<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST EVENT REPORTED: DECEMBER 29, 1999
-----------------
Internet Capital Group, Inc.
----------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-26929 23-2996071
- ------------------------------------ ------- ----------
State of Incorporation (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
435 Devon Park Drive, Building 800, Wayne, PA 19087
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 989-0111
--------------
(Registrant's telephone number)
<PAGE>
This Form 8-K/A amends the current Report on Form 8-K filed by Registrant dated
December 29, 1999 filed January 11, 2000.
Item 2.
Acquisition of Assets.
- ---------------------
On December 29, 1999, Internet Capital Group, Inc. (the "Company")
acquired an interest in MetalSite, L.P., a Delaware limited partnership
("MetalSite"), and an interest in MetalSite General Partner, LLC, a Delaware
limited liability company and the general partner of MetalSite (the "General
Partner"), pursuant to a Securities Purchase Agreement (the "Purchase
Agreement") between the Company and Weirton Steel Corporation, a Delaware
corporation ("Weirton"). The aggregate purchase price for these purchased
interests was $30,000,000 in cash and 852,631 shares of common stock of the
Company. The source of funds for the cash portion of the purchase price was the
Company's internal cash reserves.
MetalSite operates a Web site which acts as a venue for users to
exchange news and information, to purchase products and services, to participate
in auctions and to establish an electronic marketplace for the metals industry.
The General Partner operates as the general partner of MetalSite.
Pursuant to the Purchase Agreement, the Company acquired a Class A
limited partner interest in MetalSite representing a 44.42% interest on a
primary basis and a 35.35% interest on a fully-diluted basis. The Company also
acquired a Membership Interest in the General Partner representing a 47.26%
interest on a primary basis and a 39.72% interest on a fully-diluted basis. The
General Partner owns a 1% interest in MetalSite.
In addition, pursuant to the Purchase Agreement, the Company has been
granted options to purchase additional interests in MetalSite and the General
Partner upon the occurrence of certain events. In the event of a "change of
control" of Weirton (as defined in the Purchase Agreement) prior to completion
of an underwritten public offering of equity securities by MetalSite on the
terms described in the Purchase Agreement (a "MetalSite Public Offering"), the
Company will have the option to purchase any or all of Weirton's remaining
interest in MetalSite and a corresponding portion of Weirton's remaining
interest in the General Partner at a mutually agreed fair market value price or,
in the absence of agreement, an independently appraised fair market value price.
For a 30 day period commencing upon expiration of an interim period following a
MetalSite Public Offering, the Company will have the option to purchase an
additional 10% interest in MetalSite (determined on a pre-offering basis) at an
average market price based upon the trading prices of MetalSite's equity
securities during the ten-day period prior to notice of exercise of such option.
In the event of a "change of control" of Weirton after completion of a MetalSite
Public Offering, the Company will, if it has exercised its option to purchase
additional MetalSite securities described in the previous sentence (or if such
option has not yet become exercisable), have the option to purchase any or all
of Weirton's remaining
<PAGE>
interest in MetalSite at an average market price based upon the trading prices
of MetalSite's equity securities during the ten-day period prior to notice of
exercise of such option.
Under the terms of the Operating Agreement of the General Partner, the
Board of Directors of the General Partner consists of ten voting and one non-
voting members. The non-voting member is the Chief Executive Officer of
MetalSite. Initially, the Company will have the right to appoint two voting
members of the Board of Directors of the General Partner, Weirton will have the
right to appoint two voting members, and Weirton and the Company will jointly
appoint two voting directors. The remaining four voting directors will be
appointed by the other 2 limited partners of MetalSite. The Operating Agreement
of the General Partner provides that action by the Board of Directors in general
requires the affirmative vote of a number of directors equal to (i) the number
of directors appointed by Weirton and the Company that are present at the
meeting and not abstaining from such vote and (ii) two additional voting
directors.
In the event the Company acquires 50% or more of Weirton's remaining
Membership Interest in the General Partner or in the event the Company's
percentage interest in the General Partner otherwise exceeds 49.72% on a fully-
diluted basis, the Company will thereafter have the right to appoint four voting
directors, Weirton will have the right to appoint one voting director, one
voting director will be mutually appointed by Weirton and the Company, and the
remaining four voting directors will be appointed by the other limited partners
of MetalSite.
Each of the Limited Partnership Agreement of MetalSite and the
Operating Agreement of the General Partner contains provisions restricting
transfer of interests of MetalSite and the General Partner, respectively, rights
of first refusal and other provisions governing the relationship of the partners
of MetalSite and the members of the General Partner.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial Statements of MetalSite LLC
Report of Independent Public Accountants
Balance Sheets
Statements of Operations
Statements of Partners' Capital (Deficit)
Notes to Financial Statements
(b) Financial Statements of MetalSite as a component of Weirton Steel
Corporation
Report of Independent Public Accountants
Statements of Costs and Expenses
Notes to Financial Statements
(c) Pro Forma Financial Information
Pro Forma Financial Statements (unaudited): Basis of Presentation
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Consolidated Statements of Operations
Notes to Pro Forma Condensed Consolidated Financial Statements
(d) Exhibits
2.1 Securities Purchase Agreement dated as of December 28, 1999
between Weirton Steel Corporation and Internet Capital
Group, Inc. This exhibit contains a list of schedules to
the exhibit, all of which have been omitted. Upon request
of the Securities and Exchange Commission, the Company will
furnish a copy of it supplementally. *
99.1 Press release issued by the Company on December 29, 1999 *
*Filed as part of the Registrant's current Report on Form 8-K dated
December 29, 1999, filed January 11, 2000, and incorporated herein by
reference.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERNET CAPITAL GROUP, INC.
Dated: March 13, 2000 By: /s/ David D. Gathman
----------------------------------
David D. Gathman
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit No. Description Page Number
- ---------------------- ------------------------------------------------ -----------------------
<C> <S> <C>
2.1 Securities Purchase Agreement dated as of *
December 28, 1999 between Weirton Steel
Corporation and Internet Capital Group, Inc.
This exhibit contains a list of schedules to
the exhibit, all of which have been omitted.
Upon request of the Securities and Exchange
Commission, the Company will furnish a copy of
it supplementally.
99.1 Press release issued by the Company on December *
29, 1999
</TABLE>
*Filed as part of the Registrant's current Report on Form 8-K dated December 29,
1999, filed January 11, 2000, and incorporated herein by reference.
<PAGE>
MetalSite General Partner, LLC
Consolidated Financial Statements
for the Nine Months Ended September 30, 1999 (Unaudited)
And the Period from Inception (November 15, 1998)
Through December 31, 1998
Together with the Report of
Independent Public Accountants
<PAGE>
Report of Independent Public Accountants
To the Partners of
MetalSite General Partner, LLC:
We have audited the accompanying consolidated balance sheet of MetalSite General
Partner, LLC (a Delaware limited liability company) as of December 31, 1998 and
the related consolidated statements of operations, partners' capital and cash
flows for the period from Inception (November 15, 1998) through December 31,
1998. These financial statements are the responsibility of MetalSite General
Partner, LLC's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MetalSite General
Partner, LLC as of December 31, 1998, and the consolidated results of its
operations and its cash flows for the period from Inception (November 15, 1998)
through December 31, 1998 in conformity with accounting principles generally
accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that MetalSite General Partner, LLC will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, it is uncertain as
to whether the Partnership will generate sufficient cash flows from operations.
