to the opening of business on the
corresponding Interest Payment Date) must be accompanied by payment to the
Company in immediately available funds or other funds acceptable to the Company
of an amount equal to the interest payable on such Interest Payment Date on the
principal amount converted.
Securities shall be deemed to have been converted immediately prior to
the close of business on the day of surrender of such Securities for conversion
in accordance with the foregoing provisions (the "Conversion Date"), and at such
time the rights of the Holders of such Securities as Holders shall cease, and
the Person or Persons entitled to receive the Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock at such time. As promptly as practicable on or after the
Conversion Date, but in any event no later than the seventh Business Day
following the Conversion Date, the Company shall issue and shall deliver at such
office or agency a certificate or certificates for the number of full shares of
Common Stock issuable upon conversion, together with payment in lieu of any
fraction of a share as provided in Section 13.03.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. Any
requirements for notice, surrender or delivery of Securities pursuant to this
Article 13 shall be subject to any Applicable Procedures.
Section 13.03. Fractions of Shares. No fractional shares of Common Stock
shall be issued upon conversion of Securities. If more than one Security shall
be surrendered for conversion at one time by the same Holder, the number of full
shares which shall be issuable
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upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security (or specified portions
thereof), the Company shall pay a cash adjustment in respect of such fraction in
an amount equal to the same fraction of the Closing Price per share of the
Common Stock at the close of business on the Trading Day immediately preceding
such day or, alternatively, the Company shall round up to the next higher whole
share.
"Trading Day" shall mean each day on which the primary securities exchange
or quotation system which is used to determine the Closing Price is open for
trading or quotation.
"Closing Price" of a single share of Common Stock on any Trading Day shall
mean the closing sale price per share for the Common Stock (or if no closing
sale price is reported, the average of the bid and ask prices or, if more than
one in either case, the average of the average bid prices and the average ask
prices) on such Trading Day as reported in composite transactions for the
principal United States securities exchange on which the Common Stock is traded
or, if the Common Stock is not listed on a United States national or regional
stock exchange, as reported by the National Association of Securities Dealers
Automated Quotation System.
Section 13.04. Adjustment of Conversion Price. (a) In case the Company
shall pay or make a dividend or other distribution on its Common Stock
exclusively in Common Stock, the conversion price in effect at the opening of
business on the day next following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares constituting
such dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day next following the date
fixed for such determination. For the purposes of this Section 13.04(a), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of Common
Stock. The Company shall not pay any dividend or make any distribution on shares
of Common Stock held in the treasury of the Company.
(b) In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights, warrants or options entitling
the holders thereof, for a period not exceeding 45 days, to subscribe for or
purchase shares of Common Stock at a price per share less than the current
market price per share (determined as provided in Section 13.04(g)) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, warrants or options, the conversion price in effect at the
opening of business on the day following the date fixed for such determination
shall be reduced by multiplying such conversion price by a fraction of which the
numerator shall be the number of
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shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current market price
and the denominator shall be the number of shares of Common Stock outstanding at
the close of business on the date fixed for such determination plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on the
day following the date fixed for such determination. For the purposes of this
Section 13.04(b), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company but shall include
shares issuable in respect of scrip certificates issued in lieu of fractions of
shares of Common Stock. The Company shall not issue any rights, warrants or
options in respect of shares of Common Stock held in the treasury of the
Company.
(c) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the conversion price in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and, conversely,
in case outstanding shares of Common Stock shall each be combined into a smaller
number of shares of Common Stock, the conversion price in effect at the opening
of business on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately after the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
(d) Subject to the last sentence of this Section 13.04(d), in case
the Company shall, by dividend or otherwise, distribute to all holders of its
Common Stock evidences of its indebtedness, shares of any class of capital
stock, securities, cash or property (excluding any rights, warrants or options
referred to in Section 13.04(b), any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in Section 13.04(a)), the
conversion price shall be reduced so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the effectiveness of the conversion price reduction contemplated by this Section
13.04(d) by a fraction of which the numerator shall be the current market price
per share (determined as provided in Section 13.04(g)) of the Common Stock on
the date of such effectiveness less the fair market value (as determined in good
faith by the Board of Directors, whose determination shall be conclusive and
described in a Board Resolution and shall, in the case of securities being
distributed for which prior thereto there is an actual or when issued trading
market, be no less than the value determined by reference to the average of the
Closing Prices in such market over the period specified in the succeeding
sentence), on the date of such effectiveness, of the portion of the evidences of
indebtedness, shares of capital stock, securities, cash and property so
distributed applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business on the day next
following the later of (i) the date fixed for the payment of such distribution
and (ii) the date 20 days after the notice relating to such distribution is
given pursuant to Section 13.06 (such later date of (i) and (ii) being referred
to as the "Reference
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Date"). The provisions of this Section 13.04(d) shall not be applicable to an
event covered by Section 13.04(j) or a Rights IPO or any other public offering
by a Partner Company (as defined in Section 13.04(k)) that includes a Directed
Share Subscription Program (as defined in Section 13.04(k)). If the Board of
Directors determines the fair market value of any distribution for purposes of
this Section 13.04(d) by reference to the actual or when issued trading market
for any securities comprising such distribution, it must in doing so consider
the prices in such market over the same period used in computing the current
market price per share pursuant to Section 13.04(g). For purposes of this
Section 13.04(d), any dividend or distribution that includes shares of Common
Stock or rights, warrants or options to subscribe for or purchase shares of
Common Stock shall be deemed instead to be (A) a dividend or distribution of the
evidences of indebtedness, cash, property, shares of capital stock or securities
other than such shares of Common Stock or such rights, warrants or options
(making any conversion price reduction required by this Section 13.04(d))
immediately followed by (B) a dividend or distribution of such shares of Common
Stock or such rights (making any further conversion price reduction required by
Sections 13.04(a) or 13.04(b)), except (1) the Reference Date of such dividend
or distribution as defined in this Section 13.04(d) shall be substituted as "the
date fixed for the determination of stockholders entitled to receive such
dividend or other distributions," "the date fixed for the determination of
stockholders entitled to receive such rights, warrants or options" and "the date
fixed for such determination" within the meaning of Sections 13.04(a) and
13.04(b) and (2) any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of this Section 13.04(b).
(e) In case the Company shall, by dividend or otherwise, make a
distribution to all holders of its Common Stock exclusively in cash in an
aggregate amount that, together with (i) the aggregate amount of any other
distributions to all holders of its Common Stock made exclusively in cash within
the 12 months preceding the date of payment of such distribution and in respect
of which no conversion price adjustment pursuant to this Section 13.04(e) has
been made and (ii) the aggregate of any cash plus the fair market value (as
determined in good faith by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of the
tender or exchange offer referred to below, of consideration payable in respect
of any tender or exchange offer by the Company or a Subsidiary for all or any
portion of the Common Stock concluded within the 12 months preceding the date of
payment of such distribution and in respect of which no conversion price
adjustment pursuant to this Section 13.04(f) has been made, exceeds 10% of the
product of the current market price per share (determined as provided in this
Section 13.04(g)) of the Common Stock as of the Trading Day immediately
preceding the record date fixed for stockholders entitled to receive such
distribution times the number of shares of Common Stock outstanding on such
record date, the conversion price shall be reduced so that the same shall equal
the price determined by multiplying the conversion price in effect immediately
prior to the effectiveness of the conversion price reduction contemplated by
this Section 13.04(e) by a fraction of which the numerator shall be the current
market price per share (determined as provided in this Section 13.04(e) of the
Common Stock on the date of such effectiveness less an amount equal to the
quotient of (x) the excess of such combined amount over such 10% and (y) the
number of shares
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of Common Stock outstanding on the record date and (iii) the denominator of
which shall be equal to the current market price on such record date, such
reduction to become effective immediately prior to the opening of business on
the later of (a) the day following the record date fixed for the payment of such
distribution and (b) the date 20 days after the notice relating to such
distribution is given pursuant to Section 13.06.
(f) In case a successful tender or exchange offer, other than an
odd lot offer, made by the Company or any Subsidiary for all or any portion of
the Common Stock shall involve an aggregate consideration having a fair market
value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) at the
last time (the "Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer (as it may be amended) that, together with (i) the
aggregate of the cash plus the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described in
a Board Resolution), as of the expiration of the other tender or exchange offer
referred to below, of consideration payable in respect of any other tender or
exchange offer by the Company or a Subsidiary for all or any portion of the
Common Stock concluded within the preceding 12 months and in respect of which no
conversion price adjustment pursuant to this Section 13.04(f) has been made and
(ii) the aggregate amount of any distributions to all holders of the Common
Stock made exclusively in cash within the preceding 12 months and in respect of
which no conversion price adjustment pursuant to Section 13.04(e) has been made,
exceeds 10% of the product of the current market price per share (determined as
provided in Section 13.04(g)) of the Common Stock outstanding (including any
tendered shares) on the Expiration Time, the conversion price shall be reduced
(but not increased) so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the Expiration
Time by a fraction of which the numerator shall be (i) the product of the
current market price per share (determined as provided in Section 13.04(g)) of
the Common Stock on the Trading Day next succeeding the Expiration Time times
the number of shares of Common Stock outstanding (including any tendered or
exchanged shares) at the Expiration Time minus (ii) the fair market value
(determined as aforesaid) of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the tender
or exchange offer) of all shares validly tendered or exchanged and not withdrawn
as of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and the denominator shall
be the product of (i) such current market price per share on the Trading Day
next succeeding the Expiration Time times (ii) such number of outstanding shares
at the Expiration Time less the number of Purchased Shares, such reduction to
become effective immediately prior to the opening of business on the day
following the Expiration Time.
(g) For the purpose of any computation under this Section 13.04(g)
and Sections 13.04(b),(d) and (e), the current market price per share of Common
Stock on any date in question shall be deemed to be the average of the daily
Closing Prices per share of Common Stock for the ten consecutive Trading Days
immediately prior to the date in question; provided, however, that (i) if the
"ex" date (as hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
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conversion price pursuant to Section 13.04(a), (b), (c), (d), (e) or (f) ("Other
Event") occurs on or after the 20th Trading Day prior to the date in question
and prior to the "ex" date for the issuance or distribution requiring such
computation (the "Current Event"), the Closing Price for each Trading Day prior
to the "ex" date for such Other Event shall be adjusted by multiplying such
Closing Price by the same fraction by which the conversion price is so required
to be adjusted as a result of such Other Event, (ii) if the "ex" date for any
Other Event occurs after the "ex" date for the Current Event and on or prior to
the date in question, the Closing Price for each Trading Day on and after the
"ex" date for such Other Event shall be adjusted by multiplying such Closing
Price by the reciprocal of the fraction by which the conversion price is so
required to be adjusted as a result of such Other Event, (iii) if the "ex" date
for any Other Event occurs on the "ex" date for the Current Event, one of those
events shall be deemed for purposes of clauses (i) and (ii) of this proviso to
have an "ex" date occurring prior to the "ex" date for the Other Event, and (iv)
if the "ex" date for the Current Event is on or prior to the date in question,
after taking into account any adjustment required pursuant to clause (ii) of
this proviso, the Closing Price for each Trading Day on or after such "ex" date
shall be adjusted by adding thereto the amount of any cash and the fair market
value on the date in question (as determined in good faith by the Board of
Directors in a manner consistent with any determination of such value for
purposes of Section 13.04(d) or (e), whose determination shall be conclusive and
described in a Board Resolution) of the portion of the rights, warrants,
options, evidences of indebtedness, shares of capital stock, securities, cash or
property being distributed applicable to one share of Common Stock. For the
purpose of any computation under this Section 13.04(f), the current market price
per share of Common Stock on any date in question shall be deemed to be the
average of the daily Closing Prices for the 5 consecutive Trading Days selected
by the Company commencing on or after the latest (the "Commencement Date") of
(i) the date 20 Trading Days before the date in question, (ii) the date of
commencement of the tender or exchange offer requiring such computation and
(iii) the date of the last amendment, if any, of such tender or exchange offer
involving a change in the maximum number of shares for which tenders are sought
or a change in the consideration offered, and ending not later than the Trading
Day next succeeding the Expiration Time of such tender or exchange offer (or, if
such Expiration Time occurs before the close of trading on a Trading Day, not
later than the Trading Day during which the Expiration Time occurs); provided,
however, that if the "ex" date for any Other Event (other than the tender or
exchange offer requiring such computation) occurs on or after the Commencement
Date and on or prior to the Trading Day next succeeding the Expiration Time for
the tender or exchange offer requiring such computation, the Closing Price for
each Trading Day prior to the "ex" date for such Other Event shall be adjusted
by multiplying such Closing Price by the same fraction by which the conversion
price is so required to be adjusted as a result of such other event. For
purposes of this paragraph, the term "ex" date, (i) when used with respect to
any issuance or distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant market from which
the Closing Price was obtained without the right to receive such issuance or
distribution, (ii) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which such
subdivision or combination becomes effective, and (iii) when used with respect
to any
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tender or exchange offer means the first date on which the Common Stock trades
regular way on such exchange or in such market after the Expiration Time of such
tender or exchange offer.
(h) The Company may make such reductions in the conversion price, in
addition to those required by paragraphs (a), (b), (c), (d), (e) and (f) of this
Section 13.04, as it considers to be advisable in order that any event treated
for Federal income tax purposes as a dividend of stock or stock rights shall not
be taxable to the recipients, or to diminish the amount of such tax payable.
(i) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this Section 13.04(i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(j) In the event that the Company distributes assets, debt securities,
rights, warrants or options (other than those referred to in Section 13.04(b)
above) pro rata to holders of Common Stock, and the fair market value of the
portion of assets, debt securities, rights, warrants or options applicable to
one share of Common Stock distributed to holders of Common Stock exceeds the
Average Sale Price (as defined below) per share of Common Stock, or such Average
Sale Price exceeds such fair market value by less than $1.00, then so long as
any such assets, debt securities, rights, options or warrants have not expired
or been redeemed by the Company, the Company shall make proper provision so that
the Holder of any Security upon conversion, rather than being entitled to an
adjustment in the conversion price, will be entitled to receive upon such
conversion, in addition to the Conversion Shares, a number of assets, debt
securities, rights, warrants and options to be determined as follows: (i) if
such conversion occurs on or prior to the date for the distribution to the
holders of assets, debt securities, rights, warrants or options of separate
certificates evidencing such assets, debt securities, rights, warrants or
options (the "Distribution Date"), the same number of assets, debt securities,
rights, warrants or options to which a holder of a number of shares of Common
Stock equal to the number of Conversion Shares is entitled at the time of such
conversion in accordance with the terms and provisions of and applicable to the
assets, debt securities, rights, warrants or options being distributed, and (ii)
if such conversion occurs after such Distribution Date, the same number of
assets, debt securities, rights, warrants or options to which a holder of the
number of shares of Common Stock into which the principal amount of such
Security so converted was convertible immediately prior to such Distribution
Date would have been entitled on such Distribution Date in accordance with the
terms and provisions of and applicable to the assets, debt securities, rights,
warrants or options.
"Average Sale Price" means the average of the Closing Prices of the Common
Stock for the shorter of (i) 30 consecutive Trading Days ending on the last full
Trading Day prior to the Time of Determination (as defined below) with respect
to the rights, options, warrants or distribution in respect of which the Average
Sale Price is being calculated, or (ii) the period (x) commencing on the date
next succeeding the first public announcement of (a) the issuance of
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rights, options or warrants or (b) the distribution, in each case, in respect of
which the Average Sale Price is being calculated and (y) proceeding through the
last full Trading Day prior to the Time of Determination with respect to the
rights, options, warrants or distribution in respect of which the Average Sale
Price is being calculated, or (iii) the period, if any, (x) commencing on the
date next succeeding the Ex-Dividend Time (as defined below) with respect to the
next preceding (a) issuance of rights, warrants or options or (b) distribution,
in each case, for which an adjustment is required by the provisions of Section
13.04(b) or Section 13.04(j) and (y) proceeding through the last full Trading
Day prior to the Time of Determination with respect to the rights, options,
warrants, or distribution in respect of which the Average Sale Price is being
calculated. If the Ex-Dividend Time (or in the case of a subdivision,
combination or reclassification, the effective date with respect thereto) with
respect to a dividend, subdivision, combination or reclassification to which
Section 13.04(a) or (b) applies occurs during the period applicable for
calculating "Average Sale Price" pursuant to the definition in the preceding
sentence, "Average Sale Price" shall be calculated for such period in a manner
determined in good faith by the Board of Directors to reflect the impact of such
dividend, subdivision, combination or reclassification on the Closing Price of
the Common Stock during such period.
"Time of Determination" means the time and date of the earlier of (i) the
determination of stockholders entitled to receive rights, warrants or options or
a distribution, in each case, to which this Section 13.04(j) applies and (ii)
the time ("Ex-Dividend Time") immediately prior to the commencement of
"ex-dividend" trading for such rights, options, warrants or distribution on the
New York Stock Exchange or such other national or regional exchange or market on
which the shares of Common Stock are listed or quoted.
(k) (i) In case a Partner Company shall issue rights ("IPO Rights") in
a Rights IPO, effective on the date of such Partner Company's initial public
offering (the "Relevant Closing Date"), the conversion price on the date
immediately following the Relevant Closing Date shall be obtained by making the
following adjustment calculation:
(A) dividing the average closing price of the IPO Rights on the
last ten trading days that the IPO Rights were publicly traded, by the
number of shares of Common Stock that are required, under the terms of
the IPO Rights, to allow a holder of Common Stock to receive one IPO
Right (the "Rights Value Per Share"), then
(B) multiplying (1) the Rights Value Per Share by (2) the
principal amount of each Security divided by the conversion price in
effect on the last day (the "Expiration Date") that the IPO Rights are
publicly traded (the "Original Conversion Ratio" and the product of
such function, the "Rights Value Per Security"), then
(C) dividing (1) the Rights Value Per Security by (2) the
Closing Price for the Company's Common Stock on the Expiration Date
minus the Rights Value per Share, and then
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(D) dividing (1) the principal amount of each Security by (2)
the sum of (C) plus the Original Conversion Ratio.
Any adjustment shall be successively made whenever any Rights IPO is completed,
and shall become effective on the Business Day following the closing of a Rights
IPO.
(ii) In case a Partner Company shall undertake, as part of the
initial public offering of its common stock pursuant to a registration statement
filed on Form S-1 under the Securities Act that includes a Directed Share
Subscription Program, the conversion price shall be subject to the following
adjustment:
(A) dividing the difference (if any, and in each case only
where (1) is a higher number than (2) between (1) the average closing
or last sale prices, as applicable, of the common stock of that
Partner Company on the first four days its common stock is publicly
traded and (2) the initial public offering price of its common stock,
by (3) the number of shares of the Company's Common Stock required to
subscribe for one share of common stock of that Partner Company (the
"Subscription Value per Share"), then
(B) multiplying (1) the Subscription Value per Share by (2)
the principal amount of each Security divided by the conversion price
in effect on the fourth day that the common stock of the Partner
Company was publicly traded (the "Relevant Conversion Ratio"), the
product of such calculation being the "Subscription Value per
Security", then
(C) taking the Subscription Value per Security and dividing
by the Conversion Price in effect immediately prior to the adjustment
made hereunder, and then
(D) dividing (1) the principal amount of each Security by (2)
the sum of (C) plus the Relevant Conversion Ratio.
Any adjustment shall be successively made whenever a Partner Company
completes an initial public offering which includes a Directed Share
Subscription Program, if any, and will be effective on the fifth Business Day
following the Relevant Closing Date.
"Rights IPO" means an initial public offering of the common stock of a
Partner Company solely through the issuance of rights, by such Partner Company,
to purchase such common stock to the shareholders of the Company.