This factor raises substantial doubt about the Partnership's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Pittsburgh, Pennsylvania
January 12, 2000
<PAGE>
METALSITE GENERAL PARTNER, LLC
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
----------------------------------------
<TABLE>
<CAPTION>
September 30,
1999 December 31,
ASSETS (Unaudited) 1998
------ ----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,196,301 $ 1,129,323
Trade accounts receivable 395,894 789
Other receivables 5,516 -
Prepaid service arrangement, net of accumulated amortization of
$41,667 and $0, respectively 458,333 -
Prepaid expenses 47,427 2,194
----------------- -----------------
Total current assets 2,103,471 1,132,306
FIXED ASSETS:
Furniture and fixtures 2,000 1,967
Computer equipment and hardware 759,495 428,553
Accumulated depreciation (276,193) (30,293)
----------------- -----------------
Total fixed assets, net 485,302 400,227
OTHER ASSETS:
Notes receivable from employees 113,323 -
Deposits 18,669 25,100
Software and development costs, net of accumulated amortization of
$1,141,668 and $65,400, respectively 564,306 1,189,965
----------------- -----------------
Total other assets 696,298 1,215,065
----------------- -----------------
TOTAL ASSETS $ 3,285,071 $ 2,747,598
================= =================
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
CURRENT LIABILITIES:
Current portion of capital lease obligation $ 118,589 $ -
Accounts payable 67,295 594,502
Accrued incentives 271,876 -
Accrued interest 222,548 4,652
Other accrued liabilities 709,161 345,041
Deferred revenue 450 -
----------------- -----------------
Total current liabilities 1,389,919 944,195
LONG-TERM LIABILITIES:
Long-term portion of capital lease obligation 130,282 -
Loans from partners 4,826,566 1,826,566
----------------- -----------------
Total long-term liabilities 4,956,848 1,826,566
----------------- -----------------
MINORITY INTEREST IN LIMITED PARTNERSHIP 1,115,794 -
PARTNERS' CAPITAL (DEFICIT) (4,177,490) (23,163)
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) $ 3,285,071 $ 2,747,598
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METALSITE GENERAL PARTNER, LLC
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND FOR THE PERIOD FROM
--------------------------------------------------------------------
INCEPTION (NOVEMBER 15, 1998) THROUGH DECEMBER 31, 1998
-------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months From Inception
Ended (November 15,
September 30, 1998) through
1999 December 31,
(Unaudited) 1998
--------------------- ---------------------
<S> <C> <C>
REVENUES $ 1,022,216 $ 789
COST OF REVENUES 442,728 121,250
--------------------- ---------------------
Gross profit (loss) 579,488 (120,461)
--------------------- ---------------------
OPERATING EXPENSES:
Product development 1,785,115 456,079
Sales and marketing 1,369,137 255,000
General and administrative 2,264,400 168,103
Partnership interest based compensation 65,200 -
--------------------- ---------------------
Total operating expenses 5,483,852 879,182
--------------------- ---------------------
Loss from operations (4,904,364) (999,643)
--------------------- ---------------------
INTEREST EXPENSE, NET 213,537 4,652
--------------------- ---------------------
MINORITY INTEREST IN LOSS OF LIMITED PARTNERSHIP (949,406) (930,913)
--------------------- ---------------------
NET LOSS $ (4,168,495) $ (73,382)
===================== =====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METALSITE GENERAL PARTNER, LLC
------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND FOR THE
--------------------------------------------------------------------
PERIOD FROM INCEPTION (NOVEMBER 15, 1998) THROUGH DECEMBER 31, 1998
-------------------------------------------------------------------
PARTNERS' CAPITAL (DEFICIT), beginning balance at
Inception (November 15, 1998) $ -
Contributions 50,219
Net loss (73,382)
-----------
PARTNERS' CAPITAL (DEFICIT), December 31, 1998 (23,163)
-----------
Contributions 14,168
Net loss (4,168,495)
-----------
PARTNERS' CAPITAL (DEFICIT), September 30, 1999 $(4,177,490)
===========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METALSITE GENERAL PARTNER, LLC
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND FOR THE PERIOD FROM
--------------------------------------------------------------------
INCEPTION (NOVEMBER 15, 1998) THROUGH DECEMBER 31, 1998
-------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months From Inception
Ended (November 15,
September 30, 1998) through
1999 December 31,
(Unaudited) 1998
---------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,168,495) $ (73,382)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities-
Depreciation and amortization 1,284,401 95,693
Minority interest in loss of Limited Partnership (949,406) (930,913)
Amortization of deferred compensation 65,200 -
Changes in assets and liabilities-
Accounts receivable (395,105) (789)
Other receivables (5,516) -
Prepaid expenses (45,233) (2,194)
Other assets (106,892) -
Accounts payable (527,207) 594,502
Accrued expenses 853,892 349,693
Deferred revenue 450 -
---------------- ------------------
Net cash (used) provided by operating activities (3,993,911) 32,610
---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets, software, and development costs 453,279 1,685,885
Deposits - 25,100
---------------- ------------------
Cash used in investing activities (453,279) (1,710,985)
---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
General Partners' cash contributions 14,168 50,219
Limited Partners' cash contributions 1,500,000 930,913
Loans from partners 3,000,000 1,826,566
---------------- ------------------
Cash provided by financing activities 4,514,168 2,807,698
---------------- ------------------
Net increase in cash 66,978 1,129,323
Cash and cash equivalents, beginning of period 1,129,323 -
---------------- ------------------
Cash and cash equivalents, end of period $ 1,196,301 $ 1,129,323
================ ==================
NON-CASH TRANSACTIONS:
Purchase of equipment through capital lease $ 248,871 $ -
Contribution of prepaid service arrangement for Limited Partnership
Interest $ 500,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
METALSITE GENERAL PARTNER, LLC
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND FOR THE
--------------------------------------------------------------------
PERIOD FROM INCEPTION (NOVEMBER 15, 1998) THROUGH DECEMBER 31, 1998
-------------------------------------------------------------------
1. ORGANIZATION AND PARTNERSHIP AGREEMENT:
---------------------------------------
MetalSite General Partner, LLC ("MGP" or the "general partner") a Delaware
limited liability company owns a 1% interest in MetalSite, L.P. (the
"Partnership" or "MetalSite") a Delaware Limited Partnership and through the
provisions of the Third Amended and Restated Operating Agreement of MGP (the
"Agreement") controls MetalSite. MetalSite is a leading provider of business-to-
business electronic commerce solutions to the metals industry. MetalSite's
Internet-based marketplace permits raw material suppliers, integrated and mini-
mill producers, service centers, distributors, toll processors, brokers,
fabricators and original equipment manufacturers to efficiently buy and sell
metals products. The Partnership was in the development stage for the period
from Inception (November 15, 1998) through the first half of 1999.
Weirton Steel Corporation ("WSC"), LTV Steel Company ("LTV") and Steel Dynamics,
Inc. ("SDI") purchased their respective general partner and Partnership
interests on November 15, 1998. LTV and SDI were also granted warrants allowing
them to purchase additional limited partnership interests under specified terms
(see Note 8). As the period from the time of respective Partnership interest
purchase to December 31, 1998 is one and a half months, comparison to the nine-
month period ending September 30, 1999 is not meaningful.
For purposes of determining the ownership percentage of the Partnership, the
cost incurred by WSC prior to the initial capitalization of the Partnership, for
early development of the technology and intellectual property that supports the
Partnership's business, was included as a component of WSC ("Predecessor") and
was credited towards WSC's initial Partnership interest. To the extent that the
expenditures composing this investment included assets contributed to the
Partnership, these assets were accounted for using the net book value of the
assets transferred from WSC's books. For financial reporting purposes, however,
the amount contained in WSC's capital account excludes those costs that WSC
expensed prior to the initial capitalization of the Partnership.
On September 1, 1999, Ryerson Tull, Inc. ("RTI") purchased its respective
general partner and Partnership interests in exchange for cash and intellectual
property (see Note 2). Additionally on September 1, 1999, Bethlehem Steel
Corporation ("BSC") purchased its respective general partner and Partnership
interests in exchange for cash.
As of December 31, 1998, WSC, LTV and SDI were collectively the limited partners
of MetalSite. As of September 30, 1999, WSC, LTV, SDI, RTI, and BSC were
collectively the limited partners of MetalSite (the "Limited Partners").
<PAGE>
The Limited Partnership Agreement provides, among other things, for the
following:
Management
- ----------
The affairs of the Partnership are managed by MGP, its general partner.
Right of First Refusal
- ----------------------
Pursuant to the Limited Partnership Agreement of MetalSite L.P., a Class A
Partner (the "Selling Partner") shall have the right to sell all (but not less
than all) of its Class A interest in MetalSite ("Offered Interest") to a
bonafide third party provided that the Selling Partner first gives the
Partnership and the other Class A Partners (the "Non-Selling Partners") the
opportunity to purchase the Offered Interest. The Selling Partner shall give
written notice of any bona fide offer (the "Offer Notice") to MGP and each of
the Non-Selling Partners. Within 60 days following receipt of the Offer Notice,
the Partnership shall have the right to elect to purchase, at the same price and
on the same terms and conditions specified in the Offer Notice, the Offered
Interest.
Term and Dissolution
- --------------------
Pursuant to the Agreement of MGP, the Limited Partners shall not take part in
the control, direction or operation of the affairs of MGP other than to exercise
rights specifically provided in the Agreement, nor may the limited partners act
for or bind the MGP. At all times the sole control of the Partnership shall rest
exclusively with the general partner. Additionally, no prior consent or approval
of a limited partner is required for any act or transaction to be taken by the
general partner.
The term of the Partnership will continue until there is either (a) a sale or
distribution of all of MetalSite's assets, (b) a superceding of the original
partnership agreement or (c) a termination by dissolution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements are those of the general
partner and include the accounts of MGP and the Partnership. All significant
intercompany transactions have been eliminated in consolidation.
Basis of Presentation and Management's Plans
- --------------------------------------------
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and settlement of
liabilities in the ordinary course of business. Through September 30, 1999, MGP
has incurred a cumulative net loss of $4,241,877 and has yet to generate
significant revenues. Management anticipates that additional losses will be
incurred while MetalSite's website aggregates sufficient commercial activity to
cover its operating costs. Any substantial delay in the implementation of
management's plans or substantial unanticipated costs associated with its plans
(including delays in achieving sufficient commercial activity) could have an
adverse effect on MGP's financial condition. As such, it is uncertain as to
whether MetalSite will generate sufficient cash flows from operations. These
factors raise substantial doubt about MGP's ability to continue as
<PAGE>
a going concern. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Management's plans include achieving sufficient commercial activity to cover its
operating costs. Until this is achieved, the Partnership is dependent on the
continued funding of its Limited Partners. On September 1, 1999, management
obtained a Partnership Loan Facility from the Limited Partners to provide up to
a maximum of $6,000,000 to fund Partnership operations (see Note 4).
Minority Interest
- -----------------
Minority interest includes the Limited Partner's Class A partnership interests
in MetalSite, the value of warrants issued to two of the Limited Partners (see
Note 8) and deferred compensation associated with the Class B partnership
interests that were issued to certain members of the Partnership's management
under a Restricted Partnership Interest Plan (the "RPIP"). Losses are allocated
pro-rata to the Limited Partners until the minority interest balance is reduced
to zero. At that time, all remaining losses are allocated to the general
partner.
Below is a reconciliation of the minority interest in the Limited Partnership at
September 30, 1999:
<TABLE>
<S> <C>
Minority interest in Limited Partnership - December 31, 1998 $ -
Limited Partners' cash contributions 1,500,000
Contribution of prepaid service arrangement for capital 500,000
Amortization of deferred compensation 65,200
Minority interest in loss of Limited Partnership (949,406)
-------------
Minority interest in Limited Partnership - September 30, 1999 $ 1,115,794
=============
</TABLE>
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and money market funds. All cash
equivalents are recorded at cost, which approximates fair value.
Fixed Assets
- ------------
Fixed assets are stated at cost. Depreciation is computed using the straight-
line method to charge the cost of significant assets to income over their useful
lives. For purposes of this computation, the useful lives are assumed to be as
follows:
From Inception
(November 15, 1998)
to December 31, 1998
----------------------
Hardware and Software 3-5 years
Furniture and Fixtures 5 years
<PAGE>
Based upon the Partnership reassessment of hardware and software's useful life,
effective August 1, 1999, the Partnership changed the depreciable life of the
above assets as follows:
Internally Developed or Capitalized Software Costs 1.5 years
Externally Developed or Acquired Software and Hardware 2 years
The effect of the change in depreciable lives was an additional charge of
$399,660 to the statement of operations during the nine months ended September
30, 1999.
Capitalized Software Costs
- --------------------------
The Partnership capitalizes in accordance with SOP 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", certain
internal and external development costs that relate to the development of
internal use software that will provide benefits to future periods. These costs
are amortized over the shorter of their estimated useful life or 1.5 years.
Prepaid Service Agreement
- -------------------------
In connection with the sale of Class A partnership interest to RTI, MGP, RTI and
MetalSite have agreed that RTI shall provide certain of its consultants to
MetalSite to perform analysis, design, consulting, and/or support for one-year
from the date of RTI's investment. The consultants, in performing services,
provide MetalSite with their knowledge, experiences, expertise, ideas, know-how,
concepts and understandings, whether written or oral, to assist MetalSite with
the further development of its catalog technology. The fair value of this
prepaid service agreement ($500,000) is being amortized over the life of the
agreement (one-year).
Revenue Recognition
- -------------------
MetalSite recognizes revenue from three types of occurrences conducted on or
over its website: (1) fixed transaction fees for items with a set selling price
at the time the seller accepts the buyer's order, (2) auction transaction fees
derived from the highest bid received above seller specific reserve prices at
the time an auction is closed and (3) advertising fees for posted customer
advertisements at the time the service is performed. The specific reserve price
in (2) above is defined as the bid price that must be received from the buyer
before MetalSite is entitled to revenue. The seller, prior to placing a product
for auction on the site, sets the reserve price.
Cost of Revenues
- ----------------
Cost of revenues consist primarily of the costs for hosting services provided by
MetalSite's internet service provider for daily use of its server and employee
costs.
Income Taxes
- ------------
No provision for income taxes has been made in the financial statements as MGP
is not subject to income tax. The tax effects of MGP and the Partnership's
operations accrue to its Partners.
<PAGE>
Use of Estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. NOTES RECEIVABLE FROM EMPLOYEES:
--------------------------------
In connection with the Class B partnership interests that were issued at a
discount to certain members of the Partnership's management under the RPIP, the
Partnership recorded $113,323 in nonrecourse loans to these employees for tax
payments the Partnership remitted to the government upon Class B partnership
interest grant. The interest on these loans is recourse. These loans bear
interest at 5% and are due in four equal annual installments beginning April 17,
2000 (see Note 10).
4. RELATED PARTY TRANSACTIONS:
---------------------------
Revenues
- --------
As of December 31, 1998, the Partnership's exclusive revenue provider was WSC, a
Limited Partner. As a result, the trade receivable recorded as of December 31,
1998 was solely from WSC. Subsequent to December 31, 1998, the Partnership began
facilitating the sale of metal for other Limited Partners and new sellers
recording transaction fee revenue and the resultant trade receivables from these
sellers.