"Directed Share Subscription Program" means a program whereby all
shareholders of the Company are entitled to purchase a portion of the shares
offered by a Partner Company in that Partner Company's initial public offering.
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Section 13.05 Notice of Adjustments of Conversion Price. Whenever the
conversion price is adjusted as herein provided: the Company shall compute the
adjusted conversion price in accordance with Section 13.04 and shall prepare a
certificate signed by the Chief Financial Officer of the Company setting forth
the adjusted conversion price and showing in reasonable detail the facts upon
which such adjustment is based, and such certificate shall forthwith be filed
(with a copy to the Trustee) at each office or agency maintained for the purpose
of conversion of Securities pursuant to Section 10.02 of the Indenture; and
Section 13.06 Notice of Certain Corporate Action. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require a conversion price
adjustment pursuant to Section 13.04(e); or
(b) the Company shall authorize the granting to all holders of
its Common Stock of rights, warrants or options to subscribe for or purchase any
shares of capital stock of any class or of any other rights (excluding rights
distributed pursuant to any stockholder rights plan); or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding, up of the Company; or
(e) the Company or any Subsidiary of the Company shall commence
a tender or exchange offer for all or a portion of the Company's outstanding
shares of Common Stock (or shall amend any such tender or exchange offer);
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 10.02 of the
Indenture, and shall cause to be mailed to all Holders at their last addresses
as they shall appear in the Security Register, at least 20 days (or 10 days in
any case specified in clause 13.06(a) or 13.06(b) above) prior to the applicable
record, effective or expiration date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights, warrants or options, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, warrants or options are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (z) the date on
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which such tender offer commenced, the date on which such tender offer is
scheduled to expire unless extended, the consideration offered and the other
material terms thereof (or the material terms of any amendment thereto).
Section 13.07 Company's Obligation Regarding Common Stock. The Company
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of Securities, the whole number of shares of Common Stock then
issuable upon the conversion in full of all outstanding Securities.
Before taking any action which would cause an adjustment reducing the
conversion price below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Securities, the Company will take all corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue shares of such Common Stock at such
adjusted conversion price.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Securities hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued upon conversion, the Company
will in good faith and as expeditiously as practicable endeavor to secure such
registration or approval, as the case may be.
The Company further covenants that so long as the Common Stock shall
be listed or quoted on the New York Stock Exchange, the Nasdaq Stock Market
(National Market), or any other national securities exchange the Company will,
if permitted by the rules of such exchange, list and keep listed so long as the
Common Stock shall be so listed on such market or exchange, all Common Stock
issuable upon conversion of the Securities.
Section 13.08 Taxes on Conversions. The Company will pay any and all taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock on conversion of Securities pursuant hereto. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the Holder of the Security or Securities to be converted, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Company the amount of any such tax, or has
established to the satisfaction of the Company that such tax has been paid.
Section 13.09 Covenant as to Common Stock. The Company covenants that all
shares of Common Stock which may be issued upon conversion of Securities shall
upon issue be newly issued (and not treasury shares) and be duly authorized,
validly issued, fully paid and nonassessable and, except as provided in Section
13.07, the Company shall pay all taxes, liens and charges with respect to the
issue thereof.
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Section 13.10 Cancellation of Converted Securities. All Securities
delivered for conversion shall be delivered to the Trustee to be cancelled by or
at the direction of the Trustee, which shall dispose of the same as provided in
Section 3.08 of this Indenture.
Section 13.11 Provisions in Case of Reclassification, Consolidation, Merger
or Sale of Assets. In the event that the Company shall be a party to any
transaction (including any (i) recapitalization or reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), (iii) any sale or transfer of all or substantially all of the
assets of the Company or (iv) any compulsory share exchange) pursuant to which
the Common Stock is converted into the right to receive other securities, cash
or other property, then lawful provision shall be made as part of the terms of
such transaction whereby the Holder of each Security then Outstanding shall have
the right thereafter to convert such Security only into (subject to funds being
legally available for such purpose under applicable law at the time of such
conversion) the kind and amount of securities, cash and other property
receivable upon such transaction by a holder of the number of shares of Common
Stock into which such Security might have been converted immediately prior to
such transaction. The Company or the person formed by such consolidation or
resulting from such merger or which acquired such assets or which acquired the
Company's shares of Common Stock, as the case may be, shall execute and deliver
to the Trustee a supplemental indenture establishing such rights. Such
supplemental indenture shall provide for adjustments which, for events
subsequent to the effective date of such supplemental indenture, shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article. The above provisions of this Section 13.11 shall similarly apply to
successive transactions of the foregoing type.
Section 13.12 Company's Obligation. All calculations, adjustments,
conversions and other determinations under this Article 13 shall be the sole
responsibility and obligation of the Company. The Trustee (a) shall have no
obligation to review, challenge or contest any such calculation, adjustment,
conversion or other determination and (b) shall not be liable for any default or
error by the Company under this Article 13.
ARTICLE XIV
Subordination
Section 14.01 Securities Subordinate to Senior Indebtedness. The Company
covenants and agrees, and each Holder of Securities, by such Holder's acceptance
thereof, likewise covenants and agrees, that, to the extent and in the manner
hereinafter set forth in this Article 14, the indebtedness represented by the
Securities and the payment of the principal of (and premium, if any), and
interest on and all other amounts payable under each and all of the Securities
including, but not limited to, the Redemption Prices, the Make-Whole Payment and
the
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Repurchase Price payable with respect to the Securities in accordance with
Article 11 or Article 12, as the case may be, and all obligations of the Company
under the Indenture are hereby expressly made subordinate and subject in right
of payment to the prior payment in full of all Senior Indebtedness.
Section 14.02 Payment over of Proceeds upon Dissolution, Etc. In the event
of (a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to the Company or to its creditors, as such, or to its
assets, or (b) any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or (c) any assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company, then and in any such event
the holders of Senior Indebtedness shall be entitled to receive payment in full
of all amounts due or to become due on or in respect of all Senior Indebtedness,
or provision shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Indebtedness, before
the Holders of the Securities are entitled to receive any payment on account of
principal of (or premium, if any), or interest on or any other amount payable
under the Securities, including, but not limited to, the Redemption Prices, the
Make-Whole Payment and the Repurchase Price payable with respect to the
Securities in accordance with Article 11 or Article 12, as the case may be, and
to that end the holders of Senior Indebtedness shall be entitled to receive, for
application to the payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, which may be payable or
deliverable in respect of the Securities in any such case, proceeding,
dissolution, liquidation or other winding-up or event.
In the event that, notwithstanding the foregoing provisions of this Section
14.02, the Trustee or the Holder of Securities shall have received any payment
or distribution of assets of the Company prohibited by the foregoing paragraph
of any kind or character, whether in cash, property or securities, before all
Senior Indebtedness is paid in full or payment thereof provided for, and if, at
or prior to the time of such payment or distribution, written notice that such
payment or distribution is prohibited by the foregoing paragraph shall have been
actually given to a Responsible Officer of the Trustee or, as the case may be,
such Holder, then and in such event such payment or distribution shall be paid
over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article 14 only, the words "cash, property or
securities" shall not be deemed to include shares of capital stock of the
Company as reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment which in
either case are subordinated in right of payment to all Senior Indebtedness
which may at the time be outstanding to substantially the same extent as, or to
a greater extent than, the Securities are so subordinated as provided in this
Article 14. The
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consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article 8 shall not be deemed
a dissolution, winding-up, liquidation, reorganization, assignment for the
benefit of creditors or marshaling of assets and liabilities of the Company for
the purposes of this Section 14.02 if the Person formed by such consolidation or
into which the Company is merged or which acquires by conveyance or transfer
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions set forth in Article 8.
Section 14.03 No Payment When Senior Indebtedness in Default. (a) In the
event and during the continuation of any default in the payment of principal of
(or premium, if any) or interest on any Senior Indebtedness beyond any
applicable grace period with respect thereto (unless and until such payment
default shall have been cured or waived in writing by the holders of such Senior
Indebtedness), or (b) any default (other than a payment default) with respect to
Senior Indebtedness occurs and is continuing that permits the acceleration of
the maturity thereof and judicial proceedings shall be pending with respect to
any such default or the Company receives written notice of such default (a
"Senior Indebtedness Default Notice"), then no payment shall be made by the
Company on account of principal of (or premium, if any) or interest on the
Securities or on account of the redemption, purchase or other acquisition of
Securities (including pursuant to Articles 2, 11, 12 and 13). Notwithstanding
the foregoing, payments with respect to the Securities may resume and the
Company may acquire Securities for cash when (x) the default with respect to the
Senior Indebtedness is cured or waived or ceases to exist or (y) in the case of
a default described in (b) above, 179 or more days pass after the Senior
Indebtedness Default Notice is received by the Company; provided, that the terms
of this Indenture otherwise permit the payment or acquisition of the Securities
at that time. If the Company receives a Senior Indebtedness Default Notice, then
a similar notice received within nine months thereafter relating to the same
default on the same issue of Senior Indebtedness shall not be effective to
prevent the payment or acquisition of the Securities as described in the first
sentence of this Section 14.03(a). In addition, no payment may be made on the
Securities if any Securities are declared due and payable prior to their Stated
Maturity by reason of the occurrence of an Event of Default until the earlier of
(i) 120 days after the date of such acceleration or (ii) the payment in full of
all Senior Indebtedness, but only if such payment is then otherwise permitted
under the terms of this Indenture.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of Securities prohibited by the
foregoing provisions of this Section 14.03, and if, at or prior to the time of
such payment, written notice that such payment is prohibited by the foregoing
paragraph shall have been actually given to a Responsible Officer of the Trustee
or, as the case may be, such Holder, then and in such event such payment shall
be paid over and delivered forthwith to the Company.
The provisions of this Section 14.03 shall not apply to any payment with
respect to which Section 14.02 would be applicable.
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Section 14.04 Payment Permitted If No Default. Nothing contained in this
Article 14 or elsewhere herein or in any of the Securities shall prevent (a) the
Company, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding-up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 14.02 or except under the conditions described in Section 14.03,
from making payments at any time of principal of (and premium, if any), or
interest on, or any other amount under the Securities, including, but not
limited to, the Redemption Prices, the Make-Whole Payment and the Repurchase
Price payable with respect to the Securities in accordance with Article 11 or
Article 12, as the case may be, or (b) the application by the Trustee of any
money deposited with it hereunder to the payment of or on account of the
principal of (and premium, if any), or interest on, or any other amount under
the Securities including, but not limited to, the Redemption Prices, the
Make-Whole Payment and the Repurchase Price payable with respect to the
Securities in accordance with Article 11 or Article 12, as the case may be, or
the retention of such payment by the Holders, if, two Business Days prior to
such application by the Trustee, the Trustee had not received written notice
that such payment would be prohibited by the provisions of this Article 14.
Section 14.05 Subrogation to Rights of Holders of Senior Indebtedness.
Subject to the payment in full of all Senior Indebtedness, and until the
Securities are paid in full, the Holders of the Securities shall be subrogated
(equally and ratably with the holders of all indebtedness of the Company which
by its express terms is subordinated to indebtedness of the Company to
substantially the same extent as the Securities are subordinated and is entitled
to like rights of subrogation) to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness to the extent that payments and
distributions otherwise payable to Holders of Securities have been applied to
the payment of Senior Indebtedness as provided by this Article 14. For purposes
of such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled, except for the provisions of this
Article 14, and no payments over pursuant to the provisions of this Article 14
to the holders of Senior Indebtedness by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
Section 14.06 Provisions Solely to Define Relative Rights. The provisions
of this Article 14 are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities on the one hand and the holders
of Senior Indebtedness on the other hand. Nothing contained in this Article 14
or elsewhere herein or in the Securities is intended to or shall:
(a) impair, as among the Company, its creditors other than
holders of Senior Indebtedness and the Holders of the Securities, the obligation
of the Company, which is absolute and unconditional (and which, subject to the
rights under this Article 14 of the holders of Senior Indebtedness, is intended
to rank equally with all other general obligations of the Company), to pay to
the Holders of the Securities the principal of (and premium, if any), and
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interest on, and any other amount payable under the Securities including, but
not limited to, the Redemption Prices and the Repurchase Price payable with
respect to the Securities in accordance with Article 11 and Article 12,
respectively, as and when the same shall become due and payable in accordance
with their terms;
(b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than the holders of
Senior Indebtedness; or
(c) prevent the Trustee or the Holder of any Securities from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article 14 of the
holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder.
Section 14.07 Trustee to Effectuate Subordination. Each Holder of
Securities by its acceptance thereof authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article 14 and appoints the Trustee its
attorney-in-fact for any and all such purposes.
Section 14.08 No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article 14 or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following:
(a) change the manner, place or terms of payment or extend
the time of payment of, or renew or alter, Senior Indebtedness, or otherwise
amend or supplement in any manner Senior Indebtedness or any instrument
evidencing the same or any agreement under which Senior Indebtedness is
outstanding;
(b) sell, exchange, release or otherwise deal with any
property pledged, mortgaged or otherwise securing Senior Indebtedness;
(c) release any Person liable in any manner for the
collection of Senior Indebtedness;
(d) exercise or refrain from exercising any rights against
the Company and any other Person;
-71-
<PAGE>
(e) apply any and all sums received from time to time to the
Senior Indebtedness.
Section 14.09 Notice to Trustee. The Company shall give prompt written
notice to the Trustee if, to the Company's knowledge, any payment to or by the
Trustee in respect of the Securities is prohibited by this Article 14.
Notwithstanding the provisions of this Article 14 or any other provision of this
Indenture, the Trustee shall not be charged with knowledge that any payment to
or by the Trustee in respect of the Securities is prohibited by this Article 14,
unless and until a Responsible Officer of the Trustee shall have received
written notice thereof from the Company or a holder of Senior Indebtedness or
from any trustee therefor; and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Section 1.04, shall be entitled in all
respects to assume that no facts exist that would prohibit any payment in
respect of the Securities; provided, however, that if a Responsible Officer of
the Trustee shall not have received the notice provided for in this Section
14.09 at least two Business Days prior to the date upon which by the terms
hereof any money may become payable for any purpose (including the payment of
the principal of (and premium, if any) or interest on any Security), then,
anything herein contained to the contrary notwithstanding, the Trustee shall
have full power and authority to receive such money and to apply the same to the
purpose for which such money was received and shall not be affected by any
notice to the contrary which may be received by it within two Business Days
prior to such date.
Subject to the provisions of Article 6, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing itself
to be a holder of Senior Indebtedness (or a trustee therefor) to establish that
such notice has been given by a holder of Senior Indebtedness (or a trustee
therefor). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article 14, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article 14, and if such evidence is not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.
Section 14.10 Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets of the Company referred to in
this Article 14, the Trustee, subject to the provisions of Article 6, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Securities, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Company, the amount thereof
-72-
<PAGE>
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article 14.
Section 14.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article 14 or
otherwise.
Section 14.12 Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights. The Trustee in its individual capacity shall
be entitled to all the rights set forth in this Article 14 with respect to any
Senior Indebtedness which may at any time be held by it, to the same extent as
any other holder of Senior Indebtedness, and nothing in this Indenture shall
deprive the Trustee of any of its rights as such holder.
Nothing in this Article 14 shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 6.07.
Section 14.13 Article Applicable to Paying Agents. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article 14 shall in
such case (unless the context otherwise requires) be construed as extending to
and including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article 14 in addition to or
in place of the Trustee; provided, however, that Section 14.12 shall not apply
to the Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
Section 14.14 Certain Conversions Deemed Payment. For the purposes of this
Article 14 only, (1) the issuance and delivery of junior securities upon
conversion of Securities in accordance with Article 13 shall not be deemed to
constitute a payment or distribution on account of the principal of or premium
or interest on Securities or on account of the redemption, purchase or other
acquisition of Securities, and (2) the payment, issuance or delivery of cash,
property or securities (other than junior securities) upon conversion of a
Security shall be deemed to constitute payment on account of the principal of
such Security. For the purposes of this Section 14.14, the term "junior
securities" means (a) shares of any stock of any class of the Company and (b)
securities of the Company which are subordinated in right of payment to the
prior payment in full of all Senior Indebtedness which may be outstanding at the
time of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Securities are so subordinated as provided
in this Article 14. Nothing contained in this Article 14 or elsewhere in this
Indenture or in the Securities is intended to or shall impair, as among the
Company, its creditors other than holders of Senior Indebtedness and the Holders
of the Securities, the right, which is absolute and unconditional, of the Holder
of any Security to convert such Security in accordance with Article 13.
-73-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all as of the day and year first above written.
INTERNET CAPITAL GROUP, INC.
By: /s/ Walter W. Buckley, III
-------------------------------------------
Name: Walter W. Buckley, III
Title: President and Chief Executive Officer
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By: /s/ Karen Vera
-------------------------------------------
Name: Karen Vera
Title: Assistant Vice President
-74-
<PAGE>
Exhibit A
[Legend for Global Security only
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE
REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.]
Internet Capital Group, Inc.
5 1/2 % CONVERTIBLE SUBORDINATED NOTE DUE 2004
Registered $
No. R- CUSIP
INTERNET CAPITAL GROUP, INC., a corporation duly organized and existing under
the laws of the State of Delaware (herein called the "Company", which term
includes any successor under the Indenture hereinafter referred to), for value
received, hereby promises to pay to [CEDE & CO.]1 [______________] or registered
assigns, the principal sum of $____________ at the office or agency of the
Company in the Borough of Manhattan, The City of New York, on ! in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts, and to pay interest on
said principal sum
________________________
1 For Global Securities Only.
-75-
<PAGE>
semiannually on December 21 and June 21 of each year, commencing June 21, 2000
(each an "Interest Payment Date"), at said office or agency, in like coin or
currency, at the rate of 5 1/2% per annum, until the principal hereof is paid or
made available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the December 6 or June 6 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
Payment of the principal of, premium, if any, and interest on this Security will
be made at the Corporate Trust Office, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts either by (i) mailing a check for such interest,
payable to or upon the written order of the Person entitled thereto pursuant to
Section 3.07 of the Indenture (as defined herein) or (ii) transfer to an account
maintained by the payee located inside the United States.
Reference is hereby made to the further provisions of this Security set forth on
the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee
referred to on the reverse hereof by manual signature, this Security shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.
INTERNET CAPITAL GROUP, INC.
By: _______________________________
Name:
Title:
By: _______________________________
Name:
Title:
-76-
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned Indenture.
Dated:
Chase Manhattan Trust Company, National
Association
as Trustee
By: _______________________________
Name:
Title:
[FORM OF REVERSE OF SECURITY]
Internet Capital Group, Inc.
5 1/2% CONVERTIBLE SUBORDINATED NOTE DUE 2004
This Security is one of a duly authorized issue of Securities of the Company
designated as its 5 1/2% Convertible Subordinated Notes due 2004 (herein called
the "Securities"), limited in aggregate principal amount to $566,250,000, issued
and to be issued under an Indenture, dated as of December 21, 1999 (the
"Indenture"), between the Company and Chase Manhattan Trust Company, National
Association, as Trustee for the Holders of Securities issued under said
Indenture (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee, the holders of Senior Indebtedness and the Holders of the Securities
and of the terms upon which the Securities are, and are to be, authenticated and
delivered.