Note Payable to WSC
- -------------------
The Partnership received $1,826,566 in loans from WSC during the period from
Inception (November 15, 1998) through December 31, 1998. The loans bear interest
at an 8% fixed rate per annum and provide for the liquidation of principal
balances on December 31, 2001. These loans are secured by a lien on the assets
of the Partnership and are subordinated to the Partnership Loan Facility
discussed below. Among other restrictions, the Partnership will be deemed to be
in an "Event of Default" under the agreement if principal, interest, or other
indebtedness under the note payable agreement with WSC is not paid when due.
Included in the accompanying consolidated balance sheets related to the WSC
loans is accrued interest of $113,947 and $4,652 as of September 30, 1999 and
December 31, 1998, respectively. Interest expense for the nine months ended
September 30, 1999 and the period from Inception (November 15, 1998) through
December 31, 1998, was $109,295 and $4,652, respectively.
Partnership Loan Facility
- -------------------------
On September 1, 1999, the Limited Partners established a Partnership Loan
Facility (the "Facility") to provide working capital to fund the Partnership's
operations. Under the terms of this Facility, the Partnership can borrow up to a
maximum of $6,000,000. The Facility provides that upon the request of the
Partnership, each Limited Partner will make loans to the Partnership in
proportion to their respective ownership interests. These loans bear interest at
the PNC Bank prime interest rate plus 1%. Accrued interest and principal
balances are payable at maturity, which is March 26, 2001. Loans made under this
facility are secured by a lien on accounts receivable and fixed assets of the
Partnership and are subordinated to future bank
<PAGE>
borrowings. The amount outstanding under the facility at September 30, 1999 was
$3,000,000. Among other restrictions, the Partnership will be deemed to be in an
"Event of Default" under the Facility if principal, interest, or other
indebtedness under the agreement is not paid when due. Additionally, the
accompanying September 30, 1999 consolidated balance sheet includes accrued
interest of $108,601 for outstanding amounts due under the Facility. This also
represents the amount of interest expense incurred for the nine months ended
September 30, 1999.
Warrants
- --------
Upon the earlier of (1) the date by which both LTV and SDI shall have exercised
their warrants to purchase Partnership interest or (2) April 1, 2001, if a
warrant in the Partnership previously expires without being exercised, WSC shall
be required to make an additional capital contribution equal to the appraised
value of the Partnership as of December 31, 1998, minus any capital
contributions made by any of the Limited Partners through such date to the
extent such appraised value of the Partnership exceeds the aggregate capital
contributions made to the Partnership. As of September 30, 1999 and December 31,
1998, no additional capital contributions were required.
Leases
- ------
From its Inception (November 15, 1998) through September 30, 1999, the
Partnership occupied facilities which were leased by WSC. WSC's monthly lease
payment was recorded as a payable to WSC on the Partnership's balance sheet. On
July 12, 1999, this lease was assigned to the Partnership and the Partnership
began making payments directly to the lessor (see Note 7). WSC has remained a
guarantor of this lease agreement.
WSC has guaranteed a lease facility that the Partnership has used to purchase
furniture for its offices. The maximum credit that will be extended under this
facility is $175,000. As of September 30, 1999 and December 31, 1998, the
Partnership had leased office furniture under this facility totaling
approximately $175,000 and $83,000, respectively. This lease facility is
accounted for as an operating lease by the Partnership.
5. TECHNOLOGY LICENSE AGREEMENT:
-----------------------------
WSC developed the intellectual property and business processes ("Intellectual
Property") that support the MetalSite website. Because this information is
critical to the Partnership's operation, WSC has entered into a technology
licensing agreement with the Partnership. This license allows the Partnership
worldwide, royalty free and irrevocable usage of WSC's Intellectual Property in
the metals industry. Upon a Transfer Event, as defined, WSC shall automatically
assign all right, title and interest in and to the Intellectual Property to the
Partnership free and clear of any claim, suit, proceedings, security interest,
pledge or lien or encumbrance of any kind or nature. A Transfer Event, as
defined by the technology licensing agreement is the earlier of (1) an initial
public offering of securities by MetalSite; or (2) two years from the effective
date of the agreement which is August 27, 1999.
<PAGE>
6. EMPLOYEE BENEFIT AND INCENTIVE PLANS:
-------------------------------------
The Partnership has established a 401(K) retirement program to provide the
opportunity for substantially all employees to invest pretax earnings towards
their retirement. The Partnership's program provides for the possibility of
matching contributions up to a specified limit based on the extent to which the
Partnership achieves financial and operating goals. No matching contributions
were made to this Program during the nine months ended September 30, 1999 or the
period from Inception (November 15, 1998) through December 31, 1998.
The Partnership has also established various incentive bonus plans for its
employees during 1999. No payments were made under these plans during the nine
months ended September 30, 1999. MetalSite accrued $271,876 for these plans at
September 30, 1999.
7. LEASES:
-------
The Partnership leases certain office space and office furniture under operating
leases. The following is a schedule of future minimum rental payments required
under non-cancelable operating leases:
September 30,
1999
-------------
1999 $ 115,000
2000 510,000
2001 226,000
2002 19,000
-------------
Total $ 870,000
=============
Rental expense for all operating leases was approximately $237,000 and $33,000
for the nine months ended September 30, 1999 and the period from Inception
(November 15, 1998) through December 31, 1998, respectively. Future minimum
lease payments include facility lease payments for office space subleased from
WSC subsequent to December 31, 1998 (see Note 4).
In August 1999, MetalSite entered into a capital lease with Exodus, an internet
service provider, for a website server and related hardware. Under the terms of
the lease, MetalSite is required to make twenty-four monthly payments of $14,364
through October 31, 2001. An asset and corresponding obligation were recorded
for an amount equal to the present value of minimum lease payments at the
beginning of the lease term, excluding that portion of the payments representing
executory costs to be paid by the lessor. Payments were discounted using a 9%
interest rate, which approximated MetalSite's incremental borrowing rate at the
time the lease was executed. The principal balance outstanding under this lease
agreement was $248,871 at September 30, 1999.
<PAGE>
Future minimum payments by year and in the aggregate, under capital leases
consist of the following at September 30, 1999:
1999 $ 28,728
2000 172,368
2001 143,640
---------
Total minimum lease payments 344,736
Less- Amounts for executory costs (51,110)
Less- Amounts representing interest (44,755)
---------
Present value of net minimum lease payments 248,871
Less- Amounts due within one year (118,589)
---------
Long-term capital lease obligations $ 130,282
=========
8. WARRANTS OUTSTANDING:
---------------------
In connection with their purchase of an initial Partnership interest, two of the
Partnership's limited partners, LTV and SDI obtained nontransferable warrants to
purchase additional partnership interests. These warrants allow LTV and SDI to
acquire additional partnership interests sufficient to double their initial
Partnership interests. These warrants may be exercised at any time between
January 1, 1999 and March 31, 2001 and allow the additional interests to be
purchased for a price based upon a valuation of the Partnership as of December
31, 1998. The warrants entitle the holder to a discount on their exercise price
("Discount") based on tonnage the holder sells over the MetalSite website during
the twelve months preceding the exercise. As of September 30, 1999 and December
31, 1998, these warrants remain unexercised. Additionally, as of December 31,
1998, neither LTV nor SDI met the tonnage requirements to receive a Discount. At
the point in time that it becomes probable that LTV and SDI will achieve the
tonnage targets, MetalSite will begin to accrete the Discount with a charge to
transaction fee discount expense and a corresponding credit to warrants
outstanding. At September 30, 1999 and December 31, 1998, warrants outstanding
totaled $74,250.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND MARKET RISKS:
-----------------------------------------------------
Statement of Financial Accounting Standards No. 107 "Fair Value of Financial
Instruments" requires disclosures about fair value for all financial statements.