Subject to and upon compliance with the provisions of the Indenture, the Holder
of this Security is entitled, at its option, at any time on or before maturity
of the Securities, or in case this Security or a portion hereof is called for
redemption, then in respect of this Security or such portion hereof until and
including, but (unless the Company defaults in making the payment due upon
redemption or repurchase) not after, the close of business on the Business Day
immediately preceding the Redemption Date or Repurchase Date, as the case may
be, to convert this Security (or any portion of the principal amount hereof
which is U.S.$1,000 or an integral multiple thereof), at the principal amount
hereof, or of such portion, into fully paid and nonassessable shares of Common
Stock of the Company at a conversion price equal to $127.44 aggregate principal
amount of Securities for each share of Common Stock, which is equal to a
conversion rate of 7.8468 shares of common stock per $1,000 principal amount of
the Securities (or at the current adjusted conversion price if an adjustment has
been made as provided in Article 13 of the
<PAGE>
Indenture) by surrender of this Security, duly endorsed or assigned to the
Company or in blank, to the Company at its office or agency in the Borough of
Manhattan, The City of New York, accompanied by the conversion notice hereon
executed by the Holder hereof evidencing such Holder's election to convert this
Security, or if less than the entire principal amount hereof is to be converted,
the portion hereof to be converted, and, in case such surrender shall be made
during the period from the close of business on any Regular Record Date to the
opening of business on the corresponding Interest Payment Date (unless this
Security or the portion hereof being converted has been called for redemption on
a Redemption Date within such period between and including such Regular Record
Date and such Interest Payment Date), also accompanied by payment in funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Security then being
converted. Subject to the aforesaid requirement for payment of interest and, in
the case of a conversion after the close of business on any Regular Record Date
and on or before the corresponding Interest Payment Date, to the right of the
Holder of this Security (or any Predecessor Security) of record at such Regular
Record Date to receive an installment of interest (even if the Security has been
called for redemption on a Redemption Date within such period), no payment or
adjustment is to be made on conversion for interest accrued hereon or for
dividends on the Common Stock issued on conversion. No fractions of shares or
scrip representing fractions of shares will be issued on conversion, but instead
of any fractional interest the Company shall pay a cash adjustment or round up
to the next higher whole share as provided in Article 13 of the Indenture. The
conversion price is subject to adjustment as provided in Article 13 of the
Indenture. In addition, the Indenture provides that in case of certain
reclassifications, consolidations, mergers, sales or transfers of assets or
other transactions pursuant to which the Common Stock is converted into the
right to receive other securities, cash or other property, the Indenture shall
be amended, without the consent of any Holders of Securities, so that this
Security, if then outstanding, will be convertible thereafter, during the period
this Security shall be convertible as specified above, only into the kind and
amount of securities, cash and other property receivable upon the transaction by
a holder of the number of shares of Common Stock into which this Security might
have been converted immediately prior to such transaction (assuming such holder
of Common Stock failed to exercise any rights of election and received per share
the kind and amount received per share by a plurality of non-electing shares).
The Company will furnish to any Holder, upon request and without charge, copies
of the certificate of incorporation and by-laws of the Company then in effect.
Any such request may be addressed to the Company.
The Securities may be redeemed at the election of the Company, as a whole or
from time to time in part, at any time prior to December 21, 2002 (a
"Provisional Redemption"), at a Redemption Price equal to $1,000 per $1,000
principal amount of the Securities plus accrued and unpaid interest, if any, to
but excluding the date of redemption (the "Provisional Redemption Date") if the
Closing Price of the Common Stock has exceeded 150% of the conversion price (as
defined in Article 13 of the Indenture) then in effect for at least 20 Trading
Days in any consecutive 30-
<PAGE>
Trading Day period ending on the Trading Day prior to the date of mailing of the
provisional notice of redemption pursuant to Section 11.04 (the "Notice Date").
Upon any such Provisional Redemption, the Company shall make an additional
payment in cash (the "Make-Whole Payment") to holders of the Securities called
for redemption, including those Securities converted into Common Stock between
the Notice Date and the Provisional Redemption Date, in an amount equal to
$152.54 per $1,000 principal amount of the Securities, less the amount of any
interest actually paid on the Securities before the Notice Date.
The Securities (other than those Securities that have been converted in
accordance with the terms of the Indenture) are subject to redemption at the
option of the Company upon not less than 30 days' or more than 60 days' notice
by mail (unless a shorter notice is deemed satisfactory by the Trustee), as a
whole or from time to time in part, at any time on or after December 21, 2002.
The Redemption Prices (expressed as percentages of the principal amount) shall
be as set forth below for Securities redeemed during the following 12-month
period:
- ---------------------------------------------------------------------------
Period Redemption Price
- ---------------------------------------------------------------------------
December 21, 2002 through December 21, 2003 102.2%
- ---------------------------------------------------------------------------
and thereafter at a Redemption Price equal to 101.1% of the principal amount,
together, in the case of any such redemption, with accrued interest to (but not
including) the Redemption Date (subject to the right of holders of record on the
Regular Record Date to receive interest on the related Interest Payment Date).
Any redemption of Securities must be in integral multiples of $1,000.
If fewer than all of the Securities are to be redeemed, the Trustee will select
the Securities to be redeemed in principal amounts at maturity of $1,000 or
integral multiples thereof by lot, pro rata or by another method the Trustee
considers fair and appropriate. If a portion of a Holder's Securities is
selected for partial redemption and that holder converts a portion of those
Securities prior to the redemption, the converted portion shall be deemed,
solely for purposes of determining the aggregate principal amount of the
Securities to be redeemed by the Company, to be of the portion selected for
redemption.
In certain circumstances involving a Change in Control, each Holder shall have
the right to require the Company to repurchase all or part of its Securities at
a repurchase price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest through the Repurchase Date (subject to the right of
holders of record on the Regular Record Date to receive interest on the related
Interest Payment Date). At the option of the Company, the Repurchase Price may
be paid in cash or, subject to the conditions provided in the Indenture, by
delivery of shares of Common Stock having a fair market value equal to the
Repurchase Price. For the purposes of this paragraph, the fair market value of
shares of Common Stock shall be determined by the Company and shall be equal to
95% of the average of the Closing Prices of the Common
<PAGE>
Stock for the five consecutive Trading Days ending on and including the Third
Trading Day immediately preceding the Repurchase Date.
The Securities do not have the benefit of any sinking fund.
In the event of redemption, conversion or repurchase of this Security in part
only, a new Security or Securities for the unredeemed, unconverted or
unrepurchased portion hereof will be issued in the name of the Holder hereof
upon the cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in the
Indenture, subordinate and subject in right of payment to the prior payment in
full of all Senior Indebtedness, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all the
Securities may be declared due and payable in the manner and with the effect
provided in Article 5 of the Indenture.
Subject to certain conditions set forth in the Indenture, the Company at any
time may terminate some or all of its obligations under the Securities and the
Indenture if the Company deposits with the Trustee money or Government
Obligations for the payment of principal and interest on the Securities to
redemption or maturity, as the case may be.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding upon such Holder
and upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, premium, if any, and interest on
this Security at the times, place and rate, and in the coin or currency, herein
prescribed or to convert this Security as provided in the Indenture.
<PAGE>
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the Corporate
Trust Office duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, upon request of,
and delivery of not less than three Business Days notice to the Company and the
Trustee, a beneficial owner of interests in a permanent global security may
exchange such interests for a definitive Security of like tenor and aggregate
principal amount in certificated form.
The depositary with respect to the Securities shall be The Depository Trust
Company.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not payment of or on this Security is overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
Interest on this Security shall be computed on the basis of a 360-day year of
twelve 30-day months. In the event that any date on which interest is payable on
the Securities is not a Business Day, then payment of interest payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay).
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
<PAGE>
FORM OF CONVERSION NOTICE
CONVERSION NOTICE
To: INTERNET CAPITAL GROUP, INC.
The undersigned Holder of this Security hereby irrevocably exercises the option
to convert this Security, or the portion hereof (which is $1,000 or an integral
multiple thereof) below designated, at any time following the date of original
issuance thereof, into shares of Common Stock in accordance with the terms of
the Indenture referred to in this Security, and directs that the shares issuable
and deliverable upon conversion, together with any check in payment for a
fractional share and any Security representing any unconverted principal amount
hereof, be issued and delivered to the registered owner hereof unless a
different name has been provided below. If shares or any portion of this
Security not converted are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith a certificate in proper form certifying that
the applicable restrictions on transfer have been complied with. Any amount
required to be paid by the undersigned on account of interest accompanies this
Security.
The undersigned hereby agrees that, promptly after request of the Company, he or
it will furnish such proof in support of this certification as the Company or
the Security Registrar for the Common Stock may, from time to time, request.
Dated:
By: _______________________________
Signature*
By: _______________________________
Signature Guaranty
<PAGE>
If shares or Principal amount
Securities are to be to be converted
registered in the (if less than all):
name of a Person $_________,000
other than the
Holder, please print
such Person's name
and address:*
_________________________________ _________________________________
Name Social Security or Taxpayer
Identification Number
_________________________________
Street Address
_________________________________
City, State and Zip Code
* Signature(s) must be guaranteed by an eligible guarantor institution (banks,
stock brokers, savings and loan associations and credit unions with membership
in an approved signature guarantee medallion program) pursuant to Securities and
Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be delivered,
or unconverted Securities are to be issued, other than to and in the name of the
registered owner.
<PAGE>
EXHIBIT A-2
[Legend for definitive form of Security]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES ACT, AND MAY NOT BE TRANSFERRED WITHOUT
REGISTRATION UNDER SUCH ACTS OR AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
THESE SECURITIES ARE SUBJECT TO TRANSFER RESTRICTIONS CONTAINED IN A LETTER
AGREEMENT DATED DECEMBER 6, 1999 BETWEEN THE COMPANY AND THE INITIAL PURCHASER
OF THESE SECURITIES, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE OFFICES
OF THE COMPANY.
<PAGE>
Exhibit 10.4
1999 INTERNET CAPITAL L.P.
AGREEMENT OF LIMITED PARTNERSHIP, effective as of ___________, 1999 (the
"Effective Date"), among ICG Holdings, Inc. ("General Partner"), and the persons
and/or entities identified on Exhibit I attached hereto as Limited Partners, and
such other persons as shall, from time to time, become limited partners as
provided herein (the "Limited Partners"). The General Partner and the Limited
Partners are sometimes referred to herein collectively as the "Partners" or
individually as a "Partner".
The parties, in consideration of their mutual covenants herein contained,
agree to become partners and to form a limited partnership (the "Partnership")
as follows:
ARTICLE I
Formation; Name and Office;
Purpose; Powers; Term and Dissolution
-------------------------------------
Section 1.1. Formation. The Partners hereby form the Partnership pursuant
---------
to the provisions of the Act by executing this Agreement of Limited Partnership
and filing a Certificate of Limited Partnership in the office of the Secretary
of State of the State of Delaware.
Section 1.2. Name and Office. The Partnership shall be conducted under the
---------------
name 1999 Internet Capital L.P.
(a) The General Partner shall have the power at any time to (i) change the
name of the Partnership and (ii) qualify the Partnership to do business under
any name when the Partnership's name is unavailable for use in a particular
jurisdiction. The General Partner shall use its best efforts to qualify the
Partnership to do business in each jurisdiction where the activities of the
Partnership make such qualification necessary. The General Partner shall give
prompt notice of any change of the Partnership's name to each Partner.
(b) The registered office of this Partnership in the State of Delaware is
103 The Springer Building, 3411 Silverside Road, Wilmington, Delaware 19801, c/o
Cindy Conner or such other place as may from time to time be designated by the
General Partner. The General Partner shall give prompt notice of any such change
to each Partner.
(c) The principal office of the Partnership shall be at 103 The Springer
Building, 3411 Silverside Road, Wilmington, Delaware 19801, c/o Cindy Conner or
such other place as may from time to time be designated by the General Partner.
The General Partner shall give prompt notice of any such change to each Partner.
Section 1.3. Purpose. The Partnership is being organized for the purpose of
-------
investing in Securities, to engage in such activities as may be permitted hereby
or are incidental hereto and for engaging in any and all lawful business
activities in which limited partnerships formed in the State of Delaware under
the Act may participate.
<PAGE>
Section 1.4. Powers. In furtherance of the purpose of the Partnership as
------
specified in Section 1.3, the Partnership shall have all powers available to it
as a limited partnership under the laws of the State of Delaware that are
reasonably necessary to enable it to perform its functions and conduct its
activities, including, without limitation, (i) the power to make and perform all
contracts and engage in all activities and transactions necessary or advisable
to carry out the purpose of the Partnership, (ii) the power to purchase, sell,
transfer, pledge and exercise all rights, privileges and incidents of ownership
or possession with respect to Securities and other Partnership Assets and (iii)
the power to form other limited partnerships and to make capital contributions
to such partnerships.
Section 1.5. Term and Dissolution. The Partnership shall continue in full
--------------------
force and effect indefinitely until the Partnership is dissolved pursuant to the
provisions of Article VII.
ARTICLE II
Limited Partners
----------------
Section 2.1. Initial Limited Partners. The initial Limited Partners are
------------------------
listed on Exhibit I hereto. Additional Limited Partners may be admitted by the
General Partner from time to time pursuant to Section 2.2 below.
Section 2.2. Admission of Limited Partners. One or more additional Limited
-----------------------------
Partners shall be admitted to the Partnership and shall become a party to this
Agreement upon (i) each signing a counterpart of this Agreement and delivering
such counterpart to the General Partner in such manner and at such time as the
General Partner shall determine and (ii) acceptance thereof by the General
Partner, at the discretion of the General Partner. Each additional Limited
Partner so admitted to this Partnership shall be bound by all the provisions of
this Agreement. Following an amendment pursuant to Article VIII, the General
Partner is authorized to revise this Agreement as appropriate and, if required
by the Act, to file amendments to the Certificate of Limited Partnership from
time to time.
Section 2.3. Liability of Limited Partners. Except as otherwise provided
-----------------------------
under the Act, no Limited Partner, in his capacity as such, shall be liable for
any debts, liabilities, contracts or obligations of the Partnership. No Limited
Partner, in his capacity as such, shall be liable for any debts, liabilities,
contracts or obligations of any other Partner.
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ARTICLE III
Capital Contributions
---------------------
Section 3.1. Contribution of General Partner. The General Partner shall
-------------------------------
contribute in cash or Securities in respect of its interest in the Partnership
in the amount set forth opposite its name on Exhibit I attached hereto. The
General Partner may make additional Capital Contributions from time to time in
cash or Securities, and Exhibit I shall be accordingly amended, but the
inadvertent failure to amend such Exhibit I shall not affect the calculations of
Capital Contributions.
Section 3.2. Contributions of Limited Partners. A Limited Partner shall not
---------------------------------
be required to make any Capital Contribution in connection with the Limited
Partner's admission to the Partnership, and a Limited Partner shall not be
required to make any additional Capital Contributions to the Partnership. Upon
admission to the Partnership, each Limited Partner shall be assigned a portion
of the capital of the Partnership, which shall be credited to the Limited
Partner's Capital Account, as set forth on Exhibit 1 attached hereto.
Section 3.3. Withdrawal of Capital. A Partner shall not be entitled to
---------------------
bring an action for partition against the Partnership, or to demand or receive
any distribution of or with respect to his Capital Contribution except as is
specifically provided in this Agreement.
ARTICLE IV
Rights, Powers and Duties of the General Partner
-------------------------------------------------
Section 4.1. Management of Partnership. The General Partner shall have sole
-----------------------
and exclusive right to manage, control and conduct the affairs of the
Partnership and to do any and all acts on behalf of the Partnership. All
decisions with respect to Securities including, without limitation, the
investment or reinvestment, holding, disposition, distribution to Partners or
any similar investment-related decisions will be made solely by the General
Partner. The General Partner may delegate responsibility over any right or
obligation to any of the General Partner's agents or representatives as the
General Partner in its sole discretion, deems appropriate. The General Partner
will possess all of the powers and rights of a general partner under the Act.
Section 4.2. Authorized Acts. The General Partner is authorized and
-------------
empowered to carry out and implement the purpose of the Partnership, as provided
in Section 1.3, and to exercise the powers of the Partnership, as provided in
Section 1.4, for, in the name of, and on behalf of, the Partnership.
Section 4.3. Powers of the Limited Partners. The Limited Partners shall take
----------------------------
no part in the control, management or conduct of the affairs of the Partnership
nor shall the Limited Partners have any authority to vote on Partnership matters
or to act for or on behalf of the Partnership except as otherwise required by
law.
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<PAGE>
Section 4.4. Liabilities of the General Partner. The General Partner shall
----------------------------------
not be liable, responsible or accountable, in damages or otherwise, to any other
Partner or to the Partnership for any act or omission taken by such General
Partner, except for its own gross negligence or willful misconduct, nor shall
the General Partner be liable, responsible or accountable for the gross
negligence or willful misconduct (including dishonesty or bad faith) of any
employee, broker or other agent of the Partnership which the General Partner
shall have selected with reasonable care. The General Partner shall be entitled
to rely upon the advice of counsel and public accountants, and shall not be
liable, responsible or accountable, in damages or otherwise, to any other
Partner or to the Partnership, for any act or omission which he shall take in
good faith in reliance on such advice.
Section 4.5. Indemnification.
---------------
(a) The Partnership shall indemnify, to the fullest extent
permitted by law, the General Partner and its officers, directors, employees,
partners and agents ("Indemnified Parties") from and against all costs and
expenses, including attorneys' fees, judgments, fines, settlements and/or
liabilities incurred by or imposed upon any Indemnified Party in connection
with, or resulting from, investigating, preparing or defending any action, suit
or proceeding, whether civil, criminal, legislative or otherwise (or any appeal
thereof), to which any Indemnified Party may be made a party or become otherwise
involved or with which any Indemnified Party may be threatened, in each case by
reason of, or in connection with, the Indemnified Party being or having been
associated with or otherwise acting for the Partnership, or having acted as a
director, officer, employee, partner or agent of any Entity in which the
Partnership had invested, or by reason of any action or alleged action, omission
or alleged omission by any Indemnified Party in any such capacity, provided that
the Indemnified Party is not ultimately adjudged to have engaged in gross
negligence or willful misconduct, and provided further that the Indemnified
Party acted in a manner that he reasonably believed to be in, or not opposed to,
the best interests of the Partnership.
(b) The Partnership shall pay the expenses incurred by an
Indemnified Party in investigating, preparing or defending any civil or criminal
action, suit or proceeding, in advance of the final disposition thereof, upon
receipt of (i) an undertaking by the Indemnified Party to repay such payment if
there is a final determination that he is not entitled to indemnification as
provided herein and (ii) satisfactory evidence that the Indemnified Party has
sufficient financial resources to satisfy any such undertaking.
(c) The Partnership shall make all indemnification provided
for pursuant to this Section 4.5 solely out of Partnership Assets and only to
the extent of such Partnership Assets. Except as provided aforesaid, no Limited
Partner shall have any personal liability for any indemnification required or
permitted pursuant to this Section 4.5. None of the provisions of this Section
4.5 shall be deemed to create or grant any rights in favor of Indemnified
Parties which cannot be discharged out of Partnership Assets, except as provided
aforesaid, or in favor of anyone other than Indemnified Parties; this provision
excludes, among others, any right of subrogation in favor of any insurer or
surety. The rights of indemnification granted hereunder shall survive the
termination, dissolution and winding up of the Partnership.
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<PAGE>
ARTICLE V
Capital Accounts; Allocations and Distributions
-----------------------------------------------
Section 5.1. Capital Accounts.
----------------
(a) There shall be established for each Partner a separate
Capital Account.
Section 5.2. Allocations.
-----------
(a) After giving effect to the special allocations, if any,
set forth in Section 5.5, Net Income or Net Loss for any Accounting Period shall
be allocated among the Partners in accordance with the following provisions:
(i) Net Income derived from the Partnership's interest
in each Investment Position shall be allocated as follows:
(A) First, 100% to the General Partner until (1)
the cumulative amount of Net Income from a particular
Investment Position allocated pursuant to this Section
5.2(a)(i)(A)(1) for the current Accounting Period and
all prior Accounting Periods equals the cumulative
amount of Net Loss, if any, derived from such Investment
Position and allocated pursuant to Section 5.2(a)(ii)
for all prior Accounting Periods and (2) the cumulative
amount of Net Income allocated to the General Partner
pursuant to this Section 5.2(a)(i)(A)(2) equals 100% of
the General Partner's Threshold Amount minus its Equity
Cost Basis in such Investment Position.
(B) Second, 100% to the Limited Partners (to be
divided among them pro rata in accordance with their
Vested Profit Percentages) until the Net Profits
allocated to them pursuant to this Section 5.2(a)(i)(B)
is equal to the aggregate Limited Partners' Vested
Profit Percentages multiplied by the sum of (a) the
Equity Cost Basis and (b) the amount allocated pursuant
to this Section 5.2(a)(i)(B) and Section 5.2(a)(i)(A)(2)
above with respect to such Investment Position, and
(C) Third, pro rata among the Partners in
accordance with their Vested Profit Percentages.
(ii) Net Loss with respect to an Investment Position
shall first be allocated in a manner that reverses the allocated Net Income with
respect to such Investment Position in Section 5.2(a)(i) above, reversing
allocations first under subsection (C) and then subsection (B) and then
subsection (A) of Section 5.2(a)(i) above and then to the Partners in accordance
with Capital Percentages.
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<PAGE>
(iii) Short-term Investment Income and Short-term
Investment Loss shall be allocated to the Partners in accordance with Capital
Percentages.
(b) Upon the admission of any additional Limited Partner
during 1999, the General Partner shall assign a Profit Percentage to such
additional Limited Partner, which shall dilute the Profit Percentages of the
Limited Partners to the extent that the aggregate Profit Percentage of all
Limited Partners would otherwise exceed twelve percent (12%) and Exhibit III
shall be amended to reflect such new Profit Percentages.
(c) The allocations agreed to be made pursuant to Section
5.2(a) hereto shall, for purposes of determining Capital Account balances, be
deemed allocated prior to a distribution in kind (giving effect to such
distribution in kind).
(d) If an interest in the Partnership is transferred during
a taxable year, Net Income or Net Loss (and any item of income, gain, loss,
deduction or credit) for such taxable year allocable to the transferred interest
shall be allocated between the transferor and the transferee on an interim
closing of the books basis, based upon that portion of such taxable year during
which each was recognized as owning such interest; provided, that such
allocation must be in accordance with a method permissible under section 706 of
the Code and Treasury Regulations thereunder.
Section 5.3. Distributions.
-------------
(a) Except as otherwise provided in this Section 5.3, from
time to time the General Partner shall cause the Partnership to distribute to
the Partners all or part of the Investment Assets, the proceeds from a
Disposition or Dispositions or other income and proceeds attributable to the
Partnership's interest in any of the Investment Positions. Any Investment Assets
distributed by the Partnership shall be valued at their Gross Asset Value and
treated for Capital Account purposes as if sold immediately prior to
distribution. Distributions of different types or classes of property or
securities need not be made pro rata to all Partners, so long as the Gross Asset
Value of all distributions is allocated in accordance with this Section 5.3.
(b) In the case of any distribution respect to an Investment
Position, distributions shall be made among the Partners in the following
manner:
(i) First, the General Partner shall receive an amount
equal to the cumulative amount, if any, of the Net Loss with respect to the
Investment Position previously allocated to the General Partner;
(ii) Then:
(1) Each Limited Partner shall receive an amount
equal to such Limited Partner's Vested Profit Percentage in the balance of such
distribution; and
(2) The General Partner shall receive the balance.
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<PAGE>
(c) In the case of a distribution attributable to a
disposition of Securities that occurred in a prior calendar year, the
distribution shall be treated, for purposes of this Section 5.3, as taking place
in such prior calendar year.
(d) Distributions with respect to Short-term Investment
Income shall be made at such times as the General Partner shall determine in
proportion to the Partners' Capital Percentages.
(e) Notwithstanding the foregoing provisions of this Section
5.3, in no event shall a distribution be made to a Limited Partner to the extent
that such distribution would cause such Limited Partner (after taking into
account any allocations of Net Income or Net Loss attributable to such
distribution) to have a deficit balance in such Limited Partner's Capital
Account. In the event that a distribution is restricted pursuant to this Section
5.3(e), the Partnership shall, as promptly as possible, make a special
distribution to such Limited Partner of an amount subject to restriction under
this Section 5.3(e) at such time, if any, as such distribution would not cause
such Limited Partners to have a deficit balance in such Limited Partner's
Capital Account.
Section 5.4. Tax Withholdings. To the extent the Partnership is required by
----------------
federal, state or local law or any tax treaty to withhold or to make tax
payments on behalf of or with respect to any Partner, the General Partner shall
withhold such amounts or make such tax payments as so required. The amount of
such payments shall constitute an advance by the Partnership to such Partner
bearing interest at the lowest applicable federal rate for such advance and, if
such Partner shall not have reimbursed the Partnership for such amount, such
amount, plus interest, if any, shall be repaid to the Partnership by reducing
the amount of the current or next succeeding distribution or distributions which
would otherwise have been made to such Partner or, if such distributions are not
sufficient for that purpose, by so reducing the proceeds of liquidation
otherwise payable to such Partner and if such proceeds are insufficient, such
Partner shall pay to the Partnership the amount of such insufficiency.
Section 5.5. Special Allocation - Qualified Income Offset. In the event
--------------------------------------------
that any Partner unexpectedly received any adjustments, allocations or
distributions described in Treasury Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704- 1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6),
items of Partnership income and gain shall be specifically allocated to each
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Treasury Regulations, the deficit Capital Account of such Partner as
quickly as possible, provided that an allocation pursuant to this Section 5.5
shall be made if and only to the extent that such Partner would have a deficit
Capital Account after all other allocations provided for in this Article V have
been tentatively made as if this Section 5.5 were not in this Agreement.
Section 5.6. Allocations for Tax Purposes.
-----------------------------
(a) Items of Partnership taxable income, gain, loss,
deduction, or credit shall be determined according to Code Section 703, and
except as otherwise required under Code Section 704 or the Treasury Regulations
promulgated thereunder, the Partners' distributive shares of each such item for
purposes of Code Section 702 shall be determined by allocating such item in the
same manner as its correlative item of "book" income, gain, loss,
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<PAGE>
deduction or credit has been allocated pursuant to this Agreement.
(b) Items of the Partnership's taxable income, gain and
deduction with respect to any property contributed to the capital of the
Partnership shall be allocated among the Partners in accordance with Code
Section 704(c) so as to take account of any variation between the adjusted basis
of such property to the Partnership for federal income tax purposes and its
Gross Asset Value using the traditional method of Treas. Reg. (S)1.704-2(b)(2).
(c) If the Gross Asset Value of a Partnership asset is
adjusted, subsequent allocations of items of taxable income, gain, loss, and
deduction with respect to such asset shall take account of the variation between
the adjusted basis of such asset for federal income tax purposes and its Gross
Asset Value in the same manner as under Code Section 704(c).
(d) Allocations pursuant to this Section 5.6 are solely for
purposes of federal, state and local taxes and shall not effect, or in any way
be taken into account in computing, a Partner's Capital Account of share of
income, gains, losses, deductions distributions or other Partnership items
pursuant to these provisions.
ARTICLE VI
Vesting Provisions
------------------
Section 6.1. Vested Profit Percentage. For purposes of this Partnership,
------------------------
the term "Vested Profit Percentage" of a Limited Partner with respect to an
Investment Position shall be the product obtained by multiplying the following
three factors: (1) such Limited Partner's Profit Percentage, (2) the Threshold
Requirement Percentage applicable to such Investment Position, and (3) the
Performance Requirement Percentage applicable to all Investments Positions of
the Partnership.
Section 6.2. Determining the Profit Percentage. For purposes of determining
---------------------------------
a Limited Partner's Vested Profit Percentage, the term "Profit Percentage" shall
mean, with respect to any given Measurement Period, the percentage set forth on
Section 1 of Exhibit II, as may be adjusted pursuant to this Agreement.
Section 6.3. Determining the Threshold Requirement Percentage. On the date
------------------------------------------------
of any distribution with respect to an Investment Position, the Threshold
Requirement shall be considered satisfied and the "Threshold Requirement
Percentage" shall equal one hundred percent if (i) in connection with the sale
or other disposition of such Investment Position the Threshold Amount with
respect to such Investment Position was reached as of the time of such sale or
disposition or (ii) in connection with a distribution in-kind of an Investment
Position the Threshold Amount has been reached for at least three (3) of the six
(6) immediately preceding calendar months, determined on the last business day
of each such month, prior to the date of such distribution; provided that, if
the Threshold Requirement would have been met with respect to an Investment
Position prior to the end of a calendar year of the Partnership, and the Board
does not make a contemporaneous determination of whether the Performance
Requirement would have been satisfied as of that point in time during the
calendar year, the Threshold Requirement shall be deemed to be satisfied as of
such later date that the Board determines
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<PAGE>
whether the Performance Requirement has been satisfied. For any Investment
Position for which the Threshold Requirement is not satisfied pursuant to the
preceding sentence, the Threshold Requirement Percentage shall equal zero (0).
Section 6.4. Determining the Performance Requirement Percentage.
--------------------------------------------------
(a) With respect to all Investment Positions of the
Partnership on a given date, the Performance Requirement shall be considered
satisfied for the relevant Measurement Period if the Aggregate Return equals or
exceeds fifteen per cent (15%) and the Performance Requirement Percentage shall
therefore be equal to one hundred per cent (100%). If the Performance
Requirement has not been satisfied, the Performance Requirement Percentage shall
equal zero (0).
(b) For purposes of this Section 6.4, the term "Measurement
Period" means the period beginning on the date hereof and ending (i) on the last
day of each calendar year and (ii) such other date as the Board shall from time
to time decide is appropriate for determining whether the Performance
Requirement has been satisfied.
(c) As of a given date, each Investment Position shall be
valued as follows: (1) if an Investment Position has been sold or otherwise
disposed of prior to such date, the value of the consideration received by the
Partnership as a result of such sale or disposition, (2) in the event that no
such sale or disposition has occurred, if an Investment Position has received
third-party financing within the twelve month period prior to such date, the
value of the Investment Position determined in connection with such financing,
or (3) in the event that no such sale, disposition or financing has occurred,
the value of an Investment Position shall be determined by an independent
appraiser chosen in good faith by the General Partner.
(d) In determining whether the Performance Requirement has
been satisfied for any Measurement Period, the "Aggregate Return" shall mean the
weighted average percentage appreciation in the value of the Investment Assets
of the Partnership over such Measurement Period, taking into account the size of
each investment and the length of time held by the Partnership, expressed on an
annualized basis, without regard to compounding.
Section 6.5. Board Discretion. Notwithstanding that the Performance
----------------
Requirement or the Threshold Requirement has not been satisfied in accordance
with the provisions of Section 6.3 or Section 6.4 as of any particular point in
time, the Board reserves the right to determine that such requirements have been
met in full or in part as of such time.
ARTICLE VII
Dissolution and Winding-Up of the Partnership;
Withdrawal and Removal of Partners
----------------------------------
Section 7.1. Events of Dissolution. The Partnership shall be dissolved, and
---------------------
its affairs wound up, upon the happening of any of the following events:
(a) the determination for any reason by the General Partner
that the
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<PAGE>
Partnership should be dissolved and its affairs wound up;
(b) the dissolution of the General Partner or the entry of
an order amounting to a stay of proceedings against the General Partner under
the federal bankruptcy laws or rules;
(c) the sale or distribution of all or substantially all of
the assets held by the Partnership;
(d) any other event that would cause a dissolution of a
limited partnership under the Act; or
(e) December 31, 2004.
Section 7.2. Winding Up. Upon the occurrence of (i) a Dissolution Event or
----------
(ii) the determination by a court of competent jurisdiction that the Partnership
has dissolved prior to the occurrence of a Dissolution Event, the Partnership
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Partners, and no Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership's business
and affairs, provided that all covenants contained in this Agreement shall
continue to be fully binding upon the Partners until such time as the assets of
the Partnership have been fully distributed pursuant to this Section 7.2 and the
Certificate has been canceled pursuant to the Act. The General Partner shall be
responsible for overseeing the winding up and dissolution of the Partnership and
the determining the time, manner and terms of sale or other disposition of the
Partnership's assets. The winding up and dissolution shall be completed within
ninety (90) days of the occurrence of the Dissolution Event. The completion of
the winding up and dissolution shall operate as the Limited Partners' release of
any and all of their claims against both the Partnership and the General
Partner. The General Partner shall take full account of the Partnership's
liabilities and property and shall cause the property or the proceeds from the
sale thereof, to the extent sufficient therefor, to be applied and distributed,
to the maximum extent permitted by law, in the following order:
(a) First to creditors (including Partners who are
creditors, to the extent otherwise permitted by law) in satisfaction of all of
the Partnership's debts and other liabilities (whether by payment of the making
of reasonable provision for payment thereof);
(b) The balance, if any, to the Partners in accordance with
the positive balances in their Capital Accounts, after giving effect to all
contributions, distributions and allocations for all periods. Such distribution
shall, to the greatest extent possible, be made among the Partners in a manner
consistent with the manner in which distributions shall be made among the
Partners pursuant to Section 5.3.
Section 7.3. Deficit Capital Accounts. If any Limited Partner has a deficit
------------------------
balance in his Capital Account (after giving effect to all contribution,
distributions and allocations for all Fiscal Years, including the Fiscal Year in
which such liquidation occurs), such Limited Partner shall have no obligation to
make any contribution to the capital of the Partnership with respect to such
deficit, and such deficit shall not be considered a debt owed to the Partnership
or to any
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<PAGE>
other person for any purpose whatsoever.
Section 7.4. Voluntary Removal of a Limited Partner. A Limited Partner may,
-----------------------------
at such Partner's option exercised upon written notice to the General Partner,
voluntarily remove himself or herself as a Limited Partner as of the last day of
a calendar month (a "Voluntary Removal") (the last business day immediately
preceding the effective date of a Voluntary Removal or an Involuntary Removal
pursuant to Section 7.5 shall be herein referred to as the "Termination Date.").
Section 7.5. Involuntary Removal of a Limited Partner. Effective upon
-----------------------------
written notice to a Limited Partner from the General Partner, the Limited
Partner named in such notice shall be involuntarily removed for any reason or
for no reason as a Limited Partner (an "Involuntary Removal"). A Voluntary
Removal under Section 7.4 or an Involuntary Removal under this Section 7.5 shall
not dissolve the Partnership, the business of which shall be carried on by the
remaining Partner(s). (A Limited Partner who is removed as a Partner pursuant to
Section 7.4 or this Section 7.5 may be referred to herein as a "Removed
Partner".)
Section 7.6. Treatment of Interest of Withdrawn or Removed Partner.
-----------------------------------------------------
(a) From and after the Termination Date, a Removed Partner's
Capital Account shall be eliminated and all items of Net Income and Net Loss
previously allocated to such Partner's Capital Account shall be reallocated to a
special Capital Account which shall be established for the benefit of such
Removed Partner. The Net Income or Net Loss realized following a Termination
Date with respect to the Removed Partner's portion of any Investment Position at
the Removed Partner's Termination Date shall be allocated solely to the General
Partner.
(b) A Removed Partner shall be entitled to receive only the
balance, if any, in such Removed Partner's Capital Account at the Removed
Partner's Termination Date. From and after the Termination Date, the Removed
Partner shall not be deemed a Partner for any purpose except for the purposes of
Section 4.5 and Section 5.4, and any interest that a Removed Partner would have
had in Investment Positions acquired subsequent to the Termination Date shall,
unless allocated by the General Partner to one or more other Limited Partners,
be allocated solely to the General Partner.
(c) In each instance of a Removed Partner, the General
Partner may make the election under Code Section 754, and adjust the basis of
the Partnership property pursuant to Code Sections 734 or 743, as may be
applicable.
ARTICLE VIII
Amendments
----------
Section 8.1. This Agreement may be amended only by the General Partner;
provided, however, that prompt written notice thereof shall be delivered to the
other Partners and that any amendment to this Agreement which (a) increases the
liability of any Partner (b) affects vesting or (c) amends this Article VIII,
shall require the prior approval of a majority in interest of the
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Partners so affected.
ARTICLE IX
Limitations on Transfers of Interests;
Additional Partners; Adjustments to Distributive Shares
-------------------------------------------------------
Section 9.1. Transfer by General Partner. The General Partner may assign,
---------------------------
pledge, mortgage or otherwise hypothecate, sell or dispose of any part or all of
its Partnership Interest without the consent of the Limited Partners.
Section 9.2. Limitations on Transfers of Interests of Limited Partners. No
---------------------------------------------------------
Limited Partner shall assign, pledge, mortgage, or otherwise hypothecate, sell,
or dispose of any part or all of his Partnership Interest without the prior
written consent of the General Partner.
Section 9.3. Effect of Authorized and Unauthorized Transfers. Any
-----------------------------------------------
transferee of a Partnership Interest transferred in accordance with this
Agreement shall succeed to all the rights and liabilities of the transferor
provided for under this Agreement, but shall only become a Substituted Limited
Partner if the permission required by Section 9.4 is granted. Any attempted
transfer of a Limited Partner's Partnership Interest without compliance with the
provisions of this Agreement shall be void and ineffectual and shall not be
binding upon the Partnership, and the Partnership may refuse to recognize such
attempted transfer for all purposes.
Section 9.4. Substituted Limited Partners. The General Partner may, in its
----------------------------
sole discretion, permit an assignee or transferee of a Partnership Interest to
become a Substituted Limited Partner in the Partnership entitled to all the
rights and benefits under this Agreement of the assignor or transferor. No such
assignee or transferee shall become a Substituted Limited Partner unless and
until the General Partner has given such permission. Each Limited Partner hereby
consents to such admission and authorizes the General Partner to amend Exhibit I
or II and, if required by the Act, the Certificate of Limited Partnership of the
Partnership to reflect such admission.
Section 9.5. Additional Limited Partners. The General Partner may from time
---------------------------
to time admit one or more Persons as additional Limited Partners. Upon admission
of such Person(s), the Profit Percentage of each Partner will be adjusted as
provided below. Subject to the last sentence of this Section 9.5, the General
Partner shall assign such additional Limited Partners a Profit Percentage, and
any Profit Percentage assigned to such additional Limited Partners will dilute
the Profit Percentage of the existing Limited Partners in proportion to their
Profit Percentages to the extent that the aggregate Profit Percentages of all
Limited Partners would otherwise exceed twelve percent (12%), unless the General
Partner elects to have such assignment of Profit Percentage dilute the General
Partner. No Limited Partner shall participate in any Investment Asset acquired
by the Partnership prior to the time such Limited Partner became a Limited
Partner, unless expressly provided by the General Partner.
ARTICLE X
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Fiscal Year; Records; Reports
-----------------------------
Section 10.1. Fiscal Year. "Fiscal Year," as used in this Agreement, means
-----------
the period beginning on January 1 and ending on December 31 of each year.
Section 10.2. Records. At all times the General Partner shall keep books of
-------
account of the Partnership. Such books of account, together with a copy of this
Agreement and the Certificate of Limited Partnership and any amendments thereto
and restatements thereof, shall at all times be maintained at the principal
office of the Partnership, and shall be open to inspection at any reasonable
time by the Partners.
Section 10.3. Reports. As promptly as possible after the close of each
-------
Fiscal Year, but in any event within 90 days after the close of each Fiscal
Year, the General Partner shall distribute K-1 tax returns and a report on the
Investment Positions held by the Partnership to each Partner. Within 90 days
after the close of each Fiscal Year, the Partnership shall transmit to each
Partner a report indicating his share of the income or losses of the Partnership
for such Fiscal Year for federal income tax purposes. Such report shall contain
a separate accounting for such tax purposes of each of the following four items:
realized capital gains, realized capital losses, ordinary income, and ordinary
losses.