The $1,826,566 in loans from WSC bears interest at an 8% fixed rate per annum,
with principal paid at maturity. The $3,000,000 outstanding from the Partnership
Loan Facility bears interest at the PNC Bank prime rate plus 1%, with principal
paid at maturity. The variable rate debt approximates current rates available to
MetalSite for such debt, and accordingly the fair value of such floating rate
debt approximates the current carrying amount. At September 30, 1999 and
December 31, 1998, it is not practicable to determine the fair value of the
fixed rate debt.
10. MANAGEMENT OWNERSHIP PLAN:
--------------------------
During 1999, the Partnership established a Management Ownership Plan ("MOP") to
provide incentive to key employees of the Partnership to (i) achieve high levels
of performance, and (ii) increase earnings and value of the Partnership. The MOP
seeks to accomplish these goals by
<PAGE>
providing a means whereby such employees may acquire Class B interests in the
Partnership through the grant of Class B interests or the exercise of Class B
options.
The grant of a Class B interest by the Partnership or the purchase of a Class B
interest pursuant to the exercise of a Class B option under the MOP shall cause
WSC's percentage interest in MetalSite (and a proportionate amount of their
capital account) to decrease by the same amount as the grant or purchase of such
Class B interest.
To the extent that the Limited Partners are allowed to sell any Class A
interests in MetalSite, or other securities into which the Class A interests may
convert in a registered offering, the Class B Partners shall have the right to
convert their respective Class B interest, or other securities into which the
Class B interest may convert, into Class A securities and sell in the same
registered offering, on the same terms as the Limited Partners. Each Class B
Partner's right to sell pursuant to the foregoing shall be in proportion to the
percentage of all Class A securities held by all Class B Partners that such
Class B Partner holds. If the Partnership engages in an initial public offering
("IPO") of securities other than the Class B interests, the Class B Interests
shall convert into the security being offered in the IPO immediately prior to
the IPO.
Under the provisions of the MOP, ownership interests totaling up to 10% will be
transferred to employees. On April 17, 1999 the Class B partnership interests
totaling 5% were issued to certain members of the Partnership's management under
the RPIP, which is a component of the MOP. The RPIP provides for ownership of
the Partnership interests to vest over a four-year period, with the potential
for accelerated vesting under certain circumstances. The Class B partnership
interests were recorded as deferred compensation at the appraised value on the
date of grant ($250,000) in the accompanying consolidated statements of
partners' capital (deficit). The deferred compensation is being amortized over
the four-year vesting period. The total compensation cost recognized in the
accompanying consolidated statement of operations for the nine months ended
September 30, 1999 was $65,200.
Under the Class B Option Award Plan (the "Plan"), which is a component of the
MOP, the Partnership may grant options for up to 1,000,000 units. The
Partnership's Board of Directors or its designee determines the option price and
vesting requirements. During the nine months ended September 30, 1999, the
Partnership granted 374,500 options at a price of $0.50 per unit. Under the
Plan, the option exercise price equals the unit's appraised value on the date of
grant. The Class B option granted under the Plan may only be exercised in its
entirety and only after the end of the applicable Plan Period, as defined in
each Class B Option Award Agreement, while the recipient is employed by the
Partnership, but in no event greater than 10 years from the award date.
1999 activity under the Class B Option Award Plan is summarized below:
Weighted
Average
Units Exercise Price
------------ -----------------
Options outstanding at January 1, 1999 - $ -
Granted - Class B Option Award Plan 374,500 0.50
Forfeited - -
Exercised - -
------------ -----------------
Outstanding at September 30, 1999 374,500 $ 0.50
Exercisable at September 30, 1999 - -
Weighted Average fair vale of option
granted - $ 0.13
<PAGE>
The Partnership accounts for the Class B Option Award Plan by application of APB
No. 25, "Accounting for Stock Issued to Employees" and related Interpretations.
Had compensation cost for the Class B Option Plan been determined based upon the
fair value at the grant dates consistent with SFAS No. 123, "Accounting for
Stock Based Compensation", the Partnership would have recorded additional
compensation expense in the amount of $50,322.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1999:
<TABLE>
<CAPTION>
9/29/99 9/27/99 9/15/99 9/2/99
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Risk free interest rate 5.68% 5.62% 5.67% 5.74%
Expected dividend yield 0% 0% 0% 0%
Expected life of options 2 years 2 years 2 years 2 years
Expected volatility rate 40% 40% 40% 40%
</TABLE>
11. NEW ACCOUNTING PRONOUNCEMENTS:
------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. In June 1999, the FASB issued Statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133", which amends Statement 133 to be effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. Management
does not believe that the adoption of Statement 133 will have a material impact
on MGP's financial position or its results of operations.
On December 3, 1999 the SEC staff released Staff Accounting Bulletin No. 101,
"Revenue Recognition" ("SAB No. 101"), to provide guidance on the recognition,
presentation and disclosure of revenue in financial statements. SAB No. 101
explains the SEC staff's general framework for revenue recognition, stating that
four criteria need to be met in order to recognize revenue. The four criteria,
all of which must be met, are:
. There must be persuasive evidence of an arrangement;
. Delivery must have occurred or services must have been rendered;
. The selling price must be fixed or determinable; and
. Collectibility must be reasonably assured.
SAB No. 101 does not change existing literature on revenue recognition. SAB No.
101 states that changes in accounting to apply the guidance contained therein
may be accounted for as a change in accounting principle under APB Opinion No.
20, "Accounting Changes". The new standard did not require management to change
existing revenue recognition policies and therefore had no impact on reported
financial position and results of operations.
<PAGE>
12. SUBSEQUENT EVENTS:
------------------
On December 29, 1999, Internet Capital Group, Inc. ("ICG") purchased its
respective general partner and Partnership interests from WSC, pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") between ICG and WSC.
Pursuant to the Purchase Agreement, ICG acquired a Class A limited partner
interest in MetalSite representing a 44.42% interest on a basic per unit basis
and a 35.35% interest on a diluted per unit basis. ICG also acquired a
Membership Interest in the general partner representing a 47.26% interest on a
basic per unit basis and a 39.72% interest on a diluted per unit basis.
In addition, pursuant to the Purchase Agreement, ICG has been granted options to
purchase additional interests in MetalSite and the general partner from WSC upon
the occurrence of certain events, as defined in the Purchase Agreement. Further,
ICG will have the right to appoint two voting members of the Board of Directors
of the general partner.
<PAGE>
MetalSite as a Component of
Weirton Steel Corporation
Financial Statements for
The Period from January 1, 1998 to
November 15, 1998 and for the Year Ended
December 31, 1997
Together with the Report of
Independent Public Accountants
<PAGE>
Report of Independent Public Accountants
To the Board of Directors of
Weirton Steel Corporation:
We have audited the accompanying statements of costs and expenses of MetalSite
as a Component of Weirton Steel Corporation for the period from January 1, 1998
to November 15, 1998 and for the year ended December 31, 1997. These financial
statements are the responsibility of Weirton Steel Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of costs and expenses referred to above present
fairly, in all material respects, the costs and expenses of MetalSite as a
Component of Weirton Steel Corporation for the period from January 1, 1998 to
November 15, 1998 and for the year ended December 31, 1997, in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 12, 2000
1
<PAGE>
METALSITE AS A COMPONENT OF
---------------------------
WEIRTON STEEL CORPORATION
-------------------------
STATEMENTS OF COSTS AND EXPENSES
--------------------------------
FOR THE PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 15, 1998 AND
------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
Period From
January 1, 1998
To November 15, December 31,
1998 1997
------------------ --------------
COSTS AND EXPENSES:
Product Development $ 2,110,563 $ 805,111
Sales and Marketing 324,753 80,053
General and Administrative 655,918 109,475
------------------ --------------
Total Costs and Expenses $ 3,091,234 $ 994,639
================== ==============
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
METALSITE AS A COMPONENT OF
---------------------------
WEIRTON STEEL CORPORATION
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 15, 1998 AND
------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
1. BASIS OF PRESENTATION:
---------------------
The accompanying financial statements represent the financial information of
MetalSite as a Component of Weirton Steel Corporation (the "Component"). The
costs and expenses of the Component were funded by Weirton Steel Corporation and
accordingly, no balance sheets or statements of cash flows are presented for the
Component. The statements of costs and expenses represent the Component's share
of total spending by Weirton Steel Corporation on behalf of the Component for
the respective periods presented. There was no activity related to the Component
prior to January 1, 1997.