Section 10.4. Accounting Decisions. All decisions as to accounting
--------------------
treatment of any items of Partnership business, when made by the General Partner
in accordance with generally accepted accounting principles, shall have
conclusive effect upon the Partnership and the Partners.
Section 10.5. Tax Matters Partner. The General Partner shall be the tax
-------------------
matters partner for the Partnership for all federal income tax purposes set
forth in the Code, with the power and authority to take all actions and do such
things as required or as he shall deem appropriate under the Code or regulations
promulgated thereunder.
ARTICLE XI
Miscellaneous
-------------
Section 11.1. Counterparts. This Agreement may be executed by the Partners
------------
in counterparts, all of which taken together shall be deemed one original.
Section 11.2. Further Assurances. The Partners will execute, acknowledge,
------------------
and deliver such further instruments and do such further acts and things as may
be required to carry out the intent and purpose of this Agreement.
Section 11.3. Captions. The descriptive headings contained in this
--------
Agreement are inserted only as a matter of convenience and shall not control or
affect the meaning or construction of any provision of this Agreement.
Section 11.4. Binding Effect. Except to the extent required under the Act
--------------
and except for fees, rights to reimbursement and indemnity, and other
compensation, none of the provisions of
-13-
<PAGE>
this Agreement shall be for the benefit of or enforceable by any creditor of the
Partnership, as such. The provisions of this Agreement shall be binding upon and
shall inure to the benefit of the successors and permitted assigns, if any, of
the respective Partners, except as otherwise provided in this Agreement.
Section 11.5. Partial Invalidity. The invalidity or unenforceability of a
------------------
portion of this Agreement will not affect the validity or enforceability of the
remainder hereof.
Section 11.6. Integration. This Agreement and its Schedules and Exhibits
-----------
constitutes the entire understanding and agreement among the parties pertaining
to the subject matter of this Agreement and supersedes all prior agreements and
understandings of the parties in connection with this Agreement.
Section 11.7. Notices. All notices provided for or permitted hereunder
-------
shall be made in writing by hand-delivery, registered or certified first-class
mail, telex, telecopier or air courier guaranteeing overnight delivery and
directed if to a Partner, at its address set forth under its signature below,
and if to the Partnership, to the General Partner at its address set forth below
under its signature. All such notices shall be deemed to have been duly given:
when delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and on the next business day,
if timely delivered to an air courier guaranteeing overnight delivery.
Section 11.8. English Usage. Words of gender or neuter may be read as
-------------
masculine, feminine or neuter, as required by context, and the word "persons"
shall include individuals, trusts, Entities, and all other forms of association.
Section 11.9. References. Article and Section references in this Agreement
----------
are, unless otherwise indicated, references to the Articles or Sections, as the
case may be, of this Agreement which are so numbered, as such may be amended.
All references to numbered or lettered Exhibits are references to the Exhibits
so numbered or lettered which are appended to this Agreement, as such Exhibits
may be amended from time to time. Such references to Exhibits are to be
construed as incorporating by reference the contents of each Exhibit to which
such reference is made, as though such contents were set out in full at the
place in this Agreement where such reference is made.
Section 11.10. Action by General Partner. Any action, approval or consent
-------------------------
to be taken or given by the General Partner hereunder shall be valid only if
taken or given by a member of the Board of Directors of the General Partner who
is acting on behalf of a majority of the members of such Board of Directors.
Section 11.11. No Right to Employment. The establishment or existence of
----------------------
the Agreement shall not confer upon any individual the right to continue as a
Limited Partner or as an employee of any entity, including, without limitation,
the General Partner.
ARTICLE XII
Defined Terms
-------------
-14-
<PAGE>
The following terms, when used in this Agreement, have the following
meanings, unless otherwise expressly indicated:
"Accounting Period" means a Fiscal Year or, if during a Fiscal Year there
shall be one or more interim closings of the Partnership's books, means the
period from the beginning of such Fiscal Year to the date of the first such
closing, the period(s) between any such closings, and the period from the last
such closing to the end of such Fiscal Year.
"Act" means the Delaware Revised Uniform Limited Partnership Act and any
successor statute, as amended from time to time.
"Affiliate" means any member of a person's immediate family and any entity
controlled by, controlling or under common control with such person.
"Aggregate Return" has the meaning ascribed to it in Section 6.4(d).
"Agreement" means this Agreement of Limited Partnership, with the Exhibits
which are appended to and referred to in this Agreement, as such Agreement and
Exhibits may be amended, modified or restated at any time and from time to time.
"Board" means the Board of Directors of the General Partner.
"Capital Account" means, for each Partner, the sum of (a) such Partner's
Capital Contribution(s), plus (b) the aggregate amount of Net Income (including
deemed gains only to the extent arising pursuant to this Agreement) allocated to
such Partner pursuant to Article V, minus (c) the aggregate amount of cash
distributed to such Partner pursuant to Article V, minus (d) the aggregate
amount of Net Losses (including deemed losses only to the extent arising
pursuant to this Agreement), minus (e) the aggregate amount of expenses
allocated to such Partner pursuant to Article VII, minus (f) the value, as
determined pursuant to Section 5.3, of such Partner's allocable share of
Partnership Assets distributed to such Partner in kind and (g) otherwise in
accordance with Treasury Regulations (S) 1.704-1. All such allocations and
distributions shall be credited or charged, as the case may be, to the Capital
Accounts of the Partners to whom they apply, as of the time as of which they are
determined.
"Capital Contribution" means, for each Partner, the amount shown as the
Capital Contribution for such Partner, as from time to time increased pursuant
to Article III.
"Capital Percentages" mean (a) with respect to each Limited Partner, the
Capital Account initially established for such Limited Partners divided by the
sum of (i) the Capital Accounts initially established for all Limited Partners
upon their admission to the Partnership and (ii) the aggregate Capital
Contributions made by the General Partners and (b) with respect to the General
Partner, the aggregate Capital Contributions made by the General Partner divided
the sum of (i) the Capital Accounts initially established by the Limited
Partners upon their admission to the Partnership and (ii) the aggregate Capital
Contributions made by the General Partner.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Cost Basis" means the amount paid, or deemed paid, by the Partnership for
a Security or
-15-
<PAGE>
as set forth on Exhibit III.
"Disposition" means the sale of all or a portion of any of an Investment
Position; in the case of a partial Disposition, such Disposition shall be
treated as a Disposition of a separate asset to which shall be attributed, for
purposes of this Agreement, a pro rata portion of the Partner's Capital
Contributions made with respect to the entire Capital Contribution attributable
to such Investment Position.
"Dissolution Event" shall mean an event of dissolution specified in Section
7.1.
"Entity" means any business corporation, partnership, unincorporated
association, firm, organization, or any other business entity having one or more
leaders or managerial figures.
"Equity Cost Basis" means the Cost Basis of equity Securities or Securities
convertible into or exercisable into equity Securities.
"Fair Market Value" means the market price of publicly traded Securities,
if publicly traded, or the fair market value determined by the General Partner
otherwise.
"Fiscal Year" has the meaning ascribed to it in Section 10.1.
"General Partner" means ICG Holdings, Inc. or any person who succeeds its
interest as the general partner under this Agreement.
"Gross Asset Value" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the Fair Market Value of such asset;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective Fair Market Values as of the following times:
(A) the acquisition of an additional interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis Capital Contribution;
----------
(B) the distribution by the Partnership to a Partner of more than a de minimis
----------
amount of Partnership property as consideration for an interest in the
Partnership; and (C) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), provided, however, that an adjustment
described in clauses (A) and (B) of this paragraph shall be made only if the
General Partner reasonably determines that such adjustment is necessary or
appropriate to reflect the relative economic interests of the Partners in the
Partnership;
(iii) The Gross Asset Value of any Partnership assets distributed to
any Partner shall be adjusted to equal the Fair Market Value of such asset on
the date of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section
-16-
<PAGE>
1.704-1(b)(2)(iv)(m) clause (vi) of the definition of "Net Income" and "Net
Loss"; provided, however, that Gross Asset Values shall not be adjusted pursuant
to this subparagraph (iv) to the extent that an adjustment pursuant to
subparagraph (ii) is required in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).
"Indebtedness" means all obligations, direct or contingent, for the payment
of cash or cash equivalents, including, without limitation, obligations with
respect to borrowed money, accounts payable, checks, drafts bills of exchange,
letters of credit, margin accounts, short sales, reverse purchase agreements,
futures contracts, and other recognized commercial transactions, instruments
involving the extension of credit, and all obligations incurred as surety or
guarantor of the obligations of others.
"Indemnified Parties" has the meaning ascribed to it in Section 4.5.
"Investment Assets," directly or indirectly, means and include all
Securities, rights and other tangible and intangible property acquired by the
Partnership for the purpose of producing a profit in the ordinary course of
business.
"Investment Position" means an Investment Asset and all Securities or other
property which may be exchanged for or distributed with respect to such
Investment Asset, whether by the issuer of the Investment Asset or related group
of Entities or any successor or successors thereto.
"Involuntary Removal" has the meaning ascribed to it in Section 7.5.
"Limited Partners" means all and only those persons who are so designated
in Exhibit I hereto, a copy of which shall be kept on file by the General
Partner and principal executive offices of the Partnership.
"Limited Partnership Interest" means the Limited Partner's ownership
interest in the Partnership received in exchange for his or her Capital
Contribution.
"Limited Partners Profit Percentage" means the aggregate Profit Percentage
of all of the Limited Partners.
"Measurement Period" has the meaning ascribed to it in Section 6.4(b).
"Net Income" and "Net Loss" mean, for each Accounting Period, an amount
equal to the Partnership's taxable income or loss for such Accounting Period,
with the following adjustments:
(i) Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Net Income or Net
Loss shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Income or Net Loss shall be subtracted from such taxable income
or loss;
-17-
<PAGE>
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clauses (ii) or (iii) of the definition of Gross Asset
Value, the amount of such adjustment shall be taken into account as gain or loss
from the disposition of such asset for purposes of computing Net Income or Net
Loss;
(iv) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(v) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain or loss from the disposition
of such asset and shall be taken into account for purposes of computing Net
Income or Net Loss; and
(vi) Notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to Section 2 of Exhibit II shall
not be taken into account in computing Net Income or Net Loss.
"Partners" means the General Partner and Limited Partners individually or
collectively, as the context requires.
"Partnership" means 1999 Internet Capital L.P.
"Partnership Assets" means all assets and property of the Partnership of
any and every kind.
"Partnership Interest" means any Partner's interest in the Partnership.
"Person" has the meaning ascribed to it in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934.
"Profit Percentage" means the percentage set forth on Exhibit II.
"Removed Partner" has the meaning ascribed to it in Section 7.5.
"Securities" means any of one or more of the following: (a) capital stock
(both common and preferred); partnership interests (both limited and general);
limited liability company interests; interests in any acquisition, venture
capital or other investment funds; notes; bonds; debentures; other obligations,
instruments or evidences of indebtedness (whether convertible or otherwise); and
other securities and equity interests of whatever kind of any Person, whether
readily marketable or not; (b) any rights to acquire any of the Securities
described in clause (a) above (including, without limitation, options, warrants,
rights or other interests or other Securities convertible into any such
Securities); or (c) any Securities received by the Partnership upon conversion
of, in exchange for, as proceeds from the disposition of, as interest on, or
stock
-18-
<PAGE>
dividend or other distribution from, any of the Securities described in
clauses (a) or (b) above.
"Short-term Investment Income" means all items of Net Income, other than
Net Income with respect to an Investment Position.
"Short-term Investment Loss" means all items of Net Loss, other than Net
Loss with respect to an Investment Position.
"Substituted Limited Partner" means any transferee or assignee of a Limited
Partner's Partnership Interest who is then admitted to the Partnership as a
Limited Partner pursuant to Section 9.4 hereof.
"Termination Share" means the payments a Removed Partner is entitled to
receive from the Partnership from and after the date such Partner ceases to be a
Partner.
"Threshold Amount" means an amount equal to three hundred percent (300%) of
the Equity Cost Basis of an Investment Position, unless otherwise provided
Exhibit III.
"Treasury Regulation" means the income tax regulations promulgated under
the Code and effective as of the date hereof. Unless the General Partner
determines otherwise after consultation with the Limited Partner, such term
shall be deemed to include any amendments to such regulations and any
corresponding provisions of succeeding regulations.
"Vested Profit Percentage" has the meaning specified in Section 6.1.
"Voluntary Removal" has the meaning ascribed to it in Section 7.4.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership of the ____ day of ______________, 1999.
GENERAL PARTNER:
ICG HOLDINGS, INC.
By:____________________________________
Title:_________________________________
LIMITED PARTNERS:
[See counterpart signature pages]
---------------------------------
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<PAGE>
EXHIBIT I
to
Agreement of Limited Partnership
of
1999 Internet Capital L.P.
Partners Capital Contribution/Capital Accounts
- -------- -------------------------------------
General Partner: Capital Contribution
- ---------------- --------------------
Securities described in Exhibit III as amended
from time to time or purchase price of such
securities, but not less than [$_] million in
aggregate value.
Limited Partners: Initial Capital Account
- ----------------- ---------------------------------
Schedule on file with the General Partner.
-20-
<PAGE>
EXHIBIT II
to
Agreement of Limited Partnership
of
1999 Internet Capital L.P.
Limited Partner's Profit Percentage
-----------------------------------
Section 1. General Profit Allocations
- --------------------------------------
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Limited Partners Profit Percentage
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Dated as of: December __, 1999
-21-
<PAGE>
Section 2. Special Allocations
- -------------------------------
-------------------------------------------------------------------------
Limited Partners Profit Percentage
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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Dated as of: December __, 1999
-22-
<PAGE>
EXHIBIT III
Cost Basis and Threshold Amount
-------------------------------
Securities Equity Cost Basis Threshold Amount
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.15.2
AMENDED AND RESTATED
AMENDMENT NO. 2
AMENDED AND RESTATED AMENDMENT NO. 2, dated as of December 10, 1999
(this "Amendment"), to the Credit Agreement, dated as of April 30, 1999 (the
---------
"Agreement"), among INTERNET CAPITAL GROUP, INC., a Delaware corporation
- ----------
("ICG"), INTERNET CAPITAL GROUP OPERATIONS, INC., a Delaware corporation ("ICG
--- ---
Operations" and together with ICG, each a "Borrower" and collectively the
- ---------- --------
"Borrowers"), the BANKS (as defined therein) and PNC BANK, NATIONAL ASSOCIATION,
- ----------
in its capacity as agent for the Banks (the "Agent"), as amended by that certain
-----
Amendment No. 1, dated as of October 27, 1999 ("Amendment No. 1") and that
---------------
certain Amendment No. 2, dated as of November 22, 1999 ("Amendment No. 2"), each
---------------
by and among ICG, ICG Operations, the Banks and the Agent (the Agreement, as
amended by Amendment No. 1 and Amendment No. 2, being collectively referred to
herein as the "Credit Agreement").
----------------
RECITALS
The Borrowers have advised the Agent and the Banks that they currently
propose to (i) engage in a $575,000,000 public offering of ICG's common stock,
par value $.001 per share (the "Public Offering"), (ii) a $600,000,000 public
---------------
offering of convertible subordinated debt securities (the "Public Debt
-----------
Offering", and together with the Public Stock Offering, the "Public Offerings")
----------------
and (iii) make certain additional Investments. In connection with the proposed
Public Offerings, the issuance of the subordinated debt and the making of
certain additional Investments, the Borrowers have requested the Agent and the
Banks to agree to amend certain provisions of the Credit Agreement as set forth
in this Amendment. The Agent and the Banks parties hereto are willing to agree
to such amendments, but only on the terms and subject to the conditions set
forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Agent and the Banks parties hereto hereby
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
-------------
Credit Agreement are used herein as therein.
2. Amendments.
----------
(a) Section 1.1 of the Credit Agreement is hereby amended by adding
the following new definitions thereto in the appropriate alphabetical order:
"Additional $50,000,000 Investment Entity" shall mean one of up to
-----------------------------------------
four (4) Investment Entities of any Borrower in whom such Borrower has made
an Investment permitted in accordance with the provisions of subclause (c)
of Section 7.1.15.
<PAGE>
"Additional $50,000,000 Investment Entities" shall mean collectively
------------------------------------------
all Additional $50,000,000 Investment Entities.
"Additional $75,000,000 Investment Entity" shall mean one, and only
----------------------------------------
one, Investment Entity of any Borrower in whom such Borrower has made an
Investment permitted in accordance with the provisions of subclause (d) of
Section 7.1.15.
"Amendment No. 2" shall mean Amended and Restated Amendment No. 2,
---------------
dated as of December 10, 1999, to the Credit Agreement.
"1999 Subordinated Debt" shall mean any unsecured Indebtedness of a
----------------------
Borrower, including any 1999 Subordinated Loans, no part of the principal
of which is stated to be payable or is required to be paid (whether by way
of mandatory sinking fund, mandatory redemption, mandatory prepayment or
otherwise) prior to May 1, 2000, and the payment of the principal of and
interest on which and other obligations of any Borrower in respect thereof
are subordinated to the prior payment in full of the principal of and
interest (including post-petition interest) on the Notes and all other
obligations and liabilities of such Borrower to the Agent and the Banks
hereunder on terms and conditions substantially as set forth in Exhibit
-------
1.1(D)(2) attached hereto.
---------
"1999 Subordinated Lender" shall mean any Person who makes a loan to
------------------------
any Loan Party to the extent such loan constitutes 1999 Subordinated Debt
hereunder, together with such Person's successors and assigns.
"1999 Subordinated Loans" shall mean up to $600,000,000 of 1999
-----------------------
Subordinated Loans, inclusive of the loans evidenced by the 1999
Subordinated Notes, made by the 1999 Subordinated Lender(s) to ICG pursuant
to the 1999 Subordinated Loan Documents.
"1999 Subordinated Loan Documents" shall mean (a) any and all
--------------------------------
instruments, certificates or documents delivered or contemplated to be
delivered in connection with any 1999 Subordinated Debt and (b) the 1999
Subordinated Notes and all other instruments, certificates or documents
delivered or contemplated to be delivered thereunder or in connection
therewith, as the same may be supplemented or amended from time to time in
accordance herewith.
"1999 Subordinated Note(s)" shall mean the convertible note(s) of ICG
-------------------------
payable to the 1999 Subordinated Lenders, each of which shall be executed
and delivered substantially in the form of Exhibit 1.1(C)(2) hereof.
-----------------
"Public Offerings" shall have the meaning ascribed thereto in the
----------------
recitals to Amendment No. 2.
"Second Supplemental Closing Date" shall have the meaning ascribed to
--------------------------------
such term in Section 3 hereof.
-2-
<PAGE>
(b) Section 1.1 of the Credit Agreement is hereby amended by
amending the definition of "Borrowing Base" by deleting the last sentence
--------------
thereof and replacing it with the following:
"Notwithstanding anything to the contrary contained herein, when
determining the Borrowing Base, (i) no more than $25,000,000 of the Borrowing
Base shall be attributed to Pledged Collateral issued by any individual
Investment Entity other than eMerge, any Additional $50,000,000 Investment
Entity or the Additional $75,000,000 Investment Entity, (ii) no more than
$50,000,000 of the Borrowing Base shall be attributed to eMerge Pledged
Collateral issued by eMerge; provided, however, that in no event shall any
-------- -------
advance be made hereunder based on the value of the eMerge Preferred Stock which
exceeds the amount then paid by or on behalf of ICG pursuant to the eMerge Note,
(iii) no more than $50,000,000 of the Borrowing Base shall be attributable to
Pledged Collateral issued by any Additional $50,000,000 Investment Entity and
(iv) no more than $75,000,000 of the Borrowing Base shall be attributable to
Pledged Collateral issued by the Additional $75,000,000 Investment Entity."
(c) Section 5.1.2 is hereby amended by deleting such Section in its
entirety and substituting in lieu thereof a new Section 5.1.2 to read as
follows:
"5.1.2 Capitalization and Ownership
----------------------------
(i) As of December 10, 1999, the authorized capital stock of ICG
consists of (x) Three Hundred and Ten Million (310,000,000) shares of common
stock, of which Two Hundred Fifty Three Million Fourteen Thousand and Eighty Six
(253,014,086) shares (referred to herein as the "ICG Shares") are issued and
outstanding and (y) Ten Million (10,000,000) shares of preferred stock, none of
which shares (referred to herein as the "ICG Preferred Shares") are issued and
outstanding, all as more particularly described on Schedule 5.1.2. All of the
--------------
ICG Shares have been validly issued and are fully paid and nonassessable. As of
December 10, 1999, there are no options, warrants or other rights outstanding to
purchase any such ICG Shares or ICG Preferred Shares except as indicated on
Schedule 5.1.2.
- --------------
(ii) As of December 10, 1999, the authorized capital stock of ICG
Operations consists of One Thousand (1,000) shares of common stock, of which One
Hundred (100) shares (referred to herein as the "ICG Operations Shares") are
issued and outstanding, all as more particularly described on Schedule 5.1.2.
--------------
All of the ICG Operations Shares have been validly issued are fully paid and
nonassessable. As of the Closing Date, there are no options, warrants or other
rights outstanding to purchase any such shares except as indicated on Schedule
--------
5.1.2."
- -----
(d) A new Section 5.1.29 is hereby added to the Credit Agreement as
follows:
"Validity and Binding Effect of the 1999 Subordinated Loan
---------------------------------------------------------
Documents.
- ---------
The 1999 Subordinated Loan Documents have been, or will be, duly
and validly executed and delivered by the parties thereto and constitute, or
will constitute, the legal, valid and binding obligations of the parties
thereto, enforceable against them in accordance with their respective terms,
except to the extent that enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or by laws or judicial decisions
limiting the right of specific
-3-
<PAGE>
performance. All representations and warranties of any Loan Party contained in
the 1999 Subordinated Loan Documents will be true and correct in all material
respects as of the date made. There exists no default, nor any circumstance
which, after notice or lapse of time or both would cause or permit the
acceleration of any 1999 Subordinated Debt under any 1999 Subordinated Loan
Documents and there exists no lien, set-off, claim or, to the knowledge of any
Loan Party after due inquiry, other impairment of the validity or enforceability
of such documents. The 1999 Subordinated Loan Documents constitute the entire
agreement between each Borrower and the holders of the 1999 Subordinated Debt
and there are no other agreements with respect to the 1999 Subordinated Debt."
(e) Section 7.1.15 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in lieu thereof a new
Section 7.1.15 to read as follows:
"7.1.15 Investments.
-----------
The Borrowers may make Investments in other Persons in addition to
Investments existing on the Closing Date and disclosed in Schedules 1.1(A-1),
1.1(A-2) and 1.1(A-3) attached hereto; provided, however, that (a) the Borrowers
-------- -------
may only invest a maximum of $25,000,000 in Cash and Cash Equivalents per
calendar year in any Investment Entity other than eMerge, the Additional
$50,000,000 Investment Entities and the Additional $75,000,000 Investment
Entity, (b) the Borrowers may only invest a maximum of (x) an aggregate of
$75,000,000 in Cash and Cash Equivalents in eMerge for calendar years 1999 and
2000, and (y) $25,000,000 in Cash and Cash Equivalents in eMerge in any calendar
year subsequent to 2000, (c) the Borrowers may only invest a maximum of
$50,000,000 in Cash and Cash Equivalents per calendar year in any Additional
$50,000,000 Investment Entity, (d) the Borrowers may only invest a maximum of
$75,000,000 in Cash and Cash Equivalents per calendar year in the Additional
$75,000,000 Investment Entity and (e) the Borrowers will promptly, and in any
event within five (5) Business Days of the making of any such Investment provide
to the Agent and the Banks an updated Annex A to the Letter Agreement reflecting
any such additional Investment."
(f) A new Section 7.1.23 and 7.1.24 are hereby added to the
Credit Agreement as follows:
"7.1.23 Updated Capitalization and Ownership.
------------------------------------
Immediately prior to or on the effective date of the proposed
Public Offerings, the Borrower shall provide the Agent and the Banks in writing
with such revisions to the representation contained in Section 5.1.2 as may be
necessary to update or correct such representation to reflect changes to the
capitalization and ownership effected by the proposed Public Offerings.
-4-
<PAGE>
7.1.24 1999 Subordinated Loan Documents.
--------------------------------
The Administrative Borrower shall deliver to the Agent for delivery
to the Banks a true and correct copy of the 1999 Subordinated Loan Documents and
any amendments, waivers and other documents executed in connection therewith
(including all exhibits and schedules to such documents) within sixty (60)
calendar days of the execution thereof by the parties thereto."
(g) Section 7.2.1 of the Credit Agreement is hereby amended by
deleting the word "and" at the subclause (iv), adding the word "and" at the end
of subclause (v) and adding a new subclause (vi) to read as follows:
"(vi) 1999 Subordinated Debt in an aggregate principal amount not
to exceed $600,000,000 at any time outstanding."
(h) Section 7.2.5 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting in lieu thereof a new
Section 7.2.5 to read as follows:
"7.2.5 Dividends and Related Distributions.
-----------------------------------
Each of the Loan Parties shall not, and shall not permit
any of its Subsidiaries to, make or pay, or agree to become or remain liable to
make or pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of its shares of
capital stock, partnership interests or limited liability company interests on
account of the purchase, redemption, retirement or acquisition of its shares of
capital stock (or warrants, options or rights therefor), partnership interests
or limited liability company interests, except (i) dividends or other
distributions payable to another Loan Party and (ii) the issuance of up to
$1,000,000,000 of ICG's common stock in connection with the proposed Public
Offering; provided, however, that notwithstanding anything to the contrary
provided in any Loan Document, in no event shall such proposed Public Offering
be permitted hereunder if (i) after giving effect to such proposed Public
Offering, a Potential Default or Event of Default shall exist hereunder, (ii)
such Public Offering shall violate any Law or (iii) such Public Offering of
ICG's common stock shall exceed $1,000,000,000."
(i) Section 7.2.15 of the Credit Agreement is hereby amended by
renumbering such Section as Section 7.2.15(A) and adding thereto a new Section
7.2.15(B) to read as follows:
-5-
<PAGE>
"7.2.15(B) Amendment or Waiver of 1999 Subordinated Debt; Payment or
---------------------------------------------------------
Prepayment of 1999 Subordinated Debt.
- ------------------------------------
Each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to:
(i) without the prior written consent of the Required Banks, agree
to any amendment or other change to, or waiver of any of its rights under, the
1999 Subordinated Debt, the 1999 Subordinated Loan Documents or any other
evidences of such 1999 Subordinated Debt which shall cause:
(A) any payment by any of the Loan Parties to become due prior to
the date such payment is due consistent with the terms and conditions set forth
on Exhibit 1.1(D)(2) hereto;
-----------------
(B) any advancement of the maturity date under any 1999 Subordinated
Loan Document;
(C) any increase in the aggregate principal amount outstanding under
the 1999 Subordinated Debt to an amount which exceeds $600,000,000; or
(D) any increase in the interest rate applicable to any 1999
Subordinated Debt; or
(ii) amend, change, waive or otherwise modify any of the terms and
provisions set forth in Exhibit 1.1(D)(2) to the extent any such amendment,
-----------------
change or waiver or other modification of any of the terms and provisions set
forth in Exhibit 1.1(D)(2) would result in the terms of the 1999 Subordinated
-----------------
Debt being less favorable to the holders of the Senior Indebtedness; or
(iii) directly or indirectly, by deposit of monies or otherwise, prepay,
purchase, redeem, retire, defease or otherwise acquire, or make any payment on
account of any principal of, premium or interest payable in connection with the
payment, prepayment, redemption, defeasance or retirement of any 1999
Subordinated Debt."
(j) Section 7.2.17 of the Credit Agreement is hereby amended by deleting
such Section in its entirety and substituting in lieu thereof a new Section
7.2.17 to read as follows:
"7.2.17 Maximum Leverage Ratio.
----------------------
The Loan Parties shall not at any time permit the ratio of
consolidated total liabilities (excluding Subordinated Debt and the 1999
Subordinated Debt) of the Borrowers and their respective Subsidiaries to
Consolidated Tangible Net Worth to exceed the ratio as set forth below:
Period Ratio
------ -----
Closing Date and thereafter .50 to 1.0"
-6-
<PAGE>
(k) A new Section 8.1.13A is hereby added to the Credit Agreement as
follows:
"8.1.13A. Breach of 1999 Subordination Loan Documents Terms.
-------------------------------------------------
Any agreement to subordinate the right of payment in respect of the
1999 Subordinated Debt to the Indebtedness arising out of or under the Loan
Documents, at any time and for any reason, ceases to be in full force and effect
or is declared to be null and void; or any holder of such 1999 Subordinated Debt
repudiates or disavows such subordination or denies that it has further
liability or obligation under such subordination agreement or gives notice to
such effect; or any default or event of default shall have occurred and be
continuing under the 1999 Subordinated Loan Documents."
3. Effectiveness. The effectiveness of this Amendment, is subject to the
-------------
satisfaction of the following conditions precedent (the date of such
satisfaction being herein referred to as the "Second Supplemental Closing
---------------------------
Date"):
(a) Amendment; 1999 Subordinated Notes. The Agent shall have received
----------------------------------
this Amendment, executed and delivered by a duly authorized officer of each
of the Borrowers, with a counterpart for each Bank and a copy of the form
of the 1999 Subordinated Note(s), with a copy for each Bank.
(b) Borrowing Base Certificate. On or prior to the Second
--------------------------
Supplemental Closing Date, the Agent and the Banks shall have received and
the Agent and the Banks shall be satisfied (both as to form and substance)
with a pro forma Borrowing Base Certificate in the form set forth in
--- -----
Exhibit 1.1(B) to the Credit Agreement which shall be prepared as of a date
prior to the Second Supplemental Closing Date.
(c) Proceedings of the Borrower. The Agent shall have received, with
---------------------------
a counterpart for each Bank, a copy of the resolutions, in form and
substance satisfactory to the Agent, of each of the Borrowers authorizing
the execution, delivery and performance of this Amendment and the other
Amendment Documents to which it is a party, certified by the Secretary or
an Assistant Secretary of each of the Borrowers as of the Second
Supplemental Closing Date, which certificate shall be in form and substance
satisfactory to the Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded.
(d) Borrower Incumbency Certificate. The Agent shall have received,
-------------------------------
with a counterpart for each Bank, a certificate of each of the Borrowers,
dated the Second Supplemental Closing Date, as to the incumbency and
signature of the officers of each of the Borrowers executing this Amendment
or the other Amendment Documents to which each of the Borrowers is a party,
satisfactory in form and substance to the Agent, executed by an Authorized
Officer of each of the Borrowers.
(e) Representations and Warranties. Each of the representations and
------------------------------
warranties made by each of the Borrowers and the other Loan Parties in or
pursuant to the Loan Documents shall be true and correct in all material
respects on and as of the Second Supplemental Closing Date as if made on
and as of such Second Supplemental Closing
-7-
<PAGE>
Date (and after giving effect to the amendments provided for in this
Amendment) (or, if any such representation or warranty is expressly stated
to have been made as of a specific date, as of such specific date).
(f) No Default. No Potential Default or Event of Default shall have
----------
occurred and be continuing on the Second Supplemental Closing Date or after
giving effect to the amendments provided for in this Amendment.
(g) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents and
the 1999 Subordinated Loan Documents shall be satisfactory in form and
substance to the Agent, and the Agent shall have received such other
documents and legal opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably request.
4. Representations and Warranties. To induce the Agent and the Banks to
------------------------------
enter into this Amendment, the Borrowers hereby represent and warrant to the
Agent and the Banks that, after giving effect to the amendments provided for
herein, the representations and warranties contained in the Credit Agreement and
the other Loan Documents will be true and correct in all material respects as if
made on and as of the date hereof and that no Potential Default or Event of
Default will have occurred and be continuing (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).
5. No Other Amendments. Except as expressly amended hereby, the Credit
-------------------
Agreement, the Notes and the other Loan Documents shall remain in full force and
effect in accordance with their respective terms, without any waiver, amendment
or modification of any provision thereof.
6. Counterparts. This Amendment may be executed by one or more of the
------------
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. Expenses. The Borrowers agree to pay and reimburse the Agent for all
--------
of the out-of-pocket costs and expenses incurred by the Agent in connection with
the preparation, execution and delivery of this Amendment, including, without
limitation, the reasonable fees and disbursements of Buchanan Ingersoll
Professional Corporation, counsel to the Agent.
8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
--------------
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Amendment No. 2 to be duly executed and delivered as of the day and
year first above written.
INTERNET CAPITAL GROUP, INC.
By: /s/ John N. Nickolas
---------------------
Name: John N. Nickolas
Title: Managing Director
INTERNET CAPITAL GROUP OPERATIONS,
INC.
By: /s/ John N. Nickolas
---------------------
Name: John N. Nickolas
Title: Managing Director
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/ Wayne D. Lavelle
---------------------
Name: Wayne D. Lavelle
Title: Vice President
BANK OF AMERICA, N.A., formerly known as
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Jouni Korhonen
---------------------
Name: Jouni Korhonen
Title: Principal
-9-
<PAGE>
COMERICA BANK-CALIFORNIA
By: /s/ Alan Jepsen
---------------------
Name: Alan Jepsen
Title: Vice President & Asst. Group Mgr.
IMPERIAL BANK
By: /s/ April L. Young
---------------------
Name: April L. Young
Title: SVP & Mgr., Mid-Atlantic
PROGRESS BANK
By: /s/ Liz A. Lambert
---------------------
Name: Liz A. Lambert
Title: Vice President
-10-
<PAGE>
EXHIBIT 1.1(C)(2)
TO AMENDMENT NO. 2
FORM OF 1999 SUBORDINATED NOTE
To be provided on or prior to the Second Supplemental Closing Date.
-11-
<PAGE>
EXHIBIT 1.1(D)(2)
TO AMENDMENT NO. 2
SUBORDINATION
The notes will be unsecured obligations of Internet Capital Group, Inc. ("ICG")
---
and will be subordinated in right of payment, as provided in the Indenture, to
the prior payment in full in cash or other payment satisfactory to holders of
Senior Indebtedness, of all ICG's existing and future Senior Indebtedness.
At [ ], ICG had $[ ] million of senior
indebtedness outstanding, and our subsidiary had no indebtedness outstanding.
The Indenture does not restrict the incurrence by ICG or its subsidiaries of
indebtedness or other obligations.
The term "Senior Indebtedness" means:
. the principal, premium, if any, interest and all other amounts owed in
respect of all of ICG's
- indebtedness for money borrowed and
- indebtedness evidenced by securities, debentures, bonds or other
similar instruments
. all of ICG's capital lease obligations
. all obligations issued or assumed by ICG as the deferred purchase price of
property, all of ICG's conditional sale obligations and all of ICG's
obligations under any title retention agreement, but excluding trade
accounts payable arising in the ordinary course of business
. all of ICG's obligations for the reimbursement of any letter of credit,
banker's acceptance, security purchase facility or similar credit
transaction
. all obligations of the type referred to in each of the above bullet points
of other persons for the payment of which ICG is responsible or liable as
obligor, guarantor or otherwise and
. all obligations of the type referred to in each of the above bullet points
of other persons secured by any lien on any of our properties or assets,
whether or not such obligation is assumed by ICG
except for:
. any such indebtedness that is by its terms subordinated to or pari passu
with the notes and
-12-
<PAGE>
. any indebtedness between or among ICG or its affiliates, including all
other debt securities and guarantees in respect of those debt securities
issued to any trust, or trustees of any trust, partnership or other entity
affiliated with ICG that is, directly or indirectly, a financing vehicle
used by ICG in connection with the issuance by that financing vehicle of
preferred securities or other securities that rank pari passu with, or
junior to, the notes
Any Senior Indebtedness will continue to be Senior Indebtedness and will be
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any of its terms.
By reason of the application of the subordination provisions, in the event of
dissolution, insolvency, bankruptcy or other similar proceedings, upon any
distribution of ICG's assets:
. the holders of the notes are required to pay over their share of that
distribution to the trustee in bankruptcy, receiver or other person
distributing ICG's assets for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all holders
of Senior Indebtedness in full in cash or other payment satisfactory to the
holders of Senior Indebtedness and
. unsecured creditors of ours who are not holders of notes or holders of
Senior Indebtedness of ICG's may recover less, ratably, than holders of
Senior Indebtedness of ICG's, and may recover more, ratably, than the
holders of notes
In addition, ICG may not pay the principal amount, Redemption Price, Change in
Control Purchase Price or interest with respect to any notes, and ICG may not
acquire any notes for cash or property, except as provided in the Indenture, if:
(1) any payment default on any Senior Indebtedness has occurred and is
continuing beyond any applicable grace period or
(2) any default, other than a payment default with respect to Senior
Indebtedness occurs and is continuing that permits the acceleration of the
maturity of that Senior Indebtedness and that default is either the subject
of judicial proceedings or ICG receives a written notice of that default (a
"Senior Indebtedness Default Notice").
Notwithstanding the foregoing, payments with respect to the notes may resume and
ICG may acquire notes for cash when:
(a) the default with respect to the Senior Indebtedness is cured or
waived or ceases to exist or
(b) in the case of a default described in (2) above, 179 or more days
pass after notice of the default is received by us, provided that
the terms of the Indenture otherwise permit the payment or
acquisition of the notes at that time.
-13-
<PAGE>
If ICG receives a Senior Indebtedness Default Notice, then a similar notice
received within nine months after receiving that Senior Indebtedness Default
Notice relating to the same default on the same issue of Senior Indebtedness
will not be effective to prevent the payment or acquisition of the notes as
provided above. In addition, no payment may be made on the notes if any notes
are declared due and payable prior to their Stated Maturity by reason of the
occurrence of an Event of Default until the earlier of:
. 120 days after the date of acceleration of the maturity of that Senior
Indebtedness or
. the payment in full of all Senior Indebtedness but only if payment on
the notes is then otherwise permitted under the terms of the
Indenture.
Upon any payment or distribution of ICG's assets to creditors upon any
dissolution, winding up, liquidation or reorganization of ICG, whether voluntary
or involuntary, or in bankruptcy, insolvency, receivership or other similar
proceedings, the holders of all the Senior Indebtedness will first be entitled
to receive payment in full, in cash or other payment satisfactory to the holders
of Senior Indebtedness, of all amounts due or to become due on that Senior
Indebtedness, or payment of those amounts must have been provided for, before
the holders of the notes will be entitled to receive any payment or distribution
with respect to any notes.
The notes are effectively subordinated to all existing and future liabilities of
ICG's subsidiaries. Any right of ICG to receive assets of any of ICG's
subsidiaries upon their liquidation or reorganization, and the consequent right
of the holders of the notes to participate in those assets, will be subject to
the claims of that subsidiary's creditors, including trade creditors, except to
the extent that ICG itself is recognized as a creditor of that subsidiary, in
which case ICG's claims would still be subordinate to any security interests in
the assets of that subsidiary and any indebtedness of that subsidiary senior to
that held by ICG.