On November 15, 1998, Weirton Steel Corporation, LTV Steel Company and Steel
Dynamics, Inc. purchased their respective interests in MetalSite General
Partner, LLC and MetalSite, L.P., at which time, the Component ceased to exist.
2. RESEARCH AND DEVELOPMENT:
-------------------------
The costs incurred for the Component primarily represent research and
development type expenditures related to the creation of the infrastructure of
the Component and were incurred prior to the establishment of technical
feasibility and were therefore expensed as incurred.
3
<PAGE>
INTERNET CAPITAL GROUP, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
During 1998, 1999 and 2000, the Company acquired significant minority
ownership interests in 39 Partner Companies accounted for under the equity
method of accounting. In October 1999, the Company acquired a majority ownership
interest in Animated Images, Inc. In October 1999, the Company acquired a
majority ownership interest in Purchasing Solutions, Inc. In October 1999,
Purchasing Solutions, Inc. acquired all of the assets of Purchasing Group, Inc.
and Integrated Sourcing, LLC, two related businesses. In December 1999, the
Company acquired a significant minority ownership interest in MetalSite LLC for
total purchase consideration of $180.2 million. In March 2000, the Company
entered into an agreement to acquire a majority ownership interest in
RightWorks. All acquisitions have been accounted for using the purchase method
of accounting. In addition, the Company deconsolidated VerticalNet, Inc.
subsequent to December 31, 1998 and Breakaway Solutions, Inc. subsequent to
September 30, 1999 due to the decrease in the Company's voting ownership
percentage in each company from above to below 50%.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1998 gives effect to the acquisition of a significant
minority ownership interest in MetalSite LLC, the acquisitions of Animated
Images, Inc., RightWorks, Purchasing Solutions, Inc., Purchasing Group, Inc. and
Integrated Sourcing, LLC, the deconsolidation of VerticalNet, Inc, the 1998,
1999 and 2000 acquisitions of significant minority ownership interests in 39
equity method Partner Companies, and the acquisition of the Company's ownership
interest in Breakaway Solutions, Inc. as a company accounted for under the
equity method as if the transactions had occurred on January 1, 1998. As
Breakaway Solutions, Inc. was initially acquired in the first quarter of 1999,
no pro forma adjustments to the 1998 financial statements are necessary to
reflect its deconsolidation subsequent to September 30, 1999.
The unaudited pro forma condensed combined statement of operations for the
nine months ended September 30, 1999 gives effect to the acquisition of a
significant minority ownership interest in MetalSite LLC., the acquisitions of
Animated Images, Inc., RightWorks, Purchasing Solutions, Inc., Purchasing Group,
Inc. and Integrated Sourcing, LLC, the 1999 and 2000 acquisitions of significant
minority ownership interests in 31 equity method Partner Companies, and the
acquisition of the Company's ownership interest in Breakaway Solutions, Inc. as
a company accounted for under the equity method as if the transactions had
occurred on January 1, 1998. As VerticalNet, Inc. was deconsolidated in the
first quarter of 1999, no pro forma adjustments to the consolidated statement of
operations for the nine months ended September 30, 1999 are necessary to reflect
its deconsolidation.
The unaudited pro forma condensed combined balance sheet as of September
30, 1999 gives effect to the acquisition of a significant minority ownership
interest in MetalSite LLC, the
<PAGE>
acquisitions of Animated Images, Inc., RightWorks, Purchasing Solutions, Inc.,
Purchasing Group, Inc. and Integrated Sourcing, LLC, the deconsolidation of
Breakaway Solutions, Inc., and the acquisitions during the period from October
1, 1999 through March 6, 2000 of significant minority ownership interests in
seventeen new and eighteen existing equity method Partner Companies as if the
transactions had occurred on September 30, 1999.
The unaudited pro forma condensed combined financial statements have been
prepared by the management of the Company and should be read in conjunction with
the Company's historical consolidated financial statements previously filed with
the Securities and Exchange Commission, and the historical consolidated
financial statements of MetalSite LLC. Since the unaudited pro forma financial
statements which follow are based upon the financial condition and operating
results of MetalSite LLC, Animated Images, Inc., RightWorks, Purchasing
Solutions, Inc., Purchasing Group, Inc., Integrated Sourcing, LLC and the equity
method Partner Companies acquired during periods when they were not under the
control or management of the Company, the information presented may not be
indicative of the results which would have actually been obtained had the
acquisitions been completed for the dates reflected nor are they indicative of
future financial or operating results. The unaudited pro forma financial
information does not give effect to any synergies that may occur due to the
integration of the Company with Animated Images, Inc., RightWorks, Purchasing
Solutions, Inc., Purchasing Group, Inc., Integrated Sourcing, LLC, MetalSite LLC
and the other equity method Partner Companies.
<PAGE>
INTERNET CAPITAL GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Internet
-------------
CAPITAL Breakaway Pro Forma Sub-
------------- ---------------- ------------------ ---------------
GROUP, INC. DECONSOLIDATION Adjustments TOTAL
------------- ---------------- ------------------ ---------------
Assets
Current Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents ................ $186,137,151 $ (7,747,165) $(109,446,186)b $ 47,745,289
(38,943,800)c
17,745,289 c
Short-term investments ................... 22,845,079 -- (22,845,079)b --
Accounts receivable, less allowance for
doubtful accounts ....................... 8,531,879 (8,531,879) 6,044,352 c 6,044,352
Prepaid expenses and other current
assets .................................. 7,024,086 (5,077,192) 4,240,136 c 6,187,030
------------ ------------ ----------------- --------------
Total current assets ..................... 224,538,195 (21,356,236) (143,205,288) 59,976,671
Fixed assets, net ........................ 6,169,802 (4,465,033) 596,413 c 2,301,182
Ownership interests in and advances to
Partner Companies ....................... 168,690,379 -- 904,280,055 b 1,084,359,463
11,389,029 d
Available-for-sale securities ............ 19,233,805 -- -- 19,233,805
Intangible assets, net ................... 22,854,350 (13,731,600) 899,932,097 c 902,193,429
(6,861,418)d
Deferred taxes ........................... 18,845,639 -- -- 18,845,639
Other .................................... 9,895,199 (274,641) 132,558 c 9,753,116
------------ ------------ ----------------- --------------
Total Assets .............................. $470,227,369 $(39,827,510) $1,666,263,446 $2,096,663,305
============ ============ ================= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt ..... $ 735,885 $ (735,885) $ 4,141,625 c $ 54,141,625
50,000,000 b
Accounts payable ......................... 4,478,916 (3,720,060) 9,009,547 c 9,768,403
Accrued expenses ......................... 10,336,185 (6,113,895) -- 4,222,290
Notes payable to Partner Company ......... -- -- 271,988,790 b 271,988,790
Deferred revenue ......................... 117,523 (117,523) -- --
Convertible note ......................... 8,499,942 -- -- 8,499,942
------------ ----------------- --------------
Total current liabilities ................ 24,168,451 (10,687,363) 335,139,962 348,621,050
Long-term debt ........................... 1,633,360 (1,633,360) 6,552,481 c 6,552,481
Deferred taxes ........................... -- -- 229,950,000 c 229,950,000
Minority interest ........................ 25,908,961 -- 5,093,392 c 8,023,177
(22,979,176)d
SHAREHOLDERS' EQUITY
1,085,000,000 b,c
Total shareholders' equity ............... 418,516,597 (27,506,787) 27,506,787 d 1,503,516,597
------------ ------------ ----------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ................................... $470,227,369 $(39,827,510) $1,666,263,446 $2,096,663,305
============ ============ ================= ==============
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
MetalSite ---------------
Acquisition COMBINED
----------------- ---------------
<S> <C> <C>
Cash and cash equivalents ................ $(30,000,000)a $ 17,745,289
Short-term investments ................... -- --
Accounts receivable, less allowance for
doubtful accounts ....................... -- 6,044,352
Prepaid expenses and other current
assets .................................. -- 6,187,030
---------------- --------------
Total current assets ..................... (30,000,000) 29,976,671
Fixed assets, net ........................ -- 2,301,182
Ownership interests in and advances to
Partner Companies ....................... 180,169,635a 1,264,529,098