-14-
<PAGE>
Schedule 5.1.2
CAPITALIZATION
The following table sets forth our capitalization on an Actual basis
as of September 30, 1999.
The table also sets forth our capitalization on an As Adjusted basis
as if the following events occurred on September 30, 1999:
. the issuance and sale of 6,000,000 shares of our common stock in
this offering;
. the issuance and sale of $250,000,000 of our _____% convertible
subordinated notes due 2004 in the concurrent offering;
. the issuance and sale to AT&T Corp. of 609,533 shares of our
common stock for $50 million; and
. the issuance and sale to Internet Assets, Inc. upon closing of
this offering of $20 million of our common stock in a private placement,
equaling 248,447 shares based on the split-adjusted closing price of our
common stock on December 2, 1999 of $80.50.
The table below includes deductions for estimated underwriting
discounts and commissions, and for estimated offering expenses.
Common stock data is as of November 30, 1999 and excludes:
. the shares of common stock issuable upon conversion of the
convertible notes being offering concurrently with this offering;
. the exercise of the underwriters' over-allotment options in
connection with this offering and the concurrent offering;
. options to purchase 5,114,000 shares of common stock under our
equity plans at a weighted average exercise price of $21.88 per share;
. 1,381,032 shares of common stock issuable upon exercise of
options reserved for grant;
. the warrants outstanding to purchase 2,976,493 shares at a
weighted average exercise price of $5.87 per share; and
. 1,049,425 shares of our common stock issuable upon exercise of an
option under an agreement related to the acquisition of a partner company
ownership interest.
<TABLE>
<CAPTION>
September 30, 1999
Actual As Adjusted(1)
<S> <C> <C>
Long-term debt $ 1,633,360 $ 1,633,360
Convertible subordinated notes -- 250,000,000
Shareholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; none issued and outstanding-actual, and
as adjusted -- --
Common Stock, $.001 par value; 300,000,000 shares
authorized; 253,014,086 shares issued and
outstanding-actual; 259,872,066 shares issued and
outstanding as adjusted 253,014 259,872
Additional paid-in capital 510,325,881 1,041,407,742
Retained earnings (accumulated deficit) (3,165,920) (3,165,920)
Unamortized deferred compensation (14,371,190) (14,371,190)
Notes receivable - shareholders (81,147,592) (81,147,592)
Accumulated other comprehensive income 6,622,404 6,622,404
------------ --------------
Total shareholders' equity 418,516,597 949,605,316
------------ --------------
Total capitalization $420,149,957 $1,201,238,676
============ ==============
</TABLE>
1 Completion of the convertible note offering is not a condition to the
completion of this offering. If we do not complete the issuance and sale of
$250,000,000 of our convertible notes in the concurrent offering, as adjusted
long-term debt would be $1,633,360 and as adjusted total capitalization would be
$951,238,676.
-15-
<PAGE>
Exhibit 10.15.3
AMENDMENT NO. 3
AMENDMENT NO. 3, dated as of February 25, 2000 (this "Amendment"), to
---------
the Credit Agreement, dated as of April 30, 1999 (the "Agreement"), among
---------
INTERNET CAPITAL GROUP, INC., a Delaware corporation ("ICG"), INTERNET CAPITAL
---
GROUP OPERATIONS, INC., a Delaware corporation ("ICG Operations" and together
--------------
with ICG, each a "Borrower" and collectively the "Borrowers"), the BANKS (as
-------- ---------
defined therein) and PNC BANK, NATIONAL ASSOCIATION, in its capacity as agent
for the Banks (the "Agent"), as amended by that certain Amendment No. 1, dated
-----
as of October 27, 1999 ("Amendment No. 1"), that certain Amendment No. 2, dated
---------------
as of November 22, 1999 ("Amendment No. 2"), and that certain Amended and
---------------
Restated Amendment No. 2, dated as of December 10, 1999 ("Amended and Restated
--------------------
Amendment No. 2"), each by and among ICG, ICG Operations, the Banks and the
- ---------------
Agent (the Agreement, as amended by Amendment No. 1, Amendment No. 2 and Amended
and Restated Amendment No. 2, being collectively referred to herein as the
"Credit Agreement").
- -----------------
RECITALS
The Borrowers have advised the Agent and the Banks that they, among
other things, wish to amend certain provisions of the Credit Agreement which
prohibit the Borrowers from making investments in third parties under certain
circumstances and the Borrowers have requested the Agent and the Banks to agree
to amend certain provisions of the Credit Agreement as set forth in this
Amendment. The Agent and the Banks parties hereto are willing to agree to such
amendments, but only on the terms and subject to the conditions set forth in
this Amendment.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrowers and the Agent and the Banks parties hereto hereby
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
-------------
Credit Agreement are used herein as therein.
2. Amendments.
----------
(a) Section 1.1 of the Credit Agreement is hereby amended by adding
the following new definitions thereto in the appropriate alphabetical order:
"Third Supplemental Closing Date" shall have the meaning ascribed to
-------------------------------
such term in Section 3 hereof.
(b) The definition of the term "Permitted Liens" in Section 1.1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
<PAGE>
Amendment No. 3
"Permitted Liens" shall mean:
---------------
(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due and
payable or which are being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on the
- --------
books of such Borrower and its respective Subsidiaries, as the case may be, in
conformity with GAAP;
(ii) Pledges or deposits made in the ordinary course
of business to secure payment of workmen's compensation, or to participate in
any fund in connection with workmen's compensation, unemployment insurance, old-
age pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable and Liens of landlords
securing obligations to pay lease payments that are not yet due and payable or
in default except where contested in good faith and by appropriate proceedings;
provided that adequate reserves with respect thereto are maintained on the
- --------
books of such Borrower and its respective Subsidiaries, as the case may be, in
conformity with GAAP;
(iv) Good-faith pledges or deposits made in the
ordinary course of business to secure performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases, not in excess of the
aggregate amount due thereunder, or to secure statutory obligations, or surety,
appeal, indemnity, performance or other similar bonds required in the ordinary
course of business;
(v) Encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of property, none of which materially
impairs the use of such property or the value thereof, and none of which is
violated in any material respect by existing or proposed structures or land use;
(vi) Liens and security interests in favor of the
Agent for the benefit of the Banks;
(vii) Any Lien existing on the date of this Agreement
and described on Schedule 1.1(P), provided that the principal amount secured
--------------- --------
thereby is not hereafter increased, and no additional assets become subject to
such Lien;
(viii) Purchase Money Security Interests, provided that
--------
the aggregate amount of loans and deferred payments secured by such Purchase
Money Security Interests shall not exceed $2,000,000 (excluding for the purpose
of this computation any loans or deferred payments secured by Liens described on
Schedule 1.1(P));
- ---------------
(ix) Claims or Liens upon, and defects of title to,
real or personal property other than the Collateral, including any attachment of
real or personal property or other legal process prior to adjudication of a
dispute on the merits; and
<PAGE>
Amendment No. 3
(x) Cash or Cash Equivalents securing reimbursement
obligations permitted under Section 7.2.1(vii).
(c) Section 7.1.15 of the Credit Agreement is hereby amended by deleting
such Section in its entirety and substituting in lieu thereof a new Section
7.1.15 to read as follows:
"7.1.15 Investments.
-----------
The Borrowers may make Investments in other Persons in addition to
Investments existing on the Closing Date and disclosed in Schedules 1.1(A-1),
1.1(A-2) and 1.1(A-3) attached hereto as follows:
(1) the Borrowers may make any Investment without restriction as to
amount, but otherwise subject to the terms and conditions of this Agreement, if
on the date of the proposed Investment, after giving effect to the proposed
Investment, the sum of (i) the Borrowers' Cash and Cash Equivalents and (ii)
Borrowing Base Availability shall exceed $500,000,000;
(2) if on the date of the proposed making of the Investment, after
giving effect to the proposed Investment, the sum of (i) the Borrowers' Cash and
Cash Equivalents and (ii) Borrowing Base Availability shall be greater than
$200,000,000 but less than or equal to $500,000,000, the Borrowers may make an
Investment in such Investment Entity of up to 50% of the sum of (i) the
Borrowers' Cash and Cash Equivalents and (ii) Borrowing Base Availability,
determined as of the date of the Investment but before giving effect to the
proposed Investment; and
(3) if on the date of the proposed making of the Investment, after
giving effect to the proposed Investment, the sum of (i) the Borrowers' Cash and
Cash Equivalents and (ii) Borrowing Base Availability shall be between zero and
$200,000,000, the Borrowers may make an Investment in such Investment Entity of
up to 40% of the sum of (i) the Borrowers' Cash and Cash Equivalents and (ii)
Borrowing Base Availability, determined as of the date of the Investment but
before giving effect to the proposed Investment.
The Borrowers will promptly, and in any event within five (5) Business Days of
the making of any such Investment, provide to the Agent and the Banks an updated
Annex A to the Letter Agreement reflecting any such additional Investment.
Notwithstanding anything to the contrary contained herein, the prohibitions
contained in this Section 7.1.15 shall not apply to the extent Investments are
made with the capital stock of ICG."
(d) Section 7.2.1 of the Credit Agreement is hereby amended by
deleting the word "and" at the end of subclause (v), adding the word "; and"
prior to the period at the end of subclause (vi), deleting the period at the end
of subclause (vi) and adding a new subclause (vii) to read as follows: "(vii)
Indebtedness in respect of (1) reimbursement obligations with respect to letters
of credit and acceptances and (2) the undrawn portion of the face amount of
letters of credit issued for the account of any Borrower in an aggregate amount
exceeding for the Borrowers' $25,000,000 at any one time outstanding."
<PAGE>
Amendment No. 3
3. Effectiveness. The effectiveness of this Amendment, is subject to the
-------------
satisfaction of the following conditions precedent (the date of such
satisfaction being herein referred to as the "Third Supplemental Closing Date"):
-------------------------------
(a) Amendment. The Agent shall have received this Amendment, executed
---------
and delivered by a duly authorized officer of each of the Borrowers, with a
counterpart for each Bank.
(b) Borrowing Base Certificate. On or prior to the Third Supplemental
--------------------------
Closing Date, the Agent and the Banks shall have received and the Agent and
the Banks shall be satisfied (both as to form and substance) with a pro
---
forma Borrowing Base Certificate in the form set forth in Exhibit 1.1(B) to
-----
the Credit Agreement which shall be prepared as of a date prior to the
Third Supplemental Closing Date.
(c) Proceedings of the Borrower. The Agent shall have received, with
---------------------------
a counterpart for each Bank, a copy of the resolutions, in form and
substance satisfactory to the Agent, of each of the Borrowers authorizing
the execution, delivery and performance of this Amendment and the other
Amendment Documents to which it is a party, certified by the Secretary or
an Assistant Secretary of each of the Borrowers as of the Third
Supplemental Closing Date, which certificate shall be in form and substance
satisfactory to the Agent and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded.
(d) Borrower Incumbency Certificate. The Agent shall have received,
-------------------------------
with a counterpart for each Bank, a certificate of each of the Borrowers,
dated the Third Supplemental Closing Date, as to the incumbency and
signature of the officers of each of the Borrowers executing this Amendment
or the other Amendment Documents to which each of the Borrowers is a party,
satisfactory in form and substance to the Agent, executed by an Authorized
Officer of each of the Borrowers.
(e) Representations and Warranties. Each of the representations and
------------------------------
warranties made by each of the Borrowers and the other Loan Parties in or
pursuant to the Loan Documents shall be true and correct in all material
respects on and as of the Third Supplemental Closing Date as if made on and
as of such Third Supplemental Closing Date (and after giving effect to the
amendments provided for in this Amendment) (or, if any such representation
or warranty is expressly stated to have been made as of a specific date, as
of such specific date).
(f) No Default. No Potential Default or Event of Default shall have
----------
occurred and be continuing on the Third Supplemental Closing Date or after
giving effect to the amendments provided for in this Amendment.
(g) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents and
the 1999 Subordinated Loan Documents shall be satisfactory in form and
substance to the Agent, and the Agent shall have received such other
documents and legal opinions in respect of any aspect or
<PAGE>
Amendment No.3
consequence of the transactions contemplated hereby or thereby as it shall
reasonably request.
4. Representations and Warranties. To induce the Agent and the Banks to
------------------------------
enter into this Amendment, the Borrowers hereby represent and warrant to the
Agent and the Banks that, after giving effect to the amendments provided for
herein, the representations and warranties contained in the Credit Agreement and
the other Loan Documents will be true and correct in all material respects as if
made on and as of the date hereof and that no Potential Default or Event of
Default will have occurred and be continuing (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as of such
specific date).
5. No Other Amendments. Except as expressly amended hereby, the Credit
-------------------
Agreement, the Notes and the other Loan Documents shall remain in full force and
effect in accordance with their respective terms, without any waiver, amendment
or modification of any provision thereof.
6. Counterparts. This Amendment may be executed by one or more of the
------------
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. Expenses. The Borrowers agree to pay and reimburse the Agent for all
--------
of the out-of-pocket costs and expenses incurred by the Agent in connection with
the preparation, execution and delivery of this Amendment, including, without
limitation, the reasonable fees and disbursements of Buchanan Ingersoll
Professional Corporation, counsel to the Agent.
8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
--------------
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA.
[remainder of Page Intentionally Left Blank]
<PAGE>
Amendment No. 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be duly executed and delivered as of the day and year first above written.
INTERNET CAPITAL GROUP, INC.
By: /s/ John N. Nickolas
-----------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance
INTERNET CAPITAL GROUP OPERATIONS, INC.
By: /s/ John N. Nickolas
-----------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By: /s/ Wayne D. Lavelle
-----------------------------------
Name: Wayne D. Lavelle
Title: Vice President
BANK OF AMERICA, N.A., formerly known as
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Jouni Korhonen
-----------------------------------
Name: Jouni Korhonen
Title: Principal
<PAGE>
Amendment No. 3
COMERICA BANK-CALIFORNIA
By: /s/ Alan Jepsen
---------------------------
Name: Alan Jepsen
Title: Vice President
IMPERIAL BANK
By: /s/ James N. Reddish
---------------------------
Name: James N. Reddish
Title:
PROGRESS BANK
By: /s/ Liz Lambert
---------------------------
Name: Liz Lambert
Title: Vice President
<PAGE>
Exhibit 10.30
SUBLEASE AGREEMENT
1. PARTIES
THIS SUBLEASE, dated January 6, 2000 is made between SP INVESTMENTS
INC., a Washington corporation ("Sublessor") and INTERNET CAPITAL GROUP, INC., a
Delaware corporation ("Sublessee").
2. MASTER LEASE AND PREMISES
Sublessor is the tenant under a written Lease Agreement (the "Master
Lease"), dated March 13, 1995, wherein Third and University Limited Partnership,
a Washington limited partnership (hereinafter "Landlord" shall refer to Third
and University Limited Partnership, or its successor in interest) leases to
Sublessor those certain premises (the "Master Premises") consisting of
approximately 18,563 rentable square feet located on the 54th and 55th floors of
the building ("Building") commonly known as Washington Mutual Tower, 1201 Third
Avenue, Seattle, Washington situated on the real property located in the City of
Seattle, County of King, State of Washington, legally described in the Master
Lease.
3. PREMISES
For the entire term, as set forth in Section 4 below, Sublessor hereby
subleases to Sublessee and Sublessee subleases from Sublessor, on and subject to
the terms, conditions and reservations set forth in this Sublease, the portion
of the Master Premises consisting of 4,281 rentable square feet as shown on the
Floor Plans for the 54th floor of the Building attached hereto as Exhibit A (the
"Premises").
4. TERM
The term of this Sublease shall commence on the later of January 1,
2000 or two weeks after the Premises are delivered to Sublessee ("Commencement
Date"), and end on November 30, 2004 ("Termination Date"), unless otherwise
sooner terminated in accordance with the provisions of this Sublease.
Possession of the Premises ("Possession Date") shall be delivered to Sublessee
on or before January 1, 2000. In the event the Possession Date shall not have
occurred for any reason on or before January 1, 2000, in addition to Sublessee's
other rights and remedies, Sublessee shall have the right to terminate the
Sublease upon written notice to Sublessor upon which Sublessor shall reimburse
Sublessee all monies paid by Sublessee, except if delay in Possession Date is
caused by current Sublessee wrongfully failing to vacate the Premises,
Sublessee's remedy shall be termination of this Sublease and reimbursement of
monies paid.
<PAGE>
5. RENT
5.1. Base Rent. Commencing on the Commencement Date, Sublessee shall pay to
Sublessor as base rent, without deduction, setoff, notice, or demand, at the
address of Sublessor set forth below or at such other place as Sublessor shall
designate from time to time by notice to Sublessee, the sum of $16,053.75 per
month, in advance on the first day of each month of the term of this Sublease
(the "Base Rent"). The first month's rent (for the period commencing on January
15 and ending January 31 in the event the Possession Date occurs on January 1,
2000) payable by Sublessee shall be $8,026.88 and shall be payable upon
execution of this Sublease.
5.2. Operating Costs and Taxes. In addition to base rent payable by
Sublessee to Sublessor as set forth in Section 5.1 above, commencing on January
1, 2001, Sublessee shall pay Sublessor, as additional rent, 23% of the amount by
which "operating costs" and "taxes," as such terms are defined in the Master
Lease payable by Tenant under the Master Lease exceeds operating costs and/or
taxes payable by Tenant under the Master Lease with respect to calendar year
2000 (the "Base Year"). Such additional rent shall be payable as and when
operating costs and taxes are payable by Tenant to Landlord. If the Master Lease
provides for the payment by Tenant of operating costs and taxes on the basis of
an estimate thereof, then as and when adjustments between estimated and actual
operating costs and taxes are made under the Master Lease, the obligations of
Sublessor and Sublessee hereunder shall be adjusted in a like manner, and if any
such adjustment shall occur after the expiration or earlier termination of this
Sublease, then the obligations of Sublessor and Sublessee under this Subsection
5.2 shall survive such expiration or termination. Sublessor shall promptly
furnish Sublessee with copies of all statements by Landlord of actual or
estimated operating costs and taxes during the term. In the event Sublessor is
required to pay any other additional rents or other sums pursuant to the Master
Lease which benefits the Premises and/or Sublessee's operations during the term
of this Sublease, Sublessee shall pay to Sublessor 23% of such costs incurred as
additional rent hereunder. Notwithstanding anything in this Section 5.2 to the
contrary, in the event special or extra services or utilities are requested by
Sublessee or Sublessor with respect to their use of the Premises, as applicable,
the party requesting such special or extra services or utilities shall be solely
responsible for payment of the same.
5.3. Rent. The Base Rent payable by Sublessee pursuant to Section 5.1
above, together with additional rent payable by Sublessee pursuant to 5.2 above
and any other sums payable by Sublessee under this Sublease shall be
collectively referred to herein as "Rent."
6. SECURITY DEPOSIT.
As security for the performance of this Sublease by Sublessee,
Sublessee shall pay a security deposit equal to the first and last months' Base
Rent $24,080.63 upon full execution of the sublease. To the extent such funds
are not otherwise applied under the terms of this Section 6, Sublessor shall
apply such Security Deposit to Rent due for the first and last months of the
Sublease term. Sublessor may apply all or any part of the Security Deposit to
the payment of any sum in default (beyond applicable notice and cure periods) or
any other sum which Sublessor may be required or may in its reasonable
discretion deem necessary to spend or
-2-
<PAGE>
incur by reason of Sublessee's default (beyond applicable notice and cure
periods). In such event, Sublessee shall, within five days of written demand
therefor by Sublessor, deposit with Sublessor the amount so applied. The amount
of the Security Deposit held by Sublessor at the expiration or sooner
termination of this Sublease and not applied by Sublessor under the provisions
of this Section 6 shall be repaid to Sublessee within 30 days after expiration
or sooner termination of this Sublease. Sublessor shall not be required to keep
any Security Deposit separate from its general funds and Sublessee shall not be
entitled to any interest thereon.
7. USE OF PREMISES
The Premises shall be used and occupied only for the uses allowed
under the Master Lease and for no other use or purpose.
8. ASSIGNMENT AND SUBLETTING
Sublessee shall not assign, mortgage, encumber or otherwise transfer
this Sublease or sublet the whole or any part of the Premises without in each
case first obtaining Sublessor's prior written consent, and the prior written
consent of the Landlord under the Master Lease, except that assignment to an
affiliate of Sublessee shall not require Sublessor's consent. Sublessor shall
not unreasonably withhold or delay its consent under this Section 8, except that
Sublessor may withhold in its absolute and sole discretion, its consent to any
mortgage, hypothecation, pledge or other encumbrance of any interest in this
Sublease or the Premises by Sublessee or any subtenant of Sublessee, whereby
this Sublease or any interest therein becomes collateral for any obligation of
Sublessee. In lieu of granting any such consent, Sublessor reserves the right
to terminate this Sublease, or in the case of subletting or assignment, in which
event Sublessor may elect to enter into the relationship of sublandlord and
subtenant with such proposed assignee or subtenant, based upon the rent and
other compensation and terms and conditions agreed to by such subtenant or
assignee and otherwise upon the terms and conditions of this Sublease. If there
is a partial termination of the Sublease pursuant to this Section 8, the Rent
payable hereunder shall be reduced based upon the square footage of the area
subject to the partial termination. In connection with each request for an
assignment or subletting, Sublessee shall pay the reasonable cost of processing
such assignment or subletting, including attorneys fees, upon demand of
Sublessor (not to exceed $1,000 in the aggregate). Sublessee shall provide
Sublessor with copies of all assignments, subleases and assumption instruments.
9. RIGHT OF FIRST NEGOTIATION
If Sublessor desires from time to time, during the terms of this
Sublease, to sublease additional portions of the Master Premises to someone
other than an affiliate or business associate (i.e., someone with whom Sublessor
or one or more of its affiliates has or expects to have a business relationship
other than one of Landlord and Tenant), Sublessor shall offer Sublessee a
continuing first right to negotiate a sublease for all such additional spaces
(each, an "Additional Space"). In such event, Sublessor shall give Sublessee
written notice indicating the portion of the Master Premises that will be
available, the timing of such availability, and proposed rental terms. In the
event Sublessee desires to sublease such Additional Space,
-3-
<PAGE>
Sublessee and Sublessor shall then negotiate in good faith all terms and
conditions of an amendment to the Sublease to include such Additional Space into
the Premises. If the parties fail, for any reason, to enter into such amendment
within thirty (30) days, then Sublessor shall be free to sublease the subject
space to others upon similar terms and conditions provided, however, such terms
and conditions offered to any third party shall not be more economically
favorable than those offered to Sublessee without first offering such Additional
Space to Sublease on such favorable terms and conditions (in such case Sublessee
shall have five (5) business days of written notice to accept the offer).
10. OTHER PROVISIONS OF SUBLEASE
All applicable terms and conditions of the Master Lease are
incorporated into and made a part of this Sublease as if fully set forth herein
except that references to "Landlord" and "Tenant" shall mean "Sublessor" and
"Sublessee" respectively and except that the following provisions of the Master
Lease shall not be incorporated into this Sublease:
(a) Subsections 1(b)(c)(d)(e)(f)(g)(h) and (j) are excluded
(b) Exhibit C is excluded except for paragraphs 2 (as modified by
Section 11 below), 3, 4 and 5
(c) Section 3 is superseded and replaced with Section 4 above
(d) Section 4 is excluded
(e) Section 5 is superseded and replaced with Section 5.1 above
(f) Section 10 is modified to be consistent with Section 5.2 above
(g) Section 27, 29 and 35(c) are excluded
(h) References to "Landlord" in Sections 13 and 26 of the Master
Lease shall mean Landlord under the Master Lease only and not
Sublessor.
In addition, the terms and conditions of Section 21 of the Master
Lease are incorporated as if Sublessee were the Tenant and the Sublease were the
Lease; except that a non-disturbance agreement shall not be required with
respect to this sublease.
Sublessee agrees to perform the Tenant's obligations under the Master
Lease (except such provisions as excluded or replaced as set forth above) during
the term of this Sublease, except that the obligation to pay Rent to Landlord
shall be considered performed by Sublessee to the extent Rent is paid to
Sublessor in accordance with Section 5 of this Sublease. Sublessee shall not
commit or suffer any act or omission that will violate any of the provisions of
the Master Lease. Sublessor shall exercise due diligence in attempting to cause
Landlord to perform its obligations under the Master Lease for the benefit of
Sublessee.
If the Master Lease terminates for any reason, this Sublease shall
terminate and the parties shall be relieved of any further liability or
obligation under this Sublease, provided, however, that if the Master Lease
terminates as a result of a default or breach by Sublessor or Sublessee under
this Sublease and/or the Master Lease, then the defaulting party shall be liable
to the nondefaulting party for the damage suffered as a result of such
termination. Sublessor shall not voluntarily terminate the Master Lease, except
as permitted in Sections 13 and 26 of the
-4-
<PAGE>
Master Lease. Notwithstanding the foregoing, if the Master Lease gives Sublessor
any right to terminate the Master Lease in the event of the partial or total
damage, destruction, or condemnation of the Master Premises or the Building of
which the Premises are a part, the exercise of such right by Sublessor shall not
constitute a default or breach hereunder. Notwithstanding the preceding
sentence, Sublessor shall not exercise any such right to terminate the Master
Lease in the event of damage, destruction or condemnation if Sublessee agrees in
writing, prior to the date upon which such termination notice must be given, to
assume all obligations of Sublessor under the Master Lease (including the full
rent and other monetary obligations thereunder) from and after the date upon
which Sublessor had the right to terminate the Master Lease.
11. IMPROVEMENTS TO PREMISES
(a) Sublessor shall provide to Sublessee a $5.00 per rentable square
foot tenant improvement allowance for the work as shown on Exhibit B (the "Floor
Plan"), which shall be credited toward rent beginning the month following
completion of such improvements. Sublessee shall be responsible for any and all
costs in excess of the $5.00 per rentable square foot allowance provided by
Sublessor.
(b) Subject to obtaining Landlord's written consent, Sublessor
consents to Sublessee's alteration of the Premises as indicated in the Floor
Plan, including the hard wall changes indicated on the Floor Plan, and changing
the existing wall color and carpet. The existing wood trim finish (including as
to color) shall not be changed, but pieces may be removed and new pieces
installed as needed to reconfigure the Premises as shown in the Floor Plan. Any
new trim pieces shall match the existing trim (including as to color) as close
as reasonably practical. Any and all tenant improvements shall be coordinated
through Landlord and are subject to the provisions of Section 11 of the Master
Lease. Sublessee shall provide additional plans and specifications for the
alterations as required by Landlord and shall not proceed with the alterations
until Landlord's written consent is obtained.
(c) Subject to the provisions of Section 13 of the Master Lease
relating to damage and destruction, upon expiration or sooner termination of
this Lease, Sublessee shall restore the three exterior offices marked on Exhibit
C (the "Restoration Offices") to substantially the same condition as they were
in when delivered to Sublessee, except that wall paint and carpet shall match
what is then used in the rest of the private offices in the Premises.
Notwithstanding the foregoing, Sublessor may subsequently elect to waive the
requirement that the Restoration Offices be restored. Such election shall only
be effective when and if written notice of such election is given by Sublessor
to Sublessee. Unless Sublessor subsequently waives the restoration requirement,
the provisions in Section 10(c) shall control over those of Section 22 of the
Master Lease with respect to the Restoration Offices.
(d) Sublessee may deliver to Sublessor items of wood trim, doors,
hardware and other such finish items for the Restoration Offices. Sublessor will
store such items during the term of this Sublease at its costs and return such
items to Sublessee for use in restoring the
-5-
<PAGE>
Restoration Offices as required by Section 10(c). If Sublessor subsequently
waives the restoration requirements in Section 10(c), Sublessor may then dispose
of the items stored under this Section 10(d), as Sublessor deems appropriate.
(e) If Sublessee's net worth drops below $100,000,000 (as indicated in
any publicly available financial statements) at any time during the term of this
Sublease and unless Sublessee has waived the restoration requirements in Section
10(c) of this Sublease, Sublessee shall immediately increase the Security
Deposit under Section 6 of this Sublease by $20,000. Notwithstanding the
provisions of Section 6, Sublessor shall not be required to apply the increased
deposit amount to the last month or months rent, and the increased amount may be
held by Sublessee until the Premises are returned as provided in Section 22 of
the Master Lease, as modified by Section 10(c) of this Sublease.
12. PARKING AND SIGNAGE
Sublessee shall be entitled to lease from Landlord four of the parking
stalls provided under Section 7 of the Master Lease during the term of this
Sublease. Sublessee shall be entitled to building standard suite and directory
signage.
13. BROKER PARTICIPATION
Sublessor and Sublessee warrant and represent that they have dealt
with no real estate broker in connection with this Sublease other than Pacific
Real Estate Partners, Inc. and Washington Partners, Inc. pursuant to separate
agreements, and that no other broker is entitled to any commission on account of
this Sublease.
14. ATTORNEY'S FEES
If Sublessor or Sublessee shall commence an action against the other
arising out of or in connection with this Sublease, the prevailing party shall
be entitled to recover its costs of suit and reasonable attorney's fees.
15. NOTICES
All notices and demands which may or are to be required or permitted
to be given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be delivered by hand or
sent by overnight courier or by United States Mail, postage prepaid, addressed
to the Sublessee at the Premises, and to the addresses herein below, or to such
other place as Sublessee may from time to time designate in a notice to the
Sublessor. All notices and demands by the Sublessee to Sublessor shall be sent
by United States Mail, postage prepaid, addressed to the Sublessor at the
address set forth herein, and to such other person or place as the Sublessor may
from time to time designate in a notice to the Sublessee.
-6-
<PAGE>
To Sublessor: SP Investments Inc.
1201 Third Avenue, Suite 5400
Seattle, WA 98101-3031
Attn: Legal Department
To Sublessee: Internet Capital Group, Inc.
1201 Third Avenue, Suite 5450
Seattle, WA 98101-3031
All notices and demands sent by United States Mail shall be deemed
delivered three business days after mailing, and those sent by overnight courier
shall be deemed delivered one business day after being deposited with an
overnight courier.
16. SUBLESSOR'S OBLIGATIONS
Sublessor shall fully perform all of its obligations under the Master
Lease to the extent Sublessee has not expressly agreed to perform such
obligations under the Sublease. Sublessor, with respect to the obligations of
Landlord under the Master Lease, shall use Sublessor's diligent good faith
efforts to cause Landlord to perform such obligations for the benefit of
Sublessee. Such diligent good faith efforts shall be satisfied by the
following: (a) upon Sublessee's written request, promptly notifying Master
Landlord of its nonperformance under the Master Lease, and requesting that
Landlord perform its obligations under the Master Lease; and (b) Sublessor shall
not unreasonably withhold consent to Sublessee to commence arbitration pursuant
to Paragraph 5 of Exhibit C of the Master Lease in Sublessor's name to obtain
the performance required from Landlord under the Master Lease; provided,
however, that if Sublessee commences an arbitration action, Sublessee shall pay
all costs and expenses incurred in connection therewith, and Sublessee shall
indemnify Sublessor against, and hold Sublessor harmless from, all reasonable
costs and expenses incurred by Sublessor in connection therewith.
17. CONSENT BY LANDLORD
This Sublease shall be of no force or effect unless consented to by
Landlord within 15 days after execution hereof. Such consent shall state, and
Sublessee hereby agrees, that the waiver of subrogation set forth in Section 14
and shall apply as between Landlord and Sublessee.
-7-
<PAGE>
18. COUNTERPART SIGNATURES
This document may be executed by the parties in counterpart and, when
so executed by all parties, all such original counterparts shall together
constitute a single binding document.
SUBLESSOR: SUBLESSEE:
SP INVESTMENTS INC. INTERNET CAPITAL GROUP, INC.
By: /s/ John M. Orelek By: /s/ Henry N. Nassau
----------------------------- -----------------------------
Its: President Its: Managing Director and
General Counsel
Date: 1/13/00 Date:
-8-
<PAGE>
STATE OF PENNSYLVANIA )
) ss
COUNTY OF CHESTER )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 6th day of January, 2000, before me personally appeared, Henry
Nassau to me known to be the ______________ of SP Investments Inc., a Washington
corporation, the corporation that executed the within and foregoing instrument,
and acknowledged the said instrument to be the free and voluntary act and deed
of said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument and that the seal
affixed, if any, is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year
first above written.
/s/ Carol J. Robey
-------------------
Notary Public in and for the State of Pennsylvania, residing at
______________________
My commission expires: 10/06/03
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 13th day of January, 2000, before me personally appeared, John
M. Orelek, to me known to be the President of SP Investments Inc., a Washington
corporation, the entity that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument and that the seal
affixed, if any, is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year
first above written.
/s/ Toni Fimiani
-----------------------------------
Notary Public in and for the State of Washington, residing at King Co.
My commission expires: 11/19/2000
-9-
<PAGE>
CONSENT BY LANDLORD
The undersigned, the Prime Landlord, joins in the execution of this
Sublease solely to evidence its consent to the subletting of the Premises
described herein, as such consent is required pursuant to the Prime Lease.
However, by this consent Prime Landlord does not approve or disapprove this
Sublease, and neither the execution of this Sublease nor anything done pursuant
to the provisions thereof shall be deemed or constructed to modify the Prime
Lease; and it is understood that SP Investments Inc. (Sublessor) remains liable
for its obligations under the Lease. This consent shall not be deemed to
increase the obligations or liabilities of the Prime Landlord, nor to reduce the
Prime Landlord's rights and remedies under the Prime Lease. This consent shall
not be deemed a consent to any other or further subletting. Notwithstanding the
foregoing, Prime Landlord hereby agrees that the waiver of subrogation
provisions set forth in Section 14 of the Prime Lease shall apply as between
Prime Landlord and Sublessee.
LANDLORD: THIRD AND UNIVERSITY LIMITED PARTNERSHIP,
a Washington limited partnership
By: 1212 SECOND AVENUE LIMITED PARTNERSHIP,
a Washington limited partnership,
Its General Partner
By: 1201 THIRD AVENUE LIMITED PARTNERSHIP,
a Washington limited partnership,
Its General Partner
By: WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a
Washington limited partnership,
Its General Partner
By: WRIGHT RUNSTAD & COMPANY, a
Washington corporation
Its General Partner
By: /s/ H. Jon Runstad
--------------------------------------
H. Jon Runstad
Chairman and Chief Executive
Officer
-10-
<PAGE>
PRIME LANDLORD ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss
COUNTY OF KING )
This is to certify that on this 20th day of January, 2000, before me
personally appeared H. Jon Runstad, to me known to be the Chairman and CEO of
WRIGHT RUNSTAD & COMPANY, a corporation to me known to be the general partner of
WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, a limited partnership, to me
known to be the general partner of 1201 THIRD AVENUE LIMITED PARTNERSHIP, a
limited partnership, to me known to be the general partner of 1212 SECOND AVENUE
LIMITED PARTNERSHIP, a limited partnership, to me known to be the general
partner of THIRD AND UNIVERSITY LIMITED PARTNERSHIP, the Washington limited
partnership that executed the within and foregoing instrument, and acknowledged
the said instrument and that the seal affixed, if any, is the corporate seal of
said corporation.
WITNESS my hand and official seal hereto affixed the day and year
first above written.
/s/ Nathan Paul Good
---------------------------------------
Notary Public in and for the State of Washington, residing at Seattle
My commission expires: 11/29/03
-11-
<PAGE>
Exhibit 21.1
Subsidiaries of Internet Capital Group, Inc.
--------------------------------------------
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation or Formation
- ---- ------------------------------------------
<S> <C>
Internet Capital Group Operations, Inc. Delaware
Internet Capital Group (Europe) Limited (f/k/a United Kingdom
IBIS (505) Limited)
ICG Holdings, Inc. Delaware
ICG Eumedix Holdings, LLC Delaware
TX.com Holdings, Inc. Delaware
PE.com Holdings Delaware
Satori, Inc. Delaware
1999 Internet Capital L.P. Delaware
ICG-Industrial America, Inc. Delaware
CapSpan LLC Delaware
CapSpan Services LLC Delaware
M-Holdings, Inc. Delaware
1999 Internet Capital (Europe) L.P. Delaware
Animated Images, Inc. Maine
Arbinet Holdings, Inc.1 Delaware
asseTrade.com, Inc. Delaware
Autovia Corporation Delaware
Benchmarking Partners, Inc. Massachusetts
BidCom, Inc. California
Blackboard, Inc. Delaware
Breakaway Solutions, Inc. Delaware
ClearCommerce Corporation Delaware
Collabria, Inc. Delaware
CommerceQuest, Inc. Florida
CommerX, Inc. Delaware
ComputerJobs.com, Inc. Georgia
Context Integration, Inc. Delaware
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation or Formation
- ---- ------------------------------------------
<S> <C>
CyberCrop.com, Inc. Delaware
Data West Corporation2 Delaware
Deja.com, Inc. Texas
e-Chemicals, Inc. Delaware
e-MarketWorld, Inc. Delaware
eMerge Interactive, Inc. Delaware
EmployeeLife.com California
Entegrity Solutions Corporation California
ICG Commerce, Inc. Delaware
Internet Commerce Systems, Inc. Delaware
iParts Inc. Delaware
iSky, Inc. Maryland
Jamcracker, Inc. Delaware
JusticeLink, Inc. Delaware
Linkshare Corporation Delaware
MetalSite, L.P. Delaware
NetVendor Inc. Delaware
Onvia.com, Inc. Delaware
PaperExchange.com LLC Delaware
PlanSponsor Exchange, Inc. Delaware
PrivaSeek, Inc. Delaware
Residential Delivery Services, Inc. Delaware
RetailExchange.com, Inc. Delaware
SageMaker, Inc. Delaware
Servicesoft Technologies, Inc. Delaware
StarCite! Solutions, Inc. Delaware
Syncra Software, Inc. Delaware
TRADEX Technologies, Inc. Delaware
traffic.com, Inc. Delaware
United Messaging, Inc. Delaware
Universal Access, Inc. Illinois
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation or Formation
- ---- ------------------------------------------
<S> <C>
Usgift.com Delaware
US Interactive, Inc. Delaware
VerticalNet, Inc. Pennsylvania
Vivant! Corporation Delaware
</TABLE>
- --------------------
1 Does business as "Arbinet Communications"
2 Does business as "CourtLink"
Unless otherwise provided, each of the subsidiaries above do business under
the same name.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,343,459
<SECURITIES> 3,359
<RECEIVABLES> 1,274
<ALLOWANCES> 67
<INVENTORY> 0
<CURRENT-ASSETS> 1,354,372
<PP&E> 4,692
<DEPRECIATION> 677
<TOTAL-ASSETS> 2,050,384
<CURRENT-LIABILITIES> 48,990
<BONDS> 569,435
0
0
<COMMON> 264
<OTHER-SE> 1,404,957
<TOTAL-LIABILITY-AND-EQUITY> 2,050,384
<SALES> 0
<TOTAL-REVENUES> 16,536
<CGS> 0
<TOTAL-COSTS> 8,156
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 67
<INTEREST-EXPENSE> 5,734
<INCOME-PRETAX> 32,573
<INCOME-TAX> 23,722
<INCOME-CONTINUING> (29,777)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,777)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