Available-for-sale securities ............ -- 19,233,805
Intangible assets, net ................... -- 902,193,429
Deferred taxes ........................... -- 18,845,639
Other .................................... -- 9,753,116
---------------- --------------
Total Assets .............................. $150,169,635 $2,246,832,940
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt ..... -- $ 54,141,625
Accounts payable ......................... -- 9,768,403
Accrued expenses ......................... -- 4,222,290
Notes payable to Partner Company ......... -- 271,988,790
Deferred revenue ......................... -- --
Convertible note ......................... -- 8,499,942
---------------- --------------
Total current liabilities ................ -- 348,621,050
Long-term debt ........................... -- 6,552,481
Deferred taxes ........................... -- 229,950,000
Minority interest ........................ -- 8,023,177
SHAREHOLDERS' EQUITY
Total shareholders' equity ............... 150,169,635a 1,653,686,232
---------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY ................................... $150,169,635 $2,246,832,940
================ ==============
</TABLE>
<PAGE>
INTERNET CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended December 31, 1998
<TABLE>
<CAPTION>
Internet
-------------
CAPITAL VerticalNet Pro Forma
------------- ---------------- ---------------
GROUP, INC. DECONSOLIDATION ADJUSTMENTS Sub-Total
------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 3,134,769 $ (3,134,769) 8,381,728 f $ 8,381,728
------------ ------------ -------------- -------------
OPERATING EXPENSES
Cost of revenue ...................... 4,642,528 (4,642,528) -- --
Selling, general and administrative .. 15,513,831 (12,001,245) 234,880,527 f 238,393,113
------------ ------------ -------------- -------------
Total operating expenses ............. 20,156,359 (16,643,773) 234,880,527 238,393,113,
------------ ------------ -------------- -------------
(17,021,590) 13,509,004 (226,498,799) (230,011,385)
Other income, net ...................... 30,483,177 -- -- 30,483,177
Interest income ........................ 1,305,787 (212,130) 16,506 f 1,110,163
Interest expense ....................... (381,199) 297,401 (26,812,047)g (26,895,845)
------------ ------------ -------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY INCOME
(LOSS) ................................ 14,386,175 13,594,275 (253,294,340) (225,313,890)
Income taxes ........................... -- -- -- h --
Minority interest ...................... 5,381,640 -- (3,862,121)f,j 1,519,519
Equity income (loss) ................... (5,868,887) -- (270,515,608)g (276,384,495)
------------ ------------ -------------- -------------
NET INCOME (LOSS) ...................... $ 13,898,928 $ 13,594,275 $(527,672,069) $(500,178,866)
============ ============ ============== =============
NET INCOME (LOSS) PER SHARE
Basic ................................. $0.12
Diluted ............................... $0.12
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ................................. 112,204,578
Diluted ............................... 112,298,578
</TABLE>
<TABLE>
<CAPTION>
MetalSite Pro Forma
-------------- ---------------
ACQUISITION COMBINED
-------------- ---------------
<S> <C> <C>
Revenue -- 8,381,728
------------- -------------
OPERATING EXPENSES
Cost of revenue ...................... -- --
Selling, general and administrative .. -- 238,393,113
------------- -------------
Total operating expenses ............. -- 238,393,113
------------- -------------
-- (230,011,385)
Other income, net ...................... -- 30,483,177
Interest income ........................ -- 1,110,163
Interest expense ....................... -- (26,895,845)
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY INCOME
(LOSS) ................................ -- (225,313,890)
Income taxes ........................... -- h --
Minority interest ...................... -- 1,519,519
Equity income (loss) ................... (62,025,657)e (338,410,152)
------------- -------------
NET INCOME (LOSS) ...................... $(62,025,657) $(562,204,523)
============= =============
NET INCOME (LOSS) PER SHARE
Basic ................................. $(4.56)
Diluted ............................... $(4.56)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ................................. 123,401,816
Diluted ............................... 123,401,816
</TABLE>
<PAGE>
INTERNET CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine
Months Ended September 30, 1999
<TABLE>
<CAPTION>
Internet
-------------
CAPITAL Breakaway Pro Forma
------------- ---------------- -----------------
GROUP, INC. DECONSOLIDATION ADJUSTMENTS Sub-Total
------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 14,783,096 $(14,743,431) 10,095,591 f 10,135,256
------------ ------------ ---------------- -------------
OPERATING EXPENSES
Cost of revenue ...................... 7,424,594 (7,038,070) -- 386,524
Selling, general and administrative .. 31,002,518 (14,722,352) 179,318,916 f,j 195,599,082
------------ ------------ ---------------- -------------
Total operating expenses ............. 38,427,112 (21,760,422) 179,318,916 195,985,606
------------ ------------ ---------------- -------------
(23,644,016) 7,016,991 (169,223,325) (185,850,350)
Other income, net ...................... 47,001,191 (27,607) 329,306 f 47,302,890
Interest income ........................ 4,176,770 (59,510) -- 4,117,260
Interest expense ....................... (1,770,324) 53,969 (18,729,035) g (20,445,390)
------------ ------------ ---------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY INCOME
(LOSS) ................................ 25,763,621 6,983,843 (187,623,054) (154,875,590)
Income taxes ........................... 12,840,423 -- 73,234,103 f,i 86,074,526
Minority interest ...................... 4,133,057 -- (1,471,891)f,j 2,661,166
Equity income (loss) ................... (49,141,961) -- (189,979,241)g,j (239,121,202)
------------ ------------ ---------------- -------------
NET INCOME (LOSS) ...................... $ (6,404,860) $ 6,983,843 $(305,840,083) $(305,261,100)
============ ============ ================ =============
NET INCOME PER SHARE
Basic ................................. $(0.03)
Diluted ............................... $(0.03)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ................................. 185,103,758
Diluted ............................... 185,103,758
</TABLE>
<TABLE>
<CAPTION>
MetalSite Pro Forma
-------------- ---------------
ACQUISITION COMBINED
-------------- ---------------
<S> <C> <C>
Revenue -- $ 10,135,256
------------- -------------
OPERATING EXPENSES
Cost of revenue ...................... -- 386,524
Selling, general and administrative .. -- 195,599,082
------------- -------------
Total operating expenses ............. -- 195,985,606
------------- -------------
-- (185,850,350)
Other income, net ...................... -- 47,302,890
Interest income ........................ -- 4,117,260
Interest expense ....................... -- (20,445,390)
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES,
MINORITY INTEREST AND EQUITY INCOME
(LOSS) ................................ -- (154,875,590)
Income taxes ........................... 16,792,788 e 102,867,314
Minority interest ...................... -- 2,661,166
Equity income (loss) ................... (47,979,395)e (287,100,597)
------------- -------------
NET INCOME (LOSS) ...................... $(31,186,607) $(336,447,707)
============= =============
NET INCOME PER SHARE
Basic ................................. $(1.71)
Diluted ............................... $(1.71)
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ................................. 196,300,996
Diluted ............................... 196,300,996
</TABLE>
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1 . Basis of presentation
The unaudited pro forma condensed combined balance sheet as of September
30, 1999 gives effect to the acquisitions of Animated Images, Inc., RightWorks,
Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC,
the acquisition of a significant minority ownership interest in MetalSite LLC in
December 1999, the deconsolidation of Breakaway Solutions, Inc., and the
acquisition of significant minority ownership interests in seventeen new and
eighteen existing equity method Partner Companies as if the transactions had
occurred on September 30, 1999.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1998 gives effect to the acquisitions of Animated
Images, Inc., RightWorks, Purchasing Solutions, Inc., Purchasing Group, Inc. and
Integrated Sourcing, LLC, the acquisition of a significant minority ownership
interest in MetalSite LLC, the deconsolidation of VerticalNet, Inc., the
1998,1999 and 2000 acquisitions of significant minority ownership interests in
39 equity method Partner Companies, and the acquisition of the Company's
ownership interest in Breakaway Solutions, Inc. as a company accounted for under
the equity method as if the transactions had occurred on January 1, 1998.
The unaudited pro forma condensed combined statement of operations for the
nine months ended September 30, 1999 gives effect to the acquisitions of
Animated Images, Inc., RightWorks, Purchasing Solutions, Inc., Purchasing Group,
Inc. and Integrated Sourcing, LLC, the acquisition of a significant minority
ownership interest in MetalSite LLC, the deconsolidation of Breakaway
Solutions, Inc., the 1999 and 2000 acquisitions of significant minority
ownership interests in 31 equity method Partner Companies and the acquisition of
the Company's ownership interest in Breakaway Solutions, Inc. as a company
accounted for under the equity method, as if the transactions had occurred on
January 1, 1998.
The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets and liabilities assumed based upon management's best preliminary estimate
of fair value with any excess purchase price being allocated to goodwill or
other indentifiable intangibles. The preliminary allocation of the purchase
price will be subject to further adjustments, which are not anticipated to be
material, as the Company and Purchasing Solutions, Inc. finalize their
allocations of purchase price in accordance with generally accepted accounting
principles.
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In December 1999 the Company issued approximately $566 million in convertible
subordinated notes bearing interest at 5.5%. Additionally, in December 1999 the
Company completed a follow on offering and private placements with proceeds
totaling $831 million. These issuances are not assumed in the unaudited pro
forma condensed combined balance sheet or statements of operations.
2. PRO FORMA BALANCE SHEET ADJUSTMENTS
The pro forma balance sheet adjustments as of September 30, 1999 reflect:
(a) The acquisition in December 1999 of a significant minority ownership
interest in MetalSite LLC for $180.2 million consisting of $30.0
million in cash and $150.2 million in the Company's common stock.
(b) The acquisition during the period from October 1, 1999 through March
6, 2000 of new and additional significant minority ownership interests
in equity method Partner Companies for aggregate cash consideration of
$132.3 million, $450.0 million in the Company's common stock, assumed
$50 million in line of credit borrowings and assumed $272.0 million in
notes payable to Partner Companies, net of imputed interest discount
of $1.8 million. Since the amount of the pro forma acquisitions
exceeded the available cash balances of the Company at September 30,
1999, an assumption was made that such excess was financed by line of
credit borrowings and notes payable to Partner Companies.
(c) The acquisition of Animated Images, Inc., RightWorks, Purchasing
Group, Inc. and Integrated Sourcing, LLC for $38.9 million in cash,
$6.0 million in a note payable, $1.1 million in other debt, $0.2
million of assumed net liabilities, $635 million in common stock of
the Company and $0.2 million in common stock of Purchasing Solutions,
Inc. The total purchase price of approximately $681.4 million was
allocated as follows: cash--$17.8 million, net receivables--$6.1
million, fixed and other assets--$1.0 million, accounts payables and
accruals--$9.0 million, debt - $3.5 million, minority interest - $ 1.0
million, deferred taxes - $230.0 million and goodwill and intangibles
$900.0 million. Additionally, approximately $4.0 million is due from
another investor and is reflected as both an other asset and minority
interest.
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)
(d) The elimination of $27.5 million for the equity accounts of Breakaway
Solutions, Inc. and the reclassification of the Company's carrying
value of its ownership interest of $11.4 million in Breakaway
Solutions, Inc. to the equity method of accounting from consolidation.
3. Pro Forma Statements of Operations Adjustments
The pro forma statements of operations adjustments for the year ended
December 31, 1998 and the nine months ended September 30, 1999 consist of:
(e) Equity income (loss) has been adjusted to reflect the Company's
acquisition of a significant minority ownership interest in MetalSite
LLC. and the related interest in the income (loss) and amortization of
the difference in the Company's carrying value and ownership interest
in the underlying net equity of MetalSite LLC. over an estimated useful
life of three years. For the year ended December 31, 1998 and the nine
months ended September 30, 1999, equity income (loss) of $62.0 million
and $47.9 million includes $1.1 million and $2.3 million, respectively,
of equity income (loss), and $60.9 million and $45.6 million,
respectively, in amortization of the difference between cost and equity
in net assets. For the nine months ended September 30, 1999, income tax
benefit has been adjusted $16.8 million to reflect the tax effect of
the MetalSite LLC pro forma adjustments.
(f) Reflects additional revenue of $8.4 million and $10.1 million, general
and administrative expenses of $234.9 million and $181.6 million (net
of excess executive compensation of approximately $3.0 million and $3.5
million for the year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively), other income of $0 and $329,306, and
minority interest of $(2.0) million and $(1.5) million related to the
acquisitions of Animated Images, Inc., RightWorks, Purchasing Group,
Inc. and Integrated Sourcing, LLC. Included in general and
administrative expenses is approximately $222.7 million and $167.0
million of goodwill amortization during the year ended December 31,
1998 and the nine months ended September 30, 1999, respectively,
relating to these acquisitions.
(g) Equity income (loss) has been adjusted by $270.5 million and $187.7
million to reflect the Company's ownership interests in the income
(loss) of the equity method Partner Companies and the amortization of
the difference in the Company's carrying value in the Partner Companies
and the Company's ownership interest in the underlying net equity of
the Partner Companies over an estimated useful life of three years. For
the year ended December 31, 1998 and the nine months ended September
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(Unaudited)
30, 1999, equity income (loss) includes $32.2 million and $19.9 million,
respectively, of equity income (loss) and $238.3 million and $167.8
million, respectively, in amortization of the difference between cost
and equity in net assets. Additionally, $26.8 million and 18.7 million,
respectively, of interest expense is reflected during the year ended
December 31, 1998 and the nine months ended September 30, 1999 relating
to the imputed interest discount on a $23.0 million non-interest bearing
note and the assumed borrowings under the line of credit and additional
notes payable to Partner Companies. No interest expense is reflected in
1999 for the non-interest bearing note as the note is payable in one
year (assumed from January 1, 1998).
(h) No income tax provision is required in 1998 due to the Company's tax
status as an LLC.
(i) Income tax benefit has been adjusted $73.2 million for the nine months
ended September 30, 1999 to reflect the tax effect of the pro forma
adjustments.
(j) Reflects elimination of $5.4 million and $3.4 million for the year
ended December 31, 1998 and the nine months ended September 30, 1999,
respectively, related to VerticalNet, Inc. and Breakaway Solutions,
Inc. upon their deconsolidation, and the reclass of $2.3 million of
amortization of goodwill related to the Company's acquisition of
Breakaway Solutions, Inc. from selling, general and administrative
expense to equity income (loss) upon its deconsolidation.
